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

                                    FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended March 31, 2000.

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 Company as specified in its charter)


          California                                        77-0225590
(State or other jurisdiction of                         (I.R.S. Employer
Incorporation or organization)                       Identification Number)

1171 Sonora Court, Sunnyvale, CA                              94086
(Address of principal executive offices)                    (Zip code)

Company's telephone number, including area code:          (408) 735-9110

                                   ----------


Indicate by check mark whether the Company (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 Company was
required to file such 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, April 21, 2000: 29,569,081.

================================================================================


                                       1
<PAGE>

                        SILICON STORAGE TECHNOLOGY, INC.

                     FORM 10-Q: QUARTER ENDED MARCH 31, 2000
                                TABLE OF CONTENTS


Part I - FINANCIAL INFORMATION

     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.....................................10

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk....21

Part II - OTHER INFORMATION

    Item 1.  Legal Proceedings.............................................22

    Item 2.  Changes in Securities.........................................23

    Item 6.  Exhibits and Reports on Form 8-K..............................23


                                       2
<PAGE>

                                     PART I

Item 1. Condensed Consolidated Financial Statements

                SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                   Three months ended March 31,
                                                                 --------------------------------
                                                                    1999                  2000
                                                                 -----------          -----------
                                                                 (unaudited)          (unaudited)

<S>                                                               <C>                    <C>
Net revenues:
      Product revenues - non related parties                      $ 14,679               $ 55,670
      Product revenues - related parties
                                                                     3,114                  6,143
      License                                                          535                    501
                                                                  --------               --------
                Total net revenues                                  18,328                 62,314
Cost of revenues                                                    16,979                 36,475
                                                                  --------               --------
Gross profit                                                         1,349                 25,839
                                                                  --------               --------

Operating expenses:
      Research and development                                       4,734                  8,076
      Sales and marketing                                            2,197                  4,627
      General and administrative                                     1,206                  2,639
                                                                  --------               --------
                Total operating expenses                             8,137                 15,342
                                                                  --------               --------
Income (loss) from operations                                       (6,788)                10,497
Interest and other income                                              251                     18
Interest expense                                                                             (444)
                                                                  --------               --------
Income (loss) before provision for (benefit from) income taxes      (6,537)                10,071
Provision for (benefit from) income taxes                               40                    427
                                                                  --------               --------
Net income (loss)                                                 ($ 6,577)              $  9,644
                                                                  ========               ========

Net income (loss) per share - basic                               ($  0.28)              $   0.38
                                                                  ========               ========
Shares used in per share calculation                                23,193                 25,435
                                                                  ========               ========

Net income (loss) per share - diluted                             ($  0.28)              $   0.34
                                                                  ========               ========
Shares used in per share calculation                                23,193                 28,349
                                                                  ========               ========
</TABLE>




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


                                       3
<PAGE>

                SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                December 31,             March 31,
                                                                ------------             ---------
                                                                   1999                    2000
                                                                -----------             -----------
                                                                (unaudited)             (unaudited)
<S>                                                             <C>                      <C>
Current assets:
      Cash and cash equivalents                                 $   1,223                $ 198,551
      Accounts receivable, net                                     33,285                   56,442
      Accounts receivable from related parties                      5,573                    6,037
      Inventories, net                                             29,766                   40,153
      Other current assets                                          3,341                    4,487
                                                                ---------                ---------
           Total current assets                                    73,188                  305,670

Equipment, furniture and fixtures, net                             11,131                   12,141
Other assets                                                        4,487                    4,193
                                                                ---------                ---------
           Total assets                                         $  88,806                $ 322,004
                                                                =========                =========

                                   LIABILITIES
Current liabilities:
      Borrowings under line of credit facility
                                                                   19,287                       --
      Trade accounts payable                                       19,207                   27,932
      Accrued expenses and other liabilities                        4,707                   10,580
      Deferred revenue                                              4,144                    8,977
                                                                ---------                ---------
           Total current liabilities                               47,345                   47,489

Other liabilities                                                     446                      446
                                                                ---------                ---------
           Total liabilities                                       47,791                   47,935
                                                                ---------                ---------

                              SHAREHOLDERS' EQUITY
Common stock                                                       60,570                  283,980
Retained earnings (accumulated deficit)                           (19,555)                  (9,911)
                                                                ---------                ---------
      Total shareholders' equity                                   41,015                  274,069
                                                                ---------                ---------
           Total liabilities and shareholders' equity           $  88,806                $ 322,004
                                                                =========                =========
</TABLE>



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


                                       4
<PAGE>

                SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                   Three months ended March 31,
                                                                                 --------------------------------
                                                                                    1999                 2000
                                                                                 -----------          -----------
                                                                                 (unaudited)          (unaudited)
<S>                                                                              <C>                  <C>
Cash flows from operating activities:
     Net income (loss)                                                           ($  6,577)           $   9,644
     Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
     Depreciation /amortization                                                      1,112                1,315
     Provision for doubtful accounts receivable                                         42                   25
     Provision for excess and obsolete inventories and write down to market            224                1,593
     (Gain) loss on sale of equipment                                                    1                    1
     Changes in operating assets and liabilities:
        Accounts receivable                                                         (2,039)             (23,182)
        Accounts receivable from related parties                                       729                 (464)
        Inventories                                                                     (5)             (11,980)
        Other current and noncurrent assets                                           (107)              (1,146)
        Trade accounts payable                                                       4,480                8,725
        Accrued expenses and other current liabilities                                 926                5,873
        Deferred revenue                                                                86                4,833
                                                                                 ---------            ---------
             Net cash provided by (used in) operating activities                    (1,128)              (4,763)
                                                                                 ---------            ---------

Cash flows from investing activities:
     Acquisition of furniture, fixtures and equipment                                 (566)              (2,032)
     Sales and maturities of available-for-sale investments                            851                   --
                                                                                 ---------            ---------
             Net cash provided by (used in) investing activities                       285               (2,032)
                                                                                 ---------            ---------

Cash flows from financing activities:
     Borrowings under line of credit facility                                           --               39,750

     Repayments under line of credit facility                                           --               (59,037)

     Issuance of shares of common stock                                                367              223,410
     Other                                                                             (37)                  --
                                                                                 ---------            ---------
             Net cash provided by (used in) financing activities                       330              204,123
                                                                                 ---------            ---------
                Net increase (decrease) in cash and cash equivalents                  (513)             197,328
Cash and cash equivalents at beginning of period                                    23,007                1,223
                                                                                 ---------            ---------
Cash and cash equivalents at end of period                                       $  22,494            $ 198,551
                                                                                 =========            =========

Supplemental Disclosure of Cash Flow Information:
Cash received during the period for interest                                     $     251            $     17
Cash paid during the period for interest                                         $      --            $    444
Net cash paid (received) during the period for income taxes                      $      --            $      3
</TABLE>



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


                                       5
<PAGE>

                SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2000
(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, as amended, for the year
ended December 31, 1999.

     The year-end balance sheet at December 31, 1999 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 established a new model for
accounting for derivative and hedging activities. In July, 1999 the Financial
Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 deferred the effective date of SFAS 133
until the first fiscal year beginning after June 15, 2000. The impact of SFAS
133 on our consolidated financial statements has not yet been determined.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain of the Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We have until the second quarter of 2000 to comply with the guidance in SAB 101.
The impact of SAB 101 on our consolidated financial statements has not yet been
determined.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
We believe that the impact of FIN 44 will not have a material effect on our
financial position or results of operations.

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 the income by the sum of the weighted average number of common shares
outstanding and potential common shares (when dilutive).


                                       6
<PAGE>

A reconciliation of the numerator and the denominator of basic and diluted
income (loss) per share is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                            Three months
                                                                           ended March 31,
                                                             1999               2000
                                                           -------            -------
<S>                                                        <C>                <C>
Numerator - basic and dilutive:
     Net income (loss)                                     ($6,577)           $ 9,644
                                                           =======            =======
Denominator - Basic:
     Weighted average common stock outstanding              23,193             25,435
                                                           =======            =======

Net income (loss) per share - basic                        ($ 0.28)           $  0.38
                                                           =======            =======

Denominator - diluted:
     Weighted average common and common
     equivalent shares                                      23,193             28,349
                                                           =======            =======

Diluted net income (loss) per share                        ($ 0.28)           $  0.34
                                                           =======            =======
</TABLE>

     Stock options to purchase approximately 914,000 shares of common stock were
outstanding as of March 31, 1999. These stock options were not included in the
computation of diluted net loss per share for the three months ended March 31,
1999 because we had a net loss for that period. Anti-dilutive stock options to
purchase approximately 7,000 shares of common stock were excluded from the
computation of diluted net income per share for the three months ended March 31,
2000 because the exercise price of the options exceeded the average fair market
value of the stock for the three months ended March 31, 2000.

3. Inventories (in thousands):

     Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value). Inventories at March 31, 2000 and March 31,
1999 are as follows:

                                    December 31,         March 31,
                                    ------------         ---------
                                        1999               2000
                                      -------             -------
Raw Material                          $ 6,855             $18,130
Work in process
                                       19,338              18,466
Finished goods
                                        3,573               3,557
                                      -------             -------
                                      $29,766             $40,153
                                      =======             =======

4. Recent Financing

     We commenced a public offering on March 21, 2000 pursuant to a Registration
Statement on Form S-3 (File No. 333-30996) declared effective on March 21, 2000.
The offering terminated following the sale of all securities registered. The
managing underwriters of the public offering were Credit Suisse First Boston and
Salomon Smith Barney Inc. In the offering, we sold an aggregate of 4,025,000
shares of our common stock at a price per share of $64.00. The aggregate
proceeds from the offering were $257.6 million. We paid expenses of
approximately $14.7 million, of which approximately $13.5 million represented
underwriting discounts and commissions and approximately $1.2 million
represented expenses related to the offering. Net proceeds from the offering
were approximately $242.9 million, of which $31.8 million was received
subsequent to March 31, 2000 upon the exercise of an option by the underwriters.

     On March 28, 2000, we sold and issued to Acer Investment Worldwide
Incorporated 168,000 shares of our common stock, at a purchase price of $64.00
per share, in a private placement. The aggregate offering proceeds were
approximately $10.8 million. No underwriter or placement agent was involved in
the transaction.


                                       7
<PAGE>

5. 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 infringed on 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
infringed 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 granted in our favor a
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 reversed by the Federal Circuit. Thus, four
patents remain at issue in Atmel's District Court case against us. That case has
been stayed, and Atmel has not requested a trial date.

     On February 17, 1997, Atmel filed an action with the International Trade
Commission, or ITC, against two suppliers of our parts, involving five 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 are obligated to indemnify
both to the extent provided in those agreements.

     As to two of these five patents, Atmel's claims were withdrawn because of
the summary judgment granted by the District Court above. As to another two
patents, the Administrative Law Judge, or ALJ, which makes recommendations to
the ITC, has ruled that we did not infringe. This ruling has yet to be confirmed
by the ITC, which is free to adopt or reject the ALJ's findings. As to the fifth
patent, the ALJ held a hearing, which concluded on February 17, 2000, to
determine if it was invalid due to failure to name an inventor, and whether or
not Atmel committed inequitable conduct in its dealings with the Patent and
Trademark Office when it attempted to add a co-inventor. We expect that the ALJ
will rule on this issue sometime in May, and make a recommendation to the ITC.

     Any final decisions by the ITC will not be dispositive because Atmel can
still pursue its claims in the District Court action. Any decisions by the ITC
are not binding on the District Court. We intend to vigorously defend ourselves
against these actions.

     On July 31, 1998, we filed suit against Winbond Electronics Corporation in
the U.S. District Court for the Northern District of California, San Jose
Division. Winbond has answered the complaint and has counter-claimed. Since
then, the parties have amended the complaint and the answer and counterclaim. As
of February 24, 2000, we have asserted eight causes of action, including breach
of contract, misappropriation of trade secrets and other contractual and
tortious claims. Our suit seeks damages and equitable remedies to prevent
Winbond from using any of our technology.

     Winbond has answered and asserted counter-claims for a declaration that it
is not in material breach of the agreement, breach of the agreement, breach of
the covenant of good faith and fair dealing, interference with prospective
economic advantage, unlawful business practice in violation of state law, common
law unfair competition, a declaration that Winbond is not obligated to pay us
under the agreement and/or they own or jointly own the technology embodied in
their products, misappropriation of Winbond's trade secrets, unfair competition
in violation of the Federal Lanham Act, and common law fraud and
misrepresentation. Winbond seeks, in part, restitution of the payments made, and
other damages, and an injunction.

     On April 17 and 21, 2000, respectively, the District Court granted our
motions for partial summary judgment on Winbond's restitution counterclaim and
defense of contract modification by course-of-dealing. On May 1, 2000, Winbond
announced its intention to pursue, as part of its defense, certain allegations
that we do not own the licensed technology and that we have committed antitrust
violations. We believe that the substantive allegations in the Winbond
counter-claims are without merit and we intend to vigorously defend ourselves
against the action. We intend to vigorously pursue our complaint. The trial is
set for September 27, 2000.

     From time to time, we are also involved in other legal actions arising in
the ordinary course of business. While we have accrued certain amounts for the
estimated legal costs associated with defending these matters, there can be no
assurance the Atmel complaint, the Winbond 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.



                                       8
<PAGE>

6. Line of Credit

     As of March 31, 2000 we had no borrowings on our line of credit, as some of
the proceeds from the public offering described in Note 4 were used to pay off
this credit facility. However, we continue to have access to this facility
should we need it. As of March 31, 2000 our available credit was for $50
million, dropping back down to $40 million from April 1, 2000 through May 31,
2000, thereafter reducing to $25 million until September, 2002. Borrowing is
limited to 80% of eligible world-wide accounts receivable and is also reduced by
any letters of credit issued under a $10 million sub-agreement to this line.
Therefore, as of March 31, 2000 our actual borrowing available under this line
was $35 million. The funds in excess of $25 million are available only if
certain profitability covenants are met. We must pay an unused line fee at the
annual rate of one quarter of one percent on the unused portion. As of March 31,
2000 we were in compliance with the covenants of this agreement.

7. Segment Information

     Our business has two reportable segments: Flash Products and Technology
Licensing, based on our method of internal reporting. The tables below present
information about the reportable segments (in thousands):

Three months ended March 31, 2000:
                      Flash       Technology
                    Products       Licensing       Total
                  -------------- -------------- -------------
Revenues           $  61,813       $    501      $ 62,314
Gross profits      $  25,338       $    501      $ 25,839

Three months ended March 31, 1999:
                      Flash       Technology
                    Products       Licensing       Total
                  -------------- -------------- -------------
Revenues           $  17,793       $    535      $ 18,328
Gross profits       $    814       $    535      $  1,349

We do not allocate operating expenses, interest income or expense, other income,
net or the provision for (benefits from) income taxes to these segments for
internal reporting purposes.


                                       9
<PAGE>

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
condensed consolidated financial statements, notes to the condensed 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,
as amended, for the year ended December 31, 1999, 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 communications and Internet computing
markets.

     Historically, the semiconductor industry has been cyclical, alternately
experiencing periods of over-supply and increased demand. In the first quarter
of 2000 we continued to experience significant demand for our products. During
1999, the semiconductor industry transitioned from a period of over-supply to a
period of increased demand, resulting in an industry-wide shortage of flash
memory product. From late 1996 through mid-1999, selling prices of our product
declined significantly. Selling prices of semiconductor products have generally
declined over time and are expected to continue to decline over the long term,
principally due to increased market competition. Since the second half of 1999,
we were able to increase the selling price of many of our products as the
industry shifted to a period of industry-wide shortage. This trend may not
continue and prices may not remain stable. In addition, the current market
environment may constrain our ability to obtain wafers to manufacture our
products, which may also impair our profitability.

     We derived 75.9% of our product revenues for the three month period ended
March 31, 2000 and 80.9% of our product revenues during 1999 from product
shipments to Asia. Additionally, our major wafer suppliers and packaging and
testing subcontractors are all located in Asia. During 1998 and 1997, several
Asian countries where we do business, including Japan, Taiwan and Korea,
experienced severe currency fluctuation and economic deflation, which negatively
impacted our revenues and, therefore, our ability to collect payments from these
customers. In September 1999, Taiwan experienced a major earthquake. The
resulting disruption to the manufacturing operations in the wafer foundries and
assembly and testing subcontractors that we use in Taiwan negatively impacted
our revenues and operating results during the fourth and third quarter of 1999.

     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 sales.

     Direct sales to customers are recognized upon shipment net of an allowance
for estimated returns. Sales to distributors are made primarily under
arrangements allowing price protection and the right of stock rotation on
merchandise unsold to customers. Because of the uncertainty associated with
pricing concessions and future returns, we defer recognition of such revenues,
related costs of revenues and related gross margin until we are notified by the
distributor that the merchandise is sold by the distributor.

     Most of our technology licenses provide for the payment of up-front license
fees and continuing royalties based on product sales. For license and other
arrangements for technology that we are continuing to enhance and refine and
under which we are obligated to provide unspecified enhancements, revenue is
recognized over the lesser of the estimated period we have historically enhanced
and developed refinements to the technology, generally three years, the upgrade
period, or the remaining portion of the upgrade period from the date of
delivery, provided all specified technology and documentation has been
delivered, the fee is fixed and determinable and collection of the fee is
probable. From time to time, we reexamine the estimated upgrade period relating
to license technology to determine if a change in the estimated update period is
needed. Revenues from license or other technology arrangements where we


                                       10
<PAGE>

are not continuing to enhance and refine the technology or are not obligated to
provide unspecified enhancement is recognized upon delivery, if the fee is fixed
and determinable and collection of the fee is probable.

     We recognize royalties received under these arrangements during the upgrade
period as revenue based on the ratio of the elapsed portion of the upgrade
period to the estimated upgrade period. We recognize the remaining portion of
the royalties ratably over the remaining portion of the upgrade period. We
recognize royalties received after the upgrade period has elapsed when reported
to us, which generally coincides with the receipt of payment.

Results of Operations: Quarter Ended March 31, 2000

Net Revenues

     Net revenues were $62.3 million for the three months ended March 31, 2000
as compared to $48.3 million in the fourth quarter of 1999 and $18.3 million for
the three months ended March 31, 1999. The increase from both the fourth quarter
and the first quarter of 1999 as compared to the first quarter of 2000 was due
to increased shipment volume of new and existing products and due to increased
average selling prices in the second half of 1999 and the first quarter of 2000.
Our quarterly results are not indicative of annual results and we may not
continue to experience recent rates of growth in revenues and earnings.

     Product Revenues. Product revenues were $61.8 million in the first quarter
of 2000 as compared to $47.5 million in the fourth quarter of 1999 and $17.8
million for the first quarter of 1999. The increase from both quarters was due
to shipments of over 30 new products that we introduced in the second half of
1998 and the first half of 1999. Approximately 66.9% of product revenues in the
first quarter of 2000 were from shipments of new products, as compared to 55.5%
in the fourth quarter of 1999 and 9.5% for the first quarter of 1999. In
addition, the weighted average selling price across all products increased 3.1%
since the fourth quarter of 1999 and 18.8% since the first quarter of 1999.
Gross unit shipments increased approximately 34.5%% from the fourth quarter of
1999 and approximately 206.8% from the first quarter of 1999.

     License Revenues. Revenues from license fees and royalties were $0.5
million in the first quarter of 2000, as compared to $0.8 million in the fourth
quarter of 1999 and $0.5 million in the first quarter of 1999. We anticipate
that license revenues will fluctuate significantly in the future.

Gross Profit

     Gross profit was $25.8 million, or 41.5% of net revenues, in the first
quarter of 2000, as compared to $14.6 million or 30.3% of net revenues for the
fourth quarter of 1999 and $1.3 million, or 7.4% of net revenues, in the first
quarter of 1999. Gross profit increased from both 1999 quarters to the first
2000 quarter due to increased unit shipments from existing cost-reduced
products, increased shipments of new, higher margin products, and increasing
average selling prices on both older and newer products.

Operating Expenses

     Our operating expenses consist of research and development, sales and
marketing, and general and administrative expenses. Operating expenses were
$15.3 million or 24.6% of net revenues in the first quarter of 2000, $9.2
million or 19.1% of net revenues in the fourth quarter of 1999, and $8.1 million
or 44.4% of net revenues in the first quarter of 1999. The increase in absolute
dollars was due to hiring additional personnel, annual salary increases and
profit sharing, and the development of new products and infrastructure. We
anticipate that we will continue to devote substantial resources to research and
development, sales and marketing and to general and administrative, and that
these expenses will continue to increase in absolute dollar amounts.

     Research and development. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products and quality assurance activities. These costs consist primarily of
employee salaries, benefits and the cost of outside resources that supplement
the internal development team. Research and development expenses were $8.1
million or 13.0% of net revenues during the first quarter of 2000 as compared to
$4.4 million or 9.1% of net revenues for the fourth quarter of 1999 and $4.7
million or 25.8% of net revenues during the first quarter of 1999. Research and
development expenses increased 83.3% from the fourth quarter of 1999 due
primarily to a $1.3 million increase in salaries, profit sharing and expenses
related to increased engineering headcount and annual raises from quarter to
quarter, a $1.5 million increase in wafer, mask and tooling charges related to



                                       11
<PAGE>

new product development in the first quarter, and $0.4 million increase in
occupancy expenses due to additional space leased during the quarter. Research
and development expenses increased 70.6% from the first quarter of 1999 due to
increased personnel costs (salaries, payroll taxes, benefits, and profit
sharing), increased wafer, mask and tooling charges for new product development,
and increased occupancy costs. We expect research and development expenses to
continue to increase in absolute dollars.

     Sales and marketing. Sales and marketing expenses consist of salaries,
commission to manufacturers representatives, travel and entertainment and
promotional expenses. Sales and marketing expenses were $4.6 million or 7.4% of
net revenues in the first quarter of 2000 as compared to $3.5 million or 7.3% of
net revenues in the fourth quarter of 1999 and $2.2 million or 12.0% of net
revenues during the first quarter of 1999. Sales and marketing expenses
increased 30.8% from the fourth quarter of 1999 and also increased 110.6% as
compared to the first quarter of 1999 due to increased commissions owed on
higher product revenues, increased salaries and related expenses, increased
building occupancy costs due to the lease of additional space, and increased
freight and product sample charges. We expect sales and marketing expense to
increase in absolute dollars as we continue to expand our sales and marketing
efforts and as our revenues increase.

     General and administrative. General and administrative expenses consist of
salaries for administrative, executive and finance personnel, recruiting costs,
information systems costs, professional services and legal fees and allowances
for doubtful accounts. General and administrative expenses were $2.6 million or
4.2% of net revenues in the first quarter of 2000 as compared to $1.3 million or
2.6% of net revenues during the fourth quarter of 1999. General and
administrative expenses were $1.2 million or 6.6% of net revenues during the
first quarter of 1999. Expenses increased 106.7% from the fourth quarter of 1999
and 118.8% from the first quarter of 1999 due to increased legal, salary and
profit sharing, and recruiting expenses, and also due to the depreciation
associated with our new Oracle ERP system which we implemented in January 2000.
We anticipate that general and administrative expenses will continue to increase
in absolute dollar amount as we scale our facilities, infrastructure, and head
count to support our overall expected growth. We expect to incur additional
expenses in connection with the Winbond litigation and may 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
$18,000 for the first quarter of 2000, $31,000 for the fourth quarter of 1999
and $251,000 for the first quarter of 1999. Interest income decreased from the
first quarter of 1999 as cash, cash equivalents, and short-term investments
decreased throughout 1999 and the first quarter of 2000. On March 27, 2000 a
public offering was completed.

     Interest Expense. Interest expense was approximately $444,000 for the first
quarter of 2000, $138,000 for the fourth quarter of 1999 and $0 for the first
quarter of 1999. Interest expense increased due to interest charges incurred as
we borrowed against our line of credit.

Provision for (Benefit from) Income Taxes

     Income tax provision of $427 thousand in the first quarter of 2000 consists
of a 2% tax rate on income before taxes, adjusted for temporary differences,
plus all foreign tax expense paid during the first quarter of 2000. The deferred
tax asset, relating to cumulative net operating losses incurred in previous
years, continues to be offset by a full valuation allowance. We will provide a
full valuation allowance against our deferred tax asset until such time as
evidence shows that the deferred tax asset is more likely than not to be
recovered.

Segment Reporting

     Our business has two segments: flash products and technology licensing.
Flash products comprise our standard flash memory products, our
application-specific memory products, flash embedded controllers and mass
storage products. Technology licensing comprises design service fees, technical
consultation fees, license fees and royalties earned through technology
agreements that we have with wafer foundries and manufacturers for non-competing
applications. For the three month period ended March 31, 2000, revenues and
gross profit from the flash products segment was $61.8 million and $25.3
million, respectively, and revenues and gross profit from the technology
licensing segment was $0.5 million and $0.5 million, respectively. For the
quarter ended December 31, 1999, revenues and gross profits from the flash
products segment was $47.5 million and $13.8 million, respectively, and revenues
and gross profit from the technology licensing segment was $0.8 million and $0.8
million, respectively. For the three month period ended March 31, 1999, revenues
and gross profit from the flash products segment was

                                       12

<PAGE>


$17.8 million and $0.8 million, respectively, and revenues and gross profit from
the technology licensing segment was $0.5 million and $0.5 million,
respectively.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 established a new model for
accounting for derivative and hedging activities. In July, 1999 the Financial
Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 deferred the effective date of SFAS 133
until the first fiscal year beginning after June 15, 2000. The impact of SFAS
133 on our consolidated financial statements has not yet been determined.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain of the Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We have until the second quarter of 2000 to comply with the guidance in SAB 101.
The impact of SAB 101 on our consolidated financial statements has not yet been
determined.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
We believe that the impact of FIN 44 will not have a material effect on our
financial position or results of operations.

Liquidity and Capital Resources

     Operating activities. Our operating activities used cash of $4.8 million
for the three month period ended March 31, 2000 as compared to $1.1 million for
the three month period ended March 31, 1999. The cash used in operating
activities for the three month period ended March 31, 2000 related primarily to
increased accounts receivable and accounts receivable from related parties of
$23.6 million and increased inventories of $12.0 million related to our
production ramp and increased shipment volume. This cash use was partially
offset by our net income of $9.6 million, noncash adjustments of $2.9 million
primarily relating to depreciation and amortization of $1.3 million and
provision for excess and obsolete inventory of $1.6 million and increased trade
accounts payable, accrued expenses and deferred revenue of $19.4 million. The
cash used in operating activities for the three month period ended March 31,
1999 consisted of a net loss of $6.6 million and increased receivables of $2.0
million partially offset by non-cash adjustments and increased to payables and
accrued expenses of $6.9 million. The higher increase in accounts receivable is
primarily a result of an 240% increase in net revenues in the current quarter
from the comparable quarter of 1999. Inventories increased $12.0 million for the
three month period ended March 31, 2000, compared to an increase of $5,000 for
the three month period ended March 31, 1999 as a result of our recent efforts to
build inventory of our newer products in order to meet increasing customer
demand. We anticipate that additional new product introductions in 2000 will
require additional working capital. Deferred revenue increased $4.8 million for
the three month period ended March 31, 2000, compared to an increase of $86,000
for the three month period ended March 31, 1999, due to increased sales to
distributors in the first quarter of 1999.

     Investing activities. Our investing activities used cash of $2.0 million
for the three month period ended March 31, 2000, as compared to providing cash
of $285,000 for the first quarter in 1999. Capital expenditures were $2.0
million for the current three month period, compared to $566,000 for the same
period of 1999. The increase in capital expenditures related primarily to
information technology (IT) infrastructure and related consulting costs incurred
of approximately $1.7 million. We anticipate additional expenditures of $0.7
million relating to IT infrastructure improvements before the end of 2000. For
the three month period ended March 31, 1999, the net sale or maturity of
short-term investments provided cash of approximately $851,000, compared to $0
for the three month period ended March 31, 2000. We had no short-term
investments for the quarter ended March 31, 2000.



                                       13
<PAGE>


     Financing activities. Our financing activities provided cash of
approximately $204.1 million during the three month period ended March 31, 2000.
The cash provided was primarily from the issuance of common stock for $223.4
million and relates to net proceeds from a public offering in which we issued
and sold 3,500,000 shares of common stock, a private placement in which we
issued and sold 168,000 shares of common stock, and $1.6 million from common
stock issued under the employee stock purchase plan and the exercise of employee
stock options, offset set by the repayment of our entire line of credit at the
end of March.

     Principal sources of liquidity at March 31, 2000 consisted of $198.6
million of cash and cash equivalents. As of March 31, 2000 we had no borrowings
on our line of credit, as some of the proceeds from the secondary offering
described above were used to pay off this credit facility. However, we continue
to have access to this facility should we need it. As of March 31, 2000 our
available credit was for $50 million, dropping back down to $40 million from
April 1, 2000 through May 31, 2000, thereafter is reduced to $25 million until
September, 2002. Borrowing is limited to 80% of eligible world-wide accounts
receivable and is also reduced by any letters of credit issued under a $10
million sub-agreement to this line. Therefore, as of March 31, 2000 our actual
borrowing available under this line was $35 million. The funds in excess of $25
million are available only if certain profitability covenants are met. We must
pay an unused line fee at the annual rate of one quarter of one percent on the
unused portion. As of March 31, 2000 we were in compliance with the covenants of
this agreement.

     We believe that our cash balances, together with funds expected to be
generated from operations and the line of credit availability, 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.

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.

Our recent growth may not be sustainable, and you should not use our past
financial performance to predict future operating results or stock performance.
We have incurred net losses for the past three fiscal years. Our recent
quarterly and annual operating results have fluctuated, and will continue to
fluctuate, due to the following factors, all of which are difficult to forecast
and many of which are out of our control:

     o    the availability, timely deliverability and cost of wafers from our
          suppliers;

     o    the routings through which our products are manufactured, pricing
          differences among suppliers for the same services, and resulting
          fluctuations in the actual costs and gross margins to produce
          products;

     o    competitive pricing pressures and related changes in average selling
          prices;

     o    fluctuations in manufacturing yields and significant yield losses
          which affect our ability to fulfill orders;

     o    new product announcements and introductions of competing products by
          us or our competitors;

     o    product obsolescence;

     o    lower of cost or market inventory adjustments;

     o    unpredictability of changes in demand for, or in the mix of, our
          products;

     o    the gain or loss of significant customers;

     o    market acceptance of products utilizing our SuperFlash(R)technology;

     o    changes in the channels through which our products are distributed and
          the timeliness of receipt of distributor resale information;

     o    exchange rate fluctuations;

     o    general economic, political and environmental-related conditions, such
          as natural disasters;

     o    difficulties in forecasting, planning and management of inventory
          levels;

     o    unanticipated research and development expenses associated with new
          product introductions; and

     o    the timing of significant orders and of license and royalty revenue.

A downturn in the market for consumer products such as personal computers and
cellular telephones that incorporate our products can also harm our operating
results.


                                       14
<PAGE>

We typically receive and fulfill a majority of our orders within the quarter,
with a substantial portion occurring during the last month of the quarter. One
reason for this is that our products are primarily sold to large manufacturers,
which typically place orders at or near the end of a quarter. As a result, we
may not learn of revenue shortfalls, until late in a quarter and may not be able
to predict future revenues with accuracy. Additionally, our costs consist of
salaries for personnel and materials that must be ordered several months in
advance. These costs are based in part on our expectations for future revenues
and are relatively fixed in the short term. As a result, any revenue shortfall
below expectations could harm our business.

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 all of our manufacturing with the exception of limited testing
activities. We currently buy all of our wafers, and sorted die, from a limited
number of suppliers. During all of 1999 and the first quarter of 2000,
substantially all of our products were manufactured by two foundries, Sanyo
Electric Co., Ltd., in Japan and Taiwan Semiconductor Manufacturing Co., Ltd.,
or TSMC, in Taiwan. We anticipate that these foundries will continue to
manufacture the majority of our products in 2000. If these suppliers fail to
satisfy our requirements on a timely basis and at competitive prices we could
suffer manufacturing delays, a possible loss of revenues or higher than
anticipated costs of revenues, any of which could seriously harm our operating
results.

Given the current constraints on worldwide semiconductor manufacturing capacity,
our revenues for the next several quarters will largely be determined by our
ability to obtain adequate wafer supplies from our foundries. We are currently
unable to meet all of the demand for our products, and have in the past failed
to meet scheduled shipment dates, due to our inability to obtain a sufficient
supply of wafers and sorted die 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 new product
production and could experience these delays in the future. We are also subject
to the risks of service disruptions, raw material shortages and price increases
by the foundries. Such disruptions, shortages and price increases could
seriously 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. In
addition, we have not secured adequate capacity beyond this year. If we cannot
satisfactorily increase our manufacturing capacity, our ability to grow will be
severely impaired and this may 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 water 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 sometimes 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 foreign 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 would harm out operating results.



                                       15
<PAGE>

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,
higher costs of materials, and sudden fluctuations in gross margins resulting
from changes in capacity among different subcontractors.

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

o    reduced control over delivery schedules and quality;

o    the potential lack of adequate capacity during periods of strong demand;

o    difficulties selecting and integrating new subcontractors;

o    limited warranties on products supplied to us;

o    potential increases in prices due to capacity shortages and other factors;
     and

o    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. In addition, different subcontractors may charge us different
prices for performing the same service or providing the same product. Our
subcontractors also experience sudden changes in their capacity for assorted
reasons. As a result, the actual costs to produce the same product may
experience significant variation depending on how the manufacturing process is
routed among subcontractors at any given point in time. This results in
significant fluctuations in gross margins from month to month and from quarter
to quarter which are not predictable and which can have a sudden and negative
effect on the financial results of operations at any point in time.

Our growth depends upon our ability to commercialize products for communications
and consumer electronics applications.

During all of 1999 and the first quarter of 2000, the majority of our revenues
came from Internet Computing and Digital Consumer applications. However,
Networking and Wireless communications applications are central to our growth
strategy. 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

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 revenue projections. We may experience revenue shortfalls for the following
reasons:

o    significant pricing pressures that occur because of declines in selling
     prices over the life of a product;

o    sudden shortages of raw materials or 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

o    the reduction, rescheduling or cancellation of customer orders.

In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and


                                       16
<PAGE>

foundries, we may order materials in advance of anticipated customer demand.
This advance ordering may result in excess inventory levels or unanticipated
inventory write-downs if expected orders fail to materialize.

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 adversely affect our ability to
increase 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 Intel, Advanced Micro Devices, Atmel,
STMicroelectronics, Sanyo, Winbond Electronics and Macronix. If we are
successful in developing our high density products, these products will compete
principally with products offered by Intel, Advanced Micro Devices, Fujitsu,
Hitachi, Sharp, Samsung Semiconductor, SanDisk 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.

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:

o    rapidly changing technologies; o evolving and competing industry standards;

o    changing customer needs; o frequent now product introductions and
     enhancements;

o    increased integration with other functions; and

o    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 now 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 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


                                       17
<PAGE>

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 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 existing management personnel.
The failure to recruit and retain key design engineers or other technical and
management personnel could ham our business.

Our ability to compete successfully will depend, in part, on our ability to
protect our intellectual property rights, which we may not be able to protect.

We rely on a combination of patent, trade secrets, copyright and mask work
production laws and 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. For example, in 1998, we filed suit against Winbond Electronics
Corporation alleging breach of contract and breach of covenant of good faith and
fair dealing and are seeking an injunction prohibiting Winbond from using any of
our licensed technology. Winbond has responded by denying the claims and
asserting counterclaims.

We own 22 patents in the United States relating to our products and processes,
and have filed for several more. In addition, we hold two patents in Europe, one
patent in Germany and additional foreign patent applications have been filed in
Europe, Japan, Taiwan and Canada. We cannot assure you that any pending patent
application will be granted. Our operating results could be seriously harmed by
the failure to protect our intellectual property.

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 which could seriously 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 three years we were sued both by Atmel Corporation and Intel
Corporation regarding patent infringement issues and by 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 and the Atmel and Winbond 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 which 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


                                       18
<PAGE>

protected technology. In addition, the management attention consumed by and
legal cost associated with any litigation could have a negative effect on 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 have a substantial
negative effect on the trading 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 lawsuits with
Winbond and Atmel, we expect this litigation to consume substantial amounts of
our financial and managerial resources. At any time Winbond or 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.

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

During 1999 and the first quarter of 2000, our export product and licensing
revenues accounted for approximately 89.1% and 83.9% 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 have an
adverse effect on our operating results. These risks include:

o    difficulties in complying with regulatory requirements and standards;

o    tariffs and other trade barriers;

o    costs and risks of localizing products for foreign countries;

o    reliance on third parties to distribute our products;

o    longer accounts receivable payment cycles;

o    potentially adverse tax consequences;

o    limits on repatriation of earnings; and

o    burdens of complying with a wide variety of foreign laws.

We derived 80.9% and 75.9% of our product revenue from Asia during 1999 and the
first quarter of 2000 respectively. Additionally, our major wafer suppliers and
assembly and packaging subcontractors are all 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 total revenues and also
negatively impacted our ability to collect payments from these 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 in this period exacerbated a decline in selling prices for our
products as our competitors reduced product prices to generate needed cash.

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 recently conducted 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. Any of these events could severely harm
our business by interrupting or delaying production or shipment of our products.
Any kind of activity of this nature or even rumors of such activity could
severely negatively impact our operations, revenues, operating results, and
stock price.

Because a small number of customers have accounted for, and are likely to
continue to account for, a substantial portion of our revenues, our revenues
could decline due to the loss of one of these customers.

More than half of our revenues come from a small number of customers. For
example, product sales to our top 10 customers accounted for approximately 57%
and 49.8%, respectively, of our product revenues for 1999 and the first quarter
of 2000, respectively. One customer accounted for 12% and 13.1% of product sales
in 1999 and the first quarter of 2000. If we were to lose any of these customers
or experience any substantial reduction in orders from these customers, our
revenues and operating results would suffer. In addition, the composition of our
major customer base

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<PAGE>

changes from year to year as the market demand for our customers' products
change.

We do not have long-term contracts with our customers and the loss of a major
customer could seriously harm our business.

We do not typically enter into long-term contracts with our customers, and we
cannot be certain as to future order levels from our customers. When we do enter
into a long-term contract, the contract is generally terminable at the
convenience of the customer. An early termination by one of our major customers
would harm our financial results as it is unlikely that we would be able to
rapidly replace that revenue source.

Our backlog may not result in future revenue which would seriously 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.

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 near one or more of our major suppliers, like the one that occurred in
Taiwan in September 1999, could disrupt the operations of those suppliers, which
could limit the supply of our products and harm our business.

If we did not adequately prepare for the transition to year 2000, our business
could be harmed.

We have executed a plan designed to make our computer systems, applications,
computer and manufacturing equipment and facilities year 2000 compliant. To
date, none of our systems, applications, equipment or facilities have
experienced any difficulties from the transition to year 2000. However, it is
possible that significant difficulties could be discovered or could arise. We
cannot guarantee that our year 2000 readiness plan has been successfully
implemented, and actual results could still differ substantially from our plan.
In addition, we have communicated with our critical suppliers to determine the
extent to which we may be vulnerable to such parties' failure to resolve their
own year 2000 issues. Where practicable, we have attempted to mitigate our risks
with respect to the failure of these entities to be year 2000 compliant. The
effect, if any, on our results of operations from any failure of such parties to
be year 2000 compliant cannot yet be determined.

We may require additional capital in order to bring new products to market, and
the issuance of new equity securities will dilute your investment in our common
stock.

To implement our strategy of diversified product offerings, we need to bring new
products to market. Bringing new products to market and ramping up production
requires significant working capital. We have in place a credit agreement
Foothill Capital Credit Corporation to provide additional capital to support
potential on-going working capital requirements. We may continue to borrow under
this credit facility for some time. During the quarter ended March 31, 2000 we
sold shares of our common stock to raise funds for working capital and general
corporate purposes. We may sell additional shares of our stock or seek
additional borrowings or outside capital infusions. We cannot assure you that
such financing options will be available on terms acceptable to us, if at all.
In addition, if we issue shares of our common stock, our shareholders will
experience dilution with respect to their investment.

We depend on manufacturers' representatives and distributors to generate a
majority of our revenues.

We rely on manufacturers' representatives and distributors to sell our products
and these entities could discontinue selling our products at any time. Two of
our manufacturers' representatives are responsible for substantially all of our
sales in Taiwan, which accounted for 28.3% and 29.1% of our product revenues
during 1999 and the first quarter of 2000, respectively. One manufacturers'
representative accounted for substantially all of our sales in China, including
Hong Kong, during 1999 and the first quarter of 2000, which accounted for 24.4%
and 21.0% of our total product revenues during 1999 and the first quarter of
2000, respectively. The loss of any of these manufacturers' representatives, or
any other significant manufacturers' representative or distributor could
seriously harm our operating results by impairing our ability to sell our
products.



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<PAGE>

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 and sell
our products and 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. Although we
completed the implementation of an Oracle enterprise resource planning and
management system for our operations during the first quarter of 2000, a period
of stabilization is expected. We also plan to implement a supply-chain
management system and a vendor electronic data interface system during this
year. 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 seriously
harmed. If we fail to successfully implement the Oracle enterprise resource
planning and management system, our business may suffer severe inefficiencies
that may adversely impact 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. In addition, the cyclical nature of the semiconductor industry could
create fluctuations in our operating results, as we experienced in 1997 and
1998.

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. These downturns
have been 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 derived substantially all of our revenues in 1998, continued to
suffer from excess capacity in 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 the first quarter
of 2000, if they were to resume our growth and operating results would be
harmed.

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. In 1999 and the first quarter of 2000, this seasonality was
partially offset by the introduction of new products as we continued to
diversify our product offerings. 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 sales and 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


                                       21
<PAGE>

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 Japanese economy could impair the value of our investment in our Japanese
affiliate. If we consider the value of Silicon Technology, in which we have a
14% interest, to be impaired, we would write off, or expense some or all of our
approximately $939,000 investment.

     At any time, fluctuations in interest rates could affect interest earnings
on our cash and cash equivalents or increase any interest expense owed on the
line of credit facility. 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.

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
infringed on 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 infringed 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 granted in our favor a 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 reversed by the Federal Circuit. Thus, four patents remain at
issue in Atmel's District Court case against us. That case has been stayed, and
Atmel has not requested a trial date.

On February 17, 1997, Atmel filed an action with the International Trade
Commission, or ITC, against two suppliers of our parts, involving five 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 are obligated to indemnify
both to the extent provided in those agreements.

As to two of these five patents, Atmel's claims were withdrawn because of the
summary judgment granted by the District Court above. As to another two patents,
the Administrative Law Judge, or ALJ, which makes recommendations to the ITC,
has ruled that we did not infringe. This ruling has yet to be confirmed by the
ITC, which is free to adopt or reject the ALJ's findings. As to the fifth
patent, the ALJ held a hearing, which concluded on February 17, 2000, to
determine if it was invalid due to failure to name an inventor, and whether or
not Atmel committed inequitable conduct in its dealings with the Patent and
Trademark Office when it attempted to add a co-inventor. We expect that the ALJ
will rule on this issue sometime in May, and make a recommendation to the ITC.

Any final decisions by the ITC will not be dispositive because Atmel can still
pursue its claims in the District Court action. Any decisions by the ITC are not
binding on the District Court. We intend to vigorously defend ourselves against
these actions.

On July 31, 1998, we filed suit against Winbond Electronics Corporation in the
U.S. District Court for the Northern District of California, San Jose Division.
Winbond has answered the complaint and has counter-claimed. Since then, the
parties have amended the complaint and the answer and counterclaim. As of
February 24, 2000, we have asserted eight causes of action, including breach of
contract, misappropriation of trade secrets and other contractual and tortious
claims. Our suit seeks damages and equitable remedies to prevent Winbond from
using any of our technology.

Winbond has answered and asserted counter-claims for a declaration that it is
not in material breach of the agreement, breach of the agreement, breach of the
covenant of good faith and fair dealing, interference with prospective economic
advantage, unlawful business practice in violation of state law, common law
unfair competition, a declaration that Winbond is not obligated to pay us under
the agreement and/or they own or jointly own the technology embodied in their
products, misappropriation of Winbond's trade secrets, unfair competition in
violation of the Federal Lanham Act, and common law fraud and misrepresentation.
Winbond seeks, in part, restitution of the payments made, and other damages, and
an injunction.



                                       22
<PAGE>

On April 17 and 21, 2000, respectively, the District Court granted our motions
for partial summary judgment on Winbond's restitution counterclaim and defense
of contract modification by course-of-dealing. On May 1, 2000, Winbond announced
its intention to pursue, as part of its defense, certain allegations that we do
not own the licensed technology and that we have committed antitrust violations.
We believe that the substantive allegations in the Winbond counter-claims are
without merit and we intend to vigorously defend ourselves against the action.
We intend to vigorously pursue our complaint. The trial is set for September 27,
2000.

From time to time, we are also involved in other legal actions arising in the
ordinary course of business. While we have accrued certain amounts for the
estimated legal costs associated with defending these matters, there can be no
assurance the Atmel complaint, the Winbond 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.

Item 2. Changes in Securities

Recent Sales of Unregistered Securities. On March 28, 2000, we sold and issued
to Acer Investment Worldwide Incorporated 168,000 shares of our common stock, at
a purchase price of $64.00 per share, in a private placement. The aggregate
offering proceeds were approximately $10.8 million. No underwriter or placement
agent was involved in the transaction. The sale of the shares was made in
reliance on Section 4(2) of the Securities Act of 1933, as amended.

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits. We incorporate by reference all exhibits filed in connection with
     our annual report on Form 10-K, as amended, for the year ended December 31,
     1999.

Exhibit
Number                     Description

27                         Financial Data Schedule

(b)  Reports on Form 8-K filed during the quarter ended March 31, 2000: None.


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<PAGE>

SIGNATURES

     Pursuant to the requirements of the Securities 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 15th day of May, 2000.

                             SILICON STORAGE TECHNOLOGY, INC.


                               By:

                               /s/ BING YEH
                               ----------------------------------------
                               Bing Yeh
                               President, Chief Executive Officer
                                 and Director (Principal Executive
                                 Officer)


                               /s/ JEFFREY L. GARON
                               ---------------------------------------
                               Jeffrey L. Garon
                               Vice President Finance & Administration,
                                  Chief Financial Officer and Secretary
                               (Principal Financial and Accounting Officer)