<PAGE>

                                                                 EXHIBIT 10.40

                                  August 14, 1998



Mr. Richard M. Beyer
13503 Fremont Road
Los Altos Hills, California  94022

Dear Richard:

     This letter confirms our agreement and understanding concerning your
termination from VLSI Technology, Inc. (the "Company" or "VLSI") which is to be
effective September 11, 1998 (the "Termination Date"), your resignation from
VLSI's Board of Directors which is to be effective on or before the Effective
Date (as defined in paragraph 1(b) below), and the following arrangement that is
being offered to you.

     If you agree to the terms and conditions of this letter agreement, please
sign one copy and return it to me within twenty-one (21) days of receipt:

     1.   VLSI agrees that it will:

          a.   Provide continuation of your current base salary and benefits,
including, but not limited to, vacation accrual until the Termination Date.

          b.   Pay you $525,000 less applicable deductions on the "Effective
Date" of this letter agreement, which is the date that is eight (8) days (or the
next business day if the eighth (8th) day is not a normal workday) after VLSI
receives an executed copy of this letter agreement, provided there has been no
revocation by you.

          c.   Pay the premiums for your health, dental and vision benefits
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(COBRA), to the extent you are eligible for such COBRA benefits, until the
earlier of (i) eighteen (18) months after the month of the Termination Date or
(ii) the date that you become covered under another employer's group health,
dental or vision insurance plans.  You understand that you must sign the
appropriate request for COBRA benefits and, if you wish such benefits to be
further continued and you remain eligible, you must thereafter pay the relevant
premiums.

          d.   Indemnify you, in accordance with the applicable provisions of
the Company's articles of incorporation and bylaws, against all expense,
liability and loss (including attorneys' fees

<PAGE>

and settlement payments) that you may incur by reason of any action, suit or
proceeding arising from or relating to the performance of your duties as an
officer or director of the Company.

     2.   You currently hold outstanding stock options for 500,000 shares of the
Company's common stock ("Company Options").  As of the Termination Date, the
Company Options are vested and exercisable for a total of 172,916 shares (the
"Vested Company Options") and unvested as to 327,084 shares (the "Unvested
Company Options").  Your Vested Company Options must be exercised on or before
October 10, 1998; to the extent such Vested Company Options are not exercised on
or before October 10, 1998, they shall terminate without consideration to you. 
Your Unvested Company Options shall terminate as of the Termination Date;
provided, however, that as additional consideration for your release under
paragraphs 8 and 9 below, a portion of certain of your Unvested Company Options
(the "Additional Vested Portion") shall become vested and exercisable as of the
Effective Date and shall remain exercisable until September 11, 1999, subject to
the original term of such options; to the extent such Additional Vested Portion
is not exercised on or before September 11, 1999, it shall terminate without
consideration to you.  The Additional Vested Portion shall consist of that
portion of the Unvested Company Options granted to you on September 9, 1996,
covering a total of 250,000 shares (Grant #013441 and Grant #013442) that would
have vested had you remained employed with the Company through September 11,
1999.  The Additional Vested portion is reflected on the attached Schedule A. 
Your Company Options may be exercised by you (to the extent vested) pursuant to
the terms of your stock option agreement(s).  To the extent your options are
non-qualified options under the federal income tax laws, you will recognize
compensation income in connection with his exercise of those options, and you
agree to satisfy all applicable withholding taxes associated with each such
exercise.

     3.   I would like to remind you of your continuing obligation not to reveal
any confidential information of VLSI, and your obligations regarding inventions,
confidentiality and other matters under the agreement you signed when you
started your employment at VLSI or thereafter, a copy of which is attached. 
That agreement shall continue in effect and is hereby incorporated by reference.

     4.   The payment of the compensation and benefits set forth above is
conditioned on your continued professional relationship with VLSI, and continued
compliance with the policies of VLSI, as well as this letter agreement and the
agreement referenced immediately above.

     5.   You understand that your entitlement to all salary and perquisites
provided to you by VLSI and your participation in the VLSI employee benefit
plans and arrangements will be terminated as of your Termination Date, except as
otherwise specifically provided in paragraph 2 above or in any employee benefit
plan covering employees generally and under COBRA.

     6.   Further, the compensation and benefits set forth above are in lieu of
any other remuneration or benefit from VLSI, and fully discharge all obligations
of VLSI to you.

     7.   By executing the accompanying copy of this letter and returning it to
me, you will thereby acknowledge and represent to VLSI that (i) you have had
sufficient opportunity (at least 


                                      -2-

<PAGE>

twenty-one (21) days) to consider carefully and fully understand the provisions
of this letter agreement (which includes a settlement and general release),
(ii) you have been advised and had an opportunity to consult with your attorney
prior to executing this Agreement, (iii) the consideration that is described
above to be given to you includes consideration that is in addition to what you
would be entitled to on termination under VLSI policy in the absence of this
letter agreement, (iv) you are signing the accompanying copy of this letter
agreement and returning it to me voluntarily with a full and complete
understanding of the effect and consequences of its terms and provision and
without in any respect any pressure or duress, (v) you understand that you may
revoke this letter agreement by delivering a written notice of revocation to an
authorized officer of VLSI no later than seven (7) days after your execution of
this letter agreement and this letter agreement shall not become effective or
enforceable until this seven (7) day period has expired.

     8.   By executing the accompanying copy of this letter and returning it to
me, you agree that, in consideration of the additional benefits and payment
specified above (which VLSI is extending to you without any obligation to do
so), you thereby release VLSI, each of its affiliates, and each of their
respective agents, employees, investors, officers, shareholders, divisions,
subsidiaries, parents, directors, successors and assigns (a "Release") from any
and all claims, demands, rights, actions, and causes of action that could be
asserted, whether known or unknown, including claims for attorney's fees and
costs, existing prior to the date of this letter or accruing or occurring at any
time in the future, (except those rights and claims arising after the effective
date of this agreement) arising out of your employment relationship with VLSI or
any of its affiliates or the termination thereof, or any other relationship with
any of them, including, but not limited to, those whether arising out of any
claims for violations of any alleged contract, express or implied, any covenant
of good faith and fair dealing, whether express or implied any tort, or any
federal, state or local statute, order, rule or regulation including, but not
limited to, the Age Discrimination in Employment Act (ADEA), Title VII of the
Civil Rights Act of 1964, the California Fair Employment Act, and the California
Labor Code; except for your rights and benefits specified in this letter
agreement. VLSI acknowledges that at this time it has no knowledge of any claims
against you that might be an offset to any payments required to be made to you
hereunder.  For purposes of the preceding sentence, knowledge of VLSI shall be
deemed to be the knowledge of the members of its Board of Directors and its
senior executive officers.

     9.   You expressly waive all rights under Section 1542 of the Civil Code of
the State of California, which section provides as follows:

          "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."

     10.  By executing the accompanying copy of this letter agreement and
returning it to me, and in consideration of the benefits and payments specified
above, you also agree that you will not commence any civil or administrative
action or otherwise assert any claim against any Releasee in connection with
your employment relationship with VLSI or the termination thereof, or any other
relationship with any of them, under any statutory, regulatory, constitutional,
or common law theory or 


                                      -3-

<PAGE>

provision, state or federal, except in respect of your rights and benefits
specified in this letter agreement.

     11.  Both you and VLSI mutually covenant not to disclose the fact of and
terms of this letter and further agree we will not publicize or otherwise
disclose any of the terms of this letter, except as required by applicable law
and except that you may disclose this information in confidence to your spouse
and attorney and VLSI may disclose it in confidence to those in its employ who
have a need to know and its attorneys.  Both you and VLSI agree not to disparage
the other to any and all third parties.

     12.  Both you and VLSI agree that in signing this letter agreement each of
us does not rely and has not relied upon any representation or statement not set
out herein made by anyone with respect to this letter agreement.

     13.  This letter agreement (including the agreement regarding inventions,
confidentiality and other matters expressly referenced above in paragraph 3)
sets out the entire agreement between you and VLSI and fully supersedes all
prior agreements and understandings pertaining to the subject matter hereof. 
The laws of the state of California shall govern the validity, performance and
construction of this agreement.

     14.  In the event that any law governing its construction, performance or
enforcement prohibits any provision of this letter agreement, such provision
shall be ineffective only to the extent of such prohibition without invalidating
any of the remaining provisions.

     On behalf of the management of VLSI, I would like to wish you success in
your future endeavors.

Very truly yours,

/s/ Alfred J. Stein

Alfred J. Stein
Chief Executive Officer

THIS AGREEMENT CONTAINS A SETTLEMENT AND RELEASE.  PLEASE CAREFULLY READ AND
CONSIDER BEFORE SIGNING.

I ACCEPT AND AGREE TO THE ABOVE AS OF THE BELOW DATE:

/s/ Richard M. Beyer

------------------------------------
Richard M. Beyer

August 19, 1998


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<PAGE>

                                     SCHEDULE A


Richard M. Beyer
Vested/Exercisable as of 9/11/98

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
    Grant #       Date          # Shares         OP        Vested       Unvested
--------------------------------------------------------------------------------
    <S>          <C>            <C>           <C>          <C>          <C>     
    013441       9/9/96          30,000        $13.00       15,000        15,000
--------------------------------------------------------------------------------
    013442       9/9/96         220,000        $13.00      110,000       110,000
--------------------------------------------------------------------------------
    013445      10/8/96         125,000        $15.31       41,666        83,334
--------------------------------------------------------------------------------
    014095      4/14/97          25,000        $18.00        6,250        18,750
--------------------------------------------------------------------------------
    015309      3/17/98         100,000       $17.563            0       100,000
--------------------------------------------------------------------------------
                                                           172,916       327,084
                                                           ---------------------
</TABLE>

Additional Vesting (for period 9/11/98-9/11/99)
(Additional Vested Portion)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
     Grant #         Date            # of Shares           OP          Additional
                                                                        Vesting
--------------------------------------------------------------------------------
     <S>             <C>             <C>                <C>            <C>     
     013441          9/9/96              30,000          $13.00           7,500
--------------------------------------------------------------------------------
     013442          9/9/96             220,000          $13.00          55,000
--------------------------------------------------------------------------------
     013445          10/8/96            125,000          $15.31               0
--------------------------------------------------------------------------------
     014095          4/14/97             25,000          $18.00               0
--------------------------------------------------------------------------------
     015309          3/17/98            100,000         $17.563               0
--------------------------------------------------------------------------------
                                                                         62,500
                                                                         ------
</TABLE>