<PAGE>
                                                                    EXHIBIT 10.5

                      APPLIED MICRO CIRCUITS CORPORATION

                       1997 DIRECTORS' STOCK OPTION PLAN

                            Amended April 18, 2001


     1.   Purposes of the Plan.  The purposes of this Directors' Stock Option
          --------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.

          All options granted hereunder shall be nonstatutory stock options.

     2.   Definitions.  As used herein, the following definitions shall apply:
          -----------

          (a) "Board" shall mean the Board of Directors of the Company.
               -----

          (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
               ----

          (c) "Common Stock" shall mean the Common Stock of the Company.
               ------------

          (d) "Company" shall mean Applied Micro Circuits Corporation, a
               -------
Delaware corporation.

          (e) "Continuous Status as a Director" shall mean the absence of any
               -------------------------------
interruption or termination of service as a Director.

          (f) "Director" shall mean a member of the Board.
               --------

          (g) "Employee" shall mean any person, including any officer or
               --------
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.

          (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
               ------------
amended.

          (i) "Option" shall mean a stock option granted pursuant to the Plan.
               ------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).

          (j) "Optioned Stock" shall mean the Common Stock subject to an Option.
               --------------

          (k) "Optionee" shall mean an Outside Director who receives an Option.
               --------

          (l) "Outside Director" shall mean a Director who is not an Employee.
               ----------------

                                       1.
<PAGE>

          (m) "Parent" shall mean a "parent corporation," whether now or
               ------
hereafter existing, as defined in Section 424(e) of the Code.

          (n) "Plan" shall mean this 1997 Directors' Stock Option Plan.
               ----

          (o) "Share" shall mean a share of the Common Stock, as adjusted in
               -----
accordance with Section 11 of the Plan.

          (p) "Subsidiary" shall mean a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan.  Subject to the provisions of Section 11 of
          -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,200,000 Shares (the "Pool") of Common Stock.  The Shares
                                         ----
may be authorized, but unissued, or reacquired Common Stock.

          If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.  If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.

     4.   Administration of and Grants of Options under the Plan.
          -------------------------------------------------------

          (a) Administrator.  Except as otherwise required herein, the Plan
              -------------
shall be administered by the Board.

          (b) Procedure for Grants.  All grants of Options hereunder shall be
              --------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:

              (i)   No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.

              (ii)  An Outside Director shall be automatically granted an Option
to purchase 100,000 Shares (the "First Option") on the date on which such
                                 ------------
person first becomes an Outside Director after the effective date of the Plan,
whether through election by the stockholders of the Company or appointment by
the Board of Directors to fill a vacancy.


                                       2.

<PAGE>

              (iii) Each Outside Director shall be automatically granted an
Option to purchase 50,000 Shares (a "Subsequent Option") on April 1 of each
                                     -----------------
calendar year, provided that, on such date, he or she shall have served on the
Board for at least six (6) months prior to the date of such Annual Meeting and,
provided further, that a Subsequent Option shall not be granted to an Outside
Director who is an Outside Director on the effective date of the Plan until
April 1, 2000.

              (iv)  Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
such date on the automatic grant date.  Any further grants shall then be
deferred until such time, if any, as additional Shares become available for
grant under the Plan through action of the stockholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.

              (v)   Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 17 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
17 hereof.

              (vi)  The terms of each First Option granted hereunder shall be as
follows:

                    (1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;

                    (2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and

                    (3) the First Option shall become exercisable in
installments cumulatively as to 1/12th of the Shares subject to the First Option
on each monthly anniversary of the date of grant of the Option.

              (vii) The terms of each Subsequent Option granted hereunder shall
be as follows:

                    (1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;

                                       3.
<PAGE>

                    (2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and

                    (3) the Subsequent Option shall become exercisable in
installments cumulatively as to 1/12th of the Shares subject to the Subsequent
Option on each monthly anniversary of the date of grant of the Subsequent
Option.

          (c) Powers of the Board.  Subject to the provisions and restrictions
              -------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.

          (d) Effect of Board's Decision.  All decisions, determinations and
              --------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.

          (e) Suspension or Termination of Option.  If the President or his or
              -----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct).  If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever.  In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.

     5.   Eligibility.  Options may be granted only to Outside Directors.  All
          -----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.  An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.

          The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.

                                       4.
<PAGE>

     6.   Term of Plan; Effective Date.  The Plan shall become effective on the
          ----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities.  It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.

     7.   Term of Options.  The term of each Option shall be ten (10) years from
          ---------------
the date of grant thereof.

     8.   Exercise Price and Consideration.
          ---------------------------------

          (a) Exercise Price.  The per Share exercise price for the Shares to be
              --------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.

          (b) Fair Market Value.  The fair market value shall be determined by
              -----------------
the Board; provided, however, that where there is a public market for the Common
           --------  -------
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
               ------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
                                                           ---------------
Journal.  With respect to any Options granted hereunder concurrently with the
-------
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.

          (c) Form of Consideration.  The consideration to be paid for the
              ---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), by delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or any combination of such methods of payment and/or any other
consideration or method of payment as shall be permitted under applicable
corporate law.

     9.   Exercise of Option.
          -------------------

          (a) Procedure for Exercise; Rights as a Stockholder.  Any Option
              -----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.

              An Option may not be exercised for a fraction of a Share.

                                       5.
<PAGE>

              An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.

              Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

          (b) Termination of Status as a Director.  If an Outside Director
              -----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
Notwithstanding the foregoing, if an Outside Director ceases to serve as a
Director due to a voluntary resignation, then he or she may exercise any Option
granted to him or her after April 1, 2000 at any time during the term of such
Option and to the extent that he or she was entitled to exercise such Option at
the date of such termination.

          (c) Disability of Optionee.  Notwithstanding Section 9(b) above, in
              ----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board) from the date of such termination, exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the date of termination, or
if he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.

          (d) Death of Optionee.  In the event of the death of an Optionee:
              -----------------

              (i)  During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6)

                                       6.
<PAGE>

months following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as Director for six (6)
months (or such lesser period of time as is determined by the Board) after the
date of death. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired.


              (ii)  Three (3) months after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.

     10.  Nontransferability of Options.  The Option may not be sold, pledged,
          -----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder).  The
designation of a beneficiary by an Optionee does not constitute a transfer.  An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.

     11.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
          -------------------------------------------------------------------

          (a) Adjustment. Subject to any required action by the stockholders of
              ----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
--------  -------
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.

          (b) Corporate Transactions.  In the event of (i) a dissolution or
              ----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the

                                       7.
<PAGE>

Option would not be otherwise exercisable, prior to the effectiveness of such
liquidation, dissolution, sale, merger, consolidation or reorganization, at the
end of which time the Option shall terminate, or the right to exercise the
Option, including Shares as to which the Option would not be otherwise
exercisable (or receive a substitute option with comparable terms), as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of such liquidation, dissolution, sale,
merger, consolidation or reorganization.

     12.  Time of Granting Options.  The date of grant of an Option shall, for
          ------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.

     13.  Amendment and Termination of the Plan.
          -------------------------------------

          (a) Amendment and Termination.  The Board may amend or terminate the
              -------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
-------- ----
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation. Notwithstanding
the foregoing, the provisions set forth in Section 4 of this Plan (and any other
Sections of this Plan that affect the formula award terms required to be
specified in this Plan by Rule 16b-3) shall not be amended more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.

          (b) Effect of Amendment or Termination.  Any such amendment or
              ----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.

     14.  Conditions Upon Issuance of Shares.  Shares shall not be issued
          ----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

     15.  Reservation of Shares.  The Company, during the term of this Plan,
          ---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the

                                       8.
<PAGE>

requirements of the Plan. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.

     16.  Option Agreement.  Options shall be evidenced by written option
          ----------------
agreements in such form as the Board shall approve.

     17.  Stockholder Approval.  Continuance of the Plan shall be subject to
          --------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon.  If such stockholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company.  Options may be granted, but not exercised, before such
stockholder approval.

                                       9.
<PAGE>

                      APPLIED MICRO CIRCUITS CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT
                      -----------------------------------



     1.  Grant of Option.  The Board of Directors of the Company hereby grants
         ---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
                     --------                    ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
                                                                    --------
Price"'), subject to the terms and conditions of the 1997 Directors' Stock
-----
Option Plan (the "Plan"), which is incorporated herein by reference.
                  ----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.

     2.  Exercise of Option.
         ------------------

          (a) Right to Exercise.  This Option is exercisable during its term in
              -----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement.  In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.

          (b) Method of Exercise.  This Option is exercisable by delivery of an
              ------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
                                         ---------       ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
                                                     ----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan.  The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company.  The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares.  This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.

          No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed.  Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.

     3.  Method of Payment.  Payment of the aggregate Exercise Price shall be by
         -----------------
any of the following, or a combination thereof, at the election of the Optionee:

          (a) cash;
<PAGE>

          (b) check;

          (c) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or

          (d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

     4.  Non-Transferability of Option.  This Option may not be transferred in
         -----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan.  The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.

     5.  Term of Option.  This Option may be exercised only within the term set
         --------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.

     6.  Tax Consequences.  Set forth below is a brief summary of certain
         ----------------
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant.  THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.  OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          (a) Exercising the Option.  Since this Option does not qualify as an
              ---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise.  The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.

          (b) Disposition of Shares.  If the Optionee holds the Option Shares
              ---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes.  The long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 28% if the Shares are held
more than one year but less than 18 months after exercise and at 20% if the
Shares are held more than 18 months after exercise.


                                      -2-
<PAGE>

     By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement.  Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.

                                    APPLIED MICRO CIRCUITS CORPORATION


_____________________________       By:__________________________________
Optionee
                                    Title:_______________________________


                                      -3-
<PAGE>

                               CONSENT OF SPOUSE
                               -----------------


     The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement.  In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock  Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound.  The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.


                                    ________________________________________
                                    Spouse of Optionee
<PAGE>

                                   EXHIBIT A
                                   ---------

                               NOTICE OF EXERCISE
                               ------------------



To:  Applied Micro Circuits Corporation

Attn:  Stock Option Administrator

Subject:  Notice of Intention to Exercise Stock Option
          --------------------------------------------


     This is official notice that the undersigned ("Optionee") intends to
                                                    --------
exercise Optionee's option to purchase __________ shares of Applied Micro
Circuits Corporation Common Stock, under and pursuant to the Company's 1997
Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement dated
_______________, as follows:

     Grant Number:          ________________________________________

     Date of Purchase:      ________________________________________

     Number of Shares:      ________________________________________

     Purchase Price:        ________________________________________

     Method of Payment of
     Purchase Price:        ________________________________________

     Social Security No.:   ________________________________________

     The shares should be issued as follows:

          Name:      __________________________

          Address:   __________________________

                     __________________________

                     __________________________

          Signed:    __________________________

          Date:      __________________________