UNITED STATES SECURITIES AND EXCHANGE
COMMISSION




Washington, D.C.
20549




FORM 10-K




(MARK
ONE)




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




For the fiscal year ended December
31, 2008




OR




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




Commission file number
0-25699











PLX Technology, Inc.




(Exact
name of Registrant as Specified in its Charter)




Delaware
              94-3008334(State
      or Other Jurisdiction of Incorporation or
    Organization)
              (I.R.S.
      Employer Identification Number)


870 W. Maude Avenue


Sunnyvale, California  94085


(408) 774-9060




(Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)




Securities
registered pursuant to Section 12(b) of the Act:




Title of
      Each Class:
                Name of
      Each Exchange on which RegisteredCommon Stock, par value $0.001 per
      share
                The NASDAQ Stock Market
  LLC




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No [X].




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]




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




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.  [X]




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definition of "large accelerated filer", "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act (Check One):


Large
accelerated filer [ ] Accelerated
filer [X] Non-accelerated
filer [ ] Smaller Reporting
Company [ ]




Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act ). Yes [
] No [X]




The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the registrant's common stock
on June 30,
2008 , as
reported on The NASDAQ Global Market, was $125,018,084. Shares of
common stock held by each executive officer and director and by each person who
to the registrant's knowledge owns 5% or more of the outstanding voting stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.




The
number of shares of common stock outstanding at February
28, 2009  was
33,604,240.




DOCUMENTS
INCORPORATED BY REFERENCE




PART III
OF THIS REPORT ON FORM 10-K INCORPORATES INFORMATION BY REFERENCE FROM THE
REGISTRANT'S PROXY STATEMENT FOR ITS 2009 ANNUAL MEETING OF STOCKHOLDERS - ITEMS
10, 11, 12, 13 AND 14.





PLX Technology,
Inc.
  INDEX TO
 ANNUAL REPORT ON FORM
10-K
 FOR YEAR ENDED DECEMBER 31,
2008
  Part I.
                
                PageItem 1.
                Business
                2Item 1A.
                Risk Factors
                11Item 1B.
                Unresolved Staff Comments
                19Item 2.
                Properties
                19Item 3.
                Legal Proceedings
                19Item 4.
                Submission of Matters to a Vote of Security
      Holders
                19Part II.Item 5.
                Market for Registrant's Common Equity and Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                20Item 6.
                Selected Financial Data
                22Item 7.
                Management's Discussion and Analysis of Financial
      Condition and Results of Operations
                22Item 7A.
                Quantitative and Qualitative Disclosures About Market
      Risk
                33Item 8.
                Financial Statements and Supplementary
      Data
                33Item 9.
                Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosures
                33Item 9A.
                Controls and Procedures
                33Item 9B.
                Other Information
                34Part III.Item 10.
                Directors, Executive Officers and Corporate
      Governance
                35Item 11.
                Executive Compensation
                35Item 12.
                Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                35Item 13.
                Certain Relationships and Related Transactions, and
      Director Independence
                35Item 14.
                Principal Accountant Fees and Services
                35Part IV.Item 15.
                Exhibits and Financial Statement
    Schedules
                36Signatures
                
                63
 1


PART I




ITEM 1: BUSINESS




Overview




PLX
Technology, Inc. ("PLX" or the "Company"), designs, develops, manufactures, and
sells integrated circuits.  These interconnect products are a
fundamental building block for standards-based subsystems.  The
company markets its products to major customers that sell electronic systems in
the server, storage, communications, industrial, and consumer
markets.




Products
based on current serial interconnect technology standards such as PCI Express,
USB, SATA, and Ethernet provide capabilities to customers that previous parallel
technologies did not.  They offer the ability for systems to scale in
performance and capabilities, and allow for a standards-based building block
approach that was not feasible in the past.  As these serial
technologies have become mainstream, PLX has been able to offer differentiated
products based on standard ports that provide scalability and performance at a
high-volume price point.




The
company is the market share leader in PCI Express switches and
bridges.  We recognized the trend towards this serial, switched
interconnect technology early, launched products for this market long before our
competitors, and have deployed multiple generations of products to serve a
general-purpose, horizontal market.  In addition to enabling customer
differentiation through our product features, the breadth of our product
offering is in itself a significant benefit to our customers, since we can serve
the complete needs of our customers with cost-effective solutions tailored to
the specific subsystem requirements.  Our long experience with PCI
Express connectivity products enables PLX to deliver reliable devices that
operate under non-ideal real-world system environments.




PLX is
building on its broad, general purpose interconnect success, and in particular
its success in enterprise storage, by focusing on a rapidly growing vertical
market: Consumer/Small Office Home Office (SOHO) storage.  On January
2, 2009, PLX completed the acquisition of Oxford Semiconductor, Inc. (Oxford), a
leading supplier of semiconductor components for the consumer and SOHO markets.
Oxford has brought to market several generations of leadership products that
allow storage customers to attach their disk subsystems directly to a computer
through USB (DAS), or to attach them through their local area network
(NAS).  We identified the shift from parallel to serial hard disk
connectivity early, and benefited from this trend to be become the leader in
high performance consumer/SOHO storage connectivity.   Our
products provide the richest variety of connectivity options, including USB,
SATA, eSATA, FireWire, and Ethernet, and offer capabilities such as RAID and
data encryption at industry leading performance levels. Because the acquisition
closed after the end of 2008, Oxford’s operating results are no included in this
filing, but will be included in filings starting the first quarter of
2009.




PLX
offers a complete solution consisting of semiconductor devices, software
development kits, hardware design kits, operating system ports, and firmware
solutions that enable added-value features in our products.  We
differentiate our products by offering higher performance and lower power, and
by enabling a richer customer experience based on proprietary features that
enable system-level customer advantages, and by providing capabilities that
enable a customer to get to market more quickly.




The PLX
growth strategy has several key components:




·
            Identify
      the technology trends and discontinuities that drive high-volume markets,
      and deliver appropriate products to that market before the
      competition;


·
            Deliver
      comprehensive solutions, including semiconductor devices, the necessary
      software and development kits to allow rapid time-to-market, and worldwide
      local technical support;


·
            Offer
      added-value features that enable our customers to differentiate their
      products;


·
            Focus
      on adding value at high volume price
points;




PLX is a
Delaware corporation established in 1986 with headquarters at 870 W. Maude
Avenue, Sunnyvale, California 94085. The telephone number is
(408) 774-9060. Additional information about PLX is available on our
website at http://www.plxtech.com. Information contained in the website is not
part of this report.




2




Our
Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports and the Proxy
Statement for our Annual Meeting of Stockholders are made available, free of
charge, on our website, http://www.plxtech.com, as soon as reasonably
practicable after the reports have been filed with or furnished to the
Securities and Exchange Commission.




Industry
Background




The
market for industry-standard interconnect has been invigorated by new
state-of-the-art serial technologies.  Previous parallel technologies,
such as PCI, provided basic connectivity, but did not offer the necessary
scalability, reliability, cost, and features for complex processing
systems.  As the subsystems, including the processing engines and end
point devices became more powerful, the true bottleneck in the system was not
the device and processor speed, but rather how quickly the data could be
transferred to and from the different subsystems.




At the
same time the cost, complexity, and time-to-market problems of developing
robust, high performance interconnect vehicles lead to the development of
standards that provide the performance and features necessary for high
performance systems, but do so at a cost point that can only be achieved through
high volume standard products.




These
serial technologies enabled, for the first time, the ability to offer high
performance, feature-rich computing solutions using off-the-shelf
standards-based building blocks.  The building block approach has
enabled the designers of these systems to bring to market their products more
quickly, and with a vastly lower cost of development.  In addition,
the software base that has built up around these standard solutions allow the
system designer to focus on their own added value, rather than recreating the
basic plumbing necessary to move the data around.




PLX
focuses on connecting together subsystems based on high volume, standard
connection points.  There are several aspects of this.  In
one aspect, the company serves a horizontal market need with its general purpose
PCI Express and USB devices.




PCI
Express is the primary interconnection mechanism inside computing systems
today.  By remaining software compatible with the previous, ubiquitous
parallel technology, the new switched serial PCI Express quickly became the
connection of choice for the majority of devices in the
industry.  Since there is a PCI Express port on almost every system
building block, the least costly and highest performance approach for connecting
the devices together is through this interconnection pathway.  However, to provide appropriate connection
between subsystems in complex multi-chip systems, a switch is the most
cost-effective approach.  The switch is thus a fundamental building
block for the system, carrying data to and from the subsystems without impeding
the native performance of the underlying devices.  For those few end
points which do not have native PCI Express connections, PLX also provides
bridges to translate the protocol.




The
Universal Serial Bus (USB) was designed to replace the expensive, slow,
unreliable, and unscalable parallel interconnects of the time, originally to
connect PCs with peripherals such as printers and external
storage.  Its speed has been upgraded continuously since its initial
rollout, and USB has become the most popular “box-to-box” interconnect in the
industry.  USB has become the natural way that users upgrade their
system with peripherals, eliminating the need to open the box and add plug-in
cards.




PLX has
recently added a vertical market capability to its more general-purpose
interconnect products.   These products address the fast growing
consumer/SOHO storage market.  The amount of digital data that
consumers need to store is increasing exponentially.  Trends such as
digital photography, digital video, MP3s and the on-line distribution of
high-definition movies are driving increased sales of external storage devices
in the consumer market.  Corresponding with these trends, demand for
data-protection features such as redundant array of inexpensive disks(RAID), automatic back-up,
and encryption is also growing.




The
Direct Attached Storage (DAS) market consists of products that allow the user to
upgrade their storage through the USB connection on their PC.  These
systems can be configured in a variety of ways.  The simplest of such
systems consist of single drive upgrades to increase capacity, for backup, or to
provide security encryption.  By adding multiple drives to the
connection, the user can make use of standards such as RAID for higher
reliability (by mirroring the information on multiple disks) or higher
performance (by reading and writing to multiple disks at once).  The
disks themselves have made the migration to serial technology along with the
rest of the interconnect world, and the SATA (Serial ATA) interface is now the
fastest growing opportunity for external interconnect devices.




3




The
Network Attached Storage (NAS) solution  is well established in the
enterprise market, but is still in the early stages for the consumer
market.  This technology adds storage to the system through the
network in either a wired or wireless manner.  This allows the data to
be saved and retrieved from more than one computer, and allows the data to be
available from network-ready appliances even when the main computer is not
available.  Along with basic storage, NAS products offer added-value
opportunities by combining subsystems as part of the connected
device.  This can be straightforward combinations such as a home
gateway, which combines multiple subsystems in a single box to reduce cost,
power, and space.  But this concept can be extended to add features
within the NAS box that accelerate multimedia applications or provide
sophisticated encryption capabilities.




Strategy




PLX
provides standards-based, off-the-shelf interconnect solutions to enable high
performance, low cost, added-value features, and rapid
time-to-market.  Although the external connections are standard in
order to enable high volume markets, the products themselves offer proprietary
advantages through innovative technology.




PLX
identifies technology trends, and provides products that cater to these trends
during the early, high growth phase of the technology market
discontinuity.  This allows the company to establish itself as the
leader, and provides a powerful incumbency benefit as the technology becomes
mainstream.




·
            PLX
      recognized the promise of PCI Express in the early days of the standard,
      and brought to market leadership switches and bridges in 2004, gaining
      market share at the key customers necessary for success.  The
      company continues to enjoy market share leadership in the PCI Express
      interconnect market.


·
            The
      company identified the move from Parallel ATA to Serial ATA (SATA), and
      gained an early lead in this high growth market with our DAS product
      line.


·
            PLX
      is now offering our 2nd
      generation of NAS products to the consumer market, building on our
      System-On-A-Chip (SOC) capability and our strong software and firmware
      strength to offer leadership features to this early
  market.




The
company focuses on offering leadership features to our customers at a high
volume price point.




·
            We
      focus on system level performance in all of our products.  Since
      the interconnect has such a large impact on system performance, we
      identify those areas that might limit overall latency or throughput and
      enhance them.  This is done through advanced silicon design
      techniques, and also through innovative software drivers that identify
      where the overhead is in the
system.


·
            We
      provide low power solutions to our customers, since this has become a
      major differentiator for total system cost and environmental
      reasons.  PLX offers reduced power through technology choices,
      and through design techniques that modulate power for sections of the
      device that are not in use.


·
            We
      offer added-value features that enable customer product
      differentiation.  This includes features such as
      non-transparency for multiprocessor capability, multiple virtual channels
      for communications backplanes, integrated DMA for higher performance in
      control planes, and encryption for storage systems.  On our
      storage products, we can enable customized features and enhance the
      performance of existing features through
  firmware.


·
            PLX
      focuses on providing these capabilities at high volume cost
      points.  We have a full COT (Customer Own Tooling) capability –
      where PLX handles all of the design, placement, and layout of the
      circuits, and we manage the packaging and test pipeline.  We
      deploy our products on mainstream, high volume semiconductor technology
      process nodes, and use advanced synthesis and layout techniques to provide
      the best trade-off between features and
cost.




PLX
provides more than just the semiconductor device.  We focus on
providing the whole product, and offering support that enables our customers to
get to market quickly with a robust high-end product.




·
            We
      supply a hardware Rapid Development Kit (RDK) as part of our standard
      offering.  This allows customers to evaluate our products
      easily, and enables software development and interoperability testing to
      begin prior to the customer developing their own
  hardware.




4




·
            PLX
      provides simulation models to customers that allow them to develop their
      own devices and verify that they interoperate with our products prior to
      getting silicon.


·
            We
      provide a complete Software Development Kit (SDK) that provides
      kernel-level drivers, a user-level application programming interface
      (API), sample code for some of the advanced features, and a
      state-of-the-art graphical user interface (GUI) that allows customers to
      easily bring up their system.  Support is provided for
      industry-leading operating systems.


·
            In
      addition to these visible features, our products also include in-chip
      capabilities that allow rapid debug of complex system problems in order to
      improve time-to-market.  This allows high speed signals to be
      effectively debugged in the field without adding special
      instrumentation.


·
            We
      offer worldwide technical support, with local, direct Field Applications
      Engineers (FAEs) in North America, Europe, and throughout
      Asia.




The
company has also enhanced its overall growth through acquisitions that provide
synergy with our overall added-value strategy.




On
December 15, 2008, we signed a definitive agreement to acquire all of the
outstanding shares of capital stock of Oxford, a privately held fabless provider
of industry-leading silicon and software for the SOHO storage
markets.  The acquisition closed on January 2, 2009.




Established
in 1992, Oxford has been providing reliable, high-performance silicon and
software solutions to interconnect digital systems, including PCIe, USB,
FireWire, Ethernet, SATA and eSATA.  Oxford’s corporate headquarters
were located in Milpitas, California, with most of its employees based in
Oxford’s design center in Abingdon, United Kingdom.  The rapidly
growing consumer and SOHO external storage markets account for the majority of
Oxford’s sales.  Oxford provides advanced system-on-chip solutions for
both direct-attached storage (DAS) and network-attached storage (NAS) external
drives.  Oxford has a reputation for providing innovative and reliable
chip, software and firmware solutions for consumer storage needs and counts
leading manufacturers and marketers as customers, including Seagate, Western
Digital, LaCie, Hewlett Packard, and Macpower.




We
believe that through this acquisition, we have a leadership position in two of
the fastest-growing interconnect chip markets – PCI Express-based systems
and consumer external storage.  Major synergies include common
interconnect technologies and design flows, sales, marketing and support
systems, and supply chains.  Most importantly, we can create
innovative products that combine the considerable intellectual property and
industry knowledge of Oxford and PLX.  The two companies share a
customer-focused business philosophy that includes delivering the highest
quality products and services, and a culture that rewards innovation and
results.




We
continue to evaluate our business strategies and may complete additional
acquisitions in future periods.




Technology




PLX
focuses on providing differentiated products to leadership
customers.  In order to achieve this, we have developed unique core
competencies in the underlying technologies necessary for success.




Semiconductor Design.Our
engineers have substantial expertise in designing complex, reliable, high
performance products.  We utilize state-of-the-art EDA tools and
techniques for the entire design pipeline, and have developed proprietary
verification mechanisms to ensure robust operation prior to committing to
silicon.  It is relatively straightforward to get a device to operate
in normal, error free environments.  It is much more challenging to
have that device operative predictably and reliably in environments where errors
occur in the system, and where unexpected or complex combinations of
transactions occur.  PLX has built up an industry-leading suite of
tests that ensure such reliable operation in real-world customer
systems.




In
addition to software-based simulation techniques, we have also invested in a
flexible hardware-based emulation platform that enables our designers to run
real software on a version of our design prior to committing to
silicon.  This allows our products to operate in more complex
system-level environments, where subtle and undocumented behaviors often
exist.




5




PLX has a
dedicated team and the appropriate EDA tools to translate the design into the
database that is used to fabricate the device.  This physical design
capability allows the company to provide a smaller, lower power product, since
the engineers who are doing this placement and layout work are part of our staff
and work with the design engineers from the start of the
project.  This capability also allows us to produce a product with
higher signal integrity, which enables the device to work in a wider range of
noisy environments more predictably.




When we
receive our initial sample silicon back from the fab, we have a dedicated group
of engineers to fully validate the product prior to sending it to our broad
customer base.  As with the pre-silicon verification, this
post-silicon phase makes use of our years of product releases to ensure reliable
product operation.  We have invested in the talent and equipment, and
use our extensive proprietary test suites, to fully validate the
device.  In addition, we have built up a broad interoperability lab,
where we exercise the product with a growing number of other components and
subsystems to ensure reliable operation in a range of real-world
environments.




System-on-a-Chip
Expertise.Our
storage products are integrated, dedicated computer SOCs.  We have the
verification, emulation, and integration capability to combine these subsystems
on a single piece of silicon through tools and expertise that we have developed
through many generations of such devices.  In addition to being able
to allow basic connectivity between different interconnect standards, we focus
on providing higher performance than our competitors by including on-chip
acceleration engines, and by understanding how the system level software
operates with the hardware in actual systems.




Software Technology.The
company has invested in a complete software development
capability.  In order to enable our customers to get to market
quickly, PLX provides device drivers that support our products for the most
popular operating system platforms, as well as API libraries that allow
programmers to quickly make use of our products.   In order to
ensure that our products provide the highest performance possible, we have
developed the tools and expertise to understand where the software bottlenecks
occur in real-world systems, and our device drivers make use of this knowledge
to increase the performance of targeted applications such as multimedia data
transfer across a network.




Our
products have proprietary hardware features that allow complex problems to be
solved in the field without special instrumentation, and performance monitoring
hardware that makes visible important system performance metrics.  We
include software as part of our normal release that takes these hardware
features and allows them to be easily deployed through a modern GUI
interface.  We also enable the programmer to view and change the
registers in our device quickly and easy – and even access an on-line databook
explanation of the register directly - with our industry-leading PLXMon
application.




Our
storage products are complex computer systems, with an on-chip processors and
special purpose building blocks.  We develop our own firmware for
these systems that orchestrate the operation of the subsystems to provide high
performance and reliable operation under often chaotic external
environments.  Our firmware allows PLX to enable features for specific
applications without needing to create new silicon, and it gives the company an
opportunity to improve performance in existing systems as the needs of the
system change.




Products




Our
products consist of interconnect semiconductor products, fully supported by the
software and hardware kits that enable our customers to get to market quickly
with robust, differentiated products.




PCI Express
Switches.Since PCI Express is a serial, point-to-point serial
interconnect standard, it requires a switch to connect a single PCI Express port
from a processor or chipset to multiple end-points.  Examples of
applications include fan-out in servers and storage systems, dual graphics in
gaming and workstation systems, control planes in networking and communications
systems and backplanes in embedded and industrial equipment. PLX switches allow
aggregation of multi-channel Gigabit Ethernet, Fibre Channel, graphics and SAS
cards to the host. PLX switch products are offered in various configurations as
requirements vary from one application to the next. PCI Express switches have
become a basic building block in systems being designed today using this
standard.  PLX started with the Gen 1 family of PCI Express at 2.5
Gigabits per second in 2004, followed by Gen 2 products in late 2007, where the
data rate has doubled to 5.0 Gigabits per second.




6




PCI Express
Bridges. PCI Express Bridges enable conventional PCI products
(32-bit/33 MHz, 32-bit/66 MHz and even 64-bit/133 MHz PCI-X) to be upgraded for
use in new PCI Express systems.  This allows users to quickly bring a
new product to market.  Applications using these bridge devices
include servers, storage host bus adapters, graphics, TV tuners and security
systems.   The reverse bridging feature also allows users to
bridge backwards allowing the latest PCI Express based powerful CPUs/Graphics
processors to still service and support the legacy PCI and PCI-X
market.  We also offer bridges that translate PCI Express to general
purpose serial and parallel ports.




Direct Attached Storage
(DAS).DAS devices are
System-on-a-Chip (SOC) products that allow external storage to be easily
connected to a PC through either a USB, FireWire, or eSATA
connection.  PLX products offer the widest range of connection
possibilities, and the most complete feature set, including single, dual, and
quad hard disk connection,  RAID, and encryption.  The PLX
devices have industry leading performance across all interfaces.




Network Attached Storage
(NAS).NAS products
provide storage that attaches to a Local Area Network (LAN).  PLX NAS
products are aimed at the consumer/SOHO market, and are SOC devices that combine
Ethernet, USB, and SATA ports with other standard interfaces necessary to
complete a state-of-the-art network appliance.  PLX products include a
PCI interface to easily create complete subsystems, a DDR DRAM interface, and
on-chip capabilities such as TCP off-load, RAID, and
encryption.  These basic building blocks are enabled with high
performance firmware that runs on a powerful, low power ARM
processor.




PCI Bridges. PLX offers a
range of general purpose bridges that translate and extend the PCI
bus.  These products offer a bridge between the PCI and a variety of
other serial and parallel general purpose interfaces.  Our PCI-to-PCI
bridges are chips that increase the number of peripheral devices that can be
included in a microprocessor-based system. PLX’s bridge product line spans the
entire PCI range, from 32-bit 33MHz through 64-bit 66MHz, and includes 133MHz
PCI-X devices.




USB Interface Chips.USB interface
chips are used by computer peripherals to connect to a PC through an external
cabled connection.  The current mainstream version of this spec, called USB
2.0, can be found today on devices like multi-function printers, DVD camcorders,
portable media players, portable navigation systems, digital cameras, PDAs and
hard disks.  Our USB interface chips offer connection to both PCI or to a
generic interface, providing a simple connection that offers high
performance.




Customers




We supply
our products to the leading companies in the server, storage,
communications, industrial, and consumer markets, and more than 1,000
electronic equipment manufacturers incorporate our semiconductor devices in
their systems.  Since the products that we design and sell have innovative
features, and since there is normally a software impact to the vendor choice,
the customer design team typically selects the sole-source hardware and software
components early in the design cycle. Generally, the system will incorporate
these same components throughout its product life because changes require an
expensive re-engineering effort. Therefore, when our products are designed into
a system, they are likely to be used in that system throughout its production
life.




Competition




Competition
in the semiconductor industry is intense. If our target markets continue to
grow, the number of competitors may increase significantly. In addition, new
semiconductor technologies may lead to new products that can perform similar
functions as our products.




We
believe that the principal factors of competition in our business include
functionality, product performance, price, product innovation, availability of
development tools, customer service and reliability. We believe that we compete
favorably with respect to each of these factors. We differentiate our products
from those of our competitors by incorporating innovative features that allow
our customers to build systems based on industry standards that provided more
features, and higher performance. Furthermore, in general, our software and
hardware development tools are more comprehensive than competing
solutions.




7




Competition
in the various markets we serve comes from companies of different sizes, many of
which are significantly larger and have greater financial and other resources.
Our principal products compete with standard products from companies such as
Cypress Semiconductor, Genesys Logic, Gennum, IDT, Intel, NEC, Pericom
Semiconductor, NXP Semiconductor, Renesas, Texas Instruments, Tundra
Semiconductor, Marvell, Symwave, Cortina, MosChip, JMicron, and
Initio.




In
addition, two alternative devices can perform some or all of the functions of
our devices. The first is the Application Specific Integrated Circuit, or ASIC.
With the ASIC approach, a customer creates a custom semiconductor device for a
particular application. Because the customer buys the ASIC directly from the
semiconductor foundry, this approach may lead to lower unit production costs.
However, this approach entails a large initial time and resource investment in
developing the custom device. The second alternative device is the Field
Programmable Gate Array, or FPGA. The FPGA is a semiconductor device whose logic
function can be programmed by the system manufacturer. This requires less design
effort and time than the ASIC approach. However, because of the additional
circuitry required to enable the device to be programmed, this approach
typically entails higher unit production costs which can be prohibitive compared
to ASICs or standard semiconductor devices. Nevertheless, FPGA prices have
decreased steadily and in many cases are competitive with prices for standard
semiconductor devices. Accordingly, we also experience competition from leading
ASIC suppliers, including IBM, LSI Logic, NEC, and Toshiba as well as from FPGA
suppliers, including Actel, Altera, Atmel, Lattice, Quicklogic and Xilinx. Many
of these competitors are large companies that have significantly greater
financial, technical, marketing and other resources than PLX.




Sales,Marketing and Technical
Support




Our sales
and marketing strategy is to achieve design wins at leading systems-companies in
high-growth market segments. We market and sell our products in the United
States through a combination of direct regional sales managers, a network of
independent manufacturers' representatives and distributors. We maintain United
States sales liaison offices in California, Connecticut, Illinois,
Massachusetts and Texas.




Outside
the United States, we have engaged a team of manufacturers' representatives,
stocking representatives and distributors to sell and market our products. Our
international network includes representatives in Australia, Austria, Belgium,
Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, India, Ireland,
Israel, Italy, Japan, Korea, Norway, People's Republic of China, Singapore,
South Africa, Spain, Sweden, Switzerland, Taiwan, The Netherlands and the United
Kingdom. We maintain a sales liaison office in the United Kingdom and France to
service customers in Europe and the Middle East. We also maintain sales liaison
offices in Korea, Taiwan, and China to service customers in Korea, Southeast
Asia and The People's Republic of China.  Finally, we maintain a sales
liaison office in Japan to service customers in Japan.




Sales in
North America represented 31%, 29% and 30%, of net revenues for 2008, 2007 and
2006, respectively. All worldwide sales to date have been denominated in U.S.
dollars. We have one operating segment, the sale of semiconductor devices.
Additional segment reporting information is included in Note 12 of Notes to the
Consolidated Financial Statements in this form 10-K.




Net
revenues through distributors accounted for approximately 80%, 77% and 70% of
our net revenues for 2008, 2007 and 2006, respectively. Included in 2006
distributor revenues is the amount of $2.8 million, or 3.4% of total net
revenues, resulting from the change in the accounting for revenues to
distributors. See “Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies - Revenue
Recognition” in this Form 10-K for details on the change in accounting for
distributor revenues.  Revenues related to sales through distributors
are expected to continue to account for a large portion of our total revenues.
See "Item 1A, Risk Factors - Certain Factors That May Affect Future Operating
Results - A Large Portion of Our Revenues Is Derived from Sales to Third-Party
Distributors Who May Terminate Their Relationships with Us at Any Time" in this
Form 10-K.




In 2008,
sales to Excelpoint Systems Pte Ltd, Answer Technology, Inc. and Avnet, Inc.,
distributors, accounted for 29%, 13% and 12%, respectively, of our net revenues.
In 2007, sales to Excelpoint Systems Pte Ltd, Metatech and Answer Technology,
Inc. accounted for 18%, 17% and 10%, respectively, of our net revenues. In 2006,
sales to Metatech and Answer Technology, Inc. accounted for 31% and 10%,
respectively, of our net revenues.  No other distributor or direct
customer accounted for more than 10% of net revenues in any period
presented.




8




Technical
support to customers provided under warranty is provided through field and
factory applications engineers, technical marketing personnel and, if necessary,
product design engineers. Local field support is provided in person, email,
internet or by telephone. We also use our website to provide product
documentation and technical support information. We believe that providing
customers with comprehensive product support is critical to remaining
competitive in the markets we serve. In addition, our close contact with
customer design engineers provides valuable input into existing product
enhancements and next generation product specifications.




Research and
Development




Our
future success will depend to a large extent on our ability to rapidly develop
and introduce new products and enhancements to our existing products that meet
emerging industry standards and satisfy changing customer requirements. We have
made and expect to continue to make substantial investments in research and
development and to participate in the development of new and existing industry
standards.




The
majority of our engineers are involved in semiconductor device development, with
the remaining engineers working on software and reference design hardware.
Before development of a new product commences, our marketing managers work
closely with research and development engineers and customers to develop a
comprehensive requirements specification. In addition, our marketing managers
and engineers review the applicable industry standards and incorporate desired
changes into the new product specification. After the product is designed and
commercially available, our engineers continue to work with various customers on
specific design issues to understand emerging requirements that may be
incorporated into future product generations or product upgrades.




Our
research and development expenditures totaled $27.1 million, $24.4 million
and $20.2 million in 2008, 2007 and 2006, respectively. Research and
development expenses consist primarily of tape-out related costs at our
independent foundries, salaries and related costs, including share-based
compensation and expenses for outside engineering consultants. We perform our
research and development activities at our headquarters in Sunnyvale, California
and beginning in 2009, we will have additional research and development
activities in Abingdon, United Kingdom. We periodically seek to hire additional
skilled development engineers who are currently in short supply. Our business
could be adversely affected if we encounter delays in hiring additional
engineers. See "Item 1A, Risk Factors - Certain Factors That May Affect Future
Operating Results - We Could Lose Key Personnel Due to Competitive Market
Conditions and Attrition" in this Form 10-K.




Our
future performance depends on a number of factors, including our ability to
identify emerging technology trends in our target markets, define and develop
competitive new products in a timely manner, enhance existing products to
differentiate them from those of competitors and bring products to market at
competitive prices. The technical innovations and product development required
for us to remain competitive are inherently complex and require long development
cycles. We typically must incur substantial research and development costs
before the technical feasibility and commercial viability of a product can be
ascertained. We must also continue to make significant investments in research
and development in order to continually enhance the performance and
functionality of our products to keep pace with competitive products and
customer demands for improved performance. Revenues from future products or
product enhancements may not be sufficient to recover the development costs
associated with these products or enhancements. The failure to successfully
develop new products on a timely basis could have a material adverse effect on
our business.




Manufacturing




We have
adopted a "fabless" semiconductor manufacturing model and outsource all of our
semiconductor manufacturing, assembly and testing. This approach allows us to
focus our resources on the design, development and marketing of products and
significantly reduces our capital requirements. Currently, our products are
primarily being fabricated, assembled or tested by AMD, Advanced Semiconductor
Engineering, Fujitsu, FST, NEC, Seiko-Epson Semiconductor, STATS ChipPAC Ltd.,
Taiwan Semiconductor Manufacturing Corporation and UMC. These manufacturers
assemble and test our products based on the design and test specifications we
have provided. A small number of our products are currently manufactured by more
than one supplier, and we expect a substantial amount of our products to be
single-source manufactured for the foreseeable future. We must place orders two
to four months in advance of expected delivery of finished goods. We maintain
inventory levels based on current lead times from foundries plus safety stock to
account for unanticipated interruption in supply and fluctuations in demand. Our
inventory comprises a large portion of our working capital. As a result, we have
limited ability to react to fluctuations in demand for our products which could
cause us to have an excess or a shortage of inventory of a particular product
and reduced product revenues.




9




In the
event of a loss of, or a decision by us to change a key supplier or foundry,
qualifying a new supplier or foundry and commencing volume production would
likely involve delay and expenses, resulting in lost revenues, reduced operating
margins and possible detriment to customer relationships. Since we place our
orders on a purchase order basis and do not have a long-term volume purchase
agreement with any of our existing suppliers, any of these suppliers may
allocate capacity to the production of other products while reducing deliveries
to us on short notice. While we believe we currently have good relationships
with our foundries and adequate capacity to support our current sales levels,
there can be no assurance that adequate foundry capacity will be available in
the future on acceptable terms, if at all. See "Item 1A, Risk Factors - Certain
Factors That May Affect Future Operating Results - Our Independent Manufacturers
May Not Be Able To Meet Our Manufacturing Requirements" in this Form
10-K.




Our
semiconductor devices are currently fabricated using a range of semiconductor
manufacturing processes. We must continuously develop our devices using more
advanced processes to remain competitive on a cost and performance basis.
Migrating to new technologies is a challenging task requiring new design skills,
methods and tools. We believe that the transition of our products to smaller
geometries will be important for us to remain competitive. Our business could be
materially adversely affected if any transition to new processes is delayed or
inefficiently implemented. See " Item 1A, Risk Factors - Certain Factors That
May Affect Future Operating Results - Defects in Our Products Could Increase Our
Costs and Delay Our Product Shipments" in this Form 10-K.




Intellectual
Property




Our
future success and competitive position depend upon our ability to obtain and
maintain the proprietary technology used in our principal products. Most of our
current products include implementations of the PCI, PCI Express and USB
industry standards, which are available to other companies. We currently have no
patents on any of our I/O accelerator products and rely instead on trade secret
protection. We hold 9 patents on switch technology that will expire at various
dates beginning in 2014 through 2023. In addition, through our acquisition
of Oxford, we own 7 other patents that will expire at various dates between 2027
and 2028. In the future, we plan to seek patent protection when we believe it is
necessary.




Our
existing or future patents may be invalidated, circumvented, challenged or
licensed to others. The rights granted may not provide competitive advantages to
us. In addition, our future patent applications may not be issued with the scope
of the claims sought by us, if at all. Furthermore, others may develop
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned or licensed by us. In addition,
effective patent, trademark, copyright and trade secret protection may be
unavailable or limited in foreign countries where we may need this protection.
We cannot be sure that steps taken by us to protect our technology will prevent
misappropriation of our technology.




The
semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions. This often results in significant,
often protracted and expensive litigation. There is no intellectual property
litigation currently pending against us. However, we may from time to time
receive notifications of claims that we may be infringing patents or other
intellectual property rights owned by other third parties. If it is necessary or
desirable, we may seek licenses under these third party patents or intellectual
property rights. However, we cannot be sure that licenses will be offered or
that the terms of any offered licenses will be acceptable to us.




The
failure to obtain a license from a third party for technology used by us could
cause us to incur substantial liabilities and to suspend the manufacture or
shipment of products or our use of processes requiring the technology.
Litigation could result in significant expenses to us, adversely affect sales of
the challenged product or technology and divert the efforts of our technical and
management personnel, whether or not the litigation is determined in our favor.
In the event of an adverse result in any litigation, we could be required to pay
substantial damages, cease the manufacture, use, sale or importation of
infringing products, expend significant resources to develop or acquire
non-infringing technology, and discontinue the use of processes requiring the
infringing technology or obtain licenses to the infringing technology. In
addition, we may not be successful in developing or acquiring the necessary
licenses under reasonable terms. This could require expenditures by us of
substantial time and other resources. Any of these developments would have a
material adverse effect on our business. See "Item 1A, Risk Factors - Certain
Factors That May Affect Future Operating Results - Our Limited Ability to
Protect Our Intellectual Property and Proprietary Rights Could Adversely Affect
Our Competitive Position" in this Form 10-K.




10




Employees




As of
December 31, 2008, we employed a total of 158 full-time employees,
including 71 engaged in research and development, 57 engaged in sales and
marketing, 3 engaged in manufacturing operations and 27 engaged in general
administration activities. We also from time to time employ part-time employees
and hire contractors. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
that our employee relations are good.




Backlog




PLX's
backlog at any particular date is not necessarily indicative of actual sales for
any succeeding period. This results from expected changes in product delivery
schedules and cancellation of product orders. In addition, PLX's sales will
often reflect orders shipped in the same quarter that they are
received.




ITEM 1A: RISK
FACTORS




FACTORS THAT MAY AFFECT FUTURE
OPERATING RESULTS




If a
company’s operating results are below the expectation of public market analysts
or investors, then the market price of its common stock could
decline.  Many factors that can affect a company’s quarterly and
annual results are difficult to control or predict.  Factors which can
affect the operating results of a semiconductor company such as PLX are
described below.




Risks and
uncertainties that could cause actual results to differ materially from those
described herein include the following:




Global
Economic Conditions May Continue to Have an Adverse Effect on Our Businesses and
Results of Operations.




The
recent severe tightening of the credit markets, turmoil in the financial
markets, and weakening global economy are contributing to slowdowns in the
industries in which we operate.  Economic uncertainty exacerbates
negative trends in spending and may cause certain customers to push out, cancel,
or refrain from placing orders, which may reduce revenue. Difficulties in
obtaining capital and deteriorating market conditions may also lead to the
inability of some customers to obtain affordable financing, resulting in lower
sales. Customers with liquidity issues may lead to additional bad debt expense.
These conditions may also similarly affect key suppliers, which could affect
their ability to deliver parts and result in delays in the availability of
product.  Further, these conditions and uncertainty about future economic
conditions make it challenging for us to forecast our operating results, make
business decisions, and identify the risks that may affect our business,
financial condition and results of operations. In addition, we maintain an
investment portfolio that is subject to general credit, liquidity, market and
interest rate risks that may be exacerbated by deteriorating financial market
conditions and, as a result, the value and liquidity of the investment portfolio
could be negatively impacted and lead to impairment.  If the current
economic conditions are prolonged or deteriorate further, or if we are not able
to timely and appropriately adapt to changes resulting from the difficult
macroeconomic environment, our business, financial condition or results of
operations may be materially and adversely affected.





Our
Operating Results May Fluctuate Significantly Due To Factors Which Are Not
Within Our Control




In the
fourth quarter of 2008, we experienced a broad decrease in order rates across
most product lines, markets and end customers, and expect to report a decrease
in sales in the first quarter of 2009.




11




Our
quarterly operating results have fluctuated significantly in the past and are
expected to fluctuate significantly in the future based on a number of factors,
many of which are not under our control.  Our operating expenses,
which include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term.  If our revenues are
lower than we expect because we sell fewer semiconductor devices, delay the
release of new products or the announcement of new features, or for other
reasons, we may not be able to quickly reduce our spending in
response.




Other
circumstances that can affect our operating results include:




·
            the
      timing of significant orders, order cancellations and
      reschedulings;


·
            the
      loss of one or more significant
customers;


·
            introduction
      of products and technologies by our
competitors;


·
            the
      availability of production capacity at the fabrication facilities that
      manufacture our products;


·
            our
      significant customers could lose market share that may affect our
      business;


·
            integration
      of our product functionality into our customers’
  products;


·
            our
      ability to develop, introduce and market new products and technologies on
      a timely basis;


·
            unexpected
      issues that may arise with devices in
  production;


·
            shifts
      in our product mix toward lower margin
products;


·
            changes
      in our pricing policies or those of our competitors or suppliers,
      including decreases in unit average selling prices of our
      products;


·
            the
      availability and cost of materials to our
  suppliers;


·
            general
      macroeconomic conditions; and


·
            political
      climate.




These
factors are difficult to forecast, and these or other factors could adversely
affect our business.  Any shortfall in our revenues would have a
direct impact on our business.  In addition, fluctuations in our
quarterly results could adversely affect the market price of our common stock in
a manner unrelated to our long-term operating performance.




The
Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances
In The Demand For Our Products




In the
past, the semiconductor industry has been characterized by significant downturns
and wide fluctuations in supply and demand.  Also, the industry has
experienced significant fluctuations in anticipation of changes in general
economic conditions.  This cyclicality has led to significant
variances in product demand and production capacity.  It has also
accelerated erosion of average selling prices per unit.  We may
experience periodic fluctuations in our future financial results because of
industry-wide conditions.




Because
A Substantial Portion Of Our Net Revenues Are Generated By A Small Number Of
Large Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net
Revenues And Earnings Will Be Harmed




Historically,
a relatively small number of customers have accounted for a significant portion
of our net revenues in any particular period. In 2008, sales to Excelpoint
Systems Pte Ltd, Answer Technology, Inc. and Avnet Inc. accounted for 29%, 13%
and 12%, respectively, of net revenues. In 2007, sales to Excelpoint Systems Pte
Ltd, Metatech and Answer Technology, Inc. accounted for 18%, 17% and 10%,
respectively, of net revenues.  In 2006, sales to Metatech and Answer
Technology, Inc. accounted for 31% and 10% of our net revenues. No other
distributor or direct customer accounted for more than 10% of net revenues in
any period presented.




We have
no long-term volume purchase commitments from any of our significant customers.
We cannot be certain that our current customers will continue to place orders
with us, that orders by existing customers will continue at the levels of
previous periods or that we will be able to obtain orders from new customers. In
addition, some of our customers supply products to end-market purchasers and any
of these end-market purchasers could choose to reduce or eliminate orders for
our customers' products. This would in turn lower our customers' orders for our
products.




12




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 have in the past and
may in the future reduce our net revenues or earnings:




·
            the
      reduction, delay or cancellation of orders from one or more of our
      significant customers;


·
            the
      selection of competing products or in-house design by one or more of our
      current customers;


·
            the
      loss of one or more of our current customers;
or


·
            a
      failure of one or more of our current customers to pay our
      invoices.




Intense
Competition In The Markets In Which We Operate May Reduce The Demand For Or
Prices Of Our Products




Competition
in the semiconductor industry is intense.  If our main target market,
the microprocessor-based systems market, continues to grow, the number of
competitors may increase significantly. In addition, new semiconductor
technology may lead to new products that can perform similar functions as our
products.  Some of our competitors and other semiconductor companies
may develop and introduce products that integrate into a single semiconductor
device the functions performed by our semiconductor devices.  This
would eliminate the need for our products in some applications.




In
addition, competition in our markets comes from companies of various sizes, many
of which are significantly larger and have greater financial and other resources
than we do and thus can better withstand adverse economic or market
conditions.  Therefore, we cannot assure you that we will be able to
compete successfully in the future against existing or new competitors, and
increased competition may adversely affect our business.  See “Item 1,
Business - Competition” and “-Products” in this Form 10-K.




Our
Independent Manufacturers May Not Be Able To Meet Our Manufacturing
Requirements




We do not
manufacture any of our semiconductor devices.  Therefore, we are
referred to in the semiconductor industry as a “fabless” producer of
semiconductors.  Consequently, we depend upon third party
manufacturers to produce semiconductors that meet our
specifications.  We currently have third party manufacturers located
in China, Japan, Korea, Malaysia, Singapore and Taiwan that can produce
semiconductors which meet our needs.  However, as the semiconductor
industry continues to progress towards smaller manufacturing and design
geometries, the complexities of producing semiconductors will
increase.  Decreasing geometries may introduce new problems and delays
that may affect product development and deliveries.  Due to the nature
of the semiconductor industry and our status as a “fabless” semiconductor
company, we could encounter fabrication-related problems that may affect the
availability of our semiconductor devices, delay our shipments or may increase
our costs.




Only a
small number of our semiconductor devices are currently manufactured by more
than one supplier.  We place our orders on a purchase order basis and
do not have a long term purchase agreement with any of our existing
suppliers.  In the event that the supplier of a semiconductor device
was unable or unwilling to continue to manufacture our products in the required
volume, we would have to identify and qualify a substitute
supplier.  Introducing new products or transferring existing products
to a new third party manufacturer or process may result in unforeseen device
specification and operating problems.  These problems may affect
product shipments and may be costly to correct.  Silicon fabrication
capacity may also change, or the costs per silicon wafer may
increase.  Manufacturing-related problems may have a material adverse
effect on our business.




Lower
Demand For Our Customers’ Products Will Result In Lower Demand For Our
Products




Demand
for our products depends in large part on the development and expansion of the
high-performance microprocessor-based systems markets including networking and
telecommunications, enterprise and customer storage, imaging and industrial
applications.  The size and rate of growth of these
microprocessor-based systems markets may in the future fluctuate significantly
based on numerous factors. These factors include the adoption of alternative
technologies, capital spending levels and general economic
conditions.  Demand for products that incorporate high-performance
microprocessor-based systems may not grow.




13




Our
Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our
Expected Revenues




Our
customers typically perform numerous tests and extensively evaluate our products
before incorporating them into their systems.  The time required for
test, evaluation and design of our products into a customer’s equipment can
range from six to twelve months or more.  It can take an additional
six to twelve months or more before a customer commences volume shipments of
equipment that incorporates our products.  Because of this lengthy
sales cycle, we may experience a delay between the time when we increase
expenses for research and development and sales and marketing efforts and the
time when we generate higher revenues, if any, from these
expenditures.




In
addition, the delays inherent in our lengthy sales cycle raise additional risks
of customer decisions to cancel or change product plans.  When we
achieve a design win, there can be no assurance that the customer will
ultimately ship products incorporating our products.  Our business
could be materially adversely affected if a significant customer curtails,
reduces or delays orders during our sales cycle or chooses not to release
products incorporating our products.




Failure
To Have Our Products Designed Into The Products Of Electronic Equipment
Manufacturers Will Result In Reduced Sales




Our
future success depends on electronic equipment manufacturers that design our
semiconductor devices into their systems.  We must anticipate market
trends and the price, performance and functionality requirements of current and
potential future electronic equipment manufacturers and must successfully
develop and manufacture products that meet these requirements.  In
addition, we must meet the timing requirements of these electronic equipment
manufacturers and must make products available to them in sufficient
quantities.  These electronic equipment manufacturers could develop
products that provide the same or similar functionality as one or more of our
products and render these products obsolete in their applications.




We do not
have purchase agreements with our customers that contain minimum purchase
requirements.  Instead, electronic equipment manufacturers purchase
our products pursuant to short-term purchase orders that may be canceled without
charge. We believe that in order to obtain broad penetration in the markets for
our products, we must maintain and cultivate relationships, directly or through
our distributors, with electronic equipment manufacturers that are leaders in
the embedded systems markets.  Accordingly, we will incur significant
expenditures in order to build relationships with electronic equipment
manufacturers prior to volume sales of new products. If we fail to develop
relationships with additional electronic equipment manufacturers to have our
products designed into new microprocessor-based systems or to develop sufficient
new products to replace products that have become obsolete, our business would
be materially adversely affected.




Defects
In Our Products Could Increase Our Costs And Delay Our Product
Shipments




Our
products are complex. While we test our products, these products may still have
errors, defects or bugs that we find only after commercial production has begun.
We have experienced errors, defects and bugs in the past in connection with new
products.




Our
customers may not purchase our products if the products have reliability,
quality or compatibility problems. This delay in acceptance could make it more
difficult to retain our existing customers and to attract new
customers.  Moreover, product errors, defects or bugs could result in
additional development costs, diversion of technical and other resources from
our other development efforts, claims by our customers or others against us, or
the loss of credibility with our current and prospective customers. In the past,
the additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. We may have to spend significant
amounts of capital and resources to address and fix problems in new
products.




We must
continuously develop our products using new process technology with smaller
geometries to remain competitive on a cost and performance
basis.  Migrating to new technologies is a challenging task requiring
new design skills, methods and tools and is difficult to achieve.




14




Failure
Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial
Condition




We
believe that our growth prospects depend upon our ability to gain customer
acceptance of our products and technology.  Market acceptance of
products depends upon numerous factors, including compatibility with other
products, adoption of relevant interconnect standards, perceived advantages over
competing products and the level of customer service available to support such
products.  There can be no assurance that growth in sales of new
products will continue or that we will be successful in obtaining broad market
acceptance of our products and technology.




We expect
to spend a significant amount of time and resources to develop new products and
refine existing products. In light of the long product development cycles
inherent in our industry, these expenditures will be made well in advance of the
prospect of deriving revenues from the sale of any new products. Our ability to
commercially introduce and successfully market any new products is subject to a
wide variety of challenges during this development cycle, including start-up
bugs, design defects and other matters that could delay introduction of these
products to the marketplace. In addition, since our customers are not obligated
by long-term contracts to purchase our products, our anticipated product orders
may not materialize, or orders that do materialize may be cancelled. As a
result, if we do not achieve market acceptance of new products, we may not be
able to realize sufficient sales of our products in order to recoup research and
development expenditures. The failure of any of our new products to achieve
market acceptance would harm our business, financial condition, results of
operation and cash flows.




A
Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors
Who May Terminate Their Relationships With Us At Any Time




We depend
on distributors to sell a significant portion of our products. Sales through
distributors accounted for approximately 80%, 77% and 70% of our net revenues in
2008, 2007 and 2006, respectively. Some of our distributors also market and sell
competing products.  Distributors may terminate their relationships
with us at any time.  Our future performance will depend in part on
our ability to attract additional distributors that will be able to market and
support our products effectively, especially in markets in which we have not
previously distributed our products. We may lose one or more of our current
distributors or may not be able to recruit additional or replacement
distributors. The loss of one or more of our major distributors could have a
material adverse effect on our business, as we may not be successful in
servicing our customers directly or through manufacturers’
representatives.




The
Demand For Our Products Depends Upon Our Ability To Support Evolving Industry
Standards




A
majority of our revenues are derived from sales of products, which rely on the
PCI Express, PCI, PCI-X and USB standards.  If markets move away from
these standards and begin using new standards, we may not be able to
successfully design and manufacture new products that use these new
standards.  There is also the risk that new products we develop in
response to new standards may not be accepted in the market.  In
addition, these standards are continuously evolving, and we may not be able to
modify our products to address new specifications.  Any of these
events would have a material adverse effect on our business.




We
Must Make Significant Research And Development Expenditures Prior To Generating
Revenues From Products




To
establish market acceptance of a new semiconductor device, we must dedicate
significant resources to research and development, production and sales and
marketing.  We incur substantial costs in developing, manufacturing
and selling a new product, which often significantly precede meaningful revenues
from the sale of this product.  Consequently, new products can require
significant time and investment to achieve profitability.  Investors
should understand that our efforts to introduce new semiconductor devices or
other products or services may not be successful or profitable.  In
addition, products or technologies developed by others may render our products
or technologies obsolete or noncompetitive.




We record
as expenses the costs related to the development of new semiconductor devices
and other products as these expenses are incurred.  As a result, our
profitability from quarter to quarter and from year to year may be adversely
affected by the number and timing of our new product launches in any period and
the level of acceptance gained by these products.




15




Our
Transition To A New Chief Executive Officer May Not Be Successful




On
November 3, 2008 our board of directors appointed Ralph Schmitt as our chief
executive officer and as a member of our board of directors.  Mike
Salameh, retired as chief executive officer, continued as a full-time employee
for a short transition period and continues to serve as a member of the board of
directors.  While we have planned carefully for this transition, there
are no assurances that we will be able to implement a smooth transition to our
new chief executive officer. Any failure to effectively transition the chief
executive officer position could have a material adverse effect on our business,
results of operations or financial condition.




We
Could Lose Key Personnel Due To Competitive Market Conditions And
Attrition




Our
success depends to a significant extent upon our senior management and key
technical and sales personnel.  The loss of one or more of these
employees could have a material adverse effect on our business.  We do
not have employment contracts with any of our executive officers.




Our
success also depends on our ability to attract and retain qualified technical,
sales and marketing, customer support, financial and accounting, and managerial
personnel.  Competition for such personnel in the semiconductor
industry is intense, and we may not be able to retain our key personnel or to
attract, assimilate or retain other highly qualified personnel in the
future.  In addition, we may lose key personnel due to attrition,
including health, family and other reasons.  We have experienced, and
may continue to experience, difficulty in hiring and retaining candidates with
appropriate qualifications.  If we do not succeed in hiring and
retaining candidates with appropriate qualifications, our business could be
materially adversely affected.




The
Successful Marketing And Sales Of Our Products Depend Upon Our Third Party
Relationships, Which Are Not Supported By Written Agreements




When
marketing and selling our semiconductor devices, we believe we enjoy a
competitive advantage based on the availability of development tools offered by
third parties.  These development tools are used principally for the
design of other parts of the microprocessor-based system but also work with our
products.  We will lose this advantage if these third party tool
vendors cease to provide these tools for existing products or do not offer them
for our future products.  This event could have a material adverse
effect on our business.  We have no written agreements with these
third parties, and these parties could choose to stop providing these tools at
any time.




Our
Limited Ability To Protect Our Intellectual Property And Proprietary Rights
Could Adversely Affect Our Competitive Position




Our
future success and competitive position depend upon our ability to obtain and
maintain proprietary technology used in our principal
products.  Currently, we have limited protection of our intellectual
property in the form of patents and rely instead on trade secret
protection.  Our existing or future patents may be invalidated,
circumvented, challenged or licensed to others.  The rights granted
there under may not provide competitive advantages to us.  In
addition, our future patent applications may not be issued with the scope of the
claims sought by us, if at all.  Furthermore, others may develop
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned or licensed by us.  In
addition, effective patent, trademark, copyright and trade secret protection may
be unavailable or limited in foreign countries where we may need
protection.  We cannot be sure that steps taken by us to protect our
technology will prevent misappropriation of the technology.




We may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by third
parties.  While there is currently no intellectual property litigation
pending against us, litigation could result in significant expenses to us and
adversely affect sales of the challenged product or technology.  This
litigation could also divert the efforts of our technical and management
personnel, whether or not the litigation is determined in our
favor.  In addition, we may not be able to develop or acquire
non-infringing technology or procure licenses to the infringing technology under
reasonable terms.  This could require expenditures by us of
substantial time and other resources.  Any of these developments would
have a material adverse effect on our business.




16




If
We Do Not Successfully Integrate Oxford With PLX, We May Not Achieve Our
Anticipated Synergies And Could Adversely Affect Our Financial
Condition




In
January 2009, we completed the acquisition of Oxford, a provider of reliable,
high-performance silicon and software solutions to interconnect digital systems,
including serial, parallel, USB, FireWire, Ethernet, SATA and
eSATA.  We have begun integrating Oxford’s operations with
ours.  Although we believe the integration of Oxford’s operations will
not present any significant difficulties, there can be no assurance that we will
not encounter substantial difficulties during the integration.  A
substantial delay in the integration of Oxford could result in a delay or
failure to achieve the anticipated synergies, which could adversely impact our
results of operations.  The possible difficulties of combining the
operations of the companies include, but are not limited to:




·
            the
      integration and consolidation of corporate and administrative
      infrastructures, including computer information
  systems;


·
            the
      integration of the sales force and customer
  base;


·
            possible
      inconsistencies in controls, policies and procedures and business
      cultures;


·
            the
      retention of key employees;


·
            the
      possible diversion of management’s attention from ongoing business
      concerns; and


·
            the
      possibility of costs or inefficiencies associated with the integration of
      the operations of the combined
company.




Our
failure to be successful in addressing these risks or other problems encountered
in our past or future acquisitions could cause us to fail to realize the
anticipated benefits of such acquisitions and could have an adverse impact on
our results of operations.




Acquisitions
Could Adversely Affect our Financial Condition Could Expose Us to
Unanticipated Liabilities




As part
of our business strategy, we expect to continue to review acquisition prospects
that would complement our existing product offerings, improve market coverage or
enhance our technological capabilities.  The Oxford acquisition, as
well as potential future acquisitions, could result in any or all of the
following:




·
            potentially
      dilutive issuances of equity
securities;


·
            large
      acquisition-related write-offs;


·
            potential
      patent and trademark infringement claims against the acquired
      company;


·
            the
      incurrence of debt and contingent liabilities or amortization expenses
      related to other intangible assets;


·
            difficulties
      in the assimilation of operations, personnel, technologies, products and
      the information systems of the acquired
  companies;


·
            the
      incurrence of additional operating losses and expenses of Oxford or other
      potential companies we may acquire;


·
            possible
      delay or failure to achieve expected
synergies;


·
            diversion
      of management’s attention from other business
  concerns;


·
            risks
      of entering geographic and business markets in which we have no or limited
      prior experience; and


·
            potential
      loss of key employees.




In
addition, we filed a registration statement on Form S-3 on January 16, 2009,
which has not yet been declared effective, covering 9,000,000 shares of our
common stock, 5,600,000 of which were issued to Oxford stockholders on January
2, 2009, when the acquisition was completed, and 3,400,000 of which may be
issued, subject to advance approval by our stock holders in the future, in
satisfaction of the $14.2 million principal balance of the promissory note we
issued to Oxford stockholders on completion of the acquisition. This
registration statement would enable the holders of the registered shares to
resell those shares in the public market without legal resale restrictions, if
they so choose and subject to market conditions. We cannot predict the extent,
if any, to which the issuance of the additional shares in connection with the
Oxford acquisition would adversely affect the trading price of our stock,
particularly in light of the current financial, stock market and economic
turmoil.




17




Because
We Sell Our Products To Customers Outside Of North America And Because Our
Products Are Incorporated With Products Of Others That Are Sold Outside Of North
America We Face Foreign Business, Political And Economic Risks




Sales
outside of the United States accounted for 77%, 71% and 75% of our net
revenues in 2008, 2007 and 2006, respectively.  Sales outside of
North America may fluctuate in future periods and may continue to account for a
large portion of our revenues. In addition, equipment manufacturers who
incorporate our products into their products sell their products outside of the
Unites States, thereby exposing us indirectly to foreign risks. Further, most of
our semiconductor products are manufactured outside of the United States.
Accordingly, we are subject to international risks,
including:




·
            difficulties
      in managing distributors;


·
            difficulties
      in staffing and managing foreign subsidiary and branch
      operations;


·
            political
      and economic instability;


·
            foreign
      currency exchange fluctuations;


·
            difficulties
      in accounts receivable collections;


·
            potentially
      adverse tax consequences;


·
            timing
      and availability of export
licenses;


·
            changes
      in regulatory requirements, tariffs and other
  barriers;


·
            difficulties
      in obtaining governmental approvals for telecommunications and other
      products; and


·
            the
      burden of complying with complex foreign laws and
  treaties.




Because
sales of our products have been denominated to date exclusively in United States
dollars, increases in the value of the United States dollar will increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, which could lead to a reduction
in sales and profitability in that country.




We
May Be Required To Record A Significant Charge To Earnings If Our Goodwill,
Amortizable Intangible Assets Or Other Long Lived Asset Become
Impaired




Under
generally accepted accounting principles, we review our amortizable intangible
and long lived assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is tested for
impairment annually during the fourth quarter and between annual tests in
certain circumstances. Factors that may be considered a change in circumstances,
indicating that the carrying value of our goodwill, amortizable intangible
assets or other long lived assets may not be recoverable, include a persistent
decline in stock price and market capitalization, reduced future cash flow
estimates, and slower growth rates in our industry. As a result of the goodwill
impairment testing in the fourth quarter of 2008 we have fully impaired the
goodwill and remaining intangible assets associated with the Sebring, HiNT
Corporation and NetChip Technology, Inc. acquisitions for a total of $35.5
million. During this review we also recorded an impairment charge of $18.8
million due to the decline in the value of our Sunnyvale headquarters building.
We may record additional goodwill and other intangible assets related to the
acquisition of Oxford and potential future acquisitions. We may be required to
record a significant charge in our financial statements during the period in
which any additional impairment of our goodwill, amortizable intangible assets
or other long lived assets is determined, which would adversely impact our
results of operations.




Our
Principal Stockholders Have Significant Voting Power And May Take Actions That
May Not Be In The Best Interests Of Our Other Stockholders




Our
executive officers, directors and other principal stockholders, in the
aggregate, beneficially own a substantial amount of our outstanding common
stock.  Although these stockholders do not have majority control, they
currently have, and likely will continue to have, significant influence with
respect to the election of our directors and approval or disapproval of our
significant corporate actions.  This influence over our affairs might
be adverse to the interests of other stockholders.  In addition, the
voting power of these stockholders could have the effect of delaying or
preventing a change in control of PLX.




18




The
Anti-Takeover Provisions In Our Certificate of Incorporation Could Adversely
Affect The Rights Of The Holders Of Our Common Stock




Anti-takeover
provisions of Delaware law and our Certificate of Incorporation may make a
change in control of PLX more difficult, even if a change in control would be
beneficial to the stockholders.  These provisions may allow the Board
of Directors to prevent changes in the management and control of
PLX.




As part
of our anti-takeover devices, our Board of Directors has the ability to
determine the terms of preferred stock and issue preferred stock without the
approval of the holders of the common stock.  Our Certificate of
Incorporation allows the issuance of up to 5,000,000 shares of preferred
stock.  There are no shares of preferred stock
outstanding.  However, because the rights and preferences of any
series of preferred stock may be set by the Board of Directors in its sole
discretion without approval of the holders of the common stock, the rights and
preferences of this preferred stock may be superior to those of the common
stock.  Accordingly, the rights of the holders of common stock may be
adversely affected.  Consistent with Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the
future.




ITEM 1B: UNRESOLVED STAFF COMMENTS




None.




ITEM 2:
PROPERTIES




We own
one facility in Sunnyvale, California, which has approximately 53,000 square
feet. This facility comprises our headquarters and includes our research and
development, sales and marketing and administration departments. 
Internationally, we lease sales offices in China, Japan, Korea and Taiwan. These
leases comprise approximately 4,600 square feet and have terms expiring on or
prior to March 2010. As of January 2009, we have additional leased offices
associated with the Oxford acquisition in Irvine, Milpitas, China, Singapore,
Taiwan and the United Kingdom. We believe that our current facilities will be
adequate through 2009.




ITEM 3:
LEGAL PROCEEDINGS




None.




ITEM 4: SUBMISSION OF
MATTERS TO A VOTE OF SECURITYHOLDERS




No
matters were submitted to a vote of security holders during the three months
ended December 31, 2008.




19




PART
II




ITEM 5: MARKET FOR
REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES




Our
common stock is traded on The NASDAQ Global Market and has been quoted
on The NASDAQ Global Market under the symbol "PLXT" since its initial
public offering on April 5, 1999. The following table sets forth, for the
periods indicated, the range of quarterly high and low sales price for our
common stock as reported on The NASDAQ Global Market:


2008
              
              High
              
              
              LowFirst
      Quarter
              
              $
              9.56
              
              
              $
              5.76Second
      Quarter
              
              
              9.40
              
              
              
              6.32Third
      Quarter
              
              
              7.65
              
              
              
              4.50Fourth
      Quarter
              
              
              5.07
              
              
              
              1.512007
              
              High
              
              
              LowFirst
      Quarter
              
              $
              13.40
              
              
              $
              9.16Second
      Quarter
              
              
              11.95
              
              
              
              9.60Third
      Quarter
              
              
              13.72
              
              
              
              9.86Fourth
      Quarter
              
              
              11.30
              
              
              
              8.83


As of
February 28, 2009, there were approximately 122 holders of record of our
common stock and as of that date, the last reported sales price of our
common stock was $2.14.




We have
never paid cash dividends on our common stock. We currently intend to retain
earnings, if any, for use in our business and do not anticipate paying any cash
dividends in the foreseeable future. Any future declaration and payment of
dividends will be subject to the discretion of our Board of Directors, will be
subject to applicable law and will depend upon our results of operations,
earnings, financial condition, contractual limitations, cash requirements,
future prospects and other factors deemed relevant by our Board of
Directors.




Securities
Authorized For Issuance Under Equity Compensation Plans




This
information is incorporated herein by reference to the Company's Proxy Statement
for the 2008 Annual Meeting of Stockholders under the heading "Equity
Compensation Plan Information."




Purchases
of Equity Securities by the Issuer and Affiliated Purchasers




In
September 2002, our Board of Directors authorized the repurchase of up
to 2,000,000 shares of common stock. In July 2008, our Board of Directors
authorized an additional 2,000,000 shares under the repurchase program.  At
the discretion of the management, we can repurchase the shares from time to time
in the open market or in privately negotiated transactions.  Approximately
774,000 shares were repurchased for approximately $1.9 million in cash in 2002
and 2003. We did not repurchase any additional shares from January 1, 2004
through December 31, 2007. In 2008, we repurchased 956,000 shares for
approximately $6.5 million. There were no repurchases in the fourth quarter of
2008. As of December 31, 2008, under the Board’s repurchase authorization, we
had the capacity to repurchase an additional 2,269,000 shares.




20




Performance Graph


Cumulative
      Total Return12/03
                    
                    
                    12/04
                    
                    
                    12/05
                    
                    
                    12/06
                    
                    
                    12/07
                    
                    
                    12/08PLX
      Technology, Inc.
                    
                    
                    100.00
                    
                    
                    
                    117.51
                    
                    
                    
                    97.18
                    
                    
                    
                    147.34
                    
                    
                    
                    105.08
                    
                    
                    
                    19.44Russell
      2000
                    
                    
                    100.00
                    
                    
                    
                    118.33
                    
                    
                    
                    123.72
                    
                    
                    
                    146.44
                    
                    
                    
                    144.15
                    
                    
                    
                    95.44Philadelphia
      Semiconductor
                    
                    
                    100.00
                    
                    
                    
                    88.84
                    
                    
                    
                    115.83
                    
                    
                    
                    128.45
                    
                    
                    
                    125.92
                    
                    
                    
                    91.10
 The graph
and other information furnished under the above caption "Performance Graph" in
this Part II, Item 5 of this Form 10-K shall not be deemed to be "soliciting
material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or
to the liabilities of the Exchange Act, as amended.
  21
 ITEM 6:
SELECTED FINANCIAL DATA
  The
following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report on
Form 10-K.
 Years
      Ended December 31,2008
      (1)
                      
                      
                      2007
                      
                      
                      2006
      (3)
                      
                      
                      2005
                      
                      
                      2004
      (4)in
      thousands, except per share dataConsolidated
      Statement of Operations Data:Net
      Revenues
                      
                      $
                      81,068
                      
                      
                      $
                      81,734
                      
                      
                      $
                      81,425
                      
                      
                      $
                      54,615
                      
                      
                      $
                      54,449Gross
      Margin
                      
                      
                      48,282
                      
                      
                      
                      49,525
                      
                      
                      
                      47,630
                      
                      
                      
                      35,002
                      
                      
                      
                      35,710Operating
      Income (Loss)
                      
                      
                      (57,947
                      )
                      
                      
                      (643
                      )
                      
                      
                      1,715
                      
                      
                      
                      (2,306
                      )
                      
                      
                      (831
                      )Net
      Income (Loss)
                      
                      
                      (56,530
                      )
                      
                      
                      1,174
                      
                      
                      
                      3,006
                      
                      
                      
                      (1,748
                      )
                      
                      
                      (642
                      )Basic
      Net Income (Loss) Per Share
                      
                      $
                      (2.00
                      )
                      
                      $
                      0.04
                      
                      
                      $
                      0.11
                      
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.03
                      )Shares
      Used to Compute Basic Per Share Amounts
                      
                      
                      28,203
                      
                      
                      
                      28,724
                      
                      
                      
                      28,177
                      
                      
                      
                      27,198
                      
                      
                      
                      25,422Diluted
      Net Income (Loss) Per Share
                      
                      $
                      (2.00
                      )
                      
                      $
                      0.04
                      
                      
                      $
                      0.10
                      
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.03
                      )Shares
      Used to Compute Diluted Per Share Amounts
                      
                      
                      28,203
                      
                      
                      
                      29,156
                      
                      
                      
                      28,925
                      
                      
                      
                      27,198
                      
                      
                      
                      25,422Years
      Ended December 31,2008
      (2)
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      2005
                      
                      
                      2004in
      thousandsConsolidated
      Balance Sheet Data:Cash
      and Cash Equivalents
                      
                      $
                      6,865
                      
                      
                      $
                      19,175
                      
                      
                      $
                      32,804
                      
                      
                      $
                      21,028
                      
                      
                      $
                      9,556Working
      Capital
                      
                      
                      49,153
                      
                      
                      
                      50,153
                      
                      
                      
                      49,031
                      
                      
                      
                      36,994
                      
                      
                      
                      23,108Total
      Assets
                      
                      
                      77,260
                      
                      
                      
                      135,800
                      
                      
                      
                      127,948
                      
                      
                      
                      117,911
                      
                      
                      
                      110,473Total
      Stockholders' Equity
                      
                      $
                      69,203
                      
                      
                      $
                      127,892
                      
                      
                      $
                      120,926
                      
                      
                      $
                      107,489
                      
                      
                      $
                      102,159
 (1)
                    Results
      of operations for 2008 include impairment charges of $54.3 million and
      acquisition related fees of $0.8
million.
 (2)
                    Total
      assets and stockholders’ equity for 2008 reflect impairment charges of
      $54.3 million.
 (3)
                    Results
      of operations for 2006 include an increase in revenues and cost of
      revenues of $2.8 million and $0.9 million, respectively, as a result from
      a change in accounting for revenues to
  distributors.
 (4)
                    Results
      of operations for 2004 include a $1.1 million charge for in-process
      research and development as it relates to the acquisition of NetChip
      Technology, Inc. in May 2004.
  ITEM
7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS
  This
Annual Report on Form 10-K and certain information incorporated herein by
reference contain forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. All statements
contained in this Report on Form 10-K that are not purely historical are
forward-looking statements, including, without limitation, statements regarding
our expectations, objectives, anticipations, plans, hopes, beliefs, intentions
or strategies regarding the future. Forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements.
  Forward-looking
statements include, without limitation, the statements regarding the
following:
  ·
                    the
      growing demand for standards-based components such as our semiconductor
      devices that connect systems
together;
 ·
                    our
      objective to expand our advantages in data transfer
      technology;
 ·
                    our
      expectation that we will support new I/O standards where
      appropriate;
 ·
                    the
      statements regarding our objective to continue to expand our market
      position as a developer and supplier of I/O connectivity solutions for
      high performance systems;
 ·
                    our
      plan to target those applications where we believe we can attain a
      leadership position;
  22
  ·
                    our
      plan to seek to integrate additional I/O-related functions into our
      semiconductor devices;
 ·
                    our
      belief that our understanding of I/O technology trends and market
      requirements allows us to bring to market more quickly new products that
      support the latest I/O technology;
 ·
                    that
      we continue to integrate more functionality in our semiconductor devices
      and continue to enhance and expand our software development
      kits;
 ·
                    our
      belief with respect to the principal factors of competition in the
      business;
 ·
                    our
      belief that we compete favorably with respect to each of those
      factors;
 ·
                    our
      expectation that revenues related to sales through distributors will
      continue to account for a large portion of total
  revenues;
 ·
                    our
      belief that providing customers with comprehensive product support is
      critical to remaining competitive in the markets we
  serve;
 ·
                    our
      belief that our close contact with customer design engineers provides
      valuable input into existing product enhancements and next generation
      product specifications;
 ·
                    our
      expectation that we will periodically seek to hire additional development
      engineers;
 ·
                    our
      expectation that we will continue to make significant investments in
      research and development in order to continually enhance the performance
      and functionality of our products to keep pace with competitive products
      and customer demands for improved
performance;
 ·
                    our
      belief that we must continuously develop our devices using more advanced
      processes to remain competitive on a cost and performance
      basis;
 ·
                    our
      belief that the transition of our products to smaller geometries will be
      important for us to remain
competitive;
 ·
                    our
      plan to seek patent protection when
necessary;
 ·
                    our
      belief that our current facility will be adequate through
      2009;
 ·
                    our
      intention to retain earnings for use in our business and not to pay any
      cash dividend in the foreseeable
future;
 ·
                    our
      belief that our long-term success will depend on our ability to introduce
      new products;
 ·
                    our
      belief that we may be required to carry higher levels of inventory because
      of the difficulty in predicting future levels of sales and
      profitability;
 ·
                    our
      belief that we will achieve synergies related to the Oxford
      acquisition;
 ·
                    our
      expectation that selling, general and administrative expenses in absolute
      dollars will increase in future
periods;
 ·
                    our
      expectation that we will modestly increase capital expenditures in 2009;
      and
 ·
                    our
      belief that our existing resources, together with cash expected to be
      generated from our operations, will be sufficient to meet our capital
      requirements for at least the next twelve
  months.
  All
forward-looking statements included in this document are subject to additional
risks and uncertainties further discussed under "Item 1A: Risk Factors -
Factors That May Affect Future Operating Results" and are based on information
available to us on the date hereof. We assume no obligation to update any such
forward-looking statements. It is important to note that our actual results
could differ materially from those included in such forward-looking statements.
The factors that could cause our actual results to differ from those included in
such forward-looking statements are set forth under the heading "Item 1A:
Risk Factors - Factors That May Affect Future Operating Results," as well as
those disclosed from time to time in our reports on Forms 10-Q and 8-K and our
Annual Reports to Stockholders.
  The
following discussion should be read in conjunction with our Consolidated
Financial Statements and related notes thereto included elsewhere in this
report.
  23
  Overview
  PLX was
founded in 1986, and between 1994 and 2002 we focused on development of I/O
interface semiconductors and related software and development tools that are
used in systems incorporating the PCI standard.  In 1994 and 1995, a
significant portion of our revenues were derived from the sale of semiconductor
devices that perform similar functions as our current products, except they were
based on a variety of industry standards.  Our revenues since 1996
have been derived predominantly from the sale of semiconductor devices based on
the PCI standard to a large number of customers in a variety of applications
including servers, networking and telecommunications, enterprise storage,
imaging, industrial and other embedded applications as well as in related
adapter cards.  In 2002, we shifted the majority of our development
efforts to PCI Express.  In September 2004, we began shipping products
based on the PCI Express standard for next-generation
systems.  Between 2004 and 2007, an industry-wide adoption of the PCI
Express standard took place. PCI Express went from being one of many new
protocols in the market to becoming the interconnect of choice and a basic
building block of systems. Being a market leader in PCI Express, our line of PCI
Express switches and bridges followed suit and also gained a lot of traction in
the market. PCI Express was so well accepted that a follow-on was called for. In
December of 2006, PCI Express Rev 2.0 (commonly referred to as “PCIe Gen 2”) was
released. The Gen 2 protocol doubled the bandwidth supported by PCI Express Gen
1 (from 2.5 Gigabits per second to 5.0 Gigabits per second) and incorporated a
number of other protocol enhancements. In September 2007, we announced the
addition of the Gen 2 switches to our PCI Express product family and began
shipping in January 2008.
  We
utilize a “fabless” semiconductor business model whereby we purchase wafers and
packaged and tested semiconductor devices from independent manufacturing
foundries.  This approach allows us to focus on defining, developing,
and marketing our products and eliminates the need for us to invest large
amounts of capital in manufacturing facilities and work-in-process
inventory.
  We rely
on a combination of direct sales personnel and distributors and manufacturers’
representatives throughout the world to sell a significant portion of our
products.  We pay manufacturers’ representatives a commission on sales
while we sell products to distributors at a discount from the selling
price.
  Our gross
margins have fluctuated in the past and are expected to fluctuate in the future
due to changes in product and customer mix, provisions and recoveries of excess
or obsolete inventory, the position of our products in their respective life
cycles, and specific product manufacturing costs.
  The time
period between initial customer evaluation and design completion can range from
six to twelve months or more. Furthermore, there is typically an additional six
to twelve month or greater period after design completion before a customer
requests volume production of our products.  Due to the variability
and length of these design cycles and variable demand from customers, we may
experience significant fluctuations in new orders from month to month. In
addition, we typically make inventory purchases prior to receiving customer
orders.  Consequently, if anticipated sales and shipments in any
quarter do not occur when expected, expenses and inventory levels could be
disproportionately high, and our results for that quarter and potentially future
quarters would be materially and adversely affected.
  Our
long-term success will depend on our ability to introduce new
products.  While new products typically generate little or no revenues
during the first twelve months following their introduction, our revenues in
subsequent periods depend upon these new products. Due to the lengthy sales
cycle and additional time before our customers request volume production,
significant revenues from our new products typically occur twelve to twenty-four
months after product introduction.  As a result, revenues from newly
introduced products have, in the past, produced a small percentage of our total
revenues in the year the product was introduced.  See “Item 1A, Risk
Factors - Certain Factors That May Affect Future Operating Results -- Our
Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our
Expected Revenues” in this Form 10-K.
  On
December 15, 2008 we signed a definitive agreement to acquire all of the
outstanding shares of capital stock of Oxford, a privately held fabless provider
of industry-leading silicon and software for the consumer and small office/home
office (SOHO) storage markets.  The acquisition closed on January 2,
2009.  Additional information about the acquisition is set forth in
Note 13 to Notes to the Consolidated Financial Statements.
  24
  Results of
Operations
  Comparison of Years EndedDecember 31, 2008,
2007 and 2006
  Net Revenues.Net revenues
consist of product revenues generated principally by sales of our semiconductor
devices. Net revenues for the year ended December 31, 2008 were $81.1 million, a
decrease of $0.6 million or 0.8% from $81.7 million in 2007. The
decrease in 2008 net revenues was due primarily to decreased sales of our Legacy
products due to customer migration to PCI Express, end of life of customers’
products and general demand fluctuations, partially offset by increased sales of
our PCI Express products as a result of an increase of customers in volume
production.
  The
following table shows the revenue by product type (in thousands) and as a
percentage of net revenues:
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Legacy
      products
                      
                      $
                      43,016
                      
                      
                      $
                      53,285
                      
                      
                      $
                      63,373As
      a percentage of revenues
                      
                      
                      53.1
                      %
                      
                      
                      65.2
                      %
                      
                      
                      77.8
                      %PCI
      Express products
                      
                      $
                      38,052
                      
                      
                      $
                      28,449
                      
                      
                      $
                      18,052As
      a percentage of revenues
                      
                      
                      46.9
                      %
                      
                      
                      34.8
                      %
                      
                      
                      22.2
                      %
 Net
revenues for the year ended December 31, 2007 were $81.7 million, an increase of
$0.3 million or 0.4% from $81.4 million for the same period in 2006. The 2006
results include an additional $2.8 million in net revenues recognized in the
first quarter of 2006 as a result of the change in the accounting for revenues
to distributors (see “Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies - Revenue
Recognition” in this Form 10-K). The increase in 2007 net revenues was due
primarily to increased unit shipments of our PCI Express products as a result of
an increase of customers in volume production, partially offset by decreased
sales of our Legacy products due to demand fluctuations.
  For the
year ended December 31, 2008, sales to Excelpoint Systems Pte Ltd, Answer
Technology, Inc. and Avnet, Inc. accounted for 29%, 13% and 12%, respectively,
of net revenues. In 2007, sales to Excelpoint Systems Pte Ltd, Metatech and
Answer Technology, Inc. accounted for approximately 18%, 17% and 10%,
respectively, of net revenues. In the third quarter of 2007, we terminated
Metatech and transitioned in Excelpoint Systems Pte Ltd with terms substantially
similar to our other distributor arrangements. In 2006, sales to Metatech and
Answer Technology, Inc. accounted for approximately 31% and 10%, respectively,
of net revenues.  We continue to generate significant revenues from
Asia. For the twelve months ended December 31, 2008, 2007 and 2006,
approximately 56%, 60% and 58%, respectively, of net revenues were generated
from Asia.
  In the
fourth quarter of 2008, we experienced a broad decrease in order rates across
most product lines, markets and end customers, and therefore expect a decrease
in first quarter 2009 sales. Future demand for our products is uncertain and is
highly dependant on general macroeconomic conditions and the demand for products
that contain our chips. Customer demand for semiconductors can change quickly
and unexpectedly.  Our revenue levels have been highly dependent on the
amount of new orders that are received for products to be delivered to the
customer within the same quarter, also called “turns fill” orders.  Because
of the long cycle time to build our products and our lack of visibility into
demand when turns fill orders are high, it is difficult to predict which
products to build to match future demand.  We believe the current high
turns fill requirements will continue indefinitely.  The high turns
fill orders pattern, together with the uncertainty of product mix and pricing,
makes it difficult to predict future levels of sales and profitability and may
require us to carry higher levels of inventory.
  Gross Margin.Gross margin
represents net revenues less the cost of revenues. Cost of revenues primarily
includes the cost of (1) purchasing semiconductor devices from our independent
foundries, (2) packaging, assembly and test services from our independent
foundries, assembly contractors and test contractors and (3) our operating costs
associated with the procurement, storage and shipment of products as allocated
to production.
  25
  Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006in
      thousandsGross
      profit
                      
                      $
                      48,282
                      
                      
                      $
                      49,525
                      
                      
                      $
                      47,630Gross
      margin
                      
                      
                      59.6
                      %
                      
                      
                      60.6
                      %
                      
                      
                      58.5
                      %
 Gross
margin for the year ended December 31, 2008 decreased by 2.5%, or $1.2 million
compared to 2007. The decrease in absolute dollars as well as a percentage was
primarily due to decreased Legacy product shipments and increased product
shipments and customer mix of our PCI Express products, which have lower margins
relative to our Legacy products.
  Gross
margin for the year ended December 31, 2007 increased by 4.0%, or $1.9 million
compared to 2006. The increase in absolute dollars as well as a percentage was
primarily due to increased product shipments and improved production yields of
our PCI Express products.
  Gross
margin for the Oxford business is lower than our gross margins and we expect our
future blended gross margin will decrease slightly as a result of the
acquisition. However, future gross margin is highly dependent on the product and
customer mix of net revenues.  Accordingly, we are not able to predict
future gross profit levels or gross margins with certainty.
  Research and Development
Expenses. Research and development (R&D) expenses consist primarily
of tape-out costs at our independent foundries, software licenses, salaries and
related costs, including share-based compensation and expenses for outside
engineering consultants included in R&D expenses.
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006in
      thousandsR&D
      expenses
                      
                      $
                      27,091
                      
                      
                      $
                      24,373
                      
                      
                      $
                      20,194As
      a percentage of revenues
                      
                      
                      33.4
                      %
                      
                      
                      29.8
                      %
                      
                      
                      24.8
                      %
 R&D
expenses increased by $2.7 million, or 11.2% in the year ended December 31, 2008
compared to 2007. The increase in R&D in absolute dollars and as a
percentage of revenue was primarily due to increases in R&D spending on
engineering tools of $1.5 million and consulting fees of $1.2 million associated
with new product designs.
  R&D
expenses increased by $4.2 million, or 20.7%, in the year ended December 31,
2007 compared to 2006. The increase in R&D in absolute dollars and as a
percentage of revenue was primarily due to increases in R&D spending on
engineering tools of $2.0 million and tape-out related costs of $1.3 million
associated with new product designs and compensation and benefit expenses of
$0.6 million resulting from higher headcount.
  We
believe continued spending on research and development to develop new products
is critical to our success.  In addition, with the recent acquisition
of Oxford, we expect to increase research and development expenses in future
periods.
  Selling, General and Administrative
Expenses. Selling, general and administrative (SG&A) expenses consist
primarily of salaries and related costs, including share-based compensation and
sales commissions to manufacturers’ representatives, as well as professional
fees and other marketing promotional expenses.
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006in
      thousandsSG&A
      expenses
                      
                      $
                      24,124
                      
                      
                      $
                      24,516
                      
                      
                      $
                      23,848As
      a percentage of revenues
                      
                      
                      29.8
                      %
                      
                      
                      30.0
                      %
                      
                      
                      29.3
                      %
 SG&A
expenses decreased by $0.4 million or 1.6% in the year ended December 31, 2008
compared to 2007. The decrease in SG&A in absolute dollars and as a
percentage of revenue was primarily due to decreases in share-based compensation
expenses of $0.8 million and commission expenses to manufacturer’s
representatives of $0.4 million due to lower commission rates, partially offset
by $0.8 million in expenses incurred during 2008 associated with the acquisition
of Oxford.
  26
  SG&A
expenses increased by $0.7 million or 2.8% in the year ended December 31, 2007
compared to 2006. The increase in SG&A in absolute dollars and as a
percentage of revenue was primarily due to increased compensation and benefit
expenses resulting from annual salary increases and higher
headcount.
  While we
believe we will be able to achieve synergies with acquisition of Oxford, we
expect SG&A expenses of the combined companies to increase in absolute
dollars in future periods.  We expect costs in the first quarter of
2009 to increase significantly associated with transaction costs, severance
costs and other adjustments needed to record the acquisition.
  Amortization of Purchased Intangible
Assets.
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006in
      thousandsAmortization
      of purchased intangible assets
                      
                      $
                      742
                      
                      
                      $
                      1,279
                      
                      
                      $
                      1,873As
      a percentage of revenues
                      
                      
                      0.9
                      %
                      
                      
                      1.6
                      %
                      
                      
                      2.3
                      %
 Amortization
of purchased intangible assets decreased by $0.5 million or 42.0% in the
year ended December 31, 2008 compared to 2007. The decrease was due to customer
base acquired as a result of the NetChip Technology, Inc. acquisition in May
2004 becoming fully amortized in 2007 and the developed core technology acquired
as a result of the HiNT Corporation acquisition in May 2003 becoming fully
amortized in May 2008.
  Amortization
of purchased intangible assets decreased by $0.6 million or 31.7% in the
year ended December 31, 2007 compared to 2006. The decrease was due to customer
base acquired as a result of the NetChip Technology, Inc. acquisition in May
2004 becoming fully amortized in 2007.
  We have
not completed the valuation work for the acquisition of Oxford and the
effect on expenses in the first quarter 2009 is uncertain.
  Impairment
of Goodwill, Other Intangible Assets and Long-Lived Assets. During the fourth quarter of 2008, we assessed
goodwill and long lived assets for impairment as we observed that there were
indicators of impairment. The notable indicators were a sustained decline in our
market capitalization below book value, depressed market conditions,
deteriorating industry trends and a significant downward revision of our
forecasts. These market conditions continuously change and it is difficult to
project how long this current economic downturn may last. Our goodwill and
intangible assets were primarily established in purchase accounting at the
completion of the Sebring, HiNT Corporation and NetChip Technology, Inc
acquisitions in 2000, 2003 and 2004, respectively.
 The
projected discounted cash flows for our single reporting unit were based on
discrete five-year financial forecasts developed by management for planning
purposes. Cash flows beyond the discrete forecasts were estimated using terminal
value calculations. The terminal value represents the value of our single
reporting unit at the end of the discrete forecast period.  These
forecasts represent the best estimate that our management had at the time and
believe to be reasonable. The annual sales growth rates ranged from 5% to 7%
during the discrete forecast period and the future cash flows and terminal value
were discounted to present value using a discount rate of 22%. The terminal
value was based on the application of an 8.0x multiple to forecasted 2013
earnings before interest, taxes, depreciation and amortization expense
(EBITDA).  The discount rate was based on an analysis of the weighted
average cost of capital of our single reporting unit.  The EBITDA
multiple used in the terminal value calculation was based upon EBITDA multiples
paid in comparative merger and acquisition transactions and a review of trading
multiples for similar public companies and considered the growth prospects and
profitability for our single reporting unit at the end of the discrete forecast
period.
  27
  Prior to
our goodwill impairment testing under SFAS 142, we also assessed the fair value
of our long-lived assets, including our corporate headquarters building and
amortizable intangible assets.  For the corporate headquarters
building, we used the sales comparison approach and the income capitalization
approach, each equally weighted, to arrive at a fair value estimate. We
determined that the carrying value of the property was not recoverable and
exceeded its fair value, and we recorded an impairment charge of $18.8
million.  For the amortizable intangible assets, which included
acquired technology, we estimated a negligible fair value using a relief from
royalty method and recorded an impairment charge of $0.8 million related to all
of the remaining net book value of this acquired technology.
  As part
of the goodwill impairment test for the fourth quarter of 2008, we determined
that step two of the impairment analysis was required by SFAS 142 because the
estimated carrying value of our net assets, subsequent to the impairment of
long-lived assets noted above, exceeded its estimated fair value. The second
step of the goodwill impairment test compared the implied fair value of the
goodwill with the carrying amount of that goodwill. When the carrying amount of
the goodwill exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to that excess. The implied fair value of
goodwill is determined in the same manner as the amount of goodwill recognized
in a business combination. Under SFAS 142, the determination of the amount of
the impairment required that the fair values of our assets and liabilities be
determined as if the Company had been acquired in a hypothetical business
combination with a purchase price equal to the discounted cash flow value as of
December 31, 2008.  As a result of this analysis, we recorded an
impairment charge of $34.7 million related to all of the recorded
goodwill.
  Interest Income. Interest
income reflects interest earned on average cash, cash equivalents and short-term
and long-term investment balances. Interest income decreased to
$1.5 million in 2008 from $2.4 million for 2007.  The
decrease was due to lower average cash and investment balances as a result of
the stock repurchases and interest rate fluctuations. Interest income increased
to $2.4 million in 2007 from $1.8 million for 2006.  This
increase was due to higher cash and investment balances as well as higher
interest rates.
  Provision for Income Taxes.
Provision for income tax for the period ended December 31, 2008 was $0.1 million
on a pretax loss of $56.4 million, compared to a provision of $0.6 million on a
pretax profit of $1.8 million and a provision of $0.5 million on a pretax
profit of $3.5 million for the periods ended December 31, 2007 and 2006,
respectively. Our 2008 provision differs from the benefit derived by applying
the applicable U.S. federal statutory rate to the loss from operations
due to non deductible goodwill impairment and the recording of a valuation
allowance for the deferred tax asset partially offset by a benefit of research
and development tax credits. Our 2007 income tax expenses differs from the
expense derived by applying the applicable U.S. federal statutory rate to the
income from operations primarily due to the recording of a valuation
allowance for the deferred tax asset partially offset by a $0.1 million tax
benefit from the release of tax reserves following the expiration of certain
state statute of limitations and the benefit of research and development tax
credits. Our 2006 income tax expense differs from the expected expense derived
by applying the applicable U.S. federal statutory rate to the income from
operations primarily due to the recording of a valuation allowance for the
deferred tax asset partially offset by a $0.6 million tax benefit from the
release of tax reserves following the expiration of certain federal statute of
limitations and the benefit of research and development tax
credits.
  Liquidity and Capital
Resources
  In
summary, our cash flows were (in thousands):
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Net
      cash provided by operating activities
                      
                      $
                      7,625
                      
                      
                      $
                      5,777
                      
                      
                      $
                      2,883Net
      cash provided by (used in) investing activities
                      
                      
                      (14,246
                      )
                      
                      
                      (20,665
                      )
                      
                      
                      3,537Net
      cash provided by (used in) financing activities
                      
                      
                      (5,646
                      )
                      
                      
                      1,301
                      
                      
                      
                      5,389Effect
      of exchange rate fluctuations on cash and cash equivalents
                      
                      
                      (43
                      )
                      
                      
                      (42
                      )
                      
                      
                      (33
                      )
 We invest
cash not needed for current operations predominantly in debt instruments that
are highly liquid, of high-quality investment grade and predominantly have
maturities of less than one year with the intent to make such funds readily
available for operating purposes. As of December 31, 2008 cash, cash
equivalents, short and long-term marketable securities were $47.1 million, an
increase of $0.5 million from $46.6 million at December 31, 2007, and an
increase of $4.8 million from $42.3 million at December 31, 2006.
  28
  Cash
provided by operating activities primarily consists of net income (loss)
adjusted for certain non-cash items including depreciation, amortization,
share-based compensation expense, impairments, provisions for excess and
obsolete inventories, changes in pre-acquisition deferred tax balances, other
non-cash items and the effect of changes in working capital and other
activities. Cash provided by operating activities in 2008 of $7.6 million
consisted primarily of a net loss of $56.5 million adjusted for non-cash items
of $60.9 million and a decrease in accounts receivable of $4.8 million due to
lower sales in the fourth quarter of 2008 compared to the fourth quarter of
2007, partially offset by increases in other current assets and other assets of
$1.2 million due to an increase in software and IP licenses and inventory of
$0.5 million. Cash provided by operating activities in 2007 of $5.8 million
consisted primarily of net income of $1.2 million adjusted for non-cash items of
$8.7 million and an increase in accounts payable of $1.5 million due to timing
of vendor payments, partially offset by increases in other assets of $3.2
million due to an increase in software and IP licenses and $2.0 million in
accounts receivable due to timing of customer payments and higher sales in the
fourth quarter of 2007 compared to  the fourth quarter of 2006. Cash
provided by operating activities in 2006 of $2.9 million consisted
primarily of net income of $3.0 million adjusted for non-cash items of
$8.4 million and offset by the increases in inventory of $4.8 million and
$2.3 million in accounts receivable and a decrease in accounts payable of $1.5
million.
  Cash used
in investing activities in 2008 of $14.2 million was primarily due to purchases
of marketable securities (net of sales and maturities of investments) of $12.4
million and capital expenditures of $1.8 million primarily to provide
infrastructure for new product designs. Capital expenditures have been generally
comprised of purchases of engineering equipment, computer hardware, software,
server equipment and furniture and fixtures. Cash used in investing
activities in 2007 of $20.7 million was primarily due to purchases of marketable
securities (net of sales and maturities of investments) of $17.6 million and
capital expenditures of $3.1 million primarily to provide infrastructure for new
product designs. Cash provided by investing activities in 2006 of
$3.5 million was primarily due to cash provided by proceeds from sales and
maturities (net of purchases) of investments in marketable securities of
$4.7 million, partially offset by capital expenditures of
$1.2 million.
  Cash
used in financing activities in 2008 of $5.6 million was due to common stock
repurchases of $6.5 million partially offset by proceeds from the exercise of
stock options of $0.9 million. Cash provided by financing activities in 2007 of
$1.3 million and the cash provided by financing activities in 2006 of
$5.4 million were due to proceeds from the exercise of stock
options.
  The
negative effect of exchange rates on cash and cash equivalents during 2008, 2007
and 2006 was due to the weakening of the U.S. dollar against other foreign
currencies.
  In
September 2002, our Board of Directors authorized the repurchase of up
to 2,000,000 shares of common stock. In July 2008, our Board of Directors
authorized an additional 2,000,000 shares under the repurchase program.  At
the discretion of the management, we can repurchase the shares from time to time
in the open market or in privately negotiated transactions.  Approximately
774,000 shares were repurchased for approximately $1.9 million in cash in 2002
and 2003. We did not repurchase any additional shares from January 1, 2004
through December 31, 2007. In 2008, we repurchased 956,000 shares for
approximately $6.5 million.
  We
believe that our existing resources, together with cash generated from our
operations will be sufficient to meet our capital requirements for at least the
next twelve months. Our future capital requirements will depend on many factors,
including the level of investment we make in new technologies and improvements
to existing technologies and the levels of monthly expenses required to launch
new products. From time to time, we may also evaluate potential acquisitions and
equity investments complementary to our technologies and market strategies. To
the extent that existing resources and future earnings are insufficient to fund
our future activities, we may need to raise additional funds through public or
private financings. Given the current economic and credit conditions, additional
funds may not be available or, if available, we may not be able to obtain them
on terms favorable to us and our stockholders.
  29
  As of
December 31, 2008, we had the following significant contractual obligations
and commercial commitments (in thousands):
 Payments
      due inTotal
                      
                      
                      Less
      than1
      Year
                      
                      
                      1-3YearsOperating
      leases - facilities and equipment
                      
                      $
                      200
                      
                      
                      $
                      137
                      
                      
                      $
                      63Software
      licenses
                      
                      
                      8,417
                      
                      
                      
                      4,567
                      
                      
                      
                      3,850Inventory
      purchase commitments
                      
                      
                      1,376
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      cash obligations
                      
                      $
                      9,993
                      
                      
                      $
                      4,704
                      
                      
                      $
                      3,913
 On
January 2, 2009, we closed the acquisition of Oxford.  As a part of
the Merger Agreement, we acquired all of the outstanding shares of capital stock
of Oxford in exchange for 5,600,000 shares of common stock of PLX and a
promissory note in the principal amount of $14,200,000 (the “Note”) that will be
satisfied by either (i) the issuance of an additional 3,400,000 shares of common
stock of PLX upon approval of PLX’s stockholders, or (ii) the repayment of the
principal amount of the Note if such stockholder approval is not obtained by
June 30, 2009.
  See Note
11 to our Consolidated Financial Statements for additional information on our
contractual obligations and commercial commitments.
  Critical
Accounting Policies
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes. The
U.S. Securities and Exchange Commission (“SEC”) has defined a company's critical
accounting policies as the ones that are most important to the portrayal of the
company's financial condition and results of operations, and which require the
company to make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently uncertain. Based on
this definition, we have identified the critical accounting policies and
judgments addressed below. We also have other key accounting policies which
involve the use of estimates, judgments and assumptions that are significant to
understanding our results. For additional information see Note 1 of the
Notes to our Consolidated Financial Statements. Although we believe that our
estimates, assumptions and judgments are reasonable, they are based upon
information presently available. Actual results may differ significantly from
these estimates under different assumptions, judgments or
conditions.
  Revenue Recognition.Werecognize revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable and collection is reasonably assured.
  Revenue
from product sales to customers is recognized upon shipment and transfer of risk
of loss if we believe collection is reasonably assured and all other revenue
recognition criteria are met. We assess the probability of collection based on a
number of factors, including past transaction history and the customer’s
creditworthiness.  At the end of each reporting period, the sufficiency of
allowances for doubtful accounts is assessed based on the age of the receivable
and the individual customer’s creditworthiness.
  In the
quarter ended March 31, 2006, we completed an evaluation of our revenue
recognition methodology and concluded that it was more appropriate to recognize
revenues on sales to distributors at the time of shipment to a distributor (also
referred to as the sell-in basis of recognizing revenue). Prior to the first
quarter of 2006, we recognized revenue on sales to distributors when the
distributor resold the product to its end customer (also referred to as the
sell-through basis of recognizing revenue). Statement of Financial Accounting
Standards (“SFAS”) No. 48, “Revenue Recognition When Rights of Return Exists”,
sets forth conditions that must be met to recognize revenue at the time of
shipment. Among those conditions is that a company that provides a right of
return or pricing concession to a buyer be able to reasonably estimate the
amount of future returns or pricing concessions. In the past, we had concluded
that we did not meet this condition and therefore used the sell-through basis of
revenue recognition. In the first quarter of 2006, we concluded that we are able
to reasonably estimate returns and pricing concessions, and therefore had
implemented the sell-in method of accounting for sales to distributors. We
recognized an additional $2.8 million in revenues during the first quarter of
2006 due to this change resulting in an increase to diluted earnings per share
of $0.06.
  30
  We offer
pricing protection to two distributors whereby we support the distributor’s
resale product margin on certain products held in the distributor’s inventory.
We analyze current requests for credit in process, also known as ship and
debits, and inventory at the distributor to determine the ending sales reserve
required for this program. We also offer stock rotation rights to two
distributors such that they can return up to a total of 5% of products purchased
every six months in exchange for other PLX products of equal value. We analyze
current stock rotation requests and past experience, which has historically been
insignificant, to determine the ending sales reserve required for this program.
In addition, we have arrangements with a small number of customers offering a
rebate program on various products. We record rebates as a reduction of revenue
under the guidelines of Emerging Issues Task Force (“EITF”) 01-9, “Accounting
for Consideration Given to a Customer (Including a Reseller of the Vendor’s
Product)”. Reserves are reduced directly from revenue and recorded as a
reduction to accounts receivable.
  Inventory Valuation.We
evaluate the need for potential inventory provisions by considering a
combination of factors, including the life of the product, sales history,
obsolescence, and sales forecast. Any adverse changes to our future product
demand may result in increased provisions, resulting in decreased gross margin.
In addition, future sales on any of our previously written down inventory may
result in increased gross margin in the period of sale.
  Allowance for Doubtful Accounts.We evaluate the collectibility of our accounts receivable based on length
of time the receivables are past due. Generally, our customers have between
thirty days to forty five days to remit payment of invoices. We record reserves
for bad debts against amounts due to reduce the net recognized receivable to the
amount we reasonably believe will be collected.  Once we have
exhausted collection efforts, we will reduce the related accounts receivable
against the allowance established for that receivable.  We have
certain customers with individually large amounts due at any given balance sheet
date. Any unanticipated change in one of those customers’ creditworthiness or
other matters affecting the collectibility of amounts due from such customers
could have a material affect on our results of operations in the period in which
such changes or events occur.  Historically, our write-offs have been
insignificant. However, due to the current economic conditions, our customers
may encounter liquidity issues leading to additional bad debt
expense.
  Goodwill. Our methodology for
allocating the purchase price related to business acquisitions is determined
through established valuation techniques.  Goodwill is measured as the
excess of the cost of the acquisition over the amounts assigned to identifiable
tangible and intangible assets acquired less assumed liabilities. We have one
operating segment and business reporting unit, the sales of semiconductor
devices, and we perform goodwill impairment tests annually during the fourth
quarter and between annual tests in certain circumstances. We determined that
our carrying value exceeded fair value, indicating that goodwill was potentially
impaired. As a result, we initiated the second step of the goodwill impairment
test which involves calculating the implied fair value of goodwill by allocating
the fair value of the Company to all of our assets and liabilities other than
goodwill and comparing it to the carrying amount of goodwill. We determined that
there was no implied fair value of goodwill and recorded an impairment charge of
$34.7 million in 2008.
  Long-lived Assets. We review
long-lived assets, principally property and equipment and identifiable
intangibles, for impairment whenever events or circumstances indicate that the
carrying amount of assets may not be recoverable in accordance with SFAS No. 144
“Accounting for the Impairment or Disposal of Long-Lived Assets”.  We
evaluate recoverability of assets to be held and used by comparing the carrying
amount of an asset to estimated future net undiscounted cash flows generated by
the asset.  If such assets are considered to be impaired, the
impairment recognized is measured as the amount by which the carrying amount of
the assets exceeds the fair value of the assets.  Also see Note 6 to
the Consolidated Financial Statements. During 2008, as a result of the
goodwill impairment testing, we had to evaluate our other long-lived assets for
impairment. We purchased our headquarters building in 2000. It is ideal for our
operations and have no plans to relocate or sell the building. However due to
the decline in the value of commercial property, the building was appraised for
$18.8 million less than its carrying value, which was recorded as an impairment
charge in 2008.
  31
  Taxes.We account for income
taxes using the asset and liability method.  Deferred taxes are determined
based on the differences between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.  Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. As of December 31, 2008, we carried a valuation allowance for the
entire deferred tax asset of $23.9 million as a result of uncertainties
regarding the realization of the asset balance (see Note 10 to the Consolidated
Financial Statements). The net deferred tax assets are reduced by a
valuation allowance if, based upon weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.  We must make significant judgments to determine our
provision for income taxes, our deferred tax assets and liabilities and any
valuation allowance to be recorded against our net deferred tax
asset.  As of December 2008, a valuation allowance continues to be
recorded for the net deferred tax asset based on management’s assessment that
realization of deferred tax assets is uncertain due to the history of losses,
the variability of operating results and the inability to conclude that it is
more likely than not that sufficient taxable income would be generated in future
periods to realize those deferred tax assets. Future taxable income and/or tax
planning strategies may eliminate all or a portion of the need for the valuation
allowance. In the event we determine we are able to realize our deferred tax
asset, an adjustment to the valuation allowance may significantly increase
income in the period such determination is made.
  Recent Accounting
Pronouncements
  In
September 2006, FASB issued SFAS No. 157, “Fair Value
Measurements”.  SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”) and
expands disclosures about fair value measurements. For financial assets and
liabilities, this statement is effective for fiscal periods beginning after
November 15, 2007 and does not require any new fair value
measures.  In February 2008, the FASB Staff Position No. 157-2 was
issued which delayed the effective date of SFAS 157 to fiscal years ending after
November 15, 2008 for non-financial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.  The adoption of SFAS 157 for financial assets and
liabilities did not have a material impact on our financial position or results
of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115”. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items that are not currently required to
be measured at fair value, with unrealized gains and losses related to these
financial instruments reported in earnings at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 did not have an effect on our
financial position or results of operations as we did not elect this fair value
option.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations – Revised
2007”, which replaces FASB Statement No. 141, “Business Combinations”. SFAS
141(R) establishes principles and requirements intending to improve the
relevance, representational faithfulness and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008. The adoption of SFAS 141(R) will change the
Company’s accounting treatment for business combinations on a prospective basis
beginning in the first quarter of 2009. For business combinations expected to
close during 2009 and therefore be accounted for under SFAS 141(R), acquisitions
related costs are required to be expensed. On January 2, 2009 we completed the
acquisition of Oxford, and as a result, we recorded acquisition related
expenses in 2008 of $0.8 million, which was included in SG&A
expenses. We will be required to apply SFAS 141(R) to our acquisition of Oxford
and are currently evaluating the impact that this revised business combination
will have on our financial position and results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards to improve the relevance,
comparability and transparency of financial information that a reporting entity
provides in its consolidated financial statements. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. We do not believe that the
adoption of SFAS 160 will have a material impact on our financial position or
results of operations.
 
 In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets”. FSP 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life
of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of the
treatment of the costs, period of extension, and total costs
incurred.  FSP 142-3 must be applied prospectively to intangible
assets acquired after January 1, 2009.  We are currently evaluating
the impact that FSP 142-3 will have on our financial position or results of
operations.
  32
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles”.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy).  SFAS 162 became effective
November 15, 2008. The adoption of SFAS 162 did not have a material impact on
our financial position or results of operations.
  ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  We have
an investment portfolio of fixed income securities, including amounts classified
as cash equivalents short-term investments and long-term investments of
approximately $40.3 million at December 31, 2008. These
securities are subject to interest rate fluctuations and will decrease in market
value if interest rates increase.
  The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. We invest
primarily in high quality, short-term and long-term debt instruments. A
hypothetical 100 basis point increase in interest rates would result in less
than a $5,000 decrease (less than 1%) in the fair value of the Company's
available-for-sale securities.  At December 31, 2008, we had an
unrealized gain on our investments of approximately $0.3 million and an
unrealized gain of $62,000 at December 31, 2007.
  ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  The
information required by this Item is contained in the financial statements and
schedule set forth in Item 15 (a) of this Form 10-K.
  ITEM
9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL
DISCLOSURE
  None.
  ITEM
9A: CONTROLS AND
PROCEDURES
  Controls
and Procedures
  (a)
                    Evaluation
      of disclosure controls and
procedures.
  Based on
their evaluation as of December 31, 2008, our Chief Executive Officer and
Chief Financial Officer, have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective
to ensure that the information required to be disclosed by us in this Annual
Report on Form 10-K was recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and instructions for
Form 10-K and that such disclosure controls and procedures were also
effective to ensure that information required to be disclosed in the reports we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
  (b)
                      Change
      in internal controls.
  There has
been no change in our internal control over financial reporting that
occurred during our most recent fiscal year that has materially affected or is
reasonably likely to materially affect our internal control over financial
reporting.
  33
  Management's
Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting as of
December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control-Integrated Framework. Our management has
concluded that, as of December 31, 2008, our internal control over
financial reporting is effective based on these criteria.
  Our
independent registered public accounting firm, BDO Seidman, LLP, which audited
the financial statements in this Annual Report on Form 10-K, independently
assessed the effectiveness of the company’s internal control over financial
reporting. BDO Seidman, LLP has issued an attestation report, included in
Part II, “Item 8: Financial Statements and Supplementary Data” of this
report.
  ITEM 9B:  OTHER INFORMATION
  None.
  34
  PART III
  ITEM 10:
DIRECTORS,EXECUTIVEOFFICERS AND CORPORATE
GOVERNANCE
  The
information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
  ITEM 11: EXECUTIVE
COMPENSATION
  The
information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
  ITEM 12: SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  The
information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
  ITEM 13: CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  The
information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
  ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
  The
information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of Stockholders.
  35
  PART
IV
  ITEM 15: EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
  (a)     1.  
Consolidated Financial Statements
  For the following
financial information included herein, see Index on page 37:
  Report of Independent
Registered Public Accounting Firm
  Report of Independent
Registered Public Accounting Firm on Internal Control Over
Financial Reporting
  
  Operations three
  
  
  
  2.    Financial Statement Schedule
  The financial
statement schedules of the Company are included in Part IV of this report: As of
and for each of the three years in the period ended December 31, 2008-II
Valuation and Qualifying Accounts. All other schedules have been omitted because
they are not applicable.
  3.    Exhibit Index
 See
Exhibit Index immediately following the signature page for a list of
exhibits filed or incorporated by reference as a part of this
report.
  (b)     Exhibits
 
  36
  PLX TECHNOLOGY,
INC.
 INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
 PageReport
      of BDO Seidman, LLP, Independent Registered Public Accounting
      Firm
                      38Report
      of BDO Seidman, LLP, Independent Registered Public Accounting Firm on
      Internal Control Over Financial Reporting
                      39Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                      40Consolidated
      Statements of Operations for each of the three years in the period ended
      December 31, 2008
                      41Consolidated
      Statements of Stockholders' Equity and Comprehensive Income (Loss) for
      each of the three years in the period ended December 31,
    2008
                      42Consolidated
      Statements of Cash Flows for each of the three years in the period ended
      December 31, 2008
                      43Notes
      to the Consolidated Financial Statements
                      44
 37
  Report of Independent Registered
Public Accounting Firm
  The Board
of Directors and Stockholders
 PLX
Technology, Inc.
 Sunnyvale,
California
   We have
audited the accompanying consolidated balance sheets of PLX Technology, Inc. as
of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity and comprehensive income (loss), and cash flows
for each of the three years in the period ended December 31, 2008.  In
connection with our audits of the financial statements, we have also audited
Schedule II – Valuation and Qualifying Accounts as of and for each of the years
ended December 31, 2008, 2007 and 2006.  These financial statements
and schedule are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and schedule are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and schedule,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements and schedule.  We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of PLX Technology, Inc. at
December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
  Also, in
our opinion, Schedule II – Valuation and Qualifying Accounts, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), PLX Technology, Inc.’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 5, 2009, expressed an
unqualified opinion thereon.
  /s/ BDO
Seidman, LLP
 San
Francisco, California
 March 5,
2009
  38
  Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
  The Board
of Directors and Stockholders
 PLX
Technology, Inc.
 Sunnyvale,
California
   We have
audited PLX Technology, Inc.’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria).  PLX Technology, Inc.’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Item 9A,
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company's internal control over
financial reporting based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.
  A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable  assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting  principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
  In our
opinion, PLX Technology, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of PLX
Technology, Inc. as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended December 31,
2008, and our report dated March 5, 2009, expressed an unqualified opinion
thereon.
  /s/ BDO
Seidman, LLP
 San
Francisco, California
 March 5,
2009
  39
  PLX
TECHNOLOGY, INC.
 CONSOLIDATED
BALANCE SHEETS
 (in
thousands, except share and per share data)
 
 December
      31,2008
                    
                    
                    2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    6,865
                    
                    
                    $
                    19,175Short-term
      investments
                    
                    
                    32,677
                    
                    
                    
                    17,142Accounts
      receivable, less allowances of $383 and $516
                    
                    
                    5,712
                    
                    
                    
                    10,534Inventories
                    
                    
                    7,257
                    
                    
                    
                    7,422Other
      current assets
                    
                    
                    4,699
                    
                    
                    
                    3,788Total
      current assets
                    
                    
                    57,210
                    
                    
                    
                    58,061Goodwill
                    
                    
                    -
                    
                    
                    
                    34,541Other
      purchased intangible assets, net of accumulated amortization of $9,223 in
      2007
                    
                    
                    -
                    
                    
                    
                    1,577Property
      and equipment, net
                    
                    
                    10,590
                    
                    
                    
                    29,798Long-term
      investments
                    
                    
                    7,585
                    
                    
                    
                    10,246Other
      assets
                    
                    
                    1,875
                    
                    
                    
                    1,577Total
      assets
                    
                    $
                    77,260
                    
                    
                    $
                    135,800LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                    
                    $
                    4,003
                    
                    
                    $
                    4,447Accrued
      compensation and benefits
                    
                    
                    2,360
                    
                    
                    
                    2,237Accrued
      commissions
                    
                    
                    475
                    
                    
                    
                    652Other
      accrued expenses
                    
                    
                    1,219
                    
                    
                    
                    572Total
      current liabilities
                    
                    
                    8,057
                    
                    
                    
                    7,908Commitments
      and contingencies (Note 11)Stockholders'
      equity:Preferred
      stock, $0.001 par value per share:Authorized
      -- 5,000,000  shares: none issued and
outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001 par value per share:Authorized
      -- 50,000,000 shares: issued and outstanding - 28,004,262 and
      28,841,439
                    
                    
                    28
                    
                    
                    
                    29Additional
      paid-in capital
                    
                    
                    132,159
                    
                    
                    
                    134,503Accumulated
      other comprehensive income (loss)
                    
                    
                    104
                    
                    
                    
                    (82
                    )Accumulated
      deficit
                    
                    
                    (63,088
                    )
                    
                    
                    (6,558
                    )Total
      stockholders' equity
                    
                    
                    69,203
                    
                    
                    
                    127,892Total
      liabilities and stockholders' equity
                    
                    $
                    77,260
                    
                    
                    $
                    135,800
  See
accompanying notes to consolidated financial statements.
  40
  PLX
TECHNOLOGY, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (in
thousands, except per share data)
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Net
      revenues
                    
                    $
                    81,068
                    
                    
                    $
                    81,734
                    
                    
                    $
                    81,425Cost
      of revenues
                    
                    
                    32,786
                    
                    
                    
                    32,209
                    
                    
                    
                    33,795Gross
      margin
                    
                    
                    48,282
                    
                    
                    
                    49,525
                    
                    
                    
                    47,630Operating
      expensesResearch
      and development
                    
                    
                    27,091
                    
                    
                    
                    24,373
                    
                    
                    
                    20,194Selling,
      general and administrative
                    
                    
                    24,124
                    
                    
                    
                    24,516
                    
                    
                    
                    23,848Amortization
      of purchased intangible assets
                    
                    
                    742
                    
                    
                    
                    1,279
                    
                    
                    
                    1,873Impairment
      of assets
                    
                    
                    54,272
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      operating expenses
                    
                    
                    106,229
                    
                    
                    
                    50,168
                    
                    
                    
                    45,915Operating
      income (loss)
                    
                    
                    (57,947
                    )
                    
                    
                    (643
                    )
                    
                    
                    1,715Interest
      income
                    
                    
                    1,521
                    
                    
                    
                    2,385
                    
                    
                    
                    1,763Other
      income, net
                    
                    
                    22
                    
                    
                    
                    9
                    
                    
                    
                    40Income
      (loss) before provision for income taxes
                    
                    
                    (56,404
                    )
                    
                    
                    1,751
                    
                    
                    
                    3,518Provision
      for income taxes
                    
                    
                    126
                    
                    
                    
                    577
                    
                    
                    
                    512Net
      income (loss)
                    
                    $
                    (56,530
                    )
                    
                    $
                    1,174
                    
                    
                    $
                    3,006Basic
      net income (loss) per share
                    
                    $
                    (2.00
                    )
                    
                    $
                    0.04
                    
                    
                    $
                    0.11Shares
      used to compute basic per share amounts
                    
                    
                    28,203
                    
                    
                    
                    28,724
                    
                    
                    
                    28,177Diluted
      net income (loss) per share
                    
                    $
                    (2.00
                    )
                    
                    $
                    0.04
                    
                    
                    $
                    0.10Shares
      used to compute diluted per share amounts
                    
                    
                    28,203
                    
                    
                    
                    29,156
                    
                    
                    
                    28,925
 See
accompanying notes to consolidated financial statements.
  41
 
 PLX
TECHNOLOGY, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
 &
COMPREHENSIVE INCOME (LOSS)
 (in
thousands, except share amounts)
 AccumulatedOtherAdditional
                    
                    
                    Comprehensive
                    
                    
                    
                    
                    
                    TotalCommon
      Stock
                    
                    
                    Paid-in
                    
                    
                    Income
                    
                    
                    Accumulated
                    
                    
                    Stockholders'Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    (Loss)
                    
                    
                    Deficit
                    
                    
                    EquityBalance
      at December 31, 2005
                    
                    
                    27,670,562
                    
                    
                    $
                    28
                    
                    
                    $
                    118,313
                    
                    
                    $
                    (114
                    )
                    
                    $
                    (10,738
                    )
                    
                    $
                    107,489Share-based
      compensation expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,903
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,903Issuance
      of stock pursuantto
      exercise of stock options
                    
                    
                    959,460
                    
                    
                    
                    1
                    
                    
                    
                    5,388
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,389Tax
      benefit related to exercise of stock options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    131
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    131Comprehensive
      income:Change
      in unrealized loss on investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    48
                    
                    
                    
                    -
                    
                    
                    
                    48Translation
      adjustments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (30
                    )
                    
                    
                    -
                    
                    
                    
                    (30
                    )Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,006
                    
                    
                    
                    3,006Total
      comprehensive income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,024Balance
      at December 31, 2006
                    
                    
                    28,630,022
                    
                    
                    
                    29
                    
                    
                    
                    128,735
                    
                    
                    
                    (96
                    )
                    
                    
                    (7,732
                    )
                    
                    
                    120,936Share-based
      compensation expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,441
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,441Issuance
      of stock pursuantto
      exercise of stock options
                    
                    
                    211,417
                    
                    
                    
                    -
                    
                    
                    
                    1,301
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,301Tax
      benefit related to exercise of stock options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    26
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    26Comprehensive
      income:Change
      in unrealized loss on investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    56
                    
                    
                    
                    -
                    
                    
                    
                    56Translation
      adjustments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (42
                    )
                    
                    
                    -
                    
                    
                    
                    (42
                    )Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,174
                    
                    
                    
                    1,174Total
      comprehensive income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,188Balance
      at December 31, 2007
                    
                    
                    28,841,439
                    
                    
                    
                    29
                    
                    
                    
                    134,503
                    
                    
                    
                    (82
                    )
                    
                    
                    (6,558
                    )
                    
                    
                    127,892Share-based
      compensation expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,301
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,301Issuance
      of stock pursuantto
      exercise of stock options
                    
                    
                    119,229
                    
                    
                    
                    -
                    
                    
                    
                    845
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    845Repurchase
      of common stock
                    
                    
                    (956,406
                    )
                    
                    
                    (1
                    )
                    
                    
                    (6,490
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (6,491
                    )Comprehensive
      income (loss):Change
      in unrealized loss on investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    229
                    
                    
                    
                    -
                    
                    
                    
                    229Translation
      adjustments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (43
                    )
                    
                    
                    -
                    
                    
                    
                    (43
                    )Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (56,530
                    )
                    
                    
                    (56,530
                    )Total
      comprehensive loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (56,344
                    )Balance
      at December 31, 2008
                    
                    
                    28,004,262
                    
                    
                    $
                    28
                    
                    
                    $
                    132,159
                    
                    
                    $
                    104
                    
                    
                    $
                    (63,088
                    )
                    
                    $
                    69,203
 See
accompanying notes to consolidated financial statements.
  42
  PLX
TECHNOLOGY, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
  Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (56,530
                    )
                    
                    $
                    1,174
                    
                    
                    $
                    3,006Adjustments
      to reconcile net income (loss) to net cash flows provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    2,240
                    
                    
                    
                    2,029
                    
                    
                    
                    1,979Share-based
      compensation expense
                    
                    
                    3,301
                    
                    
                    
                    4,441
                    
                    
                    
                    4,903Amortization
      of purchased intangible assets
                    
                    
                    742
                    
                    
                    
                    1,279
                    
                    
                    
                    1,873Impairment
      of assets
                    
                    
                    54,272
                    
                    
                    
                    -
                    
                    
                    
                    -Deferred
      margins
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,963
                    )Provision
      for inventories
                    
                    
                    684
                    
                    
                    
                    763
                    
                    
                    
                    809Changes
      in pre-acquisition deferred tax balances
                    
                    
                    (151
                    )
                    
                    
                    435
                    
                    
                    
                    842Other
      non-cash items
                    
                    
                    (176
                    )
                    
                    
                    (217
                    )
                    
                    
                    (84
                    )Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    4,822
                    
                    
                    
                    (2,031
                    )
                    
                    
                    (2,251
                    )Inventories
                    
                    
                    (519
                    )
                    
                    
                    110
                    
                    
                    
                    (4,776
                    )Other
      current assets
                    
                    
                    (911
                    )
                    
                    
                    (3,188
                    )
                    
                    
                    1,242Other
      assets
                    
                    
                    (298
                    )
                    
                    
                    86
                    
                    
                    
                    (1,250
                    )Accounts
      payable
                    
                    
                    (444
                    )
                    
                    
                    1,452
                    
                    
                    
                    (1,535
                    )Accrued
      compensation and benefits
                    
                    
                    123
                    
                    
                    
                    (180
                    )
                    
                    
                    663Accrued
      commissions
                    
                    
                    (177
                    )
                    
                    
                    (448
                    )
                    
                    
                    802Other
      accrued expenses
                    
                    
                    647
                    
                    
                    
                    72
                    
                    
                    
                    (1,377
                    )Net
      cash provided by operating activities
                    
                    
                    7,625
                    
                    
                    
                    5,777
                    
                    
                    
                    2,883Cash
      flows provided by (used in) investing activities:Purchase
      of investments
                    
                    
                    (48,360
                    )
                    
                    
                    (34,677
                    )
                    
                    
                    (13,703
                    )Sales
      and maturities of investments
                    
                    
                    35,890
                    
                    
                    
                    17,100
                    
                    
                    
                    18,428Purchase
      of property and equipment
                    
                    
                    (1,776
                    )
                    
                    
                    (3,088
                    )
                    
                    
                    (1,188
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    (14,246
                    )
                    
                    
                    (20,665
                    )
                    
                    
                    3,537Cash
      flows provided by (used in) financing activities:Proceeds
      from exercise of common stock options
                    
                    
                    845
                    
                    
                    
                    1,301
                    
                    
                    
                    5,389Repurchase
      of common stock
                    
                    
                    (6,491
                    )
                    
                    
                    -
                    
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    (5,646
                    )
                    
                    
                    1,301
                    
                    
                    
                    5,389Effect
      of exchange rate fluctuations on cash and cash equivalents
                    
                    
                    (43
                    )
                    
                    
                    (42
                    )
                    
                    
                    (33
                    )Increase
      (decrease) in cash and cash equivalents
                    
                    
                    (12,310
                    )
                    
                    
                    (13,629
                    )
                    
                    
                    11,776Cash
      and cash equivalents at beginning of year
                    
                    
                    19,175
                    
                    
                    
                    32,804
                    
                    
                    
                    21,028Cash
      and cash equivalents at end of year
                    
                    $
                    6,865
                    
                    
                    $
                    19,175
                    
                    
                    $
                    32,804Supplemental
      disclosure of cash flow information:Cash
      from income tax refunds
                    
                    $
                    4
                    
                    
                    $
                    41
                    
                    
                    $
                    9Cash
      paid for income taxes
                    
                    $
                    199
                    
                    
                    $
                    165
                    
                    
                    $
                    135
 See
accompanying notes to consolidated financial statements.
  43
 
 PLX TECHNOLOGY,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  1. Organization and Summary of
Significant Accounting Policies
  Description of
Business
  PLX
Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in
May 1986, develops and supplies semiconductor devices that accelerate and manage
the transfer of data in microprocessor-based systems including networking and
telecommunications, enterprise storage, servers, personal computers (PCs), PC
peripherals, consumer electronics, imaging and industrial products. The Company
offers a complete solution consisting of two related types of products:
semiconductor devices and development kits. The Company’s semiconductor devices
simplify the development of data transfer circuits in micro-processor based
systems. The Company’s development kits promote sales of its semiconductor
devices by lowering customers' development costs and by accelerating their
ability to bring new products to market. The Company utilizes a “fabless”
semiconductor business model whereby it purchases wafers and packaged and tested
semiconductor devices from independent manufacturing
foundries.  Semiconductor devices account for substantially all of the
Company's net revenues.
  Basis of
Presentation
  The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries in China, Japan, Korea, Taiwan and the United Kingdom.
All intercompany transactions and balances have been eliminated.
  Cash and Cash
Equivalents
  The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
  Investments
  The
Company accounts for its investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". At December
31, 2008, the Company’s securities consisted of debt
securities.  Under SFAS 115, management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. At December 31, 2008 and 2007,
all debt securities were designated as available-for-sale. Available-for-sale
securities are carried at fair value, based on quoted market prices, with
unrealized gains and losses reported in a separate component of stockholders'
equity. The amortized cost of debt securities is adjusted for the amortization
of premiums and the accretion of discounts to maturity both of which are
included in interest income. Realized gains and losses are recorded on the
specific identification method.
  Accounts
Receivable and Allowance for Doubtful Accounts
  Accounts
receivable are recorded at the invoiced amount and do not bear
interest.  The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in its existing accounts
receivable.  The Company determines the allowance based on historical
write-off experience and customer economic data.  The Company reviews
its allowance for doubtful accounts monthly.  Past due balances over
90 days are reviewed individually for collectibility.  Account
balances are charged off against the allowance when the Company believes that it
is probable the receivable will not be recovered.
  44
  Inventories
  Inventories
are valued at the lower of cost (first-in, first-out method) or market (net
realizable value).  Inventories were as follows (in
thousands):
 December
      31,2008
                    
                    
                    2007Work-in-process
                    
                    $
                    2,506
                    
                    
                    $
                    2,000Finished
      goods
                    
                    
                    4,751
                    
                    
                    
                    5,422Total
                    
                    $
                    7,257
                    
                    
                    $
                    7,422
 The
Company evaluates the need for potential provision for inventory by considering
a combination of factors, including the life of the product, sales history,
obsolescence and sales forecasts.
  Goodwill
and Other Intangible Assets
  Goodwill
represents the excess of cost over the value of net assets of businesses
acquired pursuant to SFAS No. 141, "Business Combinations" and is carried
at cost unless write-downs for impairment are required. The Company evaluates
the carrying value of goodwill on an annual basis during the fourth quarter and
whenever events and changes in circumstances indicate that the carrying amount
may not be recoverable. Such indicators would include a significant reduction in
the Company's market capitalization, a decrease in operating results or a
deterioration in the Company's financial position. The Company operates
under a single reporting unit and accordingly, all of its goodwill is associated
with the entire company.
  The
purchased intangible assets including customer base and developed/core
technology were being amortized over the assets’ useful lives, which ranged from
three to six years, utilizing the straight-line method which approximates the
estimated future cash flows from the intangible. Also, see Note 6 to the
Consolidated Financial Statements. The Company evaluates other intangible
assets for impairment whenever events and circumstances indicate that such
assets might be impaired.
  Changes
in the carrying amount of goodwill for the years ended December 31, 2008 and
2007 are as follows (in thousands):
 Balance
      as of December 31, 2006
                    
                    $
                    34,976Changes
      in pre-acquisition deferred tax balances
                    
                    
                    (435
                    )Balance
      as of December 31, 2007
                    
                    
                    34,541Changes
      in pre-acquisition deferred tax balances
                    
                    
                    151Impairment
      charge
                    
                    
                    (34,692
                    )Balance
      as of December 31, 2008
                    
                    $
                    -
 In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”,
goodwill is required to be tested for impairment annually or at an interim date
if an event occurs or conditions change that would more likely than not reduce
the fair value of our reporting unit below its carrying value. During the
quarter ended December 31, 2008, the Company determined that its carrying value
exceeded its fair value, indicating that goodwill was potentially impaired. As a
result, the Company initiated the second step of the goodwill impairment test
which involves calculating the implied fair value of its goodwill by allocating
the fair value of the Company to all of its assets and liabilities other than
goodwill and comparing it to the carrying amount of goodwill. The Company
determined that there was no implied fair value of its goodwill and
recorded an impairment charge of $34.7 million in 2008. Also see Note
6 to the Consolidated Financial Statements.
  45
  Long-lived
Asset Impairment
  Long-lived
assets, principally property and equipment and identifiable intangibles, held
and used by the Company are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of assets may not be recoverable
in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets”.  The Company evaluates recoverability of assets to
be held and used by comparing the carrying amount of an asset to estimated
future net undiscounted cash flows generated by the asset.  If such
assets are considered to be impaired, the impairment recognized is measured as
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.  Also see Note 6 to the Consolidated Financial
Statements.
  During
2008, as a result of the goodwill impairment testing, the Company had to
evaluate its other long-lived assets for impairment. The Company purchased its
headquarters building in 2000. It is ideal for its operations and has no plans
to relocate or sell the building. However due to the decline in the value of
commercial property, the building was appraised for $18.8 million less than its
carrying value, which was recorded as an impairment charge.
  Property and
Equipment
  Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of
thirty nine years for buildings, three to thirty nine years for building
improvements and three to seven years for equipment, furniture and purchased
software.
  Property
and equipment are as follows (in thousands):
 December
      31,2008
                    
                    
                    2007Land
                    
                    $
                    3,150
                    
                    
                    $
                    8,550Building
                    
                    
                    3,950
                    
                    
                    
                    21,862Equipment
      and furniture
                    
                    
                    12,724
                    
                    
                    
                    11,466Purchased
      software
                    
                    
                    4,188
                    
                    
                    
                    4,12824,012
                    
                    
                    
                    46,006Accumulated
      depreciation
                    
                    
                    (13,422
                    )
                    
                    
                    (16,208
                    )Net
      property and equipment
                    
                    $
                    10,590
                    
                    
                    $
                    29,798
 Depreciation
and amortization expense pertaining to property and equipment was approximately
$2.2 million, $2.0 million and $2.0 million for the years ended December 31,
2008, 2007 and 2006, respectively.
  Foreign
Currency Translation
  The
functional currency of each of the Company’s international subsidiaries in
China, Japan, Korea, Taiwan and the United Kingdom is the local currency of the
resident countries.  Assets and liabilities of the Company’s foreign
subsidiaries are translated into the Company’s reporting currency at month-end
exchange rates.  Revenues and expenses of the Company’s foreign
subsidiaries are translated into the Company’s reporting currency at
weighted-average exchange rates.
  Income
Taxes
  Income
taxes are accounted for using the asset and liability method in accordance with
SFAS No. 109, “Accounting for Income Taxes”.  Under this method,
deferred tax liabilities and assets are recognized for the expected future tax
consequences of differences between the carrying amounts and the tax bases of
assets and liabilities.  A valuation allowance is provided when it is
more likely than not that all or some portion of deferred tax assets will not be
realized.
  46
  Revenue
Recognition
  The
Companyrecognizes
revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collection is reasonably
assured.
  Revenue
from product sales to direct customers and distributors is recognized upon
shipment and transfer of risk of loss, if the Company believes collection is
reasonably assured and all other revenue recognition criteria are met. The
Company assesses the probability of collection based on a number of factors,
including past transaction history and the customer’s creditworthiness.  At
the end of each reporting period, the sufficiency of allowances is assessed
based on the age of the receivable and the individual customer’s
creditworthiness.
  In
the quarter ended March 31, 2006, the Company completed an evaluation of
its revenue recognition methodology and concluded that it was more appropriate
to recognize revenues on sales to distributors at the time of shipment to a
distributor (also referred to as the sell-in basis of recognizing revenue).
Prior to the first quarter of 2006, the Company recognized revenue on sales to
distributors when the distributor resold the product to its end customer (also
referred to as the sell-through basis of recognizing revenue). SFAS No. 48,
“Revenue Recognition When Rights of Return Exists”, sets forth conditions that
must be met to recognize revenue at the time of shipment. Among those conditions
is that a company that provides a right of return or pricing concession to a
buyer be able to reasonably estimate the amount of future returns or pricing
concessions. In the past, the Company had concluded that it did not meet this
condition and therefore used the sell-through basis of revenue recognition. In
the first quarter of 2006, the Company concluded that it is able to reasonably
estimate returns and pricing concessions, and therefore had implemented the
sell-in method of accounting for sales to distributors. The Company recognized
an additional $2.8 million in revenues during the first quarter of 2006 due to
this change resulting in an increase to diluted earnings per share of
$0.06.
  The
Company offers pricing protection to two distributors whereby the Company
supports the distributor’s resale product margin on certain products held in the
distributor’s inventory. The Company analyzes current requests for credit in
process, also known as ship and debits, and inventory at the distributor to
determine the ending sales reserve required for this program. The Company also
offers stock rotation rights to two distributors such that they can return up to
a total of 5% of products purchased every six months in exchange for other PLX
products of equal value. The Company analyzes current stock rotation requests
and past experience to determine the ending sales reserve required for this
program. In addition, the Company has arrangements with a small number of
customers offering a rebate program on various products. The Company records
rebates under the guidelines of EITF 01-9, “Accounting for Consideration Given
to a Customer (Including a Reseller of the Vendor’s Product)”. Reserves are
reduced directly from revenue and recorded as a reduction to accounts
receivable.
  Product
Warranty
  The
Company sells products with a limited warranty of product quality for a period
of one year, and up to three years for a small number of customers, and a
limited indemnification of customers against intellectual property infringement
claims related to the Company’s products. The Company accrues for known
warranty and indemnification issues if a loss is probable and can be reasonably
estimated, and accrues for estimated incurred but unidentified issues based on
historical activity.
  Software
Development Costs
  In
accordance with SFAS No. 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased or Otherwise Marketed," the Company is required to capitalize
eligible computer software costs upon achievement of technological feasibility
subject to net realizable value considerations. The Company has defined
technological feasibility as completion of a working model. The period between
the achievement of technological feasibility and release of the Company's
software products has been of short duration. Through December 31, 2008
such costs were insignificant. Accordingly, the Company has charged all
such costs to research and development expenses in the accompanying consolidated
statements of operations.
  47
  Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect various accounts, including but not limited to
goodwill, long-live assets, income taxes, inventories, revenue recognition,
allowance for doubtful accounts, share-based compensation and warranty reserves
as reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates and such
differences may be material to the consolidated financial
statements.
  ComprehensiveIncome
(Loss)
  The
components of accumulated other comprehensive income (loss), reflected in the
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss),
consisted of the following (in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Unrealized
      gain on investments, net
                    
                    $
                    291
                    
                    
                    $
                    62
                    
                    
                    $
                    6Cumulative
      translation adjustments
                    
                    
                    (187
                    )
                    
                    
                    (144
                    )
                    
                    
                    (102
                    )Accumulated
      other comprehensive income (loss)
                    
                    $
                    104
                    
                    
                    $
                    (82
                    )
                    
                    $
                    (96
                    )
 Recent Accounting
Pronouncements
  In
September 2006, FASB issued SFAS No. 157, “Fair Value
Measurements”.  SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”) and
expands disclosures about fair value measurements. For financial assets and
liabilities, this statement is effective for fiscal periods beginning after
November 15, 2007 and does not require any new fair value
measures.  In February 2008, the FASB Staff Position No. 157-2 was
issued which delayed the effective date of SFAS 157 to fiscal years ending after
November 15, 2008 for non-financial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.  The adoption of SFAS 157 for financial assets and
liabilities did not have a material impact on the Company’s financial position
or results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115”. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items that are not currently required to
be measured at fair value, with unrealized gains and losses related to these
financial instruments reported in earnings at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 did not have an effect on the
Company’s financial position or results of operations as it did not elect this
fair value option.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations – Revised
2007”, which replaces FASB Statement No. 141, “Business Combinations”. SFAS
141(R) establishes principles and requirements intending to improve the
relevance, representational faithfulness and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008. The adoption of SFAS 141(R) will change the
Company’s accounting treatment for business combinations on a prospective basis
beginning in the first quarter of 2009. For business combinations expected to
close during 2009 and therefore be accounted for under SFAS 141(R), acquisitions
related costs incurred during 2008 are required to be expensed. On January 2,
2009 the Company completed the acquisition of Oxford Semiconductor, Inc.
(Oxford) as a result it recorded acquisition related expenses in 2008 of
$0.8 million, which was included in selling, general and administrative
expenses. The Company will be required to apply SFAS 141(R) to its acquisition
of Oxford and are currently evaluating the impact that this revised business
combination standard  will have on its financial position and results
of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards to improve the relevance,
comparability and transparency of financial information that a reporting entity
provides in its consolidated financial statements. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company does not believe
that the adoption of SFAS 160 will have a material impact on its financial
position or results of operations.
  48
 
 In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets”. FSP 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life
of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of the
treatment of the costs, period of extension, and total costs
incurred.  FSP 142-3 must be applied prospectively to intangible
assets acquired after January 1, 2009.  The Company is currently
evaluating the impact that FSP 142-3 will have on its financial position or
results of operations.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles”.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy).  SFAS 162 became effective
November 15, 2008. The Company does not believe that the adoption of SFAS 162
will have a material impact on its financial position or results of
operations.
  2. Share-Based
Compensation
  Stock
Option Plans
  In May
2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008
Plan”).  Under the 2008 Plan, there is authorized for issuance and
available for awards an aggregate of 1,200,000 shares of the Company’s common
stock, plus the number of shares of the Company’s common stock available for
issuance under the Company’s prior incentive plan, its 1999 Stock Incentive
Plan, that are not subject to outstanding awards as of May 27,
2008.  In addition, the share reserve under the 2008 Plan will be
increased by the number of shares issuable pursuant to awards outstanding under
the prior plan that would have otherwise reverted to the prior plan because it
expires, are canceled or otherwise terminated without being exercised. Awards
under the 2008 Plan may include stock options, restricted stock, stock
appreciation rights, performance awards, restricted stock units and other
awards, provided that with respect to full value awards, such as restricted
stock or restricted stock units, no more than 300,000 shares may be issued in
the form of full value awards during the term of the 2008
Plan.  Awards under the 2008 Plan may be made to the Company’s
officers and other employees, its board members and consultants that it
hires.  The 2008 Plan has a term of ten years.
  Share-Based
Compensation Expense
  On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” using the modified-prospective transition method, which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to the Company’s employees and directors
including stock options. The Company recognizes the share-based compensation
expense on a straight-line basis over the requisite service period of the award,
which generally equals the vesting period of each grant.
  The fair
value of share-based awards to employees is calculated using the Black-Scholes
option pricing model, which requires subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values.
  The
weighted-average fair value of share-based compensation to employees is based on
the multiple option valuation approach. Forfeitures are estimated and it is
assumed no dividends will be declared. The estimated fair value of share-based
compensation awards to employees is amortized using the straight-line method
over the vesting period of the options. The weighted-average fair value
calculations are based on the following average assumptions:
  49
  Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Volatility
                    
                    
                    0.54
                    
                    
                    
                    0.59
                    
                    
                    
                    0.67Expected
      life of options (in years)
                    
                    
                    4.47
                    
                    
                    
                    4.35
                    
                    
                    
                    4.39Risk-free
      interest rate
                    
                    
                    2.55
                    %
                    
                    
                    4.31
                    %
                    
                    
                    4.72
                    %
 Risk-Free Interest Rate. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of the option.
  Expected Term. The Company’s expected term
represents the weighted-average period that the Company’s stock options are
expected to be outstanding. The expected term is based on the observed and
expected time to post-vesting exercise of options by employees. The Company uses
historical exercise patterns of previously granted options in relation to stock
price movements to derive an employee behavioral pattern used to forecast
expected exercise patterns.
  Expected Volatility. The Company has
historically calculated its expected volatility assumption required in the
Black-Scholes model by blending the historical and implied volatility. The
historical volatility is based on the weekly closing prices of its common stock
over a period equal to the expected term of the option. Market based implied
volatility is based on utilizing market data of actively traded options on the
Company’s stock, from options at- or near-the-money traded options, at a point
in time as close to the grant of the employee options as reasonably practical
and with similar terms to the employee share option, or a remaining maturity of
at least six months if no similar terms are available. The historical volatility
of the price of the Company’s common stock over the expected term of the option
is a strong indicator of the expected future volatility. In addition, implied
volatility takes into consideration market expectations of how future volatility
will differ from historical volatility.  During 2007 and 2006, the
Company did not believe that one estimate was more reliable than the other so it
used a 50/50 blend of historical volatility and market-based volatility.
However, due to the lack of available market data to calculate implied
volatility, the Company began using 100% historical volatility during the fourth
quarter of 2008.
  These
factors could change in the future, which would affect the share-based
compensation expense in future periods.
  As
share-based compensation expense recognized in the Consolidated Statements of
Operations for the fiscal years 2008, 2007 and 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Our estimated forfeiture rate of 26%, 27% and 30% for the years ended
December 31, 2008, 2007 and 2006, respectively, was based on historical
experience.
  The
following table shows total share-based compensation expense recorded for the
years ended December 31, 2008, 2007 and 2006 (in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Cost
      of revenues
                    
                    $
                    59
                    
                    
                    $
                    54
                    
                    
                    $
                    51Research
      and development
                    
                    
                    1,317
                    
                    
                    
                    1,712
                    
                    
                    
                    2,004Selling,
      general and administrative
                    
                    
                    1,925
                    
                    
                    
                    2,675
                    
                    
                    
                    2,848Total
      share-based compensation expense
                    
                    $
                    3,301
                    
                    
                    $
                    4,441
                    
                    
                    $
                    4,903
 50
  A summary
of option activity under the Company’s stock equity plans during the three years
ended December 31, 2008, 2007 and 2006 are as follows:
  Weighted
      AverageRemaining
                      
                      
                      AggregateOptions
      Available
                      
                      
                      Number
      of
                      
                      
                      Weighted
      Average
                      
                      
                      Contractual
      Term
                      
                      
                      IntrinsicOptions
                      
                      for
      Grant
                      
                      
                      Shares
                      
                      
                      Exercise
      Price
                      
                      
                      (in
      years)
                      
                      
                      ValueOutstanding
      at December 31, 2005
                      
                      
                      1,032,905
                      
                      
                      
                      4,483,051
                      
                      
                      $
                      10.57Authorized
                      
                      
                      800,000
                      
                      
                      
                      -
                      
                      
                      
                      -Granted
                      
                      
                      (880,250
                      )
                      
                      
                      880,250
                      
                      
                      
                      12.29Exercised
                      
                      
                      -
                      
                      
                      
                      (959,460
                      )
                      
                      
                      5.62Cancelled
                      
                      
                      687,355
                      
                      
                      
                      (690,364
                      )
                      
                      
                      14.77Outstanding
      at December 31, 2006
                      
                      
                      1,640,010
                      
                      
                      
                      3,713,477
                      
                      
                      
                      11.47
                      
                      
                      
                      5.39
                      
                      
                      $
                      11,718,444Authorized
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Granted
                      
                      
                      (790,650
                      )
                      
                      
                      790,650
                      
                      
                      
                      10.30Exercised
                      
                      
                      -
                      
                      
                      
                      (211,417
                      )
                      
                      
                      6.16Cancelled
                      
                      
                      293,237
                      
                      
                      
                      (293,237
                      )
                      
                      
                      13.44Outstanding
      at December 31, 2007
                      
                      
                      1,142,597
                      
                      
                      
                      3,999,473
                      
                      
                      
                      11.38
                      
                      
                      
                      4.79
                      
                      
                      $
                      2,663,803Authorized
                      
                      
                      1,200,000
                      
                      
                      
                      -
                      
                      
                      
                      -Granted
                      
                      
                      (1,531,500
                      )
                      
                      
                      1,531,500
                      
                      
                      
                      5.12Exercised
                      
                      
                      -
                      
                      
                      
                      (119,229
                      )
                      
                      
                      7.09Cancelled
                      
                      
                      651,901
                      
                      
                      
                      (651,901
                      )
                      
                      
                      8.96Plan
      Termination (1)
                      
                      
                      (150,753
                      )
                      
                      
                      -
                      
                      
                      
                      -Adjustment
                      
                      
                      (60
                      )
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at December 31, 2008
                      
                      
                      1,312,185
                      
                      
                      
                      4,759,843
                      
                      
                      
                      9.80
                      
                      
                      
                      4.20
                      
                      
                      $
                      1,262Exercisable
      at December 31, 2008
                      
                      
                      
                      
                      
                      
                      2,926,762
                      
                      
                      $
                      11.80
                      
                      
                      
                      3.41
                      
                      
                      $
                      1,262
 (1)
                  The
      1998 Stock Incentive Plan was terminated in May
  2008.
  The
Black-Scholes weighted average fair values of options granted during the years
ended December 31, 2008, 2007 and 2006 were $2.27, $5.34 and $6.98,
respectively.
  The
following table summarizes ranges of outstanding and exercisable options as of
December 31, 2008:
 Options
      Outstanding
                    
                    
                    Options
      ExercisableWeighted
      AverageRemaining
                    
                    
                    Weighted
                    
                    
                    
                    
                    
                    WeightedRange
      of
                    
                    
                    
                    
                    
                    Contractual
      Term
                    
                    
                    Average
                    
                    
                    
                    
                    
                    AverageExercise
      Price
                    
                    
                    Number
                    
                    
                    (in
      years)
                    
                    
                    Exercise
      Price
                    
                    
                    Number
                    
                    
                    Exercise
      Price$1.25-$5.52
                    
                    
                    
                    1,031,315
                    
                    
                    
                    5.44
                    
                    
                    $
                    3.20
                    
                    
                    
                    253,315
                    
                    
                    $
                    3.29$6.28-$9.39
                    
                    
                    
                    1,525,062
                    
                    
                    
                    3.77
                    
                    
                    
                    8.10
                    
                    
                    
                    1,021,639
                    
                    
                    
                    8.55$9.40-$10.21
                    
                    
                    
                    826,533
                    
                    
                    
                    5.21
                    
                    
                    
                    9.94
                    
                    
                    
                    509,199
                    
                    
                    
                    9.85$10.29-$16.65
                    
                    
                    
                    990,750
                    
                    
                    
                    3.86
                    
                    
                    
                    13.62
                    
                    
                    
                    756,426
                    
                    
                    
                    14.11$19.38-$25.94
                    
                    
                    
                    386,183
                    
                    
                    
                    1.27
                    
                    
                    
                    24.03
                    
                    
                    
                    386,183
                    
                    
                    
                    24.03Total
                    
                    
                    
                    4,759,843
                    
                    
                    
                    4.20
                    
                    
                    $
                    9.80
                    
                    
                    
                    2,926,762
                    
                    
                    $
                    11.80
 The total
intrinsic value of options exercised during the year ended December 31, 2008 was
approximately $0.2 million. The fair value of options vested during the year
ended December 31, 2008 was approximately $7.0 million. As of December 31, 2008,
total unrecognized compensation costs related to nonvested stock options net of
estimated forfeitures was $1.9 million which is expected to be recognized as
expense over a weighted average period of approximately 1.49 years.
  51
  3. NetIncome (Loss)Per Share
  The
Company uses the treasury stock method to calculate the weighted-average shares
used in the diluted earnings per share in accordance with SFAS No. 128,
“Earnings Per Share”.  The following table sets forth the computation
of basic and diluted net income (loss) per share (in thousands, except per share
data):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Net
      income (loss)
                    
                    $
                    (56,530
                    )
                    
                    $
                    1,174
                    
                    
                    $
                    3,006Weighted
      average shares of common stock outstanding
                    
                    
                    28,203
                    
                    
                    
                    28,724
                    
                    
                    
                    28,177Net
      income (loss) per share - basic
                    
                    $
                    (2.00
                    )
                    
                    $
                    0.04
                    
                    
                    $
                    0.11Shares
      used in computing basic net income (loss) per share
                    
                    
                    28,203
                    
                    
                    
                    28,724
                    
                    
                    
                    28,177Dilutive
      effect of stock options
                    
                    
                    -
                    
                    
                    
                    432
                    
                    
                    
                    748Shares
      used in computing diluted net income (loss) per share
                    
                    
                    28,203
                    
                    
                    
                    29,156
                    
                    
                    
                    28,925Net
      income (loss) per share - diluted
                    
                    $
                    (2.00
                    )
                    
                    $
                    0.04
                    
                    
                    $
                    0.10
 As the
Company incurred a loss for the year ended December 31, 2008, the effect of
dilutive securities, totaling 4.8 million shares, has been excluded from the
computation of diluted loss per share, as their impact would be
anti-dilutive.  Dilutive securities are comprised of options to
purchase common stock.
  Weighted
average employee stock options to purchase approximately 2.3 million and 1.5
million shares for the years ended December 31, 2007 and 2006, respectively,
were outstanding, but were not included in the computation of diluted earnings
per share because the exercise price of the stock options, including unamortized
share-based compensation, was greater than the average share price of the common
shares and, therefore, the effect would have been anti-dilutive.
  4.  Financial
Instruments
  Fair
Value Measurements
  The
Company adopted SFAS 157, effective January 1, 2008, for financial assets and
liabilities measured on a recurring basis.  SFAS 157 established a
framework for measuring fair value and expands related
disclosures.  The statement requires fair value measurement be
classified and disclosed in one of the following three categories:
  Level 1:
Valuations based on quoted prices in active markets for identical assets and
liabilities.  The fair value of available-for-sale securities included
in the level 1 category is based on quoted prices that are readily and regularly
available in an active market.  The Level 1 category includes money
market funds of $0.1 million, which are included in cash and cash equivalents in
the condensed consolidated balance sheet.
  Level 2:
Valuations based on observable inputs (other than Level 1 prices), such as
quoted prices for similar assets at the measurement date; quoted prices in
markets that are not active; or other inputs that are observable, either
directly or indirectly. The fair value of available-for-sale securities included
in the Level 2 category is based on the market values obtained from an
independent pricing service that were evaluated using pricing models that vary
by asset class and may incorporate available trade, bid and other market
information and price quotes from well established independent pricing vendors
and broker-dealers. The Level 2 category includes short-term and long-term
investments of $40.3 million, which are comprised of corporate debt securities
and government and agency securities.
  Level 3:
Valuations based on inputs that are unobservable and involve management judgment
and the reporting entity’s own assumptions about market participants and
pricing. The Company has no Level 3 financial assets measured at fair value on
the condensed consolidated balance sheet as of December 31, 2008.
  52
  The fair
value of available-for-sale investments is as follows (in
thousands):
 December
      31, 2008Amortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      EstimatedCost
                      
                      
                      Gain
                      
                      
                      Loss
                      
                      
                      Fair
      ValueCorporate
      bonds and notes
                      
                      $
                      9,898
                      
                      
                      $
                      92
                      
                      
                      $
                      (47
                      )
                      
                      $
                      9,943Municipal
      bonds
                      
                      
                      1,509
                      
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      1,515US
      treasury and government agencies securities
                      
                      
                      28,564
                      
                      
                      
                      240
                      
                      
                      
                      -
                      
                      
                      
                      28,804Total
      bonds, notes and equity securities
                      
                      $
                      39,971
                      
                      
                      $
                      338
                      
                      
                      $
                      (47
                      )
                      
                      $
                      40,262Less
      amounts classified as cash equivalents
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Total
      short and long-term available-for-sale investments
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      40,262Contractual
      maturity dates for investments:Less
      than one year
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      32,677One
      to two years
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      7,585$
                      40,262
  December
      31, 2007Amortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      EstimatedCost
                      
                      
                      Gain
                      
                      
                      Loss
                      
                      
                      Fair
      ValueCommercial
      paper
                      
                      $
                      21,453
                      
                      
                      $
                      1
                      
                      
                      $
                      (2
                      )
                      
                      $
                      21,452Medium
      term notes
                      
                      
                      2,539
                      
                      
                      
                      -
                      
                      
                      
                      (6
                      )
                      
                      
                      2,533Corporate
      bonds and notes
                      
                      
                      9,568
                      
                      
                      
                      63
                      
                      
                      
                      (24
                      )
                      
                      
                      9,607US
      treasury and government agencies secutites
                      
                      
                      10,135
                      
                      
                      
                      31
                      
                      
                      
                      (1
                      )
                      
                      
                      10,165Total
      bonds, notes and equity securities
                      
                      $
                      43,695
                      
                      
                      $
                      95
                      
                      
                      $
                      (33
                      )
                      
                      $
                      43,757Less
      amounts classified as cash equivalents
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (16,369
                      )Total
      short and long-term available-for-sale investments
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      27,388Contractual
      maturity dates for investments:Less
      than one year
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      33,511One
      to two years
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10,246$
                      43,757
 The
Company compares the carrying value of its available for sale investments with
their quoted market prices at the end of each period.  If the quoted
price of a marketable security has dropped significantly during a period or has
been below our carrying value for an extended period of time, the Company
reviews the investment to determine whether the decline is other than
temporary.  If the Company determines that the decline is other than
temporary, the investment is written down to its market value as measured at the
end of the period.  Any resulting charge is included in the Company’s
statement of operations in the related period. The Company did not record any
other than temporary write-downs in the accompanying financial
statements.
  5.  Concentrations of
Credit, Customer and Supplier Risk
  Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash equivalents, short-term investments, long-term
investments and trade receivables. The Company generally invests its excess cash
in money market funds, commercial paper of corporations with high credit
ratings, municipal bonds and treasury bills. The Company’s cash, cash
equivalents, short and long-term investments were approximately $47.1 million as
of December 31, 2008 which exceeded the amount insured by the Federal Deposit
Insurance Corporation (“FDIC”).  The Company has not experienced any
significant losses on its cash equivalents or short and long-term
investments.
  53
  The
Company performs ongoing credit evaluations of its customers and generally
requires no collateral. Customers who accounted for 10% or more of net accounts
receivable are as follows:
 December
      31,2008
                    
                    
                    2007
                    
                    
                    2006Excelpoint
      Systems Pte Ltd (1)
                    
                    
                    36
                    %
                    
                    
                    31
                    %
                    
                    
                    *
                    %Answer
      Technology, Inc.
                    
                    
                    18
                    %
                    
                    
                    14
                    %
                    
                    
                    *
                    %Avnet,
      Inc.
                    
                    
                    10
                    %
                    
                    
                    13
                    %
                    
                    
                    13
                    %Metatech
      (1)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    31
                    %
 (1)
                  In
      the third quarter of 2007, the Company terminated Metatech and
      transitioned in Excelpoint Systems Pte Ltd with terms substantially
      similar to its other distributor
arrangements.
 *
                  Less
      than 10%
  The
Company analyzes the need for reserves for potential credit losses and records
reserves when necessary. Through fiscal 2008, a relatively small number of
direct customers and distributors accounted for a significant percentage of the
Company's revenues.   Customers who accounted for 10% or more as
a percentage of total net sales are as follows:
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Excelpoint
      Systems Pte Ltd (1)
                    
                    
                    29
                    %
                    
                    
                    18
                    %
                    
                    
                    *
                    %Answer
      Technology, Inc.
                    
                    
                    13
                    %
                    
                    
                    10
                    %
                    
                    
                    10
                    %Avnet,
      Inc.
                    
                    
                    12
                    %
                    
                    
                    *
                    %
                    
                    
                    *
                    %Metatech
      (1)
                    
                    
                    -
                    
                    
                    
                    17
                    %
                    
                    
                    31
                    %
 (1)
                  In
      the third quarter of 2007, the Company terminated Metatech and
      transitioned in Excelpoint Systems Pte Ltd with terms substantially
      similar to its other distributor
arrangements.
 *
                  Less
      than 10%
  Currently,
the Company relies on single source suppliers for the significant majority of
its product inventory. As a result, should the Company's current suppliers not
produce and deliver inventory for the Company to sell on a timely basis,
operating results may be adversely impacted.
  6.  Asset
Impairment Charges
  During
the fourth quarter of 2008, the Company assessed goodwill and long lived assets
for impairment as it observed that there were indicators of impairment. The
notable indicators were a sustained decline in the Company’s market
capitalization below book value, depressed market conditions, deteriorating
industry trends and a significant downward revision of its forecasts. These
market conditions continuously change and it is difficult to project how long
this current economic downturn may last. The Company’s goodwill and intangible
assets were primarily established in purchase accounting at the completion of
the Sebring, HiNT Corporation and NetChip Technology, Inc acquisitions in 2000,
2003 and 2004, respectively.
  The
projected discounted cash flows for the Company’s single reporting unit were
based on discrete five-year financial forecasts developed by management for
planning purposes. Cash flows beyond the discrete forecasts were estimated using
terminal value calculations. The terminal value represents the value of the
Company’s single reporting unit at the end of the discrete forecast
period.  These forecasts represent the best estimate that management
had at the time and believe to be reasonable. The annual sales growth rates
ranged from 5% to 7% during the discrete forecast period and the future cash
flows and terminal value were discounted to present value using a discount rate
of 22%. The terminal value was based on the application of an 8.0x multiple to
forecasted 2013 earnings before interest, taxes, depreciation and amortization
expense (EBITDA).  The discount rate was based on an analysis of the
weighted average cost of capital of our single reporting unit.  The
EBITDA multiple used in the terminal value calculation was based upon EBITDA
multiples paid in comparative merger and acquisition transactions and a review
of trading multiples for similar public companies and considered the growth
prospects and profitability for our single reporting unit at the end of the
discrete forecast period.
  54
  Prior to
the Company’s goodwill impairment testing under SFAS 142, it also assessed the
fair value of its long-lived assets, including its corporate headquarters
building and amortizable intangible assets.  For the corporate
headquarters building, the Comapny used the sales comparison approach and the
income capitalization approach, each equally weighted, to arrive at a fair value
estimate. The Company determined that the carrying value of the property was not
recoverable and exceeded its fair value, and it recorded an impairment charge of
$18.8 million.  For the amortizable intangible assets, which included
acquired technology, the Comapny estimated a negligible fair value using a
relief from royalty method and recorded an impairment charge of $0.8 million
related to all of the remaining net book value of this acquired
technology.
  As part
of the goodwill impairment test for the fourth quarter of 2008, the Company
determined that step two of the impairment analysis was required by SFAS 142
because the estimated carrying value of its net assets, subsequent to the
impairment of long-lived assets noted above, exceeded its estimated fair value.
The second step of the goodwill impairment test compared the implied fair value
of the goodwill with the carrying amount of that goodwill. When the carrying
amount of the goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. The implied
fair value of goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination. Under SFAS 142, the determination
of the amount of the impairment required that the fair values of our assets and
liabilities be determined as if the Company had been acquired in a hypothetical
business combination with a purchase price equal to the discounted cash flow
value as of December 31, 2008.  As a result of this analysis, the
Company recorded an impairment charge of $34.7 million related to all of the
recorded goodwill.
  7.  Other Intangible
Assets
  As noted
above, the Company’s remaining net book value of its other intangible assets
were written off in 2008.
  Information
regarding the Company's other identified intangible assets subject to
amortization as of December 31, 2007 is as follows (in thousands):
 December
      31, 2007Estimated
                    
                    Gross
      Carrying
                    
                    
                    Accumulated
                    
                    
                    NetUseful
      Life
                    
                    Amounts
                    
                    
                    Amortization
                    
                    
                    ValuePatents
                    4
      years
                    
                    $
                    2,132
                    
                    
                    $
                    (2,132
                    )
                    
                    $
                    -Developed
      Core Technology
                    6
      years
                    
                    
                    5,422
                    
                    
                    
                    (3,845
                    )
                    
                    
                    1,577Customer
      Base
                    3
      years
                    
                    
                    3,246
                    
                    
                    
                    (3,246
                    )
                    
                    
                    -Total
                    
                    
                    $
                    10,800
                    
                    
                    $
                    (9,223
                    )
                    
                    $
                    1,577
 Identified
intangible asset amortization expense was approximately $0.7 million, $1.3
million and $1.9 million, for the years ended December 31, 2008, 2007 and 2006
respectively.
 The
Company has not completed the valuation work for the 2009 acquisition of Oxford,
and therefore, the amortization expense for future fiscal years is
uncertain.
 8.  Stock
Repurchase
  In
September 2002, the Company’s Board of Directors approved a repurchase of up to
2,000,000 shares of common stock.  In July 2008, the Company’s Board
of Directors authorized an additional 2,000,000 shares under the repurchase
program.  At the discretion of management, the Company can repurchase the
shares from time to time in the open market or in privately negotiated
transactions. Approximately 774,000 shares were repurchased for approximately
$1.9 million in cash in 2002 and 2003.  The Company did not repurchase
any additional shares from January 1, 2004 through December 31, 2007. In 2008,
the Company repurchased 956,000 shares for approximately $6.5
million.
  55
  9.  Retirement Savings
Plan
  The
Company sponsors the PLX Technology, Inc. 401(k) Plan (the
“Plan”).  The Plan allows all full-time employees to contribute up to
100% of their annual compensation.  However, employee contributions
are limited to a maximum annual amount established by the Internal Revenue
Service. Beginning in 1996, the Company made a matching contribution calculated
at 50 cents on each dollar of the first 6% of the participant’s compensation.
The Company's expenses relating to the plan were approximately $0.5
million, $0.5 million and $0.4 million for 2008, 2007 and 2006,
respectively. In January 2009, the Company announced that it will suspend the
matching contributions as a result of the current macroeconomic conditions. The
Company will reevaluate its matching contribution in the future.
  10.
Income Taxes
  The
provision for income taxes consists of the following (in
thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Federal:Current
                    
                    $
                    16
                    
                    
                    $
                    187
                    
                    
                    $
                    (419
                    )Deferred
                    
                    
                    -
                    
                    
                    
                    414
                    
                    
                    
                    71216
                    
                    
                    
                    601
                    
                    
                    
                    293State:Current
                    
                    
                    69
                    
                    
                    
                    (101
                    )
                    
                    
                    39Deferred
                    
                    
                    -
                    
                    
                    
                    33
                    
                    
                    
                    14469
                    
                    
                    
                    (68
                    )
                    
                    
                    183Foreign:Current
                    
                    
                    41
                    
                    
                    
                    44
                    
                    
                    
                    3641
                    
                    
                    
                    44
                    
                    
                    
                    36Total
                    
                    $
                    126
                    
                    
                    $
                    577
                    
                    
                    $
                    512
 The
provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal income tax rate as follows (in
thousands):
 Years
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Tax
      expense (benefit) at the U.S. statutory rate
                      
                      $
                      (19,741
                      )
                      
                      $
                      613
                      
                      
                      $
                      1,232State
      taxes (net of federal benefit)
                      
                      
                      (2,420
                      )
                      
                      
                      47
                      
                      
                      
                      183Goodwill
      impairment
                      
                      
                      13,424
                      
                      
                      
                      -
                      
                      
                      
                      -Release
      of income tax reserves
                      
                      
                      -
                      
                      
                      
                      (115
                      )
                      
                      
                      (569
                      )Research
      and development credit
                      
                      
                      (1,307
                      )
                      
                      
                      (112
                      )
                      
                      
                      (1,461
                      )True
      ups
                      
                      
                      (65
                      )
                      
                      
                      1,137
                      
                      
                      
                      (891
                      )Change
      in valuation allowance
                      
                      
                      10,123
                      
                      
                      
                      (1,006
                      )
                      
                      
                      1,945Other
      individually immaterial items
                      
                      
                      112
                      
                      
                      
                      13
                      
                      
                      
                      73$
                      126
                      
                      
                      $
                      577
                      
                      
                      $
                      512
 During
the year ended December 31, 2008, the Company’s deferred tax asset valuation
allowance increased by $10.1 million. The Company’s deferred tax asset valuation
allowance decreased by $2.2 million in 2007 and increased by $1.9 million in
2006.  The increase from December 31, 2007 to December 31, 2008
primarily relates to the deferred tax assets generated for the building and land
impairment charges that are currently non deductible for tax purposes. The
decrease from December 31, 2006 to December 31, 2007 primarily relates to the
decrease in net operating loss carry forwards due to utilization.
  56
  Significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007Deferred
      tax assets:Accrued
      expenses and reserves
                    
                    $
                    1,526
                    
                    
                    $
                    1,558Net
      operating loss carryforwards
                    
                    
                    2,764
                    
                    
                    
                    3,036Research
      and development credits
                    
                    
                    10,321
                    
                    
                    
                    8,939Depreciation
                    
                    
                    6,345
                    
                    
                    
                    -Share-based
      compensation
                    
                    
                    2,753
                    
                    
                    
                    1,548Other
                    
                    
                    166
                    
                    
                    
                    226Gross
      deferred tax assets:
                    
                    
                    23,875
                    
                    
                    
                    15,307Valuation
      Allowance
                    
                    
                    (23,875
                    )
                    
                    
                    (13,752
                    )-
                    
                    
                    
                    1,555Deferred
      tax liabilities:Acquisition
      related intangibles
                    
                    
                    -
                    
                    
                    
                    (869
                    )Depreciation
                    
                    
                    -
                    
                    
                    
                    (686
                    )-
                    
                    
                    
                    (1,555
                    )Total
      net deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -
 At
December 31, 2008, the Company had federal and state net operating loss
carryforwards of $7.8 million and $0.4 million, respectively. These
carryforwards will expire at various dates beginning in 2017 through 2025, if
not utilized. In addition, as of December 31, 2008, the Company had federal
and state tax credit carryforwards of approximately $6.3 million and $8.8
million, respectively.  The federal research and development credits
will expire beginning in 2012 and the state credits will carryforward
indefinitely.  Approximately $2.6 million of the federal and $1.6
million of the state net operating loss carryforward relate to excess tax
deductions from stock options which have not yet been realized.  SFAS
123R prohibits recognition of a deferred income tax asset for excess tax
benefits due to stock option exercises that have not yet been realized through a
reduction in income tax payable.
  Utilization
of the net operating loss and credit carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended and similar state provisions.
The annual limitation may result in the expiration of net operating loss
carryforwards before utilization.   Utilization of $7.3 million
of federal net operating loss is subject to an annual limitation under the
Internal Revenue Code of 1986, as amended, and similar state
provisions.  Utilization of $2.1 million of federal research and
development credits and $3.6 million of state research and development credits
are subject to an annual limitation under the Internal Revenue Code of 1986, as
amended, and similar state provisions.  The annual limitation may
result in the expiration of the federal and state research and development
credits before utilization.
  On
September 23, 2008, California enacted new budget legislation that suspends the
net operating loss deductions for 2008 and 2009 and limits the amount of
business tax credits that can be claimed to 50 percent of a taxpayer's tax
liability for tax years beginning on or after January 1, 2008 and before January
1, 2010.  The suspension of net operating loss carryforwards and the
limitation on the utilization of credits resulted in increased California income
tax liability of $37,000 for 2008.
  Due to
operating losses incurred, the Company created a full valuation allowance as of
December 2002 for deferred tax assets.  As of December 2008, a
valuation allowance continues to be recorded for the net deferred tax asset
based on management’s assessment that the realization of deferred tax assets is
uncertain due to the history of losses, the variability of operating results and
the inability to conclude that it is more likely than not that sufficient
taxable income would be generated in future periods to realize those deferred
tax assets. The Company will maintain a full valuation allowance until
sufficient positive evidence exists to support a reversal of the valuation
allowance. Approximately $3.7 million of the valuation allowance relates to
acquired tax benefits, which will result in an adjustment to tax expense, net of
the related deferred liability on acquired intangibles when such benefits are
realized.  During 2008, there was no tax valuation allowance released
and credited to goodwill.
  57
  On
January 1, 2007, the Company adopted the provision of Financial Standards
Accounting Board Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” FIN 48 – an interpretation of FASB No. 109. As a result of the
implementation of FIN 48, the Company recognized no material adjustment in the
liability for unrecognized income tax benefits.
  A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is a follows (in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007Unrecognized
      tax benefits balance, beginning of period
                    
                    $
                    1,895
                    
                    
                    $
                    1,916Gross
      increase (decrease) for tax positions for prior year
                    
                    
                    26
                    
                    
                    
                    (225
                    )Gross
      increase for tax positions for current year
                    
                    
                    287
                    
                    
                    
                    319Reduction
      for Lapse of California statute of limitations
                    
                    
                    -
                    
                    
                    
                    (115
                    )Unrecognized
      tax benefits balance, end of period
                    
                    $
                    2,208
                    
                    
                    $
                    1,895
 Future
changes in the remaining balance of unrecognized tax benefits will have no
impact on the effective tax rate as it is subject to a full valuation
allowance.
  The
Company does not have any material accrued interest or penalties associated with
any unrecognized tax benefits. The Company does not believe it is reasonably
possible that its unrecognized tax benefits will significantly change within the
next twelve months.
  The
Company is subject to taxation in the US and various state and foreign
jurisdictions. The tax years 1997-2008 remain open to examination by the federal
and state tax authorities due to certain acquired net operation loss and overall
credit carryforward positions.
  The
Company has made no provision for U.S. income taxes on approximately $0.5
million of cumulative undistributed earnings of certain foreign subsidiaries
because it is the Company’s intention to permanently reinvest such
earnings.  If such earnings were distributed, the Company would accrue
additional taxes of approximately $0.2 million. Pre-tax income from foreign
operations was $81,000, $86,000 and $77,000 in 2008, 2007 and 2006,
respectively.
  11.  Commitments
and Contingencies
  The
Company uses several contract manufacturers and suppliers to provide
manufacturing services for its products. As of December 31, 2008, the
Company has purchase commitments for inventory with these contract manufacturers
and suppliers of approximately $1.4 million. These inventory purchase
commitments are placed on a sales order basis with lead times ranging from 4 to
16 weeks to meet estimated customer demand requirements.
  58
  The
Company leases facilities, equipment and software tools under non-cancelable
operating leases and service agreements. Future minimum payments under facility,
equipment and software tool leases and agreements at December 31, 2008 are
as follows (in thousands):
 Facility
      and Equipment
                    
                    
                    Software
                    
                    
                    Total2009
                    
                    $
                    137
                    
                    
                    $
                    4,567
                    
                    
                    $
                    4,7042010
                    
                    
                    63
                    
                    
                    
                    2,425
                    
                    
                    
                    2,4882011
                    
                    
                    -
                    
                    
                    
                    1,425
                    
                    
                    
                    1,425Total
                    
                    $
                    200
                    
                    
                    $
                    8,417
                    
                    
                    $
                    8,617
 Rental
expense for all facility leases aggregated approximately $0.2 million, $0.1
million and $0.1 million for the years ended December 31, 2008, 2007 and 2006,
respectively
  On
January 2, 2009, we closed the acquisition of Oxford.  As a part of
the Merger Agreement, we acquired all of the outstanding shares of capital stock
of Oxford in exchange for 5,600,000 shares of common stock of PLX and a
promissory note in the principal amount of $14,200,000 (the “Note”) that will be
satisfied by either (i) the issuance of an additional 3,400,000 shares of common
stock of PLX upon approval of PLX’s stockholders, or (ii) the repayment of the
principal amount of the Note if such stockholder approval is not obtained by
June 30, 2009.
  Warranty
and Indemnification Provisions
  Changes
in sales warranty reserve are as follows (in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Balance,
      beginning of period
                    
                    $
                    66
                    
                    
                    $
                    98
                    
                    
                    $
                    92Warranty
      costs incurred
                    
                    
                    (234
                    )
                    
                    
                    (236
                    )
                    
                    
                    (232
                    )Additions
      related to current period sales
                    
                    
                    241
                    
                    
                    
                    204
                    
                    
                    
                    238Balance,
      end of period
                    
                    $
                    73
                    
                    
                    $
                    66
                    
                    
                    $
                    98
 Warranty
costs, which relate to product quality issues, remained consistent and
insignificant during the periods presented.
  The
Company enters into standard indemnification agreements with many of its
customers and certain other business partners in the ordinary course of
business. These agreements include provisions for indemnifying the customer
against any claim brought by a third-party to the extent any such claim alleges
that a PLX product infringes a patent, copyright or trademark, or violates any
other proprietary rights of that third-party. It is not possible to estimate the
maximum potential amount of future payments the Company could be required to
make under these indemnification agreements. To date, the Company has not
incurred any costs to defend lawsuits or settle claims related to these
indemnification agreements. No liability for these indemnification agreements
has been recorded at December 31, 2008 or 2007.
  12.  Segments
of an Enterprise and Related Information
  The
Company has one operating segment, the sale of semiconductor devices. The Chief
Executive Officer has been identified as the Chief Operating Decision Maker
(CODM) because he has final authority over resource allocation decisions and
performance assessment. The CODM does not receive discrete financial information
about individual components of the Company's business. Substantially all of
the Company’s assets are located in the United States.
  59
  Revenues
by geographic region based on customer location were as follows (in
thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Revenues:United
      States
                    
                    $
                    18,856
                    
                    
                    $
                    21,251
                    
                    
                    $
                    20,656Singapore
                    
                    
                    14,417
                    
                    
                    
                    15,047
                    
                    
                    
                    12,814China
                    
                    
                    10,650
                    
                    
                    
                    12,130
                    
                    
                    
                    8,111Taiwan
                    
                    
                    10,354
                    
                    
                    
                    10,002
                    
                    
                    
                    14,271Europe
                    
                    
                    10,339
                    
                    
                    
                    8,962
                    
                    
                    
                    10,074Other
      Asia Pacific
                    
                    
                    10,282
                    
                    
                    
                    11,604
                    
                    
                    
                    11,712The
      Americas - excluding United States
                    
                    
                    6,170
                    
                    
                    
                    2,738
                    
                    
                    
                    3,787Total
                    
                    $
                    81,068
                    
                    
                    $
                    81,734
                    
                    
                    $
                    81,425
 Revenues
by product type were as follows (in thousands):
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Revenues:Legacy
      products
                    
                    $
                    43,016
                    
                    
                    $
                    53,285
                    
                    
                    $
                    63,373PCI
      Express products
                    
                    
                    38,052
                    
                    
                    
                    28,449
                    
                    
                    
                    18,052Total
                    
                    $
                    81,068
                    
                    
                    $
                    81,734
                    
                    
                    $
                    81,425
 There
were no direct end customers that accounted for more than 10% of net
revenues.  Sales to the following distributors accounted for 10% or
more of net revenues:
 Years
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Excelpoint
      Systems Pte Ltd
                    
                    
                    29
                    %
                    
                    
                    18
                    %
                    
                    
                    *
                    %Answer
      Technology, Inc.
                    
                    
                    13
                    %
                    
                    
                    10
                    %
                    
                    
                    10
                    %Avnet,
      Inc.
                    
                    
                    12
                    %
                    
                    
                    *
                    %
                    
                    
                    *
                    %Metatech
                    
                    
                    -
                    
                    
                    
                    17
                    %
                    
                    
                    31
                    %
 *
                  Less
      than 10%
  13.  Subsequent
Event
  On
January 2, 2009, the Company acquired all of the outstanding shares of capital
stock of Oxford, a privately held fabless provider of industry-leading silicon
and software for the consumer and small office/home office (SOHO) storage
markets.
  Established
in 1992, Oxford has been providing silicon and software solutions to
interconnect digital systems, including PCIe, USB, FireWire, Ethernet, SATA and
eSATA.  Oxford’s corporate headquarters were located in Milpitas,
California, with most of its employees based in Oxford’s design center in
Abingdon, United Kingdom.  The consumer and SOHO external storage
markets account for the majority of Oxford’s sales.  Oxford provides
advanced system-on-chip solutions for both direct-attached storage (DAS) and
network-attached storage (NAS) external drives.  Oxford‘s customers
include Seagate, Western Digital, LaCie, Hewlett Packard, and
Macpower.
  As a part
of the Merger Agreement, the Company acquired all of the outstanding shares of
capital stock of Oxford in exchange for 5,600,000 shares of common stock of PLX
and a promissory note in the principal amount of $14,200,000 (the “Note”) that
will be satisfied by either (i) the issuance of an additional 3,400,000 shares
of common stock of PLX upon approval of PLX’s stockholders, or (ii) the
repayment of the principal amount of the Note if such stockholder approval is
not obtained by June 30, 2009.
  60
  The
Company has not completed the purchase accounting as the valuation work is
currently in process.
  The
Company had a layoff in the first quarter of 2009 in connection with the
acquisition of Oxford. The estimated severance cost is approximately $2.0
million.
  14.  Quarterly
Financial Data (unaudited)
  (In
thousands, except per share amounts)
  Three
      Months EndedMarch
      31,
                    
                    
                    June
      30,
                    
                    
                    September
      30,
                    
                    
                    December
      31,2008
                    
                    
                    2008
                    
                    
                    2008
                    
                    
                    2008Net
      revenues
                    
                    $
                    22,755
                    
                    
                    $
                    23,350
                    
                    
                    $
                    20,790
                    
                    
                    $
                    14,173Gross
      profit
                    
                    $
                    13,843
                    
                    
                    $
                    13,858
                    
                    
                    $
                    12,160
                    
                    
                    $
                    8,421Net
      income (loss)
                    
                    $
                    1,062
                    
                    
                    $
                    (75
                    )
                    
                    $
                    798
                    
                    
                    $
                    (58,315
                    )Net
      income (loss) per basic share (1)
                    
                    $
                    0.04
                    
                    
                    $
                    (0.00
                    )
                    
                    $
                    0.03
                    
                    
                    $
                    (2.08
                    )Net
      income (loss) per diluted share (1)
                    
                    $
                    0.04
                    
                    
                    $
                    (0.00
                    )
                    
                    $
                    0.03
                    
                    
                    $
                    (2.08
                    )
  Three
      Months EndedMarch
      31,
                    
                    
                    June
      30,
                    
                    
                    September
      30,
                    
                    
                    December
      31,2007
                    
                    
                    2007
                    
                    
                    2007
                    
                    
                    2007Net
      revenues
                    
                    $
                    18,640
                    
                    
                    $
                    19,764
                    
                    
                    $
                    21,216
                    
                    
                    $
                    22,114Gross
      profit
                    
                    $
                    11,377
                    
                    
                    $
                    11,646
                    
                    
                    $
                    13,108
                    
                    
                    $
                    13,394Net
      income (loss)
                    
                    $
                    (272
                    )
                    
                    $
                    (82
                    )
                    
                    $
                    997
                    
                    
                    $
                    531Net
      income (loss) per basic share (1)
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    0.03
                    
                    
                    $
                    0.02Net
      income (loss) per diluted share (1)
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    0.03
                    
                    
                    $
                    0.02
 (1)
                  The
      sum of per share amounts for the quarters does not necessarily equal that
      for the year due to rounding as the computations were made
      independently.
  61
  SCHEDULE II-VALUATION AND QUALIFYING
ACCOUNTS
 (in
thousands)
  Additions
                    
                    
                    DeductionsBalance
      at
                    
                    
                    Charged
      to
                    
                    
                    Charged
      to
                    
                    
                    Amount
                    
                    
                    Balance
      atBeginning
      of
                    
                    
                    Costs
      and
                    
                    
                    Other
                    
                    
                    Recovered
                    
                    
                    End
      ofDescription
                    
                    Period
                    
                    
                    Expenses
                    
                    
                    Accounts
      (1)
                    
                    
                    (Written
      off)
                    
                    
                    PeriodYear
      ended December 31, 2008:Allowance
      for doubtful accounts
                    
                    $
                    82
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    82Provision
      for excess and obsolete inventories
                    
                    $
                    1,279
                    
                    
                    $
                    684
                    
                    
                    $
                    -
                    
                    
                    $
                    (144
                    )
                    
                    $
                    1,819Allowance
      for returns and price concessions
                    
                    $
                    149
                    
                    
                    $
                    -
                    
                    
                    $
                    152
                    
                    
                    $
                    (249
                    )
                    
                    $
                    52Allowance
      for ship and debits
                    
                    $
                    285
                    
                    
                    $
                    -
                    
                    
                    $
                    2,192
                    
                    
                    $
                    (2,228
                    )
                    
                    $
                    249Year
      ended December 31, 2007:Allowance
      for doubtful accounts
                    
                    $
                    94
                    
                    
                    $
                    3
                    
                    
                    $
                    -
                    
                    
                    $
                    (15
                    )
                    
                    $
                    82Provision
      for excess and obsolete inventories
                    
                    $
                    936
                    
                    
                    $
                    763
                    
                    
                    $
                    -
                    
                    
                    $
                    (420
                    )
                    
                    $
                    1,279Allowance
      for returns and price concessions
                    
                    $
                    75
                    
                    
                    $
                    -
                    
                    
                    $
                    358
                    
                    
                    $
                    (284
                    )
                    
                    $
                    149Allowance
      for ship and debits
                    
                    $
                    143
                    
                    
                    $
                    -
                    
                    
                    $
                    2,101
                    
                    
                    $
                    (1,959
                    )
                    
                    $
                    285Year
      ended December 31, 2006:Allowance
      for doubtful accounts
                    
                    $
                    131
                    
                    
                    $
                    (28
                    )
                    
                    $
                    -
                    
                    
                    $
                    (9
                    )
                    
                    $
                    94Provision
      for excess and obsolete inventories
                    
                    $
                    389
                    
                    
                    $
                    809
                    
                    
                    $
                    -
                    
                    
                    $
                    (262
                    )
                    
                    $
                    936Allowance
      for returns and price concessions
                    
                    $
                    80
                    
                    
                    $
                    -
                    
                    
                    $
                    79
                    
                    
                    $
                    (84
                    )
                    
                    $
                    75Allowance
      for ship and debits
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,008
                    
                    
                    $
                    (865
                    )
                    
                    $
                    143
 (1)
                  Amounts
      charged to other accounts are recorded as a reduction of
      revenue.
  62
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
   March
      5, 2009
                  PLX
      Technology, Inc.
                    by:
                    /s/     Ralph H.
      Schmitt
                    Name:
      Ralph H. Schmitt
                    Title:
      Chief Executive Officer
  63
  POWER OF ATTORNEY
  KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ralph H. Schmitt and Arthur O. Whipple, and each of
them, his attorneys-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form 10-K and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in- fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 Name
      and Signature
                    
                    Title(s)
                    
                    Date/s/
      Raph H. Schmitt
                    
                    Chief
      Executive Officer and Director
                    
                    March
      5, 2009Ralph
      H. Schmitt
                    
                    (Principal
      Executive Officer)Chief
      Financial Officer, Vice President,/s/
      Arthur O. Whipple
                    
                    Finance
      and Secretary
                    
                    March
      5, 2009Arthur
      O. Whipple
                    
                    (Principal
      Finanacial and Accounting Officer)/s/
      D. James Guzy
                    
                    Director
      and Chairman of the Board of
                    
                    March
      5, 2009D.
      James Guzy
                    
                    Directors/s/
      Michael J. Salameh
                    
                    Director
                    
                    March
      5, 2009Michael
      J. Salameh/s/
      Robert H. Smith
                    
                    Director
                    
                    March
      5, 2009Robert
      H. Smith/s/
      John H. Hart
                    
                    Director
                    
                    March
      5, 2009John
      H. Hart/s/
      Thomas J. Riordan
                    
                    Director
                    
                    March
      5, 2009Thomas
      Riordan/s/
      Patrick Verderico
                    
                    Director
                    
                    March
      5, 2009Patrick
      Verderico
 64
  EXHIBIT
INDEX
  ExhibitNumber
                    
                    Description2.1
                    
                    Agreement
      and Plan of Merger, dated December 15, 2008, by and among PLX Technology,
      Inc., Osprey Acquisition Sub, Inc., Oxford Semiconductor, Inc. and
      VantagePoint Venture Partners IV (Q), L.P., as stockholder representative
      (without exhibits), filed as Exhibit 2.1 to the Company's Form 8-K, filed
      on December 19, 2008, and incorporated herein by
  reference.2.2
                    
                    Amendment
      to the Agreement and Plan of Merger, dated January 2, 2009, by and among
      PLX Technolgy, Inc., Osprey Acquisition Sub, Inc., Oxford Semiconductor,
      Inc. and VantagePoint Venture Partners IV (Q), L.P., as stockholder
      representative, filed as Exhibit 2.1 to the Company's Form 8-K, filed on
      January 6, 2009, and incorporated herein by reference.2.3
                    
                    Exchange
      Agent Agreement, dated January 2, 2009, by and among the Registrant,
      Computershare, Inc. and Computershare Trust Company,
  N.A.2.4
                    
                    Escrow
      Agreement, dated January 2, 2009, by and among the Registrant,
      VantagePoint Venture Partners IV (Q), L.P., as the representative of the
      stockholders of Oxford Semiconductor, Inc. and Computershare Trust
      Company.2.5
                    
                    Form
      of Stockholder Support Agreement, dated December 15, 2008, by and among
      the Registrant, Oxford Semiconductor, Inc., VantagePoint Venture Partners
      IV (Q), L.P., as the representative of the stockholders of Oxford
      Semiconductor, Inc., and certain stockholders of the
      Registrant.3.1
      (1)
                    
                    Amended
      and Restated Certificate of Incorporation of the
  Company.3.2
                    
                    Amended
      and Restated Bylaws of the Company, filed as Exhibit 3.1 to the Company's
      Form 8-K, filed on November 26, 2007 and incorporated herein by
      reference.3.3
                    
                    Certificate
      of Amendment to Amended and Restated Certificate of Incorporation, filed
      as Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for the
      quarter ended June 30, 2004 and incorporated herein by
      reference.4.1
                    
                    Reference
      is made to Exhibits 3.1 and 3.3.10.1
      (1)*
                    
                    Form
      of Indemnification Agreement between PLX and each of its Officers and
      Directors.10.2
      (1)*
                    
                    1998
      Stock Incentive Plan.10.3
      (1) (2)*
                    
                    1999
      Stock Incentive Plan, As Amended.10.4*
                    
                    PLX
      Technology, Inc. 2006 Bonus and Deferred Compensation Plan, filed as
      Exhibit 10.15 to the Company’s Form 10-K, filed on March 3, 2006, and
      incorporated herein by reference.10.5*
                    
                    PLX
      Technology, Inc. 2007 Variable Compensation Plan, filed as Exhibit 10.16
      to the Company's Form 10-K, filed on February 27, 2007 and incorporated
      herein by reference.10.6*
                    
                    PLX
      Technology, Inc. 2008 Variable Compensation Plan, filed as Exhibit 10.17
      to the Company's Form 10-K, filed on March 6, 2008 and incorporated herein
      by reference.10.7*
                    
                    Amended
      and Restated PLX Technology, Inc. 1999 Stock Incentive Plan, titled as
      Appendix A to the Company's Proxy Statement on Schedule 14A, dated April
      18, 2006, and incorporated herein by reference.10.8*
                    
                    Offer
      letter, dated December 29, 2006 between PLX Technology, Inc. and Arthur O.
      Whipple, filed as Exhibit 10.1 to the Company's Form 8-K, filed on January
      18, 2007, and incorporated herein by reference.10.9*
                    
                    PLX
      Technology, Inc. 2008 Equity Incentive Plan, attached as Appendix A to the
      Company's Definitive Proxy Statement on Schedule 14A, filed on April 18,
      2008, and incorporated herein by reference.10.10*
                    
                    Offer
      Letter, dated as of October 15, 2008, by and between the Company and Ralph
      Schmitt, filed as Exhibit 10.1 to the Company's Form 8-K, filed on October
      27, 2008, and incorporated herein by reference.14.1
                    
                    Code
      of Ethics, filed as Exhibit 14.1 to the Company’s Form 10-K, filed on
      March 3, 2006, and incorporated herein by reference.21.1
                    
                    Subsidiaries
      of the Company.23.1
                    
                    Consent
      of Independent Registered Public Accounting Firm.24.1
                    
                    Power
      of Attorney (See Signature page).31.1
                    
                    Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                    
                    Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                    
                    Certification
      of Chief Executive Officer Pursuant to 18 U.S.C.Section 1350,
      Chapter 63 of Title 18, United States Code, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.32.2
                    
                    Certification
      of Chief Financial Officer Pursuant to 18 U.S.C.Section 1350,
      Chapter 63 of Title 18, United States Code, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.(1)
                    
                    Incorporated
      by reference to the same numbered exhibit previously filed with the
      Company's Registration Statement on Form S-1 (Registration
      No. 333-71795).(2)
                    
                    Incorporated
      by reference to Exhibit 10.1 to the Company's quarterly report on
      Form 10-Q for the quarter ended June 30,
2002.*
                    
                    Management
      contract or compensatory plan or arrangement.
 65