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 June 27, 1997.
                                                  --------------

                                      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 June 27, 1997:

                                                                  46,441,302



<PAGE>
                         PART 1.  FINANCIAL INFORMATION


Item 1.  Financial Statements

<TABLE>
                            VLSI TECHNOLOGY, INC.

          CONSOLIDATED CONDENSED STATEMENTS OF INCOME - unaudited
                     (thousands, except per share amounts)

<CAPTION>
                                 Three Months Ended           Six Months Ended
                                 ------------------           ----------------
                                June 27,     June 28,       June 27,     June 28,
                                  1997         1996           1997         1996
                                --------     --------       --------     --------
   
<S>                          <C>          <C>            <C>          <C> 
Net revenues                 $   182,472  $   182,526    $   360,156  $   350,238

Cost of sales                    100,795      111,370        201,700      216,349
                             -----------  -----------    -----------  -----------
Gross profit                      81,677       71,156        158,456      133,889
                             -----------  -----------    -----------  -----------
Operating expenses:
   Research and development       26,201       25,609         53,632       49,980
   Marketing, general and 
      administrative              36,040       34,061         70,670       69,058
                             -----------  -----------    -----------  -----------
Operating income                  19,436       11,486         34,154       14,851

Interest income and other
   expenses, net                   2,899        2,833          5,851        6,828
Interest expense                  (4,202)      (2,856)        (8,666)      (5,336)
                             -----------  -----------    -----------  -----------
Income before provision for 
   taxes on income                18,133       11,463         31,339       16,343
 
Provision for taxes on income      5,800        3,190         10,020        4,900
                             -----------  -----------    -----------  -----------
Net income                   $    12,333  $     8,273    $    21,319  $    11,443
                             ===========  ===========    ===========  ===========
Net income per share         $       .26  $       .18    $       .44  $       .25
                             ===========  ===========    ===========  ===========
Weighted average common
   and common equivalent 
   shares outstanding             47,958       46,869         48,070       46,637
                             ===========  ===========    ===========  ===========


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


<PAGE>
<TABLE>
                             VLSI TECHNOLOGY, INC.

               CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
                                 (thousands) 

<CAPTION>
                                                  June 27,    December 27,
                                                   1997           1996
                                                 ---------    ------------
ASSETS
<S>                                               <C>             <C>
Current assets:
   Cash and cash equivalents                      $131,668        $139,074
   Liquid investments                               94,533          66,685
   Accounts receivable, net of allowance
      for doubtful accounts and customer
      returns of $2,100
      ($2,200 at December 27, 1996)                112,734         112,508
   Inventories:
      Raw materials                                  4,241           3,095
      Work-in-process                               39,009          42,947
      Finished goods                                10,733          10,319
                                                  --------        --------
Total inventories                                   53,983          56,361

Deferred and refundable income taxes                58,628          68,638
Prepaid expenses and other current assets	           5,662           5,240
                                                  --------        --------
      Total current assets                         457,208         448,506

Property, plant and equipment, at cost             812,913         772,565
Accumulated depreciation and amortization         (393,939)       (345,301)
                                                  --------        --------
   Net property, plant and equipment               418,974         427,264

Deferred income taxes                                7,621           7,621

Other assets                                         8,608           7,551
                                                  --------        --------
TOTAL ASSETS                                      $892,411        $890,942
                                                  ========        ========


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


<PAGE>
<TABLE>
                           VLSI TECHNOLOGY, INC.

         CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited (Continued)
                      (thousands, except per share amounts)


<CAPTION>
                                                 June 27,    December 27,
                                                  1997           1996
                                                ---------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                              <C>             <C>
Current liabilities:
   Accounts payable                              $ 58,138        $ 61,586
   Accrued compensation and benefits               26,529          23,762
   Deferred income                                  8,648           8,930
   Patent matters                                  21,975          22,028
   Reserve for special charges                     47,773          50,990
   Other accrued liabilities                       31,586          34,313
   Current capital lease obligations                1,174           1,118
   Current portion of long-term debt                7,847           7,763
                                                 --------        --------
      Total current liabilities                   203,670         210,490

Non-current capital lease obligations               1,745           2,346

Long-term debt                                    203,748         207,627

Stockholders' equity:
   Preferred Shares, $.01 par value                     -               -
   Common Shares, $.01 par value                      472             472
   Treasury Common Shares, at cost                (13,577)         (8,349)
   Additional paid-in capital                     455,451         458,774
   Retained earnings                               40,902          19,582
                                                 --------        --------
        Total stockholders' equity                483,248         470,479
                                                 --------        --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $892,411        $890,942
                                                 ========        ========


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

<PAGE>
<TABLE>
                              VLSI TECHNOLOGY, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
                                        (thousands)
<CAPTION>
                                                                 Six Months Ended
                                                           ---------------------------
                                                            June 27,          June 28,
                                                             1997              1996
                                                            --------           -------
                                                           Increase (decrease) in cash 
                                                           and cash equivalents
<S>                                                         <C>              <C>
Operating activities:  
 Net income                                                 $ 21,319         $ 11,443
 Adjustments to reconcile net income
  to cash generated by operations:
   Depreciation and amortization                              54,750           50,419
   Deferred and refundable income taxes                       10,606            2,217
   Changes in operating assets and liabilities:
    Accounts receivable                                         (226)           4,238
    Inventories                                                2,378           (1,909)
    Accounts payable, income tax payable,
     accrued liabilities and deferred income                  (8,064)         (15,773)
    Other                                                     (2,674)          (2,119)
                                                            --------         --------
 Cash generated by operations                                 78,089           48,516
                                                            --------         --------
Investing activities:
 Purchases of liquid investments                            (135,799)        (101,606)
 Proceeds from maturities of liquid investments              107,890          213,076
 Purchases of property, plant and equipment                  (44,757)        (186,841)
 Other                                                             -             (300)
                                                            --------         --------
  Net cash flow used for investing activities                (72,666)         (75,671)
                                                            --------         --------
Financing activities:
 Payments on debt and capital lease obligations               (4,340)          (4,875)
 Repurchase Treasury Shares                                  (17,015)         (27,181)
 Issuance of Common and Treasury Shares, net                   8,526            5,317
                                                            --------         --------
  Net cash flow used for financing activities                (12,829)         (26,739)
                                                            --------         --------

Net decrease in cash and cash equivalents                     (7,406)         (53,894)
Cash and cash equivalents, beginning of period               139,074          183,165
                                                            --------         -------- 
Cash and cash equivalents, end of period                    $131,668         $129,271
                                                            ========         ========
Supplemental disclosures:
  Cash outflows for property, plant and equipment           $ 44,757         $186,841
  Change in accrued capital acquisitions                         700          (19,635)
                                                            --------         --------
   Property, plant and equipment additions                  $ 45,457         $167,206
                                                            ========         ========
Interest paid                                               $ 10,294         $ 10,846
                                                            ========         ========
Income taxes paid, net                                      $  4,795         $  2,294
                                                            ========         ========

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 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 27, 1996 (the 1996 Annual 
Report).  This Quarterly Report on Form 10-Q (Form 10-Q) should be read in 
conjunction with the 1996 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 and six-month period 
ended June 27, 1997 are not necessarily indicative of the results that may be 
expected for the fiscal year ending December 26, 1997.

2. The Company's tax rate of 32% for the first six months of 1997 primarily 
reflects more pre-tax income flowing through lower tax jurisdictions.  The 
Company's tax rate of 30% for the first six months of 1996 primarily reflects 
benefits from the utilization of state tax credits, as well as effective 
foreign tax rates less than the U.S. statutory rate.

3. 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. Several companies, including Motorola, 
have individually contacted the Company concerning its alleged use of 
intellectual property belonging to them.

   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 VLSI's technology. The Company is unable to predict whether license 
agreements can be obtained or renewed on terms acceptable to the Company or 
the magnitude of the costs associated with such terms. Failure to obtain or 
renew such licenses could have a material adverse effect on the Company's 
financial position or results of operations.

   The Company continually evaluates the adequacy of its reserve for asserted
and unasserted patent matters. There are many companies that may have product
and process technology rights that VLSI may have infringed. The reserve for 
patent matters is based on the best available information at the time that the 
reserve is established or re-evaluated, and it is reasonably possible that the 
Company's estimate of the exposure for patent matters could materially change 
in the near term as additional information becomes available.

   Texas Instruments, Inc. (TI) filed a lawsuit in 1990 claiming process patent 
infringement by the Company of now expired U.S. patents. In May 1995, a jury 
found against the Company in the amount of $19.4 million. Although contesting 
the jury verdict, the Company recorded a charge to earnings of $19.4 million 
in the second quarter of 1995. The trial judge subsequently set aside the jury 
verdict and TI appealed. In July 1996, the Court of Appeals for the Federal 
Circuit affirmed the trial judge's order.  In May 1997, the U.S. Supreme Court 
rejected TI's appeal of the Court of Appeals order.  No license has been 
concluded with TI and there can be no assurance that TI will not assert other 
claims against VLSI for patent infringement.

4. In January 1996, the Board of Directors (Board) authorized the Company to 
repurchase shares of the Company's Common Stock on the open market or in 
privately negotiated transactions.  The Board authorized the Company to re-
issue these shares at any later date through certain of its employee stock 
plans and/or to fund stock or asset acquisitions authorized by the Board. By 
the end of 1996, the Company had repurchased 1.8 million shares at an average 
price of $15.10 and had re-issued 1.2 million of these shares under employee 
stock plans.  The remaining 0.6 million shares were re-issued during the first 
half of 1997.  During the first half of 1997, the Company repurchased 
1,000,000 shares at an average per share price of $17.01 and has re-issued 0.2 
million of these shares under employee stock plans.  The Company may, from 
time to time, continue to repurchase additional shares.

5. The Company has established a reserve for special charges primarily based on 
management's  estimated costs associated with the decision to close the San 
Jose facility.  This estimate was based on the best information available when 
the decision was made to close the facility.  Although the Company believes 
its estimates to be reasonable, actual costs associated with these plans may 
differ materially. Particularly, the costs associated with estimating losses 
on sales commitments and accommodating customers are difficult to ascertain. 
Therefore, the Company may, in future periods, need to change its estimated 
costs associated with the special charges as more information becomes 
available.

6. Net income per share as presented on the face of the consolidated statements 
of income represent primary earnings per common and common equivalent share. 
Dual presentation of primary and fully diluted earnings per share has not been 
made because the differences are insignificant.

   In February 1997, the Financial Accounting Standards Board issued Statement 
No. 128, "Earnings per Share", which is required to be adopted on December 26, 
1997.  At that time, the Company will be required to change the method 
currently used to compute net income per share and to restate all prior 
periods.  The new requirements will include a calculation of basic earnings 
per share from which the dilutive effect of stock options will be excluded.  
The basic earnings per share are not materially different from the Company's 
reported net income per share for the quarters ended June 27, 1997 and June 
28, 1996 and for the six months then ended.  A calculation of diluted net 
income per share will also be required; however, this is not expected to 
differ materially from the Company's reported net income per share.

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

RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1997 COMPARED TO THE FIRST SIX 
MONTHS OF 1996
-----------------------------------------------------------------------------

This Management's Discussion and Analysis of Financial Condition and Results of 
Operations (MDA) should be read in conjunction with the MDA in the 1996 Annual 
Report.

This Form 10-Q 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 1996 Annual Report.  Statements made herein are 
as of the date of filing of this Form 10-Q 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.

The following table summarizes the Company's operating results for the 
six-month period ended June 27, 1997 as compared to the six-month period 
ended June 28, 1996 (dollars in thousands):
                                              
                                           Six Months
                         ---------------------------------------------------
                                     1997                       1996
                         ------------------------------- -------------------
                                    Percent    Percent              Percent
                                    of Net      Change               of Net
                         Amounts   Revenues   From 1996   Amounts   Revenues
                         -------   --------   ---------   -------   --------
Net revenues            $360,156     100.0%      2.8%    $350,238    100.0%
Cost of sales            201,700      56.0      (6.8)     216,349     61.8
                        --------     -----               --------    -----
Gross profit             158,456      44.0      18.3      133,889     38.2
Research & development    53,632      14.9       7.3       49,980     14.3
Marketing, general and
   administrative         70,670      19.6       2.3       69,058     19.7
                        --------     -----               --------    -----
Operating income          34,154       9.5     130.0       14,851      4.2
Interest income
   (expense), net         (2,815)     (0.8)        *        1,492      0.5
Income taxes              10,020       2.8     104.5        4,900      1.4
                        --------     -----               --------    -----
Net income              $ 21,319       5.9      86.3     $ 11,443      3.3
                        ========     =====               ========    =====

* Not meaningful

The Company earned net income of $21.3 million in the first half of 1997, 
compared to net income of $11.4 million in the first half of 1996.  This change 
primarily reflects increased gross profit in dollars and as a percentage of net 
revenues (gross margin), partially offset by an increase in research and 
development expenses in the first half of 1997.

Net revenues in the first half of 1997 increased 2.8% from the comparable 1996 
period.  The increase over the first half of 1996 reflects strong demand for 
communications products.  This increase was offset in part by decreased demand 
for personal computer (PC) products and customer efforts to manage 
inventories in the set-top box business. Software net revenues decreased in 
the first half of 1997 compared to the first half of 1996 due to difficulties
developing new products and increased competition and consolidation among EDA
providers.

International net revenues (including export sales) increased, accounting for 
53.1% of net revenues in the first half of 1997 compared to 44.2% of net 
revenues in the first half of 1996, primarily due to increases in sales to 
the European region.  The growth in European net revenues reflects the 
location of the major customers for VLSI's communications devices and the 
success of GSM as the leading digital wireless standard in Europe.  Export 
sales to the Asia-Pacific area in the first half of 1997 decreased from the 
first half of 1996, due to a decrease in shipments of devices for the PC 
market.

Gross margins increased to 44.0% in the first half of 1997 from 38.2% in the 
first half of 1996, reflecting improved manufacturing performance and product 
mix.  First half 1996 gross margin reflected inventory charges taken for 
personal computer devices and certain manufacturing inefficiencies as a 
result of capacity underutilization and changes in the business mix from the 
higher 1995 concentration in PC products to communications and consumer 
digital entertainment products.

R&D expenditures increased by $3.7 million in the first half of 1997 over 
expenditures in the same 1996 period and increased as a percentage of net 
revenues from 14.3% to 14.9%, reflecting continuing investment in new products 
and package and process technologies.  R&D expenditures in the first half of 
1997 focused on design environment, process development and development of 
products for the consumer digital entertainment and communications markets.

Marketing, general and administrative expenses for the first half of 1997 
increased by $1.6 million from the first half of the prior year reflecting the 
Company's efforts to refocus these functions to better support the markets it 
serves.  As a percentage of net revenues, these expenses are comparable to the 
same period in 1996.

Interest income (expense), net shows expense of $2.8 million in the first 
half of the current year as compared to income of $1.5 million in the same 
period a year ago, reflecting lower interest income on lower average cash 
balances than in the first half of 1996. Interest expense increased in the 
first half of 1997 over the first half of 1996 due to a lower level of 
capitalized interest resulting from reduced capital expenditures.

The Company's tax rate of 32% for the first six months of 1997 primarily 
reflects more pre-tax income flowing through lower tax jurisdictions.  The 
Company's tax rate of 30% for the first six months of 1996 primarily reflects
benefits from the utilization of state tax credits, as well as effective 
foreign tax rates less than the U.S. statutory rate.



<PAGE>
RESULTS OF OPERATIONS - SECOND QUARTER OF 1997 COMPARED TO THE SECOND QUARTER
OF 1996
--------------------------------------------------------------------------------
The following table summarizes the Company's operating results for the three-
month period ended June 27, 1997 as compared to the three-month period ended 
June 28, 1996 (dollars in thousands):


                                           Second Quarter
                         -----------------------------------------------------
                                     1997                       1996
                         ------------------------------- -------------------
                                    Percent    Percent              Percent
                                    of Net      Change               of Net
                         Amounts   Revenues   From 1996   Amounts   Revenues
                         -------   --------   ---------   -------   --------
Net revenues            $182,472     100.0%       **%    $182,526    100.0%
Cost of sales            100,795      55.2      (9.5)     111,370     61.0
                        --------     -----               --------    -----
Gross profit              81,677      44.8      14.8       71,156     39.0
Research & development    26,201      14.4       2.3       25,609     14.0
Marketing, general and
   administrative         36,040      19.7       5.8       34,061     18.7
                        --------     -----               --------    -----
Operating income          19,436      10.7      69.2       11,486      6.3
Interest income
   (expense), net         (1,303)     (0.7)        *          (23)      **
Income taxes               5,800       3.2      81.8        3,190      1.8
                        --------     -----               --------    -----
Net income              $ 12,333       6.8      49.1     $  8,273      4.5
                        ========     =====               ========    =====

*  Not meaningful

** Less than 0.1%

The Company earned net income of $12.3 million in the second quarter of 1997, 
compared to net income of $8.3 million in the second quarter of 1996.  This 
change primarily reflects increased gross profit in dollars and as a percentage 
of net revenues (gross margin).

Net revenues in the second quarter of 1997 were comparable to net revenues in
the same 1996 period.  Net revenues in 1997 reflect continued strong demand for 
communications products and video arcade products.  This was offset in part by 
decreased demand for personal computer (PC) products and customer efforts to 
manage inventories in the set-top box business as discussed earlier.  Software 
net revenues decreased in the second quarter of 1997 compared to the second 
quarter of 1996.  The decline reflects difficulties developing new products and 
increased competition and consolidation among EDA providers.

Second quarter 1997 international net revenues (including export sales) 
increased in terms of both amount and percentage of revenues from the second 
quarter of 1996 as a result of growth in European net revenues due to 
increased shipments of communications devices in that region.  Export sales 
to the Asia-Pacific area in the second quarter of 1997 decreased over the 
second quarter of 1996, due to a decrease in shipments of devices for the PC 
market.

Gross margins increased to 44.8% in the second quarter of 1997 from 39.0% in 
the second quarter of 1996, reflecting improved manufacturing performance 
and product mix.

Both research and development expenditures and marketing, general and 
administrative expenses in the second quarter of 1997 were higher in dollar 
amount (and as a percentage of net revenues) compared to expenditures in the 
same 1996 period, reflecting increased costs as previously described for the 
first half of 1997.

Interest income (expense), net shows expense of $1.3 million in the current 
quarter as compared to approximately zero in the same period a year ago. The 
increase in interest expense is due to a lower level of capitalized interest.  
Interest income increased slightly due to a higher average quarterly interest 
rate.


FACTORS AFFECTING FUTURE RESULTS

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 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 unrelated to the Company's performance. 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.

During each of the years 1994, 1995, 1996 and year-to-date 1997, VLSI's top 20 
customers represented approximately two thirds of the Company's net revenues.
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.

Due to the decline in the Company's X86 chip set business, the Company 
experienced a shift in its business in 1996 away from the previously high 
concentration of sales to the personal computer industry that was seen in 
1995 to a 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 of 
suppliers, many of whom have substantially greater experience and resources 
than the Company.  If the Company, due to competition or other factors, is 
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.

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. If the Company is unable to design, develop, manufacture and 
market new products successfully in a timely manner, its operating results 
could be 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 and the 
Company continually attempts to pursue cost reductions, including process 
enhancements, in order to maintain acceptable gross margins. Gross margins also 
vary with 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.

Software net revenues, primarily through COMPASS, are subject to various 
factors, including pricing pressure, customers' capital budget approval 
cycles and limited backlog, which create a high degree of variability from 
quarter to quarter. Due to the high gross margin content of software net 
revenues and the size of certain transactions, which are often concluded late
in the quarter, such variability can lead to unpredictability of financial 
and operating results of the Company for any given period. Results in the 
first half of 1997 and from fiscal year 1996 operations for COMPASS were not 
satisfactory and adversely affected VLSI's overall results of operations. 
Management is considering strategic alternatives to deal with this issue, 
including the possible sale or disposition of COMPASS. Until this issue is 
resolved, COMPASS may continue to have a negative impact on VLSI's results of
operations.

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. These product supply and demand 
fluctuations have historically been characterized by periods of manufacturing 
capacity shortages immediately followed by periods of overcapacity, which are 
caused by the previously mentioned additions of manufacturing capacity in large 
increments. The industry has moved from a period of capacity shortages in 
1995 to what appears to be a current period of excess capacity for the 
immediate future.  During a period of industry overcapacity, profitability 
can drop sharply as factory utilization drops and high fixed costs of 
operating a wafer fabrication facility are spread over a lower net revenue 
base. This risk is increased due to the fact that the Company has shifted an 
even greater percentage of its manufacturing to its own facilities (in 1996 
and the first half of 1997, VLSI produced more than 95% of its wafer 
requirements internally versus approximately 
80% in 1995).

In November 1996, the Company announced its intention to close its San Jose 
wafer manufacturing facility. The closure of the facility subjects the 
Company's results of operations to numerous risks and uncertainties, 
including uncertainty as to the exact timing, cost and effects of the 
proposed shutdown of the facility; loss of business from the Company's 
customers whose devices are currently manufactured at the San Jose plant and 
who choose to substitute products from other manufacturers; unanticipated 
employee costs relating to the shutdown; inability to retain employees during
the phase-out period; lack of success in implementing cost reduction 
programs; and lower factory utilization and excess capacity.

While the Company operates and maintains its own wafer manufacturing 
facilities, the Company relies on three suppliers for the bulk of its 
assembly and test operations. Allocations by these suppliers of assembly and 
test capacity to the Company depend on VLSI's needs, supply availability 
during periods of capacity shortages and excesses and pricing. The Company 
has no long-term contractual commitments from these suppliers.  Any 
reduction in allocation from these suppliers could adversely affect the 
Company's operations.

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. Several companies, including Motorola, have individually contacted 
the Company concerning its alleged use of intellectual property belonging to 
them.

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 VLSI's 
technology. The Company is unable to predict whether license agreements can be 
obtained or renewed on terms acceptable to the Company or the magnitude of the 
costs associated with such terms. Failure to obtain or renew such licenses 
could have a material adverse effect on the Company's financial position or 
results of operations.

The Company continually evaluates the adequacy of its reserve for asserted and 
unasserted patent matters. There are many companies that may have product and 
process technology rights that VLSI may have infringed. The reserve for patent 
matters is based on the best available information at the time that the reserve 
is established or re-evaluated, and it is reasonably possible that the 
Company's estimate of the exposure for patent matters could materially 
change in the near term as additional information becomes available.

Other factors that may adversely affect VLSI's future results include 
earthquakes, environmental and other governmental regulations and the ability
to attract and retain key employees.  See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Factors Affecting
Future Results" in Item 7 of Part II in the 1996 Annual Report.


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 and payments of debt and 
lease obligations.  Additionally, in 1997 and 1996, VLSI used cash to reacquire 
shares of its common stock.

At June 27, 1997, total cash, cash equivalents and liquid investments increased 
$20.4 million from the 1996 fiscal year-end balance due primarily to net 
income.  Working capital increased to $253.5 million at June 27, 1997 
compared to $238.0 million at December 27, 1996.

During the six-month period ended June 27, 1997, the Company generated $78.1 
million of cash from operations, a 60.9% increase from the $48.5 million of 
cash generated for the six-month period ended June 28, 1996. Accounts 
payable, income taxes payable, accrued liabilities and deferred income at 
June 27, 1997 decreased by $8.1 million from December 27, 1996 due primarily 
to improved manufacturing spending.

Cash used for investing activities was $72.7 million for the six-month period 
ended June 27, 1997, as compared to $75.7 million for the six-month period 
ended June 28, 1996.  The decrease is primarily a result of a decrease in 
expenditures for the purchase of property, plant and equipment.  VLSI 
invested $45.5 million in property, plant and equipment during the first six 
months of 1997 compared to $167.2 million in the comparable 1996 period.  
VLSI currently estimates that total capital expenditures for 1997 could 
approximate $120 million, which are anticipated to be used primarily for 
equipment upgrades and for 0.35-micron wafer fabrication capability.  The 
Company expects to primarily utilize cash from operations for its 1997 
capital expenditures.

Cash used for financing activities was $12.8 million in the first six months of 
1997 compared to $26.7 million in the same 1996 period.  The decrease is a 
result of a decrease in the amount of cash used to repurchase common stock.  
During the first half of 1996, 1.8 million shares were repurchased for $27.2 
million compared to 1.0 million shares repurchased during the first half of 
1997 for $17.0 million.

The Company currently does not have a committed credit agreement in place.  
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 committed credit agreements, technology or manufacturing 
partnerships, additional equipment financings and offerings of debt or 
equity securities.

<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 27, 1996 (the 1996 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 1996 
Annual Report except the following:

Texas Instruments, Inc. (TI) filed a lawsuit in 1990 claiming process patent 
infringement by the Company of now expired U.S. patents. In May 1995, a jury 
found against the Company in the amount of $19.4 million. Although contesting
the jury verdict, the Company recorded a charge to earnings of $19.4 million 
in the second quarter of 1995. The trial judge subsequently set aside the 
jury verdict and TI appealed. In July 1996, the Court of Appeals for the 
Federal Circuit affirmed the trial judge's order.  In May 1997, the U.S. 
Supreme Court rejected TI's appeal of the Court of Appeals order.  No license
has been concluded with TI and there can be no assurance that TI will not 
assert other claims against VLSI for patent infringement.

Item 4.  Submission of Matters to a Vote of Security Holders

     (a) The Annual Meeting of Stockholders of the Company was held on May 7, 
         1997 (the Meeting).

     (b) The following directors were elected at the Meeting:

              Richard M. Beyer
              Pierre S. Bonelli
              Robert P. Dilworth
              William G. Howard
              Paul R. Low
              Alfred J. Stein
              Horace H. Tsiang

     (c) The results of the vote on the matters voted upon at the Meeting are:

       (i)   Election of Directors         For              Withheld
             ---------------------      ----------          --------
             Richard M. Beyer           40,156,896           531,876
             Pierre S. Bonelli          40,164,575           524,197
             Robert P. Dilworth         40,160,860           527,912
             William G. Howard          40,154,240           534,532
             Paul R. Low                40,153,307           535,465
             Alfred J. Stein            40,136,247           552,525
             Horace H. Tsiang           40,183,276           505,496
                                                                             
                                                                       Broker
                                      For       Against   Abstained   Non-Votes
                                   ----------  ---------  ---------   ---------
       (ii)  Appoinment of the
             selection of Ernst &
             Young LLP as independent
             auditors for the 1997 
             fiscal year           40,470,922   114,349    103,501        -
                                                                        
                                           For         Against    Abstained
                                        ----------    ----------  ---------
       (iii) Approval of an 
             amendment to the 1992
             Stock Plan                 27,637,286    12,126,766    924,720

     The foregoing matters are described in more detail in the Registrant's   
     definitive proxy statement dated April 4, 1997.

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

     (a) Exhibits - See Index to Exhibits on Page 18.

     (b) Reports on Form 8-K - None.


<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:      July 30, 1997                  By:  /s/ Balakrishnan S. Iyer
      --------------------------               -------------------------------
                                               Balakrishnan S. Iyer
                                               Vice President, Finance,
                                               Chief Financial Officer and
                                               Controller
                                               (Principal Financial and
                                                Accounting Officer)





<PAGE>

                              VLSI TECHNOLOGY, INC.

                               INDEX TO EXHIBITS


EXHIBIT
   NO.             DESCRIPTION
-------            -----------

  11.1       Calculation of Earnings Per Share

  27.1       Financial Data Schedule



                                              1