<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                        FOR THE QUARTERLY PERIOD ENDED
                                 JUNE 30, 1997

                                      OR

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE TRANSITION PERIOD FROM ______ TO ______

                        COMMISSION FILE NUMBER 0-19654

--------------------------------------------------------------------------------

                       VITESSE SEMICONDUCTOR CORPORATION
            (Exact name of registrant as specified in its charter)

--------------------------------------------------------------------------------

               DELAWARE                                        77-0138960
    (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                         Identification No.)

                                741 CALLE PLANO
                             CAMARILLO, CA  93012
                   (Address of principal executive offices)
                                (805) 388-3700
             (Registrant's telephone number, including area code)
 
                            _____________________
 

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS:  YES  ( X )  NO  (   ).

     AS OF JUNE 30, 1997, THERE WERE 35,346,804 SHARES OF $0.01 PAR VALUE COMMON
STOCK OUTSTANDING.

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<PAGE>
 
                       VITESSE SEMICONDUCTOR CORPORATION

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

<TABLE> 
<CAPTION> 
                                                                       Page Number
<S>          <C>                                                       <C> 
PART I       FINANCIAL INFORMATION

 
   Item 1    Financial Statements:
 
             Balance Sheets as of June 30, 1997 and                          2
             September 30, 1996
 
             Statements of Operations for the Three Months                   3
             ended June 30, 1997, June 30, 1996,
             and March 31, 1997, and the Nine Months
             ended June 30, 1997 and June 30, 1996.
 
             Statements of Cash Flows for the Nine Months                    4
             ended June 30, 1997 and June 30, 1996
 
             Notes to Financial Statements                                   5
 
   Item 2    Management's Discussion and Analysis of                         6
             Financial Condition and Results of Operations
 
PART II      OTHER INFORMATION
 
   Item 6    Exhibits and Reports on Form 8-K                               15
</TABLE>

                                       1
<PAGE>
 
                                    PART I
                             FINANCIAL INFORMATION

                       VITESSE SEMICONDUCTOR CORPORATION
                                BALANCE SHEETS
                       (in thousands, except share data)

<TABLE> 
<CAPTION> 
                                                                             June 30, 1997      Sept. 30, 1996      
                                                                             -------------      --------------      
                                                                             (Unaudited)                            
                                    ASSETS
<S>                                                                          <C>                <C>    
Current assets:                                                                                                     
  Cash and cash equivalents                                                  $  127,801         $  52,436           
  Short-term investments                                                         47,777               ---           
  Trade accounts receivable, net                                                 19,567            18,423           
  Other receivables                                                                 123               196           
  Inventories, net:                                                                                                 
    Raw material                                                                  2,150             1,678           
    Work in process                                                               5,860             5,436           
    Finished goods                                                                2,977             2,845           
                                                                             ----------         ---------           
                                                                                 10,987             9,959           

  Prepaid expenses                                                                  963               841           
  Deferred tax asset                                                              4,000               ---           
                                                                             ----------         ---------           
  Total current assets                                                          211,218            81,855           
                                                                             ----------         ---------           
Property and equipment, net                                                      30,464            17,892           
Long-term investment                                                             16,800               ---           
Other assets                                                                        627               669           
                                                                             ----------         ---------           
                                                                             $  259,109         $ 100,416           
                                                                             ==========         =========            

                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current installments of capital lease obligations                          $      263         $     767
  Current installments of term loans                                                172               164
  Accounts payable                                                               11,821             6,731
  Accrued expenses and other current liabilities                                  8,710             3,728
  Deferred revenue                                                                  500               250
                                                                             ----------         ---------           
       Total current liabilities                                                 21,466            11,640
                                                                             ----------         ---------           

Capital lease obligations, less current installments                                ---                91
Term loans, less current installments                                               184               315
Shareholders' equity:
  Common stock, $.01 par value.  Authorized 50,000,000
   shares; issued and outstanding 35,346,804 shares on
   June 30, 1997, and 29,109,791 shares on Sept. 30, 1996                           353               291
  Additional paid-in capital                                                    259,680           133,393
  Accumulated deficit                                                           (22,574)          (45,314)
                                                                             ----------         ---------           
       Net shareholders' equity                                                 237,459            88,370
                                                                             ----------         ---------           
                                                                             $  259,109         $ 100,416
                                                                             ==========         =========           
</TABLE>

                                       2
<PAGE>
 
                       VITESSE SEMICONDUCTOR CORPORATION
                           STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                   Three Months Ended                      Nine Months Ended
                                     ----------------------------------------------  ------------------------------
                                     June 30, 1997   June 30, 1996   Mar. 31, 1997   June 30, 1997   June 30, 1996
                                     --------------  --------------  --------------  --------------  --------------
<S>                                  <C>             <C>             <C>             <C>             <C>
Revenues, net:
 Production                            $    25,888     $    15,599     $    23,303     $    69,597     $    41,687
 Development                                 1,719           1,675           1,259           4,404           5,237
                                       -----------     -----------     -----------     -----------     -----------
  Total revenues                            27,607          17,274          24,562          74,001          46,924
                                       -----------     -----------     -----------     -----------     -----------
Costs and expenses:
 Cost of revenues                           11,875           8,260          10,833          32,566          22,860
 Engineering, research and devel.            4,427           2,824           3,914          11,821           7,980
 Selling, general and admin.                 3,684           2,495           3,273           9,889           7,167
                                       -----------     -----------     -----------     -----------     -----------
  Total costs and expenses                  19,986          13,579          18,020          54,276          38,007
                                       -----------     -----------     -----------     -----------     -----------
Income from operations                       7,621           3,695           6,542          19,725           8,917
Other income (expense):
 Interest income                             2,358             621           2,222           5,779             767
 Interest expense                              (19)           (107)            (36)           (153)           (658)
 Other                                         (10)            ---             (83)            (86)              5
                                       -----------     -----------     -----------     -----------     -----------
  Total other income                         2,329             514           2,103           5,540             114
                                       -----------     -----------     -----------     -----------     -----------
Income before income taxes                   9,950           4,209           8,645          25,265           9,031
Income taxes                                   995             421             863           2,525             903
                                       -----------     -----------     -----------     -----------     -----------
Net income                             $     8,955     $     3,788     $     7,782     $    22,740     $     8,128
                                       ===========     ===========     ===========     ===========     ===========
 
Net income per share                   $      0.23     $      0.12     $      0.20     $      0.60     $      0.28
                                       ===========     ===========     ===========     ===========     ===========
 
Weighted average common and
 common equivalent shares
 outstanding                            38,702,662      32,107,166      38,472,727      37,590,214      28,987,581
                                       ===========     ===========     ===========     ===========     ===========
</TABLE> 

                                       3
<PAGE>
 
                       VITESSE SEMICONDUCTOR CORPORATION
                           STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                (in thousands)

<TABLE>
<CAPTION>
 
                                                                 Nine Months Ended
                                                       ---------------------------------
                                                         June 30, 1997     June 30, 1996
                                                       ------------------  --------------
<S>                                                    <C>                 <C>
Cash flows from operating activities:
Net income                                                      $ 22,740         $ 8,128
Adjustments to reconcile net income to net cash
provided by operating activities:
 Depreciation and amortization                                     4,734           3,695
 Change in assets and liabilities:
  (Increase) decrease in:
   Receivables, net                                               (1,071)         (2,705)
   Inventories                                                    (1,028)             34
   Prepaid expenses                                                 (122)           (233)
   Other assets                                                       42             119
  Increase (decrease) in:
   Accounts payable                                                5,090             330
   Accrued expenses and other current liabilities                  4,982           1,290
   Deferred revenue                                                  250             (20)
                                                                --------         -------
    Net cash provided by operating activities                     35,617          10,638
                                                                --------         -------
 
Cash flows from investing activities:
 Short-term investments                                          (47,777)            ---
 Capital expenditures                                            (17,306)         (5,253)
 Long-term investment                                            (16,800)            ---
                                                                --------         -------
    Net cash used in investing activities                        (81,883)         (5,253)
                                                                --------         -------
 
Cash flows from financing activities:
 Principal payments under capital lease obligations                 (595)         (4,441)
 Principal payments under term loan                                 (123)         (2,494)
 Payments under short-term borrowings                                ---          (2,950)
 Proceeds from issuance of common stock, net                     122,349          48,378
                                                                --------         -------
    Net cash provided by financing activities                    121,631          38,493
                                                                --------         -------
 
    Net increase in cash & cash equivalents                       75,365          43,878
Cash & cash equivalents at beginning of period                    52,436           6,315
                                                                --------         -------
Cash & cash equivalents at end of period                        $127,801         $50,193
                                                                ========         =======
 
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
  Interest                                                      $    153         $   520
                                                                ========         =======
  Income Taxes                                                  $     81         $   198
                                                                ========         =======
</TABLE>

                                       4
<PAGE>
 
                       VITESSE SEMICONDUCTOR CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1.  GENERAL

   In management's opinion, all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of financial condition and
results of operations are reflected in the attached interim financial
statements. All amounts are unaudited except the September 30, 1996 balance
sheet. This report should be read in conjunction with the audited financial
statements presented in the 1996 Annual Report. Footnotes and other disclosures
which would substantially duplicate the disclosures in the Company's audited
financial statements for fiscal year 1996 contained in the Annual Report have
been omitted. The interim financial information herein is not necessarily
representative of the results to be expected for any subsequent period.


NOTE 2.  STOCK SPLIT

   On January 28, 1997, the Board of Directors approved a 3 for 2 stock split of
the Company's Common Stock that was effected on February 28, 1997. All
references to the number of common shares, weighted average number of common
shares and per share data for all periods presented have been adjusted to
reflect the stock split.

                                       5
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS

               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended, and
is subject to the safe harbor created by those sections. Factors that
realistically could cause results to differ materially from those projected in
the forward looking statements are set forth below in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Factors
Affecting Future Operating Results."

RESULTS OF OPERATIONS

   Revenues

   Total revenues in the third quarter of fiscal 1997 were $27,607,000, a 60%
increase over the $17,274,000 recorded in the third quarter of fiscal 1996 and a
12% increase over the $24,562,000 recorded in the prior quarter.  For the nine
months ended June 30, 1997, total revenues were $74,001,000, a 58% increase over
the $46,924,000 recorded in the nine months ended June 30, 1996.  The increase
in total revenues in the third quarter of 1997 and in the nine months ended June
30, 1997 was due to an increase in production revenues as a result of increased
shipments to customers in the communications and automatic test equipment
markets. Production revenues for the third quarter of 1997 were $25,888,000, a
66% increase over the $15,599,000 recorded in the third quarter of fiscal 1996
and a 11% increase over the $23,303,000 recorded in the prior quarter. For the
nine months ended June 30, 1997, production revenues were $69,597,000, a 67%
increase over the $41,687,000 recorded in the nine months ended June 30, 1996.

   Development revenues in the third quarter of fiscal 1997 were $1,719,000
compared to $1,675,000 in the third quarter of fiscal 1996 and $1,259,000 in the
prior quarter.  For the nine months ended June 30, 1997, development revenues
were $4,404,000 compared to $5,237,000 in the comparable period a year ago.
Fluctuations in development revenues from quarter to quarter are typically due
to the variability in the timing of design wins and development milestones.

   Cost of Revenues

   Cost of revenues as a percentage of total revenues in the third quarter of
fiscal 1997 was 43.0% compared to 47.8% in the third quarter of fiscal 1996 and
44.1% in the prior quarter.  For the nine months ended June 30, 1997 and 1996,
cost of revenues as a percentage of total revenues was 44.0% and 48.7%,
respectively.  The decrease in cost of revenues as a percentage of total
revenues was due to a reduction in per unit costs associated with increased
production, as well as an improvement in manufacturing yields.

                                       6
<PAGE>
 
   The Company's manufacturing yields vary significantly among products,
depending on a particular IC's complexity and the Company's experience in
manufacturing it.  Historically, the Company has experienced difficulties
achieving acceptable yields on some ICs, which  has resulted in shipment delays.
The Company's overall yields are lower than yields experienced in a silicon
process because of the large number of different products manufactured in
limited volume and because the Company's H-GaAs process technology is
significantly less developed.  The Company expects that many of its current and
future products may never be produced in volume.

   Regardless of the process technology used, the fabrication of semiconductors
is a highly complex and precise process.  Defects in masks, impurities in the
materials used, contamination of the manufacturing environment, equipment
failure and other difficulties in the fabrication process can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer to
be nonfunctional.

   Because the majority of the Company's costs of manufacturing are relatively
fixed, maintenance of the number of shippable die per wafer is critical to the
Company's results of operations.  Yield decreases can result in substantially
higher unit costs and may result in reduced gross profit and net income.  There
can be no assurance that the Company will not suffer periodic yield problems in
connection with new or existing products which could cause the Company's
business, operating results and financial condition to be materially adversely
affected.

   Inventory is valued at the lower of cost or market.  Because allocable
manufacturing costs can be high, new product inventory is often valued at
market.  In addition, a portion of work-in-process inventory consists of wafers
in various stages of fabrication.  Consequently, the Company estimates yields
per wafer in order to estimate the value of inventory.  If yields are materially
different than projected, work-in-process inventory may need to be revalued.  In
addition, the ability of customers to change designs and to cancel or reschedule
orders can also result in adverse adjustments to inventory.  There can be no
assurance that such adjustments will not occur in the future and have a material
adverse effect on the Company's results of operations.

   Engineering, Research and Development Costs

   Engineering, research and development expenses were $4,427,000 in the third
quarter of fiscal 1997 compared to $2,824,000 in the third quarter of fiscal
1996 and $3,914,000 in the prior quarter.  For the nine months ended June 30,
1997, engineering, research and development costs were $11,821,000 compared to
$7,980,000 in the nine months ended June 30, 1996.  The increases in
engineering, research and development costs were principally due to increased
headcount and higher costs to support the Company's continuing efforts to
develop new products.  As a percentage of total revenues, engineering, research
and development costs were relatively constant at 16% in the third quarters of
1997 and 1996, and in the prior quarter.  For the nine months ended June 30,
1997, engineering, research and development costs as a percentage of total
revenues decreased to 16% from 17% in the comparable period a year ago.  This
decrease was the result of the Company's revenues growing faster than
engineering, research and development costs.  The Company's engineering,
research and development costs are expensed as incurred.

                                       7
<PAGE>
 
   Selling, General and Administrative Expenses

   Selling, general and administrative expenses (SG&A) were $3,684,000 in the
third quarter of 1997, compared to $2,495,000 in the third quarter of 1996 and
$3,273,000 in the prior quarter.  For the nine months ended June 30, 1997, SG&A
expenses were $9,889,000 compared to $7,167,000 in the same period in 1996.  The
increase in SG&A expenses was due to increased headcount, salary increases, and
higher commissions resulting from increased sales.  As a percentage of total
revenues, SG&A expenses decreased to 13% in the third quarter of 1997 from 14%
in the third quarter of 1996 and was unchanged from the prior quarter.  For the
nine months ended June 30, 1997, SG&A expenses as a percentage of total revenues
decreased to 13% from 15% in the comparable period a year ago.  These decreases
were the result of the Company's revenues growing faster than SG&A expenses.

   Interest Income

   Interest income increased to $2,358,000 in the third quarter of fiscal 1997
from $621,000 in the third quarter of 1996 and $2,222,000 in the prior quarter.
For the nine months ended June 30, 1997, interest income increased to $5,779,000
from $767,000 in the comparable period a year ago.  These increases were the
result of a higher average cash balance in the third quarter of fiscal 1997 as
compared to the third quarter of 1996, primarily due to the proceeds from a
public offering which was completed in November 1996.

   Interest Expense

   Interest expense decreased to $19,000 in the third quarter of fiscal 1997
from $107,000 in the third quarter of fiscal 1996 and $36,000 in the prior
quarter.  For the nine months ended June 30, 1997, interest expense declined to
$153,000 from $658,000 in the comparable period a year ago.  These decreases
were caused by a decrease in the Company's average debt balance, primarily due
to an accelerated repayment of certain debt following the Company's public
offering in March 1996, as well as the scheduled repayment of debt over time.

   Income Taxes

   The Company recorded a provision for income taxes in the amount of $995,000
in the third quarter of fiscal 1997 and $421,000 in the third quarter of fiscal
1996 principally for federal alternative minimum taxes, state income taxes, and
taxes due to foreign jurisdictions, in light of the Company's existing net
operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

   Operating Activities

   The Company generated $35,617,000 and $10,638,000 from operating activities
in the nine month periods ended June 30, 1997 and 1996, respectively.  The
increase in operating cash flow was principally due to an improvement in
profitability.

                                       8
<PAGE>
 
   Investing Activities

   Capital expenditures, principally for manufacturing and test equipment, were
$17,306,000 in the nine month period ended June 30, 1997 compared to $5,253,000
in the nine month period ended June 30, 1996.  The Company intends to continue
investing in manufacturing, test and engineering equipment and currently expects
to spend an additional $3 to $4 million for capital expenditures at its
Camarillo facility and an additional $25 to $30 million for its Colorado Springs
facility in fiscal 1997, which the Company intends to finance with working
capital.  The long-term investment represents cash collateral deposited through
June 30, 1997 relating to a synthetic lease transaction that is described under
"Financing Activities."

   Financing Activities

   In the nine month period ended June 30, 1997, the Company generated
$121,631,000 in financing activities.  Net  proceeds from the issuance of common
stock, principally through a public offering completed in November 1996, was
$122,349,000, offset by $718,000 in payments on debt obligations.

   The Company has a revolving line of credit agreement with a bank, which
expires on January 5, 1998.  The maximum amount available under the revolving
line of credit is $12,500,000.  The interest rate on borrowings under this
revolving line of credit is equal to the bank's prime rate.  As of June 30,
1997, there were no borrowings outstanding under this agreement.

   Management believes that the Company's cash flow from operations and
revolving line of credit agreement are adequate to finance its planned growth
and operating needs for at least the next 12 months. The Company believes it can
meet its wafer fabrication needs through the third quarter of fiscal 1998 at its
Camarillo facility assuming that the Company successfully completes planned
substantial incremental increases in production capacity at the facility. The
Company is currently in the process of constructing a new wafer fabrication
facility. The Company estimates that the cost of the new wafer fabrication
facility in Colorado Springs, Colorado (the "Facility"), will be at least $70
million, of which approximately $25 million relates to the purchase of land and
the construction of the building and $45 million relates to capital equipment
purchases. In October 1996, the Company entered into a synthetic lease
transaction pursuant to a Master Lease Agreement (the "Lease") providing for the
financing of $27.5 million for the acquisition and construction of the new
facility, as well as the acquisition of certain capital equipment. The Lease is
an operating lease for accounting purposes, but a conditional sale for Federal
tax purposes. The obligations of the Company are secured by the Company's
interest in the Facility. The Company's obligations are also secured by cash
collateral in an amount equal to 84% of all amounts advanced by the lessor under
the lease for the acquisition and construction of the Facility (the "Lease
Balance"). The Lease requires that all interest earned by the Company on the
cash collateral be paid to the lessor to satisfy a portion of the Company's
rental obligation. The Lease also requires monthly payments calculated on a
payment date by multiplying 16% of the then amount advanced by the lessor times
a rate equal to the three-month Eurodollar Rate plus a spread of 1.75%. The
Company is responsible for all costs of ownership and operation of the Facility,
and has guaranteed certain obligations of the lessor until such time as all of
the Company's obligations under the Lease are performed. The Lease provides the
Company with

                                       9
<PAGE>
 
the option at the end of the lease term of either acquiring the Facility for a
price equal to outstanding advances made by the lessor, or arranging for the
Facility to be acquired by a third party. The Company is contingently liable at
the end of the lease term to the extent the lessor is not able to realize 84% of
the Lease Balance upon sale or other disposition of the Facility. Under the
Lease, the Company is required to meet certain financial and other covenants,
including a restriction on the payment of cash dividends to its shareholders. If
certain financial covenants are not maintained, the Company must provide
additional cash collateral equal to 16% of the Lease Balance.


                  FACTORS AFFECTING FUTURE OPERATING RESULTS

ACCEPTANCE OF H-GAAS BY TARGET MARKETS

   ECL and BiCMOS are currently the dominant process technologies for high-
performance ICs.  Vitesse's prospective customers are principally systems
designers and manufacturers in the telecommunications, data communications and
ATE industries that may use ECL or BiCMOS ICs in their existing systems and
evaluate Vitesse H-GaAs ICs for use in their next-generation systems.  These
customers may be reluctant to adopt Vitesse's products because of perceived
risks relating to GaAs technology generally and concerns about the relative
speed, complexity, power dissipation and cost-effectiveness of the Company's H-
GaAs products compared to ECL and BiCMOS ICs.  In addition, these customers may
be reluctant to rely upon a relatively small company such as Vitesse for a
critical sole-sourced component.  There can be no assurance that additional
companies in Vitesse's target markets will adopt its H-GaAs technology or that
the companies that currently use the Company's H-GaAs products will continue to
do so in the future.

CUSTOMER AND INDUSTRY CONCENTRATION

   The Company is, and intends to continue, focusing its sales efforts on a
relatively small number of companies in the telecommunications, data
communications and ATE markets that require high performance ICs.  Certain of
these companies are also competitors of Vitesse.

VARIABILITY OF QUARTERLY RESULTS

   The Company's quarterly results of operations have varied significantly in
the past and may continue to do so in the future.  These variations have been
due to a number of factors, including: the loss of major customers; variations
in manufacturing yields; the timing and level of new product and process
development costs; changes in inventory levels; changes in the type and mix of
products being sold; changes in manufacturing capacity and variations in the
utilization of this capacity; and customer design changes, delays or
cancellations.  The Company has also from time to time incurred significant new
product and process development costs due to the Company's policy of expensing
costs as incurred relating to the manufacture of new products and the
development of new process technology.  There can be no assurance that the
Company will not incur such charges or experience revenue declines in the
future.

                                       10
<PAGE>
 
MANUFACTURING CAPACITY LIMITATIONS; NEW PRODUCTION FACILITY

   The Company currently manufactures all of its ICs at its four-inch wafer
fabrication facility located in Camarillo, California.  The Company believes
that this facility should be able to satisfy its production needs through the
third quarter of fiscal 1998, assuming that the Company successfully completes
planned substantial incremental increases in production capacity at the facility
through such date.  The Company plans to expend up to $10 million for the
purchase of equipment relating to this expansion.  In addition to the purchase
of equipment, the Company will be required to successfully hire, train and
manage additional production personnel in order to successfully increase its
production capacity in accordance with its time schedule.  In the event the
Company's expansion plans were not implemented on a timely basis for any reason,
the Company could be subject to production capacity constraints.  Such
constraints could have a material adverse effect on the Company's business,
operating results or financial condition.

   The Company is currently in the process of constructing a new six-inch wafer
fabrication facility in Colorado Springs, Colorado, to supplement its existing
facility in Camarillo.  As planned, the facility will initially include a 10,000
square foot Class 1 clean room with the capability for future expansion to
15,000 square feet.  The Company has initiated construction of the new facility
and plans to complete the physical plant during the fourth quarter of fiscal
1997.  Following the completion of the physical plant, the Company must install
equipment and perform necessary testing prior to commencing commercial
production at the facility, a process which the Company anticipates will take at
least nine months.  Accordingly, the Company believes the new facility will not
begin commercial production prior to the third quarter of fiscal 1998.  The
Company estimates that the cost of the new wafer fabrication facility will be at
least $70 million, of which approximately $25 million relates to the purchase of
land and construction of the building and approximately $45 million relates to
capital equipment purchases.  In the event the Company were to decide to expand
the Class 1 clean room in the future, substantial additional expenditures would
be required.

   The construction of the new wafer fabrication facility entails significant
risks, including shortages of materials and skilled labor, unavailability or
late delivery of process equipment, unforeseen environmental or engineering
problems, work stoppages, weather interferences and unanticipated cost
increases, any of which could have a material adverse effect on the building,
equipping and production start-up of the new facility.  In addition, unexpected
changes or concessions required by local, state or federal regulatory agencies
with respect to necessary licenses, land use permits, site approvals and
building permits could involve significant additional costs and delay the
scheduled opening of the facility.  As a result of the foregoing and other
factors, there can be no assurance that the project will be successfully
completed within its current budget or within the timeframe currently scheduled
by the Company.  The inability of the Company to successfully complete the new
facility as currently budgeted and scheduled could have a material adverse
effect on its business, operating results or financial condition.

   The successful operation of the new wafer fabrication facility, if completed,
as well as the Company's overall production operations, will also be subject to
numerous risks.  The Company has no prior experience with the operation of
equipment or the processes involved in producing finished six-inch wafers, which
differ significantly from those involved in the production of four-inch wafers.
The Company will be required to hire, train and manage production personnel

                                       11
<PAGE>
 
successfully in order to effectively operate the new facility.  The Company does
not have excess production capacity at its Camarillo facility to offset any
failure of the new facility to meet planned production goals.  As a result of
these and other factors, the failure of the Company to successfully operate the
new wafer fabrication facility could have a material adverse effect on its
business, operating results or financial condition.   The Company will also have
to effectively coordinate and manage the Colorado Springs and Camarillo
facilities to successfully meet its overall production goals.  The Company has
no experience in coordinating and managing full scale production facilities
which are located at different sites.  The failure to successfully coordinate
and manage the two sites could adversely affect the Company's overall production
and could have a material adverse effect on its business, operating results or
financial condition.

COMPETITION

   The high-performance semiconductor market is highly competitive and subject
to rapid technological change, price erosion and heightened international
competition.  The telecommunications, data communications and ATE industries,
which are the primary target markets for the Company, are also becoming
intensely competitive because of deregulation and heightened international
competition, among other factors.  In the telecommunications market, the Company
currently competes primarily against other GaAs-based companies such as Triquint
Semiconductor and the GaAs fabrication operations of systems companies such as
Rockwell.  In the data communications and the ATE markets, the Company competes
primarily against silicon ECL and BiCMOS products offered principally by
semiconductor manufacturers such as Fujitsu, Hewlett Packard, Motorola, National
Semiconductor and Texas Instruments and bipolar silicon IC manufacturers such as
Applied Micro Circuits Corporation and Synergy Semiconductor Corporation.  Many
of these companies have significantly greater financial, technical,
manufacturing and marketing resources than the Company.  In addition, in lower-
frequency applications, the Company faces increasing competition from CMOS-based
products, particularly as the performance of such products continues to improve.

   Competition in the Company's markets for high-performance ICs is primarily
based on price/performance, product quality and the ability to deliver products
in a timely fashion.  Some prospective customers may be reluctant to adopt
Vitesse's products because of perceived risks relating to GaAs technology.  In
addition, product qualification is typically a lengthy process and certain
prospective customers may be unwilling to invest the time or incur the costs
necessary to qualify suppliers such as the Company.  Prospective customers may
also have concerns about the relative speed, complexity and power advantages of
the Company's products compared to more familiar ECL of BiCMOS semiconductors or
about the risks associated with relying on a relatively small company for a
critical sole-sourced component.

PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGE

   The market for the Company's products is characterized by rapid changes in
both product and process technologies.  The Company believes that its future
success will depend, in part, upon its ability to continue to improve its
product and process technologies and develop new technologies in order to
maintain its competitive position, to adapt its products and processes to
technological changes and to adopt emerging industry standards.  There can be no
assurance that the Company will be able to improve its product and process
technologies and develop new 

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<PAGE>
 
technologies in a timely manner or that such improvements or developments will
result in products that achieve market acceptance. The failure to successfully
improve its existing technologies or develop new technologies in a timely manner
could adversely affect the Company's business, operating results and financial
condition.

DEPENDENCE ON THIRD PARTIES

   The Company depends upon third parties for performing certain processes and
providing a variety of components and materials necessary for the production of
its H-GaAs ICs.  The Company packages certain of its ICs in its Camarillo
facility using customized ceramic packaging which is presently available from
only one source.  The balance of the Company's ICs are packaged in plastic by
third parties since the Company has no internal capability to perform such
plastic packaging.  Other components and materials for H-GaAs ICs are available
from only a limited number of sources.  The inability to obtain sufficient sole-
or limited-source services or components as required could result in delays or
reductions in product shipments which could adversely affect the Company's
business, operating results and financial condition.

ENVIRONMENTAL REGULATIONS

   The Company is subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines on the Company, the suspension of production or a cessation
of operations.  In addition, such regulations could restrict the Company's
ability to expand its facilities at its present location or could require the
Company to acquire costly equipment or to incur other significant expenses to
comply with environmental regulations or to clean up prior discharges.

   The Company uses significant amounts of water throughout its manufacturing
process.  Previous droughts in California and Colorado have resulted in
restrictions being placed on water use by manufacturers and residents in the
states.  In the event of future drought, reductions in water use may be mandated
generally, and it is unclear how such reductions will be allocated among
California's or Colorado's different users.  No assurance can be given that near
term reductions in water allocations to manufacturers will not occur, possibly
requiring a reduction in the Company's level of production, and materially and
adversely affecting the Company's operations.  See "Business--Environmental
Matters."

MANAGEMENT OF GROWTH

   The management of the Company's growth requires qualified personnel and
systems.  In particular, the construction and operation of the Company's planned
wafer fabrication facility in Colorado Springs and its integration with the
Company's current facility will require significant management, technical and
administrative resources.  There can be no assurance that the Company will be
able to manage its growth or effectively integrate its planned wafer fabrication
facility, and failure to do so could have a material adverse effect on the
Company's business, operating results or financial condition.

                                       13
<PAGE>
 
DEPENDENCE ON KEY PERSONNEL

   The Company's success depends in part upon attracting and retaining the
services of its managerial and technical personnel.  The competition for
qualified personnel is intense.  There can be no assurance that the Company can
retain its key managerial and technical employees or that it can attract,
assimilate or retain other skilled technical personnel in the future, and
failure to do so could have a material adverse effect on the Company's business,
operating results or financial condition.

                                       14
<PAGE>
 
                                    PART II
                               OTHER INFORMATION


ITEM 6.  EXHIBITS & REPORTS ON FORM 8-K

     (A) EXHIBITS
 
         27 FINANCIAL DATA SCHEDULE 

     (B) REPORTS ON FORM 8-K

         None.

                                       15
<PAGE>
 
                                  SIGNATURES

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



                           VITESSE SEMICONDUCTOR CORPORATION


                           By:  /s/  Eugene F. Hovanec
                                ----------------------
                                     Eugene F. Hovanec
                                     Vice President, Finance and
                                     Chief Financial Officer

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