|SECURITIES
AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended
December 31, 2001


[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD 
FROM _______TO _______


Commission File No. 000-26690


ELANTEC SEMICONDUCTOR,
INC. (Exact Name of Registrant as specified in its charter)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware                                                       | 77-0408929                           
|-------------------------------------------------------------- | -------------------------------------
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer 
Identification No.)

|675 Trade Zone Boulevard, Milpitas, California | 95035     
|---------------------------------------------- | ----------
|(Address of principal executive offices)       | (Zip Code)

|Registrants telephone number,
including area code: (408) 945-1323


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


Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:


As of February 1, 2002,
23,109,804 shares of the Registrants Common Stock, $0.01 par value, were
issued and outstanding.


1
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|TABLE OF CONTENTS
|-----------------

| |  |  |  | Page
| |  |  |  | ----

|PART I |  | FINANCIAL INFORMATION |  | 
|------ |  | --------------------- |  | 

| | Item 1. |  | Condensed Consolidated Financial Statements |  | 3
| | ------- |  | ------------------------------------------- |  | -

| |  |  | Notes to Condensed Consolidated Financial Statements |  | 6
| |  |  | ---------------------------------------------------- |  | -

| | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10
| | ------- |  | ------------------------------------------------------------------------------------- |  | --

| | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 24
| | ------- |  | ---------------------------------------------------------- |  | --

|PART II |  | OTHER INFORMATION |  | 
|------- |  | ----------------- |  | 

| |  |  | Not Applicable |  | 25
| |  |  | -------------- |  | --

|SIGNATURES |  |  |  | 26
|---------- |  |  |  | --

|2
|-

|PART I. FINANCIAL
INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


ELANTEC
SEMICONDUCTOR, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Three Months Ended          December 31, | 
|-------------------------------------------- | ---------------------------------------- | 
|                                             |                                          | 
|                                            
|Net revenues                                 |                                          | 
|Cost of revenues                             |                                          | 
|                                            
|Gross profit                                 |                                          | 
|                                            
|Operating expenses:                          |                                          | 
|Research and development                     |                                          | 
|Marketing, sales, general and administrative |                                          | 
|Restructuring charges                        |                                          | 
|                                            
|Total operating expenses                     |                                          | 
|                                            
|Income from operations                       |                                          | 
|Interest and other income, net               |                                          | 
|                                            
|Income before income taxes                   |                                          | 
|Provision for income taxes                   |                                          | 
|                                            
|Net income                                   |                                          | 
|                                            
|Earnings per share:                          |                                          | 
|Basic                                        |                                          | 
|                                            
|Diluted                                      |                                          | 
|                                            
|Shares used in computing per share amounts:  |                                          | 
|Basic                                        |                                          | 
|                                            
|Diluted                                      |                                          | 
|                                            

|See
accompanying notes to the condensed consolidated financial statements.


3
|------------------------------------------------------------------------------

|ELANTEC SEMICONDUCTOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
|----------------------------------------------------------------------------------

|                                             | Dec. 31,2001(1) |  | Sept. 30,2001(2) |        
|-------------------------------------------- | --------------- |  | ---------------- | -------
|                                            
|Assets:                                      |                 |  |                  |        
|Current assets:                              |                 | 
|Cash and cash equivalents                    |                 |  | $                | 113,101
|Short-term investments                       |                 |  |                  | 75,086 
|Accounts receivable                          |                 |  |                  | 7,450  
|Inventories                                  |                 |  |                  | 12,711 
|Deferred income taxes                        |                 |  |                  | 3,148  
|Prepaid expenses and other current assets    |                 |  |                  | 4,650  
|                                            
|Total current assets                         |                 |  |                  | 216,146
|                                            
|Property and equipment, net                  |                 |  |                  | 11,269 
|Other assets, net                            |                 |  |                  | 1,804  
|Non-current deferred income taxes            |                 |  |                  | 12,603 
|                                            
|Total assets                                 |                 |  | $                | 241,822
|                                            
|Liabilities and stockholders equity:        |                 | 
|Current liabilities:                         |                 | 
|Accounts payable and accrued liabilities     |                 |  | $                | 13,284 
|Deferred revenue                             |                 |  |                  | 2,573  
|Current portion of capital lease obligations |                 |  |                  | 779    
|                                            
|Total current liabilities                    |                 |  |                  | 16,636 
|                                            
|Long-term capital lease obligations          |                 |  |                  | 315    
|Other long-term liabilities                  |                 |  |                  | 1,724  
|                                            
|Stockholders equity:                        |                 | 
|Common stock                                 |                 |  |                  | 232    
|Additional paid-in capital                   |                 |  |                  | 207,699
|Deferred stock compensation                  |                 |  |                  | (3,512 
|Retained earnings                            |                 |  |                  | 23,769 
|Accumulated other comprehensive income       |                 |  |                  | 96     
|Treasury stock, at cost                      |                 |  |                  | (5,137 
|                                            
|Total stockholders equity                   |                 |  |                  | 223,147
|                                            
|                                            
|Total liabilities and stockholders equity   |                 |  | $                | 241,822
|                                            

|(1) |  | Unaudited
|--- |  | ---------

|(2) |  | These amounts were derived from the Companys audited consolidated
financial statements at September 30, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------

|See
accompanying notes to the condensed consolidated financial statements.


4
|------------------------------------------------------------------------------

|ELANTEC SEMICONDUCTOR,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)(Unaudited)
|-----------------------------------------------------------------------------------------------------

|                                                             | Three months ended          December 31, | 
|------------------------------------------------------------ | ---------------------------------------- | 
|                                                             |                                          | 
|                                                            
|Operating activities                                         |                                          | 
|Net income                                                   |                                          | 
|Reconciliation of net income to net cash provided by         |                                          | 
|operating activities:                                        |                                          | 
|Depreciation and amortization                                |                                          | 
|Amortization of deferred stock compensation                  |                                          | 
|Tax benefit of stock option transactions                     |                                          | 
|Deferred income taxes                                        |                                          | 
|(Gain) loss on disposal of property and equipment            |                                          | 
|Changes in operating assets and liabilities:                 |                                          | 
|Accounts receivable                                          |                                          | 
|Inventories                                                  |                                          | 
|Prepaid expenses and other current assets                    |                                          | 
|Accounts payable and accrued liabilities                     |                                          | 
|Deferred revenue                                             |                                          | 
|                                                            
|Net cash provided by operating activities                    |                                          | 
|                                                            
|Investing activities                                         |                                          | 
|Purchase of available for sale investments, net              |                                          | 
|Purchase of property and equipment                           |                                          | 
|Disposal of property and equipment                           |                                          | 
|Increase in other assets                                     |                                          | 
|                                                            
|Net cash used in investing activities                        |                                          | 
|                                                            
|Financing activities                                         |                                          | 
|Payments on capital lease obligations                        |                                          | 
|Purchase of treasury stock                                   |                                          | 
|Proceeds from exercise of stock options and employee stock   |                                          | 
|purchase plan                                                |                                          | 
|                                                            
|Net cash provided by (used in) financing activities          |                                          | 
|                                                            
|Effect of exchange rate changes on cash and cash equivalents |                                          | 
|                                                            
|Decrease in cash and cash equivalents                        |                                          | 
|Cash and cash equivalents at beginning of period             |                                          | 
|                                                            
|Cash and cash equivalents at end of period                   |                                          | 
|                                                            
|Supplemental disclosures of cash flow information            |                                          | 
|Taxes refunded                                               |                                          | 
|                                                            
|Interest paid                                                |                                          | 
|                                                            

|See
accompanying notes to the condensed consolidated financial statements.


5
|------------------------------------------------------------------------------

|ELANTEC SEMICONDUCTOR,
INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1. Basis of Presentation


We have prepared the unaudited
condensed consolidated financial statements included herein pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, all adjustments (consisting of
normal recurring items) considered necessary for a fair presentation have been
included. The results of operations for the three month period ended December
30, 2001 are not necessarily indicative of the results to be expected for the
entire year. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in our Annual Report on Form 10-K for the year ended September 30,
2001.


Our fiscal year end is the
Sunday closest to September 30 and our fiscal quarters end on the Sunday closest
to the end of the calendar quarter. For convenience, we have indicated that our
quarters end on December 31, March 31, June 30 and September 30.


2. Recently Issued
Accounting Pronouncements


Business Combinations,
Goodwill and Other Intangible Assets. In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS No. 142 provides that intangible assets with indefinite useful
lives will not be amortized, but will be tested at least annually for
impairment. The Company adopted SFAS 142 on October 1, 2001. The adoption did
not have a material impact on the Companys financial statements.


Long-lived assets.
In October 2001, the FASB issued SFAS No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This statement is effective
for fiscal years beginning after December 15, 2001 with earlier adoption being
encouraged. The Company adopted SFAS No. 144 on October 1, 2001. The adoption
did not have a material impact on the Companys financial statements.


6
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. Inventories


Inventories consist of the
following balances in thousands:
|----------------------------------------------------------------------------

| |  | December 31,2001 |                 | September 30,2001 | 
| |  | ---------------- | --------------- | ----------------- | 
| |  |                 
| |  |                  | Raw materials   |                   | 
| |  |                  | Work-in-process |                   | 
| |  |                  | Finished goods  |                   | 
| |  |                 
| |  |                  |                 |                   | 
| |  |                 

|4. Stockholders Equity


On December 19, 2000, the
Companys Board of Directors authorized a share repurchase program to
purchase up to 1,000,000 shares of the Companys common stock in the
open market, depending on market conditions and other corporate considerations.
As of December 31, 2001, the Company had repurchased 233,000 shares of
its common stock for $5.1 million in connection with the share repurchase
program.


5. Earnings per share


The following
table sets forth the reconciliation of weighted average common shares
outstanding used in the computation of basic and diluted earnings per share
computations (in thousands, except per share amounts):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | Three Months Ended            December 31, | 
|----------------------------------------------------------- | ------------------------------------------ | 
|                                                            |                                            | 
|                                                           
|Net income (numerator):                                     |                                            | 
|Net income                                                  |                                            | 
|                                                           
|Shares (denominator):                                       |                                            | 
|Weighted average shares of common stock outstanding used in |                                            | 
|computation of basic earnings per share                     |                                            | 
|Dilutive effect of common stock options                     |                                            | 
|Dilutive effect of shares issuable under Employee Stock     |                                            | 
|Purchase Plan                                               |                                            | 
|                                                           
|Shares used in computation of diluted earnings per share    |                                            | 
|                                                           
|Basic earnings per share                                    |                                            | 
|                                                           
|Diluted earnings per share                                  |                                            | 
|                                                           

|At December 31, 2001,
outstanding options to purchase 1,804,826 shares at exercise prices between
$34.97 and $121.75 were excluded from the computation of earnings per share as
the option price was greater than the average market price of the common shares
and, therefore, would be anti-dilutive under the treasury stock method.


7
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|At December 31, 2000,
outstanding options to purchase 260,055 shares at exercise prices between $72.81
and $121.75 were excluded from the computation of earnings per share as the
option price was greater than the average market price of the common shares and,
therefore, would be antidilutive under the treasury stock method.


6. Comprehensive Income


There were no material
differences between comprehensive income and net income for any of the periods
presented.


7. Segment Information


The Company operates in one
operating and reportable segment, which is the design, development and marketing
of a variety of high performance analog integrated circuits. The Companys
chief operating decision-maker is the Chief Executive Officer.


The Company markets its
products in the United States and in foreign countries through its sales
personnel, independent sales representatives, and distributors. The
Companys geographic sales, as a percentage of net revenues, were as
follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three months ended          December 31, |                             | 
| |  | ---------------------------------------- | --------------------------- | 
| |  |                                          |                             | 
| |  |                                         
| |  |                                          | Domestic                    | 
| |  |                                          | Export:                     | 
| |  |                                          | Europe                      | 
| |  |                                          | Japan                       | 
| |  |                                          | Korea                       | 
| |  |                                          | Taiwan                      | 
| |  |                                          | Other Pacific Rim countries | 
| |  |                                         
| |  |                                          |                             | 
| |  |                                         

|The Companys assets
located outside the United States are not material.


Customers comprising 10% or
greater of the Companys net revenues are summarized as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three months ended          December 31, |                                      | 
| |  | ---------------------------------------- | ------------------------------------ | 
| |  |                                          |                                      | 
|
| |  |                                          | Microtek International, Inc. - Japan | 
| |  |                                          | Samsung Electronics - Korea          | 
| |  |                                          | Lucent Technologies - United States  | 
| |  |                                          | Solectron - United States            | 

| | *
less than 10%
| | ---------------

|Microtek International, is
a distributor that supports the Companys sales to a large number of
Japanese customers.


As of December 31, 2001,
Microtek International and Samsung Electronics accounted for 29% and 23%,
respectively, of the Companys accounts receivable. At September 30, 2001,
Microtek International and Samsung Electronics accounted for 14% and 13%,
respectively, of the Companys accounts receivable.


8
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. Restructuring Charges


During the first quarter of
fiscal 2002, the Company, as part of a restructuring plan announced in fiscal
2001, notified its employees of a reduction of 69 positions. The affected
employees include full-time regular employees and alternative workforce
in the manufacturing, process development, test engineering and sales
departments. Employee separation expenses are comprised of severance pay,
outplacement services, medical and other related benefits. Since the inception
of the restructuring through December 31, 2001, 39 positions have been separated
or were currently in the separation process, and the Company has paid $211,000
in separation benefits. Remaining cash expenditures associated with employee
separations are estimated to be approximately $339,000 through the fourth
quarter of fiscal 2002.


9
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


This Form 10-Q contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, that involve substantial risks and uncertainties. In some cases, you
can identify these statements by forward-looking words such as may,
will, should, expect, plan,
anticipate, believe, estimate, or
continue and variations of these words or comparable words. In
addition, any statements which refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and situations that may cause our or our industrys actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements.


Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of filing this Form 10-Q. We do not
undertake to update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise.


The section entitled
Factors Affecting Future Results and other cautionary language in
this Form 10-Q, as well as the various disclosures made by us in our reports
filed with the Securities and Exchange Commission, including our 2001 Annual
Report on Form 10-K, provide examples of risks, uncertainties and events that
may cause our actual results to differ from the expectations we describe in our
forward-looking statements. You are urged to read and carefully consider these
disclosures made by us.


Results of Operations
The following table sets forth, as a percentage of net
revenues, certain consolidated statement of operations data for the periods
indicated.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three Months Ended          December 31 |                            | 
| |  | --------------------------------------- | -------------------------- | 
| |  |                                         |                            | 
|
| |  |                                         | Net revenues               | 
| |  |                                         | Cost of revenues           | 
| |  |                                         | Gross profit               | 
|
| |  |                                         | Operating expenses:        | 
| |  |                                         | Research and development   | 
| |  |                                         | Marketing, sales, general  | 
| |  |                                         | and administrative         | 
| |  |                                         | Restructuring charges      | 
| |  |                                         | Income from operations     | 
| |  |                                         | Income before income taxes | 
| |  |                                         | Net income                 | 

|Net revenues. Net
revenues were $22.9 million in the first quarter of fiscal 2002, a decrease of
44% from net revenues of $40.7 million in the first quarter of fiscal 2001. The
decrease was primarily due to a softening in our communication and optical
storage business. The decrease in revenue from these markets was primarily due
to lower demand from our customers resulting from excess inventory in the
product channels and a decline in average selling prices for our products. As a
percentage of net revenues, revenues from our communication and optical storage
market segments were 24% and 32%, respectively, in the first quarter of fiscal
2002 compared to 34% and 39%, respectively, in the first quarter of fiscal 2001.
Net revenues from the optical storage market continued to be adversely affected
by the slow down in demand for personal computers. Net revenues from the
communications market continued to suffer from a decrease in demand in North
America, offset slightly by an increase in the communications market in Asia.


10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Net revenues from our video
product line in the first quarter of fiscal 2002 were essentially flat when
compared to the same period in fiscal 2001. In the first quarter of fiscal 2002,
unit shipments in our video market increased over the same period in fiscal
2001, but was offset by decreases in average selling prices. As a percentage of
net revenues, revenues from our video market was 41% in the first quarter of
fiscal 2002 compared to 22% in the first quarter of fiscal 2001.


Our power management and
legacy product line, which is still in its early stages, did not contribute
significantly to our net revenues. Sales from this market represented 4% of our
net revenues in the first quarter of fiscal 2002 and 2001, respectively.


Geographically, in the
first quarter of fiscal 2002, international sales decreased in all geographic
areas, except Asia when compared to the first quarter of fiscal 2001 due to
continued general weakness in the global economy. International revenues
represented 83% of net revenues, up from 57% of net revenues in the first
quarter of fiscal 2001, while domestic net revenues in the first quarter of
fiscal 2002 decreased to 17% compared to 43% in the first quarter of fiscal
2001. The positive shift in international revenues is due primarily to strong
demand for our video, optical storage and digital subscriber line (xDSL)
products from original equipment manufacturers in Asia and Europe and the
general weakness in the digital subscriber line (xDSL) markets in North America
which significantly weakened demand for our products.


A significant portion of
our sales in Japan are denominated in Japanese Yen while our remaining sales
worldwide are denominated in United States dollars. As a result, changes in
exchange rates that strengthen the U.S. dollar could increase the local prices
of our products and make these products more expensive than those of our
competitors denominated in local currencies, leading to a reduction in sales and
profitability. Also, changes in exchange rates that weaken the Japanese Yen will
reduce the U.S. dollars that we receive for our sales denominated in Japanese
Yen, leading to a reduction in revenue and profitability. We have not taken any
measures to protect our forecasted sales denominated in Yen against exchange
rate fluctuations, such as purchasing hedging instruments with respect to such
fluctuations. However, we enter into foreign currency forward contracts to hedge
trade receivables denominated in Yen.


Revenues are stated net of
estimated discounts and allowances. Revenue from product sales direct to
customers and foreign distributors is generally recognized upon shipment.
However, we defer the recognition of revenue and the related cost of revenue on
shipments to domestic distributors that have certain rights of return and price
protection privileges on unsold merchandise until the merchandise is sold by the
distributor.


Gross margin. Gross
margin was 52.3% for the first quarter of fiscal 2002 compared to 60.2% in the
corresponding period in fiscal 2001. Gross margin decreased due to a decline in
the average selling prices of our products, decreased capacity utilization in
our manufacturing facilities and a reduced mix of higher margin products. These
reductions in gross margin were partially offset by improvements in
manufacturing efficiencies and yields.


Research and development
expenses. Research and development (R&D) expenses decreased
by $619,000 or 11% for the first quarter of fiscal 2002 as compared to the
corresponding period in fiscal 2001. The decrease in R&D expenses was due
primarily to lower prices from our wafer and mask set vendors resulting in lower
spending of approximately $495,000 on prototype expenses, and lower spending of
approximately $346,000 on outside services and facility costs. The decrease was
offset by an increase of approximately $179,000 in depreciation expenses
associated with development and design tools and higher employee spending of
$43,000. As a percentage of net revenues, R&D expenses increased from 13.8%
to 21.7% for the first quarter of 2002 primarily due to lower revenues during
the first quarter of fiscal 2002.


11
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Marketing, sales,
general and administrative expenses. Marketing, sales, general and
administrative (SG&A) expenses decreased by $1.8 million or 29%
for the first quarter of fiscal 2002 compared to the corresponding period in
fiscal 2001. The decrease in SG&A expenses was due primarily to decreased
headcount related expenses of $923,000 as a result of lower sales commissions
and management bonuses and lower selling expenses of $1.0 million due to the
decrease in revenue. The decrease was somewhat offset by increases in facility
and equipment costs of approximately $100,000. As a percentage of net revenues,
SG&A expenses increased from 15.7% to 19.8% for the first quarter of 2002
primarily due to lower revenues during the first quarter of fiscal 2002.


Restructuring
charges. During fiscal 2001, we decided to cease new product and process
development in our internal fabrication facility and to outsource all new
product and process development. We also decided to outsource some of our
internal testing requirements. As a result of these restructuring plans, we
concluded that we would have to reduce our workforce. During the first quarter
of fiscal 2002, as part of our restructuring plan, we notified our employees of
a reduction of 69 positions over a period of several months. We recorded a
pre-tax charge of $550,000 related to severance. Remaining cash payments related
to the reduction in force are expected to be $339,000 in fiscal 2002.


Interest and other
income, net.Interest and other income, net reflects interest income
from short-term investments offset by interest expense on capital leases and
gains and losses on foreign exchange transactions.Interest and other
income, net was $1.0 million in the first quarter of fiscal 2002, a decrease of
$1.5 million over the corresponding period of fiscal 2001. The decrease in
interest and other income, net was due primarily to a decrease in interest rates
on our short-term investments.


Provision for income
taxes. Our effective tax rate for the first three months of fiscal
2002 is 30% compared to 35% in the same period of fiscal 2001. This decrease was
due primarily to an increased percentage of our earnings being taxed at lower
rates in foreign jurisdictions.


Recent Accounting
Pronouncements


Business Combinations,
Goodwill and Other Intangible Assets. In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS No. 142 provides that intangible assets with indefinite useful
lives will not be amortized, but will rather be tested at least annually for
impairment. We adopted SFAS No. 142 on October 1, 2001. The adoption did not
have a material impact on our financial statements.


Long-lived assets.In October
2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. This
statement is effective for fiscal years beginning after December 15, 2001. We adopted
SFAS No. 144 on October 1, 2001. The adoption did not have a material impact on our
financial statements.


12
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Liquidity and Capital
Resources


Our primary sources of
liquidity are cash and cash equivalents and short-term investments of $188.2
million at December 31, 2001.


Cash and cash equivalents
were $113.1 million at December 31, 2001, representing a decrease of $16.1
million from September 30, 2001. This decrease was due to net investment in
marketable securities with average maturities of more than ninety days of $20.2
million offset by an increase in cash generated from operations of $4.1 million.


Cash and cash equivalents
were $101.2 million at December 31, 2000, representing a decrease of $58.3
million from September 30, 2000. This decrease was due to net investment in
marketable securities with average maturities of more than ninety days of $70.4
million, purchase of treasury stock of $1.9 million, capital expenditures of
$4.8 million primarily for new process development, assembly and test facilities
and payments on capital leases of $0.4 million. These outflows were offset by an
increase in cash generated from operations of $18.6 million and proceeds from
the exercise of employee stock options of $0.6 million.


We do not expect to make
any substantial capital equipment acquisitions during fiscal 2002. As at
December 30, 2001 open purchase commitments for capital equipment was $367,000.


On December 19, 2000, our
Board of Directors authorized a share repurchase program to purchase up to
1,000,000 shares of our common stock in the open market, depending on market
conditions and other corporate considerations. As of December 31, 2001, we have
repurchased 233,000 shares of our common stock for $5.1 million in connection
with the share repurchase program.


We believe that our current
cash and equivalents, short-term investments and cash generated from operations
will satisfy our expected working capital and capital expenditure requirements
for at least the next twelve months.


Factors Affecting Future
Results


Except for historical
information contained herein, the matters set forth in this Report on Form 10-Q,
including the statements in the following paragraphs, are forward-looking
statements that are dependent on certain risks and uncertainties including such
factors as, among others, delays in new product and process technology
announcements and product introductions by us or our competitors, competitive
pricing pressures, fluctuations in manufacturing yields, changes in the mix or
markets in which our products are sold, availability and costs of raw materials,
reliance on subcontractors, the cyclical nature of the semiconductor industry,
industry-wide wafer processing capacity, political and economic conditions in
various geographic areas, and costs associated with other events, such as
under-utilization or expansion of production capacity, intellectual property
disputes, litigation, or environmental regulation and other factors described
below.


THE MARKETS IN WHICH WE
PARTICIPATE ARE INTENSELY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE
EFFECTIVELY, OUR OPERATING RESULTS COULD BE HARMED.


13
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The analog semiconductor
industry is intensely competitive and is characterized by rapid technological
change, product obsolescence and price erosion. Increased competition has in the
past and could in the future result in price reductions, reduced gross margins
or loss of market share, any of which could harm our operating results. In our
primary markets, we compete with Analog Devices, Inc., Linear Technology
Corporation, Maxim Integrated Products, Inc., Texas Instruments Inc., Toshiba
and National Semiconductor Corporation. We also compete indirectly with the
in-house design staffs of some of our customers and end-users, which often
provide alternative solutions to individual analog systems requirements. Many of
our current and potential competitors have greater name recognition, larger
customer bases and greater financial, technical, manufacturing, marketing and
other resources than we do. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
devote greater resources to the development, promotion, sale and support of
their products, and reduce prices to increase market share. Moreover, there has
been significant merger and acquisition activity among our competitors and
potential competitors. These combinations may provide our competitors and
potential competitors with a competitive advantage over us by enabling them to
expand their product offerings and service capabilities to meet a broader range
of customer needs. In addition, the introduction of new technologies and new
market entrants may increase competitive pressures.


DUE TO OUR SIGNIFICANT
LEVEL OF INTERNATIONAL SALES AND THE UTILIZATION OF FOREIGN MANUFACTURERS AND
SUBCONTRACTORS, WE ARE SUBJECT TO INTERNATIONAL OPERATIONAL, FINANCIAL AND
POLITICAL RISKS.


Sales of our products to
customers outside the United States have accounted for a significant part of our
net revenues. Our net international sales, as a percentage of our net revenues
were 83% for the quarter ended December 31, 2001, 63% for the year ended
September 30, 2001 and 75% for the year ended September 30, 2000. We expect net
international sales, particularly into Japan, Taiwan and South Korea, to
continue to account for a significant percentage of our net revenues in the
future. In addition, we expect to continue to rely on manufacturers and
subcontractors located in Taiwan, Malaysia and Thailand. Accordingly, we will be
subject to risks and challenges that we would not otherwise face if we conducted
our business only in the United States. These include:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | compliance
with a wide variety of foreign laws and regulations;
| |  | - |  | ---------------------------------------------------------------

| |  | - |  | changes
in laws and regulations relating to the import or export of semiconductor products;
| |  | - |  | -------------------------------------------------------------------------------------------

| |  | - |  | legal
uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and
other trade barriers;
| |  | - |  | ----------------------------------------------------------------------------------------------------------------

| |  | - |  | political
and economic instability in or foreign conflicts involving the countries of our
customers, manufacturers and subcontractors causing delays or reductions in orders for
our products;
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | difficulties
in collecting accounts receivable and longer accounts receivable payment cycles;
| |  | - |  | ---------------------------------------------------------------------------------------------

| |  | - |  | difficulties
in staffing and managing personnel, distributors and representatives in foreign countries;
| |  | - |  | -------------------------------------------------------------------------------------------------------

| |  | - |  | reduced
protection for intellectual property rights in some countries, particularly in Asia;
| |  | - |  | --------------------------------------------------------------------------------------------

| |  | - |  | currency
exchange rate fluctuations, which could increase the price of our products in local
currencies and thereby reduce our revenue from these sales;
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | seasonal
fluctuations in purchasing patterns in other countries; and
| |  | - |  | --------------------------------------------------------------------

| |  | - |  | fluctuations
in freight rates and transportation disruptions.
| |  | - |  | -------------------------------------------------------------

|Any of these factors could
harm our existing international operations and business or impair our ability to
continue expanding into international markets. To the extent we are unable to
expand our net international sales in a timely and cost-effective manner, our
business could be harmed. We cannot assure you that we will be able to maintain
or increase international market demand for our products.


14
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CYCLICALITY IN THE
SEMICONDUCTOR INDUSTRY HAS HISTORICALLY LED TO SUBSTANTIAL DECREASES IN DEMAND
FOR OUR PRODUCTS AND TECHNOLOGIES AND MAY DO SO IN THE FUTURE.


Our operating results are
subject to significant variation due to the cyclical nature of the semiconductor
industry. The semiconductor industry is currently experiencing a downturn that
is adversely affecting our operating results. Our net revenues for the quarter
ended December 31, 2001 decreased 44% from the same period in fiscal 2001. Our
net income decreased from $9.7 million in the first quarter of fiscal 2001 to
$2.1 million in the first quarter of fiscal 2002. Our business depends upon the
current and anticipated market demand for analog semiconductors and products
using analog semiconductors. Prolonged downturns in the semiconductor industry
will likely lead to proportionately greater downturns in our net income or we
may incur net losses.


OUR OPERATING RESULTS
ARE LIKELY TO FLUCTUATE, WHICH COULD CAUSE US TO MISS EXPECTATIONS ABOUT THOSE
RESULTS AND CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE.


Our quarterly operating
results are likely to fluctuate, and if we fail to meet or exceed the
expectations of securities analysts or investors, the trading price of our
common stock could decline. Some of the important factors that could cause our
net revenues and operating results to fluctuate from period to period include:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | shifts
in demand for, and average selling prices of, our products;
| |  | - |  | ------------------------------------------------------------------

| |  | - |  | the
reduction, rescheduling or cancellation of orders by our customers;
| |  | - |  | -----------------------------------------------------------------------

| |  | - |  | the
timing and success of product introductions and new technologies by our competitors and
us;
| |  | - |  | -----------------------------------------------------------------------------------------------

| |  | - |  | the
quantities of our products which we or third parties can manufacture and deliver in a
quarter;
| |  | - |  | --------------------------------------------------------------------------------------------------

| |  | - |  | the
timing of our investments in research and development;
| |  | - |  | ----------------------------------------------------------

| |  | - |  | the
timing and provision of pricing protections and returns from our customers;
| |  | - |  | -------------------------------------------------------------------------------

| |  | - |  | competitive
pressures on selling prices;
| |  | - |  | ----------------------------------------

| |  | - |  | the
length of our sales cycle;
| |  | - |  | ------------------------------

| |  | - |  | availability
of manufacturing capacity for our products;
| |  | - |  | --------------------------------------------------------

| |  | - |  | fluctuations
in manufacturing yields; and
| |  | - |  | -----------------------------------------

| |  | - |  | changes
in product mix.
| |  | - |  | -----------------------

|As a result of these
factors our operating results may vary widely. We believe that period-to-period
comparisons of our net revenues and operating results are not necessarily
meaningful and, should not be relied upon as indications of future performance.


WE DEPEND UPON THE
CONTINUED DEMAND FOR OUR PRODUCTS IN THE COMMUNICATION, VIDEO AND OPTICAL
STORAGE MARKETS FOR A SIGNIFICANT PORTION OF OUR NET REVENUES.


We have derived, and expect
to continue to derive, a significant portion of our net revenues from products
that we sell in the communications, video and optical storage markets.
Therefore, our success depends in part on the continued acceptance of our
products within these markets and our ability to continue to develop and
introduce new products on a timely basis for these markets. In addition,
although the communications, video and optical storage markets have grown
rapidly in the last few years, we have recently experienced a slowdown in these
markets and cannot be certain that these markets will return to growth in the
future. A prolonged downturn in these markets could harm our business and
operating results.


15
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|DIFFICULTIES IN
ESTIMATING THE AMOUNT AND TIMING OF SALES TO OUR CUSTOMERS COULD HARM OUR
OPERATING RESULTS.


It is difficult for us to
forecast accurately the timing and amount of sales to our customers, which
include distributors and original equipment manufacturers, or OEMs. Our
customers generally take a long time to evaluate our products and technologies
before committing to design our products into their systems. Moreover, our
business is characterized by short-term orders and shipment schedules, and
customer orders typically can be canceled or rescheduled on short notice to us
and without significant penalty to our customers. We do not have substantial
noncancellable backlog and often we are forced to obtain inventory and materials
from our manufacturing subcontractors in advance of anticipated customer demand.
Because we incur expenses, many of which are fixed, based in part on our
forecasts of future product sales, our operating results could be harmed if
sales levels are below our expectations.


OUR NET REVENUES MAY
DECREASE IF WE LOSE ANY OF OUR SIGNIFICANT CUSTOMERS, THEREBY HARMING OUR
OPERATING RESULTS.


A relatively small number
of customers have accounted for a significant portion of our net revenues in any
particular period. For the quarter ended December 31, 2001, Microtek
International, Inc. and Samsung accounted for 22% and 18% of our net revenues,
respectively. The loss of any significant customer coupled with our inability to
obtain orders from new customers to compensate for such loss could cause our net
revenues to decline, thereby harming our operating results.


We have no long-term
purchase commitments with these or any of our other important customers. These
customers, therefore, could cease purchasing our products with short notice to
us and without significant penalty to our customers. In addition, Microtek is a
distributor of our products to various OEMs. Any of these OEMs could choose to
reduce or eliminate orders that would reduce our distributors orders for
our products.


We anticipate that sales of
our products to a relatively small number of customers will continue to account
for a significant portion of our net revenues. Due to these factors, the
following may reduce our operating results:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | reduction,
delay or cancellation of orders from one or more of our significant distributors or OEMs;
| |  | - |  | ----------------------------------------------------------------------------------------------------

| |  | - |  | development
by one or more of our significant distributors or end-user customers of other sources of
supply;
| |  | - |  | ------------------------------------------------------------------------------------------------------------

| |  | - |  | selection
by one or more of our significant OEMs of devices manufactured by one or more of our
competitors for inclusion in future product generations;
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | sales
of competing products by our distributors; or
| |  | - |  | ---------------------------------------------------

| |  | - |  | failure
of one of our significant customers to make timely payment of our invoices.
| |  | - |  | -----------------------------------------------------------------------------------

|WE MUST ACHIEVE NEW
DESIGN WINS, AND THESE DESIGN WINS MUST TRANSLATE INTO CUSTOMER PURCHASES.


Our success depends in part
upon achieving design wins for our products with current and future customers.
Design wins are indications by existing and potential customers that they intend
to incorporate our products into their new product designs. To achieve design
wins, we must continually increase the performance levels of our products, keep
pace with evolving industry standards and introduce new products in a timely
manner. If we fail to achieve design wins, we may lose potential sales
opportunities. However, customer decisions to use our products can often require
significant expenditures by us without any assurance of success. Design wins
also do not necessarily result in purchase orders for our products. In addition,
it could take up to several months before a design win translates into a
purchase order, if at all. The value of any design win, moreover, will largely
depend upon the commercial success of our customers product and on the
extent to which the design of the customers electronic system accommodates
components manufactured by our competitors.


16
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IF WE FAIL TO DEVELOP
AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS, WE MAY NOT BE ABLE TO ATTRACT AND
RETAIN CUSTOMERS.


We operate in an industry
that is characterized by rapidly changing technology, frequent product
introductions, product obsolescence, and ongoing demands for greater performance
and functionality. We, therefore, must continually design, develop and introduce
on a timely basis new products with improved features to retain and attract
customers and be competitive. Successful product development and introduction on
a timely basis requires that we:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | design
innovative and performance-enhancing features that differentiate our products from those
of our competitors;
| |  | - |  | -------------------------------------------------------------------------------------------------------------------

| |  | - |  | transition
our products to new manufacturing technologies;
| |  | - |  | ----------------------------------------------------------

| |  | - |  | identify
emerging technological trends in our target markets, including new standards for our
products;
| |  | - |  | -------------------------------------------------------------------------------------------------------

| |  | - |  | accurately
identify and design new products to meet market needs;
| |  | - |  | -----------------------------------------------------------------

| |  | - |  | bring
products to market on a timely basis at competitive prices and maintain effective
marketing strategies;
| |  | - |  | -------------------------------------------------------------------------------------------------------------

| |  | - |  | maintain
a high level of investment in research and development;
| |  | - |  | ----------------------------------------------------------------

| |  | - |  | respond
effectively to technological changes or product announcements by others; and
| |  | - |  | ------------------------------------------------------------------------------------

| |  | - |  | adjust
to changing market conditions as quickly and cost-effectively as necessary to compete
successfully.
| |  | - |  | ----------------------------------------------------------------------------------------------------------

|We cannot assure you that
we will be able to meet the design and market introduction schedules for our new
products or enhancements to our existing products or that these products will
achieve market acceptance.


IN ORDER TO REMAIN
COMPETITIVE IN THE ANALOG SEMICONDUCTOR INDUSTRY, WE MUST DEVELOP AND INTRODUCE
NEW SEMICONDUCTOR DESIGN AND PROCESS TECHNOLOGIES ON A TIMELY BASIS.


Our future success depends
upon our ability to:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | design
and develop products that utilize new process technologies;
| |  | - |  | ------------------------------------------------------------------

| |  | - |  | secure
the availability of our new process technologies from our foundry;
| |  | - |  | -------------------------------------------------------------------------

| |  | - |  | introduce
new process technologies to the marketplace earlier than our competitors do; and
| |  | - |  | ------------------------------------------------------------------------------------------

| |  | - |  | transfer
our product design to multiple foundries efficiently.
| |  | - |  | --------------------------------------------------------------

|Semiconductor design and
process methodologies are subject to rapid technological change, and require
large expenditures for research and development. We incurred research and
development expenses of $22.8 million in fiscal 2001 and $5.0 million in the
first quarter of fiscal 2002. We expect that our expenses for research and
development will continue to increase because we continuously attempt, on a
product-by-product basis, to migrate to smaller geometry process technologies.
Other companies in the industry have experienced difficulty in transitioning to
new manufacturing processes and, consequently, have suffered reduced yields or
delays in product deliveries. While we believe that transitioning our products
to smaller geometries will be important for us to remain competitive, we cannot
be certain that we can make these transitions successfully and on a
cost-effective basis.


17
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WE DEPEND ON A LIMITED
NUMBER OF THIRD PARTY FOUNDRIES TO MANUFACTURE MOST OF OUR PRODUCTS, WHICH
REDUCES OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY OF OUR
PRODUCTS.


We depend on a limited
number of third party foundries for the production of most of our products. In
particular, Agere Systems Inc. currently manufactures all of our junction
isolation bipolar wafers, and American Microsystems, Inc. and UMC manufacture
all of our complementary metal-oxide-semiconductor wafers. Also, we entered into
a foundry relationship with Philips Semiconductors Inc. to manufacture junction
isolation bipolar wafers for us. Our dependence on third parties to fabricate
our products has significant risks that could potentially harm our operating
results, including:


We have no long-term
contracts with any foundry and we do not have a guaranteed level of production
capacity at any foundry. The ability of each foundry to provide wafers to us is
limited by its available capacity and our foundry suppliers could provide that
limited capacity to its other customers. In addition, our foundry suppliers
could reduce or even eliminate the capacity allocated to us on short notice.
Moreover, such a reduction or elimination is possible even after we have
submitted a purchase order.


To obtain foundry capacity,
we may be forced to enter into equity and debt financing arrangements. These
arrangements could result in the dilution of our earnings or in the ownership of
our stockholders.


We provide the foundries
with rolling forecasts of our production requirements, however, our forecasts of
production requirements may prove to be inaccurate.


We have limited control
over product delivery schedules, and we may not receive products within the time
frames and in the volumes required by our customers.


We could face delays in
obtaining, or we might not be able to obtain, access to foundries with key
fabrication process technologies, such as the fabrication process necessary to
manufacture dielectric isolation wafers and silicon-on-insulator wafers.


We have limited control
over quality assurance and production costs.


We have limited control over
manufacturing yields and our foundries occasionally experience lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the design, installation and initiation of new
process technologies.


We cannot be certain that
we will be able to maintain our good relationships with our existing foundries.
In addition, we cannot be certain that we will be able to form relationships
with other foundries as favorable as our current ones. Moreover, transferring
from our internal fabrication facility or our existing foundries to another
foundry, including the transfer to Philips Semiconductor Inc., could require a
significant amount of time and loss of revenue, and we cannot assure you that we
could make a smooth and timely transition. If foundries are unable or unwilling
to continue to supply us with these semiconductor devices in required time
frames and volumes or at commercially acceptable costs, our business may be
harmed.


18
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WE ARE RESPONSIBLE FOR
THE PRODUCTION OF OUR DIELECTRIC ISOLATION AND SILICON-ON-INSULATOR WAFERS AND
OUR RESULTS OF OPERATIONS COULD BE HARMED IF OUR SUPPLY OF THOSE WAFERS DOES NOT
MEET DEMAND.


Our fabrication facilities
are the only facilities currently available to us that are capable of
manufacturing dielectric isolation wafers and silicon-on-insulator wafers for
our products. If we experience a reduction or interruption in the supply, or a
degradation in the quality of any of the wafers, we may be forced to discontinue
that product based upon those wafers until we can contract with third party
foundries that are qualified to produce those wafers. As a result, our
relationships with our customers could be harmed if we are unable to deliver
sufficient quantities of wafers.


IF OUR USE OF ADVANCED
BIPOLAR AND BI-CMOS TECHNOLOGY FOR OUR PRODUCT DEVELOPMENT IS IMPAIRED, OUR
BUSINESS AND OPERATING RESULTS COULD BE HARMED.


In the fourth quarter of
fiscal 2001, we discontinued the development of an advanced silicon-on-insulator
technology in favor of outsourcing advanced bipolar and bi-cmos technology as
part of our future product development strategy. As with the transition to any
new process technology, we cannot assure you that this new technology can be
successfully implemented for our product development requirements in a timely
manner, that we will have access to this new technology to satisfy our
requirements or that this new technology will provide the desired improvements
over our current technology. Cancellation or significant delays in the
transition to this new process technology or manufacturing problems associated
with transferring our current product line to this technology, or problems
associated with the development and manufacturing of our future products using
this technology could harm our business and results of operations. Cancellation
or significant delays resulting from the transition to and use of this
technology also could harm our new product development program.


WE RELY ON A LIMITED
NUMBER OF PACKAGING SUBCONTRACTORS THAT MAY NOT HAVE ADEQUATE CAPACITY TO MEET
OUR PRODUCT DELIVERY REQUIREMENTS.


We rely on a limited number
of packaging subcontractors with whom we do not have long-term contracts. In
general, the wafers we manufacture at our fabrication facilities and the wafers
we purchase from our outside foundries are tested at our facilities. The wafers
are then sent to our packaging subcontractors for packaging and assembly. Our
reliance on these subcontractors involves significant risks, including the lack
of adequate capacity, the possibility that necessary process technologies will
be eliminated and reduced control over quality and delivery schedules. These
independent subcontractors may discontinue doing business with us for a variety
of reasons. As a result, we may experience product delivery and quality
assurance problems, which in turn may harm our reputation and operating results.


19
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IF OUR PRODUCTS CONTAIN
DEFECTS OR FAIL TO ACHIEVE INDUSTRY RELIABILITY STANDARDS, OUR REPUTATION MAY BE
HARMED, AND WE MAY INCUR SIGNIFICANT UNEXPECTED EXPENSES AND LOSE SALES
OPPORTUNITIES.


Our products have in the
past contained, and may in the future contain, undetected errors or defects. Any
similar problem in the future may:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | cause
delays in product introductions and shipments;
| |  | - |  | ----------------------------------------------------

| |  | - |  | result
in increased costs and diversion of development resources;
| |  | - |  | -----------------------------------------------------------------

| |  | - |  | cause
us to incur increased charges due to obsolete or unusable inventory;
| |  | - |  | --------------------------------------------------------------------------

| |  | - |  | require
design modifications; or
| |  | - |  | --------------------------------

| |  | - |  | decrease
market acceptance or customer satisfaction with these products, which could result in
product returns.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------

|In addition, we may not
find defects or failures in our products until after commencement of commercial
shipments, which may result in loss or delay in market acceptance and could
significantly harm our operating results. Our current or potential customers
also might seek to recover from us any losses resulting from defects or failures
in our products. Liability claims could require us to spend significant time and
money in litigation or to pay significant damages. Any of these claims, whether
or not successful, could seriously damage our reputation and business.


IF WE FAIL TO ATTRACT
AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS MAY BE HARMED.


Our future success depends
largely upon the continued service of our key management and technical
personnel, and on our continued ability to hire, integrate and retain qualified
management and technical personnel, particularly engineers. Competition for
these employees in the analog semiconductor industry is intense, and we may not
be successful in attracting or retaining these personnel. In addition, it is
difficult to obtain work visas for foreign professionals trained in the United
States. The loss of any key employee, the failure of any key employee to perform
in his or her current position or our inability to attract and retain skilled
employees as needed could impair our ability to meet customer and technological
demands. The loss of the services of any executive officer or other key
technical or management personnel could harm our business. To help retain the
continued services of some of our key executives, we have entered into
employment agreements with some of them. We do not have key person life
insurance on any of our key personnel.


EARTHQUAKES, OTHER
NATURAL DISASTERS AND ROLLING BLACKOUTS MAY DAMAGE OUR FACILITIES OR
THOSE FOUNDRIES AND OTHERS ON WHICH WE DEPEND.


Our corporate headquarters
and internal foundry are located in California near major earthquake faults,
which have experienced earthquakes in the past. In addition, some of the
foundries, suppliers and other third parties upon which we rely are located near
fault lines. An earthquake or other natural disaster near one or more of the
facilities of third parties upon which we rely, like the earthquake in Taiwan in
September 1999 could disrupt the operations of those parties. Additionally, the
loss of power, such as the temporary loss of power caused by the rolling
blackouts experienced by us at our facility in northern California, could
disrupt our operations. None of these disruptions would be covered by insurance
and thus, the supply of our products could be limited and our business could be
hampered.


20
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IF WE FAIL TO PROTECT
OUR INTELLECTUAL PROPERTY, OUR COMPETITORS COULD MARKET PRODUCTS WITH SIMILAR
FEATURES, REDUCING DEMAND FOR OUR PRODUCTS AND HARMING OUR OPERATING RESULTS.


Our success depends in part
on our ability to protect our intellectual property rights covering our products
and technologies. We rely on a combination of patent, copyright, trademark,
trade secret laws and confidentiality procedures to protect our proprietary
rights. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. In addition, the laws of some foreign
countries, and the enforcement of those laws, do not protect proprietary rights
to as great an extent as do the laws of the United States. We also cannot assure
you that:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | our
means of protecting our proprietary rights will be adequate;
| |  | - |  | ----------------------------------------------------------------

| |  | - |  | patents
will be issued from our currently pending or future applications;
| |  | - |  | -------------------------------------------------------------------------

| |  | - |  | our
existing patents or any new patents will be sufficient in scope or strength to provide
any meaningful protection or commercial advantage to us;
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | any
patent or registered trademark owned by us will not be invalidated, circumvented or
challenged in the United States or foreign countries; or
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | others
will not misappropriate our proprietary technologies or independently develop similar
technology, duplicate our products or design around any patent issued to us or other
intellectual property rights of ours.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In addition, we may
initiate claims or litigation against third parties for infringement of our
proprietary rights to establish the validity of our proprietary rights. This
litigation, whether or not it is resolved in our favor, could result in
significant expense to us and divert the efforts of our technical and management
personnel.


WE MAY FROM TIME TO TIME
BE SUBJECT TO CLAIMS OF INFRINGEMENT OF OTHER PARTIES PROPRIETARY RIGHTS
OR TO CLAIMS THAT OUR INTELLECTUAL PROPERTY RIGHTS ARE INVALID, WHICH COULD
RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL PROPERTY RIGHTS.


From time to time we have
received and may receive in the future claims that we are infringing third
parties intellectual property rights or claims that our trademarks,
patents or other intellectual property rights are invalid. The semiconductor
industry is characterized by uncertain and conflicting intellectual property
claims and vigorous protection and pursuit of these rights. The resolution of
any claims of this nature, with or without merit, could be time consuming,
result in costly litigation or cause product shipment delays. In the event of an
adverse ruling, we might be required to discontinue the use of certain
processes, cease the manufacture and sale of infringing products, expend
significant resources to develop non-infringing technology or enter into royalty
or licensing agreements. Royalty or licensing agreements, if required, might not
be available on terms acceptable to us or at all. The loss of access to any
intellectual property could harm our business.


OUR FAILURE TO COMPLY
WITH ENVIRONMENTAL LAWS AND REGULATIONS COULD SUBJECT US TO SIGNIFICANT FINES
AND LIABILITIES, AND NEW LAWS AND REGULATIONS OR CHANGES IN REGULATORY
INTERPRETATION OR ENFORCEMENT COULD MAKE COMPLIANCE MORE DIFFICULT AND COSTLY.


We are subject to a variety
of federal, state, local and foreign governmental laws and regulations related
to the use, storage, discharge and disposal of toxic, volatile or otherwise
hazardous chemicals used in our manufacturing of semiconductor wafers. Our
failure to comply with present or future environmental laws and regulations
could result in fines being imposed on us, suspension of our production or a
cessation of our operations. Any failure by us to comply with these laws and
regulations could subject us to significant liabilities, thereby harming our
business and operating results. In addition, new environmental laws and
regulations or changes in regulatory interpretation and enforcement could render
compliance more difficult and costly and require significant capital
expenditures.


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WE MAY ENGAGE IN FUTURE
ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY OR PUT A STRAIN ON OUR
RESOURCES, OR CAUSE DILUTION TO OUR STOCKHOLDERS.


We may make acquisitions of
complementary businesses, products or technologies. Integrating newly acquired
organizations, products or technologies into our business could be expensive,
time consuming and may not be successful. Future acquisitions could divert our
managements attention from other business concerns and expose our business
to unforeseen liabilities or risks associated with entering new markets. In
addition, we may lose key employees while integrating these new organizations.
Consequently, we may not be successful in integrating any acquired business,
products or technologies and may not achieve anticipated revenue and cost
benefits. Furthermore, future acquisitions could result in customer
dissatisfaction, performance problems with an acquired company, potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities, amortization expenses related to goodwill and other intangible
assets or other unanticipated events or circumstances, any of which could harm
our business.


OUR TRADING PRICE MAY BE
VOLATILE.


The market for securities
of technology companies in general, and of companies in the semiconductor
industry, including us, in particular, has been highly volatile. It is likely
that the trading price of our common stock will continue to fluctuate in the
future. Factors affecting the trading price of our common stock include:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | responses
to fluctuations in our operating results;
| |  | - |  | ---------------------------------------------------

| |  | - |  | announcements
of technological innovations, new products or product enhancements, joint ventures or
significant agreements by us or our competitors;
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | our
sales of common stock or other securities in the future;
| |  | - |  | ------------------------------------------------------------

| |  | - |  | general
conditions in the video, optical storage, communications and power management markets; and
| |  | - |  | --------------------------------------------------------------------------------------------------

| |  | - |  | changes
in financial estimates or recommendations by market analysts regarding us and our
competitors.
| |  | - |  | ------------------------------------------------------------------------------------------------------

|In addition, the stock
market has experienced substantial price and volume volatility that has
particularly affected the trading prices of equity securities of many technology
companies and that often has been unrelated or disproportionate to the operating
results of these companies. As a result, any broad market fluctuations may
adversely affect the trading price of our common stock.


PROVISIONS OF OUR
CERTIFICATE OF INCORPORATION, BYLAWS AND STOCKHOLDER RIGHTS PLAN OR DELAWARE LAW
MAY DELAY OR PREVENT A CHANGE OF CONTROL OF ELANTEC OR CHANGES IN OUR MANAGEMENT
AND THEREFORE, DEPRESS THE TRADING PRICE OF OUR COMMON STOCK.


Delaware corporate law and
our certificate of incorporation and bylaws contain provisions that could delay,
defer or prevent a change in control of our company or changes in our management
that you may deem advantageous. These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions:


22
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| |  | - |  | authorize
the issuance of blank check preferred stock, which is preferred stock that our
board of directors can create and issue without prior stockholder approval with rights
senior to those of common stock;
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | limit
the ability of stockholders to call special meetings of stockholders;
| |  | - |  | ---------------------------------------------------------------------------

| |  | - |  | prohibit
cumulative voting in the election of directors, which would allow less than a majority of
stockholders to elect director candidates; and
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | - |  | establish
advance notice requirements for submitting nominations for election to the board of
directors and for proposing matters that can be acted upon by stockholders at a meeting.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In addition, our board of
directors declared a dividend of one preferred share purchase right for each
share of our common stock outstanding, subject to limitations stated in the
stockholder rights plan. These rights may delay, defer or prevent a change of
control of our company.


OUR REPORTED RESULTS MAY
BE ADVERSELY AFFECTED BY CHANGES IN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA.


We prepare our financial
statements in conformity with accounting principles generally accepted in the
United States of America (GAAP). GAAP is subject to interpretation by the
American Institute of Certified Public Accountants, the Securities and Exchange
Commission and various bodies formed to interpret and create appropriate
accounting policies. A change in these policies or interpretations can have a
significant effect on our reported results, and may even affect the reporting of
transactions completed prior to the announcement of a change.


23
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK


For interest rate
sensitivity and foreign currency exchange risk, reference is made to Part II,
Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our
Annual Report on Form 10-K for the year ended September 30, 2001.


24
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II - OTHER
INFORMATION


Not Applicable.


25
|--------------------------------------------------

|SIGNATURES


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

|Date: February 13, 2002 |  | ELANTEC SEMICONDUCTOR, INC.           (Registrant)By: /s/ Brian McDonald
Brian McDonaldChief Financial Officer (duly authorized officer and principal financial officer)
|----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------