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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 December 28, 2008

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 No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 94-2669985                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6024 SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA            |  | 95138                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

Registrants Telephone Number, Including Area Code: (408) 284-8200

NONE

Former name, former address
and former fiscal year (if changed since last report)

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

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



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

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

The number of outstanding shares of the registrants Common Stock, $0.001 par value, as of January 25, 2009, was 164,714,983.









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INTEGRATED DEVICE TECHNOLOGY, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 28, 2008

TABLE OF CONTENTS

PART IFINANCIAL INFORMATION



|                          |  |                                                                                                                                     |  |   
|------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | --
|Item 1.                   |  | Financial Statements (Unaudited)                                                                                                    |  |   
|                          |  | Condensed Consolidated Statements of Operations for the three months and nine months ended December 28, 2008 and December
 30, 2007 |  | 3 
|                          |  | Condensed Consolidated Balance Sheets as of December 28, 2008 and March 30, 2008                                                    |  | 4 
|                          |  | Condensed Consolidated Statements of Cash Flows for the nine months ended December 28, 2008 and December 30, 2007                   |  | 5 
|                          |  | Notes to Condensed Consolidated Financial Statements                                                                                |  | 6 
|Item 2.                   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                               |  | 23
|Item 3.                   |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          |  | 32
|Item 4.                   |  | Controls and Procedures                                                                                                             |  | 33
|                          | 
|PART IIOTHER INFORMATION |  |                                                                                                                                    
|                          |  |                                                                                                                                    
|Item 1.                   |  | Legal Proceedings                                                                                                                   |  | 33
|Item 1A.                  |  | Risk Factors                                                                                                                        |  | 34
|Item 2.                   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                         |  | 40
|Item 3.                   |  | Defaults Upon Senior Securities                                                                                                     |  | 41
|Item 4.                   |  | Submission of Matters to a Vote of Security Holders                                                                                 |  | 41
|Item 5.                   |  | Other Information                                                                                                                   |  | 41
|Item 6.                   |  | Exhibits                                                                                                                            |  | 41
|Signatures                |  | 42                                                                                                                                 



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PART I FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

INTEGRATED DEVICE
TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------ | -------- | - | ----------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                             |  | Three months ended |          |   | Nine months ended |  
|                                                             |  | Dec. 28,2008       |          |   | Dec. 30,2007      |   |         | Dec. 28,2008 |  |   | Dec. 30,2007 |  
|Revenues                                                     |  | $                  | 167,079  |   |                   | $ | 201,228 |              |  | $ | 555,828      |   |  | $ | 604,371 |  
|Cost of revenues                                             |  |                    | 97,410   |   |                   |   | 112,904 |              |  |   | 314,547      |   |  |   | 342,969 |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Gross profit                                                 |  |                    | 69,669   |   |                   |   | 88,324  |              |  |   | 241,281      |   |  |   | 261,402 |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Operating expenses:                                          |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Research and development                                     |  |                    | 37,247   |   |                   |   | 40,616  |              |  |   | 122,398      |   |  |   | 127,191 |  
|Selling, general and administrative                          |  |                    | 30,879   |   |                   |   | 38,929  |              |  |   | 96,055       |   |  |   | 127,658 |  
|Acquired in-process research and development                 |  |                    | 5,597    |   |                   |   |        |              |  |   | 5,597        |   |  |   |        |  
|Goodwill and acquisition-related intangible asset impairment |  |                    | 339,051  |   |                   |   |        |              |  |   | 339,051      |   |  |   |        |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Total operating expenses                                     |  |                    | 412,774  |   |                   |   | 79,545  |              |  |   | 563,101      |   |  |   | 254,849 |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Operating income (loss)                                      |  |                    | (343,105 | ) |                   |   | 8,779   |              |  |   | (321,820     | ) |  |   | 6,553   |  
|Other-than temporary impairment loss on investments          |  |                    | (3,000   | ) |                   |   |        |              |  |   | (3,000       | ) |  |   |        |  
|Interest expense                                             |  |                    | (14      | ) |                   |   | (20     | )            |  |   | (47          | ) |  |   | (89     | )
|Interest income and other, net                               |  |                    | (1,150   | ) |                   |   | 3,443   |              |  |   | 699          |   |  |   | 13,741  |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Income (loss) before income taxes                            |  |                    | (347,269 | ) |                   |   | 12,202  |              |  |   | (324,168     | ) |  |   | 20,205  |  
|Provision (benefit) for income taxes                         |  |                    | (2,010   | ) |                   |   | (1,216  | )            |  |   | 262          |   |  |   | 3,124   |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Net income (loss)                                            |  | $                  | (345,259 | ) |                   | $ | 13,418  |              |  | $ | (324,430     | ) |  | $ | 17,081  |  
|                                                             |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Basic net income (loss) per share                            |  | $                  | (2.06    | ) |                   | $ | 0.07    |              |  | $ | (1.92        | ) |  | $ | 0.09    |  
|Diluted net income (loss) per share                          |  | $                  | (2.06    | ) |                   | $ | 0.07    |              |  | $ | (1.92        | ) |  | $ | 0.09    |  
|Weighted average shares:                                     |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Basic                                                        |  |                    | 167,412  |   |                   |   | 186,720 |              |  |   | 169,354      |   |  |   | 190,240 |  
|Diluted                                                      |  |                    | 167,412  |   |                   |   | 188,545 |              |  |   | 169,354      |   |  |   | 194,130 |  

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



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INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED; IN THOUSANDS)



|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | --------- | - | ------------ | - | --------- | -
|                                                                                                                                                                                           |  | Dec. 28,2008 |           |   | Mar. 30,2008 |  
|Assets                                                                                                                                                                                     |  |              |           |   |              |   |           |  
|Current assets:                                                                                                                                                                            |  |              |           |   |              |   |           |  
|Cash and cash equivalents                                                                                                                                                                  |  | $            | 188,216   |   |              | $ | 131,986   |  
|Short-term investments                                                                                                                                                                     |  |              | 114,184   |   |              |   | 107,205   |  
|Accounts receivable, net                                                                                                                                                                   |  |              | 65,030    |   |              |   | 83,091    |  
|Inventories                                                                                                                                                                                |  |              | 77,101    |   |              |   | 79,954    |  
|Deferred taxes assets                                                                                                                                                                      |  |              | 4,853     |   |              |   | 4,853     |  
|Prepayments and other current assets                                                                                                                                                       |  |              | 18,766    |   |              |   | 26,081    |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total current assets                                                                                                                                                                       |  |              | 468,150   |   |              |   | 433,170   |  
|Property, plant and equipment, net                                                                                                                                                         |  |              | 74,659    |   |              |   | 81,652    |  
|Goodwill                                                                                                                                                                                   |  |              | 708,863   |   |              |   | 1,027,438 |  
|Acquisition-related intangibles, net                                                                                                                                                       |  |              | 135,471   |   |              |   | 204,489   |  
|Other assets                                                                                                                                                                               |  |              | 26,531    |   |              |   | 36,504    |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total assets                                                                                                                                                                               |  | $            | 1,413,674 |   |              | $ | 1,783,253 |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Liabilities and stockholders equity                                                                                                                                                       |  |              |           |   |              |   |           |  
|Current liabilities:                                                                                                                                                                       |  |              |           |   |              |   |           |  
|Accounts payable                                                                                                                                                                           |  | $            | 41,335    |   |              | $ | 44,655    |  
|Accrued compensation and related expenses                                                                                                                                                  |  |              | 19,585    |   |              |   | 26,621    |  
|Deferred income on shipments to distributors                                                                                                                                               |  |              | 20,261    |   |              |   | 24,312    |  
|Income taxes payable                                                                                                                                                                       |  |              |          |   |              |   | 150       |  
|Other accrued liabilities                                                                                                                                                                  |  |              | 19,099    |   |              |   | 19,978    |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total current liabilities                                                                                                                                                                  |  |              | 100,280   |   |              |   | 115,716   |  
|Deferred tax liabilities                                                                                                                                                                   |  |              | 6,890     |   |              |   | 7,678     |  
|Long-term income taxes payable                                                                                                                                                             |  |              | 20,898    |   |              |   | 20,673    |  
|Other long-term obligations                                                                                                                                                                |  |              | 15,748    |   |              |   | 18,364    |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total liabilities                                                                                                                                                                          |  |              | 143,816   |   |              |   | 162,431   |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Commitments and contingencies (Note 15)                                                                                                                                                    |  |              |           |   |              |   |           |  
|Stockholders equity:                                                                                                                                                                      |  |              |           |   |              |   |           |  
|Preferred Stock; $0.001 par value: 10,000 shares authorized; no shares issued and outstanding                                                                                              |  |              |          |   |              |   |          |  
|Common Stock; $0.001 par value: 350,000 shares authorized; 222,465 and 220,677 shares issued; 164,712 and 171,282 shares outstanding at
December 28, 2008 and March 30, 2008, respectively |  |              | 222       |   |              |   | 221       |  
|Additional paid-in capital                                                                                                                                                                 |  |              | 2,274,827 |   |              |   | 2,237,584 |  
|Treasury stock; at cost: 57,753 and 49,395 shares at December 28, 2008 and March 30, 2008, respectively                                                                                    |  |              | (777,847  | ) |              |   | (715,509  | )
|Accumulated other comprehensive income                                                                                                                                                     |  |              | 1,640     |   |              |   | 3,080     |  
|Retained earnings (accumulated deficit)                                                                                                                                                    |  |              | (228,984  | ) |              |   | 95,446    |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total stockholders equity                                                                                                                                                                 |  |              | 1,269,858 |   |              |   | 1,620,822 |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                 |  | $            | 1,413,674 |   |              | $ | 1,783,253 |  
|                                                                                                                                                                                           |  |              |           |   |              |   |           |  

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



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INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED; IN
THOUSANDS)



|                                                                                                            |  |                   |          |   |              |   |          |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ------------ | - | -------- | -
|                                                                                                            |  | Nine months ended |         
|                                                                                                            |  | Dec. 28,2008      |          |   | Dec. 30,2007 |  
|Operating activities                                                                                        |  |                   |          |   |              |   |          |  
|Net income (loss)                                                                                           |  | $                 | (324,430 | ) |              | $ | 17,081   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                    |  |                   |          |   |              |   |          |  
|Depreciation                                                                                                |  |                   | 19,880   |   |              |   | 23,207   |  
|Amortization of intangible assets                                                                           |  |                   | 61,103   |   |              |   | 85,510   |  
|Goodwill and acquisition-related intangible asset impairment                                                |  |                   | 339,051  |   |              |   |         |  
|Acquired in-process research and development                                                                |  |                   | 5,597    |   |              |   |         |  
|Other-than temporary impairment loss on investments                                                         |  |                   | 3,000    |   |              |   |         |  
|Gain on sale of investment in equity securities                                                             |  |                   |         |   |              |   | (1,687   | )
|Stock-based compensation expense                                                                            |  |                   | 25,783   |   |              |   | 33,021   |  
|Deferred income taxes                                                                                       |  |                   | (100     | ) |              |   | 214      |  
|Changes in assets and liabilities (net of assets acquired and liabilities assumed in business combination): |  |                   |          |   |              |   |          |  
|Accounts receivable, net                                                                                    |  |                   | 18,061   |   |              |   | (2,292   | )
|Inventories                                                                                                 |  |                   | 3,060    |   |              |   | 5,470    |  
|Prepayments and other assets                                                                                |  |                   | 10,200   |   |              |   | (5,446   | )
|Accounts payable                                                                                            |  |                   | (2,727   | ) |              |   | (2,772   | )
|Accrued compensation and related expenses                                                                   |  |                   | (7,199   | ) |              |   | (7,080   | )
|Deferred income on shipments to distributors                                                                |  |                   | (4,051   | ) |              |   | (5,537   | )
|Income taxes receivable and payable                                                                         |  |                   | 3,929    |   |              |   | 4,550    |  
|Other accrued and long-term liabilities                                                                     |  |                   | (3,181   | ) |              |   | (6,110   | )
|                                                                                                            |  |                   |          |   |              |   |          |  
|Net cash provided by operating activities                                                                   |  |                   | 147,976  |   |              |   | 138,129  |  
|                                                                                                            |  |                   |          |   |              |   |          |  
|Investing activities                                                                                        |  |                   |          |   |              |   |          |  
|Acquisition of business                                                                                     |  |                   | (20,097  | ) |              |   |         |  
|Purchases of property, plant and equipment                                                                  |  |                   | (12,867  | ) |              |   | (13,593  | )
|Purchases of short-term investments                                                                         |  |                   | (141,475 | ) |              |   | (113,234 | )
|Proceeds from sales of short-term investments                                                               |  |                   | 18,199   |   |              |   | 26,508   |  
|Proceeds from maturities of short-term investments                                                          |  |                   | 117,359  |   |              |   | 86,262   |  
|                                                                                                            |  |                   |          |   |              |   |          |  
|Net cash used in investing activities                                                                       |  |                   | (38,881  | ) |              |   | (14,057  | )
|                                                                                                            |  |                   |          |   |              |   |          |  
|Financing activities                                                                                        |  |                   |          |   |              |   |          |  
|Issuance of common stock                                                                                    |  |                   | 11,147   |   |              |   | 39,147   |  
|Repurchases of common stock                                                                                 |  |                   | (62,338  | ) |              |   | (240,477 | )
|Excess tax benefit from share based payment arrangements                                                    |  |                   | 192      |   |              |   |         |  
|                                                                                                            |  |                   |          |   |              |   |          |  
|Net cash used in financing activities                                                                       |  |                   | (50,999  | ) |              |   | (201,330 | )
|                                                                                                            |  |                   |          |   |              |   |          |  
|Effect of exchange rates on cash and cash equivalents                                                       |  |                   | (1,866   | ) |              |   | 704      |  
|                                                                                                            |  |                   |          |   |              |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                        |  |                   | 56,230   |   |              |   | (76,554  | )
|Cash and cash equivalents at beginning of period                                                            |  |                   | 131,986  |   |              |   | 246,589  |  
|                                                                                                            |  |                   |          |   |              |   |          |  
|Cash and cash equivalents at end of period                                                                  |  | $                 | 188,216  |   |              | $ | 170,035  |  
|                                                                                                            |  |                   |          |   |              |   |          |  

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



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INTEGRATED DEVICE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Integrated Device Technology, Inc. (IDT or the
Company) contain all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the interim financial information included therein. Certain prior period balances have
been reclassified to conform to the current period presentation. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in
the United States.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts in the Companys financial statements and the accompanying notes. Actual results could differ from those estimates. All references are to the Companys fiscal
quarters ended December 28, 2008 (Q3 2009), September 28, 2008 (Q2 2009), June 29, 2008 (Q1 2009), March 30, 2008 (Q4 2008), December 30, 2007 (Q3 2008), and October 2, 2006 (Q2 2006) unless
otherwise indicated.

These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes
included in the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2008. Operating results for the three months and nine months ended December 28, 2008 are not necessarily indicative of operating results for
an entire fiscal year.

Note 2

Significant
Accounting Policies

Revenue Recognition. The Companys revenue results from semiconductors sold through three channels: direct sales to
original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMSs), consignment sales to OEMs and EMSs, and sales through distributors. The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and its ability to collect is reasonably assured. For direct sales, we recognize revenue in accordance with the applicable shipping terms.
Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory stock by the customer.

For distributors
who have stock rotation, price protection and ship from stock pricing adjustment rights, the Company defers revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer.
Subsequent to shipment to the distributor, the Company reduces product pricing through price protection based on market conditions, competitive considerations and other factors. Price protection is granted to distributors on the inventory that
they have on hand at the date the price protection is offered. The Company also grants certain credits to its distributors on specifically identified portions of the distributors business to allow them to earn a competitive gross margin
on the sale of the Companys products to their end customers. As a result of its inability to estimate these credits, the Company has determined that the sales price to these distributors is not fixed or determinable until the final sale
to the end-customer.

In the Asia Pacific (APAC) region, the Company has distributors for which revenue is recognized upon shipment, with
reserves recorded for the estimated return and pricing adjustment exposures. The determination of the amount of reserves to be recorded for stock rotation rights requires the Company to make estimates as to the amount of product which will be
returned by customers within their limited contractual rights. The Company utilizes historical return rates to estimate the exposure in accordance with Statement of Financial Accounting Standards (SFAS) No. 48, Revenue Recognition When
Right of Return Exists (SFAS 48). In addition, from time-to-time, the Company is required to give pricing adjustments to distributors for product purchased in a given quarter that remains in their inventory. These amounts are estimated by
management based on discussions with customers, assessment of market trends, as well as historical practice.

Based on the terms in the agreements with its
distributors and the application of this policy, the Company recognizes revenue once the distributor sells our products to an end-customer for North American and European distributors and recognizes revenue upon shipment to Japanese and other Asian
distributors.

Stock-based Compensation.The fair value of employee restricted stock units is equal to the market value of the Companys common
stock on the date the award is granted. The Company estimates the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes valuation model, consistent with the provisions of
the Financial Accounting Standards Boards (FASB) SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). Option-pricing models require the input of highly subjective assumptions, including the expected term of
options and the expected price volatility of the stock underlying such options. In addition, the Company is required to estimate the number of



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stock-based awards that will be forfeited due to employee turnover based on historical trends. Finally, the Company capitalizes into inventory a portion of
the periodic stock-based compensation expense that relates to employees working in manufacturing activities.

The Company updates the expected term of
stock option grants annually based on its analysis of the stock option exercise behavior over a period of time. The interest rate is based on the average U.S. Treasury interest rate in effect during the applicable quarter. The Company believes that
the implied volatility of its common stock is an important consideration of overall market conditions and a good indicator of the expected volatility of its common stock. However, due to the limited volume of options freely traded over the counter,
the Company believes that implied volatility, by itself, is not representative of the expected volatility of its common stock. Therefore, upon adoption of SFAS 123(R), the Company revised the volatility factor used to estimate the fair value of its
stock-based awards which now reflects a blend of historical volatility of its common stock and implied volatility of call options and dealer quotes on call options, generally having a term of less than twelve months. The Company has not paid, nor
does it have current plans to pay dividends on its common stock in the foreseeable future.

Long-Lived Assets and Goodwill. The Company
accounts for long-lived assets, including purchased intangibles other than goodwill, in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144). The carrying values of such assets are evaluated whenever events or circumstances indicate that the carrying values may not be recoverable. If estimated undiscounted cash flows are not sufficient to recover the carrying values, the affected
assets are considered impaired and are written down to their estimated fair value, which is generally determined on the basis of discounted cash flows or third-party appraisals.

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), the Company tests for impairment of goodwill and other indefinite-lived
assets on an annual basis, or more frequently if indicators of impairment are present. These tests are performed at the reporting unit level using a two-step, fair-value based approach. The first step, used to determine if impairment possibly
exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds the fair value, the second step is to determine the amount of a possible impairment by
comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

Note 3

Recent Accounting Pronouncements

In April 2008, the FASB issued FASB
Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the intangible asset. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of the pending adoption of FSP 142-3 on its consolidated
financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of FASB Statement No. 133 (SFAS 161). The standard requires additional quantitative disclosures (provided in tabular form) and qualitative disclosures for derivative instruments. The required disclosures include how
derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows; relative volume of derivative activity; the objectives and strategies for using derivative instruments; the accounting
treatment for those derivative instruments formally designated as the hedging instrument in a hedge relationship; and the existence and nature of credit-related contingent features for derivatives. SFAS 161 does not change the accounting treatment
for derivative instruments. SFAS 161 is effective in the fourth quarter of fiscal year 2009. The Company is currently evaluating the impact of the pending adoption of SFAS 161 on its consolidated financial statements.

In February 2008, the FASB issued FSP 157-1, Application of FASB Statement 157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1) and FSP 157-2, Effective Date of FASB Statement 157 (FSP 157-2). FSP 157-1 amends SFAS 157 to remove certain leasing
transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually), until the beginning of the first quarter of fiscal year 2010. The Company is currently evaluating the impact that these provisions of SFAS 157 will have on its consolidated financial statements when it is applied to
non-financial assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of fiscal year 2010.

In December 2007, the FASB issued SFAS 141(R), Business Combinations(SFAS 141(R)). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a
business



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combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirers income tax valuation allowance. The
adoption of SFAS 141(R) will change our accounting treatment for business combinations on a prospective basis beginning in the first quarter of fiscal year 2010.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides companies the option (fair value option) to measure certain financial
instruments and other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007, although
earlier adoption is permitted. Currently, the Company has elected not to adopt the fair value option under this pronouncement.

In September 2006, the
FASB issued SFAS 157, Fair Value Measurements (SFAS 157), which enhances existing guidance for measuring assets and liabilities using fair value. SFAS 157 defines fair value, provides a framework for measuring fair
value, and expands disclosures required for fair value measurement. The Company adopted this standard in the first quarter of fiscal 2009. See Fair Value Measurements in Note 8 for further discussion.

Note 4

Net Income (loss) Per Share

Net income per share has been computed using weighted-average common shares outstanding in accordance with SFAS 128, Earnings per Share.



|                                                              |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        
|------------------------------------------------------------- |  | ------------------ | -------- | ----------------- | ------------ | - | ------------ |  | - | ------------ | - |  | - | -------
|                                                              |  | Three months ended |          | Nine months ended
|(in thousands, except per share amounts)                      |  | Dec. 28,2008       |          |                   | Dec. 30,2007 |   | Dec. 28,2008 |  |   | Dec. 30,2007
|Net income (loss)                                             |  | $                  | (345,259 | )                 |              | $ | 13,418       |  | $ | (324,430     | ) |  | $ | 17,081 
|Weighted average common shares outstanding                    |  |                    | 167,412  |                   |              |   | 186,720      |  |   | 169,354      |   |  |   | 190,240
|Dilutive effect of employee stock options                     |  |                    |         |                   |              |   | 1,825        |  |   |             |   |  |   | 3,890  
|                                                              |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        
|Weighted average common shares outstanding, assuming dilution |  |                    | 167,412  |                   |              |   | 188,545      |  |   | 169,354      |   |  |   | 194,130
|                                                              |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        
|Basic net income (loss) per share                             |  | $                  | (2.06    | )                 |              | $ | 0.07         |  | $ | (1.92        | ) |  | $ | 0.09   
|                                                              |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        
|Diluted net income (loss) per share                           |  | $                  | (2.06    | )                 |              | $ | 0.07         |  | $ | (1.92        | ) |  | $ | 0.09   
|                                                              |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        

Stock options to purchase 29.0 million shares and 29.6 million shares for the three and nine month
periods ended December 28, 2008, respectively, and 12.3 million shares and 11.1 million shares for the three and nine month periods ended December 30, 2007, respectively, were outstanding, but were excluded from the calculation
of diluted earnings per share because the exercise price of the stock options was greater than the average share price of the common shares and therefore, the effect would have been anti-dilutive. Net loss per share for the three and nine month
periods ended December 28, 2008 is based only on weighted average common shares outstanding.

Note 5

Stock-Based Employee Compensation

Compensation Expense

The following table summarizes stock-based compensation expense by line items appearing in the Companys Condensed Consolidated Statement of
Operations:



|                                                                   |  |                    |       |                   |   |              |  |              |        |  |   |       
|------------------------------------------------------------------ |  | ------------------ | ----- | ----------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                                                   |  | Three months ended |       | Nine months ended
|(in thousands)                                                     |  | Dec. 28,2008       |       | Dec. 30,2007      |   | Dec. 28,2008 |  | Dec. 30,2007
|Cost of revenue                                                    |  | $                  | 787   |                   | $ | 947          |  | $            | 2,756  |  | $ | 3,189 
|Research and development                                           |  |                    | 5,101 |                   |   | 4,782        |  |              | 15,402 |  |   | 18,128
|Selling, general and administrative                                |  |                    | 3,124 |                   |   | 3,662        |  |              | 7,625  |  |   | 11,704
|                                                                   |  |                    |       |                   |   |              |  |              |        |  |   |       
|Total stock-based compensation expense                             |  |                    | 9,012 |                   |   | 9,391        |  |              | 25,783 |  |   | 33,021
|Tax effect on stock-based compensation expense (1)                 |  |                    |      |                   |   |             |  |              |       |  |   |      
|                                                                   |  |                    |       |                   |   |              |  |              |        |  |   |       
|Total stock-based compensation expense, net of related tax effects |  | $                  | 9,012 |                   | $ | 9,391        |  | $            | 25,783 |  | $ | 33,021
|                                                                   |  |                    |       |                   |   |              |  |              |        |  |   |       



|(1) | Assumes a zero tax rate for each period presented as the Company has a full valuation allowance.
|--- | ------------------------------------------------------------------------------------------------



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##### Table of Contents

Stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations is based on awards
ultimately expected to vest. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company attributes the value of stock-based
compensation to expense on an accelerated method.

The following table summarizes stock-based compensation expense associated with each type of award:



|                                           |  |                    |       |                   |              |   |              |  |   |              |   |  |   |       
|------------------------------------------ |  | ------------------ | ----- | ----------------- | ------------ | - | ------------ |  | - | ------------ | - |  | - | ------
|                                           |  | Three months ended |       | Nine months ended
|(in thousands)                             |  | Dec. 28,2008       |       |                   | Dec. 30,2007 |   | Dec. 28,2008 |  |   | Dec. 30,2007
|Employee stock options                     |  | $                  | 6,675 |                   |              | $ | 7,907        |  | $ | 19,118       |   |  | $ | 28,456
|Employee stock purchase plan (ESPP)      |  |                    | 684   |                   |              |   | 440          |  |   | 2,188        |   |  |   | 1,961 
|Restricted stock units (RSUs)            |  |                    | 1,839 |                   |              |   | 907          |  |   | 4,599        |   |  |   | 2,401 
|Change in amounts capitalized in inventory |  |                    | (186  | )                 |              |   | 137          |  |   | (122         | ) |  |   | 203   
|                                           |  |                    |       |                   |              |   |              |  |   |              |   |  |   |       
|Total stock-based compensation expense     |  | $                  | 9,012 |                   |              | $ | 9,391        |  | $ | 25,783       |   |  | $ | 33,021
|                                           |  |                    |       |                   |              |   |              |  |   |              |   |  |   |       

Valuation Assumptions

Assumptions used in the Black-Scholes valuation model and resulting weighted average grant-date fair values were as follows:



|                                       |  |                    |            |   |                   |   |            |              |  |   |              |   |  |   |            |  
|-------------------------------------- |  | ------------------ | ---------- | - | ----------------- | - | ---------- | ------------ |  | - | ------------ | - |  | - | ---------- | -
|                                       |  | Three months ended |            |   | Nine months ended |  
|                                       |  | Dec. 28,2008       |            |   | Dec. 30,2007      |   |            | Dec. 28,2008 |  |   | Dec. 30,2007 |  
|Stock option plans:                    |  |                    |            |   |                   |   |            |              |  |   |              |   |  |   |            |  
|Expected term                          |  |                    | 4.67 years |   |                   |   | 4.66 years |              |  |   | 4.59 years   |   |  |   | 4.66 years |  
|Risk-free interest rate                |  |                    | 2.12       | % |                   |   | 3.83       | %            |  |   | 2.79         | % |  |   | 4.71       | %
|Volatility                             |  |                    | 49.1       | % |                   |   | 38.5       | %            |  |   | 41.7         | % |  |   | 43.2       | %
|Dividend yield                         |  |                    | 0.0        | % |                   |   | 0.0        | %            |  |   | 0.0          | % |  |   | 0.0        | %
|Weighted average grant-date fair value |  | $                  | 2.26       |   |                   | $ | 4.74       |              |  | $ | 3.81         |   |  | $ | 6.33       |  
|ESPP:                                  |  |                    |            |   |                   |   |            |              |  |   |              |   |  |   |            |  
|Expected term                          |  |                    | 0.25 years |   |                   |   | 0.25 years |              |  |   | 0.25 years   |   |  |   | 0.25 years |  
|Risk-free interest rate                |  |                    | 0.94       | % |                   |   | 3.92       | %            |  |   | 1.39         | % |  |   | 4.67       | %
|Volatility                             |  |                    | 55.7       | % |                   |   | 25.9       | %            |  |   | 42.3         | % |  |   | 29.6       | %
|Dividend yield                         |  |                    | 0.0        | % |                   |   | 0.0        | %            |  |   | 0.0          | % |  |   | 0.0        | %
|Weighted average grant-date fair value |  | $                  | 2.21       |   |                   | $ | 2.16       |              |  | $ | 2.09         |   |  | $ | 2.96       |  

Equity Incentive Programs

The Company currently issues awards under three equity based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-range success of the
Company. These plans are further described below.

1994 Stock Option Plan (1994 Plan)

In May 1994, the Companys stockholders approved the 1994 Plan. In September 2000, the Companys stockholders elected to extend the plan to expire in 2010. Under the 1994 Plan, 13,500,000 shares of common
stock have been made available for issuance as stock options to employees, officers, directors, consultants, independent contractors and advisors of the Company and its affiliates. Shares issuable upon exercise of stock options granted pursuant to
the Companys 1985 Incentive and Nonqualified Stock Option Plan that expire or become unexercisable for any reason without having been exercised in full are also available for distribution under the 1994 Plan (not to exceed 10,000,000 shares).
Options granted by the Company under the 1994 Plan generally expire seven years from the date of grant and generally vest over a four-year period from the date of grant. The exercise price of the options granted by the Company under the 1994 Plan
shall not be less than 100% of the fair market value for a common share subject to such option on the date the option is granted. As of December 28, 2008, 1,197,024 shares remain available for future grant under the 1994 Plan.



9



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2004 Equity Plan (2004 Plan)

In September 2004, the Companys stockholders approved the 2004 Plan. Under the 2004 Plan, 28,500,000 shares of common stock have been made available for issuance as stock options, restricted stock awards, stock appreciation rights,
performance awards, restricted stock unit awards, and stock-based awards to employees, directors and consultants, of which a maximum of 4,000,000 shares are eligible for non-option full value awards. The 2004 Plan allows for time-based
and performance-based vesting for the awards. Options granted by the Company under the 2004 Plan generally expire seven years from the date of grant and generally vest over a four-year period from the date of grant, with one-quarter of the shares of
common stock vesting on the one-year anniversary of the grant date and the remaining shares vesting monthly for the 36 months thereafter. The exercise price of the options granted by the Company under the 2004 Plan shall not be less than 100% of the
fair market value for a common share subject to such option on the date the option is granted. Full value awards made under the 2004 Plan shall become vested over a period of not less than three years (or, if vesting is performance-based, over a
period of not less than one year) following the date such award is made; provided, however, that full value awards that result in the issuance of an aggregate of up to 5% of common stock available under the 2004 Plan may be granted to any one or
more participants without respect to such minimum vesting provisions. As of December 28, 2008, 9,723,423 shares remain available for future grant under the 2004 Plan.

Restricted stock units available for grant by the Company under the 2004 Plan generally vest over a 48-month period from the grant date. Prior to vesting, participants holding restricted stock units do not have
shareholder rights. Shares are issued on or as soon as administratively practicable following the vesting date of the restricted stock units and upon issuance, recordation and delivery, the participant will have all the rights of a shareholder of
the Company with respect to voting such stock and receipt of dividends and distributions on such stock. As of December 28, 2008, 1,259,516 restricted stock unit awards were outstanding under the 2004 Plan.

The following table summarizes the Companys stock option activities for the nine months ended December 28, 2008:



|                                            |  |        |   |  |                              |      
|------------------------------------------- |  | ------ | - |  | ---------------------------- | -----
|(in thousands, except per share amounts)    |  | Shares |   |  | WeightedAverageExercisePrice
|Options outstanding as of March 30, 2008    |  | 30,506 |   |  | $                            | 13.00
|Granted                                     |  | 3,406  |   |  |                              | 10.10
|Exercised                                   |  | (346   | ) |  |                              | 9.33 
|Canceled, forfeited or expired              |  | (4,545 | ) |  |                              | 14.48
|                                            |  |        |   |  |                              |      
|Options outstanding as of December 28, 2008 |  | 29,021 |   |  |                              | 12.48
|                                            |  |        |   |  |                              |      
|Options exercisable at December 28, 2008    |  | 21,058 |   |  | $                            | 12.57
|                                            |  |        |   |  |                              |      

As of December 28, 2008, the weighted average remaining contractual life of options outstanding was 3.7 years
and the aggregate intrinsic value was $0.2 million. The weighted average remaining contractual life of options exercisable was 3.0 years and the aggregate intrinsic value was $0.1 million. Unrecognized compensation cost related to non-vested
stock-based awards, net of estimated forfeitures was $15.2 million and will be recognized over a weighted average period of 1.2 years.

As of
December 28, 2008, stock options vested and expected to vest totaled approximately 27.9 million shares, with a weighted-average exercise price of $12.51 per share and a weighted average remaining contractual life of 3.6 years. The
aggregate intrinsic value was approximately $0.2 million.



|                                                        |  |                    |     |                   |   |               |  |               |       |  |   |       
|------------------------------------------------------- |  | ------------------ | --- | ----------------- | - | ------------- |  | ------------- | ----- |  | - | ------
|                                                        |  | Three months ended |     | Nine months Ended
|(in thousands)                                          |  | Dec. 28, 2008      |     | Dec. 30, 2007     |   | Dec. 28, 2008 |  | Dec. 30, 2007
|Net cash proceeds from options exercised                |  | $                  | 0   |                   | $ | 4,576         |  | $             | 3,226 |  | $ | 30,491
|Total intrinsic value of options exercised              |  | $                  | 0   |                   | $ | 972           |  | $             | 734   |  | $ | 11,782
|Realized excess tax benefits from options exercised (1) |  | $                  | 192 |                   | $ | 0             |  | $             | 192   |  | $ | 0     



|(1) | For the three months ended December 28, 2008, approximately $192 thousand of U.S. income tax benefits related to the exercise of certain employee stock options decreased income
taxes payable and were credited to additional paid in capital.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following table summarizes the Companys restricted stock unit activities for the nine months ended
December 28, 2008:



|                                       |  |                      |   |  |                                      |      
|-------------------------------------- |  | -------------------- | - |  | ------------------------------------ | -----
|                                       |  | Shares(in thousands) |   |  | WeightedAverage GrantDate Fair Value
|RSUs outstanding as of March 30, 2008 |  | 627                  |   |  | $                                    | 14.53
|Granted                                |  | 919                  |   |  |                                      | 11.59
|Released                               |  | (158                 | ) |  |                                      | 14.64
|Forfeited                              |  | (128                 | ) |  |                                      | 13.22
|                                       |  |                      |   |  |                                      |      
|Outstanding at December 28, 2008       |  | 1,260                |   |  | $                                    | 12.50

As of December 28, 2008, there was approximately $7.1 million of unrecognized compensation cost related to
restricted stock units granted under the Companys equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.8 years.

As of December 28, 2008, restricted stock units vested and expected to vest totaled approximately 1.0 million shares, with a weighted average remaining
contractual life of 1.6 years. The aggregate intrinsic value was approximately $5.3 million.

1984 ESPP

In July 1984, the Companys stockholders approved the 1984 ESPP under which eligible employees may purchase shares of the Companys common stock through
payroll deductions (not to exceed 15% of such employees compensation) at no lower than 85% of the fair market value of the common stock on the first day or the last day of each fiscal quarter, whichever is lower. Under the 1984 ESPP,
15,100,000 shares of common stock have been made available for issuance. The 1984 ESPP is implemented by successive quarterly purchase periods commencing on the first day of each fiscal quarter of the Company. In order to maintain its qualified
status under Section 423 of the Internal Revenue Code, the 1984 ESPP imposes certain restrictions, including the limitation that no employee is permitted to participate in the 1984 ESPP if the rights of such employee to purchase common stock of
the Company under the 1984 ESPP and all similar purchase plans of the Company or its subsidiaries would accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time the right is granted) for each calendar
year. During the nine months ended December 28, 2008, the Company issued 1,282,871 shares of common stock with a weighted-average purchase price of $6.17 per share.

Note 6

Balance Sheet Detail



|                                                      |  |              |        |               |   |       
|----------------------------------------------------- |  | ------------ | ------ | ------------- | - | ------
|(in thousands)                                        |  | Dec. 28,2008 |        | March 30,2008
|Inventories                                           |  |              |        |               |   |       
|Raw materials                                         |  | $            | 7,227  |               | $ | 4,674 
|Work-in-process                                       |  |              | 38,330 |               |   | 43,556
|Finished goods                                        |  |              | 31,544 |               |   | 31,724
|                                                      |  |              |        |               |   |       
|Total inventories                                     |  | $            | 77,101 |               | $ | 79,954
|                                                      |  |              |        |               |   |       
|Other long-term obligations                           |  |              |        |               |   |       
|Deferred compensation related liabilities             |  | $            | 11,693 |               | $ | 12,858
|Long-term portion of deferred gain on equipment sales |  |              | 825    |               |   | 897   
|Long-term portion of lease impairment obligations     |  |              | 945    |               |   | 1,103 
|Long-term portion of supplier obligations             |  |              | 2,145  |               |   | 3,086 
|Other                                                 |  |              | 140    |               |   | 420   
|                                                      |  |              |        |               |   |       
|Total other long-term obligations                     |  | $            | 15,748 |               | $ | 18,364
|                                                      |  |              |        |               |   |       



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Note 7

Deferred
Income On Shipments to Distributors

Included in the caption Deferred income on shipments to distributors on the consolidated balance
sheet are amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold by the distributor to an end customer.The components at December 28, 2008 and March 30, 2008 were as
follows:



|                                             |  |               |        |                |   |       
|-------------------------------------------- |  | ------------- | ------ | -------------- | - | ------
|(in thousands)                               |  | Dec. 28, 2008 |        | March 30, 2008
|Gross deferred revenue                       |  | $             | 25,779 |                | $ | 30,741
|Gross deferred costs                         |  |               | 5,518  |                |   | 6,429 
|                                             |  |               |        |                |   |       
|Deferred income on shipments to distributors |  | $             | 20,261 |                | $ | 24,312
|                                             |  |               |        |                |   |       

The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the
distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory. The amount ultimately recognized as revenue will be lower than this amount as a result of future
price protection and ship from stock pricing credits which are issued in connection with the sell through of our products to end customers. Historically this amount represents on average approximately 25% of the list price billed to the customer.
The gross deferred costs represent the standard costs of products we sell to the distributors. Although we monitor the levels and quality of inventory in the distribution channel, our experience is that product returned from these distributors are
able to be sold to a different distributor or in a different region of the world. As such, inventory write-downs for product in the distribution channel have not been significant.

Note 8

Fair Value Measurement

Effective March 31, 2008, the Company adopted SFAS 157, Fair Value Measurements (SFAS 157), except as it applies to the non-financial assets and non-financial liabilities subject to
Financial Staff Position SFAS 157-2.

SFAS 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing assets or liabilities. When
determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact.

Fair Value Hierarchy

SFAS 157 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy which prioritizes the inputs used to measure fair value from market based assumptions to
entity specific assumptions are as follows:

Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the
measure date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Inputs reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are
unobservable in the market and significant to the instruments valuation.

The following table summarizes the Companys financial assets and
liabilities measured at fair value on a recurring basis in accordance with SFAS 157 as of December 28, 2008:



|                                                           |  |                                                             |         |                                             |   |              |  |   |        
|---------------------------------------------------------- |  | ----------------------------------------------------------- | ------- | ------------------------------------------- | - | ------------ |  | - | -------
|                                                           |  | Fair Value at Reporting Date Using:                        
|(in thousands)                                             |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |         | Significant OtherObservable Inputs(Level 2) |   | TotalBalance
|Cash Equivalents and Short Term Investments:               |  |                                                             |         |                                             |   |              |  |   |        
|Money market funds                                         |  | $                                                           | 128,094 |                                             | $ |             |  | $ | 128,094
|US government treasuries and agencies securities           |  |                                                             | 93,063  |                                             |   |              |  |   | 93,063 
|Corporate commercial paper                                 |  |                                                             |         |                                             |   | 24,853       |  |   | 24,853 
|Bank deposits                                              |  |                                                             |         |                                             |   | 21,778       |  |   | 21,778 
|Corporate bonds                                            |  |                                                             |         |                                             |   | 13,399       |  |   | 13,399 
|Certificates of deposits                                   |  |                                                             |         |                                             |   | 6,680        |  |   | 6,680  
|Government bonds                                           |  |                                                             |         |                                             |   | 1,050        |  |   | 1,050  
|Asset back securities                                      |  |                                                             |         |                                             |   | 293          |  |   | 293    
|Other Assets:                                              |  |                                                             |         |                                             |   |              |  |   |        
|Assets related to non-qualified deferred compensation plan |  |                                                             |         |                                             |   | 9,829        |  |   | 9,829  
|                                                           |  |                                                             |         |                                             |   |              |  |   |        
|Total assets measured at fair value                        |  | $                                                           | 221,157 |                                             | $ | 77,882       |  | $ | 299,039
|                                                           |  |                                                             |         |                                             |   |              |  |   |        
|Liabilities:                                               |  |                                                             |         |                                             |   |              |  |   |        
|Non-qualified deferred compensation obligations            |  |                                                             |        |                                             |   | 11,693       |  |   | 11,693 
|                                                           |  |                                                             |         |                                             |   |              |  |   |        
|Total liabilities measured at fair value                   |  | $                                                           |        |                                             | $ | 11,693       |  | $ | 11,693 
|                                                           |  |                                                             |         |                                             |   |              |  |   |        



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##### Table of Contents

The Companys cash equivalent and short term investment are classified within Level 1 or Level 2 of the fair value
hierarchy because they are valued using quoted market prices, broker or dealer quotation, or alternative pricing sources with reasonable levels of price transparency. The securities in Level 1 are highly liquid and actively traded in exchange
markets or over-the-counter markets. The securities in Level 2 represent securities with quoted prices in markets that are not as active or for which all significant inputs are observable.

The Company maintains an unfunded deferred compensation plan to provide benefits to executive officers and other key employees. Under the plan, participants can defer
any portion of their salary and bonus compensation into the plan and may choose from a portfolio of funds from which earnings are measured. Participant balances are always 100% vested. The deferred compensation plan obligation is recorded at fair
value based on the quoted prices of the underlying mutual funds and included in Other long-term obligations on the Companys Condensed Consolidated Balance Sheets. Increases or decreases related to the obligations are recorded in operating
expenses. Additionally, the Company has set aside assets in a separate trust that is invested in corporate owned life insurance intended to substantially offset the liability under the plan. The value of these assets is determined by the quoted
prices of the underlying mutual funds of the life insurance adjusted by the insurance premium charges and is included in Other assets on the Companys Condensed Consolidated Balance Sheets. Gains or losses of these assets are recorded in
Interest income and other, net. The Company has identified both its assets and liability related to the plan within Level 2 in the fair value hierarchy as these valuations are based on observable market data obtained directly from the dealer or
observable price quotes for similar assets such as the underlying mutual fund pricing. As of December 28, 2008, we do not maintain any assets or liabilities with a Level 3 valuation that would require a high level judgment to determine fair
value.

Cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase. The Company maintains its
cash and cash equivalents with reputable major financial institutions. Deposits with these banks may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions. These deposits
typically may be redeemed upon demand and, therefore, bear minimal risk. In addition, a significant portion of cash equivalents is concentrated in money market funds which have either elected to participate in the U.S. Treasurys Temporary
Guarantee Program for Money Market Funds, or have invested in U.S. government treasuries only. While the Company monitors daily the cash balances in its operating accounts and adjusts the balances as appropriate, these balances could be impacted if
one or more of the financial institutions with which the Company deposits fails or is subject to other adverse conditions in the financial markets. As of today, the Company has not experienced any loss in its operating accounts.

All of the Companys available-for-sale investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair
value is judged to be other-than-temporary. This determination requires significant judgment. For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the
closing price over the length of time, general market conditions and the Companys intent and ability to hold the investment for a period of time sufficient to allow for recovery. Although the Company believes its portfolio continues to be
comprised of sound investments due to high credit ratings and government guarantees of the underlying investments, a further decline in the capital and financial markets would adversely impact the market values of its investments and their
liquidity. The Company continually monitors the credit risk in its portfolio and future developments in the credit markets and makes appropriate changes to its investment policy as deemed necessary. The Company did not record any impairment charges
related to its short-term investments in Q3 2009.

Note 9

Investment in Non-Marketable Equity Securities

In conjunction with the merger with Integrated Circuit Systems, Inc. (ICS), the Company
acquired an investment in Best Elite International Limited (Best Elite). Best Elite is a private company, which owns a wafer fabrication facility in Suzhou, China. The Company purchases wafers from Best Elites wafer fabrication
facility for certain legacy ICS products. In accordance with Accounting Principle Board Opinion 18, The Equity Method of Accounting for Investment in Common Stock(APB 18), the Company accounts for this investment under cost
method. During Q3 2009, the Company identified indicators of impairment during its review of this investment. In determining whether a decline in value of its investment in Best Elite has occurred and is other than temporary, an assessment is made
by considering available evidence, including the general market conditions in the wafer fabrication industry, Best Elites financial condition, near-term prospects, market comparables and subsequent rounds of financing. The valuation also takes
into account the Best Elites capital structure, liquidation preferences for its capital and other economic variables. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that
require management judgment. Based on the results, the Company recognized other-than-temporary impairment charge of $3.0 million related to this investment during Q3 2009 to write it down to its estimated fair value of $2.0 million.



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Note 10

Business
Combinations

Acquisition of certain assets of Silicon Optix

On October 20,2008, the Company completed its acquisition of certain video signal processing technology and related assets along with members of the Silicon Optixs engineering teams. The total purchase price was approximately
$20.1 million, including approximately $0.7 million of acquisition-related transaction costs. A summary of the total purchase price is as follows:



|                                      |  |   |     
|------------------------------------- |  | - | ----
|(in millions)                         |  |  
|Cash paid                             |  | $ | 19.4
|Acquisition-related transaction costs |  |   | 0.7 
|                                      |  |   |     
|Total purchase price                  |  | $ | 20.1
|                                      |  |   |     

In accordance with SFAS 141, Business Combinations, the Company has allocated the purchase price to the
tangible and intangible assets acquired and liabilities assumed, including in-process research and development, based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The acquisition provided
the Company with a video signal processing technology, team of engineers, certain assets and a product line involving video technologies. The Company believes these technologies will allow it to pursue expanded opportunities, particularly in the
emerging high-definition video market. These opportunities, along with the ability to sell video products to the existing base of IDT customers, were significant contributing factors to the establishment of the purchase price. The fair values
assigned to tangible and intangible assets acquired and liabilities assumed are based on management estimates and assumptions, including third-party valuations that utilize established valuation techniques appropriate for the high-technology
industry. As of December 28, 2008, approximately $0.9 million of the total goodwill is expected to be deductible for tax purposes over 15 years. In accordance with SFAS 142, Goodwill and Intangible Assets, goodwill is not amortized but
will be reviewed at least annually for impairment. Purchased intangibles with finite lives are being amortized over their respective estimated useful lives on a straight line basis. The purchase price has been allocated as follows:



|                                    |  |            |     
|----------------------------------- |  | ---------- | ----
|(in millions)                       |  | Fair Value
|Net tangible assets acquired        |  | $          | 0.6 
|Amortizable intangible assets       |  |            | 4.7 
|In-process research and development |  |            | 5.6 
|Goodwill                            |  |            | 9.2 
|                                    |  |            |     
|Total purchase price                |  | $          | 20.1
|                                    |  |            |     

A summary of the allocation of amortizable intangible assets is as follows:



|                               |  |                         |     |        |               |                                             |    
|------------------------------ |  | ----------------------- | --- | ------ | ------------- | ------------------------------------------- | ---
|                               |  | Fair Value(in millions) |     | Method |               | Useful Lives from Dateof Acquisition(years)
|Amortizable intangible assets: |  |                         |     |        |               |                                             |    
|Existing Technologies          |  | $                       | 3.7 |        | Straight-Line |                                             | 3-7
|Customer Relationships         |  |                         | 0.5 |        | Straight-Line |                                             | 3  
|Trade Name                     |  |                         | 0.5 |        | Straight-Line |                                             | 7  
|                               |  |                         |     |        |               |                                             |    
|Total                          |  | $                       | 4.7 |        |               |                                             |    
|                               |  |                         |     |        |               |                                             |    

Useful lives are primarily based on the underlying assumptions used in the discounted cash flow (DCF) models.

Net Tangible Assets

Assets were reviewed and
adjusted, if required, to their estimated fair value.

Amortizable Intangible Assets

Existing technologies consists of products that have reached technological feasibility. The Company valued the existing technologies utilizing a DCF model, which used forecasts of future revenues and expenses related
to the intangible assets. The Company utilized discount factors of 24% and 32% for existing technologies and is amortizing the intangible assets on a straight-line basis over 3 to 7 years.



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The value of the customer relationships intangible asset was estimated using a DCF model, which used forecasts of future
revenues and expenses related to the intangible assets. The Company utilized a discount factor of 24% and is amortizing this intangible asset on a straight-line basis over 3 years.

The Silicon Optixs trade names were valued using the relief from royalty method, which represents the benefit of owning this intangible asset rather than paying royalties for its use. The Company utilized a
discount factor of 27% and is amortizing this intangible asset on a straight-line basis over 7 years.

In-process Research and Development (IPR&D)

Of the total purchase price, $5.6 million was allocated to IPR&D. Projects that qualify as IPR&D represent those that have not yet reached
technological feasibility and which have no alternative future use. Technological feasibility is established when an enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that a product can
be produced to meet its design specifications, including functions, features, and technical performance requirements. The value of IPR&D was determined by considering the importance of each project to the Companys overall development plan,
estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value based on the percentage of
completion of the IPR&D projects. The Company utilized the DCF method to value the IPR&D, using a discount factor of 32%.

Note 11

Goodwill and Other Intangible Assets

Goodwill and
identified intangible asset balances are summarized as follows:



|                                                |  |                   |           |                         |   |          |            |  |   |        
|----------------------------------------------- |  | ----------------- | --------- | ----------------------- | - | -------- | ---------- |  | - | -------
|                                                |  | December 28, 2008
|(in thousands)                                  |  | Gross assets      |           | Accumulatedamortization |   |          | Net assets
|Goodwill                                        |  | $                 | 708,863   |                         | $ |         |            |  | $ | 708,863
|                                                |  |                   |           |                         |   |          |            |  |   |        
|Identified intangible assets:                   |  |                   |           |                         |   |          |            |  |   |        
|Existing technology                             |  |                   | 280,255   |                         |   | (186,011 | )          |  |   | 94,244 
|Trademarks                                      |  |                   | 10,888    |                         |   | (8,616   | )          |  |   | 2,272  
|Customer relationships                          |  |                   | 158,978   |                         |   | (120,902 | )          |  |   | 38,076 
|Foundry & Assembler relationships               |  |                   | 64,708    |                         |   | (64,210  | )          |  |   | 498    
|Non-compete agreements                          |  |                   | 53,165    |                         |   | (52,924  | )          |  |   | 241    
|Other                                           |  |                   | 31,174    |                         |   | (31,034  | )          |  |   | 140    
|                                                |  |                   |           |                         |   |          |            |  |   |        
|Subtotal, identified intangible assets          |  |                   | 599,168   |                         |   | (463,697 | )          |  |   | 135,471
|                                                |  |                   |           |                         |   |          |            |  |   |        
|Total goodwill and identified intangible assets |  | $                 | 1,308,031 |                         | $ | (463,697 | )          |  | $ | 844,334
|                                                |  |                   |           |                         |   |          |            |  |   |        



|                                                |  |                |           |                         |   |          |            |  |   |          
|----------------------------------------------- |  | -------------- | --------- | ----------------------- | - | -------- | ---------- |  | - | ---------
|                                                |  | March 30, 2008
|(in thousands)                                  |  | Gross assets   |           | Accumulatedamortization |   |          | Net assets
|Goodwill                                        |  | $              | 1,027,438 |                         | $ |         |            |  | $ | 1,027,438
|                                                |  |                |           |                         |   |          |            |  |   |          
|Identified intangible assets:                   |  |                |           |                         |   |          |            |  |   |          
|Existing technology                             |  |                | 288,558   |                         |   | (144,570 | )          |  |   | 143,988  
|Trademarks                                      |  |                | 10,534    |                         |   | (7,716   | )          |  |   | 2,818    
|Customer relationships                          |  |                | 158,396   |                         |   | (103,506 | )          |  |   | 54,890   
|Foundry & Assembler relationships               |  |                | 65,256    |                         |   | (63,219  | )          |  |   | 2,037    
|Non-compete agreements                          |  |                | 53,165    |                         |   | (52,688  | )          |  |   | 477      
|Other                                           |  |                | 31,174    |                         |   | (30,895  | )          |  |   | 279      
|                                                |  |                |           |                         |   |          |            |  |   |          
|Subtotal, identified intangible assets          |  |                | 607,083   |                         |   | (402,594 | )          |  |   | 204,489  
|                                                |  |                |           |                         |   |          |            |  |   |          
|Total goodwill and identified intangible assets |  | $              | 1,634,521 |                         | $ | (402,594 | )          |  | $ | 1,231,927
|                                                |  |                |           |                         |   |          |            |  |   |          

In accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is reviewed for
impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. These tests are performed at the reporting unit level using a two-step method. The first step, used to determine if
impairment possibly exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds the fair value, the second step is to determine the amount of a possible
impairment by comparing the implied fair value



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of the reporting unit goodwill with the carrying amount of that goodwill. Determining the fair value of a reporting unit is judgmental in nature and involves
the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions
and determination of appropriate market comparables. The Company completed its annual review of the goodwill during the fourth quarter ended March 30, 2008 and concluded that there was no impairment. Due to the recent extraordinary market and
economic conditions, the Company experienced a decline in its stock price, resulting in the Companys market capitalization falling below its net book value. In addition, due to the increased competitive pressure within certain of the
Companys markets, as well as the deteriorating macro-economic environment, which caused a decline in its revenue, operating income, and cash flow forecasts, the Company concluded that indicators existed requiring it to perform an interim
goodwill impairment analysis at December 28, 2008. Accordingly, the Company performed an interim goodwill impairment analysis for each of its five reporting units. The first step of the analysis is to calculate the fair value of each of its
five reporting units. The fair value of each reporting unit is estimated based on an average weighting of both projected discounted future cash flows (the income approach) and use of comparative market multiples (the market approach). The market
approach compares the Company to other comparable companies based on valuation multiples to arrive at fair value adjusted for a control premium. Based on the preliminary results, the carrying value of the Computing and Multimedia (CMD) reporting
unit exceeded its fair value, indicating a potential goodwill impairment existed. As a result, the Company performed the second step of the impairment test to determine the implied goodwill of this reporting unit, which is the difference between the
estimated fair value of this reporting unit and the sum of the fair value of the identified recognized and unrecognized net assets. The net assets include tangible and intangible assets, such as developed technology, in-process research and
development, trade name and backlog. The result of the second step of the goodwill analysis indicated that the goodwill related to the CMD reporting unit was impaired. Accordingly, the Company wrote down the carrying amount of goodwill to its
estimated implied fair value and recognized an estimated goodwill impairment charge of $326.4 million as of December 28, 2008. The Company currently expects to finalize its goodwill impairment analysis during the fourth quarter ended
March 29, 2009. Any adjustments to the Companys preliminary estimates as a result of the completion of this analysis may materially impact its operating results and financial position for the fourth quarter ended March 29, 2009.

The Company made several assumptions to establish inputs for its fair value calculations. The Company used the long term growth rates from 3% to 7% to
calculate the terminal value of its reporting units. The Company used the discount rates that ranged between 19% and 32% with most clustered around 22% to calculate the discounted cash flows. The discount rates were higher than the range of 13% to
32% used in the prior year. The Company believes that the assumptions and rates used in its interim impairment test under SFAS 142 are reasonable; however, they are judgmental, and variations in any of the assumptions or rates could result in a
materially different amount of the impairment charge.

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, long-lived assets are reviewed whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount
of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceeds
the fair value of the assets. As a result of the impairment indicator described above, the Company performed an impairment analysis for its long-lived assets, including its intangible assets subject to amortization. The analysis indicated that some
of the identified intangible assets are not recoverable as the sum of its estimated future undiscounted cash flows were below the assets carrying value and accordingly, the Company estimated the fair value of these identified assets using a
discounted cash flow analysis to measure the impairment loss. As a result of this analysis, the Company wrote off the difference between the identified intangible assets estimated fair values and the carrying values and recognized an
impairment charge of $12.7 million in Q3 2009.

Given the current global economic conditions, the various factors including the Companys market
capitalization, forecasted revenue and costs, risk-adjusted discount rates, future economic conditions, determination of appropriate market comparables and expected periods over which its assets will be utilized and other variables are inherently
uncertain. Should actual results differ significantly from current estimates, the Company may need to further write-down goodwill and intangible asset values to their fair values, which could result in material charges that could impact its
operating results and financial positions.



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Amortization expense for identified intangibles is summarized below:



|                                  |  |                    |        |                   |   |              |  |              |        |  |   |       
|--------------------------------- |  | ------------------ | ------ | ----------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                  |  | Three months ended |        | Nine months ended
|(in thousands)                    |  | Dec. 28,2008       |        | Dec. 30,2007      |   | Dec. 28,2008 |  | Dec. 30,2007
|Existing technology               |  | $                  | 13,349 |                   | $ | 14,145       |  | $            | 41,441 |  | $ | 42,620
|Trademarks                        |  |                    | 294    |                   |   | 301          |  |              | 900    |  |   | 1,616 
|Customer relationships            |  |                    | 5,666  |                   |   | 8,425        |  |              | 17,396 |  |   | 25,276
|Foundry & assembler relationships |  |                    | 289    |                   |   | 1,060        |  |              | 991    |  |   | 3,180 
|Non-compete agreements            |  |                    | 35     |                   |   | 134          |  |              | 236    |  |   | 11,533
|Other                             |  |                    | 19     |                   |   | 427          |  |              | 139    |  |   | 1,285 
|                                  |  |                    |        |                   |   |              |  |              |        |  |   |       
|Total                             |  | $                  | 19,652 |                   | $ | 24,492       |  | $            | 61,103 |  | $ | 85,510
|                                  |  |                    |        |                   |   |              |  |              |        |  |   |       

Based on the identified intangible assets recorded at December 28, 2008, the future amortization expense of
identified intangibles for the next five fiscal years is as follows (in thousands):



|                     |  |        |        
|-------------------- |  | ------ | -------
|Fiscal year          |  | Amount
|Remainder of FY 2009 |  | $      | 18,286 
|2010                 |  |        | 47,978 
|2011                 |  |        | 26,917 
|2012                 |  |        | 19,189 
|2013                 |  |        | 11,123 
|Thereafter           |  |        | 11,978 
|                     |  |        |        
|Total                |  | $      | 135,471
|                     |  |        |        

Note 12

Comprehensive Income

The components of comprehensive income were as follows:



|                                            |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        |  
|------------------------------------------- |  | ------------------ | -------- | ----------------- | ------------ | - | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                            |  | Three months ended |          | Nine months ended |             
|(in thousands)                              |  | Dec. 28,2008       |          |                   | Dec. 30,2007 |   | Dec. 28,2008 |  |   | Dec. 30,2007 |  
|Net income (loss)                           |  | $                  | (345,259 | )                 |              | $ | 13,418       |  | $ | (324,430     | ) |  | $ | 17,081 |  
|Currency translation adjustments            |  |                    | (905     | )                 |              |   | 161          |  |   | (1,636       | ) |  |   | 503    |  
|Change in net unrealized loss on investment |  |                    | 826      |                   |              |   | 32           |  |   | 196          |   |  |   | (1,446 | )
|                                            |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        |  
|Comprehensive income (loss)                 |  | $                  | (345,338 | )                 |              | $ | 13,611       |  | $ | (325,870     | ) |  | $ | 16,138 |  
|                                            |  |                    |          |                   |              |   |              |  |   |              |   |  |   |        |  

The components of accumulated other comprehensive income were as follows:



|                                                         |  |              |       |               |   |      
|-------------------------------------------------------- |  | ------------ | ----- | ------------- | - | -----
|(in thousands)                                           |  | Dec. 28,2008 |       | March 30,2008
|Cumulative translation adjustments                       |  | $            | 892   |               | $ | 2,528
|Unrealized gain (loss) on available-for-sale investments |  |              | 748   |               |   | 552  
|                                                         |  |              |       |               |   |      
|Total accumulated other comprehensive income             |  | $            | 1,640 |               | $ | 3,080
|                                                         |  |              |       |               |   |      

During the first nine months of fiscal 2008, the Company sold approximately 1.2 million shares, or 89% of its
equity investment in Maxtek for proceeds, net of commissions, totaling approximately $2.7 million and recognized a gain of $1.7 million, which was classified within Interest income and other, net. During the remainder of fiscal year 2008, the
Company sold the remaining shares of its equity investment in Maxtek for proceeds, net of commissions, totaling approximately $0.2 million and recognized a gain of $0.1 million, which was classified within interest income and other, net.



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Note 13

Derivative Financial Instruments

As a result of its international operations, sales and purchase transactions, the Company is subject to
risks associated with fluctuating currency exchange rates. The Company may use derivative financial instruments to hedge these risks when instruments are available and cost effective in an attempt to minimize the impact of currency exchange rate
movements on its operating results and on the cost of capital equipment purchases. The Company may enter into hedges of forecasted transactions when the underlying transaction is highly probable and reasonably certain to occur within the subsequent
twelve months. Examples of these exposures would include forecasted expenses of a foreign manufacturing plant, design center or sales office. The Company may additionally enter into a derivative to hedge the foreign currency risk of a capital
equipment purchase if the capital equipment purchase order is executed and designated as a firm commitment. As of the end of Q3 2009 and Q3 2008, the Company did not have any outstanding foreign currency contracts that were designated as hedges of
forecasted cash flows or capital equipment purchases. The Company does not enter into derivative financial instruments for speculative or trading purposes.

The Company may also utilize currency forward contracts to hedge currency exchange rate fluctuations related to certain short term foreign currency assets and liabilities. Gains and losses on these undesignated derivatives offset gains and
losses on the assets and liabilities being hedged and the net amount is included in earnings. An immaterial amount of net gains and losses were included in interest income and other, net during the first nine months of fiscal 2009 and 2008.

Besides foreign exchange rate exposure, the Companys cash and investment portfolios are subject to risks associated with fluctuations in interest
rates. While the Companys policies allow for the use of derivative financial instruments to hedge the fair values of such investments, the Company has yet to enter into this type of hedging arrangement.

Note 14

Industry Segments

During Q2 2009, the Company announced a re-organization of its business units into five operating segments. The five operating segments are Communications,
Network, Enterprise and Computing, Computing and Multimedia and Video. The re-organization was performed to align the organization and resources with the Companys strategy, customers and methods of doing business as well as to reduce costs and
was fully implemented in Q3 2009. As a result, the Company reevaluated its reportable business segments in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), resulting in
a change in the Companys reportable segments from three (Networking segment, Timing and Memory Interface segment and Standard Products and Others segment) to two reportable segments (Communications segment and Computing and Consumer segment).
The Communications and Network operating segments are aggregated into Communications reportable segment, while Enterprise Computing, Computing and Multimedia and Video operating segments are aggregated into Computing and Consumer reportable segment

This change in segment reporting had no impact on the Companys consolidated balance sheets, statements of operations, statements of cash
flows or statements of stockholders equity for any periods. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by SFAS 131.

The segment information for three month and nine month period ended December 30, 2007 has been adjusted retrospectively to conform to the current period presentation. These two reportable business segments are as
follows:



| |  |  | Communications segment: includes network search engines (NSEs), RapidIO® switching solutions, flow-control management devices, FIFOs, multi-port products, integrated communications processors, high-speed SRAM, military application, digital logic, telecommunications.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Computing and Consumer segment: includes clock generation and distribution products, high-performance server memory
interfaces, PCI Express® switching solutions, PC audio and video products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The tables below provide information about these segments:

Revenues by segment



|                            |  |                    |         |                   |   |              |  |              |         |  |   |        
|--------------------------- |  | ------------------ | ------- | ----------------- | - | ------------ |  | ------------ | ------- |  | - | -------
|                            |  | Three months ended |         | Nine months ended
|(in thousands)              |  | Dec. 28,2008       |         | Dec. 30,2007      |   | Dec. 28,2008 |  | Dec. 30,2007
|Communications              |  | $                  | 70,639  |                   | $ | 83,821       |  | $            | 249,434 |  | $ | 261,567
|Computing and Consumer      |  |                    | 96,440  |                   |   | 117,407      |  |              | 306,394 |  |   | 342,804
|                            |  |                    |         |                   |   |              |  |              |         |  |   |        
|Total consolidated revenues |  | $                  | 167,079 |                   | $ | 201,228      |  | $            | 555,828 |  | $ | 604,371
|                            |  |                    |         |                   |   |              |  |              |         |  |   |        



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Income (loss) by segment



|                                                |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | -------- | - | ----------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                |  | Three months ended |          |   | Nine months ended |  
|(in thousands)                                  |  | Dec. 28,2008       |          |   | Dec. 30,2007      |   |         | Dec. 28,2008 |  |   | Dec. 30,2007 |  
|Communications                                  |  | $                  | 21,295   |   |                   | $ | 22,993  |              |  | $ | 86,015       |   |  | $ | 70,707  |  
|Computing and Consumer                          |  |                    | 9,557    |   |                   |   | 21,532  |              |  |   | 25,739       |   |  |   | 58,680  |  
|Amortization of intangible assets               |  |                    | (19,652  | ) |                   |   | (24,492 | )            |  |   | (61,103      | ) |  |   | (85,510 | )
|Acquisition related costs and other             |  |                    | 2        |   |                   |   | (398    | )            |  |   | 8            |   |  |   | (2,045  | )
|Acquired in-process research and development    |  |                    | (5,597   | ) |                   |   |        |              |  |   | (5,597       | ) |  |   |        |  
|Goodwill impairment                             |  |                    | (326,390 | ) |                   |   |        |              |  |   | (326,390     | ) |  |   |        |  
|Acquisition-related intangible asset impairment |  |                    | (12,661  | ) |                   |   |        |              |  |   | (12,661      | ) |  |   |        |  
|Restructuring and related                       |  |                    | (597     | ) |                   |   | (1,503  | )            |  |   | (1,902       | ) |  |   | (1,962  | )
|Facility closure costs                          |  |                    | (50      | ) |                   |   | 38      |              |  |   | (146         | ) |  |   | (296    | )
|Stock-based compensation expense                |  |                    | (9,012   | ) |                   |   | (9,391  | )            |  |   | (25,783      | ) |  |   | (33,021 | )
|Other-than-temporary investment loss            |  |                    | (3,000   | ) |                   |   |        |              |  |   | (3,000       | ) |  |   |        |  
|Interest income and other                       |  |                    | (1,150   | ) |                   |   | 3,443   |              |  |   | 699          |   |  |   | 13,741  |  
|Interest expense                                |  |                    | (14      | ) |                   |   | (20     | )            |  |   | (47          | ) |  |   | (89     | )
|                                                |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  
|Income (loss) before income taxes               |  | $                  | (347,269 | ) |                   | $ | 12,202  |              |  | $ | (324,168     | ) |  | $ | 20,205  |  
|                                                |  |                    |          |   |                   |   |         |              |  |   |              |   |  |   |         |  

The Company does not allocate restructuring, acquisition-related costs, stock-based compensation, interest income
and other, and interest expense to its segments. In addition, the Company does not allocate assets to its segments. The Company excludes these items consistent with the manner in which it internally evaluates its results of operations.

Note 15

Commitments and Contingencies

Guarantees

As of December 28, 2008, the Companys
financial guarantees consisted of guarantees and standby letters of credit, which are primarily related to the Companys electrical utilities in Malaysia, utilization of non-country nationals in Malaysia and Singapore, consumption tax in Japan
and value-added tax obligations in Singapore and Holland, and a workers compensation plan in the United States. The maximum amount of potential future payments under these arrangements is approximately $2.7 million.

The Company indemnifies certain customers, distributors, and subcontractors for attorney fees and damages awarded against these parties in certain circumstances in which
the Companys products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of the Companys indemnification obligations are generally perpetual from the
effective date of the agreement. In certain cases, there are limits on and exceptions to the Companys potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of
potential future payments, if any, that we might be required to make as a result of these agreements. The Company has not paid any claim or been required to defend any claim related to our indemnification obligations, and accordingly, the Company
has not accrued any amounts for our indemnification obligations. However, there can be no assurances that the Company will not have any future financial exposure under these indemnification obligations.

The Company maintains an accrual for obligations it incurs under its standard product warranty program and customer, part, or process specific matters. The
Companys standard warranty period is one year, however in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of the Companys warranty liability based on actual past warranty
claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the standard program. Customer, part, or process specific reserves are estimated using a specific
identification method. Historical profit and loss impact related to warranty returns activity has been minimal. The total accrual was $0.4 million as of December 28, 2008 and March 30, 2008.

Litigation

On October 24, 2006, the Company was served
with a civil antitrust complaint filed by Reclaim Center, Inc., et. al. as plaintiffs in the U.S. District Court for the Northern District of California against the Company and 37 other entities on behalf of a purported class of indirect purchasers
of Static Random Access Memory (SRAM) products. The Complaint alleges that the Company and other defendants conspired to raise the prices of SRAM, in violation of Section 1 of the Sherman Act, the California Cartwright Act, and
several other states antitrust, unfair competition, and consumer protection statutes. Shortly thereafter, a number of other plaintiffs filed similar complaints on behalf of direct and indirect purchasers of SRAM. Given the similarity of the
complaints, the Judicial Panel on Multidistrict Litigation transferred the cases to a single judge in the Northern District of California and consolidated the cases for pretrial proceedings in February 2007. The consolidated cases are captioned



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In re Static Random Access Memory (SRAM) Antitrust Litigation. In August 2007, direct purchasers of SRAM and indirect purchasers of SRAM filed separate
Consolidated Amended Complaints. The Company was not named as a defendant in either complaint. Pursuant to tolling agreements with the indirect and direct purchaser plaintiffs, the statute of limitations was tolled until January 10, 2009 as to
potential claims against the Company. The Company intends to pursuant a further extension of the tolling agreement.

In addition, on May 14, 2007, the
Company was served with a Civil Investigative Demand from the State of Florida concerning SRAM products. The Company and the State of Florida have reached an agreement that suspends its obligation to respond to the CID. The agreement also tolled the
statute of limitations until January 21, 2009 as to potential claims against the Company. The Company intends to pursuant a further extension of the tolling agreement. Complaints concerning SRAM products have also been filed against the Company
in Ontario, British Columbia and Quebec, Canada. The allegations in these Complaints are parallel to the allegations in the Complaints pending in the United States. On March 19, 2008, the Company entered into a tolling agreement with the
plaintiffs in the Ontario, British Columbia and Quebec actions. On March 25, 2008, the Ontario Superior Court of Justice entered an order that discontinued the action in Ontario against the Company without prejudice. On May 2, 2008, a
Notice of Discontinuance was filed by the plaintiff in the Supreme Court of British Columbia, resulting in a discontinuation of the action against the Company without prejudice. On August 28, 2008, the court in Quebec issued an order of
discontinuance with respect to the Company. The Company cannot predict their outcome or provide an estimate of any possible losses. Any litigation could be costly, divert our managements attention and could have a material and adverse effect
on the Companys business, results of operations, financial condition or cash flows. The Company intends to vigorously defend these actions.

In April
2008, LSI Corporation and its wholly owned subsidiary Agere Systems Inc. (collectively LSI) instituted an action in the United States International Trade Commission (ITC), naming the Company and 17 other respondents. The ITC
action seeks an exclusion order to prevent importation into the U.S. of semiconductor integrated circuit devices and products made by methods alleged to infringe an LSI patent relating to tungsten metallization in semiconductor manufacturing. LSI
also filed a companion case in the U.S. District Court for the Eastern District of Texas seeking an injunction and damages of an unspecified amount relating to such alleged infringement. Since the initiation of both actions, five additional parties
have been named as respondents/defendants in the respective actions. The action in the U.S. District Court has been stayed pending the outcome of the ITC action. The ITC action is currently scheduled for hearing July 20, 2009 through
July 24, 2009. The Company cannot predict their outcome or provide an estimate of any possible losses. Any litigation could be costly, divert the managements attention and could have a material and adverse effect on the Companys
business, results of operations, financial condition or cash flows. The Company intends to vigorously defend the litigation.

The Company is currently a
party to various other legal proceedings, claims, disputes and litigation arising in the ordinary course of business. Based on the Companys own investigations, the Company does not believe the ultimate outcome of its current legal proceedings,
individually and in the aggregate, will have a material adverse effect on its financial position, results of operation or cash flows. However, because of the nature and inherent uncertainties of such litigation and investigations, should the outcome
of these actions be unfavorable, the Companys business, financial condition, results of operations or cash flows could be materially and adversely affected.

Note 16

Restructuring

The following
table shows the breakdown of the restructuring charges and the liability remaining as of December 28, 2008:



|                             |  |                                 |      |   |                                 |   |       |  
|---------------------------- |  | ------------------------------- | ---- | - | ------------------------------- | - | ----- | -
|(In thousands)               |  | Cost of goods soldRestructuring |      |   | Operating ExpensesRestructuring |  
|Balance as of March 30, 2008 |  | $                               | 433  |   |                                 | $ | 1,132 |  
|Non-cash charges             |  |                                 | 655  |   |                                 |   | 149   |  
|Cash payments                |  |                                 | (712 | ) |                                 |   | (337  | )
|                             |  |                                 |      |   |                                 |   |       |  
|Balance as of June 29, 2008  |  | $                               | 376  |   |                                 | $ | 944   |  
|Non-cash charges             |  |                                 |     |   |                                 |   | 471   |  
|Cash payments                |  |                                 | (15  | ) |                                 |   | (59   | )
|                             |  |                                 |      |   |                                 |   |       |  
|Balance as of Sept. 28, 2008 |  |                                 | 361  |   |                                 |   | 1,356 |  
|Non-cash charges             |  |                                 | 143  |   |                                 |   | 454   |  
|Cash payments                |  |                                 | (142 | ) |                                 |   | (636  | )
|                             |  |                                 |      |   |                                 |   |       |  
|Balance as of Dec. 28, 2008  |  | $                               | 362  |   |                                 | $ | 1,174 |  
|                             |  |                                 |      |   |                                 |   |       |  

Restructuring Actions

During Q3 2009, the Company initiated restructuring actions, which primarily affected its military business and Corporate Technology Group. These restructuring actions were taken to better allocate its engineering resources to maximize
revenue potential. These actions resulted in the reduction of approximately 26 employees. The Company recorded a one-time restructuring expense of approximately $0.6 million for severance benefits associated with these restructuring actions in Q3
2009.



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During Q2 2009, the Company initiated a reduction-in force, which primarily affected its Texas design center. This
restructuring action was taken to streamline its operations within one of its business units. This action resulted in the reduction of approximately 21 employees. The Company recorded a one-time restructuring expense of $0.5 million for severance
benefits in Q2 2009 associated with this action.

During Q1 2009, the Company initiated restructuring actions, which primarily affected its manufacturing
personnel in Penang, Malaysia as well as sales personnel in the U.S.and Sweden, including the closure of its Sweden office. The Company took these restructuring actions to rebalance its workforce to better align with its growth opportunities. These
restructuring actions resulted in the reduction of approximately 79 employees. The Company recorded a one-time restructuring expense of approximately $0.8 million for severance benefits associated with these restructuring actions in Q1 2009. All
termination payments were made in Q2 2009.

During Q2 2006, the Company completed the consolidation of its Northern California workforce into its San Jose
headquarters and exited leased facilities in Salinas and Santa Clara. Upon exiting the buildings the Company recorded lease impairment charges of approximately $6.5 million, which represented the future rental payments under the agreements, reduced
by an estimate of sublease income, and discounted to present value using an interest rate applicable to the Company. These charges were recorded as cost of revenues of $2.6 million, research and development (R&D) of $2.1 million and selling,
general and administrative (SG&A) of $2.4 million. In addition, the Company also wrote-off approximately $0.6 million of leasehold improvements and assets no longer in use. In fiscal 2008, the Company entered into a sublease agreement for its
Salinas facility, resulting in a reduction to its accrued lease liabilities by $0.2 million. Since the initial restructuring, the Company has made lease payments of $6.2 million related to vacated facilities in Santa Clara and Salinas. As of
December 28, 2008, the remaining accrued lease liabilities were $1.2 million.

Note 17

Income Taxes

The Company recorded an income tax benefit of
approximately $2.0 million in Q3 2009 compared to a benefit of approximately $1.2 million in Q3 2008. The increase is primarily attributable to benefits recorded in Q3 2009 consisting of a $1.0 million tax benefit related to reductions in deferred
tax liabilities resulting from a preliminary goodwill impairment charge recorded in the quarter, a reduction in foreign taxes of $0.6 million due to decreased profits and an increase in recorded tax benefits of $0.5 million related to true-up of a
tax return filing in Malaysia during the quarter. Not included in the Q3 2009 provision is the benefit for reduced tax rates in Singapore of $1.2 million recorded in Q3 2008. The provision for income taxes for Q3 2009 was determined using the annual
effective tax rate method.

As of December 28, 2008 and March 30, 2008, the unrecognized tax benefits without interest and penalties were
approximately $43.7 million and $42.8 million respectively, of which $18.8 million would affect the Companys effective tax rate if recognized. The increase in the unrecognized tax benefits during the quarter was primarily related to uncertain
tax positions regarding transfer pricing between its related entities.

As of December 28, 2008 and March 30, 2008, the Company was subject to
examination in the U.S. federal tax jurisdiction for fiscal years beginning with 2002. The Company was also subject to examination in various state and foreign jurisdictions for tax years beginning with 2002, none of which were individually
material.

Note 18

Share Repurchase Program

On January 18, 2007, the Companys Board of Directors initiated a $200 million share repurchase program. During fiscal 2008, the Companys
Board of Directors approved a $200 million expansion of the share repurchase program to a total of $400 million. In fiscal 2008, the Company repurchased approximately 28.9 million shares at an average price of $11.60 per share for a total
purchase price of $334.8 million. On April 30, 2008, the Companys Board of Directors approved an additional $100 million expansion of the share repurchase program to a total of $500 million. During Q1 2009, the Company repurchased
approximately 2.1 million shares at average price of $10.71 per share for a total purchase price of $22.3 million. During Q2 2009, the Company repurchased approximately 1.4 million shares at average price of $10.44 per share for a total
purchase price of $15.1 million. During Q3 2009, the Company repurchased approximately 4.8 million shares at average price of $5.16 per share for a total purchase price of $24.9 million. Share repurchases were recorded as treasury stock and
resulted in a reduction of stockholders equity. As of December 28, 2008, approximately $78.0 million was available for future share repurchases. The program is intended to reduce the number of outstanding shares of Common Stock to
increase stockholder value.



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Note 19

Subsequent Event

In January 2009, the Company initiated a restructuring plan, intended to align its spending with demand that has weakened
in the slowing economy. The restructuring plan includes a reduction of approximately 7% of the Companys worldwide workforce. As a result of the cost-cutting measures, the Company estimates that it will incur charges of approximately $5.5
million to $6.5 million for these actions in the fourth quarter of fiscal year 2009 ending March 29, 2009. The reductions are expected to be completed in the fourth quarter of fiscal 2009.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

All references are to our fiscal quarters ended December 28, 2008 (Q3 2009), September 28, 2009 (Q2 2009), June 29, 2008 (Q1 2009), March 30, 2008 (Q4 2008), December 30,
2007 (Q3 2008), September 30, 2007 (Q2 2008) and July 1, 2007 (Q1 2008) unless otherwise indicated. Quarterly financial results may not be indicative of the financial results of future periods.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements involve a number of risks and uncertainties. These include, but are not limited to: global business and economic conditions; operating results; new product introductions and sales; competitive conditions; capital
expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; intellectual property matters; mergers and acquisitions and integration activities; and the risk factors set forth in Part II, Item 1A
Risk Factors to this Report on Form 10-Q. As a result of these risks and uncertainties, actual results could differ from those anticipated in the forward-looking statements. Unless otherwise required by law, we undertake no obligation to
publicly revise these statements for future events or new information after the date of this Report on Form 10-Q.

Forward-looking statements, which are
generally identified by words such as anticipates, expects, plans, and similar terms, include statements related to revenues and gross profit, research and development activities, selling, general, and
administrative expenses, intangible expenses, interest income and other, taxes, capital spending and financing transactions, as well as statements regarding successful development and market acceptance of new products, industry and overall economic
conditions and demand, and capacity utilization.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates
and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates and assumptions are based on
historical experience and other factors that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates and assumptions.

We believe that the following accounting policies are critical, as defined by the Securities and Exchange Commission, in that they are both highly important to the portrayal of our financial condition and
results, and they require difficult management judgments, estimates and assumptions about matters that are inherently uncertain.

Revenue
Recognition. Our revenue results from semiconductors sold through three channels: direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMSs), consignment sales to OEMs
and EMSs, and sales through distributors. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and our ability to collect is reasonably
assured. For direct sales, we recognize revenue in accordance with the applicable shipping terms. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory stock by the customer.

For distributors who have stock rotation, price protection and ship from stock pricing adjustment rights, we defer revenue and related cost of revenues on sales to these
distributors until the product is subsequently sold by the distributor to an end-customer. Subsequent to shipment to the distributor, we may reduce product pricing through price protection based on market conditions, competitive considerations and
other factors. Price protection is granted to distributors on the inventory that they have on hand at the date the price protection is offered. We may also grant certain credits to our distributors on specifically identified portions of
the distributors inventory to allow them to earn a competitive gross margin upon the sale of our products to the distributors end customers. As a result of our inability to estimate these credits, we have determined that the sales
price to these distributors is not fixed or determinable until the final sale to the end-customer.

In the APAC region, we have distributors for which
revenue is recognized upon shipment, with reserves recorded for the estimated return and potential pricing adjustment exposures. The determination of the amount of reserves to be recorded for stock rotation rights requires us to make estimates as to
the amount of product which will be returned by customers within their limited contractual rights. We utilize historical return rates to estimate the exposure in accordance with Statement of Financial Accounting Standards (SFAS) 48, Revenue
Recognition When Right of Return Exists (SFAS 48). In addition, from time-to-time, we are required to give pricing adjustments to distributors for product purchased in a given quarter that remains in their inventory. These amounts are estimated
by management based on discussions with customers, assessment of market trends, as well as historical practice. Although actual rates of return and pricing exposures have been within our estimates in the past, if our estimates are inaccurate, it
could have a material impact on our revenues.



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Income Taxes. We account for income taxes under an asset and liability approach that requires the expected future
tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate our ability to realize the value of
our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, we consider various tax planning strategies, forecasts of
future taxable income and our most recent operating results in assessing the need for a valuation allowance. In the consideration of the ability to realize the value of net deferred tax assets, recent results must be given substantially more weight
than any projections of future profitability. In the fourth quarter of fiscal 2003, we determined that, under applicable accounting principles, it was more likely than not that we would not realize any value for any of our net deferred tax assets.
Accordingly, we established a valuation allowance equal to 100% of the amount of these net assets. Our assumptions regarding the ultimate realization of these assets remained unchanged in Q3 2009 and accordingly, we continue to maintain a valuation
allowance equal to 100% of the amount of these net deferred assets.

On April 2, 2007, we adopted the FASB Interpretation 48, Accounting for
Uncertainty in Income Taxes  an Interpretations of FASB Statement 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS 109,
Accounting for Income Taxes (SFAS 109). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. As a result of the implementation of FIN 48, we recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine
whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate
settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of
several factors including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our
revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination.

Inventories. Inventories are recorded at the lower of standard cost on a first-in, first-out basis or market value. We record provisions for obsolete and excess inventory based on our forecasts of demand over specific future time
horizons. We also record provisions to value our inventory at the lower of cost or market value, which rely on forecasts of average selling prices (ASPs) in future periods. Actual market conditions, demand, and pricing levels in the volatile
semiconductor markets that we serve may vary from our forecasts, potentially impacting our inventory reserves and resulting in material impacts to our gross margin.

Valuation of Long-Lived Assets and Goodwill. We own and operate our own manufacturing facilities, as further described in Part I of our Annual Report on Form 10-K for the fiscal year ended March 30, 2008,
and have also acquired certain businesses and product portfolios in recent years. As a result, we have significant property, plant and equipment, goodwill and other intangible assets. We evaluate these items for impairment on an annual basis, or
sooner, if events or changes in circumstances indicate that carrying values may not be recoverable. Triggering events for impairment reviews may include adverse industry or economic trends, significant restructuring actions, significantly lowered
projections of profitability, or a sustained decline in our market capitalization. Evaluations of possible impairment and if applicable, adjustments to carrying values, require us to estimate among other factors future cash flows, useful lives and
fair market values of our reporting units and assets. Actual results may vary from our expectations.

We review goodwill for impairment annually and
whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with SFAS 142, Goodwill and Other Intangible Assets. Determining the fair value of a reporting unit is
judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market comparables. We utilize a discounted cash flow analysis to estimate the fair value of our reporting units. Actual future results may differ from those estimates. In
addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

Stock-based Compensation. In accordance with FASB 123 (revised 2004), Share-Based Payment(SFAS 123(R)), we measure and recognize compensation expense for all stock-based payments awards, including employee stock
options and rights to purchase shares under employee stock purchase plans, based on their estimated fair value and recognize the costs in the financial statements on an accelerated basis.

Calculating the fair value of share-based awards at the date of grant requires us to make estimates that involve significant judgment. We use the Black-Scholes valuation
model to estimate the fair value of employee stock options and the rights to purchase shares under employee stock purchase plan, consistent with the provisions of SFAS 123(R). Option-pricing models require the input of highly subjective assumptions,
including the expected term of options and the expected price volatility of the stock underlying such options. Our stock price volatility assumption is based on a blend of historical volatility of our common stock and implied volatility of call
options and dealer quotes on call options, generally having a term of less than twelve months. Changes in the subjective assumptions required in the valuation models may significantly affect the estimated value of the stock-based awards, the related
stock-based compensation expense and, consequently, our results of operations.



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In addition, SFAS 123(R) requires that we estimate the number of stock-based awards that will be forfeited due to
employee turnover. Changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture
estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial
statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements.
The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period and/or our forecasts.

Results of Operations

We design, develop, manufacture and market a
broad range of high-performance, mixed-signal semiconductor solutions for the advanced communications, computing and consumer industries. This is achieved by developing detailed systems-level knowledge, and applying our fundamental semiconductor
heritage in high speed serial interfaces, timing, switching and memory to create solutions to compelling technology problems faced by customers.

During Q2
2009, we announced a re-organization of our business units into five operating segments. The five operating segments are Communications, Network, Enterprise and Computing, Computing and Multimedia and Video. The re-organization was performed to
align the organization and resources with the Companys strategy, customers and methods of doing business as well as to reduce costs and was fully implemented in Q3 2009. As a result, we reevaluated our reportable business segments in
accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), resulting in a change in our reportable segments from three (Networking segment, Timing and Memory Interface segment
and Standard Products and Others segment) to two reportable segments (Communications segment and Computing and Consumer segment). The Communications and Network operating segments are aggregated into Communications reportable segment, while
Enterprise Computing, Computing and Multimedia and Video operating segments are aggregated into Computing and Consumer reportable segment.

This change in
segment reporting had no impact on our consolidated balance sheets, statements of operations, statements of cash flows or statements of stockholders equity for any periods. The Chief Executive Officer has been identified as the Chief Operating
Decision Maker as defined by SFAS 131.

The segment information for three month and nine month period ended December 30, 2007 has been adjusted
retrospectively to conform to the current period presentation.

Our reportable segments include the following:



| |  |  | Communications segment: includes network search engines (NSEs), RapidIO® switching solutions, flow-control management devices, FIFOs, multi-port products, integrated communications processors, high-speed SRAM, military application, digital logic, telecommunications.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Computing and Consumer segment: includes clock generation and distribution products, high-performance server memory
interfaces, PCI Express ® switching solutions, PC audio and video products.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenues



|                       |  |                    |         |                   |   |              |  |              |         |  |   |        
|---------------------- |  | ------------------ | ------- | ----------------- | - | ------------ |  | ------------ | ------- |  | - | -------
|                       |  | Three months ended |         | Nine months ended
|(in thousands)         |  | Dec. 28,2008       |         | Dec. 30,2007      |   | Dec. 28,2008 |  | Dec. 30,2007
|Communications         |  | $                  | 70,639  |                   | $ | 83,821       |  | $            | 249,434 |  | $ | 261,567
|Computing and Consumer |  |                    | 96,440  |                   |   | 117,407      |  |              | 306,394 |  |   | 342,804
|                       |  |                    |         |                   |   |              |  |              |         |  |   |        
|Total                  |  | $                  | 167,079 |                   | $ | 201,228      |  | $            | 555,828 |  | $ | 604,371
|                       |  |                    |         |                   |   |              |  |              |         |  |   |        

Communications Segment

Revenues in our Communications segment decreased $13.2 million, or 16% in Q3 2009 as compared to Q3 2008. The decrease was primarily driven by revenue declines in networking, flow control management, SRAM and digital logic products,
partially offset by increased sales in network timing, military and telecom products.

Computing and Consumer Segment

Revenues in our Computing and Consumer segment decreased $21.0million, or 18% in Q3 2009 as compared to Q3 2008.



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Revenues within our Computing and Multimedia division decreased 36%, driven by broad weakness in end demand across both personal computing and consumer
products. Enterprise computing revenue increased approximately 11%, primarily due to the strength in both memory interface products and PCI Express. We also saw growth in our Video and Display Operations as the result of the Silicon Optixs
acquisition.

Revenues (recent trends and outlook).We currently anticipate overall revenues to decrease significantly, in Q4 2009, primarily due to
the overall weakness in the economy and semiconductor industry.

Revenues in Asia Pacific (APAC), North America, Japan and Europe accounted for 64%, 19%,
10% and 7%, respectively, of our consolidated revenues in Q3 2009 compared to 58%, 27%, 9%, and 6%, respectively, in Q3 2008. The Asia Pacific region continues to be our strongest region as many of our largest customers utilize manufacturers in the
APAC region.

Revenues (first nine months of fiscal 2009 compared to first nine months of fiscal 2008). Our year-to-date revenues through Q3 2009
were $555.8 million, a decrease of $48.5 million, or 8% when compared to the same period one year ago. Revenues in our Communications segment decreased $12.1 million, or 5%, driven by decreased sales in our networking, SRAM and digital logic
products. These decreases were partially offset by the increased sales of our network timing products. Revenues in our Computing and Consumer segment decreased $36.4 million, or 11%, due to broad end demand weakness across personal computing and
consumer products. The decreases were partially offset by the growth in our PCI-express products and additional Video revenues as a result of the Silicon Optixs acquisition.

Included in the caption Deferred income on shipments to distributors includes amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold
by the distributor to an end customer. The components of December 28, 2008 and March 30, 2008 are as follows:



|                                             |  |               |        |                |   |       
|-------------------------------------------- |  | ------------- | ------ | -------------- | - | ------
|(in thousands)                               |  | Dec. 28, 2008 |        | March 30, 2008
|Gross deferred revenue                       |  | $             | 25,779 |                | $ | 30,741
|Gross deferred costs                         |  |               | 5,518  |                |   | 6,429 
|Deferred income on shipments to distributors |  | $             | 20,261 |                | $ | 24,312

The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the
distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory. The amount ultimately recognized as revenue will be lower than this amount as a result of ship
from stock pricing credits which are issued in connection with the sell through of our products to end customers. The gross deferred costs represent the standard costs of products we sell to the distributors.

Gross Profit



|             |  |                    |        |   |                   |   |        |              |  |   |              |   |  |   |         |  
|------------ |  | ------------------ | ------ | - | ----------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------- | -
|             |  | Three months ended |        |   | Nine months ended |  
|             |  | Dec. 28,2008       |        |   | Dec. 30,2007      |   |        | Dec. 28,2008 |  |   | Dec. 30,2007 |  
|Gross Profit |  | $                  | 69,669 |   |                   | $ | 88,324 |              |  | $ | 241,281      |   |  | $ | 261,402 |  
|Gross Margin |  |                    | 42     | % |                   |   | 44     | %            |  |   | 43           | % |  |   | 43      | %

Gross profit (Q3 2009 compared to Q3 2008).Gross profit for Q3 2009 was $69.7 million, a decrease of $18.7
million compared to Q3 2008. Gross margin for Q3 2009 was 42% for Q3 2009 compared to 44% in Q3 2008. The decrease in gross profit was primarily driven by a $4.3 million increase in inventory excess and obsolescence reserves due to higher levels of
inventory compared to forecasted demand for such products. The increase in inventory reserves was partially offset by improved utilization of our fabrication facility. The utilization of our manufacturing capacity in Oregon increased from
approximately 65% of equipped capacity in Q3 2008 to 70% of equipped capacity in Q3 2009. Our gross margin benefited from a $1.9 million decrease in intangible asset amortization as a portion is being amortized on an accelerated method, resulting in
decreased amortization over time. In addition, our gross margin benefited from $0.9 million and $0.6 million decreases in performance related bonuses and equipment and depreciation expenses, respectively.

Gross Profit (first nine months of fiscal 2009 compared to the first nine months of fiscal 2008). Our year to date gross profit through Q3 2009 was $241.3
million, a decrease of $20.1 million, or 8% compared to the same period one year ago. Our gross margin for the nine months of fiscal 2009 was flat compared with the same period a year ago. The decrease in gross profit was primarily driven by lower
revenue. Our gross margin in first nine months of fiscal 2009 benefited from a $3.8 million year-over-year decrease in intangible amortization, $1.1 million and $1.4 million decreases in royalty expenses and performance related bonuses,
respectively, and improved utilization of our Oregon manufacturing facility.



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Operating Expenses

The following table shows our operating expenses:



|                                                |  |                    |         |                  |                   |   |              |   |                  |  |    |              |  |                  |         |  |              |   |                  |   |         |  |    |  
|----------------------------------------------- |  | ------------------ | ------- | ---------------- | ----------------- | - | ------------ | - | ---------------- |  | -- | ------------ |  | ---------------- | ------- |  | ------------ | - | ---------------- | - | ------- |  | -- | -
|                                                |  | Three months ended |         |                  | Nine months ended |  
|                                                |  | Dec. 28,2008       |         | % of NetRevenues |                   |   | Dec. 30,2007 |   | % of NetRevenues |  |    | Dec. 28,2008 |  | % of NetRevenues |         |  | Dec. 30,2007 |   | % of NetRevenues |  
|Research and development                        |  | $                  | 37,247  |                  | 22                | % |              | $ | 40,616           |  | 20 | %            |  | $                | 122,398 |  | 22           | % |                  | $ | 127,191 |  | 21 | %
|Selling, general and administrative             |  | $                  | 30,879  |                  | 18                | % |              | $ | 38,929           |  | 19 | %            |  | $                | 96,055  |  | 17           | % |                  | $ | 127,658 |  | 21 | %
|In-process research and development             |  | $                  | 5,597   |                  | 3                 | % |              | $ | 0                |  | 0  | %            |  | $                | 5,597   |  | 1            | % |                  | $ | 0       |  | 0  | %
|Acquisition-related intangible asset impairment |  | $                  | 12,661  |                  | 8                 | % |              | $ | 0                |  | 0  | %            |  | $                | 12,661  |  | 2            | % |                  | $ | 0       |  | 0  | %
|Goodwill impairment                             |  | $                  | 326,390 |                  | 195               | % |              | $ | 0                |  | 0  | %            |  | $                | 326,390 |  | 59           | % |                  | $ | 0       |  | 0  | %

Research and development (Q3 2009 compared to Q3 2008). R&D expenses decreased $3.4 million, or 8%, to
$37.2 million in Q3 2009 compared to Q3 2008. The decrease was primarily attributable to a $3.1 million reduction in performance related bonuses. We also benefited from a $ 0.9 million incremental loss in the participant portfolio of the
executive deferred compensation plan primarily due to sequential declines in the stock market. Partially offsetting these decreases was a $0.3 million increase in our stock based compensation expense and a $0.7 million increase in our core labor
expenses as a result of annual salary increases.

Research and development (first nine months of fiscal 2009 compared to the first nine months of fiscal
2008). Our year to date R&D expenses through Q3 2009 were $122.4 million, a decrease of $4.8 million, or 4% compared to the same period one year ago. The decrease was primarily attributable to a $4.4 million decrease in performance related
bonuses and a $2.7 million decrease in stock based compensation expense. In addition, we benefited from a $1.4 million loss in the participant portfolio of the executive deferred compensation plan, compared to a gain of $ 0.2 million in the
first nine months of fiscal 2008. Finally, our equipment expenses decreased $0.9 million primarily attributable to a decrease in depreciation expense. Offsetting these decreases, our labor expense increased $3.8 million as a result of annual salary
increases. In addition, our facility expenses and outside services expenses increased $0.3 million and $0.6 million, respectively, primarily attributable to increased product development activities and launch of new designs. Finally, medical
insurance expenses increased $0.9 million.

We currently anticipate that R&D spending in Q4 2009 will increase slightly as compared to Q3 2009.

Selling, general and administrative (Q3 2009 compared to Q3 2008). SG&A expenses decreased $8.1 million, or 21%, to $30.9 million in Q3 2009
compared to Q3 2008. The decrease was primarily attributable to a $4.2 million decrease in employee-related expenses as a result of a $1.4 million reduction in performance related bonuses, a $1.2 million expense related to an executive transition
agreement with our former Chief Executive officer while we did not have such charge in Q3 2009, a $0.5 million decrease in stock based compensation expenses as a result of lower valuation of new grants compared to Q3 2008, and $0.5 million
incremental loss in the participant portfolio of the executive deferred compensation due to sequential declines in the stock market. In addition, the intangible asset amortization expenses decreased $2.9 million, primarily related to the ICS merger,
a portion of which is being amortized on an accelerated method, resulting in decreased amortization expense over time. Finally, we experienced a $1.1 million decrease in sales representative commissions attributable to lower revenues in Q3 2009.

Selling, General and Administrative (first nine months of fiscal 2009 compared to the first nine months of fiscal 2008).Our year to date SG&A
expenses through Q3 2009 were $96.1 million, a decrease of $31.6 million, or 25% compared to the same period one year ago. The decreases were primarily attributable to a $20.6 million reduction of intangible asset amortization, a portion of which is
being amortized on an accelerated method. Employee-related expenses decreased $8.1 million, primarily attributable to a $1.2 million expense related to an executive transition agreement with our former Chief Executive officer while we did not have
such charge in fiscal 2009, a $0.8 million loss in the participant portfolio of the executive deferred compensation while we recorded a gain of $0.1 million, a $4.1 million decrease in stock-based compensation expense, and $1.9 million decrease in
performance related bonuses. Sales representative commissions decreased $2.2 million due to decreased sales. Finally, our outside services spending primarily related to consulting fees decreased $1.6 million.

We currently anticipate that SG&A spending in Q4 2009 will decrease slightly as compared to Q3 2009.



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Acquired in-process research and development. In Q3 2009, in connection with our acquisition of Silicon
Optixs video processing technology and related assets, we recorded a $5.6 million charge for in-process research and development (IPR&D). The allocation of the purchase price to IPR&D was determined by identifying technologies that had
not attained technological feasibility and that did not have future alternative uses.

Goodwill and intangible impairment.In accordance with SFAS
142, Goodwill and Other Intangible Assets, goodwill is reviewed for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. These tests are performed at
the reporting unit level using a two-step method. The first step, used to determine if impairment possibly exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting
unit exceeds the fair value, the second step is to determine the amount of a possible impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Determining the fair value of a reporting
unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount
rates, future economic and market conditions and determination of appropriate market comparables. We completed its annual review of the goodwill during the fourth quarter ended March 30, 2008 and concluded that there was no impairment. Due to
the recent extraordinary market and economic conditions, we experienced a decline in our stock price, resulting in our market capitalization falling below our net book value. In addition, due to the increased competitive pressure within certain of
our markets, as well as the deteriorating macro-economic environment, which caused a decline in our revenue, operating income, and cash flow forecasts, we concluded that indicators existed requiring us to perform an interim goodwill impairment
analysis at December 28, 2008. Accordingly, we performed an interim goodwill impairment analysis for each of our five reporting units. The first step of the analysis is to calculate the fair value of each of our five reporting units. The fair
value of each reporting unit is estimated based on an average weighting of both projected discounted future cash flows (the income approach) and use of comparative market multiples (the market approach). The market approach compares us to other
comparable companies based on valuation multiples to arrive at fair value adjusted for a control premium. Based on the preliminary results, the carrying value of the Computing and Multimedia (CMD) reporting unit exceeded its fair value, indicating a
potential goodwill impairment existed. As a result, we performed the second step of the impairment test to determine the implied goodwill of this reporting unit, which is the difference between the estimated fair value of this reporting unit and the
sum of the fair value of the identified recognized and unrecognized net assets. The net assets include tangible and intangible assets, such as developed technology, in-process research and development, trade name and backlog. The result of the
second step of the goodwill analysis indicated that the goodwill related to the CMD reporting unit was impaired. Accordingly, we wrote down the carrying amount of goodwill to its estimated implied value and recognized an estimated goodwill
impairment charge of $326.4 million as of December 28, 2008. We currently expect to finalize our goodwill impairment analysis during the fourth quarter ended March 29, 2009. Any adjustments to our preliminary estimates as a result of the
completion of this analysis may materially impact our operating results and financial position for the fourth quarter ended March 29, 2009.

We made
several assumptions to establish inputs for our fair value calculations. We used the long term growth rates from 3% to 7% to calculate the terminal value of our reporting units. We used the discount rates that ranged between 19% and 32% with most
clustered around 22% to calculate the discounted cash flows. The discount rates were higher than the range of 13% to 32% used in the prior year. We believe that the assumptions and rates used in our interim impairment test under SFAS 142 are
reasonable; however, they are judgmental, and variations in any of the assumptions or rates could result in a materially different amount of the impairment charge.

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets are reviewed whenever events or changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be
impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceeds the fair value of the assets. As a result of the impairment indicator described above, we performed an impairment analysis for our
long-lived assets, including our intangible assets subject to amortization. The analysis indicated that some of the identified intangible assets are not recoverable as the sum of its estimated future undiscounted cash flows were below the
assets carrying value and accordingly, we estimated the fair value of these identified assets using a discounted cash flow analysis to measure the impairment loss. As a result of this analysis, we wrote off the difference between the
identified intangible assets estimated fair values and the carrying values and recognized an impairment charge of $12.7 million in Q3 2009.

Given
the current global economic conditions, the various factors including our market capitalization, forecasted revenue and costs, risk-adjusted discount rates, future economic conditions, determination of appropriate market comparables and expected
periods over which our assets will be utilized and other variables are inherently uncertain. Should actual results differ significantly from current estimates, we may need to further write-down goodwill and intangible asset values to their fair
values, which could result in material charges that could impact our operating results and financial positions.



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##### Table of Contents

Other-than-temporary impairment loss on investment.Our investment in non-marketable equity security of Best Elite
International Limited (Best Elite), is accounted for by using the cost method and subject to a periodic impairment review. During Q3 2009, we determined an impairment indicator existed related to this investment. As a result, we
performed a fair value analysis for this investment. In determining whether a decline in value of our investment in Best Elite has occurred and is other than temporary, an assessment is made by considering available evidence, including the general
market conditions in the wafer fabrication industry, Best Elites financial condition, near-term prospects, market comparables and subsequent rounds of financing. The valuation also takes into account the Best Elites capital structure,
liquidation preferences for its capital and other economic variables. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment. Based on the results, we
recognized other-than-temporary impairment charge of $3.0 million related to this investment during Q3 2009 to write it down to its estimated fair value of $2.0 million.

Interest income and other, net. Changes in interest income and other, net are summarized as follows:



|                               |  |                    |        |   |                   |   |       |              |  |   |              |   |  |   |       
|------------------------------ |  | ------------------ | ------ | - | ----------------- | - | ----- | ------------ |  | - | ------------ | - |  | - | ------
|                               |  | Three months ended |        |   | Nine months ended
|(in thousands)                 |  | Dec. 28,2008       |        |   | Dec. 30,2007      |   |       | Dec. 28,2008 |  |   | Dec. 30,2007
|Interest income                |  | $                  | 1,367  |   |                   | $ | 3,524 |              |  | $ | 4,577        |   |  | $ | 11,489
|Other income (expense), net    |  |                    | (2,517 | ) |                   |   | (81   | )            |  |   | (3,878       | ) |  |   | 2,251 
|                               |  |                    |        |   |                   |   |       |              |  |   |              |   |  |   |       
|Interest income and other, net |  |                    | (1,150 | ) |                   |   | 3,443 |              |  |   | 699          |   |  |   | 13,740
|                               |  |                    |        |   |                   |   |       |              |  |   |              |   |  |   |       

Interest income decreased $2.2 million in Q3 2009 compared to Q3 2008. The decrease is primarily attributable to
less favorable interest rates and lower cash balances compared to the same period one year ago as a result of stock repurchases and Silicon Optixs transaction. Other expense, net increased $2.4 million in Q3 2009 compared to Q3 2008. The
increase is primarily attributable to an additional $1.8 million loss on our investment portfolio of marketable equity securities related to deferred compensation arrangements in Q3 2009 compared to Q3 2008 and a currency loss of $0.6 million in Q3
2009 while we recorded a gain of $ 0.2 million in Q3 2008.

Interest income decreased $6.9 million in the first nine months of fiscal 2009 compared to
the first nine months of fiscal 2008. The decrease is primarily attributable to less favorable interest rates and lower cash balances compared to the same period one year ago as a result of stock repurchases and Silicon Optixs transaction.
Other income (expense), net changed by $6.1 million from a net income position in the first nine months of fiscal 2008 to a net expense position in the first nine months of fiscal 2009. The change is primarily attributable to a loss of $2.9 million
on our investment portfolio of marketable equity securities related to deferred compensation arrangements while we recorded a gain in the same period a year ago. We incurred a currency loss of $1.3 million for the first nine months of fiscal 2009
while we recorded a gain of $0.2 million in the same period a year ago. In addition, the first nine months of fiscal 2008 benefited from a gain of $1.7 million upon the sale of our equity investment in Maxtek, while we did not hold such shares in
fiscal 2009.

Provision for income taxes. We recorded an income tax benefit of $2.0 million in Q3 2009, an increase in tax benefit of $0.8 million
or 65%, compared to Q3 2008. The increase is primarily attributable to benefits recorded in Q3 2009 consisting of a $1.0 million tax benefit related to reductions in deferred tax liabilities resulting from impairment of goodwill in the quarter, a
reduction in foreign taxes of $0.6 million due to decreased profits and an increase in recorded tax benefits of $0.5 million related to true-up of a tax return filing in Malaysia during the quarter. Not included in the Q3 2009 provision is the
benefit for reduced tax rates in Singapore of $1.2 million recorded in Q3 2008.

We recorded an income tax provision of $0.3 million for the nine months
ended Q3 2009, a decrease of $2.9 million, or 92% compared to the nine months ended Q3 2008. The decrease is primarily attributable to a $2.0 million reduction in foreign taxes due to decreased profitability, a $1.1 million benefit as a result of a
tax holiday certificate we received from the Malaysian government in Q1 2009, and a $1.0 million tax benefit related to reductions in deferred tax liabilities resulting from impairment of goodwill. These tax benefits were offset by a $1.7 million US
federal true-up related to our 2008 income tax return filing. Not included in the Q3 2009 provision is the benefit for reduced tax rates in Singapore of $1.2 million recorded in Q3 2008.

As of December 28, 2008, we continued to maintain a full valuation allowance against our net U.S. deferred tax asset as we could not conclude that it is more likely than not that we will be able to realize our
U.S. deferred tax assets in the foreseeable future. We will continue to evaluate the release of the valuation allowance on a quarterly basis.

As
of December 28, 2008, we were subject to examination in the U.S. and various state and foreign jurisdiction for the fiscal years beginning with 2002.



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Liquidity and Capital Resources

Our cash and available for sale investments were $302.4 million at December 28, 2008, an increase of $63.2 million compared to March 30, 2008. The increase is primarily attributable to $148.0 million in cash
from operations, offset by the repurchase of approximately $62.3 million of common stock and $20.1 million cash payment to purchase Silicon Optixs assets in Q3 2009. We had no outstanding debt at December 28, 2008 or March 30, 2008.

Cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase. We maintain the cash and cash
equivalents with reputable major financial institutions. Deposits with these banks may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions. These deposits typically may be
redeemed upon demand and, therefore, bear minimal risk. In addition, a significant portion of cash equivalents is concentrated in money market funds which have either elected to participate in the US Treasurys Temporary Guarantee Program for
Money Market Funds, or are invested in US government treasuries only. While we monitor daily the cash balances in our operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial
institutions with which we deposit fails or is subject to other adverse conditions in the financial markets. As of today, we have not experienced any loss or lack of access to our invested cash or cash equivalents in our operating accounts; however,
we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

In
addition, as much of our revenues are generated outside the United States, a significant portion of our cash and investment portfolio accumulates offshore. At December 28, 2008, we had cash and investments of approximately $201.0 million
invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in U.S. dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political,
banking, currency control and other risks. In addition, these amounts may be subject to tax and other transfer restrictions.

All of our available-for-sale
investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly traded investments,
impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the length of time, general market conditions and our intent and ability to hold the investment for a period
of time sufficient to allow for recovery. Although we believe the portfolio continues to be comprised of sound investments due to high credit ratings and government guarantees of the underlying investments, a further decline in the capital and
financial markets would adversely impact the market values of its investments and their liquidity. We continually monitor the credit risk in our portfolio and future developments in the credit markets and make appropriate changes to our investment
policy as deemed necessary. We did not record any impairment charges related to our short term investments in Q3 2009.

We recorded net loss of $324.4
million in the first nine months of fiscal 2009 compared to a net income of $ 17.1 million in the first nine months of fiscal 2008. Net cash provided by operating activities increased $9.8 million, or 7% to $147.9 million in the first nine
months of fiscal 2009 compared to $138.1 million in the first nine months of 2008. A summary of the significant non-cash items included in net income are as follows:



| |  |  | Goodwill and intangible assets impairment charges were $339.1 million in the first nine months of fiscal 2009, while we did not have such charge in the first nine
months of fiscal 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of intangible assets was $61.1 million in the first nine months of fiscal 2009, compared to $85.5 million in the first nine months of fiscal 2008. The
decrease is primarily associated with intangible assets related to our merger with ICS, a portion of which is being amortized on an accelerated method, resulting in a decreased amortization expense over time.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stock-based compensation was $25.8 million in the first nine months of fiscal 2009, compared to $33.0 million in the first nine months of fiscal 2008. The decrease
is due to a portion of the ICS merger grants being fully amortized in fiscal 2008 and lower valuation of new grants in 2009 as compared to 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquired IPR&D expense related to Silicon Optix purchase was $5.6 million in the first nine months of fiscal 2009, while we did not have such charge in the
first nine months of fiscal 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Depreciation expense was $19.9 million in the first nine months of fiscal 2009 compared to $23.2 million in the first nine months of fiscal 2008. The decrease is
primarily attributable to lower depreciation expense for our manufacturing equipment as a large portion of these assets are now fully depreciated and our continuous efforts to control fixed costs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other-than-temporary impairment charge was $3.0 million in fiscal 2009 related to our investment in a non-marketable equity security.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $1.7 million gain in connection with the sale of our equity investment in Maxtek in the first nine months of fiscal 2008. We recorded no such gain in
the first nine months of fiscal 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Net cash provided by working capital-related items increased $37.3 million, from a net $19.2 million use of cash in the
first nine months of fiscal 2008 to net $18.1 million cash provided in the first nine months of fiscal 2009. A summary of significant working capital items providing relatively more cash in the first nine months of fiscal 2009 included:



| |  |  | A decreased in accounts receivable of $18.1 million in the first nine months of fiscal 2009 compared to an increase of $2.3 million in the first nine months of
fiscal 2008. The decrease in fiscal 2009 is primarily attributable to lower revenue compared to fiscal 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in prepayments and other assets of $10.2 million in the first nine months of fiscal 2009 compared to an increase of $5.4 million in the first nine months
of fiscal 2008. The decrease in fiscal 2009 is primarily attributable to the decrease in the fair value of our corporate owned life insurance, receipts of interest from the IRS for the tax settlement related to the ICS pre-acquisition income tax
returns and VAT refund from the foreign government along with the normal recurring prepaid amortization. The increase in the first nine months of fiscal 2008 is primarily attributable to the purchase of approximately $7.5 million and $4.0 million of
software design tools in Q1 2008 and $4.0 million of software design tools and $1.2 million of supply chain management software in Q2 2008, partially offset by the amortization of prepaid maintenance contracts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in other accrued and long term liability of $3.2 million in the first nine months of fiscal 2009, compared to a decrease of $6.1 million in the first
nine months of fiscal 2008. The decrease in the first nine months of fiscal 2009 is primarily attributable to the decease in the fair value of our executive deferred compensation plan due to the sequential decline in the stock market and a payment
of $1.2 million related to the executive transition agreement signed with our former CEO. The decrease in the first nine months of fiscal 2008 is primarily attributable to an adjustment of previous reserved lease impairment for vacated facilities as
we completed a buyout of the San Jose ICS lease with the landlord and subleased the Salinas facility in Q3 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in deferred income on shipments to distributors of $4.0 million in the first nine months of fiscal 2009 compared to a decrease of $5.5 million in the
first nine months of fiscal 2008. The decrease in deferred income on shipments to distributors is attributable to our distributors adjusting their inventory levels in light of challenges in the end markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The factors listed above were partially offset by other working capital items that used relatively more cash in the first nine months of fiscal 2009:



| |  |  | A decrease in inventory of $3.1 million in the first nine months of fiscal 2009 compared to a decrease of $5.5 million in the first nine months of fiscal 2008. The
decrease in both periods is primarily attributable to our efforts to align our inventory levels to meet current demand.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net cash used
for investing activities in the first nine months of fiscal 2009 was $38.9 million, compared to $14.1 million in the first nine months of fiscal 2008. In the first nine months of fiscal 2009, net cash used to purchase short-term investments were
$5.9 million and the purchase of capital equipment totaled approximately $12.9 million. In addition, we used $20.1 million to purchase Silicon Optixs assets in Q3 2009. In the first nine months of fiscal 2008, net cash used to purchase
short-term investments and capital equipment were $0.5 million and $13.6 million, respectively.

Net cash used for financing activities in the first nine
months of fiscal 2009 was $51.0 million, compared to $201.3 million in the first nine months of fiscal 2008. During the first nine months of fiscal 2009, we repurchased approximately $62.3 million of common stock, partially offset by proceeds of
approximately $11.1 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan. In the first nine months of fiscal 2008, we repurchased approximately $240.5 million of common stock, partially
offset by proceeds of approximately $39.1 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan.

We anticipate capital expenditures of approximately $20.0 million during fiscal 2009 to be financed through cash generated from operations and existing cash and investments. This estimate includes $12.9 million in capital expenditures in
the first nine months of fiscal 2009.

We believe that existing cash and investment balances, together with cash flows from operations, will be sufficient
to meet our working capital and capital expenditure needs for at least the next twelve months.

Off-balance Sheet Arrangements

As of December 28, 2008, we had no off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4).

Recent Accounting Pronouncements

In April 2008, the FASB issued FASB
Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS 142-3 (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of the position is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of
the pending adoption of FSP 142-3 on our consolidated financial statements.



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In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133 (SFAS 161). The standard requires additional quantitative disclosures (provided in tabular form) and qualitative disclosures for derivative instruments. The required
disclosures include how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows; relative volume of derivative activity; the objectives and strategies for using derivative
instruments; the accounting treatment for those derivative instruments formally designated as the hedging instrument in a hedge relationship; and the existence and nature of credit-related contingent features for derivatives. SFAS 161 does not
change the accounting treatment for derivative instruments. SFAS 161 is effective in the fourth quarter of fiscal year 2009. We are currently evaluating the impact of the pending adoption of SFAS 161 on our consolidated financial statements.

In February 2008, the FASB issued FSP 157-1, Application of FASB Statement 157 to FASB Statement 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1) and FSP 157-2, Effective Date of FASB Statement 157 (FSP 157-2). FSP 157-1 amends SFAS 157 to remove
certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until the beginning of the first quarter of fiscal year 2010. We are currently evaluating the impact that these provisions of SFAS 157 will have on our consolidated financial statements when it is applied to
non-financial assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of fiscal year 2010.

In December 2007, the FASB issued SFAS 141(R), Business Combinations(SFAS 141(R)). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirers income tax valuation allowance. The adoption of SFAS 141(R) will change our accounting treatment for business
combinations on a prospective basis beginning in the first quarter of fiscal year 2010.

In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides companies the option (fair value option) to measure certain financial instruments and other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007, although earlier adoption is permitted. Currently, we have elected not to adopt the fair value
option under this pronouncement.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157), which
enhances existing guidance for measuring assets and liabilities using fair value. SFAS 157 defines fair value, provides a framework for measuring fair value, and expands disclosures required for fair value measurement. We adopted this standard in
the first quarter of fiscal 2009. See Fair Value Measurements in Note 8 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report on Form 10-Q for further discussion.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our
interest rate risk relates primarily to our short-term investments of $114.2 million as of December 28, 2008. By policy, we limit our exposure to long-term investments and mitigate the credit risk through diversification and adherence to a
policy requiring the purchase of highly rated securities. As of December 28, 2008, our cash and investment portfolio was highly concentrated in securities with same day liquidity and at the end of fiscal 2008, a substantial majority of
securities in our investment portfolio had maturities of less than two years. Although a hypothetical 10% change in interest rates could have a material effect on the value of our investment portfolio at a given time, we normally hold these
investments until maturity, which results in no realized impact on results of operations or cash flows. We do not currently use derivative financial instruments in our investment portfolio. In addition, we maintain assets in a separate trust that is
invested in corporate owned life insurance intended to substantially offset the liability under the deferred compensation plan. The fair value of assets, determined based on the value of the underlying mutual funds was $9.8 million as of
December 28, 2008. The deferred compensation obligation under the arrangement is classified in Other long-term liabilities within the Consolidated Balance Sheet. As of December 28, 2008, the fair value of the obligation was $11.7 million.

The current financial markets are extremely volatile and there has been a tightening of the credit markets, which could negatively affect the fair value
and liquidity of the investments in our portfolio. See Note Fair Value Measurement, in Note 8 to the Condensed Consolidated Financial Statements in Part I, Item 1; Managements Discussion and Analysis of Financial
Condition



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and Results of Operations, Liquidity and Capital Resources, in Part I, Item 2; and Risk Factors in Part II, Item 1A of this
Quarterly Report on Form 10-Q for a description of recent market events that may affect the fair value and liquidity of the investments in our portfolio that we held at December 28, 2008.

At December 28, 2008, we had no outstanding debt.

We are exposed to
foreign currency exchange rate risk as a result of international sales, assets and liabilities of foreign subsidiaries, local operating expenses of our foreign entities and capital purchases denominated in foreign currencies. We may use derivative
financial instruments to help manage our foreign currency exchange exposures. We do not enter into derivatives for speculative or trading purposes. We performed a sensitivity analysis as of December 28, 2008 and determined that, without hedging
the exposure, a 10% change in the value of the U.S. dollar would result in an approximate 0.1% impact on gross profit margin percentage, as we operate manufacturing facilities in Malaysia and Singapore, and an approximate 0.3% impact to operating
expenses (as a percentage of revenue) as we operate sales offices in Japan and throughout Europe and design centers in China and Canada. At December 28, 2008 we had no outstanding foreign exchange contracts.

We did not have any currency exposure related to any outstanding capital purchases as of December 28, 2008.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

At December 28, 2008, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure control and procedures were effective at a reasonable assurance level. There have been no changes in our internal controls over financial reporting
during the Companys most recent fiscal quarter that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

On October 24, 2006, we were served with a
civil antitrust complaint filed by Reclaim Center, Inc., et. al. as plaintiffs in the U.S. District Court for the Northern District of California against us and 37 other entities on behalf of a purported class of indirect purchasers of Static Random
Access Memory (SRAM) products. The Complaint alleges that we and other defendants conspired to raise the prices of SRAM, in violation of Section 1 of the Sherman Act, the California Cartwright Act, and several other states
antitrust, unfair competition, and consumer protection statutes. Shortly thereafter, a number of other plaintiffs filed similar complaints on behalf of direct and indirect purchasers of SRAM. Given the similarity of the complaints, the Judicial
Panel on Multidistrict Litigation transferred the cases to a single judge in the Northern District of California and consolidated the cases for pretrial proceedings in February 2007. The consolidated cases are captioned In re Static Random Access
Memory (SRAM) Antitrust Litigation. In August 2007, direct purchasers of SRAM and indirect purchasers of SRAM filed separate Consolidated Amended Complaints. We were not named as a defendant in either complaint. Pursuant to tolling agreements with
the indirect and direct purchaser plaintiffs, the statute of limitations was tolled until January 10, 2009 as to potential claims against us. We intend to pursuant a further extension of the tolling agreement.

In addition, on May 14, 2007, we were served with a Civil Investigative Demand from the State of Florida concerning SRAM products. We and the State of Florida have
reached an agreement that suspends its obligation to respond to the CID. The agreement also tolled the statute of limitations until January 21, 2009 as to potential claims against us. We intend to pursuant a further extension of the tolling
agreement. Complaints concerning SRAM products have also been filed against us in Ontario, British Columbia and Quebec, Canada. The allegations in these Complaints are parallel to the allegations in the Complaints pending in the United States. On
March 19, 2008, we entered into a tolling agreement with the plaintiffs in the Ontario, British Columbia and Quebec actions. On March 25, 2008, the Ontario Superior Court of Justice entered an order that discontinued the action in Ontario
against us without prejudice. On May 2, 2008, a Notice of Discontinuance was filed by the plaintiff in the



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Supreme Court of British Columbia, resulting in a discontinuation of the action against us without prejudice. On August 28, 2008, the court in Quebec
issued an order of discontinuance with respect to us. We cannot predict their outcome or provide an estimate of any possible losses. Any litigation could be costly, divert our managements attention and could have a material and adverse effect
on our business, results of operations, financial condition or cash flows. We intend to vigorously defend these actions.

In April 2008, LSI Corporation
and its wholly owned subsidiary Agere Systems Inc. (collectively LSI) instituted an action in the United States International Trade Commission (ITC), naming the Company and 17 other respondents. The ITC action seeks an
exclusion order to prevent importation into the U.S. of semiconductor integrated circuit devices and products made by methods alleged to infringe an LSI patent relating to tungsten metallization in semiconductor manufacturing. LSI also filed a
companion case in the U.S. District Court for the Eastern District of Texas seeking an injunction and damages of an unspecified amount relating to such alleged infringement. Since the initiation of both actions, five additional parties have been
named as respondents/defendants in the respective actions. The action in the U.S. District Court has been stayed pending the outcome of the ITC action. The ITC action is currently scheduled for hearing July 20, 2009 through July 24, 2009.
We cannot predict their outcome or provide an estimate of any possible losses. Any litigation could be costly, divert our managements attention and could have a material and adverse effect on our business, results of operations, financial
condition or cash flows. We intend to vigorously defend the litigation.

We are currently a party to various other legal proceedings, claims, disputes and
litigation arising in the ordinary course of business. Based on our own investigations, We do not believe the ultimate outcome of its current legal proceedings, individually and in the aggregate, will have a material adverse effect on our financial
position, results of operation or cash flows. However, because of the nature and inherent uncertainties of such litigation and investigations, should the outcome of these actions be unfavorable, our business, financial condition, results of
operations or cash flows could be materially and adversely affected.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Investing in our common stock involves a high
degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually
occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks,
and you may lose all or part of your investment.

Our operating results can fluctuate dramatically. Our operating results have
fluctuated in the past and are likely to vary in the future. For example, we recorded net income of $34.2 million in fiscal 2008, net losses of $7.6 million and $81.7 million in fiscal 2007 and fiscal 2006, respectively. Fluctuations in operating
results can result from a wide variety of factors, including:



| |  |  | The cyclicality of the semiconductor industry and industry-wide wafer processing capacity;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Changes in the demand for and mix of products sold and in the markets we and our customers serve;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Competitive pricing pressures;
| | - |  | ------------------------------



| |  |  | The success and timing of new product and process technology announcements and introductions from us or our competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Potential loss of market share among a concentrated group of customers;
| | - |  | -----------------------------------------------------------------------



| |  |  | Difficulty in attracting and retaining key personnel;
| | - |  | -----------------------------------------------------



| |  |  | Difficulty in predicting customer product requirements;
| | - |  | -------------------------------------------------------



| |  |  | Production difficulties and interruptions caused by our complex manufacturing and logistics operations;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Difficulty in managing fixed costs of our manufacturing capability in the face of changes in demand;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Reduced control over our manufacturing and product delivery as a result of our increasing reliance on subcontractors, foundry and other manufacturing services;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Costs and other issues relating to future acquisitions;
| | - |  | -------------------------------------------------------



| |  |  | Availability and costs of raw materials from a limited number of suppliers;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Political and economic conditions in various geographic areas;
| | - |  | --------------------------------------------------------------



| |  |  | Costs associated with other events, such as intellectual property disputes or other litigation; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Legislative, tax, accounting, or regulatory changes or changes in their interpretation.
| | - |  | ---------------------------------------------------------------------------------------

Global Market and Economic Conditions, including those related to the credit markets, may adversely affect our business and results of operations.

Unprecedented volatility in global financial markets and rapidly deteriorating business conditions in the worlds developed economies has
resulted in tighter credit conditions and slower economic growth through Q3 2009. For the nine-month period ended December 28, 2008, continued concerns about the systemic impact of inflation, energy costs, geopolitical issues, the



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availability and cost of credit, the U.S. mortgage market, a declining real estate market in the U.S. and added concerns fueled by the federal government
interventions in the U.S. financial and credit markets have contributed to instability in both U.S. and international capital and credit markets and diminished expectations for the U.S. and global economy. These conditions, combined with volatile
oil prices, declining business and consumer confidence and increased unemployment have contributed to volatility of unprecedented levels and a significant economic slowdown.

As a result of these market conditions, the cost and availability of capital and credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. If these market
conditions continue, they may limit our ability, and the ability of our customers, to timely borrow and access the capital and credit markets to meet liquidity needs, and resulting in an adverse effect on our financial condition and results of
operations. Poor credit market conditions and the slowing of global economic activity may have an adverse effect on the financial condition of our customers. Should one or more of our major customers become financially constrained, or insolvent, our
revenues and results of operations may be adversely effected. The economic slowdown may lead to reduced customer spending for semiconductors and reduced demand for our products which is likely to have a negative impact on revenue, gross profit and
results of operations. This may drive the semiconductor industry to reduce product pricing, which would also have a negative impact on revenue, gross profit and results of operations. In addition, the semiconductor industry has traditionally been
highly cyclical and has often experienced significant downturns in connection with, or in anticipation of, a deterioration in general economic conditions and we cannot accurately predict how severe and prolonged any downturn might be.

The cyclicality of the semiconductor industry exacerbates the volatility of our operating results. The semiconductor industry is highly cyclical. The
semiconductor industry has experienced significant downturns, often in connection with product cycles of both semiconductor companies and their customers, but also related to declines in general economic conditions. These downturns have been
characterized by high inventory levels and accelerated erosion of average selling prices. Any future downturns could significantly impact our business from one period to the next relative to demand and resulting selling price declines. In addition,
the semiconductor industry has experienced periods of increased demand, during which we may experience internal and external manufacturing constraints. We may experience substantial changes in future operating results due to the cyclical nature of
the semiconductor industry.

We are exposed to potential impairment charges on certain assets. Over the past several years, we have made
several acquisitions. As a result of these acquisitions, we had over $1 billion of goodwill and over $163 million of intangible assets on our balance sheet at the beginning of Q3 2009. If the businesses acquired fail to meet our expectations set out
at the time of the acquisition or if the Companys stock trades at depressed levels for an extended period of time, we could incur significant impairment charges which could negatively impact our financial results. In addition, from time to
time, we have made investments in other companies, both public and private. If the companies that we invest in are unable to execute their plans and succeed in their respective markets, we may not benefit from such investments, and we could
potentially lose the amounts we invest. In addition, we evaluate our investment portfolio on a regular basis to determine if impairments have occurred. Impairment charges could have a material impact on our results of operations in any period.

As a result of our interim impairment analysis in Q3 2009, we recorded an estimated goodwill impairment charge of $326.4 million and acquisition-related
intangible asset impairment charge of $12.7 million in Q3 2009. We currently expects to finalize our goodwill impairment analysis during the fourth quarter ended March 29, 2009. Any adjustments to our preliminary estimates as a result of
the completion of this analysis may materially impact our operating results and financial position for the fourth quarter ended March 29, 2009. In addition, to determine fair values, we consider various factors including IDTs market
capitalization, forecasted revenue and costs, risk-adjusted discount rates, future economic and market conditions, determination of appropriate market comparables and expected periods over which our assets will be utilized and other variables. We
based our fair value estimates on assumptions believed to be reasonable, but which are inherently uncertain. Should actual results differ significantly from current estimates, we may need to further write-down goodwill and intangible asset values to
their fair values, which could result in material charges that could impact on our operating results and financial position.

Demand for our products
depends primarily on demand in the communications, personal computer (PC), and consumer markets which can be significantly impacted by concerns over macroeconomic issues. Our product portfolio consists predominantly of semiconductor
solutions for the communications, PC, and consumer markets. Our strategy and resources will be directed at the development, production and marketing of products for these markets. The markets for our products will depend on continued and growing
demand for communications equipment, PCs and consumer electronics. These end-user markets may experience changes in demand that could adversely affect our business and could be greater in periods of economic uncertainty and contraction. To the
extent demand for our products or markets for our products do not grow, our business could be adversely affected.

We build most of our products
based on estimated demand forecasts. Demand for our products can change rapidly and without advance notice. Demand can also be affected by changes in our customers levels of inventory and differences in the timing and pattern of orders
from their end customers. A large percentage of our revenue in the Asia Pacific region is recognized upon shipment to our distributors. Consequently, we have less visibility over both inventory levels at our distributors and end



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customer demand for our products. Further, the distributors have assumed more risk associated with changes in end demand for our products. Accordingly,
significant changes in end demand in the semiconductor business in general, or for our products in particular, may be difficult for us to detect or otherwise measure, which could cause us to incorrectly forecast end-market demand for our products.
If we are not able to accurately forecast end demand for our products, we may be left with large amounts of unsold products, may not be able to fill all actual orders, and may not be able to efficiently utilize our existing manufacturing capacity or
make optimal investment and other business decisions. As a result, we may end up with excess and obsolete inventory or we may be unable to meet customer short-term demands, either of which could have an adverse impact on our operating results.

A portion of our manufacturing capability is relatively fixed in nature.Although we have reduced our manufacturing cost structure
substantially over the past several years, a portion of our manufacturing capability is relatively fixed in nature. Large and rapid swings in demand for our products can make it difficult to efficiently utilize this capacity on a consistent basis.
Significant reductions in demand for our products could result in material under utilization of our manufacturing facilities while sudden increases in demand for our products could leave us short of capacity and unable to capitalize on incremental
revenue opportunities. These swings in demand and the resulting under-utilization of our manufacturing capacity or inability to procure sufficient capacity to meet end customer demand for our products would cause material fluctuations in, and could
materially and adversely affect, the revenue and gross margins we report.

We are dependent on a concentrated group of customers for a significant
part of our revenues. A large portion of our revenues depends on sales to a limited number of customers. If these relationships were to diminish, or if these customers were to develop their own solutions or adopt a competitors
solution instead of buying our products, our results could be adversely affected. For example, any diminished relationship with Cisco System, Inc. or other key customers could adversely affect our results. While we historically have made relatively
few sales to Cisco directly, when all channels of distribution are considered, including sales of product to EMS customers, we estimate that end-customer sales to Cisco represented approximately 10 - 20% of our annual revenues.

Many of our end-customer OEMs have outsourced their manufacturing to a concentrated group of global EMSs and original design manufacturers (ODMs) who
then buy product directly from us or from our distributors on behalf of the OEM. These EMSs and ODMs have achieved greater autonomy in the design win, product qualification and product purchasing decisions, especially for commodity products.
Competition for the business of these EMSs and ODMs is intense and there is no assurance we can remain competitive and retain our existing market share with these customers. If these companies were to allocate a higher share of commodity or
second-source business to our competitors instead of buying our products, our results would be adversely affected. Furthermore, as EMSs and ODMs have represented a growing percentage of our overall business, our concentration of credit and other
business risks with these customers has increased. Competition among global EMSs and ODMs is intense as they operate on extremely thin margins. If any one or more of these global EMSs or ODMs were to file for bankruptcy or otherwise experience
significantly adverse financial conditions, our business would be adversely impacted as well.

Finally, we utilize a relatively small number of global and
regional distributors around the world, who buy product directly from us on behalf of their customers. For example, one family of distributors, Maxtek and its affiliates, represented approximately 25% of our revenues for fiscal 2008 and represented
approximately 30% of our gross accounts receivable as of March 30, 2008. If our business relationships were to diminish or any of these global distributors were to file for bankruptcy or otherwise experience significantly adverse financial
conditions, our business could be adversely impacted. Because we continue to be dependent upon continued revenue from a small group of OEM end customers, global and regional distributors, any material delay, cancellation or reduction of orders from
or loss of these or other major customers could cause our sales to decline significantly, and we may not be able to reduce the accompanying expenses at the same rate.

Our results are dependent on the success of new products. The markets we serve are characterized by competition, rapid technological change, evolving standards, short product life cycles and
continuous erosion of average selling prices. Consequently, our future success will be highly dependent upon our ability to continually develop new products using the latest and most cost-effective technologies, introduce our products in commercial
quantities to the marketplace ahead of the competition and have our products selected for inclusion in leading system manufacturers products. In addition, the development of new products will continue to require significant R&D
expenditures. If we are unable to successfully develop, produce and market new products in a timely manner, have our products available in commercial quantities ahead of competitive products or have our products selected for inclusion in products of
systems manufacturers and sell them at gross margins comparable to or better than our current products, our future results of operations could be adversely impacted. In addition, our future revenue growth is also partially dependent on our ability
to penetrate new markets in which we have limited experience and where competitors are already entrenched. Even if we are able to develop, produce and successfully market new products in a timely manner, such new products may not achieve market
acceptance.

We are dependent on key personnel.Our performance is substantially dependent on the performance of our executive
officers and key employees. The loss of the services of any of our executive officers, technical personnel or other key employees could adversely affect our business. In addition, our future success depends on our ability to successfully compete
with other technology firms in attracting and retaining specialized technical and management personnel. If we are unable to identify, hire and retain highly qualified technical and managerial personal, our business could be harmed.



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Our product manufacturing operations are complex and subject to interruption. From time to time, we have
experienced production difficulties, including lower manufacturing yields or products that do not meet our or our customers specifications, which has resulted in delivery delays, quality problems and lost revenue opportunities. While delivery
delays have been infrequent and generally short in duration, we could experience manufacturing problems, capacity constraints and/or product delivery delays in the future as a result of, among other things, the complexity of our manufacturing
processes, changes to our process technologies (including transfers to other facilities and die size reduction efforts), and difficulties in ramping production and installing new equipment at our facilities. In addition, any significant quality
problems could damage our reputation with our customers and could take focus away from the development of new and enhanced products. These could have a significant negative impact on our financial results.

Substantially all of our revenues are derived from products manufactured at facilities which are exposed to the risk of natural disasters. If we were unable to use our
facilities or those of our subcontractors and third party foundries as a result of a natural disaster or otherwise, our operations would be materially adversely affected. While we maintain certain levels of insurance against selected risks of
business interruption, not all risks can be insured at a reasonable cost. For example, we do not insure our facilities for earthquake damage due to the costs involved. Even if we have purchased insurance, the adverse impact on our business,
including both costs and lost revenue opportunities, could greatly exceed the amounts, if any, that we might recover from our insurers.

We are dependent
upon electric power and water provided by public utilities where we operate our manufacturing facilities. We maintain limited backup generating capability, but the amount of electric power that we can generate on our own is insufficient to fully
operate these facilities, and prolonged power interruptions and restrictions on our access to water could have a significant adverse impact on our business.

The costs associated with the legal proceedings in which we are involved can be substantial, specific costs are unpredictable and not completely within our control, and unexpected increases in litigation costs could adversely affect
our operating results.We are currently involved in legal proceedings, as described above in Part II, Item 1 Legal Proceedings. The costs associated with legal proceedings are typically high, relatively unpredictable and are
not completely within our control. While we do our best to forecast and control such costs, the costs may be materially more than expected, which could adversely affect our operating results. Moreover, we may become involved in unexpected litigation
with additional companies at any time, which would increase our aggregate litigation costs and could adversely affect our operating results. We are not able to predict the outcome of any of our legal actions and an adverse decision in any of our
legal actions could significantly harm our business and financial performance.

We rely upon certain critical information systems for the operation
of our business.We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the Internet, our corporate intranet, various computer
hardware and software applications, network communications, and e-mail. These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power
failures, and physical damage to computers, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency
recovery processes, to address the outlined risks. While we believe that our information systems are appropriately controlled and that we have processes in place to adequately manage these risks, security procedures for information systems cannot be
guaranteed to be failsafe and our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business.

We are reliant upon subcontractors and third-party foundries.Beginning in fiscal 2008, we do not perform assembly services in-house and are now totally
dependent on subcontractors for assembly operations. We are also dependent on third-party outside foundries for the manufacture of a portion of our silicon wafers. Our increased reliance on subcontractors and third-party foundries for our current
products increases certain risks because we will have less control over manufacturing quality and delivery schedules, maintenance of sufficient capacity to meet our orders and generally, maintaining the manufacturing processes we require. We expect
our use of subcontractors and third-party foundries to continue to increase. Due to production lead times and potential capacity constraints, any failure on our part to adequately forecast the mix of product demand and resulting foundry and
subcontractor requirements could adversely affect our operating results. In addition, we cannot be certain that these foundries and subcontractors will continue to manufacture, assemble, package, and test products for us on acceptable economic and
quality terms, or at all, and it may be difficult for us to find alternatives in a timely and cost-effective manner if they do not do so.

We are
dependent on a limited number of suppliers. Our manufacturing operations depend upon obtaining adequate raw materials on a timely basis. The number of suppliers of certain raw materials, such as silicon wafers, ultra-pure metals and
certain chemicals and gases needed for our products, is very limited. In addition, certain packages for our products require long lead



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times and are available from only a few suppliers. From time to time, suppliers have extended lead times or limited supply to us due to capacity constraints.
Our results of operations would be materially and adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials, or if foundry or assembly
subcontractor capacity was not available, or was only available at uncompetitive prices.

We have made and may continue to make acquisitions which
could divert managements attention, cause ownership dilution to our stockholders, be difficult to integrate and adversely affect our financial results.Acquisitions are commonplace in the semiconductor industry and we have and may
continue to acquire businesses or technologies. Integrating newly acquired businesses or technologies could put a strain on our resources, could be costly and time consuming, and might not be successful. Such acquisitions could divert our
managements attention from other business concerns. In addition, we might lose key employees while integrating new organizations. Acquisitions could also result in customer dissatisfaction, performance problems with an acquired company or
technology, dilutive or potentially dilutive issuances of equity securities, the incurrence of debt, the assumption or incurrence of contingent liabilities, or other unanticipated events or circumstances, any of which could harm our business.
Consequently, we might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenues and cost benefits.

We are subject to a variety of environmental and other regulations related to hazardous materials used in our manufacturing processes. Any failure by us to adequately control the use or discharge of
hazardous materials under present or future regulations could subject us to substantial costs or liabilities or cause our manufacturing operations to be suspended.

We have limited experience with government contracting, which entails differentiated business risks. Currently, certain of our subsidiaries derive revenue from contracts and subcontracts with agencies of, or prime contractors
to, the U.S. government, including U.S. military agencies. Although former employees of ICS who work for us have experience contracting with agencies of the U.S. government, historically we have not contracted with agencies of the U.S. government.
As a company engaged, in part, in supplying defense-related equipment to U.S. government agencies, we are subject to certain business risks that are particular to companies that contract with U.S. government agencies. These risks include the ability
of the U.S. government or related contractors to unilaterally:



| |  |  | Terminate contracts at its convenience;
| | - |  | ---------------------------------------



| |  |  | Terminate, modify or reduce the value of existing contracts, if its budgetary constraints or needs change;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Cancel multi-year contracts and related orders, if funds become unavailable;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Adjust contract costs and fees on the basis of audits performed by U.S. government agencies;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Control and potentially prohibit the export of our products;
| | - |  | ------------------------------------------------------------



| |  |  | Require that the company continue to supply products despite the expiration of a contract under certain circumstances;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | Require that the company fill certain types of rated orders for the U.S. government prior to filling any orders for other customers; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

In addition, because we have defense industry contracts with respect to products that are sold both within and outside of the United States, we are subject to the
following additional risks in connection with government contracts:



| |  |  | The need to bid on programs prior to completing the necessary design, which may result in unforeseen technological difficulties, delays and/or cost overruns;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The difficulty in forecasting long-term costs and schedules and the potential obsolescence of products related to long-term fixed price contracts; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The need to transfer and obtain security clearances and export licenses, as appropriate.
| | - |  | ----------------------------------------------------------------------------------------

Intellectual property claims could adversely affect our business and operations. The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which has resulted in significant and often protracted and expensive litigation. We have been involved in patent litigation in the past, which adversely affected our operating results. Although we have
obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers that have broad patent portfolios. Claims alleging infringement of intellectual property rights have been
asserted against us in the past and could be asserted against us in the future. These claims could result in our having to discontinue the use of certain processes; license certain technologies; cease the manufacture, use and sale of infringing
products; incur significant litigation costs and damages; and develop non-infringing technology. We might not be able to obtain such licenses on acceptable terms or to develop non-infringing technology. Further, the failure to renew or renegotiate
existing licenses on favorable terms, or the inability to obtain a key license, could materially and adversely affect our business.



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International operations add increased volatility to our operating results. A substantial percentage
of our revenues are derived from international sales, as summarized below:



|                               |  |                                |   |  |                           |   |  |                           |  
|------------------------------ |  | ------------------------------ | - |  | ------------------------- | - |  | ------------------------- | -
|(percentage of total revenues) |  | First ninemonths offiscal 2009 |   |  | Twelvemonths offiscal2008 |   |  | Twelvemonths offiscal2007 |  
|Americas                       |  | 19                             | % |  | 28                        | % |  | 30                        | %
|Asia Pacific                   |  | 64                             | % |  | 56                        | % |  | 47                        | %
|Japan                          |  | 9                              | % |  | 9                         | % |  | 13                        | %
|Europe                         |  | 8                              | % |  | 7                         | % |  | 10                        | %
|                               |  |                                |   |  |                           |   |  |                           |  
|Total                          |  | 100                            | % |  | 100                       | % |  | 100                       | %
|                               |  |                                |   |  |                           |   |  |                           |  

In addition, our facilities in Malaysia and Singapore, our design centers in Canada and China, and our foreign
sales offices incur payroll, facility and other expenses in local currencies. Accordingly, movements in foreign currency exchange rates can impact our revenues and costs of goods sold, as well as both pricing and demand for our products.

Our offshore sites and export sales are also subject to risks associated with foreign operations, including:



| |  |  | Political instability and acts of war or terrorism, which could disrupt our manufacturing and logistical activities;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Regulations regarding use of local employees and suppliers;
| | - |  | -----------------------------------------------------------



| |  |  | Currency controls and fluctuations, devaluation of foreign currencies, hard currency shortages and exchange rate fluctuations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in local economic conditions;
| | - |  | -------------------------------------



| |  |  | Governmental regulation of taxation of our earnings and those of our personnel; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Changes in tax laws, import and export controls, tariffs and freight rates.
| | - |  | ---------------------------------------------------------------------------

Contract pricing for raw materials and equipment used in the fabrication and assembly processes, as well as for foundry and subcontract assembly services, may also be impacted by currency controls, exchange rate
fluctuations and currency devaluations. We sometimes hedge currency risk for currencies that are highly liquid and freely quoted, but may not enter into hedge contracts for currencies with limited trading volume.

In addition, as much of our revenues are generated outside the United States, a significant portion of our cash and investment portfolio accumulates offshore. At
December 28, 2008, we had cash and investments of approximately $201.0 million invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in U.S. dollars, a portion is held in
foreign currencies, and all offshore balances are exposed to local political, banking, currency control and other risks. In addition, these amounts may be subject to tax and other transfer restrictions.

Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.The methods, estimates
and judgments we use in applying our accounting policies have a significant impact on our results of operations (see Critical Accounting Policies in Part I, Item 2 of this Quarterly Report on Form 10-Q). Such methods, estimates and
judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that leads us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could
significantly affect our results of operations. In particular, the calculation of stock-based compensation expense under SFAS 123(R) requires us to use valuation methodologies that were not developed for use in valuing employee stock options and
make a number of assumptions, estimates and conclusions regarding matters such as expected forfeitures, expected volatility of our share price and the exercise behavior of our employees. Changes in these variables could impact our stock-based
compensation expense and have a significant impact on our gross margins, R&D and SG&A expenses.

Tax benefits we receive may be terminated or
reduced in the future, which would increase our costs.As a result of our international manufacturing operations, a significant portion of our worldwide profits are in jurisdictions outside the United States, including Bermuda, Singapore and
Malaysia which offer significant reductions in tax rates. These lower tax rates allow us to record a relatively low tax expense on a worldwide basis. Under current Bermuda law, we are not subject to tax on our income and capital gains. If the
Internal Revenue Service were to change the law regarding deferral of manufacturing profits, this would have a significant impact to financial results.

In
addition, the Economic Development Board of Singapore granted Pioneer Status to our wholly-owned subsidiary in Singapore in 1997. Initially, this tax exemption was to expire after ten years, but the Economic Development Board in January 2008 agreed
to extend the term to twelve years. As a result, a significant portion of the income we earn in Singapore during this period will be



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exempt from the Singapore income tax. We are required to meet several requirements as to investment, headcount and activities in Singapore to retain this
status. If our Pioneer Status is terminated early because we do not continue to meet these requirements, or for other reasons beyond our control, our financial results could be negatively impacted. Also, in Malaysia, we have been granted a tax
holiday related to certain profits. If we are unable to renew this tax holiday when it expires, we will be required to start paying income tax at the statutory tax rate on our operations, which will adversely impact our effective tax rate.

If the recent credit market conditions worsen, it could have a material adverse impact on our investment portfolio.Although we manage our
investment portfolio by purchasing only highly rated securities and diversifying our investments across various sectors, investment types, and underlying issuers, recent volatility in the short-term financial markets has been unprecedented. We have
limited securities in asset backed commercial paper and hold no auction rated or mortgage backed securities. However it is uncertain as to the full extent of the current credit and liquidity crisis and with possible further deterioration,
particularly within one or several of the large financial institutions, the value of our investments could be negatively impacted.

Our common stock
has experienced substantial price volatility. Such volatility may occur in the future, particularly as a result of the current economic downturn and quarter-to-quarter variations in our actual or anticipated financial results, those of
other semiconductor companies or our customers. Stock price volatility may also result from product announcements by us or our competitors, or from changes in perceptions about the various types of products we manufacture and sell. In addition, our
stock price may fluctuate due to price and volume fluctuations in the stock market, especially in the technology sector, and as a result of other considerations or events described in this section.

Our business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of
noncompliance. Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NASDAQ, have issued requirements and regulations and continue to develop additional regulations and requirements in response
to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses
and diversion of management time and attention from revenue-generating activities to compliance activities.

Because new and modified laws, regulations and
standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in
continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.

We depend on the ability of our personnel, raw materials, equipment and products to move reasonably unimpeded around the world.Any political, military, world health or other issue which hinders the worldwide movement of our
personnel, raw materials, equipment or products or restricts the import or export of materials could lead to significant business disruptions. Furthermore, any strike, economic failure, or other material disruption on the part of major airlines or
other transportation companies could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on information
technology, or directly impact our marketing, manufacturing, financial and logistics functions, our results of operations and financial condition could be materially and adversely affected.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

The
following table sets forth information with respect to repurchases of our common stock during the third quarter of fiscal 2009:



|                                      |  |                               |  |                            |      |                                                                      |           |                                                                                       |   |           
|------------------------------------- |  | ----------------------------- |  | -------------------------- | ---- | -------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------------- | - | ----------
|Period                                |  | Totalnumber ofsharespurchased |  | Averageprice paidper share |      | Total number ofshares purchased aspart of publiclyannounced programs |           | Approximate total dollarvalue of shares that mayyet be purchased underthe program
(1)
|September 29, 2008  October 26, 2008 |  |                              |  |                            |     |                                                                      |          |                                                                                       |   |          
|October 27, 2008  November 23, 2008  |  | 2,060,000                     |  | $                          | 5.68 |                                                                      | 2,060,000 |                                                                                       | $ | 91,104,005
|November 24, 2008  December 28, 2008 |  | 2,765,800                     |  | $                          | 4.78 |                                                                      | 2,765,800 |                                                                                       | $ | 77,894,774
|                                      |  |                               |  |                            |      |                                                                      |           |                                                                                       |   |           
|Total                                 |  | 4,825,800                     |  | $                          | 5.16 |                                                                      | 4,825,800 |                                                                                       |   |           
|                                      |  |                               |  |                            |      |                                                                      |           |                                                                                       |   |           



|(1) | On January 18, 2007, the Companys Board of Directors initiated a $200 million share repurchase program. During fiscal 2008, the Companys Board of
Directors approved a $200 million expansion of the share repurchase program to a total of $400 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | In fiscal 2008, the Company repurchased approximately 28.9 million shares at an average price of $11.60 per share for a total purchase price of $334.8
million. On April 30, 2008, the Companys Board of Directors approved an additional $100 million expansion of the share repurchase program to a total of $500 million. During Q1 2009, the Company repurchased approximately 2.1 million
shares at an average price of $10.71 per share for a total purchase price of $22.3 million. During Q2 2009, the Company repurchased approximately 1.4 million shares at an average price of $10.44 per share for a total purchase price of $15.1
million. During Q3 2009, the Company repurchased approximately 4.8 million shares at an average price of $5.16 per share for a total purchase price of $24.9 million. Share repurchases were recorded as treasury stock and resulted in a reduction
of stockholders equity. As of December 28, 2008, approximately $78.0 million was available for future share repurchases. The program is intended to reduce the number of outstanding shares of common stock to increase stockholder value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS
|------- | --------



|(a) | The following exhibits are filed herewith:
|--- | ------------------------------------------



|              |  |                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibitnumber |  | Description                                                                                                                                                                  
|              | 
|31.1          |  | Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated February 6, 2009.                           
|              | 
|31.2          |  | Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated February 6, 2009.                           
|              | 
|32.1          |  | Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 dated February 6,
2009.
|              | 
|32.2          |  | Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section 1350 dated February 6, 2009. 



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |                                                                                                             
|---------------------- |  |  |  | ------------------------------------------------------------------------------------------------------------
|                       |  |  |  | INTEGRATED DEVICE TECHNOLOGY, INC.                                                                          
|                       |  | 
|Date: February 6, 2009 |  |  |  | /S/ THEODORE L. TEWKSBURY III                                                                               
|                       |  |  |  | Theodore L.Tewksbury III President and Chief
Executive Officer                                              
|                       |  | 
|Date: February 6, 2009 |  |  |  | /S/ RICHARD D. CROWLEY, JR.                                                                                 
|                       |  |  |  | Richard D. Crowley, Jr. Vice President,
Chief Financial Officer (Principal Financial and Accounting Officer)



42