<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                   FORM 10-Q


Mark One:

  [X]  Quarterly report under Section 13 or 15(d) of the Securities Exchange
       Act of 1934 for the quarterly period ended April 2, 1999.
                                                  ---------------

                                      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 0-11879

                             VLSI TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)


                 Delaware                               94-2597282
       ------------------------------               -------------------
       (State or other jurisdiction of              (I.R.S. Employer
        incorporation or organization)               Identification No.)

                1109 McKay Drive, San Jose, California, 95131 
       -----------------------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                                (408) 434-3100
       -----------------------------------------------------------------
               (Registrant's telephone number, including area code)

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  (  )

Shares outstanding of the Registrant's Common Stock as of April 2, 1999:

                                                                  46,585,808

<PAGE>

                        PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
                            VLSI TECHNOLOGY, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - unaudited
                     (thousands, except per share amounts)
<CAPTION>
                                                  Three Months Ended
                                               ------------------------- 
                                                April 2,       March 27,
                                                  1999           1998
                                                --------       ---------
<S>                                             <C>             <C>
Net revenues                                    $149,577        $141,286
Cost of sales                                     91,717          82,940
                                                --------        --------
Gross profit                                      57,860          58,346
                                                --------        --------
Operating expenses:
   Research and development                       31,810          28,037
   Marketing, general and administrative          23,957          26,297
   Charges resulting from tender offer             4,500               -
                                                --------        --------
Operating income (loss)                           (2,407)          4,012

Gain on sale of marketable securities              7,625               -
Interest income and other expenses, net            3,517           3,808
Interest expense                                  (2,292)         (3,484)
                                                --------        --------
Income before provision for taxes 
   on income                                       6,443           4,336
Provision for taxes on income                      1,740           1,170
                                                --------        --------
Net income                                         4,703           3,166
                                                --------        --------
Other comprehensive income, net of tax:
   Unrealized gain on available-for-sale
      securities, net of reclassification
      adjustment                                   3,074             483
                                                --------        --------
Comprehensive income                            $  7,777        $  3,649
                                                ========        ========

Net income per share - Basic                    $   0.10        $   0.07
                                                ========        ========
Net income per share - Diluted                  $   0.09        $   0.07
                                                ========        ========
Weighted-average common
   shares outstanding - Basic                     46,238          45,748
                                                ========        ========
Weighted-average common 
   shares outstanding and assumed
   conversions - Diluted                          49,921          47,415
                                                ========        ========

See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>

<PAGE>
<TABLE>
                             VLSI TECHNOLOGY, INC.

               CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
                                 (thousands) 
<CAPTION>
                                                  April 2,    December 25,
                                                    1999          1998
                                                  --------    ------------
<S>                                               <C>             <C>
ASSETS

Current assets:
   Cash and cash equivalents                      $ 76,683        $122,460
   Marketable securities                           169,048         171,921
   Accounts receivable, net of allowance
      for doubtful accounts and customer
      returns of $1,700
      ($1,700 at December 25, 1998)                 78,606          81,890
   Inventories:
      Raw materials and work-in-process             29,392          31,691
      Finished goods                                 7,865          11,405
                                                  --------        --------
 Total inventories                                  37,257          43,096

   Deferred and refundable income taxes             53,485          54,382
   Prepaid expenses and other current assets        10,557           8,962
                                                  --------        --------
      Total current assets                         425,636         482,711

Property, plant and equipment, at cost             906,643         864,059
Accumulated depreciation and amortization         (460,536)       (435,128)
                                                  --------        --------
   Net property, plant and equipment               446,107         428,931

Other assets                                        10,746          10,403
                                                  --------        --------
TOTAL ASSETS                                      $882,489        $922,045
                                                  ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                               $ 63,751        $ 98,739
   Accrued compensation and benefits                33,199          31,631
   Income taxes                                      5,771           5,448
   Patent matters                                   13,914          13,914
   Other accrued liabilities                        23,640          34,216
                                                  --------        --------
      Total current liabilities                    140,275         183,948

Long-term debt                                     161,208         164,808
Other long-term obligations                         17,558          18,239

Stockholders' equity:
   Preferred Shares, $.01 par value                      -               -
   Common Shares, $.01 par value                       473             473
   Additional paid-in capital                      446,092         448,228
   Treasury Common Shares, at cost                  (5,937)        (14,941)
   Stockholders' notes receivable                   (6,247)              -
   Retained earnings                               117,019         112,316
   Accumulated other comprehensive income           12,048           8,974
                                                  --------        --------
        Total stockholders' equity                 563,448         555,050
                                                  --------        --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $882,489        $922,045
                                                  ========        ========

See accompanying Notes to Consolidated Condensed Financial Statements.

</TABLE>
<PAGE>
<TABLE>
                                 VLSI TECHNOLOGY, INC.

             CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
                                      (thousands)
<CAPTION>
                                                         Three Months Ended
                                                    ---------------------------
                                                     April 2,        March 27,
                                                       1999            1998
                                                    ----------     ------------
                                                    Increase (decrease) in
                                                    cash and cash equivalents
<S>                                                  <C>              <C>
Operating activities: 
 Net income                                          $  4,703         $  3,166
 Adjustments to reconcile net income
  to cash generated by operations:
   Depreciation and amortization                       27,901           25,338
   Charges resulting from tender offer                  4,500                -
   Gain on sale of marketable securities               (7,625)               -
   Gain on repurchase of convertible notes               (136)               -
   Deferred income taxes                                    -           (1,475)
   Changes in operating assets and liabilities:
    Accounts receivable                                 3,284           16,430
    Inventories                                         5,839             (527)
    Refundable income taxes                            (1,028)           1,880
    Accounts payable, income taxes payable and 
     accrued liabilities                              (34,395)         (11,089)
    Other                                                (751)          (3,205)
                                                     --------         --------
 Cash generated by operations                           2,292           30,518
                                                     --------         --------
Investing activities:
 Purchases of marketable securities                   (42,965)         (83,822)
 Proceeds from sale of marketable securities           31,907                - 
 Proceeds from maturities of marketable securities     26,659           75,861
 Purchases of property, plant and equipment           (60,723)         (33,157)
 Sale of property, plant and equipment                      -           16,361
                                                     --------         --------
  Net cash flow used for investing activities         (45,122)         (24,757)
                                                     --------         --------
Financing activities:
 Payments on debt and capital lease obligations          (198)         (12,710)
 Repurchase of convertible notes                       (3,402)               -
 Purchase of Treasury Shares                                -           (4,564)
 Issuance of Treasury Shares, net                         653            1,461
                                                     --------         --------
  Net cash flow used for financing activities          (2,947)         (15,813)
                                                     --------         --------

Net decrease in cash and cash equivalents             (45,777)         (10,052)
Cash and cash equivalents, beginning of period        122,460          193,899
                                                     --------         --------
Cash and cash equivalents, end of period             $ 76,683         $183,847
                                                     ========         ========
Supplemental disclosures:
  Cash outflows for property, plant and equipment    $ 60,723         $ 33,157
   Change in accrued capital additions                (15,904)             807
                                                     --------         --------
   Property, plant and equipment additions           $ 44,819         $ 33,964
                                                     ========         ========
  Interest paid                                      $  6,935         $    678
                                                     ========         ========
  Income taxes paid, net                             $  2,434         $    407
                                                     ========         ========

See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
                             VLSI  TECHNOLOGY, INC.

             NOTES  TO  CONSOLIDATED  CONDENSED  FINANCIAL  STATEMENTS


1. The accompanying interim consolidated condensed financial statements of 
VlSI Technology, Inc. (VLSI or the Company) have been prepared in 
conformance with generally accepted accounting principles, consistent with 
those applied in the VLSI Technology, Inc. Annual Report on Form 10-K for 
the fiscal year ended December 25, 1998 (the 1998 Annual Report). This 
Quarterly Report on Form 10-Q (Form 10-Q) should be read in conjunction 
with the 1998 Annual Report. The interim financial statements are 
unaudited, but reflect all normal recurring adjustments that are, in the 
opinion of management, necessary to a fair statement of results for the 
interim periods presented. The results for the quarter ended April 2, 1999 
are not necessarily indicative of the results that may be expected for the 
fiscal year ending December 31, 1999. Fiscal year 1999 will consist of 53 
weeks and the first quarter of 1999 consisted of 14 weeks, whereas fiscal 
year 1998 consisted of 52 weeks and each of the quarters therein consisted 
of 13 weeks.

2. The Company has engaged a number of advisors to assist in the evaluation of 
the Amended Philips Offer (as defined in Note 8 below) and strategic 
alternatives to such offer and is involved in litigation relating to the 
Amended Philips Offer. As a result, in the first quarter of 1999, the Company 
recorded a pre-tax charge of $4.5 million related to these matters for the 
services performed in the first quarter of 1999. Additional costs 
associated with the Company's external advisors are expected to be incurred 
in succeeding quarters.

3. Comprehensive income includes net income plus other comprehensive income.  
Other comprehensive income for VLSI is comprised of changes in unrealized 
gains or losses on available-for-sale securities, net of tax. 

Accumulated other comprehensive income and changes thereto consist of 
(thousands):

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                      ----------------------
                                                            (thousands)

                                                      April 2,     March 27,
                                                        1999         1998
                                                      --------     ---------
<S>                                                   <C>          <C>
   Beginning balance gain (loss), net of tax           $ 8,974      $(2,364)

   Unrealized gain on available-for-sale securities     12,998          696
   Tax effect on unrealized gain                        (5,005)        (213)
   Reclassification adjustment for realized 
      losses (gains)                                    (7,999)           -
   Tax effect on reclassification adjustment             3,080            -
                                                       -------      -------
   Ending balance gain (loss), net of tax              $12,048      $(1,881)
                                                       =======      =======
   Tax effect (benefit) included in ending balance     $ 7,543      $(1,264)
                                                       =======      =======
</TABLE>

<PAGE>

4. Net income per share, Basic and Diluted, is as follows:
<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                      ----------------------
                                                      April 2,     March 27,
                                                        1999          1998
                                                      --------     ---------
                                                       (thousands, except 
                                                        per share amounts)
<S>                                                   <C>          <C>
   Net income                                         $ 4,703       $ 3,166
                                                      =======       =======

   Weighted-average common shares - Basic              46,238        45,748
   Dilutive options                                     3,683         1,667
                                                      -------       -------
   Adjusted weighted-average common shares
         and assumed conversions - Diluted             49,921        47,415
                                                      =======       =======

   Net income per share - Basic                       $  0.10       $  0.07
                                                      =======       =======
   Net income per share - Diluted                     $  0.09       $  0.07
                                                      =======       =======
</TABLE>

   The effect of convertible debt is excluded in both periods from income  
available for shareholders and adjusted weighted-average common shares 
because they would have been antidilutive. The following amounts have been 
excluded:

                                                      April 2,     March 27,
                                                        1999          1998
                                                      --------     ---------
                                                           (thousands)

   Income available to shareholders, net of tax       $ 2,427       $ 2,597
                                                      =======       =======
   Potentially dilutive shares                          2,942         3,148
                                                      =======       =======

5. The semiconductor industry is characterized by vigorous protection and 
pursuit of intellectual property rights and positions. Periodically, the 
Company is made aware that technology used by the Company in the manufacture 
of some or all of its products may infringe on product or process technology 
rights held by others. Resolution of whether the Company's manufacture of 
products has infringed on valid rights held by others could have a material 
adverse effect on the Company's financial position or results of operations 
and may require material changes in production processes and products. The 
Company continually evaluates the adequacy of its reserve for asserted and 
unasserted patent matters. The reserve for patent matters is based on the 
best available information at that time and it is reasonably possible that 
the Company's estimate of the exposure for patent matters could materially 
change in the near term. The Company has been unable to determine the impact 
of a suit filed against VLSI and 25 other companies during 1998 for patent 
infringement. While the Company intends to vigorously defend itself against 
these charges, should the outcome of this matter be unfavorable, there could 
be a material adverse affect on the Company's financial position or results 
of operations. 

6. The Company was not in compliance with one of the loan covenants of its 
$100.0 million committed line of credit at December 25, 1998. The Company 
has never drawn on this line of credit and does not anticipate a need for 
it in the future. Consequently, the Company has decided not to renew this 
revolving credit facility.


7. Industry Segment and Geographic Information

   VLSI is managed and operates as a single segment that designs, manufactures 
and sells custom and semi-custom integrated circuits of high complexity. The 
Company sells its integrated circuits primarily to original equipment 
manufacturer customers in the communications, consumer digital entertainment 
and advanced computing applications markets through worldwide direct sales, 

<PAGE>

commissioned representatives and distributors. The Company's single 
reportable segment utilizes the same production processes and similar 
product distribution methods for all of its products. 

   The Company evaluates performance and allocates resources based on operating
profit or loss before income taxes, not including interest expense, patent 
matters and interest income and other expenses, net. Since the Company 
operates as a single segment there are no intersegment sales and transfers. 
Revenue is tracked by the various customers. In the first quarters of 1999 
and 1998, Ericsson accounted for 34% and 31% of net revenues, respectively.

   Intercompany sales and transfers are recorded between geographical 
subsidiaries. Major operations outside the United States include sales 
offices and technology centers in Western Europe, Japan and Asia-Pacific, as 
well as subcontract assembly and test operations in Asia-Pacific. Foreign 
operations are subject to risks of economic and political instability and 
foreign currency exchange rate fluctuations. Transfers between geographic 
areas are accounted for at amounts that are generally above cost and 
consistent with the rules and regulations of governing tax authorities. Such 
transfers are eliminated in the consolidated financial statements. Although 
assets are tracked by geographical locations, they are not reported 
separately for internal decision-making purposes.

   Geographic information about segment revenues and long-lived assets is as 
follows: 
<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                      ----------------------
                                                      April 2,     March 27,
                                                        1999          1998
                                                      --------     ---------
                                                           (thousands)
<S>                                                   <C>          <C>
   Geographic information:

   Revenues (1):
   United States                                       $ 86,999      $ 69,527
   United Kingdom                                        42,193        38,664
   Europe, excluding United Kingdom                      13,395        19,589
   Japan                                                  6,990        13,506
                                                       --------      --------
   Consolidated                                        $149,577      $141,286
                                                       ========      ========
   Long-lived assets (2):
   United States                                       $434,055      $367,850
   All other                                             20,623        17,048
                                                       --------      --------
   Consolidated                                        $454,678      $384,898
                                                       ========      ========
   ___________
</TABLE>

   (1) Revenues are attributed to countries based on the billings by
       consolidated subsidiaries. 

   (2) Represents those material long-lived assets that can be associated with
       a particular geographic area. 

<PAGE>

   U.S. export revenues were approximately $32.4 million in the first quarter 
of 1999 compared to $14.9 million in the first quarter of 1998. Total 
revenue, including U.S. export revenue, distributed by region is as 
follows:
<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                      ----------------------
                                                      April 2,     March 27,
                                                        1999          1998
                                                      --------     ---------
                                                           (thousands)
<S>                                                   <C>          <C>
   United States                                       $ 54,573      $ 54,597
   Americas, excluding United States                     14,027         8,386
   Europe                                                55,588        58,253
   Japan/Asia-Pacific                                    25,389        20,050
                                                       --------      --------
                                                       $149,577      $141,286
                                                       ========      ========
</TABLE>
8. Recent Developments

   On May 1, 1999, the Company entered into an Agreement and Plan of Merger 
(the Merger Agreement) with Koninklijke Philips Electronics N.V. (Philips) 
and KPE Acquisition Inc., a wholly-owned subsidiary of Philips (KPE). The 
Merger Agreement provides that following consummation of Philips' and KPE's 
offer to purchase all outstanding shares of the Company's common stock, 
including the associated preferred stock purchase rights, for $21.00 per 
share, net to the seller in cash, upon the terms and subject to the 
conditions set forth in KPE's Offer to Purchase dated March 5, 1999, as 
amended and supplemented by the Supplement to the Offer to Purchase dated 
May 5, 1999 and the related revised Letter of Transmittal (collectively, the 
"Amended Philips Offer"), subject to the conditions contained in the Merger 
Agreement, KPE will be merged with and into the Company. The expiration date 
for the Amended Philips Offer is June 1, 1999, unless further extended.

   On April 13, 1999, the Delaware Court of Chancery entered an order 
consolidating seven actions brought by alleged stockholders of VLSI other 
than Philips under the caption, In re VLSI Technology, Inc. Shareholders 
Litigation, Consol, C.A. No. 16986.

   While the Company intends to vigorously defend itself against these 
charges, should the outcome of these matters be unfavorable, there could be 
a material adverse effect on the Company's financial position or results of 
operations.



<PAGE>

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

RESULTS OF OPERATIONS - FIRST QUARTER OF 1999 COMPARED TO THE FIRST QUARTER OF 
1998
--------------------------------------------------------------------------------

This Management's Discussion and Analysis of Financial Condition and Results 
of Operations (MDA) should be read in conjunction with the 1998 Annual Report, 
inclusive of the MDA therein.

This MDA contains forward-looking statements within the meaning of Section 27A 
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act 
of 1934. Actual results could differ materially from those projected in the 
forward-looking statements as a result of the risk factors set forth herein 
and in the 1998 Annual Report. Statements made herein are as of the date of 
this quarterly filing with the Securities and Exchange Commission. The Company 
disclaims any obligation to update the contents of those statements subsequent 
to the filing of this Form 10-Q, except as may be required by law.

On May 1, 1999, the Company entered into an Agreement and Plan of Merger (the 
Merger Agreement) with Koninklijke Philips Electronics N.V. (Philips) and KPE 
Acquisition Inc., a wholly-owned subsidiary of Philips (KPE). The Merger 
Agreement provides that following consummation of Philips' and KPE's offer to 
purchase all outstanding shares of the Company's common stock, including the 
associated preferred stock purchase rights, for $21.00 per share, net to the 
seller in cash, upon the terms and subject to the conditions set forth in KPE's 
Offer to Purchase dated March 5, 1999, as amended and supplemented by the 
Supplement to the Offer to Purchase dated May 5, 1999 and the related revised 
Letter of Transmittal (collectively, the "Amended Philips Offer"), subject to 
the conditions contained in the Merger Agreement, KPE will be merged with and 
into the Company. The expiration date for the Amended Philips Offer is June 1, 
1999, unless further extended.

The following table summarizes the Company's operating results for the three-
month period ended April 2, 1999 (which consisted of 14 weeks) as compared to 
the three-month period ended March 27, 1998 (which consisted of 13 weeks):
                                              
<TABLE>
<CAPTION>
                                           First Quarter
                                       (dollars in thousands)
                             -------------------------------------------
                                   1999                     1998
                             -----------------      --------------------
                                       Percent                  Percent
                                       of Net                    of Net
                             Amounts  Revenues       Amounts    Revenues
                             -------  --------      --------    --------
<S>                         <C>         <C>         <C>          <C>
Net revenues                $149,577    100.0%      $141,286     100.0%        
Gross profit                  57,860     38.7         58,346      41.3         
Research & development        31,810     21.3         28,037      19.9         
Marketing, general and
   administrative             23,957     16.0         26,297      18.6 
Charges resulting from
   tender offer                4,500      3.0              -         - 
Operating income (loss)       (2,407)    (1.6)         4,012       2.8 
Gain on sale of
   Marketable securities       7,625      5.1              -         -        
Interest and other income
   (expense), net              1,225      0.8            324       0.2         
Net income                  $  4,703      3.1       $  3,166       2.2         
</TABLE>

<PAGE>

The Company earned net income of $4.7 million in the first quarter of 1999, 
compared to net income of $3.2 million in the first quarter of 1998. This 
increase was primarily due to a pre-tax gain on sale of marketable securities 
of $7.6 million offset by pre-tax charges of $4.5 million resulting from the 
tender offer and lower gross profit margin. The Company had a one-week 
shutdown in the first week of the first quarter of 1999 to mitigate the impact 
of the additional costs incurred by a fourteenth week.

Net revenues in the first quarter of 1999 increased 5.9% from the comparable 
1998 period.  This increase was primarily due to an increase in units shipped 
in the Company's communications products.  This increase in unit shipments was 
partially offset by a decline in average selling prices consistent with 
competitive pricing and reflects changes in the Company's product sales mix.
 
International net revenues (including export sales) increased, consistent with 
total net revenues, to 64% of total net revenues in the first quarter of 1999 
from 61% of total net revenues in the first quarter of 1998. This increase was 
primarily due to increased sales of the Company's communications products to a 
customer in the Asia-Pacific region, partially offset by decreased sales in 
Japan.

Gross profit margin decreased to 38.7% in the first quarter of 1999 from 41.3% 
in the first quarter of 1998. The decrease was primarily due to changes in 
product sales mix and a decline in average selling prices. 

Research and development expenditures increased by $3.8 million in the first 
quarter of 1999 over expenditures in the same 1998 period and increased as a 
percentage of net revenues to 21.3% from 19.9%, reflecting continued 
investments in new products and package and process technologies. 

Marketing, general and administrative expenses for the first quarter of 1999 
decreased by $2.3 million from the first quarter of the prior year and 
decreased as a percentage of net revenues to 16.0% from 18.6%.  This decrease 
primarily reflected the Company's continued cost control efforts.

The Company has engaged a number of advisors to assist in the evaluation of 
the Amended Philips Offer and strategic alternatives to such offer and is 
involved in litigation relating to the Amended Philips Offer. As a result, in 
the first quarter of 1999, the Company recorded a pre-tax charge of $4.5 
million related to these matters for the services performed in the first 
quarter of 1999. Additional costs associated with the Company's external 
advisors are expected to be incurred in succeeding quarters.

The Company recognized a gain on sale of marketable securities of $7.6 million 
relating to the sale of a portion of its ARM investment in the first quarter 
of 1999.

Interest and other income (expense), net was $1.2 million in the first quarter 
of 1999 compared to $0.3 million in the same period a year ago.  This increase 
was primarily due to a decrease in interest expense resulting from the 
retirement of $11.3 million of the Company's convertible subordinated notes 
since the second quarter of 1998. Of the $11.3 million, the Company retired 
$3.6 million in the first quarter of 1999 resulting in a gain of $0.1 million.

In June 1998, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments 

<PAGE>

and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and 
consistent standard for the recognition and measurement of derivatives and 
hedging activities. Implementation of FAS 133 is required for years beginning 
after June 15, 1999. Upon adoption, transition adjustments will be reported in 
net income or other comprehensive income, as appropriate, reflecting the effect
of a change in accounting principle. The Company has not concluded whether 
adoption of FAS 133 will have a material impact on the Company's consolidated 
financial position, results of operations or cash flows. 

RISK FACTORS 

The Company's business is subject to numerous risks, any one of which, alone or
in combination, could have a material adverse effect on future results of 
operations. Some of these factors are: 

The Company's stock price, like that of other technology companies, is subject 
to significant volatility. If revenue or earnings in any quarter fail to meet 
or exceed the investment community's expectations, there could be an immediate 
impact on the Company's stock price. The stock price may also be affected by 
broader market trends or significant events unrelated to the Company's 
performance, such as the Amended Philips Offer. Past financial performance 
should not be considered a reliable indicator of future performance, and 
investors should not use historical trends to anticipate results or trends in 
future periods. The Amended Philips Offer may affect the timing and financial 
impact of the various risks described herein. 

During 1998 and 1997, the Company's top 20 customers represented approximately 
three-quarters of the Company's net revenues. During 1996, the Company's top 20
customers represented approximately two-thirds of the Company's net revenues. 
Shipments to a single customer in the communications business, Ericsson, 
accounted for 34% of net revenues in the first quarter of 1999 as compared to 
28% of net revenues in fiscal year 1998. As a result of the concentration of 
the Company's customer base, loss of business or cancellation of orders from 
any of these customers, significant changes in scheduled deliveries to any of 
these customers or decreases in the prices of products sold to any of these 
customers could have a material adverse effect on the Company's results of 
operations. 

The Company has a high concentration of sales to the communications and 
consumer digital entertainment markets. The communications and consumer digital
entertainment markets are rapidly evolving and are characterized by intense 
competition among suppliers of integrated circuits, many of whom have 
substantially greater experience and resources than the Company. If the Company
or its customers, due to competition or other factors, are unable to capture 
and maintain significant market share in these areas, there could be a material 
adverse effect on the Company's results of operations. Typically, the Company's
results have followed a seasonal pattern, with stronger sales in the second 
half of the year, reflecting the buying pattern of the Company's communications
and consumer digital entertainment customers. 

The Company currently generates approximately 64% of its net revenues 
(including export sales) from direct sales into countries outside of the United 
States. In addition, certain of the Company's customers generate greater 
portions of their sales from these international areas. If events in any of 
these markets have a significant impact on the Company's customers that result 
in declining orders, there could be a material adverse effect on the Company's 
results of operations. 

<PAGE>

The Company's success depends on its ability to continue to develop and 
introduce new products that compete effectively on the basis of price and 
performance and that satisfy customer requirements. New product development 
often requires long-term forecasting of markets, market trends, development and 
implementation of new processes and technologies and substantial capital 
commitments. In addition, semiconductor design and process methodologies are 
subject to rapid technological change. Decreases in geometries call for ever- 
increasing sophisticated design efforts, more advanced manufacturing equipment 
and cleaner fabrication environments. If the Company is unable to design, 
develop, manufacture and market new products successfully in a timely manner, 
its operating results will be materially adversely affected. No assurance can 
be given that the Company's product and process development efforts will be 
successful, that new product introductions will achieve market acceptance or 
that the markets in question will develop. 

The Company's products are susceptible to severe pricing pressures such as were 
felt in 1998 by lower average selling prices. The Company continually attempts 
to pursue cost reductions, including process enhancements, in order to maintain 
acceptable gross profit margins. Gross profit margins also vary reflecting the 
impact of changes in the general condition of the economy, capacity utilization 
levels in the semiconductor industry, customer acceptance of new technologies 
and products, product functionality and capabilities, shifts in product mix, 
manufacturing yields and the effect of ongoing manufacturing cost reduction 
activities. 

The Company sells its products under terms and conditions customarily found in 
the semiconductor industry. Sales of these products are subject to customer 
cancellation with limited advance notice to the Company prior to scheduled 
shipment. Due to the Company's relatively narrow customer base for certain 
devices and the short product life cycles of such products, such cancellations 
can leave the Company with significant inventory exposure, which could have a 
material adverse effect on the Company's operating results. 

The semiconductor industry has a history of cyclicality and is characterized by 
short product life cycles, continuous evolution of process technology, high 
fixed costs, additions of manufacturing capacity in large increments and wide 
fluctuations in product supply and demand. The industry can move from a period 
of capacity shortages to a period of excess capacity, or vice versa, in a very 
short time. During a period of excess capacity, profitability can drop sharply 
as factory utilization declines and high fixed costs of operating a wafer 
fabrication facility are spread over a lower net revenue base. During a period 
of capacity shortage, there can be no assurance that the Company can achieve 
timely, cost-effective access to additional capacity if and when needed. In the 
event future capacity is not available to VLSI when needed, future growth could 
be impaired. 

The fabrication of integrated circuits is an extremely complex and precise 
process consisting of hundreds of separate steps and requiring production in a 
highly controlled, clean environment. Minute impurities, errors in any step of 
the fabrication process, defects in the masks used to print circuits on a wafer 
or a number of other factors can cause a substantial percentage of wafers to be 
rejected or numerous die on each wafer to be non-functional. 

Semiconductor manufacturing also requires a constant upgrading of process 
technology to remain competitive. In 1998, the Company continued to invest in 
deep sub-micron manufacturing by ramping capacity for 0.25-micron technology 

<PAGE>

and qualifying 0.20-micron technology in its San Antonio facility. The Company 
has initiated the conversion of its wafer capability to eight-inch wafer 
production and expects to ramp up production in late 1999, with full production 
expected by the middle of 2000. Any significant expansion or upgrade of 
semiconductor manufacturing capacity could lead to inefficient manufacturing 
which could adversely affect the Company's results of operations. 

The Company relies on outside suppliers for all of its assembly and 
approximately one-third of its test operations. Allocations by these suppliers 
of assembly and test capacity to the Company depend on the Company's needs and 
supply availability during periods of capacity shortages. The Company has no 
material long-term contractual commitments from these suppliers. Any reduction 
in allocation from these suppliers could adversely affect the Company's results 
of operations. The Company's foreign subcontract manufacturing arrangements are 
subject to risks such as changes in government policies, transportation delays, 
fluctuations in foreign exchange rates and export and tax controls. While the 
Company has not experienced any supply issues as a result of business 
uncertainties in the Asia-Pacific area, there can be no assurances that changes 
in the Asia-Pacific economy will not affect the Company's Asia-Pacific-based 
suppliers thereby materially adversely affecting the Company's results of 
operations. 

The Company has produced more than 95% of its wafer requirements at its San 
Antonio facility in the last three years. Lengthy or recurring disruptions of 
operations at either the Company's production facilities or those of its 
subcontractors for any reason, such as fire or power failure, could cause 
significant delays in shipments until the Company could shift the products from 
an affected facility or subcontractor to another facility. The Company's San 
Jose facility, which includes a product test area, a primary shipping location, 
technology development and its computer center, is located near major 
earthquake faults. Should an earthquake or other natural disaster cause an 
interruption in operations, operating results could be materially adversely 
affected. 

The semiconductor industry is characterized by vigorous protection and pursuit 
of intellectual property rights and positions. Periodically, the Company is 
made aware that technology used by the Company in the manufacture of some or 
all of its products may infringe on product or process technology rights held 
by others. Resolution of whether the Company's manufacture of products has 
infringed on valid rights held by others could have a material adverse effect 
on the Company's financial position or results of operations and may require 
material changes in production processes and products. The Company continually 
evaluates the adequacy of its reserve for asserted and unasserted patent 
matters. The reserve for patent matters is based on the best available 
information at that time and it is reasonably possible that the Company's 
estimate of the exposure for patent matters could materially change in the near 
term. The Company has been unable to determine the impact of a suit filed 
against VLSI and 25 other companies during 1998 for patent infringement. While 
the Company intends to vigorously defend itself against these charges, should 
the outcome of this matter be unfavorable, there could be a material adverse 
affect on the Company's financial position or results of operations. 

VLSI has entered into licensing agreements and technology exchange agreements 
with various strategic partners and other third parties in order to allow VLSI 
access to third party technology or to allow third parties access to the 
Company's technology. The Company is unable to predict whether license 
agreements can be obtained or renewed on terms acceptable to the Company or the 

<PAGE>

magnitude of the costs associated with such terms. Failure to obtain or renew 
such licenses could have a material adverse affect on the Company's financial 
position or results of operations. 

Management believes that the future success of VLSI will depend in part on its 
ability to attract and retain qualified employees, including management and 
technical and design personnel. The Company is currently in the process of 
filling open positions in the management and engineering arenas. Delays in 
replacing management may adversely affect implementation of the Company's 
strategic plans. Any significant delays in filling technical positions could 
lead to delays in the introduction of various products currently being 
developed, as well as the research and development associated with potential 
new products. In an effort to retain certain executives, in April 1999, the 
Board authorized VLSI to enter into retention agreements with such executives.

The Company is subject to a variety of federal, state and local governmental 
regulations related to the storage, use, discharge and disposal of toxic, 
volatile or otherwise hazardous chemicals used in its manufacturing process. 
Increasing public attention has been focused on the environmental impact of 
semiconductor manufacturing operations. The Company's San Antonio and San Jose 
facilities are located near residential areas, which could increase the 
incidence of environmental complaints or investigations. There can be no 
assurance that changes in environmental regulations will not impose the need 
for additional capital equipment or other requirements. Any failure by the 
Company to control the use of, or adequately to restrict the discharge of, 
hazardous substances under present or future regulations could subject VLSI to 
substantial liability or could cause its manufacturing operations to be 
suspended, which could have a material adverse effect on the Company's results 
of operations. 

Year 2000

In view of the approach of the Year 2000, it is incumbent that the Company take 
steps to ensure that computer programs used in connection with critical 
corporate functions are capable of properly managing and manipulating data that 
includes both 20th and 21st century dates (Year 2000 compliant). The Company is 
aware that certain computer programs that have been written using two digits 
rather than four to define the applicable year may not be Year 2000 compliant. 
Therefore the Company has established a Year 2000 coordination committee, co- 
chaired by the Company's Vice President and General Counsel and its Vice 
President and Corporate Controller who report directly to the Company's Chief 
Executive Officer, for the purpose of executing the Company's plan to minimize 
disruptions in the Company's operations caused by such computer programs. The 
coordination committee periodically reports to the Board of Directors on the 
status of the Company's Year 2000 compliance program. 

The Company's plan for addressing Year 2000 compliance consists of the 
following five phases: (1) Awareness-Year 2000 problem awareness promotion; (2) 
Analysis-system inventory and problem assessment, and the development of a plan 
prioritizing systems; (3) Renovation-system replacement, retirement, repair or 
upgrade to ensure Year 2000 compliance or contingency plans; (4) Validation-
Year 2000 compliance testing and validation; and (5) Implementation-Year 2000 
compliant solutions deployment. The Company's Year 2000 compliance program 
focuses on mission critical areas including core information technology (IT) 
systems (the computer center, IT technical services and business applications), 
manufacturing systems and equipment and Company products and suppliers. The 
Company has completed the Awareness phase for these areas. Further, the Company 

<PAGE>

has published materials to keep its employees, suppliers and customers informed 
of the current status of its Year 2000 efforts.

The Company has substantially completed the Analysis phase and begun the 
Renovation phase of its core IT systems. The Company expects to make 
substantial progress on the Renovation and Validation phases of its core IT 
systems by the middle of the third quarter of 1999. In connection with normal 
business operations, the Company is in the process of upgrading certain IT 
systems, including a uniform worldwide order management system, with systems 
the Company believes are Year 2000 compliant. The Company is also in the 
process of determining what modifications may be required to make its non-core 
IT systems Year 2000 compliant. While the Company currently expects that the 
Year 2000 will not pose significant IT operational problems, delays in the 
implementation of Year 2000 compliant IT systems, or a failure to fully 
identify and remedy all Year 2000 dependencies in the Company's IT systems 
could have a material adverse effect on the Company's results of operations. 

Determination as to whether the Company's manufacturing systems and equipment 
are Year 2000 compliant is based on evaluation of both the equipment and 
services provided by suppliers and the Company's integration of that 
equipment. The Company has completed the inventory and problem assessment 
steps of the Analysis phase with respect to its wafer fabrication 
manufacturing systems and equipment. The Company expects to complete the 
prioritization step of the Analysis phase and make substantial progress on 
the Renovation and Validation phases with respect to its wafer fabrication 
manufacturing systems and equipment by the middle of the third quarter of 
1999. As previously discussed in "Risk Factors" herein, VLSI relies on 
outside suppliers for all of its assembly and approximately one-third of its 
test operations. Although some of these suppliers have represented that they 
are Year 2000 compliant, the Company has not yet obtained results of tests 
confirming these representations and intends to address this in its 
contingency plans. While the Company currently expects that the Year 2000 
will not pose significant operational problems, delays in the implementation 
of Year 2000 compliant manufacturing systems and equipment, or a failure to 
fully identify and remedy Year 2000 dependencies in these systems could have 
a material adverse effect on the Company's results of operations. 

With respect to VLSI's products, the Analysis phase is completed. The Company 
will notify its customers of the findings either by mail or by posting this 
information on the Company's website in May 1999. The Analysis phase has 
revealed that nearly all of the circuitry the Company has designed and 
incorporated into the products it sells (VLSI-designed products) does not have 
a date feature or functionality which could cause these products to fail to be 
Year 2000 compliant. Moreover, testing has revealed that the few products with 
date functionality are Year 2000 compliant. Accordingly, the Company does not 
anticipate that substantial actions will be necessary to address Year 2000 
compliance problems for VLSI-designed products. The Company is unable to 
determine the extent to which Year 2000 compliant VLSI-designed products are 
incorporated into customers' products that, by virtue of the customers' overall 
product design, are not Year 2000 compliant. Many of the products the Company 
sells include circuitry designed, in whole or in part, by its customers 
(customer-designed functionality), and only the customer has the information 
necessary to determine if customer-designed functionality is Year 2000 
compliant. As a result, the Company is unable to determine the degree of Year 
2000 compliance of products VLSI has manufactured to the extent they 
incorporate customer-designed functionality. The inability of VLSI-designed 
products to properly manage and manipulate data in the Year 2000 could result 

<PAGE>

in a material adverse impact on the Company, including lower revenues or 
increased warranty costs, customer satisfaction issues and potential lawsuits. 
Also, the loss of customer orders due to failure by customer products or 
customer-designed functionality not being Year 2000 compliant could have a 
material adverse effect on the Company. 

The Company has sent surveys to most of its suppliers to determine the extent 
to which the Company's capabilities are vulnerable to the failure of those 
suppliers to ensure Year 2000 compliance of their products or services. The 
Company is currently receiving responses to those surveys and anticipates that 
the Analysis phase with respect to critical suppliers will be completed in May 
1999. The Company will proceed with the remaining Year 2000 compliance program 
phases for its suppliers as needed. However, the Company cannot guarantee that 
the systems and products of other companies on which it relies will be Year 
2000 compliant. Failure of these systems and products to be Year 2000 compliant 
could have a material adverse effect on the Company. 

Based upon its efforts to date, the Company believes that the majority of its 
information systems, including its new uniform worldwide order management and 
other core IT systems, will be Year 2000 compliant by January 1, 2000. 
Accordingly, the Company does not currently anticipate that information systems 
failures will result in any material adverse effect on its operations or 
financial condition. During 1999, the Company will continue to expand its 
efforts to ensure that its manufacturing systems and equipment, its products 
and its suppliers will be prepared for the Year 2000. VLSI will also develop 
contingency plans to address any of these areas failing to become Year 2000 
compliant. As the Company has not completed the Analysis phases for all 
significant areas to determine which areas may not be Year 2000 compliant, VLSI 
has not determined the most reasonably likely "worst-case" scenario the Company 
might face. Upon completion of the Analysis phase of all mission critical 
areas, the Company will be better able to estimate the most reasonably likely 
"worst-case" scenario it would face, the likelihood of such occurrence(s) and 
to begin developing contingency plans to address such occurrence(s). At this 
time, the Company cannot estimate either the likelihood or the potential 
financial impact of the most reasonably likely "worst-case" scenario. 

The Company has not yet developed a comprehensive contingency plan to address 
situations that may result if the Company, or any of the third parties upon 
which the Company depends, is unable to achieve Year 2000 compliance. The scope 
of VLSI's Year 2000 compliance program, including consideration of contingency 
plans, will continue to be evaluated as new information becomes available. The 
inability of the Company to develop or implement a comprehensive contingency 
plan addressing any non-compliant Year 2000 event that occurs, could result in 
a material adverse effect on the Company. 

The Company currently estimates that total costs associated with the Year 2000 
compliance program will be less than $5 million, which the Company believes can 
be funded from currently available cash, cash equivalents, marketable 
securities and cash flow expected from operations. Through March 1999, the 
Company has spent approximately $0.7 million in connection with this program. 
The cost of implementing the uniform worldwide order management system, as well 
as other normal system upgrades, is not included in this figure. The 
replacement of such legacy systems is ongoing and was not accelerated due to 
the Year 2000 problem. 

Any critical unresolved Year 2000 problems could have a material adverse effect 
on the Company's results of operations, liquidity or financial condition. In 

<PAGE>

addition, the Company's expectations about the future costs and timely and 
successful completion of its Year 2000 program are subject to uncertainties 
that could cause actual results to differ materially from what has been 
discussed above. Factors that could influence the amount of future costs and 
the completion dates are the effectiveness of Renovation, Validation and 
Implementation efforts, the magnitude of related labor and consulting costs, 
the availability of qualified personnel and the success of the Company's 
suppliers and customers in becoming Year 2000 compliant. 


LIQUIDITY AND CAPITAL RESOURCES

VLSI generates cash from operations, debt and equipment financings and sales 
of its securities.  Principal uses of cash include purchases of capital 
equipment needed for semiconductor manufacturing and engineering, the 
repurchase of Company debt and equity securities and payments of debt and 
lease obligations.  

At April 2, 1999, total cash, cash equivalents and marketable securities 
decreased $48.7 million from the 1998 fiscal year-end balance as discussed 
below.  Working capital decreased to $285.4 million at April 2, 1999 compared 
to $298.8 million at December 25, 1998.

During the three-month period ended April 2, 1999, the Company generated $2.3 
million of cash from operations, a 92.5% decrease from the $30.5 million of 
cash generated for the three-month period ended March 27, 1998. This decrease 
was primarily due to a $7.6 million gain on sale of ARM securities and a 
decrease in accounts payable, income taxes payable and accrued liabilities of 
$34.4 million due to payments made for accrued equipment purchases, licensing 
fees, property taxes and interest on convertible debt. 

Cash used for investing activities was $45.1 million for the three-month 
period ended April 2, 1999, as compared to $24.8 million for the three-month 
period ended March 27, 1998. The Company's proceeds from maturities and sales 
of marketable securities exceeded purchases of marketable securities during 
the first three months of 1999 while in the first quarter of 1998, purchases 
of marketable securities exceeded proceeds on sale and maturities of 
marketable securities. The Company invested $44.8 million in property, plant 
and equipment in the first three months of 1999 compared to $34.0 million in 
the comparable 1998 period.  VLSI currently estimates that total capital 
expenditures for 1999 will be approximately $150 - $200 million.  These 
expenditures are being used to convert from six-inch to eight-inch wafer 
technology at the San Antonio fabrication facility, increase deep sub-micron 
wafer fabrication capability and for other equipment upgrades. The Company is 
currently financing its capital expenditures through existing cash balances 
and cash from operations.

Cash used for financing activities was $2.9 million in the first three months 
of 1999 compared to $15.8 million in the same 1998 period. The 1999 amount 
reflects the retirement of convertible debt. The 1998 amount reflects 
purchases of treasury stock and the repayment of certain secured equipment 
loans in conjunction with the sale-leaseback of equipment.

At December 25, 1998 the Company was in violation of one of its covenants 
under the agreement for a $100.0 million committed line of credit. The Company 
has never drawn on this line of credit and does not anticipate a need for it 
in the future. Consequently, the Company has decided not to renew this 

<PAGE>

revolving credit facility. While the Company believes that its current capital 
resources are sufficient to meet its near-term needs, in order to meet its 
longer-term needs, VLSI continues to investigate the possibility of generating 
financial resources through technology or manufacturing partnerships, 
additional equipment financings and offerings of debt or equity securities. 


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

INTEREST AND CURRENCY RATE EXPOSURES

In the normal course of business, the financial position of the Company is 
routinely subjected to a variety of risks, including market risk associated 
with interest rate movements, currency rate movements on non-U.S. dollar 
denominated assets and liabilities and collectibility of accounts receivable. 
The Company regularly assesses these risks and has established policies and 
business practices to protect against the adverse effects of these and other 
potential exposures. As a result, the Company does not anticipate material 
losses in these areas. 

For purposes of specific risk analysis, the Company uses sensitivity analysis 
to determine the impacts that market risk exposures may have on the fair values 
of the Company's financial instruments. The financial instruments included in 
the sensitivity analysis consist of all of the Company's cash and cash 
equivalents, marketable instruments, debt and all derivative financial 
instruments. Currency forward contracts and currency options constitute the 
Company's portfolio of derivative financial instruments. 

To perform sensitivity analysis, the Company assesses the risk of loss in fair 
values from the impact of hypothetical changes in interest rates on market 
sensitive instruments. The hypothetical changes in market values for interest 
rate risk are computed based on the present value of future cash flows as 
impacted by the changes in rates attributable to the market risk being 
measured. The discount rates used for the present value computations were 
selected based on market interest rates in effect at April 2, 1999 and March 
27, 1998. The hypothetical market values that result from these computations 
are compared to the market values of these financial instruments at April 2, 
1999 and March 27, 1998. The differences in this comparison are the 
hypothetical gains or losses associated with each type of risk. 

The results of the sensitivity analysis at April 2, 1999 and March 27, 1998 are 
as follows: 

Interest Rate Risk on Investments: A 100 basis point decrease in the levels of 
interest rates with all other variables held constant would result in an 
increase in the fair values of the Company's financial instruments by $1.7 
million and $0.5 million, respectively. A 100 basis point increase in the 
levels of interest rates with all other variables held constant would result in 
a decrease in the fair values of the Company's financial instruments by $1.7 
million and $0.5 million, respectively. 

Interest Rate Risk on Debt: A 100 basis point decrease in the levels of 
interest rates with all other variables held constant would result in an 
increase in the fair values of the Company's subordinated debt by $16.1 million 
and $19.6 million, respectively. A 100 basis point increase in the levels of 
interest rates with all other variables held constant would result in a 
decrease in the fair values of the Company's subordinated debt by $16.1 million 

<PAGE>

and $19.6 million, respectively. 

Foreign Currency Exchange Risk: A 10% movement in levels of foreign currency 
exchange rates, 20% for Asian currencies, against the U.S. dollar with all 
other variables held constant would result in a decrease in the fair values of 
the Company's financial instruments by $2.6 million and $2.4 million, 
respectively, or an increase in the fair values of the Company's financial 
instruments by $1.7 million and $1.6 million, respectively. 

All of the potential changes noted above are based on pertinent information 
available to management as of April 2, 1999 and March 27, 1998, respectively. 
Although management is not aware of any factors that would significantly affect 
these estimates, actual results may differ significantly from the amounts 
presented. 


<PAGE>
                           PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings

Reference is made to Item 3 of Part I of the Company's Annual Report on Form 
10-K for the fiscal year ended December 25, 1998 (the 1998 Annual Report) for a 
discussion of certain pending legal proceedings. There have been no material 
developments in any of such matters since the filing of the Company's 1998 
Annual Report except the following:

Contract Litigation

In December 1998 Zitel Corporation (Zitel) filed a complaint in the California 
Superior Court alleging, among other things, breach of contract and fraud by 
the Company. In February 1999, the Company moved to dismiss the complaint on 
the grounds that it failed to state facts sufficient to constitute any cause of 
action. Rather than oppose VLSI's motion, Zitel voluntarily filed an amended 
complaint in April 1999. The amended complaint alleges breach of contract, 
fraud and other claims arising out of an attempt by the parties to jointly 
design and develop two customized computer chips. The amended complaint asserts 
that, because the effort to jointly develop the chips was ultimately 
unsuccessful, Zitel terminated the development of the product that was to have 
incorporated those chips. The amended complaint requests unspecified 
compensatory, special, punitive and exemplary damages. The Company believes it 
has a meritorious defense and intends to vigorously defend itself against these 
charges.

Litigation Arising out of the Amended Philips Offer

On March 5, 1999, KPE filed a complaint against VLSI in the Delaware Court of 
Chancery styled KPE Acquisition Inc. v. VLSI Technology, Inc., et al., C.A. 
No. 16992. On May 4, 1999, KPE filed a notice of dismissal dismissing its 
complaint.

From March 3, 1999 through March 8, 1999, six purported class action lawsuits 
were filed by alleged stockholders of VLSI against VLSI and the Board in the 
Delaware Court of Chancery, styled Michael Bernstein v. VLSI Technology, Inc., 
et al., C.A. No. 16988; Felicia Bernstein v. VLSI Technology, Inc., et al., 
C.A. No. 16989; Charles Miller v. VLSI Technology, Inc., et al., C.A. 

<PAGE>

No. 16993; Ruth Ellen Miller v. Richard M. Beyer, et al., C.A. No. 16994; David 
Olen v. Richard M. Beyer, et al., C.A. No. 16986; and Mishel S. Tehrani v. 
Richard M. Beyer, et al., C.A. No. 16998. The class actions set forth 
substantially similar allegations of purported misconduct by the Board in 
allegedly failing to promptly negotiate with Philips, thereby failing to 
maximize stockholder value and depriving the VLSI stockholders of an 
opportunity to obtain a substantial premium for their shares. The stockholder 
plaintiffs seek an order from the Court (i) declaring the actions to be class 
actions; (ii) compelling the Board to carry out its fiduciary duties to the 
VLSI stockholders; (iii) enjoining the Board from using the corporate machinery 
to entrench itself in office; (iv) ordering the VLSI directors to take steps to 
facilitate a premium acquisition of VLSI; (v) requiring the VLSI directors to 
account for all damages suffered by VLSI's stockholders; (vi) awarding the 
plaintiffs attorneys' fees and costs; and (vii) granting such other relief as 
may be just and proper. 

On March 9, 1999, a seventh purported class action lawsuit was filed by alleged 
stockholders of VLSI against VLSI, its directors, and certain of its officers 
in the Delaware Court of Chancery styled Lillie Barenholtz, et al. v. Richard 
Beyer, et al., C.A. No. 17010. In addition to reciting allegations 
substantially similar to the six previously filed purported class actions, the 
Barenholtz complaint alleges that the VLSI directors breached their fiduciary 
duties by lowering the trigger for VLSI's rights plan from 20% to 10%. The 
Barenholtz complaint seeks an order (i) declaring the action to be a proper 
class action; (ii) compelling the VLSI directors to carry out their fiduciary 
duties to VLSI's stockholders; (iii) enjoining the implementation of VLSI's 
rights plan unless deployed in a way that will maximize stockholder value; 
(iv) awarding the plaintiffs attorneys' fees and costs; and (v) granting such 
other and further relief as may be just and proper. 

On April 13, 1999, the Delaware Court of Chancery entered an order 
consolidating the seven actions brought by alleged stockholders of VLSI other 
than Philips under the caption, In re VLSI Technology, Inc. Shareholders 
Litigation, Consol, C.A. No. 16986.

While the Company intends to vigorously defend itself against these charges, 
should the outcome of these matters be unfavorable, there could be a material 
adverse effect on the Company's financial position or results of operations. 

Other Litigation

The Company is currently a party to various other legal actions arising out of 
the normal course of business, none of which are expected to have a material 
effect on the Company's financial position or results of operations.


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

     (a) Exhibits - See Index to Exhibits on Page 21.

     (b) Reports on Form 8-K:

         On March 2, 1999, the Company filed a Current Report on Form 8-K 
dated March 1, 1999, pursuant to Item 5 of Instructions to Form 8-K, 
disclosing that the Company confirmed receipt of an unsolicited 
proposal from Royal Philips Electronics to acquire all of VLSI's 
capital stock.

         On March 8, 1999, the Company filed a Current Report on Form 8-K 
dated March 7, 1999, pursuant to Item 5 of Instructions to Form 8-K, 
disclosing that the Company had amended its Bylaws.

<PAGE>

                                   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.





                                          VLSI TECHNOLOGY, INC.

                                               (Registrant)





Date:     May 17, 1999                     By:   /s/ Victor K. Lee
      --------------------------               -------------------------------
                                               Victor K. Lee
                                               Vice President, Chief Financial
                                               Officer (Acting) and Controller
                                               (Principal Financial and   
                                               Accounting Officer) 




<PAGE>

                             VLSI TECHNOLOGY, INC.

                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
   NO.           DESCRIPTION
-------          -----------
<S>              <C>
 10.42           Form of Retention Agreement between the Company and Tier I
                 Executives.  Said document is included as an Exhibit to this
                 Quarterly Report on Form 10-Q for the fiscal quarter ended 
                 April 2, 1999. 

 10.43           Form of Retention Agreement between the Company and Tier II
                 Executives.  Said document is included as an Exhibit to this
                 Quarterly Report on Form 10-Q for the fiscal quarter ended  
                 April 2, 1999.

 10.44           Form of Indemnity Agreement between the Company and each 
                 member of the Board of Directors and certain officers or key 
                 employees of VLSI, including the Tier I Executives.  Said 
                 document is included as an Exhibit to this Quarterly Report 
                 on Form 10-Q for the fiscal quarter ended April 2, 1999.

10.45            Agreement and Plan of Merger, dated as of May 1, 1999 among   
                 Philips, VLSI and KPE. Said document is included as an 
                 Exhibit to this Quarterly Report on Form 10-Q for the fiscal 
                 quarter ended April 2, 1999.

 27              Financial Data Schedule

</TABLE>