**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, 2006**




**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
      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
                    Registered**Common
                    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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      One):


Large
      accelerated filer [ ]   Accelerated filer [X]    Non-accelerated filer [ ]




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,
      2006 ,
      as
      reported on The Nasdaq National Market, was approximately $180,846,016. 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 22, 2007  was
      28,653,513.




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 2007 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, 2006**


**Part
                      I.**
                  
                  
                  
                  **Page**Item 1.
                  
                  Business
                  
                  2Item 1A.
                  
                  Risk
                      Factors
                  
                  13Item 1B.
                  
                  Unresolved
                      Staff Comments
                  
                  20Item 2.
                  
                  Properties
                  
                  20Item 3.
                  
                  Legal
                      Proceedings
                  
                  20Item 4.
                  
                  Submission
                      of Matters to a Vote of Security
                      Holders
                  
                  20**Part
                      II.**Item 5.
                  
                  Market
                      for Registrant's Common Stock and Related
                      Security Holder Matters and Issuer Purchases of Equity
                      Securities
                  
                  21Item 6.
                  
                  Selected
                      Financial Data
                  
                  23Item 7.
                  
                  Management's
                      Discussion and Analysis of Financial Condition
                      and Results of Operations
                  
                  23Item 7A.
                  
                  Quantitative
                      and Qualitative Disclosures About Market
                      Risk
                  
                  32Item 8.
                  
                  Financial
                      Statements and Supplementary
                      Data
                  
                  32Item 9.
                  
                  Changes
                      in and Disagreements with Accountants on Accounting
                      and Financial Disclosures
                  
                  33Item 9A.
                  
                  Controls
                      and Procedures
                  
                  33Item 9B.
                  
                  Other
                      Information
                  
                  33**Part
                      III.**Item 10.
                  
                  Directors,
                      Executive Officers and Corporate
                      Governance
                  
                  34Item 11.
                  
                  Executive
                      Compensation
                  
                  34Item 12.
                  
                  Security
                      Ownership of Certain Beneficial Owners and
                      Management and Related Stockholder Matters
                  
                  34Item 13.
                  
                  Certain
                      Relationships and Related Transactions, and
                      Director Independence
                  
                  34Item 14.
                  
                  Principal
                      Accountant Fees and Services
                  
                  34**Part
                      IV.**Item 15.
                  
                  Exhibits
                      and Financial Statement
                      Schedules
                  
                  35**Signatures**
                  
                  
                  
                  61
 
  **PART
        I**




**ITEM
      1: BUSINESS**




**Overview**




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. We offer
      a
      complete solution consisting of three related types of products: semiconductor
      devices, software development kits and hardware design kits. Our semiconductor
      devices manage fast and reliable transfer of data in microprocessor based
      systems. Our software development kits and hardware design kits promote sales
      of
      our semiconductor devices by lowering customers' development costs and by
      accelerating their ability to bring new products to market.




In
      the
      last decade, demand for communications, storage, servers, imaging, PCs, consumer
      electronics and other products that transmit, store and process information
      rapidly has increased due to:




·
            growth
                of the Internet,


·
            deployment
                of high-speed networking, and


·
            proliferation
                of multimedia.




Suppliers
      of these products seek to reduce product development time and to use their
      scarce engineering resources more efficiently. Until the mid 90’s, these
      suppliers typically developed their own system components and the connections
      between the components. Now, however, they are increasingly building their
      equipment based on industry standard connection methods and purchasing
      components supplied by other companies that comply with these standards. By
      doing so, they reduce the time and resources required for product development.
      Consequently, there is a growing demand for standards-based components that
      connect systems together, such as our semiconductor devices. The majority of
      products we ship today are based on three interconnect standards that are widely
      used in our markets: Peripheral Component Interconnect (PCI), Universal Serial
      Bus (USB) and PCI Express. PLX is an active member of many of the trade
      associations that define current and future interconnect standards including
      PCITM, CompactPCI®, PCI-X®, PCI ExpressTM, USB and HyperTransportTM.




Our
      objective is to expand our advantages in data transfer technology by:




·
            focusing
                on high-growth markets,


·
            delivering
                comprehensive solutions, including semiconductor devices, software
                development kits and hardware design kits,


·
            extending
                our technology advantages by incorporating new functions and technologies,


·
            driving
                industry standards, and


·
            strengthening
                and expanding our industry relationships.




Our
      headquarters are located at 870 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.




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**




Microprocessor-based
      systems are found in many common products and offer varying levels of
      performance depending on each product's requirements. These products range
      from
      low performance devices such as electronic toys and kitchen appliances to
      complex, high-performance electronic equipment such as network routers and
      switches. High-performance microprocessor-based systems offer increased data
      processing capabilities and typically utilize one or more 32-bit or 64-bit
      microprocessors, fast memories and peripherals, and sophisticated operating
      systems and software applications.




The
      growth of the communications infrastructure has increased the demand for high
      performance microprocessor-based systems. This demand has been fueled by the
      growth of the Internet; the deployment of high-speed networking systems to
      transmit, store, and process data; and the proliferation of data types in the
      network, including voice traffic and multimedia.




Markets
      for electronic equipment that rely on high-performance microprocessor-based
      systems include the following:




·
            *Networking
                and Telecommunications*.
                Networking and telecommunications applications include digital telephony,
                multimedia gateways, wireless base stations, remote access concentrators,
                routers, switches and cable modem equipment. This market segment
                has grown
                rapidly due to the rise of the Internet and the proliferation of
                high
                bandwidth communication technologies such as Gigabit and 10 Gigabit
                Ethernet, Asynchronous Transfer Mode, or ATM, cable modems, Digital
                Subscriber Line, or xDSL, Voice-over-IP, or VoIP and wireless
                communications protocols.


·
            *Enterprise
                Storage*.
                Enterprise storage applications include disk storage systems in both
                Network Attached Storage (NAS) and Storage Area Networks (SAN) and
                storage
                host bus adapters. The growing use of multimedia applications and
                storage
                networks is driving demand for increased data storage capacity.




·
            *Servers*.
                Data transfer rates through servers have increased because of their
                higher
                processing power and the greater data-handling workload caused by
                broad
                internet usage and the need to process high data-content material
                such as
                video files and complex
                applications.




·
            *Imaging*.
                Imaging applications include printers, copiers, medical instrumentation
                and video and graphics equipment. The popularity of digital photography
                and video, the demand for better image quality and higher performance,
                increasing demand for video surveillance security equipment, as well
                as
                connection of these applications to high-speed networks, have increased
                their data processing requirements.




·
            *Industrial*.
                Industrial applications include a wide range of process control computers
                and factory automation equipment. These products have high data transfer
                rate requirements, are used to monitor and control complex processes
                in
                real-time and are being increasingly attached to
                networks.




·
            *PC
                Peripherals and Consumer Electronics*.
                PC peripheral applications include graphics adapters, TV tuners and
                communication peripherals. Examples for consumer electronics applications
                include portable media players, digital camcorders, set top boxes,
                wireless LAN adapters, printers, and TV tuners for PCs. These products
                are
                increasingly using high speed connection standards for data transfers.




Manufacturers
      of products that rely on high-performance microprocessor-based systems seek
      to
      maximize the performance and minimize the cost of their increasingly complex
      products. In addition, these manufacturers must develop and bring new products
      to market quickly to keep pace with technological advancements.




***The
      I/O Subsystem***




A
      typical
      computer system can be described in terms of four primary functions: the host
      microprocessor, the memory, the peripherals and the input/output, or I/O,
      subsystem. The host microprocessor is the primary control center for the system.
      The memory acts as a storage area for instructions to be executed and data
      to be
      processed. The peripherals enable connections between the system and other
      external devices such as network components, printers and storage systems.
      The
      I/O subsystem is the interconnect circuitry and software that connects these
      three other functions and allows for the transfer of instructions and data
      among
      these functions. The I/O subsystem may also connect the system to the outside
      world. The I/O subsystem includes the system bus or switch fabric, which is
      a
      physical connection between these different functions.




To
      enable
      increased performance and functionality from computer systems, semiconductor
      suppliers have historically focused on improving the operation of peripherals,
      microprocessors and memories. The interconnect silicon in the I/O subsystem
      must
      also improve to keep pace with these improvements by transferring more
      information efficiently and at faster speeds.




In
      parallel with the increased performance demands of customers and their data
      traffic, the reliability of these systems is under constant pressure to improve.
      This is especially true as the networking and telecommunications disciplines
      merge through use of the Internet to carry all types of traffic. Highly
      available systems are required to meet the expectations of customers.




As
      data
      transfer and reliability requirements for the I/O subsystem have increased,
      so
      has the complexity of its interface logic and related software. Until the mid
      90’s, most microprocessor-based systems used simple I/O subsystems that
      contained limited logic and rudimentary software, if any. Complex I/O subsystem
      components such as processors, elaborate control logic and advanced software
      were costly, and therefore their use was confined to very high-end equipment
      such as mainframe computers. Furthermore, the lack of widely accepted I/O
      standards impeded the use of complex I/O subsystems in other than high-end
      applications. However, advances in semiconductor technology combined with the
      widespread adoption of standards in microprocessor-based systems have enabled
      the development of highly integrated semiconductor devices that can better
      manage I/O subsystem performance at lower cost.




***Penetration
      of I/O Standards in Systems***




Until
      the
      mid 90’s, microprocessor-based systems manufacturers relied on a wide variety of
      proprietary solutions and a fragmented set of industry standard I/O
      architectures. For example, many networking, imaging, storage and industrial
      applications employed proprietary architectures to meet their specific
      performance and cost requirements. A mix of standard buses such as VMEbus,
      Multibus and ISA was used in some industrial, telecommunications and military
      applications. Software was even more fragmented with many proprietary and
      application specific software architectures in use. While developers could
      take
      advantage of many standard microprocessor, memory and peripheral components
      supplied by external vendors, the lack of acceptable I/O standards forced many
      to develop custom I/O subsystems internally, placing a heavy demand on
      development resources.




The
      deployment of the PCI standard was one of the catalysts for the widespread
      adoption of I/O standards in microprocessor-based systems. In the early 1990s,
      PC and server manufacturers developed PCI, a new standard hardware architecture
      to connect the major components of their systems at high speed. It offered
      up to
      a one hundred times improvement in I/O data transfer rates over the previous
      architectures. By the mid-1990s, PCI became the most widely used bus
      architecture in the PC market. Consequently, many suppliers of peripheral
      semiconductor components used in PCs adopted PCI as the standard system
      interface. In addition to penetrating the PC and server market, PCI gained
      popularity as a standard I/O architecture for many other high-performance
      microprocessor-based systems because it allows the use of low cost and
      state-of-the-art peripheral semiconductor components developed for the PC market
      and provides a foundation for system interoperability. PCI also offers
      equivalent or superior performance to the in-house developed standards of many
      electronic equipment suppliers. Furthermore, the use of PCI enables faster
      time
      to market, lower development cost and the ability to quickly integrate new
      I/O
      components.




By
      the
      late 90’s, PCI became established as a major “in-the-box” interconnect for
      connecting components within a system.




Also
      in
      the late 90’s USB emerged as a major “box-to-box” interconnect for connecting
      PCs to PC peripherals and consumer electronics devices. Prior to USB, a diverse
      collection of proprietary and industry standard connections, such as serial
      port, parallel port and SCSI (Small Computer Serial Interface) were used to
      connect PCs to peripherals such as printers and external storage devices and
      to
      consumer electronic devices such as cell phones, digital cameras and portable
      media players. USB provides a single standard connection that allows PCs to
      connect to peripherals and consumer electronics devices made by different
      manufacturers.




In
      2001
      and 2002, the PCI Express standard was developed as a higher-performance upgrade
      to the widely-deployed PCI standard. Many builders of microprocessor-based
      systems need the improved performance of PCI Express to ensure that the I/O
      subsystem data transfer capacity keeps pace with the increasing performance
      of
      the surrounding processors and peripheral devices. In addition to higher data
      throughput, PCI Express enables more devices to be connected and improves system
      management. Although PCI Express, which is a switched-serial architecture,
      is
      different in terms of hardware than PCI, a parallel bus architecture, it is
      software compatible with PCI. This software compatibility attribute makes the
      task of upgrading PCI systems to take advantage of PCI Express’s performance
      advantages relatively simple and inexpensive. Consequently, PCI Express has
      gained rapid acceptance as an architecture for high performance
      microprocessor-based systems. In 200 6,
      many
      of the PCs, PC peripherals and servers shipped utilized PCI Express architecture
      and many storage, communications and embedded systems were starting a transition
      to PCI Express architecture.




***Need
      for Standard I/O Interconnect Products and Comprehensive I/O
      Solutions***




Even
      with
      standard I/O specifications, design teams must still create the circuitry and
      related software that implement these specifications. Designers must also update
      their I/O subsystems to include frequent improvements in these specifications.




Instead
      of developing all the hardware and software technology internally, system
      developers seek to focus their scarce engineering resources on the proprietary
      features of their products. By using standard semiconductor devices in the
      I/O
      subsystem instead of custom-designed devices they are able to implement the
      basic framework of the system more easily and thereby reduce the I/O subsystem
      design effort resulting in faster time-to-market and lower development cost.
      Standard products allow the design teams to concentrate their efforts on
      differentiating hardware and software features. In addition to standard
      interconnect semiconductor devices, system designers can benefit from several
      other design elements, such as data control software, hardware design kits
      and
      third-party development tools to complete their development work in a timely
      manner. These additional elements simplify development and improve time to
      market. They provide design teams with proven hardware and software design
      examples and the tools to adapt these examples to their needs.




Due
      to
      the availability and adoption of I/O standards by developers of
      microprocessor-based systems, servers and PC’s, there is now a large demand for
      I/O subsystem components based on these standards.




**The
      PLX Solution**




PLX
      develops and supplies interconnect semiconductor devices and supporting hardware
      and software platforms that accelerate and manage the transfer of data in
      high-performance microprocessor-based systems.




Our
      solution consists of three related products:




·
            interconnect
                semiconductor devices,


·
            software
                development kits which assist in developing systems that incorporate
                our
                semiconductor devices, and


·
            hardware
                design kits that allow development of a system using our semiconductor
                devices and software development kits.




Development
      tools provided by third parties support these three related products. Our
      products are designed for use in a variety of applications including networking
      and telecommunications, enterprise storage, servers, embedded control, PC
      peripheral and consumer electronics. Our chips are highly integrated,
      cost-effective semiconductor devices that optimize the flow of data and simplify
      the development of high-performance I/O subsystems. Our software development
      kits and hardware design kits promote sales of our semiconductor devices by
      lowering customers' development costs and allowing them to bring new products
      to
      market more quickly.




PLX
      products shipping today provide I/O connectivity solutions mainly for the PCI,
      PCI-X, PCI Express and USB standards. As new I/O standards evolve, we expect
      to
      support them where appropriate. More than 1,000 electronic equipment
      manufacturers use PLX semiconductor devices in a wide variety of applications.


**Strategy**




Our
      objective is to continue to expand our market position as a developer and
      supplier of I/O connectivity solutions for high-performance systems. Key
      elements of our strategy include the following:




*Focus
      on High-Growth Markets.* We
      focus
      on the high-growth communications, storage, server, embedded control, PC
      peripheral and consumer markets. Within these markets, there are many highly
      differentiated applications with different design criteria such as product
      function, performance, cost, power consumption, software, size limitations
      and
      design support. The requirements of many of these differentiated applications
      are addressed by our products, and we target those applications where we believe
      we can attain a leadership position.




*Deliver
      Comprehensive Solutions.* Our
      products provide system developers with a comprehensive, proven development
      environment to simplify I/O subsystem design, enhance performance, reduce
      development costs and accelerate time-to-market. This solution consists of
      semiconductor devices, software development kits and hardware design kits.
      These
      design elements are supported by development tools provided by third parties.




*Extend
      I/O Subsystem Technology.* We
      offer
      our customers highly integrated semiconductor devices and related software
      that
      incorporate many of the latest advances in I/O interconnect technology. Our
      semiconductor devices and software are designed to enable quick adoption of
      new
      I/O technologies and enhancements to existing I/O standards. We seek to
      integrate additional I/O-related functions into our semiconductor devices to
      provide our customers with additional value. We employ a team of engineers
      with
      expertise in system architectures, product definition, semiconductor and
      software design to maintain our I/O subsystem technology advantages.




*Drive
      I/O Subsystem Standards.* We
      believe 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 technologies. Through our participation in key industry groups responsible
      for standards such as the PCI Special Interest Group, the PCI Industrial
      Computer Manufacturer's Group (PICMG), PCI-X Manufacturers' Group, and the
      USB
      Implementers Forum (USB-IF), we have taken an active role in defining new I/O
      standards.




*Strengthen
      and Expand Industry Relationships.* We
      work
      with industry leaders in developing hardware and software development tools
      and
      marketing programs that promote the use of each company's products. Partners
      include AMD, Broadcom, Intel, Jungo, Microsoft, Freescale, One Stop Systems,
      Pigeon Point, RamBus, Virage, Magma, Synopsys, NEC, Bayside, AMCC, ARM and
      National Instruments. As a result of these relationships, we enable
      microprocessor-based systems designers to choose the best products for their
      particular applications while still employing our product as the core of their
      I/O subsystem design.




**Customers**




We
      supply
      our products to end customers for a wide variety of communications, storage,
      server, embedded control, PC peripheral and consumer appliance applications.
      We
      sell our products directly to our end customers as well as to our distributors.
      The typical product life cycle of a high performance microprocessor-based system
      is one to two years or more of product development and initial marketing
      activity followed by one to five years or more of volume production, assuming
      the product is successful in the market. The system 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 one to five year or more production life.




Our
      products are standard semiconductor devices that may be incorporated into
      equipment used in several of our target markets. More than 1,000 electronic
      equipment manufacturers incorporate our semiconductor devices in their products.




**Products**




Our
      products consist of interconnect semiconductor devices, software development
      kits and hardware design kits. Development tools provided by third parties
      support these three design elements. The sales of our interconnect semiconductor
      devices account for substantially all of our revenues. We generate less than
      1%
      of our revenues from sales of our software development and hardware design
      kits.
      Our software development kits and hardware design kits promote sales of our
      semiconductor devices by lowering customers' development costs allowing them
      to
      bring new products to market more quickly.




*PCI
      Express Bridges.* The
      PCI
      Express bus standard has become the interconnect standard for the latest
      servers, notebooks, desktops, graphics and storage systems. Most recently it
      has
      been used in many communication and embedded systems. With its 2.5Gigabit per
      second line rate/lane, it offers higher performance than legacy standards.
      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, fibre channel HBA’s,
      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.




*PCI
      Express Switches.* With
      PCI
      Express being a point to point serial interconnect, it requires a switch to
      connect a single port from a processor or chipset to many end-points. Example
      of
      applications include fanout in servers, dual graphics in gaming and workstation
      systems, and backplanes in networking 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.




*I/O
      Accelerators* .
      Our I/O
      accelerators are semiconductor devices that accelerate movement of data across
      a
      PCI bus and between one or more devices or subsystems that need to communicate
      across the PCI bus. These products incorporate the Data Pipe Architecture
      technology, a set of circuits and features that enable an efficient flow of
      data
      within systems with minimal supervision from the system processor. Our I/O
      accelerators address a range of applications and provide flexible interfaces
      that allow them to connect to a wide variety of semiconductor devices, including
      chipsets from major chipset vendors; FPGAs and processors such as Freescale's
      PowerPC, Intel's i960 and Strong ARM, Hitachi's SH, and Motorola's 68K series.
      Customers also use these semiconductor devices in connection with digital signal
      processors, or DSPs, from Texas Instruments and others. The I/O accelerators
      can
      be connected with a wide range of peripheral devices, including LAN, WAN, disk
      control and graphics.




*PCI-to-PCI
      Bridges.* PCI-to-PCI bridges are chips that increase the number of peripheral devices
      that
      can be included in a microprocessor-based system. PCI-to-PCI bridges have become
      common in a wide variety of systems, including servers, storage, communications,
      and embedded-control applications such as imaging, industrial control, and
      test
      equipment. PLX’s bridge product line spans the entire PCI range, from 32-bit
      33MHz through 64-bit 66MHz, and includes 133MHz PCI-X devices. PLX acquired
      this
      product line through the May 2003 acquisition of HiNT Corporation.




*USB
      Interface Chips.* USB
      interface chips are used by computer peripherals to connect to a PC through
      an
      external cabled connection.  The USB standard allows for connections to be
      made at different speeds.  Hi-Speed USB (also known as USB 2.0) provides
      40x the bandwidth of Full-Speed USB and can be found on most PCs sold after
      2003.  However, many PC peripherals today, such as mice, printers, and
      digital cameras, still utilize Full-Speed transfer rates.  PLX’s products
      are all USB 2.0 Hi-Speed and are backward compatible with USB Full-Speed.
      Hi-Speed connections can be found today on devices like multi-function printers,
      DVD camcorders, portable media players, portable navigation systems, digital
      cameras, PDAs, and hard disks . PLX
      acquired this product line through the May 2004 acquisition of NetChip
      Technology, Inc.




*Software
      Development Kits* .
      Our
      software development kits, or SDKs, are designed to simplify and accelerate
      the
      development of systems that incorporate our semiconductor devices. Support
      is
      provided for several industry-leading operating systems, including VxWorks
      from
      Wind River, Linux, Microsoft Windows and Vista as well as generic applications
      and other operating systems. The SDKs include an application programming
      interface, or API, that enables developers to execute complex transactions
      with
      simple commands. This common interface allows customers to preserve their
      software investment even as their designs evolve in complexity and as new I/O
      architectures are deployed.




*Hardware
      Design Kits* .
      We
      offer hardware design kits that support the development of systems incorporating
      PLX semiconductor devices. We call our hardware design kits "rapid development
      kits", or RDKs. Designers use the RDKs to evaluate our semiconductor devices
      and
      to simplify and accelerate product development. Each hardware design kit
      includes a development circuit board that designers can use to evaluate the
      PLX
      products and also design their own system. These hardware design kits also
      include technical drawings, documentation and other design assistance tools.




To
      offer
      additional design support, we work with third party companies that provide
      development tools for our customers. Although we receive no revenue directly
      from these development tools, they promote sales of our semiconductor devices
      because these tools often make it easier to develop systems incorporating our
      products. Examples include software development tools from Jungo, Microsoft,
      Pigeon Point, and Wind River and software modeling tools from Synopsys and
      Magma.




Our
      principal product offerings and functions include the following:




**Category**
                **Product**
                **Description****Semiconductor
                    Devices**32-bit/33
                    MHz Target I/O Accelerators
                PCI
                    9030
                o
                    Enable connection of 8-, 16- and 32-bit peripherals and
                    personalPCI
                    9050
                computer
                    adapters to PCIPCI
                    905232-bit/33
                    MHz Master I/O Accelerators
                PCI
                    9054
                o
                    Provide the flexibility to connect with a wide range of
                    processors,PCI
                    9060SD
                peripherals
                    and memoryPCI
                    9060ESPCI
                    9060PCI
                    908032
                    and 64-bit/66 MHz I/O Accelerators
                PCI
                    9056
                o
                    Provide the flexibility to connect with a wide range ofPCI
                    9656
                peripherals
                    and memoryPCI
                    and PCI-X Bridge Chips
                PCI
                    6140
                o
                    Increase the number of PCI peripheral devices that can be included
                    inPCI
                    6150
                a
                    microprocessor-based systemPCI
                    6152PCI
                    6154PCI
                    6156PCI
                    6254PCI
                    6350PCI
                    6466PCI
                    6520PCI
                    6540USB
                    Bridge Chips
                NET
                    2270
                o
                    Connect CPUs and DSPs to a high-speed USB device portNET
                    2272NET
                    2280NET
                    2282NET
                  2888NET
                    2890PCI
                    Express Bridges
                PEX
                    8111
                o
                    Support the standard PCI Express serial interconnect
                    protocolPEX
                    8114
                o
                    Facilitate the connection of the newest PCI Express
                    processorsPEX
                    8311
                o
                    Enable conventional PCI products to be upgraded for use in the
                    newest PCI
                    Express
                    standardPCI Express Switches
                PEX
                    8508
                o
                    Facilitate the connection of the newest PCI Express
                    processorsPEX
                    8516
                o
                    Provide essential system fanout required by the point-to-point
                    PCI Express
                    standardPEX
                  8517
                o
                    Provide PCI Express signal routingPEX
                  8518PEX
                    8524PEX
                    8525PEX
                  8532PEX
                  8533PEX
                  8547PEX
                    8548
 **Software
                    Development Kits**PCI
                    Software
                SDK
                o
                    Provide tools for accelerating design of data transport
                    softwareo
                    Include development and debugging utilities, sample firmware
                    and
                    drivers**Hardware
                    Design Kits**Rapid
                    Development Kits
                Kits
                    supporting a
                o
                    Include development circuit boards, SDK Software, documentation
                    andrange
                    of products
                schematics
                    to assist system
                    development




**Technology**




We
      believe that supplying high-performance connectivity solutions for I/O
      subsystems requires expertise in four areas:




·  semiconductor
      design;


·  software
      technology;


·  system
      design; and


·  industry
      standards.




*Semiconductor
      Design.* Our
      engineers have substantial expertise in semiconductor design and have developed
      a comprehensive library of complex functional blocks for use in semiconductor
      devices for I/O connectivity. As a result of this expertise, we offer both
      innovative architectures and high levels of functionality. We continue to
      integrate more functionality in our semiconductor devices to reduce cost,
      improve performance, reduce size and simplify the customer's design effort.




*Software
      Technology.* We
      devote
      engineering resources to the development of software technology used to assist
      the system developer in debugging hardware and creating data control software.
      The quality and availability of these tools are key differentiating factors
      between PLX and competing alternatives. We continue to enhance and expand our
      software development kits, which contain a set of programming interfaces that
      simplify the development of software. Our software expertise provides us with
      valuable insights into our customers' software development issues, which aids
      the definition and development of future semiconductor devices. Software revenue
      from sales of our software development kits amounted to less than 1% of our
      net
      revenues for 2006.




*System
      Design.* We
      employ
      a team of system level design engineers that develop hardware design kits.
      These
      kits are high-performance adapters and embedded systems that customers can
      use
      to assist development of their products. Each of these hardware design kits
      is a
      system or adapter similar in complexity to those built by our customers. The
      system design experience provides us valuable insights which we can use to
      improve future semiconductor device and software products.




*Industry
      Standards.* Through
      our participation in the key industry groups responsible for interconnect
      standards, we take an active role in defining new I/O standards such as USB,
      PCI-X, and PCI Express.




**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.




Competition
      in the various markets we serve comes from companies of various sizes, many
      of
      which are significantly larger and have greater financial and other resources.
      Thus they can better withstand adverse economic or market conditions. Our
      principal products compete with standard products from companies such as Cypress
      Semiconductor, Genesys Logic, IDT, Intel, NEC, Oxford Semiconductor, Pericom
      Semiconductor, NXP Semiconductor, Renesas, Texas Instruments and Tundra
      Semiconductor.




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.




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 are more
      efficient and higher in performance. Furthermore, in general, our software
      and
      hardware development tools are more comprehensive than competing solutions.
      However, 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.




**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, 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 to service
      customers in Europe and the Middle East. We also maintain sales liaison offices
      in Taiwan and China to service Southeast Asia and The People's Republic of
      China. Finally, we maintain a sales liaison office in Japan to service customers
      in Japan.




As
      of December 31,
      2006, we employed 49 individuals in sales and marketing. Sales in North America
      represented 30%, 32%, and 32%, of net revenues for 2006, 2005, and 2004,
      respectively. All worldwide sales to date have been denominated in U.S. dollars.




Net
      revenues through distributors accounted for approximately 70%, 57%, and 53%
      of
      our net revenues for 2006, 2005, and 2004, 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
      2006,
      sales to Metatech and Answer Technology, distributors, accounted for 31% and
      10%, respectively, of our net revenues. In 2005, sales to Metatech accounted
      for
      23% of our net revenues. In 2004, sales to Metatech accounted for 13% of our
      net
      revenues. No other distributor or direct customer accounted for more than 10%
      of
      net revenues in any period presented.




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 $20.2 million, $18.5 million,
      and $17.7 million in 2006, 2005, and 2004, respectively. Research and
      development expenses consist primarily of salaries, share-based compensation
      and
      related costs of employees engaged in research, design, and development
      activities. In addition, expenses for outside engineering consultants and
      non-recurring engineering at our independent foundries are included in research
      and development expenses. As of December 31, 2006, there were 69 employees
      engaged in research and development. We perform our research and development
      activities at our headquarters in Sunnyvale, California and in Salt Lake City,
      Utah. 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. We subcontract substantially
      all
      of our semiconductor manufacturing to AMD in the United States, Fujistu, NEC
      and
      Seiko-Epson Semiconductor in Japan, and Taiwan Semiconductor Manufacturing
      Corporation and UMC in Taiwan. None of our products are currently manufactured
      by more than one supplier, and all of our products are expected 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.




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 6 patents on switch technology that will expire at various
      dates beginning in 2019 through 2025. In addition, we have a patent on I/O
      buffer technology that will expire in September 2007 and a patent on clock
      and
      timing control technology that will expire in May 2014. 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.




**Employees**




As
      of December 31,
      2006 ,
      we
      employed a total
      of
      150 full -time
      employees, including
      69 engaged
      in research and development,
      49 engaged in sales
      and marketing,
      3 engaged in
      manufacturing operations and
      29 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:




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




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 a significant customer(s);


·
            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
                economic 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
      2006,
      sales to Metatech and Answer Technology accounted for 31% and 10%, respectively,
      of net revenues. In 2005, sales to Metatech accounted for 23% of our net
      revenues. In 2004, sales to
      Metatech accounted for 13% 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.




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 “Business -- Competition,” and “ -- Products”
in Part I of Item I of 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 Japan, Taiwan, Singapore and Malaysia, 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.




None
      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 this product 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.




**C** **ustomers
      Are Requiring That We Offer Our Products In Lead-Free
      Packages**





Governmental
      regulations in certain countries and customers' intention
      to produce products that are less harmful to the environment has resulted in
      a
      requirement from many of our customers to purchase integrated circuits that
      do
      not contain lead. We have responded by offering our products in lead-free
      versions. While the lead-free versions of our products are expected to be more
      friendly to the environment, the ultimate impact is uncertain. The transition
      to
      lead-free products may produce sudden changes in demand depending on the
      packaging method used, which may result in excess inventory of products packaged
      using traditional methods. This may have an adverse affect on our results of
      operations. In addition, the quality, cost and manufacturing yields of the
      lead-free products may be less favorable compared to the products packaged
      using
      more traditional materials which may result in higher costs to us.




**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 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
      embedded systems may not grow.




**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
      microprocessor-based 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.




**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. Net revenues
      through distributors accounted for approximately 70%, 57%, and 53% of our net
      revenues in 2006, 2005, and 2004, 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, PCI-X, USB, and PCI Express 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 note 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.




**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
      thereunder 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.




**Our
      Potential Future Acquisitions May Not Be Successful Because Of Our Limited
      Experience With Acquisitions In The Past**




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




·
            potentially
                dilutive issuances of equity
                securities,


·
            large
                acquisition-related write-offs,


·
            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,


·
            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 of acquired
                organizations.




We
      have
      had limited experience with acquisitions in the past and may not be able to
      successfully integrate any businesses, products, technologies or personnel
      that
      may be acquired in the future. Our failure to do so could have a material
      adverse effect on our business.




**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 North America accounted for 70%, 68%, and 68% of our net revenues
      in
      2006, 2005 and 2004, respectively. Sales outside of North America may fluctuate
      in future periods and are expected 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 North America, thereby exposing
      us
      indirectly to foreign risks. Further, most of our semiconductor products are
      manufactured outside of North America. 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.




**A
      Downturn In The Global Economy May Adversely Affect Our Revenues, Results Of
      Operations And Financial Condition**




Demand
      for semiconductor components is increasingly dependent upon the rate of growth
      in the global economy. If the rate of global economic growth slows, or
      contracts, customer demand for products could be adversely affected, which
      in
      turn could adversely affect revenues, results of operations and financial
      condition. Many factors could adversely affect regional or global economic
      growth. Some of the factors that could slow global economic growth include:
      rising interest rates in the United States, a slowdown in the rate of growth
      of
      the Chinese economy, a significant act of terrorism which disrupts global trade
      or consumer confidence, geopolitical tensions including war and civil unrest.
      Reduced levels of economic activity, or disruptions of international
      transportation, could adversely affect sales on either a global basis or in
      specific geographic regions.




**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.




**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 55,000 square
      feet. This facility comprises our headquarters and includes our research and
      development, sales and marketing and administration departments. In addition,
      we
      have leases for an engineering design center in Utah. Internationally, we lease
      sales offices in Japan, Taiwan and China. These leases comprise approximately
      4,000 square feet and have terms expiring on or prior to January 2009. We
      believe that our current facilities will be adequate through 2007 .




**ITEM
      3: LEGAL PROCEEDINGS**




None.




**ITEM
      4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**




No
      matters were submitted to a vote of security holders during the three months
      ended December 31, 2006 .







**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 closing price for our common stock as reported on The
      Nasdaq Global Market:


**2006**
              
              **High
                  Bid**
              
              **Low
                  Bid**First
                  Quarter
              
              $
              13.00
              
              $
              8.66Second
                  Quarter
              
              
              14.68
              
              
              10.83Third
                  Quarter
              
              
              12.26
              
              
              8.35Fourth
                  Quarter
              
              
              15.06
              
              
              10.00**2005**
              
              
              **High
                  Bid**
              
              
              **Low
                  Bid**First
                  Quarter
              
              $
              12.37
              
              $
              7.65Second
                  Quarter
              
              
              10.46
              
              
              7.21Third
                  Quarter
              
              
              10.90
              
              
              7.83Fourth
                  Quarter
              
              
              10.06
              
              
              6.90




As
      of February
      22,  2007,
      there were approximately
      135 holders of
      record of our common stock and as
      of that date, the last
      reported sales price of our common stock was $ 10.49.




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 2007 Annual
      Meeting of Stockholders under the heading "Equity Compensation Plan
      Information."


**Performance
      Graph**







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.




**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,****2006
                  (1)**
              
              **2005**
              
              **2004
                  (2)**
              
              **2003
                  (3)**
              
              **2002**in
                  thousands, except per share dataConsolidated
                  Statement of Operations Data:Net
                  Revenues
              
              $
              81,425
              
              $
              54,615
              
              $
              54,449
              
              $
              38,038
              
              $
              34,810Gross
                  Margin
              
              
              47,630
              
              
              35,002
              
              
              35,710
              
              
              27,171
              
              
              23,958Operating
                  Profit (Loss)
              
              
              1,715
              
              
              (2,306
              )
              
              (831
              )
              
              (2,797
              )
              
              (3,264
              )Net
                  Income (Loss)
              
              
              3,006
              
              
              (1,748
              )
              
              (642
              )
              
              (2,259
              )
              
              (2,320
              )Basic
                  Net Income (Loss) Per Share
              
              $
              0.11
              
              $
              (0.06
              )
              $
              (0.03
              )
              $
              (0.10
              )
              $
              (0.10
              )Shares
                  Used to Compute Basic Per Share Amounts
              
              
              28,177
              
              
              27,198
              
              
              25,422
              
              
              22,755
              
              
              22,785Diluted
                  Net Income (Loss) Per Share
              
              $
              0.10
              
              $
              (0.06
              )
              $
              (0.03
              )
              $
              (0.10
              )
              $
              (0.10
              )Shares
                  Used to Compute Diluted Per Share Amounts
              
              
              28,925
              
              
              27,198
              
              
              25,422
              
              
              22,755
              
              
              22,785**Years
                  Ended December 31,****2006**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**in
                  thousands, except per share dataConsolidated
                  Balance Sheet Data:Cash
                  and Cash Equivalents
              
              $
              32,804
              
              $
              21,028
              
              $
              9,556
              
              $
              10,955
              
              $
              5,482Working
                  Capital
              
              
              49,031
              
              
              36,994
              
              
              23,108
              
              
              23,846
              
              
              23,601Total
                  Assets
              
              
              127,948
              
              
              117,911
              
              
              110,473
              
              
              81,803
              
              
              71,975Total
                  Stockholders' Equity
              
              $
              120,936
              
              $
              107,489
              
              $
              102,159
              
              $
              76,021
              
              $
              67,964




(1)
            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
                of
                the Company’s change from sell-through method of accounting for revenues
                to the sell-in method whereby revenues are recognized at the time
                of
                shipment to a distributor.


(2)
            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.


(3)
            Results
                of operations for 2003 include a $0.9 million charge for in-process
                research and development as it relates to the acquisition of HiNT
                Corporation in May 2003




**ITEM
      7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION****AND
      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;


·
            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 adequatethrough
                2007;


·
            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 continued spending on research and development to develop
                new
                products is critical to our success and, consequently, expect to
                increase
                research and development expenses in future
                periods;


·
            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
                2007;
                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.


**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 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.




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, write-downs 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 twenty-four 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.




**Results
      of Operations**




The
      following table summarizes historical results of operations as a percentage
      of
      net revenues for the periods shown.


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Net
                  revenues
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of revenues
              
              
              41.5
              %
              
              35.9
              %
              
              34.4
              %Gross
                  margin
              
              
              58.5
              %
              
              64.1
              %
              
              65.6
              %Operating
                  expenses:Research
                  and development
              
              
              24.8
              %
              
              33.8
              %
              
              32.5
              %Selling,
                  general and administrative
              
              
              29.3
              %
              
              30.4
              %
              
              29.4
              %Amortization
                  and write-down of purchased intangible assets
              
              
              2.3
              %
              
              4.1
              %
              
              3.2
              %In-process
                  research and development
              
              
              0.0
              %
              
              0.0
              %
              
              2.1
              %Total
                  operating expenses
              
              
              56.4
              %
              
              68.3
              %
              
              67.2
              %Operating
                  income (loss)
              
              
              2.1
              %
              
              (4.2
              )%
              
              (1.6
              )%Interest
                  income and other, net
              
              
              2.2
              %
              
              1.5
              %
              
              0.8
              %Income
                  (loss) before provision for income taxes
              
              
              4.3
              %
              
              (2.7
              )%
              
              (0.8
              )%Provision
                  for income taxes
              
              
              0.6
              %
              
              0.5
              %
              
              0.5
              %Net
                  income (loss)
              
              
              3.7
              %
              
              (3.2
              )%
              
              (1.3
              )%


**Comparison
      of Years Ended** **December 31,
      2006, 2005, and 2004**




*Net
      Revenues.* Net
      revenues consist of product revenues generated principally by sales of our
      semiconductor devices. Net revenues for the year ended December 31, 2006 were
      $81.4 million, an increase of $26.8 million or 49.1% from
      $54.6 million for the year ended December 31, 2005. In the first quarter of
      2006 we recognized an additional $2.8 million in 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). The
      increase in 2006 net revenues was due primarily to the increased unit shipments
      of our PCI Express products as a result of the general market adoption of the
      PCI Express standard and higher sales of our USB products and PCI I/O devices.
      For the twelve months ended December 31, 2006, sales of our PCI I/O devices,
      USB
      products and PCI Express products accounted for 60.9%, 16.9% and 22.2%,
      respectively, of our total net revenues. **** For the
      twelve months ended December 31, 2005, sales of our PCI I/O devices, USB
      products and PCI Express products accounted for 78.8%, 14.4% and 6.8%,
      respectively, of our total net revenues. ****




For
      the
      year ended December 31, 2006, sales to Metatech and Answer Technology, both
      Asian distributors, accounted for approximately 31% and 10%, respectively,
      of
      net revenues. For the years ended December 31, 2005 and 2004, sales to Metatech
      accounted for approximately 23% and 13%, respectively, of net revenues. No
      other
      distributor or direct customer represented greater than 10% of net revenues.
      We
      continue to generate significant revenues from Asia. For the twelve months
      ended
      December 31, 2006, 2005 and 2004, approximately $46.9 million, $28.7 million
      and
      $27.2 million, respectively, of net revenues were generated from
      Asia. ****




Net
      revenues for the year ended December 31, 2005 increased by $0.2 million or
      0.3%
      to $54.6 million from $54.4 million for the year ended December 31, 2004. The
      increase was primarily due to sales of our PCI Express products as a result
      of
      the general market adoption of the PCI Express standard, partially offset by
      lower sales of our PCI I/O devices and USB products.




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 product to be delivered to the customer within the same quarter, also called
      “turns fill” orders.  Throughout 2005 and 2006, turns fill orders in any
      given quarter ranged from less than 40% to greater than 60% of our total
      revenues.  Because of the long cycle time to build our products, our lack
      of visibility into demand when
      turns fill is high makes it difficult to predict what product to build to match
      future demand.  The high turns fill requirement together with the
      uncertainty of product mix and pricing, make 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 and assembly and test contractors and (3) our operating
      costs associated with the procurement, storage and shipment of products.




Gross
      margin for the year ended December 31, 2006 increased by 36.1%, or
      $12.6 million, to $47.6 million from $35.0 million for 2005. As a
      percentage of sales, gross margin decreased to 58.5% for 2006 from 64.1% for
      2005. Included
      in gross margin for 2006 is the amount of $1.9 million, resulting from the
      change in the accounting for revenues to distributors. The decrease as a
      percentage of sales was primarily attributable
      to higher sales of PCI Express and USB products, which have lower margins
      relative to the PCI I/O devices, and lower yields on certain first generation
      PCI Express products. In addition, we recorded an inventory write-down of
      approximately $0.5 million, or 0.7 percentage points, in the fourth quarter
      ended December 31, 2006 primarily due to certain customers migrating from PCI
      I/O leaded to lead-free devices more quickly than anticipated, resulting in
      excess leaded inventory. This migration was brought upon by our customers’
efforts to comply with government guidelines that require their products to
      be
      lead-free, green, and compliant with the Restrictions on the use of certain
      Hazardous Substances (RoHS) Directive.




Gross
      margin for the year ended December 31, 2005 decreased by 0.2%, or
      $0.7 million, to $35.0 million from $35.7 million for 2004. As a
      percentage of sales, gross margin decreased to 64.1% for 2005 from 65.6% for
      2004. The decrease in absolute dollars and as a percentage of sales was
      primarily due to a change in our product and customer mix as well as the effect
      of selling previously written-down inventory of $0.6 million in
      2004.




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 salaries,
      share-based compensation and related costs of employees engaged in research,
      design, and development activities. In addition, expenses for outside
      engineering consultants, non-recurring engineering at our independent foundries,
      and deferred stock compensation are included in R&D expenses.




R&D
      as a percentage of net revenues decreased to 24.8% for the year ended December
      31, 2006 as compared to 33.8% for the same period in 2005. In absolute dollars,
      R&D expenses increased by $1.7 million, or 9.3%, to $20.2 million for the
      year ended December 31, 2006, from $18.5 million for the same period in 2005.
      The percentage decrease is due primarily to an increase in revenues, partially
      offset by the expensing of share-based compensation expense pursuant to SFAS
      123R. The increase in R&D in absolute dollars was due primarily to
      share-based compensation of $2.0 million as well as higher compensation and
      benefit expenses of $0.9 million, partially offset by a decrease in external
      engineering expenses of $1.1 million.




R&D
      as a percentage of net revenues increased to 33.8% for the year ended December
      31, 2005 as compared to 32.5% for the same period in 2004. In absolute dollars,
      R&D expenses increased by $0.8 million, or 4.4%, to $18.5 million for the
      year ended December 31, 2005, from $17.7 million for the same period in 2004.
      Included in R&D is stock compensation of $0.1 million for each of the years
      ended December 31, 2005 and 2004. The increase in R&D in absolute dollars
      and as a percentage of sales was primarily due to an increase of approximately
      $0.6 million in compensation and benefit expenses as a result of having a full
      year’s worth of compensation related to the NetChip acquisition as well as
      overall higher headcount and an increase in external engineering tools expense
      of approximately $0.3 million associated with the development of new products
      and enhancement of existing products.




We
      believe continued spending on research and development to develop new products
      is critical to our success and, consequently, 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, share-based compensation and related costs of employees engaged in
      selling and administrative activities, professional fees, trade show and other promotional expenses, as
      well as sales commissions to manufacturers' representatives.




SG&A
      as a percentage of net revenues decreased to 29.3% for the year ended December
      31, 2006, as compared to 30.4% for the year ended December 31, 2005. In absolute
      dollars, SG&A expenses increased by $7.3 million or 43.9% to $23.8 million
      for the year ended December 31, 2006 from $16.6 million for the same period
      in
      2005. The percentage decrease is due primarily to an increase in revenues,
      partially offset by the expensing of share-based compensation pursuant to SFAS
      123R. The increase in SG&A in absolute dollars was due primarily to
      share-based compensation of $2.8 million as well as increases in (1)
      compensation and benefit expenses of $2.2 million, (2) commission expense of
      $1.3 million resulting from higher revenues, (3) professional fees of $0.3
      million, (4) travel expense of $0.3 million and (5) marketing expenses of $0.2
      million.




SG&A
      as a percentage of net revenues increased to 30.4% for the year ended December
      31, 2005, as compared to 29.4% for the year ended December 31, 2004. In absolute
      dollars, SG&A expenses increased by $0.6 million or 3.5% to $16.6 million
      for the year ended December 31, 2005 from $16.0 million for the same period
      in
      2004. The increase in SG&A in absolute dollars and as a percentage of sales
      was due primarily to higher compensation and benefit expenses of approximately
      $1.1 million resulting mainly from higher compensation as a result of having
      a
      full year’s worth of NetChip related compensation expenses. This was partially
      offset by lower consulting and professional fees of $0.6 million due in part
      to
      the lower cost associated with our 2005 Sarbanes Oxley compliance effort
      compared to our effort in 2004.




We
      expect
      SG&A expenses in absolute dollars to increase in future
      periods.




*Amortization
      and Write-down of Purchased Intangible Assets* .
      Amortization and write-down of purchased intangible assets decreased by
      $0.4 million or 17.2% to $1.9 million for the year ended December 31,
      2006 from $2.3 million for the same period in 2005. The decrease is due to
      customer base acquired as a result of the HiNT Corporation acquisition in May
      2003 being fully amortized in 2006 and a $0.2 million write-down in 2005 of
      an
      acquired tradename.




Amortization
      and write-down of purchased intangible assets increased by $0.5 million or
      31.7% to $2.3 million for the year ended December 31, 2005 from
      $1.7 million for the same period in 2004. The increase is due primarily to
      (1) having a full year’s worth of amortization expense from developed/core
      technology and customer base acquired as a result of the NetChip Technology,
      Inc. acquisition in May 2004 (see Note 6 to the Consolidated Financial
      Statements) and (2) a $0.2 million write-down of a tradename that was acquired
      as part of the Sebring Systems acquisition in 2000. A portion of the total
      amortization expense was attributable to amortization of developed/core
      technology which was $1.0 million and $0.7 million for the years ended December
      31, 2005 and 2004, respectively.




*Interest
      Income* .
      Interest income reflects interest earned on average cash, cash equivalents
      and
      short-term and long-term investment balances. Interest income increased to
      $1.8 million in 2006 from $0.8 million for 2005. This increase was
      primarily due to higher cash and investment balances as well as higher interest
      rates. Interest income increased to $0.8 million in 2005 from
      $0.4 million for 2004. This increase was also primarily due to higher cash
      and investment balances as well as higher interest rates.




*Provision
      for Income Taxes* .
      Income
      tax expense for the period ended
      December 31, 2006 was $0.5
      million on a pretax profit of $3.5 million, compared to income tax expense
      of
      $0.3 million on a pretax loss of $1.5 million and income tax expense of $0.3
      million on a pretax loss of $0.4 million for the periods ended December 31,
      2005
      and 2004, respectively. 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 (1) a $0.6 million tax benefit
      from the release of tax reserves following the expiration of certain federal
      statute of limitations and (2) the benefit of research and development tax
      credits. Our 2005 income tax expense differs from the expected benefit derived
      by applying the applicable U.S. federal statutory rate to the loss from
      operations primarily due to the recording of a valuation allowance for the
      deferred tax asset partially offset by the benefit of research and development
      tax credits. **** Our
      2004
      income tax expense differs from the expected benefit derived by applying the
      applicable U.S. federal statutory rate to the loss from operations primarily
      due
      to the write off of in-process research and development and the impact of
      purchase accounting. This was partially offset by the benefit of research and
      development tax credits.




**Liquidity
      and Capital Resources**




In
      summary, our cash flows were (in thousands):




**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Net
                  cash provided by operating activities
              
              $
              2,883
              
              $
              3,866
              
              $
              4,648Net
                  cash provided by (used in) investing activities
              
              
              3,537
              
              
              5,958
              
              
              (8,148
              )Net
                  cash provided by financing activities
              
              
              5,389
              
              
              1,667
              
              
              2,097Effect
                  of exchange rate fluctuations on cash and cash equivalents
              
              
              (33
              )
              
              (19
              )
              
              4




We
      invest
      excess cash 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, 2006 cash, cash equivalents, short and
      long-term marketable securities were $42.3 million, an increase of $7.3 million
      from $35.0 million at December 31, 2005, and an increase of $12.0 million from
      $30.3 million at December 31, 2004.




Cash
      provided by operating activities primarily consists of net income (loss)
      adjusted for certain non-cash items including depreciation, amortization,
      share-based compensation expense, in-process research and development, changes
      in deferred revenues, write-downs for 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
      2006 of $2.9 million consisted primarily of net income of $3.0 million
      adjusted for non-cash items of $8.1 million, partially offset by
      $8.2 million used in working capital and other activities. Cash provided by
      operating activities in 2005 of $3.9 million consisted primarily of a net
      loss of $1.7 million adjusted for non-cash items of $5.4 million and
      $0.2 million provided by working capital and other activities. Cash
      provided by operating activities in 2004 of $4.6 million consisted
      primarily of a net loss of $0.6 million adjusted for non-cash items of
      $5.8 million and $0.5 million used in working capital and other
      activities.




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. Capital expenditures have generally
      comprised of purchases of computer hardware, software, server equipment and
      furniture and fixtures, and are currently expected to modestly increase in
      2007.
      Cash provided by investing activities in 2005 of $6.0 million was primarily
      due to proceeds from sales and maturities (net of purchases) of investments
      in
      marketable securities of $6.7 million, partially offset by capital expenditures
      of $0.7 million. For the year ended December 31, 2004, cash used in
      investing activities was $8.1 million primarily due to purchases (net of
      sales and maturities) of investments in marketable securities and capital
      expenditures of $8.9 million and $1.9 million, respectively, partially
      offset by cash provided by acquisitions of $2.7 million.




Cash
      provided by financing activities in 2006 of $5.4 million was due to
      proceeds from the exercise of stock options. Cash provided by financing
      activities in 2005 of $1.7 million was due to proceeds from the exercise of
      stock options and warrants. For the year ended December 31, 2004, cash provided
      by financing activities of $2.1 million was due to proceeds from the
      exercise of stock options of $2.0 million and a stockholder note receivable
      of
      $0.1 million.




The
      negative effect of exchange rates on cash and cash equivalents during 2006
      and
      2005 was due to the weakening of the U.S. dollar against other foreign
      currencies. The positive effect of exchange rates on cash and cash equivalents
      during 2004 was due to the strengthening 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.  At the discretion of the
      management, we can repurchase the shares from time to time in the open market
      or
      in privately negotiated transactions.  As of December 31, 2003
      approximately 774,000 shares had been repurchased for approximately $1.9 million
      in cash. We did not repurchase any shares during 2004,
      2005 or 2006.




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 inventory levels we maintain, 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. 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.




As
      of
      December 31, 2006, we had the following significant contractual obligations
      and commercial commitments (in thousands):


**Payments
                  due in**Total
              
              Less
                  than1
                  Year
              
              1-3YearsOperating
                  leases - facilities and equipment
              
              $
              168
              
              $
              105
              
              $
              63Software
                  licenses
              
              
              6,282
              
              
              4,549
              
              
              1,733Inventory
                  purchase commitments
              
              
              5,276
              
              
              5,276
              
              
              -Total
                  cash obligations
              
              $
              11,726
              
              $
              9,930
              
              $
              1,796




See
      Note
      10 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
      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 (Organization and Summary of Significant Accounting
      Policies) 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* *.* We ** recognize
      revenue when persuasive evidence of an arrangement exists, delivery or customer
      acceptance, where applicable, has occurred, the fee is fixed or determinable,
      and collection is reasonably assured .




Revenue
      from product sales to direct 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 is assessed based on the age of the receivable and
      the
      individual customer’s creditworthiness.




In
      the
      first 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, 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.




We
      offer
      pricing protection to a single distributor whereby we support the distributor’s
      resale product margin on certain products held in the distributor’s inventory.
      In general, we analyze current requests for credit in process, also known as
      ship and debits, inventory at the distributor and credit expectations to
      determine the ending sales reserve required for this program. Reserves are
      reduced directly from revenue and recorded as a reduction to accounts
      receivable. In addition, we offer stock rotation rights to several 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. In general, we analyze
      current stock rotation requests and past experience to determine the ending
      sales reserve required for this program.




As
      of
      December 31, 2006, we have controls in place to monitor sales returns from
      and
      pricing concessions to our distributors. We use data from a variety of controls,
      such as monthly monitoring of distributor inventory levels, Returns Material
      Authorization controls and regular monitoring of distributor pricing concession
      and product rotation requests. We use this data to arrive at a reasonable
      estimate on sales returns from and pricing concessions to our
      distributors.




*Inventory
      Valuation.* We
      evaluate the need for potential write-downs of inventory by considering a
      combination of factors. Based on the life of the product, sales history,
      obsolescence, and sales forecast, we may record write-downs to our inventory
      ranging from 0% to 100%. Any adverse changes to our future product demand may
      result in increased write-downs, 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. In the fourth quarter
      ended December 31, 2006, we recorded an inventory write-down of approximately
      $0.5 million primarily due to customers migrating from PCI I/O leaded to
      lead-free devices quicker than anticipated, resulting in excess leaded
      inventory. This
      migration was brought upon by our customers’ efforts to comply with government
      guidelines that require their products to be lead-free, green, and compliant
      with the Restrictions on the use of certain Hazardous Substances (RoHS)
      Directive.




*Allowance
      for Doubtful Accounts.* We
      evaluate the collectibility of our accounts receivable based on length of time
      the receivables are past due, generally thirty days. 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 customer's 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.




*Goodwill* .
      Our
      methodology for allocating the purchase price related to purchase 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 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 on November 1 and between annual
      tests in certain circumstances. To date, no such impairment has been recorded.
      In response to changes in industry and market conditions, we may strategically
      realign our resources and consider restructuring, disposing of, or otherwise
      exiting businesses, which could result in an impairment of goodwill.




*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, 2006, we carried
      a valuation allowance for the entire deferred tax asset of $16.4 million as
      a
      result of uncertainties regarding the realization of the asset balance (see
      Note
      9 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 2006, 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
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”) - an interpretation of FASB Statement No. 109.
      This Interpretation prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return, and provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 is effective for fiscal years beginning
      after
      December 15, 2006 and, as such, we must adopt FIN 48 at January 1, 2007. We
      are currently assessing the impact of FIN 48 on its financial
      statements.





In
      September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”).  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. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007 and interim periods within
      those fiscal years. We are currently evaluating the effect that the adoption
      of
      SFAS 157 will have on its financial position and results of
      operations.




In
      September 2006, the SEC issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements When Quantifying Misstatements in Current Year Financial
      Statements” (“SAB
      108”). The
      interpretations in SAB 108 are being issued to address diversity in
      practice in quantifying financial statement misstatements and the potential
      under current practice for the build up of improper amounts on the balance
      sheet. SAB 108 is effective for the first interim period of the first
      fiscal year ending after November 15, 2006. We have evaluated
      the new statement and have determined that it will not have a significant impact
      on the determination or reporting of our financial results.




**ITEM
      7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




We
      have
      an investment portfolio of fixed income securities, including those classified
      as cash equivalents and investments of approximately
      $39.3 million at
      December 31, 2006. These securities are subject to interest rate
      fluctuations and will decrease in market value if interest rates increase.




The
      primary objective of the Company's investment activities is to preserve
      principal while at the same time maximizing yields without significantly
      increasing risk. The Company invests primarily in high-quality, short-term
      and
      long-term debt instruments. A hypothetical 100 basis point increase in interest
      rates would result in approximately a $0.1 million decrease (less than 1%)
      in the fair value of the Company's available-for-sale securities. At December
      31, 2006, we had an unrealized gain on our investments of approximately $6,000
      and an unrealized loss of $43,000 at December 31, 2005.




**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 ACCOUNTING****AND
      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, 2006, 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) Changes
      in internal controls.**




From
      time
      to time, our system of internal controls are modified based on either internal
      or external changes. For example, in the third quarter of 2006, our Chief
      Financial Officer, Rafael Torres, resigned. As a result, we modified our system
      of controls to address segregation of duties related controls as appropriate. There
      have been no additional changes 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.




**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, 2006. 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, 2006, our internal control over
      financial reporting is effective based on these criteria. Our independent
      registered public accounting firm, BDO Seidman, LLP, have issued an audit report
      on our assessment of our internal control over financial reporting, which is
      included herein.




**ITEM
      9B: OTHER INFORMATION**




On
      February 26, 2007, the Compensation Committee (the “Committee”) of the Board of
      Directors of PLX Technology, Inc. (the “Company”), approved the 2007 Variable
      Compensation Plan (the “Plan”) effective as of January 1, 2007 to encourage
      performance and achieve retention of a select group of executive employees
      of
      the Company. The Plan is intended to comply with the requirements of Section
      409A of the Internal Revenue Code (the “Code”), recently enacted under the
      American Jobs Creation Act of 2004. Section 409A imposes a number of
      requirements on non-qualified deferred compensation plans, primarily relating
      to
      the timing of elections and distributions. The following is a summary of the
      terms and conditions of the Plan that are material to the Company. The Plan
      provides for a variable compensation amount for the 2007 performance to be
      awarded to eligible employees. Portions of such bonus amount shall be paid
      to
      employees on the last business day of January of each of 2008, 2009 and
      2010.




Through
      December 31, 2007, the Committee, in its sole and unlimited discretion, may
      amend or terminate the Plan. After January 1, 2008, the Committee may amend
      or
      terminate the Plan, provided that such amendment does not reduce or increase
      any
      benefit to which a participant has accrued and is otherwise entitled to under
      the terms of the Plan, nor accelerate the timing of any payment under the Plan,
      except as permitted under Code Section 409A.




The
      foregoing description of the Plan is qualified in its entirety by reference
      to
      the Plan, a copy of which is filed herewith as Exhibit 10.16 and is incorporated
      herein by reference.







**PART
      III**




**ITEM
      10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE**




The
      information required by this Item is incorporated herein by reference to the
      Company's Proxy Statement for the 2007
      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 2007 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 2007 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 2007 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 2007 Annual Meeting of
      Stockholders .







**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 36:


Report
                of,Independent Registered Public Accounting FirmReport
                of Independent Registered Public Accounting Firm on Internal Control
                Over
                Financial Reporting
              
              Report
                of Independent Registered Public Accounting Firm
              
              Consolidated
                Balance Sheets as of December 31, 2006 and 2005.
              
              Consolidated
                Statements of Operations for each of the three years in the period
                ended
                December 31, 2006.
              
              Consolidated
                Statements of Stockholders' Equity for each of the three years in
                the
                period ended December 31, 2006.
              
              Consolidated
                Statements of Cash Flows for each of the three years in the period
                ended
                December 31, 2006.
              
              Notes
                to Consolidated Financial Statements.


2.
            Financial
                Statement Schedule




The
      financial statement schedules of the Company are included in Part IV of this
      report: For the three years ended December 31, 2006-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




The
      Company hereby files, as exhibits to this Form 10-K, those exhibits listed
      on the Exhibit Index referenced in Item 15 (a)
      (3) above.







**PLX
      TECHNOLOGY, INC.**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Page**Report
                  of Independent Registered Public Accounting
                  Firm
              
              38Report
                    of Independent Registered Public Accounting Firm on
                    Internal Control Over Financial Reporting
              
              39Report
                  of Independent Registered Public Accounting
                  Firm
              
              40Consolidated
                  Balance Sheets as of December 31, 2006
                  and 2005
              
              41Consolidated
                    Statements of Operations for each of the three
                    years in the period ended December 31, 2006
              
              42Consolidated
                Statements of Stockholders' Equity for each of
                the three years in the period ended December 31, 2006
              
              43Consolidated
                    Statements of Cash Flows for each of the
                    three years in the period ended December 31,
                    2006
              
              44Notes
                  to Consolidated Financial
                  Statements
              
              45







**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, 2006 and 2005, and the related consolidated statements of
      operations, stockholders’ equity, and cash flows for the years then ended. We
      have also audited Schedule II - Valuation and Qualifying Accounts as of and
      for
      each of the years ended December 31, 2006 and 2005. These financial statements
      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, 2006 and 2005, and the results of its operations and its cash
      flows
      for the years then ended **,** in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also, in our opinion, Schedule II - Valuation and Qualifying Accounts
      presents fairly, in all material respects, the information set forth therein
      as
      of and for the years ended December 31, 2006 and 2005.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of PLX Technology, Inc.’s
      internal control over financial reporting as of December 31, 2006 based on
      criteria established in *Internal
      Control - Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
      and
      our report dated February 26, 2007 expressed an unqualified opinion
      thereon.




As
      discussed in Note 1 to the consolidated financial statements, effective
      January 1, 2006, the Company adopted the provisions of Statement of
      Financial Accounting Standards No. 123 (revised 2004), *Share-Based
      Payment.*




/s/
      BDO
      Seidman, LLP


San
      Francisco, California


February
      26, 2007







**** **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 management's assessment, included in the accompanying Management Report
      on Internal Control over Financial Reporting, that PLX Technology, Inc.
      maintained effective internal control over financial reporting as of December
      31, 2006, based on criteria established in *Internal
      Control-Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (the
      COSO criteria). The Company'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. Our
      responsibility is to express an opinion on management's assessment and an
      opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and 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, management's assessment that PLX Technology, Inc. maintained effective
      internal control over financial reporting as of December 31, 2006 is fairly
      stated, in all material respects, based on the COSO criteria. Also, in our
      opinion, PLX Technology, Inc. maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2006, 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 as of December
      31, 2006 and 2005 and the related consolidated statements of operations,
      stockholders' equity, and cash flows for the years then ended, and the 2006
      and
      2005 financial statement schedule listed in the accompanying index, of PLX
      Technology, Inc. and our report dated February 26, 2007, expressed an
      unqualified opinion thereon.




/s/
      BDO
      Seidman, LLP


San
      Francisco, California


February
      26, 2007









**Report
      of Independent Registered Public Accounting
      Firm**




The
      Board
      of Directors and Stockholders


PLX
      Technology, Inc.




We
      have
      audited the accompanying consolidated statements of operations, stockholders’
equity and cash flows of PLX Technology, Inc. for the year ended December 31,
      2004. Our audit also included the financial statement schedule listed in the
      Index at Item 15(a) for the year ended December 31, 2004. These consolidated
      financial statements and schedule are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements and schedule 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 the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated results of operations and cash flows
      of PLX Technology, Inc. for the year ended December 31, 2004, in conformity
      with
      U.S. generally accepted accounting principles. Also, in our opinion, the related
      financial statement schedule, when considered in relation to the basic financial
      statements taken as a whole, presents fairly in all material respects the
      information set forth therein.




/s/
      Ernst
& Young, LLP




San
      Jose,
      California


February
      24, 2005







**PLX
      TECHNOLOGY, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands, except share and per share data)**




**December
                  31,****2006**
              
              **2005****ASSETS**Current
                  Assets:Cash and cash equivalents
              
              $
              32,804
              
              $
              21,028Short-term investments
              
              
              5,853
              
              
              14,015Accounts receivable, less allowances of $312 and $211
              
              
              8,491
              
              
              6,203Inventories
              
              
              8,295
              
              
              4,328Other current assets
              
              
              600
              
              
              1,842Total
                  current assets
              
              
              56,043
              
              
              47,416Goodwill
              
              
              34,976
              
              
              35,818Other
                  purchased intangible assets, net of accumulated amortization of
                  $7,944 and
                  $6,071
              
              
              2,856
              
              
              4,729Property
                  and equipment, net
              
              
              28,744
              
              
              29,535Long-term
                  investments
              
              
              3,666
              
              
              -Other
                  assets
              
              
              1,663
              
              
              413Total
                  assets
              
              $
              127,948
              
              $
              117,911**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Accounts payable
              
              $
              2,995
              
              $
              4,530Accrued compensation and benefits
              
              
              2,417
              
              
              1,754Deferred margins
              
              
              -
              
              
              1,963Accrued commissions
              
              
              1,100
              
              
              298Other accrued expenses
              
              
              500
              
              
              1,877Total
                  current liabilities
              
              
              7,012
              
              
              10,422Commitments
                  and contingencies (Note 10)Stockholders'
                  equity:Preferred stock, $.001 par value per share:Authorized -- 5,000,000 shares: none issued and
                  outstanding
              
              
              -
              
              
              -Common stock, $.001 par value per share:Authorized -- 50,000,000 shares: issued and outstanding -- 28,626,328
                  and
                  27,666,868
              
              
              29
              
              
              28Additional paid-in capital
              
              
              128,735
              
              
              118,313Accumulated other comprehensive loss
              
              
              (96
              )
              
              (114
              )Accumulated deficit
              
              
              (7,732
              )
              
              (10,738
              )Total
                  stockholders' equity
              
              
              120,936
              
              
              107,489Total
                  liabilities and stockholders' equity
              
              $
              127,948
              
              $
              117,911




See
      accompanying notes to consolidated financial statements.









**PLX
      TECHNOLOGY, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(in
      thousands, except per share data)**


**Years
                Ended December 31,****2006**
              
              **2005**
              
              **2004**Net
                  revenues
              
              $
              81,425
              
              $
              54,615
              
              $
              54,449Cost
                  of revenues
              
              
              33,795
              
              
              19,613
              
              
              18,739Gross
                  margin
              
              
              47,630
              
              
              35,002
              
              
              35,710Operating
                  expenses:Research and development
              
              
              20,194
              
              
              18,469
              
              
              17,686Selling, general and administrative
              
              
              23,848
              
              
              16,577
              
              
              16,014Amortization and write-down of purchased intangible assets
              
              
              1,873
              
              
              2,262
              
              
              1,718In-process research and development
              
              
              -
              
              
              -
              
              
              1,123Total
                  operating expenses
              
              
              45,915
              
              
              37,308
              
              
              36,541Operating
                  income (loss)
              
              
              1,715
              
              
              (2,306
              )
              
              (831
              )Interest
                  income
              
              
              1,763
              
              
              812
              
              
              435Other
                  income, net
              
              
              40
              
              
              11
              
              
              12Income
                  (loss) before provision for income taxes
              
              
              3,518
              
              
              (1,483
              )
              
              (384
              )Provision
                  for income taxes
              
              
              512
              
              
              265
              
              
              258Net
                  income (loss)
              
              $
              3,006
              
              $
              (1,748
              )
              $
              (642
              )Basic
                  net income (loss) per share
              
              $
              0.11
              
              $
              (0.06
              )
              $
              (0.03
              )Shares
                  used to compute basic per share amounts
              
              
              28,177
              
              
              27,198
              
              
              25,422Diluted
                  net income (loss) per share
              
              $
              0.10
              
              $
              (0.06
              )
              $
              (0.03
              )Shares
                  used to compute diluted per share amounts
              
              
              28,925
              
              
              27,198
              
              
              25,422




See
      accompanying notes to consolidated financial statements.









**PLX
      TECHNOLOGY, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


**(in
      thousands, except share amounts)**




Notes
              
              AccumulatedReceivable
              
              OtherAdditional
              
              for
                  Employee
              
              Comprehensive
              
              
              
              TotalCommon
                  Stock
              
              Paid-in
              
              Stock
              
              Income
              
              Accumulated
              
              Stockholders'Shares
              
              Amount
              
              Capital
              
              Repurchases
              
              (Loss)
              
              Deficit
              
              EquityBalance
                  at December 31, 2003
              
              
              23,848,168
              
              $
              24
              
              $
              84,464
              
              $
              (70
              )
              $
              (49
              )
              $
              (8,348
              )
              $
              76,021Issuance
                    of common stock and options related to the acquisition of HiNT
                    Corporation
              
              
              337,162
              
              
              
              
              
              2,994
              
              
              -
              
              
              -
              
              
              -
              
              
              2,994Issuance
                    of common stock and options related to the acquisition of NetChip
                    Technology, Inc.
              
              
              2,035,077
              
              
              2
              
              
              22,588
              
              
              -
              
              
              -
              
              
              -
              
              
              22,590Deferred
                    compensation on options issued related to acquisition of HiNT
                    Corporation
              
              
              -
              
              
              -
              
              
              (869
              )
              
              -
              
              
              -
              
              
              -
              
              
              (869
              )Issuance
                    of stock pursuant to exercise of stock options
              
              
              486,356
              
              
              1
              
              
              2,026
              
              
              -
              
              
              -
              
              
              -
              
              
              2,027Repayment
                  of stockholder notes receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              70
              
              
              -
              
              
              -
              
              
              70Amortization
                  of deferred stock compensation
              
              
              -
              
              
              -
              
              
              130
              
              
              -
              
              
              -
              
              
              -
              
              
              130Comprehensive
                  loss:Change in unrealized loss on investments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (163
              )
              
              -
              
              
              (163
              )Translation adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1
              
              
              -
              
              
              1Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (642
              )
              
              (642
              )Total
                comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (804
              )Balance
                  at December 31, 2004
              
              
              26,706,763
              
              
              27
              
              
              111,333
              
              
              -
              
              
              (211
              )
              
              (8,990
              )
              
              102,159Proceeds
                    from the exercise of warrants assumed in the acquisition of HiNT
                    Corporation
              
              
              3,057
              
              
              -
              
              
              26
              
              
              -
              
              
              -
              
              
              -
              
              
              26Issuance
                    of common stock related to the acquisition of NetChip Technology,
                    Inc.
              
              
              554,306
              
              
              1
              
              
              5,119
              
              
              -
              
              
              -
              
              
              -
              
              
              5,120Issuance
                    of stock pursuant to exercise of stock options
              
              
              402,742
              
              
              -
              
              
              1,641
              
              
              -
              
              
              -
              
              
              -
              
              
              1,641Amortization
                  of deferred stock compensation
              
              
              -
              
              
              -
              
              
              168
              
              
              -
              
              
              -
              
              
              -
              
              
              168Tax
                  benefit related to exercise of stock options
              
              
              -
              
              
              -
              
              
              26
              
              
              -
              
              
              -
              
              
              -
              
              
              26Comprehensive
                  loss:Change in unrealized loss on investments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              115
              
              
              -
              
              
              115Translation adjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (18
              )
              
              -
              
              
              (18
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,748
              )
              
              (1,748
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,651
              )Balance
                  at December 31, 2005
              
              
              27,666,868
              
              
              28
              
              
              118,313
              
              
              -
              
              
              (114
              )
              
              (10,738
              )
              
              107,489Share-based
                  compensation expense
              
              
              
              
              
              -
              
              
              4,903
              
              
              -
              
              
              -
              
              
              -
              
              
              4,903Issuance
                    of stock pursuant to 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
              
              
              28,626,328
              
              $
              29
              
              $
              128,735
              
              $
              -
              
              $
              (96
              )
              $
              (7,732
              )
              $
              120,936




See
      accompanying notes to consolidated financial statements.









**PLX
      TECHNOLOGY, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****Cash
                  flows from operating activities**Net income (loss)
              
              $
              3,006
              
              $
              (1,748
              )
              $
              (642
              )Adjustments to reconcile net loss to cash flows provided by operating
                  activities:Depreciation and amortization
              
              
              1,979
              
              
              2,065
              
              
              2,197Share-based compensation expense
              
              
              4,903
              
              
              -
              
              
              -Amortization of deferred stock compensation
              
              
              -
              
              
              168
              
              
              130Amortization and write-down of purchased intangible assets
              
              
              1,873
              
              
              2,262
              
              
              1,718In-process research and development
              
              
              -
              
              
              -
              
              
              1,123Deferred margins
              
              
              (1,963
              )
              
              653
              
              
              319Write-downs for inventories
              
              
              546
              
              
              -
              
              
              -Changes in pre-acquisition deferred tax balances
              
              
              842
              
              
              207
              
              
              162Other non-cash items
              
              
              (84
              )
              
              215
              
              
              135Changes in operating assets and liabilities:Accounts receivable
              
              
              (2,251
              )
              
              (1,123
              )
              
              1,480Inventories
              
              
              (4,513
              )
              
              (169
              )
              
              (1,772
              )Other current assets
              
              
              1,242
              
              
              216
              
              
              (313
              )Other assets
              
              
              (1,250
              )
              
              (333
              )
              
              253Accounts payable
              
              
              (1,535
              )
              
              903
              
              
              766Accrued compensation and benefits
              
              
              663
              
              
              (59
              )
              
              360Accrued commissions
              
              
              802
              
              
              (2
              )
              
              (233
              )Other accrued expenses
              
              
              (1,377
              )
              
              611
              
              
              (1,035
              )Net
                  cash provided by operating activities
              
              
              2,883
              
              
              3,866
              
              
              4,648**Cash
                  flows provided by (used in) investing activities:**Cash paid for the acquisition of HiNT Corporation
              
              
              -
              
              
              -
              
              
              (137
              )Cash acquired in acquisition of NetChip Technology, Inc.
              
              
              -
              
              
              -
              
              
              2,821Purchase of investments
              
              
              (13,703
              )
              
              (6,027
              )
              
              (22,815
              )Sales and maturities of investments
              
              
              18,428
              
              
              12,725
              
              
              13,902Purchase of property and equipment
              
              
              (1,188
              )
              
              (740
              )
              
              (1,919
              )Net
                  cash provided by (used in) investing activities
              
              
              3,537
              
              
              5,958
              
              
              (8,148
              )**Cash
                  flows provided by financing activities:**Proceeds from exercise of common stock options
              
              
              5,389
              
              
              1,641
              
              
              2,027Proceeds from exercise of warrants
              
              
              -
              
              
              26
              
              
              -Proceeds from stockholder notes receivable
              
              
              -
              
              
              -
              
              
              70Net
                  cash provided by financing activities
              
              
              5,389
              
              
              1,667
              
              
              2,097Effect
                  of exchange rate fluctuations on cash and cash equivalents
              
              
              (33
              )
              
              (19
              )
              
              4Increase
                  (decrease) in cash and cash equivalents
              
              
              11,776
              
              
              11,472
              
              
              (1,399
              )Cash
                  and cash equivalents at beginning of year
              
              
              21,028
              
              
              9,556
              
              
              10,955Cash
                  and cash equivalents at end of year
              
              $
              32,804
              
              $
              21,028
              
              $
              9,556**Supplemental
                  disclosure of cash flow information:**Cash from income tax refunds
              
              $
              9
              
              $
              79
              
              $
              16Cash paid for income taxes
              
              $
              135
              
              $
              14
              
              $
              74**Non-cash
                  investing and financing activities**Common stock issued for the acquisition of HiNT
                  Corporation
              
              $
              -
              
              $
              -
              
              $
              2,994Common stock issued for the acquisition of NetChip Technology,
                  Inc.
              
              $
              -
              
              $
              5,120
              
              $
              22,590




See
      accompanying notes to consolidated financial statements.









**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 three related types of products:
      semiconductor devices, software development kits and hardware design kits.
      The
      Company’s semiconductor devices simplify the development of data transfer
      circuits in micro-processor based systems. The Company’s software development
      kits and hardware design 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, 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, 2006, 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, 2006 and 2005, all debt securities were designated as
      available-for-sale. Available-for-sale securities are carried at fair value
      with
      unrealized gains and losses reported in a separate component of stockholders'
      equity. The fair value of securities is based on quoted market prices. The
      amortized cost of debt securities in this
      category is adjusted for the amortization of premiums and the accretion of
      discounts to maturity. Such amortization, as well as any interest earned on
      the
      securities, is included in interest income. Realized gains and losses and
      declines in value judged to be other-than-temporary on available-for-sale
      securities are included in interest income. The cost of securities sold is
      based
      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.


***Inventories***




Inventories
      are valued at the lower of cost (first-in, first-out method) or market.
      Inventories were as follows:


**December
                  31,**
              ********
              ****
              **2006**
              ****
              **2005**(in
                  thousands)Work-in-process
              
              $
              1,226
              
              $
              1,605Finished
                  goods
              
              
              7,069
              
              
              2,723Total
              
              $
              8,295
              
              $
              4,328





The
      Company evaluates the need for potential write-downs of inventory by considering
      a combination of factors. Based on the life of the product, sales history,
      obsolescence and sales forecast, the Company may record write-downs to inventory
      ranging from 0% to 100%.




***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 (November 1st) 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. To date, no such impairment
      has been recorded. 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 are being amortized over the assets’ useful lives, which ranges from
      three to six years. 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, 2006 and
      2005 are as follows (in thousands):


Balance
                  as of December 31, 2004
              
              $
              30,965NetChip
                  acquisition - additional consideration
              
              
              5,120Changes
                  in pre-acquisition deferred tax balances
              
              
              (207
              )Other
              
              
              (60
              )Balance
                  as of December 31, 2005
              
              
              35,818Changes
                  in pre-acquisition deferred tax balances
              
              
              (842
              )Balance
                  as of December 31, 2006
              
              $
              34,976


***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.


***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
      39 years for buildings and three to five years for equipment, furniture and
      purchased software. Leasehold improvements are amortized using the straight-line
      method over the shorter of the useful lives of the assets or the terms of the
      leases.




Property
      and equipment are as follows:


**December
                  31,****2006**
              
              **2005**(in
                  thousands)Land
              
              $
              8,550
              
              $
              8,550Building
              
              
              19,333
              
              
              19,333Equipment
                  and furniture
              
              
              11,447
              
              
              10,357Purchased
                  software
              
              
              4,090
              
              
              4,06443,420
              
              
              42,304Accumulated
                  depreciation and amortization
              
              
              (14,676
              )
              
              (12,769
              )Net
                  property and equipment
              
              $
              28,744
              
              $
              29,535




Depreciation
      expense was approximately $2.0 million, $2.1 million and $2.2 million for the
      years ended December 31, 2006, 2005, and 2004, respectively.




***Foreign
      Currency Translation***




The
      functional currency of each of the Company’s international subsidiaries in
      China, Japan, Taiwan and the United Kingdom is the United States dollar. 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.




***Revenue
      Recognition***




The
      Company ** recognizes
      revenue when persuasive evidence of an arrangement exists, delivery or customer
      acceptance, where applicable, 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
      first 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, 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 a single distributor whereby the Company
      supports the distributor’s resale product margin on certain products held in the
      distributor’s inventory. In general, the Company analyzes current requests for
      credit in process, also known as ship and debits, inventory at the distributor
      and credit expectations to determine the ending sales reserve required for
      this
      program. Reserves are reduced directly from revenue and recorded as a reduction
      to accounts receivable. In addition, the Company offers stock rotation rights
      to
      several 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.
      In
      general, the Company analyzes current stock rotation requests and past
      experience to determine the ending sales reserve required for this
      program.




As
      of
      December 31, 2006, the Company has controls in place to monitor sales returns
      from and pricing concessions to our distributors. The Company uses data from
      a
      variety of controls, such as monthly monitoring of distributor inventory levels,
      Returns Material Authorization controls and regular monitoring of distributor
      pricing concession and product rotation requests. The Company uses this data
      to
      arrive at a reasonable estimate on sales returns from and pricing concessions
      to
      its distributors.




***Product
      Warranty***




The
      Company generally sells products with a limited warranty of product quality
      for
      a period of one year 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. As of December 31,
      2006, 2005, and 2004 such costs
      were insignificant. Accordingly, the Company has charged all such costs to
      research and development expenses in the accompanying consolidated statements
      of
      operations.




***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, 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 financial
      statements.


***Comprehensive
      Loss***




At
      December 31, 2006, the components of accumulated
      other comprehensive loss, reflected in the Consolidated Statements of Stockholders' Equity, consisted
      of
      the following:


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**(in
                  thousands)Unrealized
                  gain (loss) on investments, net
              
              $
              6
              
              $
              (42
              )
              $
              (157
              )Cumulative
                  translation adjustments
              
              
              (102
              )
              
              (72
              )
              
              (54
              )Accumulated
                  other comprehensive loss
              
              $
              (96
              )
              $
              (114
              )
              $
              (211
              )


***Recent
      Accounting Pronouncements***




In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”) - an interpretation of FASB Statement No. 109.
      This Interpretation prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return, and provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 is effective for fiscal years beginning
      after
      December 15, 2006 and, as such, the Company must adopt FIN 48 at January 1,
      2007. The Company is currently assessing the impact of FIN 48 on its financial
      statements.





In
      September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles and expands
      disclosures about fair value measurements. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007 and interim periods within those
      fiscal years. The Company is currently evaluating the effect that the adoption
      of SFAS 157 will have on its financial position and results of
      operations.




In
      September 2006, the SEC issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements When Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). The
      interpretations in SAB 108 are being issued to address diversity in
      practice in quantifying financial statement misstatements and the potential
      under current practice for the build up of improper amounts on the balance
      sheet. SAB 108 is effective for the first interim period of the first
      fiscal year ending after November 15, 2006. The Company has evaluated
      the new statement and has determined that it will not have a significant impact
      on the determination or reporting of its financial results.




**2.
      Share-Based Compensation**




***Stock
      Option Plans***




In
      January 1998, the Company’s stockholders approved the 1998 Stock Incentive Plan
      (“1998 Plan”). Under the 1998 Plan, options generally vest over four years and
      have a maximum term of 10 years. The Board of Directors establishes the exercise
      price as the closing price quoted on NASDAQ on the date of grant. In addition
      to
      stock options, the 1998 Plan allows for the grant of restricted stock, stock
      appreciation rights, performance shares, performance units, dividends and
      dividend equivalents.




In
      January 1999, the Company’s stockholders approved the 1999 Stock Incentive Plan
      (“1999 Plan”). The 1999 Plan has substantially the same terms as the 1998 Plan.




***Share-Based
      Compensation Expense***




On
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment”, (“SFAS 123R”) which establishes standards for the
      accounting of transactions in which an entity exchanges its equity instruments
      for goods or services, primarily focusing on accounting for transactions where
      an entity obtains employee services in share-based payment transactions. SFAS
      123R requires the Company to measure the cost of employee services received
      in
      exchange for an award of equity instruments, including stock options, based
      on
      the grant-date fair value of the award and to recognize it as compensation
      expense over the period the employee is required to provide service in exchange
      for the award, usually the vesting period. SFAS 123R supersedes the Company’s
      previous accounting under Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in
      fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff
      Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123R. The Company
      has applied the provisions of SAB 107 in its adoption of SFAS 123R.




The
      Company adopted SFAS 123R using the modified prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006,
      the first day of the Company’s fiscal year 2006. In accordance with the modified
      prospective transition method, the Company’s Consolidated Financial Statements
      for prior periods have not been restated to reflect, and do not include, the
      impact of SFAS 123R.




SFAS
      123R
      requires companies to estimate the fair value of share-based payment awards
      on
      the date of grant. The fair value of the portion of the award that is ultimately
      expected to vest is recognized as expense over the requisite service periods
      in
      the Company’s Consolidated Statements of Operations. Prior to the adoption of
      SFAS 123R, the Company accounted for share-based awards to employees and
      directors using the intrinsic value method in accordance with APB 25 as allowed
      under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).
      Under the intrinsic value method, no share-based compensation expense had been
      recognized in the Company’s Consolidated Statements of Operations, other than as
      related to option grants to employees and directors below the fair market value
      of the underlying stock at the date of grant.




Share-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period. Share-based compensation expense recognized in the Company’s
      Consolidated Statements of Operations for the fiscal year 2006 included
      compensation expense for share-based payment awards granted prior to, but not
      yet vested as of December 31, 2005 based on the grant date fair value estimated
      in accordance with the pro forma provisions of SFAS 123 and compensation expense
      for the share-based payment awards granted subsequent to December 31, 2005
      based
      on the grant date fair value estimated in accordance with the provisions of
      SFAS
      123R. As share-based compensation expense recognized in the Consolidated
      Statement of Operations for the fiscal year 2006 is based on awards ultimately
      expected to vest, it has been reduced for estimated forfeitures. SFAS 123R
      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 for the year ended December 31, 2006
      of
      approximately 30% was based on historical forfeiture experience to anticipate
      actual forfeitures in the future. In the Company’s pro forma information
      required under SFAS 123 for the periods prior to fiscal 2006, the Company
      accounted for forfeitures as they occurred.




SFAS
      123R
      requires the cash flows resulting from the tax benefits generated from tax
      deductions in excess of the compensation cost recognized for those options
      to be
      classified as financing cash flows. Prior to the adoption of SFAS 123R those
      benefits would have been reported as operating cash flows had the Company
      received any tax benefits related to stock option exercises.




In
      November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition
      Election Related to Accounting for the Tax Effects of Share-Based Payment
      Awards” (“FSP 123R-3”). The Company has elected to adopt the alternative
      transition method provided in FSP 123R-3 for calculating the tax effects of
      stock-based compensation under SFAS 123R. The alternative transition method
      includes simplified methods to establish the beginning balance of the additional
      paid-in-capital pool (“APIC pool”) related to the tax effects of stock-based
      compensation, and for determining the subsequent impact on the APIC pool and
      consolidated statements of cash flows of the tax effects of stock-based
      compensation awards that are outstanding upon adoption of SFAS
      123R.




The
      fair
      value of share-based awards to employees is calculated using the Black-Scholes
      option pricing model, even though this model was developed to estimate the
      fair
      value of freely tradable, fully transferable options without vesting
      restrictions, which differ significantly from the Company’s stock options. The
      Black-Scholes model requires subjective assumptions, including future stock
      price volatility and expected time to exercise, which greatly affect the
      calculated values. The expected term of options granted is derived from
      historical data on employee exercises and post-vesting employment termination
      behavior. The risk-free rate is based on the U.S Treasury rates in effect during
      the corresponding period of grant. The Company calculated its expected
      volatility assumption required in the Black-Scholes model by blending the
      historical volatility of its stock with the implied volatility for traded
      options on its stock. These factors could change in the future, which would
      affect the share-based compensation expense in future periods.




***Valuation
      and Expense Information Under SFAS 123R***




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:


**Year
                  Ended****December
                  31, 2006**Volatility
              
              
              0.67Expected
                  life of options (in years)
              
              
              4.39Dividend
                  yield
              
              
              0.00
              %Risk-free
                  interest rate
              
              
              4.72
              %




The
      following table shows total share-based compensation expense recorded for the
      year ended
      December 31, 2006, (in thousands):




**Year
                  Ended****December
                  31, 2006**Cost
                  of revenues
              
              $
              51Research
                  and development
              
              
              2,004Selling,
                  general and administrative
              
              
              2,848Pre-tax
                  stock-based compensation expense
              
              
              4,903Income
                  tax
              
              
              -Net
                  stock-based compensation expense
              
              $
              4,903




A
      summary
      of option activity under the Company’s stock equity plans during the three years
      ended December
      31, 2006, 2005 and 2004 are as
      follows:


**Weighted
                  Average****Remaining**
              
              **Aggregate****Options
                  Available**
              
              **Number
                  of**
              
              **Weighted
                  Average**
              
              **Contractual
                  Term**
              
              **Intrinsic****Options**
              
              **for
                  Grant**
              
              **Shares**
              
              **Exercise
                  Price**
              
              **(in
                  years)**
              
              **Value**Outstanding
                  at December 31, 2003:
              
              
              1,389,528
              
              
              4,236,414
              
              $
              10.34Authorized
              
              
              700,000
              
              
              -
              
              
              -Assumed
              
              
              -
              
              
              126,419
              
              
              1.84Granted
              
              
              (969,850
              )
              
              969,850
              
              
              10.41Exercised
              
              
              -
              
              
              (486,356
              )
              
              4.17Cancelled
              
              
              444,453
              
              
              (480,292
              )
              
              11.52Outstanding
                  at December 31, 2004:
              
              
              1,564,131
              
              
              4,366,035
              
              
              10.66
              
              
              6.85
              
              $
              12,482,793Granted
              
              
              (979,300
              )
              
              979,300
              
              
              8.96Exercised
              
              
              -
              
              
              (402,742
              )
              
              4.08Cancelled
              
              
              448,074
              
              
              (459,542
              )
              
              13.75Outstanding
                  at December 31, 2005:
              
              
              1,032,905
              
              
              4,483,051
              
              
              10.57
              
              
              5.95
              
              $
              5,747,342Authorized
              
              
              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
              
              $
              11,718,444Exercisable
                  at December 31, 2006
              
              
              
              
              
              2,235,892
              
              $
              12.01
              
              
              4.87
              
              $
              8,126,245




The
      Black-Scholes weighted average fair values of options granted during the years
      ended December 31, 2006 2005 and 2004 were $6.98, $7.14 and $8.53,
      respectively.




The
      following table summarizes ranges of outstanding and exercisable options as of
      December 31, 2006 :


**Options
                  Outstanding**
              
              **Options
                  Exercisable****Weighted****Average**
              
              **Weighted**
              
              
              
              **Weighted****Remaining**
              
              **Average**
              
              
              
              **Average****Range
                  of**
              
              **Number**
              
              **Contractual**
              
              **Exercise**
              
              **Number**
              
              **Exercise****Exercise
                  Price**
              
              **Outstanding**
              
              **Life**
              
              **Price**
              
              **Exercisable**
              
              **Price**$0.88-$7.75
              
              
              700,764
              
              
              5.03
                  years
              
              $
              5.29
              
              
              570,843
              
              $
              5.01$4.48-$7.95
              
              
              634,392
              
              
              5.46
                  years
              
              
              8.54
              
              
              340,677
              
              
              8.40$7.98-$9.00
              
              
              621,638
              
              
              5.75
                  years
              
              
              9.21
              
              
              452,046
              
              
              9.16$9.12-$10.29
              
              
              925,250
              
              
              6.21
                  years
              
              
              11.91
              
              
              94,540
              
              
              10.85$12.37-$21.06
              
              
              827,433
              
              
              4.48
                  years
              
              
              20.09
              
              
              773,786
              
              
              20.48$23.31-$27.00
              
              
              4,000
              
              
              3.58
                  years
              
              
              27.00
              
              
              4,000
              
              
              27.00Total
              
              
              3,713,477
              
              
              5.39
                  years
              
              $
              11.47
              
              
              2,235,892
              
              $
              12.01


The
      total
      intrinsic value of options exercised during the year ended December 31, 2006
      was
      approximately $6.2 million. As of December 31, 2006, total unrecognized
      compensation costs related to nonvested stock options net of estimated
      forfeitures was $3.4 million which is expected to be recognized as expense
      over
      a weighted average period of approximately 1.24 years .




***Pro
      Forma Information Under SFAS 123 for Periods Prior to Fiscal
      2006***




Prior
      to
      fiscal 2006, the weighted-average fair value of share-based compensation to
      employees was based on the multiple option valuation approach. Forfeitures
      were
      recognized as they occurred and it was assumed no dividends would be declared.
      The estimated fair value of share-based compensation awards to employees was
      amortized ratably over the vesting period of the options. The weighted-average
      fair value calculations were based on the following weighted-average
      assumptions:


**Years
                  Ended December 31,****2005**
              
              **2004**Volatility
              
              
              0.93
              
              
              1.13Expected
                  life of options (in years)
              
              
              4.68
              
              
              5.10Risk-free
                  interest rate
              
              
              4.00
              %
              
              3.55
              %




Pro
      forma
      results are as follows (in thousands except per share amounts):


**Years
                  Ended December 31,****2005**
              
              **2004**(in
                  thousands, except per share data)Net
                  loss as reported
              
              $
              (1,748
              )
              $
              (642
              )Add:
                  Share-based compensation included in reported net loss
              
              
              168
              
              
              130Deduct:
                  Share-based compensation cost under SFAS 123
              
              
              (5,291
              )
              
              (5,257
              )Pro
                  forma net loss
              
              $
              (6,871
              )
              $
              (5,769
              )Pro
                  forma basic and diluted net loss per common share:Pro
                    forma shares used in the calculation of pro formanet loss per
                    common share - basic and diluted
              
              
              27,198
              
              
              25,422Pro
                    forma shares used in the calculation of pro formanet income per
                    common share - diluted
              
              
              27,198
              
              
              25,422Pro
                  forma net loss per common share - basic and diluted
              
              $
              (0.25
              )
              $
              (0.23
              )Reported
                  net loss per common share - basic and diluted
              
              $
              (0.06
              )
              $
              (0.03
              )


**3.**  **Net
      Income (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,****2006**
              
              **2005**
              
              **2004**(in
                  thousands)Net
                  income (loss)
              
              $
              3,006
              
              $
              (1,748
              )
              $
              (642
              )Weighted
                  average shares of common stock outstanding
              
              
              28,177
              
              
              27,198
              
              
              25,422Net
                  income (loss) per share - basic
              
              $
              0.11
              
              $
              (0.06
              )
              $
              (0.03
              )Shares
                  used in computing basic net income (loss) per share
              
              
              28,177
              
              
              27,198
              
              
              25,422Dilutive
                  effect of stock options
              
              
              748
              
              
              -
              
              
              -Shares
                  used in computing diluted net income (loss) per share
              
              
              28,925
              
              
              27,198
              
              
              25,422Net
                  income (loss) per share - diluted
              
              $
              0.10
              
              $
              (0.06
              )
              $
              (0.03
              )


Weighted
      average employee stock options to purchase approximately 1.5 million shares
      for
      the year ended December 31, 2006 were outstanding, but was 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.




As
      the
      Company incurred a loss for each of the years ended December 31,
      2005 and 2004 ,
      the
      effect of dilutive securities, totaling 4.5
      million, and 4.4 million equivalent shares, respectively, have 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.




**4.
      Cash, Cash Equivalents, Short-Term Investments and Long-Term
      Investments**




The
      Company invests its excess cash in high quality, short-term and long-term debt
      instruments. The following is a summary of the Company's investments by major
      security type at December 31, 2006 and December 31, 2005 (in thousands):




**Amortized**
              
              **Unrealized**
              
              **Estimated****Cost**
              
              **Gains
                  (Losses), net**
              
              **Fair
                  Value****2006**Classified
                  as Current Assets:Cash
              
              $
              3,025
              
              $
              -
              
              $
              3,025Cash
                  equivalents:Money
                  market mutual funds
              
              
              16
              
              
              -
              
              
              16Commercial
                  paper
              
              
              26,361
              
              
              3
              
              
              26,364Government
                  Agencies
              
              
              3,400
              
              
              (1
              )
              
              3,399Total
                  cash equivalents
              
              
              29,777
              
              
              2
              
              
              29,779Total
                  cash and cash equivalents
              
              
              32,802
              
              
              2
              
              
              32,804Short
                  term investments:Muni
                  Auction Rate Receipt
              
              
              1,700
              
              
              -
              
              
              1,700Commercial
                  paper
              
              
              3,156
              
              
              1
              
              
              3,157Corporate
                  bonds
              
              
              994
              
              
              2
              
              
              996Total
                  short-term investments
              
              
              5,850
              
              
              3
              
              
              5,853Long
                  term investments:Corporate
                  bonds
              
              
              2,684
              
              
              -
              
              
              2,684Government
                  Agencies
              
              
              981
              
              
              1
              
              
              982Total
                  long-term investments
              
              
              3,665
              
              
              1
              
              
              3,666Total
                  cash, cash equivalents, short-term and long-term
                  investments
              
              $
              42,317
              
              $
              6
              
              $
              42,323**2005**Classified
                  as Current Assets:Cash
              
              $
              2,678
              
              $
              -
              
              $
              2,678Cash
                  equivalents:Money
                  market mutual funds
              
              
              7,977
              
              
              -
              
              
              7,977Commercial
                  paper
              
              
              10,375
              
              
              (2
              )
              
              10,373Total
                  cash equivalents
              
              
              18,352
              
              
              (2
              )
              
              18,350Total
                  cash and cash equivalents
              
              
              21,030
              
              
              (2
              )
              
              21,028Short
                  term investments:Commercial
                  paper
              
              
              3,880
              
              
              (1
              )
              
              3,879Corporate
                  bonds
              
              
              1,167
              
              
              (6
              )
              
              1,161US
                  government & agency securities
              
              
              9,009
              
              
              (34
              )
              
              8,975Total
                  short-term investments
              
              
              14,056
              
              
              (41
              )
              
              14,015Total
                  cash, cash equivalents, and short-term investments
              
              $
              35,086
              
              $
              (43
              )
              $
              35,043


At
      December 31, 2006, the contractual maturity of investments (including cash
      equivalents) was less than one year. The Company determined the $6,000
      unrealized gain as of December 31, 2006 was due to increases in the fair
      values of the investments above their cost basis.  There were no
      impairments as of December 31, 2006.




**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 $42.3 million
      as
      of December 31, 2006 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.




The
      Company performs ongoing credit evaluations of its customers and generally
      requires no collateral. The Company's single largest receivable balance
      accounted for approximately 31% and 21%, of net accounts receivable as of
      December 31, 2006 and 2005, respectively.




The
      Company analyzes the need for reserves for potential credit losses and records
      reserves when necessary. Through fiscal 2006, a relatively small number of
      direct customers and distributors accounted for a significant percentage of
      the
      Company's revenues. For the year ended December 31, 2006, approximately 31%
      and
      10% of net revenue was derived from sales to two distributors, Metatech and
      Answer Technology, respectively. For the year ended December 31, 2005 and 2004,
      approximately 23% and 13%, respectively, of net revenue were derived from sales
      to one distributor, Metatech. No other distributor or direct customer
      represented greater than 10% of net revenues.




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.
      Other Intangible Assets**




Information
      regarding the Company's
      other identified intangible assets subject to amortization is as follows (in
      thousands):


**2006****Estimated**
              
              **Gross
                  Carrying**
              
              **Accumulated**
              
              **Net****Useful
                  Life**
              
              **Amounts**
              
              **Amortization**
              
              **Value**Patents
              
              
              4
                  years
              
              $
              2,132
              
              $
              (2,132
              )
              $
              -Developed
                  Core Technology
              
              
              6
                  years
              
              
              5,422
              
              
              (2,880
              )
              $
              2,542Customer
                  Base
              
              
              3
                  years
              
              
              3,246
              
              
              (2,932
              )
              $
              314Total
              
              
              
              
              $
              10,800
              
              $
              (7,944
              )
              $
              2,856**2005****Estimated**
              
              
              **Gross
                  Carrying**
              
              
              **Accumulated**
              
              
              **Net****Useful
                  Life**
              
              
              **Amounts**
              
              
              **Amortization**
              
              
              **Value**Patents
              
              
              4
                  years
              
              $
              2,132
              
              $
              (2,132
              )
              $
              -Developed
                  Core Technology
              
              
              6
                  years
              
              
              5,422
              
              
              (1,915
              )
              $
              3,507Customer
                  Base
              
              
              3
                  years
              
              
              3,246
              
              
              (2,024
              )
              $
              1,222Total
              
              
              
              
              $
              10,800
              
              $
              (6,071
              )
              $
              4,729




Identified
      intangible asset amortization expense was approximately $1.9 million, $2.3
      million, and $1.7 million, for the years
      ended December 31, 2006, 2005 and 2004 respectively .




Estimated
      amortization expense for fiscal
      years ending December 31 is as follows:




2007
            
            $
            1.3
            million2008
            
            
            0.7
            million2009
            
            
            0.6
            million2010
            
            
            0.2
            millionTotal
            
            $
            2.8
            million An
      indefinite lived intangible (Tradename) acquired in connection with the Sebring
      acquisition was written off in 2005 as it was deemed to have no value. The
      total
      write-down, included in the amortization and write-down of purchased intangible
      assets on the consolidated statement of operations, was $0.2
      million.




**7.
      Stock Repurchase**




In
      September 2002, the Company’s Board of Directors approved a repurchase of up to
      2,000,000 shares of common stock. The Company, at the discretion of management,
      can repurchase the shares from time to time in the open market or in privately
      negotiated transactions. As of fiscal 2003, approximately 774,000 shares were
      repurchased for approximately $1.9 million. No shares were repurchased in 2004,
      2005, or 2006.




**8.
      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 as set up 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 to the total plan
      were approximately
      $0.4 million, $0.3 million and $0.3 million  for
      2006,
      2005 and 2004, respectively.




**9.
      Income Taxes**




The
      provision for income taxes consists of the following:


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**(in
                  thousands)Federal:Current
              
              $
              (419
              )
              $
              26
              
              $
              34Deferred
              
              
              712
              
              
              188
              
              
              130293
              
              
              214
              
              
              164State:Current
              
              
              39
              
              
              9
              
              
              8Deferred
              
              
              144
              
              
              19
              
              
              32183
              
              
              28
              
              
              40Foreign:Current
              
              
              36
              
              
              23
              
              
              5436
              
              
              23
              
              
              54Total
              
              $
              512
              
              $
              265
              
              $
              258




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:


**Years
                  Ended December
                  31,****2006**
              
              
              **2005**
              
              
              **2004**(in
                  thousands)Tax
                  benefit at the U.S. statutory rate
              
              $
              1,232
              
              $
              (504
              )
              $
              (134
              )State
                  taxes (net of federal benefit)
              
              
              183
              
              
              329
              
              
              (25
              )Non-deductible
                  in-process R&D write off
              
              
              -
              
              
              -
              
              
              382Release
                  of income tax reserves
              
              
              (569
              )
              
              -
              
              
              -Research
                  and development credit
              
              
              (1,227
              )
              
              (1,291
              )
              
              (576
              )Change
                  in valuation allowance
              
              
              819
              
              
              1,770
              
              
              553Other
                  individually immaterial items
              
              
              74
              
              
              (39
              )
              
              58$
              512
              
              $
              265
              
              $
              258




During
      the years ended December 31, 2006, 2005 and 2004, the Company’s deferred tax
      asset valuation allowance increased by $1.9 million, $3.5 million and $4.7
      million, respectively. The increase between December 31, 2004 and December
      31,
      2005 relates to increases in federal and state research and development credits
      that have not been realized along with a decrease in the deferred liability
      related to acquired intangibles.




The
      increase between December 31, 2005 and December 31, 2006 relates to increases
      in
      federal and state research and development credits that have not been realized
      along with a decrease in the deferred liability related to acquired intangibles.




Significant
      components of the Company's
      deferred tax assets and liabilities are as follows:


**December
                  31,****2006**
              
              **2005**Deferred
                  tax assets:Accrued
                  expenses and reserves
              
              $
              1,255
              
              $
              1,680Net
                  operating loss carryforwards
              
              
              7,239
              
              
              7,782Research
                  and development credits
              
              
              9,344
              
              
              7,037Gross
                  deferred tax assets:
              
              
              17,838
              
              
              16,499Valuation
                  Allowance
              
              
              (15,987
              )
              
              (14,136
              )1,851
              
              
              2,363Deferred
                  tax liabilities:Acquisition
                  related intangibles
              
              
              (1,452
              )
              
              (2,201
              )Other
              
              
              (399
              )
              
              (162
              )(1,851
              )
              
              (2,363
              )Total
                  net deferred tax assets
              
              $
              -
              
              $
              -




At
      December 31, 2006, the Company had federal and state net operating loss
      carryforwards of $19.6 million and $6.4 million, respectively. These
      carryforwards will expire at various dates beginning in 2007 through 2025,
      if
      not utilized. In addition, as of December 31, 2006, the Company had federal
      and state tax credit carryforwards of approximately $4.9 million and $6.9
      million, respectively. The federal research and development credits will expire
      beginning in 2012 and the state credits will carryforward indefinitely.
      Approximately $3.8 million of the federal and $0.8 million of the state net
      operating loss carryforward represents the stock option deduction arising from
      activity under the Company’s stock option plan, the benefit of which will
      increase capital in excess of par value when realized.




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 $15.9 million of federal net
      operating loss and $4.3 million of state net operating loss are subject to
      an
      annual limitation under the Internal Revenue Code of 1986, as amended, and
      similar state provisions. Utilization of $1.1 million of federal research and
      development credits and $0.8 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 net operating loss carryforwards before
      utilization.




Due
      to
      operating losses incurred, the Company created a full valuation allowance as
      of
      December 2002 for deferred tax assets. As of December 2006, 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 . Approximately
      $7.6 million of the valuation allowance relates to acquired tax benefits, which
      will result in an adjustment to goodwill, net of the related deferred liability
      on acquired intangibles when such benefits are realized. During 2006, $0.8
      million was released from the deferred tax valuation allowance and credited
      to
      goodwill.




The
      calculation of tax liabilities involves inherent uncertainty in the application
      of complex tax laws.  The Company records tax reserves for additional taxes
      that we estimate may be required to pay as a result of future potential
      examinations by federal and state taxing authorities.  If the payment
      ultimately proves to be unnecessary, the reversal of these tax reserves would
      result in tax benefits being recognized in the period we determine such reserves
      are no longer necessary.  The provision in 2006 reflects the release of
      $0.6 million of tax reserves following the expiration of the federal statute
      of
      limitations.




The
      Company has made no provision for U.S. income taxes on approximately $0.4
      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 $0.1 million. Pre-tax income from foreign operations was $77,000,
      $55,000 and $79,000 in 2006, 2005 and 2004, respectively.




**10.
      Commitments and Contingencies**




In
      2006,
      the Company entered into two software license agreements and one intellectual
      property license agreement with unrelated parties totaling $7.4 million. As
      of December
      31, 2006, the Company is
      required to make payments in accordance with the agreements of approximately
      $4.5 million and $1.7 million for the years ended December 31, 2007 and 2008,
      respectively.




The
      Company uses several contract manufacturers and suppliers to provide
      manufacturing services for its products. As of December 31,
      2006, the Company has purchase commitments for inventory with these contract
      manufacturers and suppliers of approximately $5.3 million. These inventory
      purchase commitments are placed on a sales order basis with lead times ranging
      from 8 to 13 weeks to meet estimated customer demand requirements.




The
      Company leases facilities and equipment under non-cancelable operating lease
      agreements. Future minimum payments under facility and equipment leases at
      December 31, 2006 are as follows:


(in
                  thousands)2007
              
              $
              1052008
              
              
              63Total
              
              $
              168


Rental
      expense for all facility leases aggregated approximately $56,000 for the year
      ended December 31, 2006. Rental expense aggregated approximately
      $0.2 million for the year ended December 31, 2005 and $0.8 million, net of
      sublease income of $38,000 for the year ended December 31, 2004.


***Warranty
      and Indemnification Provisions***




The
      accrual and the related expense for known issues were not significant during
      the
      periods presented.




Changes
      in sales warranty reserve are as follows (in thousands):


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**(in
                  thousands)Balance,
                  beginning of period
              
              $
              92
              
              $
              60
              
              $
              30Warranty
                  costs incurred
              
              
              (232
              )
              
              (148
              )
              
              (74
              )Additions
                  related to current period sales
              
              
              238
              
              
              180
              
              
              104Balance,
                  end of period
              
              $
              98
              
              $
              92
              
              $
              60


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, 2006 or 2005.




**11.
      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. The
      majority of the Company’s assets are located in the United States.




Revenues
      by geographic region based on customer location were as follows:


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Revenues:
              
              
              
              
              
              (in
                  thousands)United
                  States
              
              $
              20,656
              
              $
              15,256
              
              $
              15,708Asia
                  - excluding Taiwan and Singapore
              
              
              19,823
              
              
              15,665
              
              
              13,283Taiwan
              
              
              14,271
              
              
              4,760
              
              
              8,571Singapore
              
              
              12,814
              
              
              8,254
              
              
              5,392Europe
              
              
              10,074
              
              
              8,244
              
              
              9,511The
                  Americas - excluding United States
              
              
              3,787
              
              
              2,436
              
              
              1,984Total
              
              $
              81,425
              
              $
              54,615
              
              $
              54,449





Revenues
      by product type were as follows:


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Revenues:
              
              
              
              
              
              (in
                  thousands)PCI
                  I/O Devices
              
              $
              49,573
              
              $
              43,031
              
              $
              44,791PCI
                  Express
              
              
              18,052
              
              
              3,737
              
              
              129USB
              
              
              13,800
              
              
              7,847
              
              
              9,529Total
              
              $
              81,425
              
              $
              54,615
              
              $
              54,449


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,****2006**
              
              **2005**
              
              **2004**Metatech
              
              
              31
              %
              
              23
              %
              
              13
              %Answer
                  Technology
              
              
              10
              %
              
              -
              
              
              -




**12.
      Quarterly Summaries (unaudited)**




(In
      thousands, except per share amounts)


**Three
                  Months Ended****March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****2006**
              
              **2006**
              
              **2006**
              
              **2006**Net
                  revenues
              
              $
              20,005
              
              $
              19,411
              
              $
              21,046
              
              $
              20,963Gross
                  profit
              
              $
              12,508
              
              $
              11,186
              
              $
              12,210
              
              $
              11,726Net
                  income
              
              $
              1,541
              
              $
              281
              
              $
              1,022
              
              $
              162Net
                  income per basic share
              
              $
              0.06
              
              $
              0.01
              
              $
              0.04
              
              $
              0.01Net
                  income per diluted share
              
              $
              0.05
              
              $
              0.01
              
              $
              0.04
              
              $
              0.01**Three
                  Months Ended****March
                  31,**
              
              
              **June
                  30,**
              
              
              **September
                  30,**
              
              
              **December
                  31,****2005**
              
              
              **2005**
              
              
              **2005**
              
              
              **2005**Net
                  revenues
              
              $
              13,222
              
              $
              13,185
              
              $
              12,869
              
              $
              15,339Gross
                  profit
              
              $
              8,365
              
              $
              8,285
              
              $
              8,475
              
              $
              9,877Net
                  income (loss)
              
              $
              (541
              )
              $
              (732
              )
              $
              (510
              )
              $
              35Net
                  income (loss) per basic share
              
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.02
              )
              $
              0.00Net
                  income (loss) per diluted share
              
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.02
              )
              $
              0.00




**SCHEDULE
      II-VALUATION AND QUALIFYING ACCOUNTS**




(IN
      THOUSANDS)


**Additions**
              
              **Deductions****Balance
                  at**
              
              **Charged
                  to**
              
              **Charged
                  to**
              
              **Amount**
              
              **Balance
                  at****Beginning
                  of**
              
              **Costs
                  and**
              
              **Other**
              
              **Recovered**
              
              **End
                  of****Description**
              
              **Period**
              
              **Expenses**
              
              **Accounts**
              
              **(Written
                  off)**
              
              **Period**Year
                  ended December 31, 2006:Allowance
                  for doubtful accounts
              
              $
              131
              
              $
              9
              
              $
              -
              
              $
              (46
              )
              $
              94Deferred
                  tax asset valuation allowance
              
              $
              14,136
              
              $
              -
              
              $
              1,851
              
              $
              -
              
              $
              15,987Allowance
                  for returns and price concessions
              
              $
              80
              
              $
              138
              
              $
              -
              
              $
              -
              
              $
              218Year
                  ended December 31, 2005:Allowance
                  for doubtful accounts
              
              $
              127
              
              $
              14
              
              $
              -
              
              $
              (10
              )
              $
              131Deferred
                  tax asset valuation allowance
              
              $
              10,649
              
              $
              -
              
              $
              3,487
              
              $
              -
              
              $
              14,136Allowance
                  for returns and price concessions
              
              $
              -
              
              $
              80
              
              $
              -
              
              $
              -
              
              $
              80Year
                  ended December 31, 2004:Allowance
                  for doubtful accounts
              
              $
              161
              
              $
              45
              
              $
              -
              
              $
              (79
              )
              $
              127Deferred
                  tax asset valuation allowance
              
              $
              5,967
              
              $
              -
              
              $
              4,682
              
              $
              -
              
              $
              10,649










**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.




February
                27, 2007
            PLX
                Technology, Inc.
              by:
              /s/
                Michael J. Salameh
              Name:
                Michael J. Salameh
              Title:
                Chief Executive Officer









**POWER
      OF ATTORNEY**




KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Michael J. Salameh 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/
                  Michael J. Salameh
              
              
              Chief
                  Executive Officer and Director
              
              
              February
                  27, 2007Michael
                  J. Salameh
              
              
              (Principal
                  Executive Officer)Chief
                  Financial Officer, Vice
                  President,/s/
                  Arthur O. Whipple
              
              
              Finance
                  and Secretary
              
              
              February
                  27, 2007Arthur
                  O. Whipple
              
              
              (Principal
                  Accounting Officer)/s/
                  D. James Guzy
              
              
              Director
                  and Chairman of the Board of
              
              
              February
                  27, 2007D.
                  James Guzy
              
              
              Directors/s/
                  Robert H. Smith
              
              
              Director
              
              
              February
                  27, 2007Robert
                  H. Smith/s/
                  John H. Hart
              
              
              Director
              
              
              February
                  27, 2007John
                  H. Hart/s/
                  Thomas J. Riordan
              
              
              Director
              
              
              February
                  27, 2007Thomas
                  Riordan/s/
                  Patrick Verderico
              
              
              Director
              
              
              February
                  27, 2007Patrick
                  Verderico







**EXHIBIT
      INDEX**




**Exhibit****Number**
              
              **Description**3.1
                  (1)
              
              
              Amended
                  and Restated Certificate of Incorporation of the
                  Registrant.3.2
                  (1)
              
              
              Registrant's
                  Amended and Restated Bylaws.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 3.3.4.2
              
              
              Registration
                  Rights Agreement, filed as Exhibit 4.2 to the Company’s Registration
                  Statement on Form S-3, filed on June 21, 2004 and incorporated
                  herein by
                  reference.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
                  (1)
              
              
              Lease
                  Agreement dated October 17, 1997 between The Arrillaga Foundation
                  and The
                  Perry Foundation as Landlords and PLX as Tenant, as
                  amended.10.10
                  (4)*
              
              
              HiNT
                  Corporation 2000 Stock Plan.10.11
                  (3)*
              
              
              Sebring
                  Systems, Inc. 1997 Stock Option/Stock/Issuance Plan.10.12
                  (5)*
              
              
              NetChip
                  Technology, Inc. 1996 Flexible Stock Incentive Plan.10.13*
              
              
              PLX
                  Technology, Inc. 2004 Bonus and Deferred Compensation Plan, filed
                  as
                  Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the
                  quarter ended June 30, 2004, and incorporated herein by
                  reference.10.14*
              
              
              PLX
                  Technology, Inc. 2005 Bonus and Deferred Compensation Plan, filed
                  as
                  Exhibit 10.1 to the Company’s Form 8-K, filed on April 13, 2005, and
                  incorporated herein by reference.10.15*
              
              
              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.10.16*
              
              
              PLX
                  Technology, Inc. 2007 Variable
                  Compensation Plan.10.17*
              
              
              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.10.18*
              
              
              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.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.16.1
              
              
              Letter
                  from Ernst & Young, LLP, to the Securities and Exchange Commission,
                  dated July 13, 2005, and filed as Exhibit 16.1 to the Company’s Form
                  8-K/A, filed July 15, 2005, and incorporated herein by
                  reference.21.1
              
              
              Subsidiaries
                  of the
                  Company.23.1
              
              
              Consent
                  of Independent Registered Public
                  Accounting Firm.23.2
              
              
              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.(3)
              
              
              Incorporated
                  by reference to Exhibit 2.1 to Form 8-K as filed on June 2,
                  2000.(4)
              
              
              Incorporated
                  by reference to Exhibit 10.1 to the Company's quarterly report
                  on Form
                  10-Q for the quarter ended September 30, 2003.(5)
              
              
              Incorporated
                  by reference to Exhibit 10.2 to the Company’s quarterly report on Form
                  10-Q for the quarter ended June 30, 2004.*
              
              
              Management
                  contract or compensatory plan or arrangement.