##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q



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|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   
|                                              |  |                                                                                         
|[X]                                           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                              |  |                                                                                         
|For the Quarterly Period Ended March 30, 2003
|                                              |  |                                                                                         
|OR                                           
|                                              |  |                                                                                         
|[   ]                                         |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number: 0-11674



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LSI LOGIC CORPORATION

(Exact name of registrant as specified in its charter)


|                         |  |                                        
|------------------------ |  | ---------------------------------------
|Delaware                 |  | 94-2712976                             
|(State of Incorporation) |  | (I.R.S. Employer Identification Number)

1621 Barber Lane
Milpitas, California 95035
(Address of principal executive offices)
(Zip code)

(408) 433-8000
(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file 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 an accelerated filer (as
defined in Rule 12b-2 of the Act) YES [X] NO [ ]

As of May 6, 2003, there were 375,235,197 shares of the registrants
Common Stock, $.01 par value, outstanding.





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TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS                         
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS               
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                               |                                                                                               | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|                               |                                                                                               | SIGNATURES                                          
|                               |                                                                                               | CERTIFICATIONS                                      
|                               |                                                                                               | INDEX TO EXHIBITS                                   
|EXHIBIT 3.2                   
|EXHIBIT 10.34                 
|EXHIBIT 10.35                 
|EXHIBIT 10.36                 
|EXHIBIT 10.37                 
|EXHIBIT 10.38                 
|EXHIBIT 10.39                 
|EXHIBIT 10.40                 
|EXHIBIT 10.41                 
|EXHIBIT 10.42                 
|EXHIBIT 10.43                 
|EXHIBIT 99.1                  
|EXHIBIT 99.2                  



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##### Table of Contents



LSI LOGIC CORPORATION
Form 10-Q
For the Quarter Ended March 31, 2003
INDEX

|                              |  |                                                                                       |  |                                                                                                |    |  |    |      |  | 
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | -- |  | -- | ---- |  | 
|                              |  |                                                                                       |  |                                                                                                |    |  |    | Page
|                              |  |                                                                                       |  |                                                                                                |    |  |    | No. 
|                              |  |                                                                                       |  |                                                                                                |    |  |    |     
|PART I. FINANCIAL INFORMATION
|Item 1                        |  | Financial Statements                                                                  |  |                                                                                                |    | 
|                              |  |                                                                                       |  | Consolidated Balance Sheets  March 31, 2003 (unaudited) and December 31, 2002                 |    |  | 3  |     
|                              |  |                                                                                       |  | Consolidated Statements of Operations  Three Months Ended March 31, 2003 and 2002 (unaudited) |    |  | 4  |     
|                              |  |                                                                                       |  | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2003 and 2002 (unaudited) |    |  | 5  |     
|                              |  |                                                                                       |  | Notes to Consolidated Financial Statements                                                     |    |  | 6  |     
|Item 2                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                | 15 | 
|Item 3                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                | 26 | 
|Item 4                        |  | Controls and Procedures                                                               |  |                                                                                                | 26 | 
|PART II. OTHER INFORMATION   
|Item 1                        |  | Legal Proceedings                                                                     |  |                                                                                                | 27 | 
|Item 6                        |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                | 27 | 
|                              |  |                                                                                       |  | Signatures                                                                                     |    |  | 28 |     
|                              |  |                                                                                       |  | Certifications                                                                                 |    |  | 29 |     
|                              |  |                                                                                       |  | Index to Exhibits                                                                              |    |  | 31 |     

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




LSI LOGIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                                                                                  |                                                          |   |                                          |           |              |   |           |           | 
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | - | ---------------------------------------- | --------- | ------------ | - | --------- | --------- | 
|                                                                                                  |                                                          |   | March 31,                                |           | December 31,
|                                                                                                  |                                                          |   | 2003                                     |           | 2002        
|                                                                                                  |                                                          |   |                                          |           |             
|                                                                                                  |                                                          |   | (In
thousands, except per-share amounts)
|                                                                                                  |                                                          |   |                                         
|Assets                                                                                            |                                                          |   |                                          |           |              |   |           |          
|Cash and cash equivalents                                                                         |                                                          | $ | 498,528                                  |           |              | $ | 448,847   |          
|Short-term investments                                                                            |                                                          |   | 506,310                                  |           |              |   | 541,129   |          
|Accounts receivable, less allowances of $6,314 and $7,033                                         |                                                          |   | 225,347                                  |           |              |   | 248,621   |          
|Inventories                                                                                       |                                                          |   | 206,652                                  |           |              |   | 194,466   |          
|Deferred tax assets                                                                               |                                                          |   | 11,388                                   |           |              |   | 11,380    |          
|Prepaid expenses and other current assets                                                         |                                                          |   | 194,426                                  |           |              |   | 181,610   |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total current assets                                     |   |                                          | 1,642,651 |              |   |           | 1,626,053 | 
|Property and equipment, net                                                                       |                                                          |   | 610,969                                  |           |              |   | 746,964   |          
|Goodwill and other intangibles, net                                                               |                                                          |   | 1,206,846                                |           |              |   | 1,251,043 |          
|Deferred tax assets                                                                               |                                                          |   | 137,188                                  |           |              |   | 137,152   |          
|Other assets                                                                                      |                                                          |   | 499,277                                  |           |              |   | 381,525   |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total assets                                             |   | $                                        | 4,096,931 |              |   | $         | 4,142,737 | 
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|Liabilities and Stockholders Equity                                                              |                                                          |   |                                          |           |              |   |           |          
|Accounts payable                                                                                  |                                                          | $ | 99,865                                   |           |              | $ | 100,856   |          
|Accrued salaries, wages and benefits                                                              |                                                          |   | 75,652                                   |           |              |   | 71,499    |          
|Other accrued liabilities                                                                         |                                                          |   | 179,716                                  |           |              |   | 184,837   |          
|Income tax payable                                                                                |                                                          |   | 33,944                                   |           |              |   | 30,066    |          
|Deferred tax liabilities                                                                          |                                                          |   | 10,192                                   |           |              |   | 10,192    |          
|Current portion of long-term obligations                                                          |                                                          |   | 328,488                                  |           |              |   | 361       |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total current liabilities                                |   |                                          | 727,857   |              |   |           | 397,811   | 
|Deferred tax liabilities                                                                          |                                                          |   | 123,441                                  |           |              |   | 123,365   |          
|Long-term debt and capital lease obligations                                                      |                                                          |   | 911,019                                  |           |              |   | 1,241,217 |          
|Other non-current liabilities                                                                     |                                                          |   | 136,617                                  |           |              |   | 73,483    |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total long-term obligations and deferred tax liabilities |   |                                          | 1,171,077 |              |   |           | 1,438,065 | 
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|Commitments and contingencies (Note 12)                                                           |                                                          |   |                                          |           |              |   |           |          
|Minority interest in subsidiary                                                                   |                                                          |   | 6,588                                    |           |              |   | 6,506     |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|Stockholders equity:                                                                             |                                                          |   |                                          |           |              |   |           |          
|Preferred shares; $.01 par value; 2,000 shares authorized, none outstanding                       |                                                          |   |                                         |           |              |   |          |          
|Common stock; $.01 par value; 1,300,000 shares authorized; 375,211 and
375,096 shares outstanding |                                                          |   | 3,752                                    |           |              |   | 3,751     |          
|Additional paid-in capital                                                                        |                                                          |   | 2,954,238                                |           |              |   | 2,954,282 |          
|Deferred stock compensation                                                                       |                                                          |   | (40,617                                  | )         |              |   | (51,161   | )        
|Accumulated deficit                                                                               |                                                          |   | (734,668                                 | )         |              |   | (612,243  | )        
|Accumulated other comprehensive income                                                            |                                                          |   | 8,704                                    |           |              |   | 5,726     |          
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total stockholders equity                               |   |                                          | 2,191,409 |              |   |           | 2,300,355 | 
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          
|                                                                                                  | Total liabilities and stockholders equity               |   | $                                        | 4,096,931 |              |   | $         | 4,142,737 | 
|                                                                                                  |                                                          |   |                                          |           |              |   |           |          

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                            |                                                          |                          |                        |         |                                          |         |          |         |         |         | 
|------------------------------------------- | -------------------------------------------------------- | ------------------------ | ---------------------- | ------- | ---------------------------------------- | ------- | -------- | ------- | ------- | ------- | 
|                                            |                                                          |                          |                        |         | Three Months Ended                      
|                                            |                                                          |                          |                        |         | March 31,                               
|                                            |                                                          |                          |                        |         |                                         
|                                            |                                                          |                          |                        |         | 2003                                     |         | 2002    
|                                            |                                                          |                          |                        |         |                                          |         |         
|                                            |                                                          |                          |                        |         | (In
thousands, except per share amounts)
|                                            |                                                          |                          |                        |         |                                         
|Revenues                                    |                                                          | $                        | 372,785                |         |                                          | $       | 412,509  |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Costs and expenses:                         |                                                          |                          |                        |         |                                          |         |          |        
|                                            | Cost of revenues                                         |                          |                        | 248,068 |                                          |         |          | 265,909 |        
|                                            | Additional excess inventory and related charges          |                          |                        |        |                                          |         |          | 40,754  |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|                                            |                                                          |                          | Total cost of revenues |         |                                          | 248,068 |          |         |         | 306,663 | 
|                                            |                                                          |                          |                        |         |                                         
|                                            | Research and development                                 |                          |                        | 115,127 |                                          |         |          | 114,343 |        
|                                            | Selling, general and administrative                      |                          |                        | 57,629  |                                          |         |          | 58,180  |        
|                                            | Restructuring of operations and other items, net         |                          |                        | 35,666  |                                          |         |          | 65,060  |        
|                                            | Amortization of non-cash deferred stock compensation (*) |                          |                        | 10,543  |                                          |         |          | 26,921  |        
|                                            | Amortization of intangibles                              |                          |                        | 20,125  |                                          |         |          | 19,157  |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|                                            |                                                          | Total costs and expenses |                        |         | 487,158                                  |         |          |         | 590,324 |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Loss from operations                        |                                                          |                          | (114,373               | )       |                                          |         | (177,815 | )      
|Interest expense                            |                                                          |                          | (8,831                 | )       |                                          |         | (15,834  | )      
|Interest income and other, net              |                                                          |                          | 6,779                  |         |                                          |         | 3,646    |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Loss before income taxes                    |                                                          |                          | (116,425               | )       |                                          |         | (190,003 | )      
|Provision / (benefit) for income taxes      |                                                          |                          | 6,000                  |         |                                          |         | (18,250  | )      
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Net loss                                    |                                                          | $                        | (122,425               | )       |                                          | $       | (171,753 | )      
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Loss per share:                             |                                                          |                          |                        |         |                                          |         |          |        
|                                            | Basic                                                    |                          | $                      | (0.33   | )                                        |         | $        | (0.47   | )      
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|                                            | Dilutive                                                 |                          | $                      | (0.33   | )                                        |         | $        | (0.47   | )      
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|Shares used in computing per share amounts: |                                                          |                          |                        |         |                                          |         |          |        
|                                            | Basic                                                    |                          |                        | 374,628 |                                          |         |          | 367,578 |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        
|                                            | Dilutive                                                 |                          |                        | 374,628 |                                          |         |          | 367,578 |        
|                                            |                                                          |                          |                        |         |                                          |         |          |        



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| |  | (*) Amortization of non-cash deferred stock compensation (related to
acquisitions), if not shown separately, would have been included in
cost of revenues, research and development and selling, general and
administrative expenses as shown below:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |                              |       |      |  |   |        | 
|----------------------------------- |  | ---------------------------- | ----- | ---- |  | - | ------ | 
|                                    |  | Three months ended March 31,
|                                    |  |                             
|                                    |  | 2003                         |       | 2002
|                                    |  |                              |       |     
|                                    |  | (In thousands)              
|Cost of revenues                    |  | $                            | 182   |      |  | $ | 550    | 
|Research and development            |  |                              | 8,150 |      |  |   | 20,319 | 
|Selling, general and administrative |  |                              | 2,211 |      |  |   | 6,052  | 

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                             |                                                                |   |                                   |                                                       |   |                    |          |          |   |         |          |  
|------------------------------------------------------------ | -------------------------------------------------------------- | - | --------------------------------- | ----------------------------------------------------- | - | ------------------ | -------- | -------- | - | ------- | -------- | -
|                                                             |                                                                |   |                                   |                                                       |   | Three Months Ended
|                                                             |                                                                |   |                                   |                                                       |   | March 31,         
|                                                             |                                                                |   |                                   |                                                       |   |                   
|                                                             |                                                                |   |                                   |                                                       |   | 2003               |          | 2002    
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             |                                                                |   |                                   |                                                       |   | (In thousands)    
|Operating activities:                                        |                                                                |   |                                   |                                                       |   |                    |          |         
|Net loss                                                     |                                                                | $ | (122,425                          | )                                                     |   | $                  | (171,753 | )       
|Adjustments:                                                 |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             | Depreciation and amortization                                  |   |                                   | 87,058                                                |   |                    |          | 88,899   |  
|                                                             | Amortization of non-cash deferred stock compensation           |   |                                   | 10,543                                                |   |                    |          | 26,921   |  
|                                                             | Non-cash restructuring and other items, net                    |   |                                   | 29,754                                                |   |                    |          | 56,901   |  
|                                                             | Loss on write-down of equity securities                        |   |                                   | 7,006                                                 |   |                    |          |         |  
|                                                             | Gain on sale of property and equipment                         |   |                                   | (1,703                                                | ) |                    |          |         |  
|                                                             | Changes in deferred tax assets and liabilities                 |   |                                   | (410                                                  | ) |                    |          | 170      |  
|                                                             | Changes in assets and liabilities:                             |   |                                   |                                                       |   |                    |          |          |  
|                                                             |                                                                |   | Accounts receivable, net          |                                                       |   | 24,160             |          |          |   | (30,520 | )       
|                                                             |                                                                |   | Inventories, net                  |                                                       |   | (11,866            | )        |          |   | 59,328  |         
|                                                             |                                                                |   | Prepaid expenses and other assets |                                                       |   | (336               | )        |          |   | (23,154 | )       
|                                                             |                                                                |   | Accounts payable                  |                                                       |   | (1,106             | )        |          |   | (33,632 | )       
|                                                             |                                                                |   | Accrued and other liabilities     |                                                       |   | 1,205              |          |          |   | (8,161  | )       
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             |                                                                |   |                                   | Net cash provided by / (used in) operating activities |   |                    | 21,880   |          |   |         | (35,001  | )
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Investing activities:                                        |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             | Purchase of debt securities available-for-sale                 |   |                                   | (857,231                                              | ) |                    |          | (551,620 | )
|                                                             | Maturities and sales of debt securities available-for-sale     |   |                                   | 885,609                                               |   |                    |          | 324,443  |  
|                                                             | Purchases of equity securities                                 |   |                                   |                                                      |   |                    |          | (1,394   | )
|                                                             | Proceeds from sale /(purchases) of property and equipment, net |   |                                   | 148,923                                               |   |                    |          | (4,751   | )
|                                                             | Increase in non-current assets and deposits                    |   |                                   | (150,410                                              | ) |                    |          | (6,847   | )
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             |                                                                |   |                                   | Net cash provided by / (used in) investing activities |   |                    | 26,891   |          |   |         | (240,169 | )
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Financing activities:                                        |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             | Repayment of debt obligations                                  |   |                                   | (88                                                   | ) |                    |          | (108     | )
|                                                             | Issuance of common stock, net                                  |   |                                   | 242                                                   |   |                    |          | 1,622    |  
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|                                                             |                                                                |   |                                   | Net cash provided by financing activities             |   |                    | 154      |          |   |         | 1,514    |  
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Effect of exchange rate changes on cash and cash equivalents |                                                                |   | 756                               |                                                       |   |                    | 1,631    |         
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Increase / (decrease) in cash and cash equivalents           |                                                                |   | 49,681                            |                                                       |   |                    | (272,025 | )       
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Cash and cash equivalents at beginning of period             |                                                                |   | 448,847                           |                                                       |   |                    | 757,138  |         
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         
|Cash and cash equivalents at end of period                   |                                                                | $ | 498,528                           |                                                       |   | $                  | 485,113  |         
|                                                             |                                                                |   |                                   |                                                       |   |                    |          |         

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION

In the opinion of LSI Logic Corporation (the Company or LSI), the
accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments, additional excess
inventory and other related charges and restructuring and other items, net as
discussed in Note 3 to the Consolidated Financial Statements, hereafter
referred to as the Notes), necessary to present fairly the financial
information included herein. While the Company believes that the disclosures
are adequate to make the information not misleading, it is suggested that these
financial statements 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 year ended December 31, 2002.

For financial reporting purposes, the Company reports on a 13 or 14-week
quarter with a year ending December 31. The current quarter ended March 30,
2003. For presentation purposes, the consolidated financial statements refer
to the quarters calendar month end for convenience. The results of operations
for the quarter ended March 31, 2003 are not necessarily indicative of the
results to be expected for the full year.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ significantly from these estimates.

Certain items previously reported in specific financial statement captions
have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. On March 28, 2003, the Company entered into new
operating leases to refinance the old leases. See Note 12 of the Notes. The
Company refinanced these leases in a manner that best met our capital financing
strategy and cost of capital objectives and the new leases are not subject to
the consolidation provisions of FIN 46.

In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company believes that the adoption of this standard
will not have a material impact on our consolidated balance sheet or statement
of operations.

In April 2003, the FASB issued Statement No. 149 (SFAS No. 149),
Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this statement
clarifies the circumstances under which a contract with an initial net
investment meets the characteristics of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying to conform it to the language used in FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and amends certain other existing
pronouncements. The provisions of SFAS No. 149, which were not already applied
under an Implementation Issue, are effective for contracts entered into or
modified after June 30, 2003. The Company believes that the adoption of this
standard will not have a material impact on our consolidated balance sheet or
statement of operations.

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NOTE 2  STOCK-BASED COMPENSATION

The Company adopted the disclosure requirement of Statement of Financial
Accounting Standards No. 148 (SFAS No. 148) as of December 31, 2002. These
disclosure requirements include more prominent presentation, in a tabular
format, of the pro forma effect of using the fair value method of accounting
for stock-based employee compensation in interim and annual financial
statements. The following table provides pro forma disclosures as if the
Company had recorded compensation costs based on the estimated grant date fair
value, as defined by SFAS No. 123, for awards granted under its stock option
and stock purchase plans. The estimated weighted average grant date fair
value, as defined by SFAS No. 123, was calculated using the Black-Scholes
model. The Black-Scholes model was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Companys stock option awards. These models also
require highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated grant
date fair value.

|                                                                                                                                                                    |                     |   |                                          |       |      |   |          |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ---------------------------------------- | ----- | ---- | - | -------- | ----- | -
|                                                                                                                                                                    |                     |   | Three months ended March 31,            
|                                                                                                                                                                    |                     |   |                                         
|                                                                                                                                                                    |                     |   | 2003                                     |       | 2002
|                                                                                                                                                                    |                     |   |                                          |       |     
|                                                                                                                                                                    |                     |   | (In thousands, except per share amounts)
|                                                                                                                                                                   
|Net loss, as reported                                                                                                                                               |                     | $ | (122,425                                 | )     |      | $ | (171,753 | )    
|Add: Amortization of
non-cash deferred stock
compensation expense
determined under the
intrinsic value method as
reported in net loss, net
of related tax effects * |                     |   | 3,901                                    |       |      |   | 10,838   |      
|Deduct: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related tax
effects                               |                     |   | (52,667                                  | )     |      |   | (60,668  | )    
|                                                                                                                                                                    |                     |   |                                          |       |      |   |          |      
|Pro forma net loss                                                                                                                                                  |                     | $ | (171,191                                 | )     |      | $ | (221,583 | )    
|                                                                                                                                                                    |                     |   |                                          |       |      |   |          |      
|Loss per share:                                                                                                                                                     |                     |   |                                          |       |      |   |          |      
|                                                                                                                                                                    | Basic-as reported   |   | $                                        | (0.33 | )    |   | $        | (0.47 | )
|                                                                                                                                                                    | Basic-pro forma     |   | $                                        | (0.46 | )    |   | $        | (0.60 | )
|                                                                                                                                                                   
|                                                                                                                                                                    | Diluted-as reported |   | $                                        | (0.33 | )    |   | $        | (0.47 | )
|                                                                                                                                                                    | Diluted-pro forma   |   | $                                        | (0.46 | )    |   | $        | (0.60 | )



---

|* |  | This amount excludes amortization of non-cash deferred stock compensation on
restricted stock awards.
|- |  | -----------------------------------------------------------------------------------------------------

For the three months ended March 31, 2003 and 2002, common stock
equivalents of approximately 60.6 million and 100.2 million shares,
respectively, were excluded from the computation of pro forma diluted loss per
share as a result of their antidilutive effect.

NOTE 3  RESTRUCTURING AND OTHER ITEMS

The Company recorded $36 million in restructuring of operations and other
items for the three months ended March 31, 2003. The Company recorded a
charge for restructuring of operations and other items of $65 million for the
three months ended March 31, 2002. For a complete discussion of the 2002
restructuring actions, please refer to the Companys Annual Report on Form
10-K.

Restructuring and impairment of long-lived assets:

On January 1, 2003, the Company adopted SFAS No. 146, Accounting for Exit
or Disposal Activities. SFAS No. 146 has been applied to restructuring
activities initiated after December 31, 2002 and changes the timing of when
restructuring charges are recorded to the date when the liabilities are
incurred. The adoption of SFAS No. 146 did not affect restructuring reserves
recorded prior to December 31, 2002.

In February 2003, the Company downsized operations and recorded $36
million in charges for restructuring of operations and other items. Of this
charge, $21 million was associated with the Semiconductor segment and $15
million was attributable to the Storage Systems segment. The charges consisted
of severance and termination benefits for approximately 210 terminated
employees primarily involved in manufacturing operations, research and
development and marketing and sales; costs associated with exiting certain
operating leases primarily for real estate; and a write-down of certain
acquired intangible and other long-lived assets.

7



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##### Table of Contents



In April 2003, the Company announced a restructuring of our operations
that includes the elimination of approximately 370 additional employees and the
consolidation of certain non-manufacturing facilities. We expect to record a
charge of between $20 million and $40 million in the second quarter of 2003 as
a result of these actions. The charges will be for severance and termination
benefits for the terminated employees, costs associated with exiting certain
operating leases for real estate and write-downs of long-lived assets.

The following table sets forth the Companys restructuring reserves as of
March 31, 2003, which are included in other accrued liabilities on the balance
sheet:

|                                                 |  |                |        |               |  |           |        |            |  |   |         |   |  |   |        | 
|------------------------------------------------ |  | -------------- | ------ | ------------- |  | --------- | ------ | ---------- |  | - | ------- | - |  | - | ------ | 
|                                                 |  | Balance at     |        | Restructuring |  | Utilized  |        | Balance at
|                                                 |  | December 31,   |        | Expense       |  | during Q1 |        | March 31, 
|                                                 |  | 2002           |        | Q1 2003       |  | 2003      |        | 2003      
|                                                 |  |                |        |               |  |           |       
|                                                 |  | (In thousands)
|                                                
|Write-down of excess assets (a)                  |  | $              | 6,008  |               |  | $         | 29,754 |            |  | $ | (30,021 | ) |  | $ | 5,741  | 
|Lease terminations and maintenance contracts (b) |  |                | 6,757  |               |  |           | 1,396  |            |  |   | (1,172  | ) |  |   | 6,981  | 
|Facility closure and other exit costs (c)        |  |                | 8,129  |               |  |           |       |            |  |   | (2,520  | ) |  |   | 5,609  | 
|Payments to employees for severance (d)          |  |                | 1,391  |               |  |           | 4,516  |            |  |   | (4,493  | ) |  |   | 1,414  | 
|                                                 |  |                |        |               |  |           |        |            |  |   |         |   |  |   |        | 
|Total                                            |  | $              | 22,285 |               |  | $         | 35,666 |            |  | $ | (38,206 | ) |  | $ | 19,745 | 
|                                                 |  |                |        |               |  |           |        |            |  |   |         |   |  |   |        | 



---

|(a) |  | The amounts utilized in 2003 reflect $29.8 million of non-cash
write-downs of intangible and other long-lived assets in the U.S due to
impairment, and $0.2 million in cash payments to decommission and sell
assets. The write-downs of the intangible and other long-lived assets
were accounted for as a reduction of the assets and did not result in a
liability. The $5.7 million balance as of March 31, 2003 relates to
machinery and equipment decommissioning costs in the U.S and estimates of
selling costs for assets held for sale.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Amounts utilized represent cash payments. The balance remaining for
primarily real estate lease terminations and maintenance contracts will be
paid during the remaining terms of these contracts, which extend through
2005.                                                                                                                                                                                                                                                                                                                    
|   
|(c) |  | Amounts utilized represent cash payments. The balance remaining for
facility closure and other exit costs will be paid during 2003.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(d) |  | Amounts utilized represent cash severance payments to approximately 210
employees during the three months ended March 31, 2003. The balance
remaining for severance will be paid during 2003.                                                                                                                                                                                                                                                                                                                                                    

Assets held for sale of $70 million and $74 million were included as a
component of prepaid expenses and other current assets as of March 31, 2003 and
December 31, 2002, respectively. Assets classified as held for sale are not
depreciated. The fair value of assets determined to be impaired was the result
of independent appraisals and the use of management estimates. Given that
current market conditions for the sale of older fabrication facilities and
related equipment may fluctuate, there can be no assurance that the Company
will realize the current net carrying value for the assets. The Company
reassesses the realizability of the carrying value of these assets at the end
of each quarter until the assets are sold or otherwise disposed of and
additional adjustments may be necessary.

8



---



##### Table of Contents



NOTE 4 INVESTMENTS

|                                          |                              |   |                |         |              |   |         |         | 
|----------------------------------------- | ---------------------------- | - | -------------- | ------- | ------------ | - | ------- | ------- | 
|                                          |                              |   | March 31,      |         | December 31,
|                                          |                              |   | 2003           |         | 2002        
|                                          |                              |   |                |         |             
|                                          |                              |   | (In thousands)
|Available-for-sale debt securities        |                              |   |                |         |              |   |         |        
|U.S. government and agency securities     |                              | $ | 271,874        |         |              | $ | 202,613 |        
|Asset and mortgage-backed securities      |                              |   | 129,192        |         |              |   | 102,083 |        
|Corporate and municipal debt securities   |                              |   | 93,901         |         |              |   | 180,843 |        
|Auction rate preferred stock              |                              |   | 10,000         |         |              |   | 55,590  |        
|Foreign debt securities                   |                              |   | 1,343          |         |              |   |        |        
|                                          |                              |   |                |         |              |   |         |        
|                                          | Total short-term investments |   | $              | 506,310 |              |   | $       | 541,129 | 
|                                          |                              |   |                |         |              |   |         |        
|Long-term investment in equity securities |                              | $ | 29,423         |         |              | $ | 37,655  |        
|                                          |                              |   |                |         |              |   |         |        

An unrealized gain on available-for-sale securities of $3 million, net of
the related tax effect of $2 million, and $3 million, net of the related tax
effect of $1 million, was included in accumulated comprehensive income as of
March 31, 2003 and December 31, 2002, respectively. Net realized
gains/(losses) on sales of available-for-sale debt securities were $7 million
and ($0.5) million for the three months ended March 31, 2003 and 2002,
respectively. The Company realized a net pre-tax loss of $7 million associated
with the decline in value of long-term investment in equity securities during
the three months ended March 31, 2003. The decline in value was considered by
management to be other than temporary.

NOTE 5  DERIVATIVE FINANCIAL INSTRUMENTS

Foreign currency risk

The Company enters into purchased currency option contracts that are
designated as foreign currency cash-flow hedges of third-party yen revenue
exposures. Changes in the fair value of currency option contracts due to
changes in time value are excluded from the assessment of effectiveness and are
recognized in interest income and other, net. As of March 31, 2003, the Company
held purchased currency option contracts that were designated as foreign
currency cash-flow hedges of third-party yen revenue exposures and were set to
expire over a nine-month period. There were no option contracts outstanding as
of December 31, 2002. For the three months ended March 31, 2003 and 2002, the
change in option time value was not significant. As of March 31, 2003,
unrealized gains included in accumulated other comprehensive income, which will
be reclassified to revenue over the next nine months, were not significant.
There were no unrealized gains or losses included in accumulated other
comprehensive income as of December 31, 2002. No amounts were reclassified to
revenue during the first quarter of 2003 or 2002. The Company did not record
any gains or losses due to hedge ineffectiveness for the three months ended
March 31, 2003 and 2002.

The Company enters into forward contracts that are designated as foreign
currency cash-flow hedges of forecasted payments in euros. Changes in the fair
value of the forward contracts due to changes in time value are excluded from
the assessment of effectiveness and are recognized in interest income and
other, net. As of March 31, 2003, the Company held forward contracts
designated as foreign currency cash flow hedges of forecasted euro payment
transactions that were set to expire over a nine-month period. There were no
such hedges outstanding as of December 31, 2002. For the three months ended
March 31, 2003, the change in time value of these forward contracts was not
significant. The unrealized gains included in accumulated other comprehensive
income as of March 31, 2003, which will be reclassified to research and
development and selling, general and administrative expenses over the next nine
months, were not significant. The Company did not record any gains or losses
due to hedge ineffectiveness for the three months ended March 31, 2003.

Forward exchange contracts and options are also used to hedge certain
foreign currency-denominated assets or liabilities. These derivatives do not
qualify for SFAS No. 133 hedge accounting treatment. Accordingly, changes in
the fair value of these hedges are recorded immediately in earnings to offset
the changes in fair value of the assets or liabilities being hedged. The
related gains and losses included in interest income and other, net were not
significant.

9



---



##### Table of Contents



Interest rate risk

As of March 31, 2003, interest rate swaps (the Swaps) with a notional
amount of $740 million effectively convert fixed interest payments on a portion
of the Companys 4% and 4.25% Convertible Subordinated Notes (Convertible
Notes) to LIBOR-based floating rates. Under the terms of the Swaps, the
Company must provide collateral to match any mark-to-market exposure on the
Swaps. Collateral of approximately $7 million was included in other long-term
assets as of March 31, 2003 and December 31, 2002. The Swaps qualify for hedge
accounting as fair value hedges, with changes in the fair value of the interest
rate risk on the Convertible Notes being offset by changes in the fair values
of the Swaps recorded as a component of interest expense. The difference
between the changes in the fair values of the derivative and the hedged risk
resulted in a charge to interest expense of $1 million for the three months
ended March 31, 2003. The change in fair value, since inception, of the
interest rate risk associated with the Convertible Notes was $36 million and
$37 million at March 31, 2003 and December 31, 2002, respectively, and was
included in long-term debt. The fair value of the Swaps was $31 million and
$33 million at March 31, 2003 and December 31, 2002, respectively, and was
included in other long-term assets.

NOTE 6  BALANCE SHEET DETAIL

|                                                             |                                 |                         |           |                |         |              |           |         |         | 
|------------------------------------------------------------ | ------------------------------- | ----------------------- | --------- | -------------- | ------- | ------------ | --------- | ------- | ------- | 
|                                                             |                                 |                         |           | March 31,      |         | December 31,
|                                                             |                                 |                         |           | 2003           |         | 2002        
|                                                             |                                 |                         |           |                |         |             
|                                                             |                                 |                         |           | (In thousands)
|Cash and cash equivalents:                                   |                                 |                         |           |                |         |              |           |        
|                                                             | Cash                            |                         | $         | 250,704        |         |              | $         | 279,620 |        
|                                                             | Cash equivalents                |                         |           | 247,824        |         |              |           | 169,227 |        
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 | $                       | 498,528   |                |         | $            | 448,847   |        
|                                                             |                                 |                         |           |                |         |              |           |        
|Inventories:                                                 |                                 |                         |           |                |         |              |           |        
|                                                             | Raw materials                   |                         | $         | 16,782         |         |              | $         | 18,152  |        
|                                                             | Work-in-process                 |                         |           | 53,317         |         |              |           | 65,052  |        
|                                                             | Finished goods                  |                         |           | 136,553        |         |              |           | 111,262 |        
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 | $                       | 206,652   |                |         | $            | 194,466   |        
|                                                             |                                 |                         |           |                |         |              |           |        
|Other long-term assets:                                      |                                 |                         |           |                |         |              |           |        
|                                                             | Non-current assets and deposits |                         | $         | 360,272        |         |              | $         | 211,248 |        
|                                                             | Investment in equity securities |                         |           | 29,423         |         |              |           | 37,655  |        
|                                                             | Other assets                    |                         |           | 109,582        |         |              |           | 132,622 |        
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 | $                       | 499,277   |                |         | $            | 381,525   |        
|                                                             |                                 |                         |           |                |         |              |           |        
|Goodwill and other intangibles, net:                         |                                 |                         |           |                |         |              |           |        
|                                                             | Goodwill                        |                         |           |                |         |              |           |         |        
|                                                             |                                 | Semiconductor segment   |           | $              | 887,990 |              |           | $       | 887,990 | 
|                                                             |                                 | Storage systems segment |           |                | 80,474  |              |           |         | 80,474  | 
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 |                         | 968,464   |                |         |              | 968,464   |        
|Amortized intangible assets, net of
accumulated amortization |                                 |                         |           |                |         |              |           |        
|                                                             |                                 | Semiconductor segment   |           |                | 204,974 |              |           |         | 236,723 | 
|                                                             |                                 | Storage systems segment |           |                | 33,408  |              |           |         | 45,856  | 
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 |                         | 238,382   |                |         |              | 282,579   |        
|                                                             |                                 |                         |           |                |         |              |           |        
|                                                             |                                 | $                       | 1,206,846 |                |         | $            | 1,251,043 |        
|                                                             |                                 |                         |           |                |         |              |           |        

The Company monitors the recoverability of goodwill recorded in connection
with acquisitions annually, or sooner, if events or changes in circumstances
indicate that the carrying amount may not be recoverable. The Companys market
capitalization is currently below net book value and should this continue, the
Company may have to perform an interim assessment of the recoverability of
goodwill. An impairment, if any, would be determined in accordance with SFAS
No. 142, which uses a fair value model for determining the carrying value of
goodwill. See the Companys Annual Report on Form 10-K for further discussion.

10



---



##### Table of Contents



NOTE 7  DEBT

|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   |                |         |              |   |           |           | 
|--------------------------------------------------------------------------------------- | -------------------------------------------- |  | -------- |  | ------ |  | -------- | - | ---------- | - | ------- |  | ---- | - | -------------- | ------- | ------------ | - | --------- | --------- | 
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | March 31,      |         | December 31,
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   |                |         |             
|                                                                                        |                                              |  |          |  |        |  | Interest |   | Conversion |   | 2003    |  | 2002
|                                                                                        |                                              |  | Maturity |  | Rate * |  | Price    |   |            |   |        
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |        
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | (In thousands)
|                                                                                       
|2001 Convertible Subordinated Notes                                                     |                                              |  | 2006     |  |        |  | 4        | % |            | $ | 26.3390 |  |      | $ | 490,000        |         |              | $ | 490,000   |          
|2000 Convertible Subordinated Notes                                                     |                                              |  | 2005     |  |        |  | 4        | % |            | $ | 70.2845 |  |      |   | 385,000        |         |              |   | 385,000   |          
|1999 Convertible Subordinated Notes                                                     |                                              |  | 2004     |  |        |  | 4.25     | % |            | $ | 15.6765 |  |      |   | 324,935        |         |              |   | 324,935   |          
|Change in fair value of the hedged
interest rate risk on Convertible
Subordinated Notes |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | 35,574         |         |              |   | 36,724    |          
|Unamortized gain on terminated swap                                                     |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | 3,192          |         |              |   | 4,025     |          
|Capital lease obligations                                                               |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | 806            |         |              |   | 894       |          
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   |                |         |              |   |           |          
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | 1,239,507      |         |              |   | 1,241,578 |          
|                                                                                       
|Current portion of long-term debt
and capital lease obligations                         |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   | (328,488       | )       |              |   | (361      | )        
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   |                |         |              |   |           |          
|                                                                                        | Long-term debt and capital lease obligations |  |          |  |        |  |          |   |            |   |         |  |      |   | $              | 911,019 |              |   | $         | 1,241,217 | 
|                                                                                        |                                              |  |          |  |        |  |          |   |            |   |         |  |      |   |                |         |              |   |           |          



---

|* |  | The interest rate on a portion of the Convertible Subordinated Notes has
been converted to floating rates through interest rate swaps (see Note 5). The
weighted average interest rate on the Convertible Subordinated Notes, after
adjusting for the impact of the interest rate swaps, for the three months ended
March 31, 2003 and 2002, was 2.11% and 4.06%, respectively.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 8  STOCK OPTION EXCHANGE PROGRAM

On August 20, 2002, the Company filed, with the Securities Exchange
Commission, an offer to exchange stock options outstanding under the 1991
Equity Incentive Plan and the 1999 Nonstatutory Stock Option Plan for new
options. Under the exchange offer, eligible employees had the opportunity to
exchange eligible stock options for the promise to grant new options under the
1999 Nonstatutory Stock Option Plan. Directors and executive officers of the
Company were not eligible to participate in this program. The exchange offer
expired September 18, 2002, and the Company accepted an aggregate of 16,546,370
options for exchange. On March 20, 2003, the Company granted a new option that
covered two shares of LSI Logic common stock for every three shares covered by
an option an employee elected to exchange. The exercise price per share of the
new options was equal to the fair market value of the Companys common stock on
the grant date. The Company granted 10,691,139 options at an exercise price of
$5.06 per share. The exchange program did not result in the recording of any
compensation expense in the statement of operations.

11



---



##### Table of Contents



NOTE 9  RECONCILIATION OF BASIC AND DILUTED LOSS PER SHARE

A reconciliation of the numerators and denominators of the basic and
diluted loss per share computations are as follows:

|                                          |                                           |   |                                         |          |         |  |         |         |       |   |           |       |        |   |          |          |   |  |         |         |           |   |       |       |  
|----------------------------------------- | ----------------------------------------- | - | --------------------------------------- | -------- | ------- |  | ------- | ------- | ----- | - | --------- | ----- | ------ | - | -------- | -------- | - |  | ------- | ------- | --------- | - | ----- | ----- | -
|                                          |                                           |   | Three Months Ended March 31,           
|                                          |                                           |   |                                        
|                                          |                                           |   | 2003                                    |          | 2002   
|                                          |                                           |   |                                         |          |        
|                                          |                                           |   |                                         |          |         |  |         |         |       |   | Per-Share |       |        |   |          |          |   |  |         |         | Per-Share
|                                          |                                           |   | Loss*                                   |          | Shares+ |  | Amount  |         | Loss* |   | Shares+   |       | Amount
|                                          |                                           |   |                                         |          |         |  |         |         |       |   |           |       |       
|                                          |                                           |   | (In thousands except per share amounts)
|Basic EPS:                                |                                           |   |                                         |          |         |  |         |         |       |   |           |       |        |   |          |          |   |  |         |         |           |   |       |      
|Net loss available to common stockholders |                                           | $ | (122,425                                | )        |         |  | 374,628 |         |       | $ | (0.33     | )     |        | $ | (171,753 | )        |   |  | 367,578 |         |           | $ | (0.47 | )    
|                                          |                                           |   |                                         |          |         |  |         |         |       |   |           |       |        |   |          |          |   |  |         |         |           |   |       |      
|                                          | Effect of dilutive securities:            |   |                                         |         |         |  |         |        |       |   |           |      |        |   |          |         |   |  |         |        |           |   |       |      |  
|                                         
|Diluted EPS:                              |                                           |   |                                         |          |         |  |         |         |       |   |           |       |        |   |          |          |   |  |         |         |           |   |       |      
|                                          | Net loss available to common stockholders |   | $                                       | (122,425 | )       |  |         | 374,628 |       |   | $         | (0.33 | )      |   | $        | (171,753 | ) |  |         | 367,578 |           |   | $     | (0.47 | )
|                                          |                                           |   |                                         |          |         |  |         |         |       |   |           |       |        |   |          |          |   |  |         |         |           |   |       |      



---

|* |  | Numerator  
|- |  | -----------
| 
|+ |  | Denominator

Options to purchase approximately 68,127,695 shares and 75,503,226 shares
were outstanding at March 31, 2003 and 2002, respectively, and were excluded
from the computation of diluted shares because of their antidilutive effect on
loss per share for the three months then ended. The exercise price of these
options ranged from $0.06 to $72.25 at March 31, 2003 and from $0.01 to $72.25
at March 31, 2002.

For the three months ended March 31, 2003 and 2002, common equivalent
shares of 44,808,851 and 47,720,853, respectively, associated with the 2001,
2000 and 1999 Convertible Notes were excluded from the calculation of diluted
shares because of their antidilutive effect on loss per share.

NOTE 10  COMPREHENSIVE LOSS

Comprehensive loss is defined as a change in equity of a company during a
period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
Comprehensive loss, net of taxes for the current reporting period and
comparable period in the prior year is as follows:

|                                                                                                     |  |                              |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | ---- |  | - | -------- | -
|                                                                                                     |  | Three Months Ended March 31,
|                                                                                                     |  |                             
|                                                                                                     |  | 2003                         |          | 2002
|                                                                                                     |  |                              |          |     
|                                                                                                     |  | (In thousands)              
|Net loss                                                                                             |  | $                            | (122,425 | )    |  | $ | (171,753 | )
|Change in unrealized gain on derivative instruments
designated as and qualifying as cash-flow hedges |  |                              | 479      |      |  |   | 2,608    |  
|Change in unrealized gain on available-for-sale securities                                           |  |                              | 257      |      |  |   | (6,193   | )
|Change in foreign currency translation adjustments                                                   |  |                              | 2,192    |      |  |   | (9,559   | )
|                                                                                                     |  |                              |          |      |  |   |          |  
|Comprehensive loss                                                                                   |  | $                            | (119,497 | )    |  | $ | (184,897 | )
|                                                                                                     |  |                              |          |      |  |   |          |  

NOTE 11  SEGMENT REPORTING

The Company operates in two reportable segments: the Semiconductor segment
and the Storage Systems segment. In the Semiconductor segment, the Company uses
advanced process technology and comprehensive design methodologies to design,
develop, manufacture and market highly complex integrated circuits. These
system-on-a-chip solutions include both application specific integrated
circuits, commonly referred to as ASICs, and application specific standard
products in silicon, or ASSPs. Semiconductor segment product offerings also
include redundant array of independent disks (RAID) host bus adapters and
related products, and services. In the Storage Systems segment, the Company
designs, manufactures, markets and supports high-performance, highly scaleable
open storage area network systems, storage solutions and a complete line of
RAID systems, subsystems and related software.

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The following is a summary of operations by segment for the three months
ended March 31, 2003 and 2002:

|                      |                 |       |   |                              |          |      |   |          |          |  
|--------------------- | --------------- | ----- | - | ---------------------------- | -------- | ---- | - | -------- | -------- | -
|                      |                 |       |   | Three months ended March 31,
|                      |                 |       |   |                             
|                      |                 |       |   | 2003                         |          | 2002
|                      |                 |       |   |                              |          |     
|                      |                 |       |   | (In thousands)              
|Revenues:             |                 |       |   |                              |          |      |   |         
|                      | Semiconductor   |       | $ | 273,064                      |          |      | $ | 352,590  |         
|                      | Storage Systems |       |   | 99,721                       |          |      |   | 59,919   |         
|                      |                 |       |   |                              |          |      |   |         
|                      |                 | Total |   | $                            | 372,785  |      |   | $        | 412,509  |  
|                      |                 |       |   |                              |          |      |   |         
|Loss from operations: |                 |       |   |                              |          |      |   |         
|                      | Semiconductor   |       | $ | (107,894                     | )        |      | $ | (176,713 | )       
|                      | Storage Systems |       |   | (6,479                       | )        |      |   | (1,102   | )       
|                      |                 |       |   |                              |          |      |   |         
|                      |                 | Total |   | $                            | (114,373 | )    |   | $        | (177,815 | )
|                      |                 |       |   |                              |          |      |   |         

Intersegment revenues for the periods presented above were not
significant. For the three months ended March 31, 2003, restructuring of
operations and other items of $21 million and $15 million were included in the
Semiconductor segment and the Storage Systems segment, respectively. For the
three months ended March 31, 2002, restructuring of operations and other items
of $65 million is primarily included in the Semiconductor segment.

Significant Customers.The following table summarizes the number of our
significant customers, each of whom accounted for 10% or more of our revenues,
along with the percentage of revenues they individually represent on a
consolidated basis and by segment:

|                         |                                     |  |                              |              |      |  |  |         |  
|------------------------ | ----------------------------------- |  | ---------------------------- | ------------ | ---- |  |  | ------- | -
|                         |                                     |  | Three months ended March 31,
|                         |                                     |  |                             
|                         |                                     |  | 2003                         |              | 2002
|                         |                                     |  |                              |              |     
|Semiconductor segment:   |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 1            |      |  |  | 1       |  
|                         | Percentage of segment revenues      |  |                              | 12           | %    |  |  | 16      | %
|Storage Systems segment: |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 3            |      |  |  | 2       |  
|                         | Percentage of segment revenues      |  |                              | 41%, 15%, 13 | %    |  |  | 34%, 17 | %
|Consolidated:            |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 1            |      |  |  | 1       |  
|                         | Percentage of consolidated
revenues |  |                              | 13           | %    |  |  | 14      | %

The following is a summary of total assets by segment as of March 31, 2003
and December 31, 2002:

|              |                 |       |   |                |           |              |   |           |           | 
|------------- | --------------- | ----- | - | -------------- | --------- | ------------ | - | --------- | --------- | 
|              |                 |       |   | March 31,      |           | December 31,
|              |                 |       |   | 2003           |           | 2002        
|              |                 |       |   |                |           |             
|              |                 |       |   | (In thousands)
|Total assets: |                 |       |   |                |           |              |   |          
|              | Semiconductor   |       | $ | 3,800,963      |           |              | $ | 3,851,283 |          
|              | Storage Systems |       |   | 295,968        |           |              |   | 291,454   |          
|              |                 |       |   |                |           |              |   |          
|              |                 | Total |   | $              | 4,096,931 |              |   | $         | 4,142,737 | 
|              |                 |       |   |                |           |              |   |          

Revenues from domestic operations were $207 million, representing 56% of
consolidated revenues for the three months ended March 31, 2003, compared to
$213 million, representing 52% of consolidated revenues for the same period of
2002.

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NOTE 12 COMMITMENTS AND CONTINGENCIES

On March 28, 2003, the Company entered into two lease and security
agreements, each with Bank of America, National Association (BANA), acting as
the Lessor, and Wells Fargo Bank Northwest as the Agent for a total of $395
million for certain wafer fabrication equipment (the equipment). The leases
qualify for operating lease accounting treatment. As of March 31, 2003, the
amount under both leases was fully drawn. Each lease has a term of 3.5 years
with no option for renewal. The Company may, at the end of the lease term,
return or purchase, at a pre-determined amount, all of the equipment. The
first lease was for $235 million and was for equipment that was previously on
lease immediately prior to closing this transaction. There was no impact to
our results of operations for the three months ended March 31, 2003, as a
result of terminating the former leases and entering into the new lease. Refer
to our Annual Report on Form 10-K for a complete discussion of the former
leases. The second lease was for $160 million and was for fabrication
equipment that was sold to BANA and then immediately leased back in a
transaction commonly referred to as a sale-leaseback. The equipment sold had a
book value of approximately $103 million. The resulting $57 million gain on
the sale of the equipment will be deferred until the end of the lease term and
has been recorded as a non-current liability as of March 31, 2003. The Company
has $389 million in cash that is posted as collateral for the new leases. The
lessor has access to the Companys cash collateral only in the event of a
default. Of this cash collateral, $46 million, representing the amount of cash
collateral to be released in the next 12 months, is reflected in other current
assets and the remaining cash collateral of $343 million is recorded in
non-current assets and deposits. The Company is required to maintain
unrestricted cash reserves in an amount no less than the higher of a) the sum
of $100 million plus the principal amount outstanding under the 4% Convertible
Subordinated Notes due February 15, 2005 or b) $350 million. The Company was
in compliance with this requirement as of March 31, 2003.

The Company guarantees residual values related to equipment on leases. As
of March 31, 2003, our maximum potential exposure to residual value guarantees
was approximately $164 million and we do not expect to have a loss on such
guarantees.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entitys
product warranty liabilities. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantors fiscal
year-end. The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
guaranteed residual values for the equipment under our operating leases are
subject to FIN 45 and the fair value of the guarantee of the residual value of
the equipment was recorded as a non-current asset and liability each in the
amount of $7 million as of March 31, 2003.

No officer or employee of the Company has any financial interest in these
leasing arrangements. The minimum lease payments, excluding the residual value
guarantees under the two lease agreements are $50 million, $64 million, $62
million and $45 million in 2003, 2004, 2005 and 2006, respectively.

NOTE 13  LEGAL MATTERS

Reference is made to Item 3, Legal Proceedings and Note 13 of the Notes to
the Consolidated Financial Statements of the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2002 for a discussion of certain
legal proceedings. The information provided at such reference regarding those
matters remains substantially unchanged. In addition, the Company is party to
other litigation matters and claims that are normal in the course of its
operations. While the results of such litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of such
matters is not expected to have a material adverse affect on the Companys
consolidated results of operations and financial condition.

NOTE 14  SUBSEQUENT EVENTS

Refer to Note 3 for a discussion of restructuring actions taken in April
2003.

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

Statements in this discussion and analysis include forward-looking
information within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended. All forward-looking statements included in this discussion and
analysis are based on information available to us on the date of filing of this
Annual Report on Form 10-K, and we assume no obligation to update any such
forward-looking statements. These statements involve known and unknown risks
and uncertainties. Our actual results in future periods may be significantly
different from any future performance suggested in this report. In some cases,
you can identify forward-looking statements by terminology such as may,
will, expects, plans, anticipates, believes, estimates, intends,
projects, predicts, or similar expressions. For such statements, we claim
the protection under the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.

OVERVIEW

During the first quarter of 2003, our operating results continued to be
impacted by the downturn within the semiconductor industry and in the general
economy. In early 2001, the most severe cyclical downturn in the semiconductor
industry began, resulting from a build-up of inventory in the supply chain and
weak end-demand. Since that time, we have started to see a gradual, but uneven
recovery within the industry and LSI. The outlook continues to remain
uncertain as any macroeconomic and geopolitical factors, such as terrorist
activities, continued armed conflict and global health issues such as severe
acute respiratory syndrome (SARS) may adversely affect the global economy.
These issues may impact our operating results and financial condition.

Revenues for three months ended March 31, 2003 were approximately $372.8
million compared to $479.7 million and $412.5 million for the three months
ended December 31, 2002 and March 31, 2002, respectively. The consolidated
gross profit margin was 33% for the three months ended March 31, 2003 compared
to 38% and 26% for the three months ended December 31, 2002 and March 31, 2002,
respectively. Operating expenses for the three months ended March 31, 2003
were $239.1 million compared to $200.8 million and $283.7 million for the three
months ended December 31, 2002 and March 31, 2002. Net loss per diluted share
was 33 cents for the three months ended March 31, 2003 compared to a net loss
per diluted share of 8 cents and 47 cents for the three months ended December
31, 2002 and March 31, 2002, respectively. We have taken measures in the
first and second quarters of 2003 with the objective of returning to
profitability in the second half of 2003. We recorded $35.7 million in
restructuring charges in the first quarter of 2003 and expect to record
approximately $20 to $40 million in such charges in the second quarter of 2003.
See discussion below under results of operations for information by reportable
segment and more details by income statement line item.

Looking forward, the visibility for customers, and in turn, for LSI,
continues to be less than what we would like to see. In the second quarter of
2003, we expect total consolidated revenues to increase 4% to 10% from the
$372.8 million recorded in the first quarter of 2003. We expect our net loss
per diluted share to be 23 to 31 cents in the second quarter of 2003.

Stock option exchange

On August 20, 2002, we filed, with the Securities Exchange Commission, an
offer to exchange stock options outstanding under the 1991 Equity Incentive
Plan and the 1999 Nonstatutory Stock Option Plan for new options. Under the
exchange offer, eligible employees had the opportunity to exchange eligible
stock options for the promise to grant new options under the 1999 Nonstatutory
Stock Option Plan. Directors and executive officers of the Company were not
eligible to participate in this program. The exchange offer expired September
18, 2002 and the Company accepted an aggregate of 16,546,370 options for
exchange. On March 20, 2003, we granted a new option that covered two shares
of LSI Logic common stock for every three shares covered by an option an
employee elected to exchange. The exercise price per share of the new options
was equal to the fair market value of our common stock on the grant date. We
granted 10,691,139 options at an exercise price of $5.06 per share. The
exchange program did not result in the recording of any compensation expense.

Where more than one significant factor contributed to changes in results
from year to year, we have quantified such factors throughout the Managements
Discussion & Analysis, where practicable.

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RESULTS OF OPERATIONS

Revenues:

|                        |  |                    |       |               |  |               |       |  |  |   |       | 
|----------------------- |  | ------------------ | ----- | ------------- |  | ------------- | ----- |  |  | - | ----- | 
|                        |  | Three months ended
|                        |  |                   
|                        |  | Mar. 31, 2003      |       | Dec. 31, 2002 |  | Mar. 31, 2002
|                        |  |                    |       |               |  |              
|                        |  |                    |       |               |  | (in millions) |       |  |  |  
|                       
|Semiconductor segment   |  | $                  | 273.1 |               |  | $             | 373.8 |  |  | $ | 352.6 | 
|Storage Systems segment |  |                    | 99.7  |               |  |               | 105.9 |  |  |   | 59.9  | 
|                        |  |                    |       |               |  |               |       |  |  |   |       | 
|Consolidated            |  | $                  | 372.8 |               |  | $             | 479.7 |  |  | $ | 412.5 | 
|                        |  |                    |       |               |  |               |       |  |  |   |       | 

There were no significant intersegment revenues during the periods presented.

First quarter of 2003 compared to the fourth quarter of 2002

Total consolidated revenues for the first quarter of 2003 decreased $106.9
million or 22% from the fourth quarter of 2002. The decline in revenues in the
first quarter of 2003 was across all of the markets in which LSI participates,
the largest decline being in the consumer products market. Demand for
semiconductors used in consumer product applications is seasonally low in the
first quarter of our fiscal year, but we experienced greater than normal
seasonality as a result of high levels of inventory in the retail channel.

Revenues for the Semiconductor segment decreased $100.7 million or 27% in
the first quarter of 2003 as compared to the fourth quarter of 2002. The
decrease in the Semiconductor segment was primarily attributable to a decline
in demand for video game semiconductors used in consumer product applications
and declines in revenues for semiconductors used in various communications
applications.

Revenues for the Storage Systems segment decreased $6.2 million or 6% from
the fourth quarter of 2002. The decline is attributable to lower demand for
Storage Systems products in the first quarter of 2003 due primarily to
seasonality. Revenues for Storage Systems products are generally the lowest
in the first quarter of the year.

We expect revenues to increase 4% to 10% in the second quarter of 2003 as
compared to revenues in the first quarter of the year. The second quarter is
expected to be a seasonally stronger quarter in our Consumer and Storage
product markets.

Three months ended March 31, 2003 compared to the same period of 2002

Total consolidated revenues for the first quarter of 2003 decreased $39.7
million or 10% compared to the first quarter of 2002.

Revenues for the Semiconductor segment decreased $79.5 million or 23% for
the first quarter of 2003 as compared to the same period of the previous year.
The decline in revenues in the first quarter of 2003 as compared to the same
period of 2002 is primarily related to the consumer products market, where we
experienced lower revenue from video game and set-top box semiconductors, and
the communications market as a result of continued weak demand in end markets.

Revenues for the Storage Systems segment increased $39.8 million or 66%
for the first quarter of 2003 from the same period of 2002. The increase in
revenues in the Storage Systems segment for the first quarter of 2003 as
compared to the same period of 2002, is due to continued strong demand for
modular storage products, sales to a new master distributor, and additional
revenues from the Mylex business unit of IBM, which was acquired in August 2002
and primarily became part of the Storage Systems segment.

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Significant Customers.The following table summarizes the number of our
significant customers, each of whom accounted for 10% or more of our revenues,
along with the percentage of revenues they individually represent on a
consolidated basis and by segment:

|                         |                                     |  |                              |              |      |  |  |         |  
|------------------------ | ----------------------------------- |  | ---------------------------- | ------------ | ---- |  |  | ------- | -
|                         |                                     |  | Three months ended March 31,
|                         |                                     |  |                             
|                         |                                     |  | 2003                         |              | 2002
|                         |                                     |  |                              |              |     
|Semiconductor segment:   |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 1            |      |  |  | 1       |  
|                         | Percentage of segment revenues      |  |                              | 12           | %    |  |  | 16      | %
|Storage Systems segment: |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 3            |      |  |  | 2       |  
|                         | Percentage of segment revenues      |  |                              | 41%, 15%, 13 | %    |  |  | 34%, 17 | %
|Consolidated:            |                                     |  |                              |              |      |  |  |        
|                         | Number of significant customers     |  |                              | 1            |      |  |  | 1       |  
|                         | Percentage of consolidated revenues |  |                              | 13           | %    |  |  | 14      | %

Revenues by geography.The following table summarizes our revenues by
geography:

|          |                       |   |                    |       |               |   |               |       |  |   |       |       | 
|--------- | --------------------- | - | ------------------ | ----- | ------------- | - | ------------- | ----- |  | - | ----- | ----- | 
|          |                       |   | Three months ended
|          |                       |   |                   
|          |                       |   | Mar. 31, 2003      |       | Dec. 31, 2002 |   | Mar. 31, 2002
|          |                       |   |                    |       |               |   |              
|          |                       |   |                    |       |               |   | (in millions) |       |  |   |      
|Revenues: |                       |   |                    |       |               |   |               |       |  |   |       |      
|          | North America         |   | $                  | 206.9 |               |   | $             | 231.5 |  |   | $     | 213.2 | 
|          | Asia, including
Japan |   |                    | 124.9 |               |   |               | 207.1 |  |   |       | 151.3 | 
|          | Europe                |   |                    | 41.0  |               |   |               | 41.1  |  |   |       | 48.0  | 
|          |                       |   |                    |       |               |   |               |       |  |   |       |       | 
|Total     |                       | $ | 372.8              |       |               | $ | 479.7         |       |  | $ | 412.5 |      
|          |                       |   |                    |       |               |   |               |       |  |   |       |      

In the first quarter of 2003, revenues declined in all geographic regions
as compared to the fourth quarter of 2002 and in all but Asia compared to the
first quarter of 2002. The decline in domestic revenues for the above noted
periods is mainly because of the economic downturn in the United States. The
declines in revenues in Asia, including Japan, represent primarily lower
revenues in the consumer products market, as the first quarter of 2003 was
seasonally lower than normal.

Operating costs and expenses.Key elements of the consolidated statements of
operations for the respective segments are as follows:

Gross profit margin:

|                        |                                |   |                    |     |               |   |               |     |  |   |       |     | 
|----------------------- | ------------------------------ | - | ------------------ | --- | ------------- | - | ------------- | --- |  | - | ----- | --- | 
|                        |                                |   | Three months ended
|                        |                                |   |                   
|                        |                                |   | Mar. 31, 2003      |     | Dec. 31, 2002 |   | Mar. 31, 2002
|                        |                                |   |                    |     |               |   |              
|                        |                                |   |                    |     |               |   | (in millions) |     |  |   |      
|Semiconductor segment   |                                | $ | 88.5               |     |               | $ | 139.6         |     |  | $ | 83.4  |    
|                        | Percentage of segment revenues |   |                    | 32% |               |   |               | 37% |  |   |       | 24% | 
|Storage Systems segment |                                | $ | 36.2               |     |               | $ | 41.4          |     |  | $ | 22.4  |    
|                        | Percentage of segment revenues |   |                    | 36% |               |   |               | 39% |  |   |       | 37% | 
|                        |                                |   |                    |     |               |   |               |     |  |   |       |    
|Consolidated            |                                | $ | 124.7              |     |               | $ | 181.0         |     |  | $ | 105.8 |    
|                        |                                |   |                    |     |               |   |               |     |  |   |       |    
|                        | Percentage of total revenues   |   |                    | 33% |               |   |               | 38% |  |   |       | 26% | 

First quarter of 2003 compared to the fourth quarter of 2002

The decrease in consolidated, Semiconductor segment and Storage Systems
segment gross profit margins for the first quarter of 2003 compared to the
fourth quarter of 2002 are a result of the following factors:



| |  |  | Lower revenues in the first quarter of 2003 as compared to the
fourth quarter of 2002;                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Higher manufacturing variances for the Semiconductor segment in
the first quarter of 2003 as compared to the fourth quarter of 2002; and
|
| |  |  | An unfavorable shift in product mix due in part to seasonality in the
first quarter of 2003.                                            

We expect gross profit margins to be 35% to 36% on a consolidated basis in
the second quarter of 2003. The second quarter of 2003 is expected to be a
seasonally stronger quarter for revenues with higher gross profit margins as
compared to the first quarter of 2003. The new operating leases that closed on
March 28, 2003 (see Note 12 of the Notes) are expected to improve consolidated
gross

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profit margins by one to two percentage points, beginning in the third
quarter of 2003, as inventory produced in the second quarter of 2003 is sold.

Three months ended March 31, 2003 compared to the same period of 2002

The increase in consolidated and Semiconductor segment gross profit
margins for the first quarter of 2003 compared to the first quarter of 2002 are
a result of no additional excess inventory and related charges for the three
months ended March 31, 2003 as compared to $40.8 million for the same period of
2002. The charges in 2002 impacted the Semiconductor segment and were
primarily a result of underutilization charges associated with a partial idling
of our fabrication facilities due to decreased demand. The gross profit
margin was relatively flat in the Storage Systems segment as a result of
consistent channel distribution of products and product mix.

We have advanced wafer-manufacturing operations in Oregon, which is our
primary manufacturing site, and Japan. We also acquire wafers from foundries in
other locations. Utilizing a diversity of manufacturing locations allows us to
better manage potential disruption in the manufacturing process due to economic
and geographic risks associated with each location.

Our operating environment, combined with the resources required to operate
in the Semiconductor and Storage Systems industries, require that we manage a
variety of factors. These factors include, among other things:



| |  | Competitive pricing pressures;                       
|- |  | -----------------------------------------------------
| 
| |  | Product mix;                                         
| 
| |  | Factory capacity and utilization;                    
| 
| |  | Manufacturing yields;                                
| 
| |  | Availability of certain raw materials;               
| 
| |  | Terms negotiated with third-party subcontractors; and
| 
| |  | Foreign currency fluctuations.                       

These and other factors could have a significant effect on our gross
profit margin in future periods.

Research and development:

|                        |                                |   |                    |     |               |   |               |     |  |   |       |     | 
|----------------------- | ------------------------------ | - | ------------------ | --- | ------------- | - | ------------- | --- |  | - | ----- | --- | 
|                        |                                |   | Three months ended
|                        |                                |   |                   
|                        |                                |   | Mar. 31, 2003      |     | Dec. 31, 2002 |   | Mar. 31, 2002
|                        |                                |   |                    |     |               |   |              
|                        |                                |   |                    |     |               |   | (in millions) |     |  |   |      
|Semiconductor segment   |                                | $ | 105.1              |     |               | $ | 104.0         |     |  | $ | 106.3 |    
|                        | Percentage of segment
revenues |   |                    | 38% |               |   |               | 28% |  |   |       | 30% | 
|Storage Systems segment |                                | $ | 10.0               |     |               | $ | 11.8          |     |  | $ | 8.0   |    
|                        | Percentage of segment
revenues |   |                    | 10% |               |   |               | 11% |  |   |       | 13% | 
|                        |                                |   |                    |     |               |   |               |     |  |   |       |    
|Consolidated            |                                | $ | 115.1              |     |               | $ | 115.8         |     |  | $ | 114.3 |    
|                        |                                |   |                    |     |               |   |               |     |  |   |       |    
|                        | Percentage of revenues         |   |                    | 31% |               |   |               | 24% |  |   |       | 28% | 

First quarter of 2003 compared to the fourth quarter of 2002

Research and development (R&D) expenses declined $0.7 million or 1% in
the first quarter of 2003 as compared to the fourth quarter of 2002 on a
consolidated basis.

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R&D expenses in the Semiconductor segment increased $1.1 million or 1% in
the first quarter of 2003 as compared to the fourth quarter of 2002. We
continue to develop advanced sub-micron product technologies. One of the
technologies under development is RapidChip. RapidChip products combine the
high-density, high-performance and proven intellectual property benefits of
cell-based ASICs with the advantages of Field Programmable Gate Arrays
(FPGAs), such as customization and faster time to market. RapidChip has
performance comparable to cell-based ASICs at a cost significantly lower than
FPGAs. We expect to begin shipping RapidChip products in the second half of
2003, although we do not expect it to contribute significantly to our
consolidated revenues until 2004.

In association with the technology transfer agreement entered into with
Silterra in Malaysia during 1999, we did not record any benefit in the first
quarter of 2003 as compared to a $2.0 million benefit recorded in the fourth
quarter of 2002. The obligations under the technology transfer agreement were
complete as of December 31, 2002.

R&D expenses in the Storage Systems segment decreased $1.8 million or 15%
in the first quarter of 2003 as compared to the fourth quarter of 2002. The
decrease is primarily a result of restructuring actions taken in 2002 and 2003
(see Note 3 of the Notes) and lower integration expenses related to the
acquisition of the Mylex business unit of IBM that was added primarily to the
Storage Systems segment upon acquisition in August 2002.

The increase in R&D expenses as a percentage of revenues on a consolidated
basis is primarily a result of lower revenues offset slightly by lower R&D
expenses in the current quarter as compared to the fourth quarter of 2002.

Three months ended March 31, 2003 compared to the same period of 2002

R&D expenses, on a consolidated basis, increased $0.8 million or 1% during
the first quarter of 2003 as compared to the first quarter of 2002.

R&D expenses for the Semiconductor segment decreased $1.2 million or 1% in
the first quarter of 2003 as compared to the same period of 2002. The decrease
in R&D expenses for the Semiconductor segment is primarily a result of benefits
from the restructuring actions of 2002 and 2003 (see Note 3 of the Notes). The
decrease was offset in part by a lower benefit associated with the technology
transfer agreement entered into with Silterra in Malaysia during 1999. No
benefit was recorded in the first quarter of 2003 as compared to $4 million
benefit recorded in the same period of 2002.

R&D expenses for the Storage Systems segment increased by $2.0 million or
25% in the first quarter of 2003 as compared to the same period of 2002 as a
result of additional R&D expenses incurred in the current quarter for the
former Mylex business unit of IBM, which was acquired in August 2002, and is
now primarily a part of the Storage Systems segment.

As a percentage of revenues, consolidated R&D expenses increased to 31% in
the first quarter of 2003 from 28% in the same quarter of 2002. For the
Semiconductor segment, R&D expenses as a percentage of revenues increased to
38% in the first quarter of 2003 from 30% in the same period of 2002. The
increases in R&D expenses as a percentage of revenues on a consolidated basis
and for the Semiconductor segment are a result of lower revenues, offset in
part by lower R&D expenses in the first quarter of 2003 as compared to the same
period of 2002. R&D expenses as a percentage of revenues for the Storage
Systems segment decreased to 10% in the first quarter of 2003 from 13% in the
same quarter of 2002. The decrease is a result of an increase in revenues,
offset in part by an increase in R&D expenses in the first quarter of 2003 as
compared to the same period of 2002.

Selling, general and administrative:

|                        |                                |   |                    |     |               |   |               |     |  |   |      |     | 
|----------------------- | ------------------------------ | - | ------------------ | --- | ------------- | - | ------------- | --- |  | - | ---- | --- | 
|                        |                                |   | Three months ended
|                        |                                |   |                   
|                        |                                |   | Mar. 31, 2003      |     | Dec. 31, 2002 |   | Mar. 31, 2002
|                        |                                |   |                    |     |               |   |              
|                        |                                |   |                    |     |               |   | (in millions) |     |  |   |     
|Semiconductor segment   |                                | $ | 42.9               |     |               | $ | 42.1          |     |  | $ | 46.8 |    
|                        | Percentage of
segment revenues |   |                    | 16% |               |   |               | 11% |  |   |      | 13% | 
|Storage Systems segment |                                | $ | 14.7               |     |               | $ | 13.5          |     |  | $ | 11.4 |    
|                        | Percentage of
segment revenues |   |                    | 15% |               |   |               | 13% |  |   |      | 19% | 
|                        |                                |   |                    |     |               |   |               |     |  |   |      |    
|Consolidated            |                                | $ | 57.6               |     |               | $ | 55.6          |     |  | $ | 58.2 |    
|                        |                                |   |                    |     |               |   |               |     |  |   |      |    
|                        | Percentage of revenues         |   |                    | 15% |               |   |               | 12% |  |   |      | 14% | 

19



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##### Table of Contents



First quarter of 2003 compared to the fourth quarter of 2002

Selling, general and administrative (SG&A) expenses increased $2.0
million or 4% during the first quarter of 2003 from the fourth quarter of 2002
on a consolidated basis. SG&A expenses for the Semiconductor segment increased
$0.8 million or 2% in the first quarter of 2003 as compared to the fourth
quarter of 2002. SG&A expenses for the Storage Systems segment increased $1.2
million or 9% when comparing the same periods. The increase for the Storage
Systems segment is primarily due to increased partner alliance spending on
channel development.

As a percentage of revenues, consolidated SG&A expenses increased to 15%
in the first quarter of 2003 from 12% in the fourth quarter of 2002. For the
Semiconductor segment, SG&A expenses, as a percentage of revenues, increased to
16% from 11%, and for the Storage Systems segment, increased to 15% in the
first quarter of 2003 as compared to 13% for the fourth quarter of 2002. The
increase as a percentage of revenues on a consolidated basis and by segment are
primarily a result of lower revenues during the first quarter of 2003 as
compared to the fourth quarter of 2002.

Three months ended March 31, 2003 compared to the same period of 2002

Consolidated SG&A expenses decreased $0.6 million or 1% during the first
quarter of 2003 as compared to the first quarter of 2002. SG&A expenses for
the Semiconductor segment decreased $3.9 million or 8%. The decrease, on a
consolidated basis and for the Semiconductor segment, was primarily
attributable to the various cost reduction measures implemented in 2002 and
2003 (See Note 3 of the Notes).

SG&A expenses for the Storage Systems segment increased $3.3 million or
29% in the first quarter of 2003 as compared to the same period of 2002. The
increase is primarily a result of increased partner alliance spending on
channel development.

As a percentage of revenues, SG&A expenses increased to 15% in the first
quarter of 2003 from 14% in the same period of 2002 on a consolidated basis.
For the Semiconductor segment, SG&A expenses as a percentage of revenues
increased to 16% from 13% over the same period. The increases in SG&A expenses
as a percentage of revenues is a result of lower revenues, offset in part by
lower SG&A expenses in the first quarter of 2003 as compared to the same
quarter of 2002, as discussed above. For the Storage Systems segment, SG&A
expenses as a percentage of revenues decreased to 15% from 19% as a result of
higher revenues, offset in part by higher SG&A expenses in the first quarter of
2003 as compared to the same period of 2002, as discussed above.

Restructuring of operations and other items:We recorded $35.7 million in
restructuring of operations and other items for the three months ended March
31, 2003. We recorded a charge for restructuring of operations and other items
of $65.1 million for the three months ended March 31, 2002. For a complete
discussion of the 2002 restructuring actions, please refer to our Annual Report
on Form 10-K.

Restructuring and impairment of long-lived assets:

On January 1, 2003, we adopted SFAS No. 146, Accounting for Exit or
Disposal Activities. SFAS No. 146 has been applied to restructuring
activities initiated after December 31, 2002 and changes the timing of when
restructuring charges are recorded to the date when the liabilities are
incurred. The adoption of SFAS No. 146 did not affect restructuring reserves
recorded prior to December 31, 2002.

In February 2003, we downsized our operations and recorded $35.7 million
in charges for restructuring of operations and other items. Of this charge,
$21.1 million was associated with the Semiconductor segment and $14.6 million
was attributable to the Storage Systems segment. The charges consisted of
severance and termination benefits for approximately 210 terminated employees
primarily involved in manufacturing operations, research and development and
marketing and sales; costs associated with exiting certain operating leases
primarily for real estate; and a write-down of certain acquired intangible and
other long-lived assets.

In April 2003, we announced a restructuring of our operations that
includes the elimination of approximately 370 additional employees and the
consolidation of certain non-manufacturing facilities. We expect to record a
charge of between $20 million and $40 million in the second quarter of 2003 as
a result of these actions. The charges will be for severance and termination
benefits for the terminated employees, costs associated with exiting certain
operating leases for real estate and write-downs of long-lived assets.

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##### Table of Contents



The restructuring actions in April, combined with those in February, are
expected to result in approximately $15 million in cost savings per quarter,
beginning in the fourth quarter of 2003.

The following table sets forth our restructuring reserves as of March 31,
2003, which are included in other accrued liabilities on the balance sheet:

|                                                 |  |                |        |         |  |               |        |                |  |   |         |   |  |   |        | 
|------------------------------------------------ |  | -------------- | ------ | ------- |  | ------------- | ------ | -------------- |  | - | ------- | - |  | - | ------ | 
|                                                 |  |                |        |         |  | Restructuring |        |                |  |   |         |   |  |  
|                                                 |  | Balance at     |        | Expense |  | Utilized      |        |                |  |  
|                                                 |  | December 31,   |        | Q1      |  | during Q1     |        | Balance at    
|                                                 |  | 2002           |        | 2003    |  | 2003          |        | March 31, 2003
|                                                 |  |                |        |         |  |               |        |               
|                                                 |  | (In thousands)
|Write-down of excess assets (a)                  |  | $              | 6,008  |         |  | $             | 29,754 |                |  | $ | (30,021 | ) |  | $ | 5,741  | 
|Lease terminations and maintenance contracts (b) |  |                | 6,757  |         |  |               | 1,396  |                |  |   | (1,172  | ) |  |   | 6,981  | 
|Facility closure and other exit costs (c)        |  |                | 8,129  |         |  |               |       |                |  |   | (2,520  | ) |  |   | 5,609  | 
|Payments to employees for severance (d)          |  |                | 1,391  |         |  |               | 4,516  |                |  |   | (4,493  | ) |  |   | 1,414  | 
|                                                 |  |                |        |         |  |               |        |                |  |   |         |   |  |   |        | 
|Total                                            |  | $              | 22,285 |         |  | $             | 35,666 |                |  | $ | (38,206 | ) |  | $ | 19,745 | 
|                                                 |  |                |        |         |  |               |        |                |  |   |         |   |  |   |        | 



---

|(a) |  | The amounts utilized in 2003 reflect $29.8 million of non-cash
write-downs of intangible and other long-lived assets in the U.S due to
impairment, and $0.2 million in cash payments to decommission and sell
assets. The write-downs of the intangible and other long-lived assets
were accounted for as a reduction of the assets and did not result in a
liability. The $5.7 million balance as of March 31, 2003 relates to
machinery and equipment decommissioning costs in the U.S and estimates of
selling costs for assets held for sale.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Amounts utilized represent cash payments. The balance remaining for
primarily real estate lease terminations and maintenance contracts will be
paid during the remaining terms of these contracts, which extend through
2005.                                                                                                                                                                                                                                                                                                                    
|   
|(c) |  | Amounts utilized represent cash payments. The balance remaining for
facility closure and other exit costs will be paid during 2003.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(d) |  | Amounts utilized represent cash severance payments to approximately 210
employees during the three months ended March 31, 2003. The balance
remaining for severance will be paid during 2003.                                                                                                                                                                                                                                                                                                                                                    

Assets held for sale of $70 million and $74 million were included as a
component of prepaid expenses and other current assets as of March 31, 2003 and
December 31, 2002, respectively. Assets classified as held for sale are not
depreciated. The fair value of assets determined to be impaired was the result
of independent appraisals and the use of management estimates. Given that
current market conditions for the sale of older fabrication facilities and
related equipment may fluctuate, there can be no assurance that we will realize
the current net carrying value for the assets. We reassess the realizability of
the carrying value of these assets at the end of each quarter until the assets
are sold or otherwise disposed of and additional adjustments may be necessary.
We are making appropriate efforts to sell assets held for sale within the
current year.

Amortization of intangibles:Amortization of intangible assets was $20.1
million and $20.6 million for the first quarter of 2003 and fourth quarter of
2002, respectively. The slight decrease over the prior quarter is due to the
additional amortization of intangible assets recorded in the current quarter in
connection with the acquisition of a company valued at $7 million in the fourth
quarter of 2002, offset by a reduction in amortization as a result of the
write-down of certain acquired intangible assets as discussed below.

Amortization of intangible assets was $20.1 million and $19.2 million for
the three months ended March 31, 2003 and 2002, respectively. The increase is
attributable to the additional amortization of intangible assets recorded in
connection with the acquisition of the former Mylex business unit of IBM valued
at $50.5 million in the third quarter of 2002 and the acquisition of a company
valued at $7 million in the fourth quarter of 2002. As a result of
restructuring actions taken during the first quarter of 2003, we wrote down
certain acquired intangible assets by $15.1 million in the Semiconductor
segment and $9.0 million in the Storage Systems segment due to impairment. The
write-down will reduce consolidated amortization by $1.5 million per quarter
starting in the second quarter of 2003. As of March 31, 2003, we had
approximately $238.4 million of intangible assets, net of accumulated
amortization that will continue to amortize.

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We monitor the recoverability of goodwill recorded in connection with
acquisitions annually or sooner if events or changes in circumstances indicate
that the carrying amount may not be recoverable. Our market capitalization is
currently below net book value and should this continue, we may have to perform
an interim assessment of the recoverability of goodwill. An impairment, if
any, would be determined in accordance with SFAS No. 142, which uses a fair
value model for determining the carrying value of goodwill. See our Annual
Report on Form 10-K for further discussion.

Amortization of non-cash deferred stock compensation:Amortization of
non-cash deferred stock compensation was $10.5 million for the three months
ended March 31, 2003, $12.3 million for the fourth quarter of 2002 and $26.9
million for the three months ended March 31, 2002. The acquisitions for which
deferred stock compensation and related amortization were recorded consisted of
an acquisition in the fourth quarter of 2002, C-Cube and the RAID business from
AMI in 2001, and DataPath and Syntax in 2000. We amortize deferred stock
compensation ratably over the vesting period.

Interest expense:Interest expense decreased by $1.8 million to $8.8
million in the first quarter of 2003 from $10.6 million in the fourth quarter
of 2002. Interest expense decreased by $7.0 million to $8.8 million during the
three months ended March 31, 2003 from $15.8 million during the same period in
2002. The decrease is due to the repurchase of $135.0 million of the
Convertible Subordinated Notes ( Convertible Notes) during the third and
fourth quarters of 2002 and continued reduction in the effective interest rate
payable as a result of the interest rate swaps (the Swaps) on the Convertible
Notes entered into in the second quarter of 2002. The Swaps, entered into with
various banks, effectively convert fixed interest payments on a portion of the
Convertible Notes to LIBOR-based floating rates. The Swaps are intended to
better match interest rate risk on our investment portfolio (see Note 4 of the
Notes), which reprices more frequently than our debt portfolio, and to better
manage asset and liability mismatches in our consolidated balance sheet. The
Swaps qualify for hedge accounting treatment (see Note 5 and 7 of the Notes).

Interest income and other, net:Interest income and other, net, was $6.8
million in the first quarter of 2003 as compared to $5.7 million in the fourth
quarter of 2002. Interest income increased to $12.4 million in the first
quarter of 2003 from $8.0 million in the fourth quarter of 2002. The increase
in interest income is mainly due to improved returns on our short-term
investments. Other expense, net of $5.6 million in the first quarter of 2003
included a write-down of two investments in equity securities by $7.0 million
due to impairment considered to be other than temporary (see Note 4 of the
Notes), offset in part by net foreign exchange gains and gains on sale of
assets.

In the first quarter of 2002, interest income and other, net, was $3.6
million. Interest income increased to $12.4 million in the first quarter of
2003 from $5.5 million in the first quarter of 2002. The increase in interest
income is mainly due to improved returns on cash and short-term investment
balances, partially offset by lower interest rates in the current quarter.
Other expense, net, of $1.9 million in the first quarter of 2002 is comprised
primarily of foreign exchange gains and losses, option premium expenses, bank
fees and losses on sale of short-term investments.

Provision for income taxes:During the three months ended March 31, 2003,
we recorded an income tax expense of $6.0 million. The expense relates to
foreign income taxes; we expect our tax expense for the year ending December
31, 2003 to total approximately $24.0 million, and this amount will be provided
ratably through the year. The future benefit of certain operating losses is
not currently being recognized. In the fourth quarter of 2002, we recorded a
net income tax expense of $6.1 million, of which approximately $5.0 million
relates to income taxes in foreign jurisdictions. Also in that quarter, we
reduced the net value of our deferred tax assets by increasing our valuation
allowance on the assets and recording a charge to income tax expense of
approximately $62.0 million. In addition, during the fourth quarter of 2002,
the Internal Revenue Service concluded their audit of the Companys income tax
returns affecting fiscal years from 1995 up to and including 2000. As a
result, we reassessed our reserve requirements and reversed approximately $61.0
million of previously accrued income taxes as a credit to income tax expense.
For the three months ended March 31, 2002, we recorded a net income tax benefit
of $18.3 million. The net benefit is comprised of a one-time benefit of $22.5
million resulting from a net operating loss carryback provided by a law change
in 2002, reduced by $4.2 of income taxes incurred by certain foreign
subsidiaries.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

Cash, cash equivalents and short-term investments increased to $1.0
billion at March 31, 2003 from $990 million at December 31, 2002. The increase
is primarily due to net cash inflows from our operating activities as described
below.

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##### Table of Contents



Working capital.Working capital decreased by $313.4 million to $914.8
million at March 31, 2003 from $1.2 billion as of December 31, 2002. Working
capital in the first three months of the current year was impacted by the
following activities:



| |  |  | Current portion of long-term obligations increased by $328.1 million
due to the reclassification of the 1999 Convertible Subordinated Notes,
which are due in March 2004, along with the unamortized gain on the
termination of the associated interest rate swap from long-term to
current liabilities;         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounts receivable decreased by $23.3 million from $248.6 million at
December 31, 2002 to $225.3 million at March 31, 2003. This decrease is
attributable to lower revenue in the first quarter of 2003 compared to
the fourth quarter of 2002, and by timing differences in collections in
the current quarter;
|
| |  |  | Higher accrued salaries, wages and benefits due to timing differences
in payment of salaries; and                                                                                                                                                                                                                
|
| |  |  | Higher income taxes payable due to the timing of tax payments made
and income tax provision recorded in the current quarter.                                                                                                                                                                                     

The decrease in working capital was offset, in part, by the following:



| |  |  | Cash, cash equivalents and short-term investments increased by $14.9
million at March 31, 2003 as compared to December 31, 2002;                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Inventories increased by $12.2 million, primarily as a result of
decreased revenues, offset in part by decreased production, in the
current quarter as compared to the fourth quarter of 2002; and                                                                                                                                                            
|
| |  |  | Prepaid expenses and other current assets increased by $12.8 million,
primarily due to the increase in current portion of the collateral for
the new lease agreement (see Note 12 of the Notes) and increase in the
fair value of options and interest swap receivable, offset in part by
the sale of certain assets held for sale during the current quarter.

Cash and cash equivalents generated from operating activities.During the
first three months of 2003, we provided $21.9 million of net cash and cash
equivalents from operating activities compared to $35.0 million used in the
same period in 2002. The increase in cash and cash equivalents provided by
operating activities was the result of higher net income before non-cash
adjustments to our net loss for the first three months of 2003 when compared to
the same period in 2002 and by changes in working capital over the two periods.

Cash and cash equivalents provided by investing activities.Cash and cash
equivalents provided by investing activities was $26.9 million in the first
three months of 2003, compared to $240.2 million used in the same period in
2002. The primary investing activities during the current quarter as compared
to the same period in 2002 were as follows:



| |  |  | Sales and maturities of debt and equity securities available for
sale, net of purchases in 2003 as compared to net purchases in 2002;                                                                                                                                                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | No purchase of equity securities in 2003 as compared to $1.4 million
purchases in 2002; and                                                                                                                                                                                                                                                                  
|
| |  |  | Higher proceeds from the sale of property and equipment in the first
quarter of 2003, as compared to net purchases in the first quarter of
2002. This was offset by higher non-current assets and deposits in the
first quarter of 2003, primarily as a result of the new lease agreement
entered into during the current quarter (see Note 12 of the Notes).

We believe that maintaining technological leadership in the highly
competitive worldwide semiconductor manufacturing industry requires access to
advanced manufacturing capacity. Our focus is on establishing strategic
supplier alliances with foundry semiconductor manufacturers, which enables us
to have access to advanced manufacturing capacity, and reduces our capital
spending requirements. We expect total capital expenditures to be under $100
million in 2003.

As of March 31, 2003, we had operating leases financing certain wafer
fabrication equipment (see Note 12 of the Notes). The debt related to these
operating leases is not reflected on the balance sheet. We are required to
maintain unrestricted cash reserves in an

23



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##### Table of Contents



amount no less than the higher of a) the sum of $100 million plus the principal
amount outstanding under the 4% Convertible Subordinated Notes due February 15,
2005 or b) $350 million. We were in compliance with this requirement as of
March 31, 2003.

We guarantee residual values of equipment on these leases. As of March
31, 2003, we do not expect to realize a loss on the guarantee at the end of the
lease term, and accordingly, no additional rent expense has been recognized
(see Note 12 of the Notes).

Cash and cash equivalents provided by financing activities. Cash and
cash equivalents provided by financing activities during the three months ended
March 31, 2003 were $0.2 million compared to $1.5 million in the same period in
2002. The decrease is primarily attributable to lower net cash proceeds from
our employee stock option plans in the first quarter of 2003 as compared to the
same period in 2002.

As of March 31, 2003, we have Convertible Subordinated Notes of $325
million due in March 2004, $385 million due in February 2005, and $490 million
due in October 2006. All the Convertible Notes are convertible at the holders
option, at any time after 60 days following issuance, into shares of our
companys common stock. The Convertible Notes are redeemable at our option, in
whole or in part, on at least 30 days notice at any time on or after the call
date, which is two years before the due date. Each holder of the Convertible
Notes has the right to cause us to repurchase all of such holders Convertible
Notes at 100% of their principal amount plus accrued interest upon the
occurrence of any fundamental change, which includes a transaction or event
such as an exchange offer, liquidation, tender offer, consolidation, merger or
combination. Fluctuations in our stock price impact the prices of our
outstanding convertible securities and the likelihood of the convertible
securities being converted into cash or equity. If we are required to redeem
any of the Convertible Notes for cash, it may affect our liquidity position.
However, in the event they do not convert to equity, we believe that our
current cash position and expected future operating cash flows will be adequate
to meet these obligations as they mature. From time to time, we may buy back
Convertible Subordinated Notes.

We may seek additional equity or debt financing from time to time. We
believe that our existing liquid resources and funds generated from operations,
combined with funds from such financing and our ability to borrow funds, will
be adequate to meet our operating and capital requirements and obligations for
the foreseeable future. However, we cannot be certain that additional financing
will be available on favorable terms. Moreover, any future equity or
convertible debt financing will decrease the percentage of equity ownership of
existing stockholders and may result in dilution, depending on the price at
which the equity is sold or the debt is converted.

The following table summarizes our contractual obligations at March 31,
2003 and the effect these obligations are expected to have on our liquidity and
cash flow in future periods.

|                                |       |                  |                        |             |  |             |       |               |  |       |       |       |  |   |      |      |  |   |         |         | 
|------------------------------- | ----- | ---------------- | ---------------------- | ----------- |  | ----------- | ----- | ------------- |  | ----- | ----- | ----- |  | - | ---- | ---- |  | - | ------- | ------- | 
|                                |       |                  | Payments due by period
|                                |       |                  |                       
|Contractual Obligations         |       | Less than 1 year |                        | 1  3 years |  | 4  5 years |       | After 5 years |  | Total
|                                |       |                  |                        |             |  |             |       |               |  |      
|                                |       |                  | (in millions)         
|                               
|Convertible Subordinated
Notes* |       | $                | 324.9                  |             |  | $           | 385.0 |               |  | $     | 490.0 |       |  | $ |     |      |  | $ | 1,199.9 |        
|Operating lease obligations     |       |                  | 135.8                  |             |  |             | 230.2 |               |  |       | 73.9  |       |  |   | 19.2 |      |  |   | 459.1   |        
|Capital lease obligations       |       |                  | 0.4                    |             |  |             | 0.5   |               |  |       |      |       |  |   |     |      |  |   | 0.9     |        
|                                |       |                  |                        |             |  |             |       |               |  |       |       |       |  |   |      |      |  |   |         |        
|                                | Total |                  | $                      | 461.1       |  |             | $     | 615.7         |  |       | $     | 563.9 |  |   | $    | 19.2 |  |   | $       | 1,659.9 | 
|                                |       |                  |                        |             |  |             |       |               |  |       |       |       |  |   |      |      |  |   |         |        



---

|* |  | Excludes the change in fair value of the interest rate risk on the
Convertible Subordinated Notes of $35.6 million at March 31, 2003. See Notes 5
and 7 of the Notes.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
estimates and assumptions that affect the reported amounts and disclosures.
For a detailed discussion of the critical accounting policies, please see the
Critical Accounting Policies contained in Part II, Item 7 of the Managements
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2002.

24



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##### Table of Contents



Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. On March 28, 2003, we entered into new
operating leases to refinance our old leases. See Note 12 of the Notes. We
refinanced these leases in a manner that best met our capital financing
strategy and our cost of capital objectives and the new leases are not subject
to the consolidation provisions of FIN 46.

In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We believe that the adoption of this standard will not
have a material impact on our consolidated balance sheet or statement of
operations.

In April 2003, the FASB issued Statement No. 149 (SFAS No. 149),
Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this statement
clarifies the circumstances under which a contract with an initial net
investment meets the characteristics of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying to conform it to the language used in FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and amends certain other existing
pronouncements. The provisions of SFAS No. 149, which were not already applied
under an Implementation Issue, are effective for contracts entered into or
modified after June 30, 2003. We believe that the adoption of this standard
will not have a material impact on our consolidated balance sheet or statement
of operations.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

We believe that our future operating results will continue to be subject
to quarterly variations based upon a wide variety of factors detailed in the
Risk Factors in Part I of our Annual Report on Form 10-K for the year ended
December 31, 2002. Our actual results in future periods may be significantly
different from any future performance suggested in this report. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Risks and uncertainties that may affect our results include,
among others:



| |  |  | Fluctuations in timing and volumes of customer demand;                                                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The rate of depletion of customer inventory buildup;                                                                                                                                                                       
|
| |  |  | The Companys achievement of revenue objectives and other financial
targets;                                                                                                                                               
|
| |  |  | The development of new products;                                                                                                                                                                                           
|
| |  |  | The timing and success of new product introductions;                                                                                                                                                                       
|
| |  |  | The continued availability of appropriate levels of manufacturing
capacity;                                                                                                                                                
|
| |  |  | The realization of benefits from the Companys strategic relationships;                                                                                                                                                    
|
| |  |  | Competing technologies, products and other competitive factors;                                                                                                                                                            
|
| |  |  | Disruptions in general economic activity due to worsening global
business conditions or caused by the effects of terrorism, armed conflict, or
global health conditions such as severe acute respiratory syndrome (SARS);

25



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##### Table of Contents





| |  |  | The extent to which the Company may not realize the cost savings it
expects from the reduction in workforce and operating expenses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Cyclical nature of the Semiconductor industry and the markets addressed
by our products; and                                       
|
| |  |  | The unpredictability of the economy and other factors beyond the
Companys control.                                                

Our operating results could also be impacted by sudden fluctuations in
customer requirements, foreign currency exchange rate fluctuations and other
economic conditions affecting customer demand and the cost of operations in one
or more of the global markets in which we do business. We operate in a
technologically advanced, rapidly changing and highly competitive environment.
While we cannot predict what effect these various factors may have on our
financial results, the aggregate effect of these and other factors could result
in significant volatility in our future performance. To the extent our
performance may not meet expectations published by external sources, public
reaction could result in a sudden and significantly adverse impact on the
market price of our securities, particularly on a short-term basis.

We have international subsidiaries and distributors that operate and sell
our products globally. Further, we purchase a substantial portion of our raw
materials and manufacturing equipment from foreign suppliers and incur labor
and other operating costs in foreign currencies, particularly in our Japanese
manufacturing facilities. As a result, we are exposed to the risk of changes
in foreign currency exchange rates or declining economic conditions in these
countries. We utilize forward exchange contracts and purchased currency option
contracts to manage our exposure associated with net asset and liability
positions and cash flows denominated in non-functional currencies. (See Note 5
of the Notes.) There is no assurance that these hedging transactions will
eliminate exposure to currency rate fluctuations and this could affect our
operating results.

Our corporate headquarters and some of our manufacturing facilities are
located near major earthquake faults. As a result, in the event of a major
earthquake, we could suffer damages that could significantly and adversely
affect our operating results and financial condition.

We operate in an industry sector where the value of securities is highly
volatile and may be influenced by economic and other factors beyond our
control. We believe that our future operating results will continue to be
subject to quarterly variations based upon a wide variety of factors.

While management believes that the discussion and analysis in this report
is adequate for a fair presentation of the information, we recommend that you
read this discussion and analysis in conjunction with the Annual Report on Form
10-K.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in the market risk disclosures
during the three months ended March 31, 2003, as compared to the discussion in
Part II of our Annual Report on Form 10-K for the year ended December 31, 2002.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures and internal accounting
controls designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. Our principal executive and financial
officers have evaluated our disclosure controls and procedures pursuant to Rule
13a-14 promulgated under the Securities Exchange Act within 90 days prior to
the filing of this Quarterly Report on Form 10-Q and, based upon such
evaluations, have determined that such disclosure controls and procedures are
effective to alert them on a timely basis to material information relating to
our company required to be disclosed in our filings with the Securities and
Exchange Commission. Subsequent to our evaluation, there were no significant
changes in internal controls or other factors that could significantly affect
our internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses. We are aware that any system
of controls, however well designed and operated, can only provide reasonable,
and not absolute, assurance that the objectives of the system are met, and that
maintenance of disclosure controls and procedures is an ongoing process that
may change over time.

26



---



##### Table of Contents






PART II  OTHER INFORMATION




Item 1. Legal Proceedings

Reference is made to Item 3, Legal Proceedings and Note 13 of the Notes to
the Consolidated Financial Statements of the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2002 for a discussion of certain
legal proceedings. The information provided at such reference regarding those
matters remains substantially unchanged. In addition, the Company is party to
other litigation matters and claims that are normal in the course of its
operations. While the results of such litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of such
matters is not expected to have a material adverse affect on the Companys
consolidated results of operations and financial condition.




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

|      |  |                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Bylaws of the Registrant (as amended through April 10, 2003).                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                       
|10.34 |  | Lease and Security Agreement (Lease A) among Wells Fargo Bank
Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank
of America, N.A, as Lessor, Fleet National Bank as Documentation
Agent and Societe Generale Financial Corporation, as Syndication
Agent, dated as of March 28, 2003.
|      |  |                                                                                                                                                                                                                                                                                                       
|10.35 |  | Lease and Security Agreement (Lease B) among Wells Fargo Bank
Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank
of America, N.A, as Lessor, Fleet National Bank as Documentation
Agent and Societe Generale Financial Corporation, as Syndication
Agent, dated as of March 28, 2003.
|      |  |                                                                                                                                                                                                                                                                                                       
|10.36 |  | First Amendment to Lease and Security Agreement (Lease A) among LSI
Logic Corporation, as Lessee, Bank of America, N.A., as Lessor and
Wells Fargo Bank Northwest, N.A., as Agent, dated as of March 31,
2003.                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.37 |  | First Amendment to Lease and Security Agreement (Lease B), among LSI
Logic Corporation as Lessee, Bank of America, N.A. as Lessor, and Wells Fargo Bank
Northwest, N.A., as Agent, dated as of March 31, 2003.                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.38 |  | Assignment of Cash Collateral Accounts (Lease A) by and between LSI
Logic Corporation as Pledgor and Bank of America, N.A., as Lessor,
dated as of March 28, 2003.                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                       
|10.39 |  | Assignment of Cash Collateral Accounts (Lease B) by and between LSI
Logic Corporation as Pledgor and Bank of America, N.A., as Lessor,
dated as of March 28, 2003.                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                       
|10.40 |  | Letter of Credit and Reimbursement Agreement, between LSI Logic
Corporation as Applicant, and Wachovia Bank,
N.A., dated as of March 28, 2003.                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.41 |  | Form of Control Agreement among LSI Logic Corporation as Lessee,
Bank of America, N.A., as Lessor and various entities, as Securities
Intermediaries, dated as of March 28, 2003.                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                       
|10.42 |  | Amendment No. 1 to Amended and Restated Preferred Shares Rights
Agreement between LSI Logic Corporation and BankBoston, N.A., dated
February 19, 1999.                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                       
|10.43 |  | Amendment to Amended and Restated Preferred Shares Rights Agreement
between LSI Logic Corporation, Fleet Bank f/k/a BankBoston, N.A.,
dated August 16, 2001.                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                       
|99.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                       
|99.2  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *                                                                                                                                                  



---

|* |  | Furnished not filed.
|- |  | --------------------

(b)  Reports on Form 8-K

On January 23, 2003, the Company filed a Form 8-K pursuant to Items 5 and
7 to report information regarding fourth quarter and fiscal year end results
set forth in the Registrants news release dated January 22, 2003.

27



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##### Table of Contents






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.

|                  |  |                                    |  |                                                                            
|----------------- |  | ---------------------------------- |  | ---------------------------------------------------------------------------
|                  |  | LSI LOGIC CORPORATION
(Registrant)
|                  |  |                                    |  |                                                                            
|Date: May 9, 2003 |  | By                                 |  | /s/ Bryon Look
Bryon LookExecutive Vice President &
Chief Financial Officer

28



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##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Wilfred J. Corrigan, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of LSI Logic
Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 9, 2003

By: /s/ Wilfred J. Corrigan
Name:  Wilfred J. Corrigan
Title:    Chairman & Chief Executive Officer

29



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##### Table of Contents



CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Bryon Look, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of LSI Logic
Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 9, 2003

By: /s/ Bryon Look
Name:   Bryon Look
Title:     Executive Vice President & Chief Financial Officer

30



---



##### Table of Contents






INDEX TO EXHIBITS

|      |  |                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Bylaws of the Registrant (as amended through April 10, 2003).                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                       
|10.34 |  | Lease and Security Agreement (Lease A) among Wells Fargo Bank
Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank
of America, N.A, as Lessor, Fleet National Bank as Documentation
Agent and Societe Generale Financial Corporation, as Syndication
Agent, dated as of March 28, 2003.
|      |  |                                                                                                                                                                                                                                                                                                       
|10.35 |  | Lease and Security Agreement (Lease B) among Wells Fargo Bank
Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank
of America, N.A, as Lessor, Fleet National Bank as Documentation
Agent and Societe Generale Financial Corporation, as Syndication
Agent, dated as of March 28, 2003.
|      |  |                                                                                                                                                                                                                                                                                                       
|10.36 |  | First Amendment to Lease and Security Agreement (Lease A) among LSI
Logic Corporation, as Lessee, Bank of America, N.A., as Lessor and
Wells Fargo Bank Northwest, N.A., as Agent, dated as of March 31,
2003.                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.37 |  | First Amendment to Lease and Security Agreement (Lease B), among LSI
Logic Corporation as Lessee, Bank of America, N.A. as Lessor, and Wells Fargo Bank
Northwest, N.A., as Agent, dated as of March 31, 2003.                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.38 |  | Assignment of Cash Collateral Accounts (Lease A) by and between LSI
Logic Corporation as Pledgor and Bank of America, N.A., as Lessor,
dated as of March 28, 2003.                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                       
|10.39 |  | Assignment of Cash Collateral Accounts (Lease B) by and between LSI
Logic Corporation as Pledgor and Bank of America, N.A., as Lessor,
dated as of March 28, 2003.                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                       
|10.40 |  | Letter of Credit and Reimbursement Agreement, between LSI Logic
Corporation as Applicant, and Wachovia Bank,
N.A., dated as of March 28, 2003.                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                       
|10.41 |  | Form of Control Agreement among LSI Logic Corporation as Lessee,
Bank of America, N.A., as Lessor and various entities, as Securities
Intermediaries, dated as of March 28, 2003.                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                       
|10.42 |  | Amendment No. 1 to Amended and Restated Preferred Shares Rights
Agreement between LSI Logic Corporation and BankBoston, N.A., dated
February 19, 1999.                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                       
|10.43 |  | Amendment to Amended and Restated Preferred Shares Rights Agreement
between LSI Logic Corporation, Fleet Bank f/k/a BankBoston, N.A.,
dated August 16, 2001.                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                       
|99.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                       
|99.2  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *                                                                                                                                                  



---

|* |  | Furnished not filed.
|- |  | --------------------

31