FORECAST AND OPTION AGREEMENT
Between
PMC-Sierra Corporation
And
PMC-Sierra Ltd.
And
Taiwan Semiconductor Manufacturing Co., Ltd.
October 14, 1999



*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.
<PAGE>



                                TABLE OF CONTENTS

1.   TERMINATION OF THE OPTION AGREEMENTS..............................3
2.   DEFINITIONS.......................................................4
3.   VOLUME and forecast COMMITMENT....................................4
4.   WAFER PRICE.......................................................5
5.   OTHER PURCHASE TERMS AND CONDITIONS...............................5
6.   FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY;
     FIRST RIGHT OF REFUSAL............................................6
7.   TERM AND TERMINATION..............................................6
8.  LIMITATION OF LIABILITY............................................7
9.      NOTICE.........................................................7
10.     ENTIRE AGREEMENT...............................................8
11.     GOVERNING LAW..................................................8
12.     ARBITRATION....................................................8
13.     ASSIGNMENT.....................................................9
14.     CONFIDENTIALITY................................................9
15.     FORCE MAJEURE..................................................9
16.     OBLIGATION OF FUTURE PURCHASE..................................9
Exhibit A.............................................................11
Exhibit B.............................................................12


<PAGE>

                          FORECAST AND OPTION AGREEMENT

      THIS TRI-PARTY  AGREEMENT is made and becomes  effective as of October 14,
1999(the "Effective Date") between:

     1.  Taiwan  Semiconductor  Manufacturing  Co.,  Ltd.  ("TSMC"),  a  company
         organized  under the laws of the Republic of China with its  registered
         address  at No.  121,  Park  Ave.  3,  Science-Based  Industrial  Park,
         Hsinchu, Taiwan;

     2.  PMC-Sierra Inc.  ("PMC-Sierra"),  a company organized under the laws of
         Delaware,  with  its  registered  address  at  105-8555  Baxter  Place,
         Burnaby,  British Columbia,  Canada,  V5A 4V7, formerly known as Sierra
         Semiconductor  Corporation,  a  company  organized  under  the  laws of
         California,  with the registered  address at 2222 Qume Drive, San Jose,
         CA 95131; and

     3.  PMC-Sierra Ltd, a company organized under the laws of British Columbia,
         with its registered address at 105-8555 Baxter Place, Burnaby,  British
         Columbia, Canada V5A 4V7, formerly known as PMC-Sierra, Inc., a company
         organized under the laws of Canada, with the same registered address as
         PMC-Sierra Ltd.

RECITALS


      WHEREAS  PMC-Sierra and PMC-Sierra Ltd.  understand that both entities are
jointly and  severally  obligated to all terms and  conditions  specified  under
"Customers" and are collectively referred to as "Customers" herein;

      WHEREAS TSMC currently  supplies  Customers with wafers and Customers wish
to increase the volume of wafers to be purchased from TSMC;


       WHEREAS  the  parties  wish to  terminate  the Option  Agreement  and the
Amendment  to  Option  Agreement  dated  November  6,  1996 and  July  21,  1997
respectively.


AGREEMENT

      NOW,  THEREFORE,  in  consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:


1.    TERMINATION OF THE OPTION AGREEMENTS

The parties  agree to  terminate  the Option  Agreement  dated  November 6, 1996
between  Sierra  Semiconductor  Corporation  and  PMC-Sierra  and  TSMC  and the
Amendment to Option  Agreement  dated July 21, 1997 upon the Effective Date. The
Parties agree that any rights and  obligations  accrued prior to the termination
shall remain in effective except the option fees due thereunder.

<PAGE>


2.    DEFINITIONS

    (a)  "Base  Capacity"  used in this  Agreement  shall mean the capacity that
         TSMC agrees to provide, and Customers agree to purchase, in addition to
         the Option Capacity, pursuant to this Agreement.

    (b)  "Customers Committed Capacity" used this Agreement shall mean the total
         capacity  that  Customers  agree to purchase from TSMC pursuant to this
         Agreement, and is set forth in Exhibit A.

    (c)  "Option  Capacity" used in this Agreement  shall mean the firm capacity
         commitment  made by  Customers  pursuant to this  Agreement,  for which
         Capacity  Customers agrees to pay TSMC a deposit in the amount of * per
         physical Wafer.

    (d)  "Option Fee" used in this Agreement shall mean the deposit, * in total,
         that Customers have placed with TSMC.

    (e)  "TSMC  Committed  Capacity" used in this Agreement shall mean the total
         capacity  that TSMC  agrees to provide to  Customers  pursuant  to this
         Agreement, and is set forth in Exhibit A.

    (f)  "Wafer"  used in this  Agreement  shall  mean the  number  of  physical
         wafers. Any and all capacity  commitments referred to in this Agreement
         shall be measured in physical Wafers.

3. VOLUME AND FORECAST COMMITMENT

(a)      Monthly Forecast. Customers agree to provide to TSMC on a monthly basis
         a six-month  rolling  forecast  of the number of wafers that  Customers
         will  purchase,  with the  committed  volume  for the  first  three (3)
         months.  That is, Customers must purchase all of the quantity  forecast
         for the  delivery  in the first three (3) months of the  forecast.  The
         forecast must be based on wafers out or deliveries  expected to be made
         by TSMC.

(b)      Quarterly  Forecast.  Customers agree to provide to TSMC on a quarterly
         basis an  eighteen-month (6 quarters) rolling forecast of the number of
         wafers that  Customers  will  purchase.  Customers  shall commit to the
         volume quantity stated in the first quarter.  Customers shall commit to
         plus or minus ten percent (+10%) of the volume  quantity  stated in the
         second quarter.  - Customers  future forecasts shall be limited to plus
         or minus  twenty-five  percent (+25%) of the volume  quantity stated in
         the - previous forecast for next two (2) quarters.  Customer may modify
         its commitment on the remaining two (2) quarters at anytime  subject to
         TSMC's  acceptance.  The  forecast  must  be  based  on  wafers  out or
         deliveries  expected to be made by TSMC.  The last  quarterly  forecast
         preceding the end of any year,  subject to acceptance by TSMC, shall be
         used to  determine  the final  values of the Base  Capacity  and Option
         Capacity for the next calendar year for Exhibits A.

<PAGE>


(c)      Semi-Annual  Forecast.   Customers  agree  to  provide  to  TSMC  on  a
         semi-annual  basis a three (3) year  rolling  forecast of the number of
         wafers that Customers will purchase.  The parties understand that there
         is no volume commitment tied to this semi-annual  forecast and it shall
         be used for planning purposes only.



4.    WAFER PRICE

(a)      The wafer prices for the Option  Capacity shall not be more than TSMC's
         average wafer prices to other TSMC customers that are parties to option
         agreements similar to this Agreement) for the same technology, the same
         fab and the same period of time. In the event that the wafer prices for
         the  Customers  Committed  Capacity  do not comply  with the  preceding
         sentence,  TSMC will make proper price changes for the unfilled orders,
         upon Customers' notice in writing.

(b)      The parties  shall  negotiate  in good faith each year the wafer prices
         for the Option Capacity for the following year, and if no agreement may
         be reached by the parties  before  October each year, the parties agree
         to submit the dispute to the binding arbitration pursuant to Section 13
         below, and under such circumstances, neither party shall have the right
         to terminate this Agreement under Section 7 below.

5.    OTHER PURCHASE TERMS AND CONDITIONS


(a)      Customers agree to purchase from TSMC the Customers Committed Capacity.
         TSMC agrees to provide to Customers the TSMC Committed Capacity, as set
         forth in Exhibit A. The  parties  agree  that the  Customers  Committed
         Capacity and TSMC Committed  Capacity shall be apportioned as set forth
         in Exhibit A.  Customers  agree that in any calendar  year,  the orders
         placed by  Customers  shall first  apply to fulfill  the Base  Capacity
         portion  of the  Customers  Committed  Capacity,  and then  the  Option
         Capacity portion thereof

(b)      Customers have deposited a total sum of * with TSMC as set forth in the
         Option Agreement.  TSMC hereby acknowledged receipt of the total sum as
         an Option Fee.

(c)      TSMC will use commercially  reasonable  efforts to cause its fabs to be
         capable of producing  wafers of more  advanced  specifications,  as set
         forth in the TSMC Technology Road Map attached as Exhibit B.

<PAGE>


(d)      The Option Fee shall be repaid to  Customers  at the rate of * for each
         physical Wafer  purchased in excess of 70% of the Base Capacity up to a
         maximum of 100% of the Base Capacity in any given twelve months of this
         Agreement, as shown in Exhibit A. The repayment of the Option Fee shall
         terminate  upon (1)  depletion  of the  amount of the Option  Fee;  (2)
         termination of this  Agreement.  Upon  termination  of this  Agreement,
         except for cause,  TSMC shall return to Customers any remaining  amount
         of the Option Fee,  or,  Customers  may at their option and with TSMC's
         agreement roll over any remaining  amount of the Option Fee in any year
         to secure Wafer  capacity in the year  following  the then last year of
         this Agreement.  TSMC shall make  applicable  repayment on annual basis
         sixty (60) days after the year-end.


6.  FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY; FIRST RIGHT OF REFUSAL

(a)      Customers  shall notify TSMC of any changes from the annual total wafer
         requirement  during the  applicable  year.  TSMC has the right to use a
         third  party  to  conduct  audits  on  Customers'  annual  total  wafer
         requirements with a thirty (30) days written notice to Customers.

(b)      Customers  have the right to carry forward any portion of the Customers
         Committed Capacity in the years 1998 through 2003 to the year 2004 with
         a three month written  notice;  provided that,  the  Customers'  annual
         orders to TSMC  represents at least 60% of the  Customers  total annual
         wafer requirement from outside sources.  If Customers are unable to use
         any of the Customers Committed Capacity or TSMC's Committed Capacity in
         any year,  Customers  shall so notify TSMC  immediately  and TSMC shall
         have the right to sell such unneeded Capacity to third parties and such
         sale  shall not result in or be  construed  as a breach of the terms of
         this Agreement.


7.    TERM AND TERMINATION

(a)      The term of this Agreement  shall commence from the Effective Date, and
         continue until December 31, 2003. Subject to TSMC's approval, Customers
         may  elect to extend  this  Agreement  for a full  five year  period by
         giving  notice to TSMC at least  thirty  days prior to the  anniversary
         date or the expiration date of this Agreement. In the event that any of
         the Customers Committed Capacity is carried forward to the year of 2004
         pursuant to Subsection 6, this Agreement  shall be extended to December
         31, 2004 or until the full  amount of the Option Fee has been  refunded
         under the terms of this Agreement, whichever is the later.

(b)      The parties  shall review this  Agreement  annually  within thirty days
         preceding  the  anniversary  of this  Agreement  or at such  time as is
         mutually  agreed  between  TSMC and  Customers.  At such  review,  this
         Agreement  may  be  amended  by  mutual  agreement   between  TSMC  and
         Customers,  such amendment  being reduced to writing and signed by both
         TSMC and Customers.

<PAGE>


(c)      TERMINATION FOR OTHER BREACH OR FOR BANKRUPTCY
         Either  party may  terminate  this  Agreement  if (i) the  other  party
         breaches any material  provisions of this Agreement,  and does not cure
         such breach  within sixty (60) days from the date the  breaching  party
         receives a written  notice of such breach,  or (ii) becomes the subject
         of a voluntary or involuntary  petition in bankruptcy or any proceeding
         relating to insolvency,  receivership or liquidation,  if such petition
         or proceeding is not dismissed  with  prejudice  within sixty (60) days
         after filing.

(d)      EFFECT OF TERMINATION
         The parties shall remain liable to the other party for any  outstanding
         and  matured  rights and  obligations  at the time of  termination.  If
         termination is not for cause, or if customers terminate for cause, TSMC
         shall  return   applicable  Option  Fee  pro-rated  for  that  year  in
         accordance  to Section  5(d) of this  Agreement  within sixty (60) days
         following the date of  termination.  If TSMC  terminates this Agreement
         due to  material  breach,  TSMC  shall  have  the  sole  discretion  in
         determining either to refund the outstanding part of the Option Fee (i)
         in  accordance  to  Section  5(d) of  this  Agreement  or (ii)  without
         interest within a period to be determined by TSMC but no later than two
         (2) years from the date of such material breach.


8.  LIMITATION OF LIABILITY

         In no event  shall  any  party be  liable  for any  indirect,  special,
         incidental or consequential damages (including loss of profits and loss
         of use)  resulting  from,  arising out of or in connection  with either
         party's  performance  or failure to perform  under this  Agreement,  or
         resulting  from,  arising out of or in connection  with either  party's
         producing,  supplying,  and/or  sale of the  wafers,  whether  due to a
         breach of contract, breach of warranty, tort, negligence, or otherwise.

9.  NOTICE

         All notices  required or  permitted  to be sent by either  party to the
         other  party  under this  Agreement  shall be sent by  registered  mail
         postage  prepaid,  or by personal  delivery,  or by fax. A confirmation
         copy shall follow any notice given by fax within ten (10) days.  Unless
         changed  by written  notice  given by either  party to the  other,  the
         addresses  and  fax  numbers  of the  respective  parties  shall  be as
         follows:

         To TSMC:
         TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
         No. 121, Park Avenue 3
         Science-Based Industrial Park
         Hsinchu, Taiwan
         Republic of China                           FAX: 886-35-781545

<PAGE>


         To Customers:
         PMC-Sierra Ltd.
         105-8555 Baxter Place
         Burnaby, BC Canada V5A 4V7                  FAX: 604-415-6207

         PMC-Sierra Inc.
         105-8555 Baxter Place
         Burnaby, BC Canada V5A 4V7                  FAX: 604-415-6207


10.  ENTIRE AGREEMENT

         This  Agreement,  including  Exhibits A and B,  constitutes  the entire
         agreement  between  the  parties  with  respect to the  subject  matter
         hereof,  and  supersedes  and  replaces  all  prior or  contemporaneous
         understandings, agreements, dealings and negotiations, oral or written,
         regarding the subject matter  hereof.  No  modification,  alteration or
         amendment of this  Agreement  shall be effective  unless in writing and
         signed by all  parties.  No waiver of any  breach or  failure by either
         party to enforce  any  provision  of this  Agreement  shall be deemed a
         waiver  of any  other  or  subsequent  breach,  or a waiver  of  future
         enforcement of that or any other provision.

11.  GOVERNING LAW

         This Agreement will be governed by and  interpreted in accordance  with
         the laws of the Republic of China.

12.  ARBITRATION

         Each party will make best  efforts to resolve  amicably any disputes or
         claims  under this  Agreement  among the  parties.  In the event that a
         resolution  is not reached  among the parties  within  thirty (30) days
         after written notice by any party of the dispute or claim,  the dispute
         or claim  shall be finally  settled by  binding  arbitration  in Taipei
         under The Rules of Arbitration of the International Chamber of Commerce
         by three (3) arbitrators  appointed in accordance with such rules.  The
         arbitration  proceeding  shall be  conducted  in  Republic  of China in
         English.  Judgment  on the  award  rendered  by the  arbitrator  may be
         entered in any court having jurisdiction thereof.

<PAGE>


13.  ASSIGNMENT

      This Agreement  shall be binding on and inure to the benefit of each party
      and its successors. No party shall assign any of its rights hereunder, nor
      delegate its obligations hereunder,  to any third party, without the prior
      written consent of the other.

14.  CONFIDENTIALITY

      The parties shall keep in strict  confidence the existence and contents of
      this  Agreement,  and  take  every  precaution  possible  to  prevent  any
      unauthorized  disclosure  or use  thereof.  In  the  event  disclosure  is
      required by laws or governmental  regulations,  the disclosing party shall
      provide the opportunity to protest, participate in preparing disclosure or
      make reasonable changes hereto.  Notwithstanding  anything to the contrary
      stated in this  Paragraph 14 Customers may disclose to their  customer the
      general terms of this Agreement without quantifying the volumes, prices or
      delivery terms in this Agreement.  All such  disclosures by Customer shall
      be covered by a  non-disclosure  agreement  between the  Customer  and its
      customer of substantially  similar force and effect as the  non-disclosure
      agreement  signed  between  Customer and TSMC.  Both parties agree that no
      disclosure  of this  Agreement or any matter  relating  hereto may be made
      without the disclosing  party first  providing the proposed  disclosure to
      the other party two weeks in advance for written consent.

      Further, Customer may disclose to Customer's investors the fact that TSMC
      and  Customer  have  amended and  extended  the former  contract  existing
      between  them  whereby  TSMC has  contracted  to  supply  Customer  which,
      according to Customers forecast and estimates,  should  substantially meet
      the needs of Customer  through the calendar  year 2003.  In no event shall
      any  specific  quantities  be  disclosed  to anyone  without  TSMC's prior
      written consent.

15.  FORCE MAJEURE

      Neither party shall be  responsible  for delays nor failure in performance
      resulting from acts beyond the reasonable control of such party. Such acts
      shall include but not limited to acts of God, war, riot,  labor stoppages,
      governmental actions, fires, typhoons, floods, and earthquakes.

16.  OBLIGATION OF FUTURE PURCHASE

      Customers  agree  to tape  out one  hundred  per  cent  (100%)  of all new
      tapeouts until  Customers  purchase 60% of their total Wafer  requirements
      from TSMC,  including the Customers Committed Capacity requirement of this
      Agreement.  Notwithstanding anything to the contrary in this Agreement, in
      the year prior to the expiration hereof, the parties agree to negotiate in
      good faith to enter into a new agreement  under which  Customers  agree to
      contract  TSMC to  provide  a minimum  of 60% of  Customers'  total  wafer
      requirements,  provided that TSMC is able to continue to offer competitive
      technology, pricing, quality and delivery.
<PAGE>


     IN WITNESS  WHEREOF,  the parties,  have executed this  Agreement as of the
date first stated above.

TAIWAN SEMICONDUCTOR                                 PMC-SIERRA CORPORATION
MANUFACTURING CO., LTD.


BY:____________________                                 BY:____________________
     Ron Norris                                         Name:
     Sr. Vice President                                 Title:
     TSMC Ltd

                                                     PMC-SIERRA Ltd.
                                                        BY:_________________
                                                        Name:
                                                        Title:



<PAGE>
               Exhibit A
            CUSTOMERS'/TSMC
          COMMITTED CAPACITY *


                                                  Unit:  K Physical Wafers
                                1998  1999  2000   2001  2002   2003  2004
                                ----  ----  ----   ----  ----   ----  ----

Base Capacity
(For Options)

% of Base Commit

% X Base Capacity

Option Capacity

TSMC Committed Capacity
(Base Capacity +
Option Capacity)

Customers Committed
Capacity
(X % Base Capacity +
Option Capacity)



*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.


<PAGE>


          EXHIBIT B *




*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.