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 [FEE REQUIRED]

                  For the fiscal year ended December 29, 1996

                                      OR
[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

             For the Transition period from                    to

                        Commission File Number: 0-22068

             Exact name of registrant as specified in its charter:

            LEVEL ONE COMMUNICATIONS,
                   INCORPORATED

STATE OR OTHER JURISDICTION OF IRS EMPLOYER
INCORPORATION OR ORGANIZATION: IDENTIFICATION NO.
California 33-0128224

                    ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
                9750 Goethe Road, Sacramento, California 95827
                                TELEPHONE NO.:
                                (916) 855-5000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                              TITLE OF EACH CLASS

                                 Common Stock,
                            no par value per share

        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 the 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. [ ]

        The  aggregate market value of the registrant's common  stock  held  by
nonaffiliates as of February 28, 1997, was $280,564,948.

        The number  of  shares  outstanding  of  the Registrant's only class of
common stock as of February 28, 1997,  was 13,405,475  shares  of  no par value
common stock.



                                  PART I

ITEM 1.   BUSINESS

     Level   One  Communications,  Incorporated  (''Level  One''  or  ''the
Company'') was  incorporated  in  1985  under  the  laws  of  the  state of
California.   The  Company has operations in the United States, Europe  and
Asia.

     Level  One designs,  develops  and  markets  mixed-signal  application
specific standard  integrated  circuit  products (''ASSPs'') for high-speed
digital signal transmission and networking  connectivity  to  systems  that
transport  information, within an office or around the world.  Such systems
connect to local  area  networks  ("LANs"), wide area networks ("WANs") and
public  telephone  transmission  networks.     LANs,  WANs,  and  telephone
transmission networks make possible such activities  as  the  use of intra-
enterprise networking ("intranets") and the use of the Internet  and  World
Wide Web.

     Level  One  ASSPs  transmit,  regenerate  and receive digitized voice,
data, and video signals using a wide variety of  protocols.  Because  these
products both transmit and receive signals, they are called "transceivers".
All networks, LAN, WAN, and transmission, require transceivers.  Level  One
combines  its  strengths  in  analog  and  digital  circuit design with its
communications  systems  expertise to produce mixed-signal  solutions  with
increased functionality and  greater  reliability, resulting in lower total
system cost.

     As the volume of transmitted digital  information  continues  to grow,
communications  original  equipment  manufacturers  (''OEMs'')  that supply
products  and  systems  to  the transmission and networking markets face  a
fundamental challenge of providing  greater  data  throughput  on  a  cost-
effective  basis.  Level  One addresses the needs of leading communications
OEMs by providing high performance  mixed-signal  ASSPs  that  optimize the
allocation of analog and digital signal processing functions. The Company's
proprietary  simulation  software  and  sophisticated  design  and  testing
methodology accelerate the product design cycle to improve time to market.

     A  key challenge for Level One's OEM customers and their end users  is
the creation  of  access  technologies  that maximize the use of the  large
installed  base  of  twisted-pair  copper  telephone   lines  to  transport
information.  With  more  than  1.3  billion miles in place in  the  United
States, copper telephone wire is expected  to remain the primary medium for
local connectivity to the ''electronic superhighway''  transport media that
handle long-distance data transmissions. Such long-distance transport media
include copper telephone lines, coaxial cable, fiber optic  cable, wireless
and  satellite  transmission.  Copper telephone wire, which was  originally
designed to transmit relatively slow analog voice signals, requires special
signal conditioning  circuits  to enable transmission of high-speed digital
signals.

PRODUCTS AND APPLICATIONS

     Level One develops and sells  advanced  ASSPs  and  custom derivatives
that   provide   silicon   connectivity   solutions  and  achieve  improved
integration of functions.  The Company's current products address the needs
of  two  primary segments of the communications  connectivity  market:  the
networking market and the transmission market.

     NETWORKING PRODUCTS

     Level  One's  networking  products address the rapid evolution and the
growing convergence  of  the LAN  and  WAN networking connectivity markets.
For these markets, Level One produces Ethernet  transceivers,  single  chip
quad   Ethernet  repeaters,  managed  Ethernet  repeaters,  and  integrated
transceiver  solutions  for  Frame  Relay, Switched 56/DDS and T1/E1 access
products.

     Local  Area  Networks address the  need  to  share  information  among
individuals and workgroups  within  a  building  or campus environment. The
dominant networking standard in the LAN environment  is  Ethernet, commonly
implemented  over  a  twisted pair copper wire environment utilizing  a  10
megabits per second transmission  standard.  Fast  Ethernet products enable
transmissions  of up to 100 megabits per second over  twisted  pair  copper
wiring.  Emerging  1-Gigabit per second Ethernet standards are aimed at the
same copper infrastructure  as  the  Fast  Ethernet  products.  These  high
speed  LANs  are expected to be catalysts for a variety  of  new  graphics,
video, multimedia, and network management applications.

     Level One's transceivers incorporate analog and digital functions into
single chip solutions.  Level  One  products  in this category are used  in
computer/workstation,  server, portable computing,  network  printing,  and
Ethernet switch applications.  To  provide  Level  One  customers with cost
effective, high performance intranet and LAN solutions, these  transceivers
incorporate features such as patented on-chip transmit filters, full duplex
support, multichannels, 3.3 volt performance, and the smallest form  factor
package available.

     Level One repeater and network management products include cascadeable
quad  repeater  hub  chips, with integrated, filter technology. These chips
allow development of low  cost,  multiport  managed  and unmanaged Ethernet
repeater hub systems.  Level One also produces a family  of  remote network
management devices which incorporate a Media Access Controller  and support
for  Simple  Network  Management  Protocol  ("SNMP")  and Remote Monitoring
("RMON").  The Company also has a single chip solution optimized for hybrid
switching systems.

     Intranets  and Wide Area Networks connect individuals  and  workgroups
over longer distances than LANs, using telephone company transmission lines
rather than intraoffice  wiring. WAN system products that incorporate Level
One  devices  include  routers,   digital   modems,    multichannel  Access
Multiplexers, lottery and point-of-sale terminals.   The  rapid  growth  of
high  bandwidth,  low cost digital access services has increased the demand
for business and consumer  use of Wide Area Networks. Along with the growth
of  the  Internet  and  on-line   services,   WAN  equipment  markets  have
experienced significant growth in recent years.

     The  company's  transceivers  targeted  at  WAN   equipment   segments
incorporate analog and digital functions into single chip solutions.  Level
One  products  are  used in routers, digital modems, and a variety of other
customer premise equipment  applications.  Service  offerings such as Frame
Relay,  Switched  56, and  DDS  have helped drive demand  for  Level  One's
products such as the LXT441, a single chip 56kbs digital access modem.

     As the LAN and  WAN  markets  experience  broad based growth, there is
increased demand for compatible protocols and standards  to  allow  LAN/WAN
interoperability   and   management  as  well  as  for  silicon  technology
addressing the convergence  of  the  two  markets.   Level  One  networking
products service these evolving market needs.

     TRANSMISSION PRODUCTS

     Level One's transmission products service the growing demand for high-
speed    digital    signal   transmission   utilizing   the   industry-wide
specifications referred  to  as  ''T1''  in  North  America,  and ''E1'' in
Europe,  Asia and much of the rest of the world. T1 systems transmit  1.544
million bits  per  second  and  E1  systems transmit 2.048 million bits per
second. Level One's products also address the transmission service known as
''Fractional T1,'' in which users can  access  multiple  64kbs  sub-channel
rates of T1.

     Level One produces fully integrated single chip T1 and E1 transceivers
to meet the requirements of its customers.  Short-haul transceivers,  which
process signals travelling within buildings, are incorporated into customer
premise  equipment and into products sold to network service providers such
as telephone  companies.   Short-haul  transceivers  are typically used for
transmissions  of  600  feet  to  700 feet.  Long-haul transceivers,  which
transmit to approximately 6,000 feet,  are  incorporated into products such
as  PBXs,  channel service units, routers and multiplexers,  which  provide
connectivity  between  customer  premise  devices and the telephone company
network.  Long-haul transceivers are also used  in base stations for mobile
communication systems.

     Repeaters are installed along telephone company  transmission lines to
receive and regenerate signals at intervals of 6,000 feet,  preventing  the
deterioration  of the signal.  To reduce service costs, telephone companies
use ''smart'' repeaters that enable the system operator to quickly locate a
faulty repeater.  Level One's products are used in these ''smart'' repeater
applications.

     High-bit-rate  digital subscriber line (''HDSL'') products produced by
the Company are designed  to  transmit  up to 12,000 feet at the T1 rate on
two sets of twisted-pair copper wire or at the E1 rate on two or three sets
of twisted pair wire, reducing or eliminating  the  need  for  repeaters in
long-haul T1/E1 transmission. HDSL permits the transmission of data  at 784
kilobits per second or 1,168 kilobits per second on any twisted-pair copper
wire used for subscriber loops.   The Company's HDSL solution is a two-chip
chipset.

     The  Company expects that HDSL, together with successor and derivative
technologies, will continue to play an important role in the communications
infrastructure.   Emerging  DSL  technologies  ("xDSL")  include high speed
Internet  access and residential broadband.  The Company plans  to  address
these markets  with  current  and  future  DSL  products.   During 1996 the
Company  shipped  Subrate HDSL Multi-Rate Digital Subscriber Line  ("MDSL")
chipsets to selected  customers,  and  formally  announced  the  product in
February 1997.  MDSL is currently used for Internet access and digital pair
gain,  primarily  for commercial customers.  In the future MDSL is expected
to also be used for wireless base stations and video conferencing.

     Level One produces  fully  integrated quadruple T1/E1 receivers, which
are  incorporated  into  telephone  company   maintenance  and  performance
monitoring  equipment.  In 1996 Level One introduced  the  LXT360,  LXT361,
LXT350  and  LXT351  integrated  T1/E1  transceivers  aimed  at
developers  of  Sonet/SDH   multiplexers,   digital   loop   carriers,  and
residential broadband access systems.  These products permit OEM  customers
to develop a single board design that meets both T1 and E1 standards.   The
chips are designed to operate over poor quality or "noisy" lines.

     Clock  rate  adapters  (CLADs)  adapt  signals  generated  at the host
system's  internal  clock  rates for T1/E1 transmission. CLADs are used  to
generate internal timing systems  for channel banks, digital loop carriers,
multiplexers, timing generators and  other E1/T1 equipment, eliminating the
need for expensive discrete crystal oscillators.

BUSINESS AND TECHNOLOGY TRANSACTIONS

     In December 1996, the Company acquired Silicon Design Experts, Inc., a
design  and consulting company located  in  New  Jersey.   The  acquisition
provides  the  Company  with research and development personnel and digital
signal processing ("DSP")  technology  that  will  accelerate the Company's
product  development  of  1  Gigabit Ethernet, Asynchronous  Transfer  Mode
("ATM"), and other high speed  DSP  applications.   The  Company incurred a
one-time charge to earnings of  $2.5 million during the fourth  quarter  of
1996 for purchased research and development related to the acquisition.

     During  the  third  quarter  of 1996, in connection with a third-party
financing transaction for Maker Communications, Inc. ("Maker"), the Company
sold  a portion of its minority interest  in  Maker  for  an  aggregate  of
approximately  $675,000.   This  sale  was accounted for as a one-time gain
which  was  reported as other income.  The  Company  continues  to  hold  a
minority interest  in Maker and to license certain Maker technology.  Other
contractual rights and  obligations,  including the Company's obligation to
provide  certain  loan  financing  to  Maker,   were   terminated   in  the
transaction.    Following   the   transaction,  Maker  repaid  the  Company
approximately $2.9 million, the total balance under an outstanding note.

TECHNOLOGY

     The Company's proprietary technology  includes  systems simulation and
testing software and an extensive circuit cell library.  Level One believes
that  a key competitive factor in its success is its ability  to  use  this
technology,  in conjunction with industry standard design tools, to rapidly
design and introduce  new  products.  The  Company continuously reviews new
opportunities in emerging technologies such  as  xDSL,  Switched  Ethernet,
Fast  and Gigabit Ethernet, infrared, ATM, wireless, frame relay and  cable
transmission.

STRATEGIC RELATIONSHIPS

     Level  One's relationships and strategic development arrangements with
industry leaders  help  the  Company identify and develop new products that
meet industry needs.  Through  the  involvement  of  key customers in alpha
stage development, the Company's objective is to bring  to  market products
that  are  positioned  to  become  market leaders.  Level One is an  active
member of several important standards committees throughout the world.

     Level One has from time to time  entered  into development and license
agreements  with  third  parties  to  broaden  the  Company's  product  and
technology  offerings.   Level  One  has  also  in  the past  entered  into
strategic  alliances  with  consortia  of  industry  leaders   to   develop
communications  products, such as the Company's HDSL chipsets.  The Company
may  in  the  future   enter   into   such  arrangements  when  appropriate
opportunities arise.


SALES AND MARKETING

     Level One's sales and marketing strategy  is to achieve design wins by
developing  products with superior mixed-signal processing  functions  that
are designed  into  equipment offered by industry leaders.  Level One has a
direct sales force and  a worldwide network of independent distributors and
sales representatives. These  independent  sales organizations are selected
for their ability to provide effective field sales and technical support to
customers.   The  Company has a direct order fulfillment  service  for  its
customers ordering smaller quantities of parts with lead times shorter than
the Company's standard lead times.

     The Company maintains  seven  regional  sales  offices  in  the United
States.   In  addition,  there are 25 sales representatives or distributors
of the Company's  products.   Internationally,  Level  One  has  six  sales
offices along with 22 sales representatives or distributors operating in 37
countries.



RESEARCH AND DEVELOPMENT

     The  Company  believes that the continued introduction of new products
in its target markets  is essential to its growth. As of December 29, 1996,
Level One had 104 full-time  employees engaged in research and development.
The  Company currently anticipates  that  it  will  increase  research  and
development   staffing  levels  in  1997.  Expenditures  for  research  and
development in  1996, 1995 and 1994 were approximately $22.0 million, $17.1
million, and $10.0  million, respectively.  These expenditures exclude one-
time charges for purchased  research  and  development  of  $2,500,000  and
$750,000 related to acquisitions in 1996 and 1995, respectively.

     The  Company released  12 new products during 1996, consisting of four
networking  products  and  eight  transmission  products.  A portion of the
Company's  research  and  development  resources may  be  used  to  enhance
existing products and to move to smaller  geometries  on  larger  wafers to
improve product costs.

MANUFACTURING

     FOUNDRIES

     Level One uses independent silicon foundries to fabricate its  wafers.
This  approach  enables  the Company to concentrate its resources on design
and test and allowing it to  eliminate  the cost associated with owning and
operating a fabrication facility.

     The Company's wafer needs are supplied  by six foundries; however, the
Company may, from time to time, qualify other  foundries.  Except where the
Company  has  contracted  for  long-term  wafer  supplies,   the  Company's
suppliers  generally  are  not  obligated  to  supply,  nor  is the Company
obligated  to  purchase,  any  minimum  amount  of  wafers.  Such suppliers
generally  agree  on  production  schedules  based  on purchase orders  and
forecasts. During 1995, the Company entered into five-year  agreements with
three  of its suppliers for committed foundry capacity in consideration  of
equipment  financing  or  cash  deposits. During 1995 and 1996, the Company
provided an aggregate of $14.6 million  in  equipment financing and/or cash
deposits to these three foundries in connection with such agreements.

     From  time  to time, foundries supplying the  Company  may  experience
wafer yield problems  or  capacity  constraints  which  can result in wafer
delivery  delays, and the Company may need to locate an alternative  source
of supply for  wafers.   The  Company  has  experienced increased costs and
delays in customer shipments as a result of a foundry reducing shipments to
the Company without prior notice, forcing the  Company to transfer products
to  a  new  foundry. Although the Company believes  it  can  meet  customer
demand, there  can  be  no  assurances  that  unforeseen  demand  or supply
disruptions will not have a material impact on the Company's business.

     ASSEMBLY

     Once  the  subcontracted  wafers have been tested and accepted by  the
Company,  the die are assembled into  packages  by  subcontractors  located
worldwide.   The  Company utilizes multiple assembly subcontractors for its
products.  While the Company has not experienced any material disruption in
supply  from assembly  subcontractors,  there  can  be  no  assurance  that
assembly problems will not occur.

     QUALITY AND RELIABILITY ASSURANCE

     The  Company  qualifies each assembly and foundry subcontractor before
that vendor manufactures  products  for  the  Company.   Such qualification
includes  an audit and analysis of the subcontractor's quality  system  and
manufacturing    capabilities.    The    Company    continuously   monitors
subcontractors' quality and reliability on an ongoing  basis.   Level One's
objective is to control the quality of finished goods as thoroughly  as  if
it  internally  operated  every  step  of  the  manufacturing process.  The
Company  and  its  customers thereby realize the economic  efficiencies  of
"fabless" production combined with tight quality control.

     Effective January  30,  1997, Level One was registered by Underwriters
Laboratory as complying with the requirements of ISO 9001.

BACKLOG

     As of December 29, 1996,  the  Company's total backlog scheduled to be
shipped  was  approximately  $32.6  million,  as  compared  to  backlog  of
approximately $29.2 million at December 30,  1995.   A portion of the orders
constituting  the  Company's backlog are subject  to  changes  in  delivery
schedules  or to cancellation  at  the  option  of  the  purchaser  without
significant  penalty.   The  Company  limits  its reported backlog to those
orders expected to ship within the next six months.

COMPETITION

     Level One's competition consists of other  semiconductor companies and
semiconductor  divisions  of  vertically  integrated   companies.   In  the
transmission  market,  the  Company's  principal  competitors  are  Lucent,
Brooktree  Corporation  (a  subsidiary  of  Rockwell  International, Inc.),
Crystal Semiconductor, Inc. (a subsidiary of Cirrus Logic,  Inc.), Siemens,
Dallas  Semiconductor,  Inc. and Sierra Semiconductor Corporation.  In  the
networking market, the Company's  principal  competitors are Advanced Micro
Devices, Inc., Crystal, Lucent, Seeq Technologies, Inc., Texas Instruments,
Incorporated,  and  National  Semiconductor  Corporation.   Many  of  these
competitors  have substantially greater financial and other resources  than
the Company.

     Level One  believes  that  its competitive strengths include efficient
distribution channels, highly experienced  digital and mixed-signal circuit
designers, proprietary design and development  tools,  and  its  library of
analog and digital blocks and cells.

     The  ability  of  the  Company  to compete successfully in the rapidly
evolving area of high performance integrated  circuit technology depends on
factors  both  within and outside of its control.   Such  factors  include,
without limitation,  success  in  designing and manufacturing new products,
implementing  new  technologies, intellectual  property  programs,  product
quality, reliability, price, efficiency of production, and general economic
conditions. Although the Company believes that it competes favorably, there
is no assurance that  the  Company  will be able to compete successfully in
the future.

PATENTS AND LICENSES

     Level One has 23 United States patents  that expire from 2009 to 2014,
16   pending U.S. patent applications and 14 pending  international  patent
applications.   All  of  Level  One's  products are covered by at least one
Level One patent. The Company has 24 U.S.  mask  work  registrations on its
products. Level One owns seven registered trademarks or  servicemarks.  The
Company  has  initiated  a  patent  infringement  suit against one  of  its
competitors  relating  to  two  of  the  Company's  patents.    See  "Legal
Proceedings".

     Level  One has entered into various license agreements for product  or
technology exchanges.   In  general,  these  licenses are to provide second
sources for standard products or to convey or  receive  rights  to  certain
proprietary or patented cores, cells or other technology.

EMPLOYEES

     As of December 29, 1996, the Company had 410 full-time employees.  The
Company's  employees  are  not  represented  by  any  collective bargaining
agreement,  and  the  Company  has never experienced a work  stoppage.  The
Company believes its employee relations are good.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     The following factors may have an impact on the Company's business:

DEPENDENCE UPON INDEPENDENT MANUFACTURERS

     The Company does not manufacture  the  wafers  used  for its products.
The Company's wafers are manufactured by foundries located  in  the  United
States,  Europe,  and  Asia.   The  Company depends upon these suppliers to
produce wafers at acceptable yields and  to deliver them in a timely manner
at  competitive  prices.  The  Company may sustain  an  adverse  impact  on
operating  results from problems  with  the  cost,  timeliness,  yield  and
quality  of wafer  deliveries  from  suppliers.  From  time  to  time,  the
available  industry-wide  foundry  capacity  can  fluctuate  significantly.
During periods of constrained supply, the Company may experience difficulty
in securing an adequate supply of wafers, and/or its suppliers may increase
wafer  prices.  The Company's operating results depend in substantial  part
on its ability  to  maintain  or  increase  the capacity available from its
existing  or  new foundries. In prior years, the  Company  has  experienced
increased costs  and  delays in customer shipments as a result of a foundry
reducing shipments to the  Company  without  prior  notice,  requiring  the
Company  to  transfer  products  to  a  new  foundry.  Although the Company
believes  that it has planned to meet customer  demand,  there  can  be  no
assurances that unforeseen demand or other changes will not have a material
impact on the Company's business.

     The Company is also dependent upon third-party assembly companies that
package the  semiconductor die. The Company depends upon these suppliers to
produce products  in a timely manner and at competitive prices. The Company
may sustain an adverse  financial  impact  from  problems  with  the  cost,
timeliness, yield and quality of product deliveries from these suppliers.


FACTORS AFFECTING ANNUAL AND QUARTERLY OPERATING RESULTS

     The  semiconductor  industry  is  characterized by rapid technological
change, intense competitive pressure and  cyclical  market  patterns.   The
Company's  results of operations are affected by a wide variety of factors,
including general  economic conditions, semiconductor industry environment,
changes in average selling  prices, the timing of new product introductions
(by the Company and its customers), use of new technologies, the ability to
safeguard patents and intellectual property, and rapid change of demand for
products. The level of net revenues  in  any  specific  quarter can also be
affected  by the level of orders placed during that quarter.   The  Company
attempts to  respond  to  changes in market conditions as soon as possible;
however, the rapidity of their onset may make prediction of and reaction to
such  events difficult. Due  to  the  foregoing  and  other  factors,  past
results,  such  as those described in this report, may not be predictive of
future performance.

DEPENDENCE ON NEW PRODUCTS

     The Company's  future success depends on its ability to timely develop
and  introduce new products  which  compete  effectively.  Because  of  the
complexity of its products, the Company may experience delays in completing
development and introduction of new products, and, as a result, not achieve
the market  share  anticipated for such products. The Company's strategy is
to develop products  for the fastest growing segments of the communications
market.  The Company conducts its own analysis of market trends and reviews
forecasts and information provided by industry analysts.  Market conditions
may change rapidly as  technology,  economic, or user-preference conditions
cause different communications technologies to experience growth other than
that forecast by the Company or others.    There  can  be no assurance that
the Company will successfully identify new product opportunities  and bring
new  products  to  market in a timely manner, that products or technologies
developed by others  will not render the Company's products or technologies
obsolete or noncompetitive, or that the Company's products will be selected
for design into the products  of  its  targeted customers. In addition, the
average selling price for any particular product tends to decrease over the
product's  life.  To  offset  such  price  decreases,  the  Company  relies
primarily on obtaining yield improvements and corresponding cost reductions
in the manufacture of existing products and  on  introducing  new  products
which  incorporate  advanced  features  and other price/performance factors
such that higher average selling prices and  higher  margins are achievable
relative to existing product lines.  To the extent that cost reductions and
new  product  introductions with higher margins do not occur  in  a  timely
manner, or the  Company's  products  do  not achieve market acceptance, the
Company's operating results could be adversely affected.

INTELLECTUAL PROPERTY

     The Company relies upon patent, trademark,  trade secret and copyright
law to protect its intellectual property.  There can  be  no assurance that
such intellectual property rights can be successfully asserted  or will not
be invalidated, circumvented or challenged.  Litigation, regardless  of its
outcome,  could  result  in substantial cost and diversion of resources for
the Company.  Any infringement  claim or other litigation against or by the
Company could have a material effect  on  the Company's financial condition
and  results  of  operations.   In  November  1995  the  Company  commenced
infringement litigation against a competitor.  See "Legal Proceedings".

SEMICONDUCTOR INDUSTRY

     The semiconductor industry has historically  been cyclical and subject
to  significant  economic  downturns  at various times.   The  Company  may
experience substantial period-to-period  fluctuations  in operating results
due   to  general  semiconductor  industry  conditions,  overall   economic
conditions or other factors.

     In  addition,  the  securities  of many high technology companies have
historically  been  subject to extreme price  and  volume  fluctuations,  a
factor which may affect the market price of the Company's common stock.  As
is common in the semiconductor  industry, the Company frequently ships more
product in the third month of a quarter  than  in  the  other months.  If a
disruption in the Company's production or shipping occurs near the end of a
quarter,  the  Company's  revenues  for  that  quarter  could be  adversely
affected.

     The  Company  must  order  wafers  and build inventory in  advance  of
product shipments.  There is risk that the  Company could produce excess or
insufficient  inventories  of  particular products  because  the  Company's
markets are volatile and subject  to  rapid  technology  and price changes.
This  inventory  risk  is  heightened  because  certain  of  the  Company's
customers  place  orders  with  long  lead  times  which  may be subject to
cancellation or rescheduling by that customer.  To the extent  the  Company
produces  excess  or  insufficient  inventories of particular products, the
Company's revenues and earnings could be adversely affected.

     Increased demand for semiconductor  products may result in a reduction
in the availability of wafers from foundries.   Such  capacity  limitations
may adversely affect the Company's ability to deliver products on  a timely
basis and affect the Company's margins.  Additionally, the Company believes
that  during  periods  of  strong  demand  and/or  restricted semiconductor
capacity, customers will over-order to assure an adequate  supply.  Certain
of the Company's customers may cancel or postpone orders without  notice if
product becomes available elsewhere.

     Shortages of components from other suppliers could cause the Company's
customers to cancel or delay programs incorporating the Company's products,
resulting  in  the  cancellation  or  delay  of  orders  for  the Company's
products.

     Because  the foregoing factors may affect results, historical  results
or trends may not be predictive of future results or trends.










ITEM 2.   PROPERTIES

PROPERTIES


     The Company's  principal  facilities  are  in  two  separately  leased
buildings  in  an  office  park  in Sacramento, California.  The two leases
relate to buildings with 87,000 square feet of space and 51,000 square feet
of space, respectively, and expire  in  2004  and  2006, respectively.  The
Company also leases approximately 11,000 square feet  for the operations of
San Francisco Telecom under a lease that is scheduled to  expire  in  2000.
The  Company  believes  these  facilities  are adequate for its current and
immediately foreseeable level of operations.

     The Company also leases small office facilities  for  the operation of
its  New Jersey design center and for its domestic and international  sales
offices.


ITEM 3.   LEGAL PROCEEDINGS

     On November 28, 1995, the Company initiated a patent infringement suit
against  Seeq  Technologies,  Inc.  in United States District Court for the
Northern  District  of California.  The  suit  relates  to  two  Level  One
patents, No. 5,267,269  and  No.  5,249,183,  and  to certain Seeq Ethernet
products,  and  seeks damages and injunctive relief. Seeq  has  denied  the
allegations.  Although  the  Company  does not believe such litigation will
have  a  material  impact on the Company,  litigation,  regardless  of  its
outcome, could result in substantial cost and diversion of resources of the
Company.  See "Factors That May Affect Future Results".

     There are no other  material  pending  legal  proceedings,  other than
routine  litigation  incidental  to  the  Company's business, to which  the
Company is a party or of which any of its property is the subject.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted during the fourth  quarter  of the 1996 fiscal
year to a vote of security holders, through the solicitation  of proxies or
otherwise.






<PAGE>





                                  PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

                        PRICE RANGE OF COMMON STOCK

     The  Company's  Common  Stock  has  been traded on the NASDAQ National
Market System under the symbol LEVL since  its  initial  public offering on
August 19, 1993 at $11{3}/{8} per share (rounded to the nearest  {1}/{16}).
The following table sets forth, for the fiscal quarters indicated, the high
and  low  closing  sale  prices  of  the Common Stock as reported by NASDAQ
National Market System (rounded to the  nearest  {1}/{16}).   The Company's
fiscal  year  ends on the Sunday nearest to the calendar year end  in  each
year.

<TABLE>
<CAPTION>
                         Year                                   High                 Low
<S>                                                     <C>                  <C>
                1996
                      Fourth Quarter                            $37 1/2            $26{13}/{16}
                      Third Quarter                             $29 1/2             $16 1/4
      Second Quarter                                            $30 1/2             $19 1/4
      First Quarter                                             $36 1/4             $16 3/4
     1995
      Fourth Quarter                                            $26                $17
      Third Quarter                                             $27 1/4            $20 1/2
      Second Quarter                                            $22 3/4            $14 1/2
      First Quarter                                             $18 3/4            $12
</TABLE>

     On February  28, 1997, the closing sale price for the Company's Common
Stock  was  $32.875  per  share.  As  of  February  28,  1997,  there  were
approximately 156 holders of record of the Company's Common Stock.

     On December 11, 1996,  the  Company issued a total of 86,730 shares of
common stock to the shareholders of  Silicon  Design Experts, Inc. ("SDE"),
in connection with the Company's acquisition of  SDE.  On February 2, 1996,
the  Company  issued a warrant to purchase up to 17,000  shares  of  common
stock at an exercise  price  of  $21.00  per  share  in  connection with an
incentive  agreement with an independent sales representative  company.  In
each case, the  issuance  of  the  securities was privately negotiated in a
transaction not involving a public offering  in  reliance on the exemptions
contained in Section 4 of the Securities Act of 1933.

     The Company has never paid dividends on its Common  Stock and does not
anticipate  paying any dividends in the foreseeable future.  The  Company's
bank line of  credit  agreement  prohibits  the payment of dividends on its
capital stock (other than dividends payable solely  in the Company's stock)
without  the  prior  written  consent of the bank. The Company  intends  to
retain its earnings for the operation of its business.

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE      1996           1995           1994           1993           1992
DATA)
<CAPTION>
<CAPTION>
Statement of Income Data:
<S>                             <C>            <C>            <C>            <C>            <C>
  Revenues                            $111,987       $ 78,018       $ 46,825       $ 25,984   $ 14,076
  Cost of sales                         48,477         33,300         18,785          9,782        5,603
  Gross margin                          63,510         44,718         28,040         16,202        8,473
  Operating expenses:
     Research and development           24,505         17,857          9,956          5,934        3,067
(1)
     Sales and marketing                16,589         11,372          6,772          4,102        2,400
     General and administrative          6,741          5,752          3,424          1,936           933
         Total operating                47,835         34,981         20,152         11,972        6,400
expenses
  Operating income                      15,675          9,737          7,888          4,230        2,073
  Net interest and other income
               (expense) (2)             2,293          2,064          1,440             12           (46)
  Provision for income taxes             6,755          1,543          1,323            503           243
  Net income                           $11,213        $10,258        $ 8,005        $ 3,739     $ 1,784
  Earnings per share                 $    0.82      $    0.76       $   0.60       $   0.35     $   0.18
  Weighted average common
     shares and equivalents             13,756         13,465         13,291         10,750        9,800
</TABLE>


(1)Includes one-time charges for research and development relating to the
acquisitions of Silicon Design Experts, Inc., in 1996 of $2.5 million, and San
Francisco Telecom, Inc., in 1995 of $750,000.

(2)A one-time gain relating to the sale of a portion of a minority interest in
Maker Communications, Inc., of $675,000, is included in 1996.

<TABLE>
<CAPTION>
                                                                          AS OF FISCAL YEAR END

<CAPTION>
(IN THOUSANDS)                       1996           1995           1994           1993           1992

<CAPTION>
BALANCE SHEET DATA:
<S>                             <C>            <C>            <C>            <C>            <C>
   Cash and cash equivalents          $ 20,251       $ 21,628        $ 9,260        $15,141        $ 3,325
   Working capital                      50,871         50,834         48,231         21,605          2,821
   Total assets                        112,102        100,801         71,628         33,060          9,009
   Long-term obligations (less
      current portion)                   3,806          4,463            361          2,431            806
   Shareholders' equity                 95,581         78,965         63,309         23,910          3,774
</TABLE>


                     SELECTED QUARTERLY FINANCIAL DATA

           FISCAL 1996 QUARTERS              FISCAL 1995 QUARTERS
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
STATEMENT OF INCOME DATA:             FIRST        SECOND       THIRD      FOURTH       FIRST     SECOND       THIRD      FOURTH
<S>                               <C>           <C>          <C>         <C>         <C>        <C>         <C>         <C>
  Revenues                              $27,542      $27,479     $27,363     $29,603    $13,219     $16,605     $21,680 $26,514
  Cost of sales                          11,588       11,521      11,756      13,612      5,600       6,882       9,459   11,359
                     Gross margin        15,954       15,958      15,607      15,991      7,619       9,723      12,221   15,155
  Operating expenses:
       Research and development           5,675        5,739       5,249       7,842      2,896       4,741       4,604    5,616
       Sales and marketing                4,001        3,989       4,219       4,380      2,247       2,492       3,146    3,487
      General and administrative          1,766        1,765       1,595       1,615      1,084       1,337       1,403    1,928
         Total operating expenses        11,442       11,493      11,063      13,837      6,227       8,570       9,153  11,031
  Operating income                        4,512        4,465       4,544       2,154      1,392       1,153       3,068    4,124
  Net interest and other income
      (expense)                             392          349       1,084         468        512         557         511      484
  Provision/(benefit) for income          1,618        1,590       1,857       1,690        381         477       1,086     (401)
tax
     Net income                          $3,286       $3,224      $3,771     $   932     $1,523      $1,233      $2,493 $5,009
     Earnings per share                   $0.24        $0.24       $0.27       $0.25      $0.10       $0.09       $0.18   $0.37
</TABLE>



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

     Since its inception, the Company has designed, developed
and marketed application specific standard integrated circuit
products   ("ASSPs")   and   custom   derivatives   for   the
transmission and networking markets.  Volume shipments of its
initial ASSPs began in 1989.  Since that  time,  the  Company
has  experienced significant increases in sales as its mixed-
signal  integrated  circuits  have  gained market acceptance.
The Company's annual revenue compound  growth  rate  has been
80%  since  1989.   The  Company  first  achieved  profitable
operations  in the quarter ended March 28, 1992 and has  been
profitable in each subsequent quarter.

     The Company  derives  revenues  principally from product
sales.   In addition, the Company has received  non-recurring
engineering and licensing revenue from strategic partners and
customers  in  connection  with product development projects.
As  a  result of those and other  transactions,  the  Company
receives royalties and license fees.

     The  Company's cost of sales includes the costs of wafer
fabrication  and  assembly  performed by third party vendors,
and  costs  associated  with  the   procurement,  scheduling,
testing  and  quality assurance functions  performed  by  the
Company.  Research  and  development expenses associated with
non-recurring engineering contracts are expensed as incurred,
while the related revenue  is  recognized  only  as  contract
milestones are completed.

     This document includes forward-looking statements  which
involve  risks  and  uncertainties.   Actual  results  of the
Company's   activities  may  differ  significantly  from  the
potential   results   discussed   in   such   forward-looking
statements.   Risk  factors that might cause such differences
include, but are not  limited  to,  those  factors identified
below and under the caption "Factors That May  Affect  Future
Results".
RESULTS OF OPERATIONS

     REVENUES:  Revenues for 1996 increased to $112.0 million
from  $78.0  million  in 1995 and $46.8 million in 1994.  The
continued  growth  in  revenues  is  due  to  the  successful
introduction of new products  and increased sales of existing
products  to  customers in the Company's  two  target  market
segments - transmission  and  networking.   In 1996, sales to
Hewlett-Packard were 11.2% of total sales.  In 1995 and 1994,
no single customer accounted for more than 10% of revenues.

     Export sales, primarily consisting of sales  to  Canada,
Europe,  and Asia, were 39% of revenues in 1996, 33% in  1995
and 22% in  1994.   All  sales  were in U.S. dollars, thereby
eliminating any foreign currency  impact  on revenues and net
income.  The increase in international sales  is attributable
to  increased  sales to foreign manufacturing facilities  and
subcontractors  of   domestic  customers  and  the  Company's
increased  international   marketing   and   sales   efforts,
including  establishment of sales and sales support personnel
in foreign countries.

     ROYALTIES,   LICENSES   AND   NON-RECURRING  ENGINEERING
REVENUE:  The Company has entered into development agreements
with   certain   customers   relating   to  customer-specific
applications,  as  well as, license agreements  with  certain
semiconductor manufacturers.   Revenue  is not recognized for
non-recurring  engineering ("NRE") contracts  until  contract
milestones are met, although expenditures associated with the
contract are expensed  as incurred.  During 1996, the Company
had $398,000 in revenues  from  NRE contracts versus $289,000
in  1995  and  $1,400,000  in 1994.   In  1996,  the  Company
received  royalties  of  $198,000   from   products  sold  by
licensees.   In  1995 and 1994, royalties were  $312,000  and
$321,000, respectively.

     The Company believes  future  revenue growth will depend
on  the  success  and  timing  of  new  products  along  with
continued  sales growth of existing products.   New  products
are generally  incorporated  into  a  customer's  product  or
system at the design stage.  However, design wins may precede
volume  sales  by  a year or more.  No assurance can be given
that any design win will result in future revenues.

     GROSS  MARGIN:   The  following  table  sets  forth  the
Company's product sales and product gross margin:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)                               1996            1995            1994
<S>                                  <C>                  <C>             <C>
Product                        Sales             $111,392         $77,417         $45,104
<ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis>.
Cost of product sales<ellipsis><ellipsis>          48,477          33,300          18,785
<ellipsis><ellipsis><ellipsis>.
Gross margin                                      $62,915         $44,117         $26,319
Gross margin % product sales<ellipsis><ellipsis>..  56.5%           57.0%           58.4%
</TABLE>


     Product  gross  margin  is  affected by several factors,
including average selling prices,  the  mix between older and
newer   products,   test   equipment   utilization,   foundry
manufacturing yields, timing of cost reductions  and  the mix
between  direct  and  distributor sales.  Margins on domestic
and international sales  are  similar.   Beginning  in  1996,
certain   engineering  costs  associated  with  product  cost
reduction efforts  were  more appropriately allocated to cost
of product sales rather than  research and development.  This
caused  margins  to decline by approximately  2.0  percentage
points  in  1996, while  reducing  research  and  development
expense  a similar  amount.   There  was  no  net  impact  on
operating profit.

     RESEARCH  AND  DEVELOPMENT:   Research  and  development
("R&D") expenses were $24.5 million in 1996, $17.9 million in
1995  and  $10.0  million in 1994.  As a percent of revenues,
R&D expenses were 21.9%,  22.9%  and  21.3% in 1996, 1995 and
1994, respectively.  In 1996, R&D expense included a one-time
charge for purchased research and development of $2.5 million
related  to the acquisition of Silicon Design  Experts,  Inc.
In  1995,  R&D   expense  included  a  one-time  charge   for
purchased research  and  development  of  $750,000 associated
with   the   acquisition  of  San  Francisco  Telecom,   Inc.
Excluding  one  time  charges,  R&D  expense  as  percent  of
revenues was 19.6% and 21.9% for 1996 and 1995, respectively.
As previously stated in the gross margin section, in 1996 the
Company began  accounting  for  engineering  costs associated
with product cost reduction efforts in cost of product sales,
rather than R&D.  In 1996, these costs were approximately  2%
of revenues.

     SALES  AND MARKETING:  Sales and marketing expenses were
$16.6 million in 1996, $11.4 million in 1995 and $6.8 million
in 1994.  As  a  percent  of  revenue,  sales  and  marketing
expenses were 14.8%, 14.6% and 14.5% in 1996, 1995 and  1994,
respectively.

     GENERAL  AND ADMINISTRATIVE:  General and administrative
expenses increased  to $6.7 million in 1996 from $5.8 million
in  1995  and $3.4 million  in  1994.   As  a  percentage  of
revenue, expenses  decreased  to  6.0% in 1996, from 7.4% and
7.3% in 1995 and 1994, respectively.   The  expense increases
in dollars are primarily attributable to additional headcount
and associated expenses due to the Company's growth.

     INTEREST AND OTHER INCOME:  The Company  earns  interest
on  its  cash and investments and incurs interest expense  on
lease obligations  used to finance certain capital equipment.
Income for 1996 was  $2.3 million versus $2.1 million in 1995
and $1.4 million in 1994.   In  1996, other income included a
one-time gain of $675,000 from the  sale  of a portion of the
Company's investment in Maker Communications.

     PROVISION  FOR  INCOME  TAXES:  The Company's  effective
income tax rate was 37.6% for  1996.   In  1995 and 1994, the
effective rate was 13.1% and 14.2%.  For a reconciliation  of
the Company's effective tax rate to the statutory federal tax
rate, see Note 5 of Notes to Financial Statements.




LIQUIDITY AND CAPITAL RESOURCES

     During  the years ended 1996, 1995 and 1994, the Company
financed its operations  primarily  through  cash  flows from
operations   and   existing  cash  and  investment  balances.
Working capital as of December 29, 1996, was $50.9 million.

     The  Company's principal  sources  of  liquidity  as  of
December 29,  1996,  consisted  of  $30.5 million in cash and
short-term investments and $10.0 million  available under the
Company's  line  of  credit.   As of December 29,  1996,  the
Company had no outstanding balance under this line of credit.

     During 1996, the Company generated $22.5 million of cash
from its operating activities as  compared to $7.5 million in
1995 and $4.3 million in 1994.  In  1996, accounts receivable
increased  by  $2.9  million due to increased  sales  levels.
Inventories decreased by $5.8 million to $10.0 million at the
end of 1996, bringing  days  of  inventory on hand down to 66
days  from 125 days in 1995.  Accounts  payable  and  accrued
liabilities  decreased  $3.4  million  from  year end 1995 to
1996.

     During  1996,  1995,  and  1994, total expenditures  for
capital equipment were $9.8 million, $10.0 million, and $10.6
million,  respectively.   The  expenditures   in   each  year
consisted  primarily  of  equipment  used  for designing  and
testing  products.   Of the total capital expenditures,  $0.6
million in 1996, $4.8 million in 1995, and $1.1 million 1994,
were financed by capital  leases.

     The Company's current  wafer  requirements  are supplied
primarily by six foundries.  During 1995, the Company entered
into  five-year  agreements  with three of its suppliers  for
committed  foundry  capacity in  consideration  of  equipment
financing  or  cash deposits.   During  1995  and  1996,  the
Company provided  an  aggregate  of  $14.6 million in capital
equipment  financing  and/or  cash deposits  to  these  three
foundries in connection with such activities. The Company has
remaining funding commitments not to exceed $18,000,000.

     The  Company  expects  to  finance   its   1997  capital
equipment  requirements  using  a  combination  of  cash  and
equipment  leasing.   The  Company believes that its existing
cash resources, combined with cash generated from operations,
equipment lease management,  and  its  line of credit will be
sufficient  to  meet the Company's cash requirements  through
the end of 1997.   However, the Company may from time to time
seek additional equity  or  debt financing as a result of the
capital intensive nature of the semiconductor industry.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

     The Company's financial  statements  included  with this
Form 10-K are set forth under Item 14 hereof.


ITEM 9.DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     There   has  been  no  change  of  accountants  nor  any
disagreements  with  accountants  on any matter of accounting
principles  or  practices or financial  statement  disclosure
required to be reported under this Item.






<PAGE>





                          PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


EXECUTIVE OFFICERS AND DIRECTORS

     The executive  officers and directors of the Company and
their ages as of February 28, 1997, are as follows:

<TABLE>
<CAPTION>
           NAME                   AGE            POSITION WITH THE COMPANY
<S>                        <C>              <C>
Robert S. Pepper, Ph.D.           61        President, Chief Executive Officer
                                            and Chairman of the Board of
                                            Directors
J. Fran<c,>ois Crepin             50        Vice President, Business Development
John Kehoe                        51        Vice President, Finance and
                                            Administration and Chief Financial
                                            Officer
Daniel S. Koellen                 39        Vice President, Quality and
                                            Reliability
George A. Papa                    49        Vice President, Worldwide Sales
Manuel D. Yuen                    56        Vice President, Operations
Thomas J. Connors(1)(2)           67        Director
Paul Gray, Ph.D.                  54        Director
Martin Jurick(2)                  59        Director
Henry Kressel, Ph.D.(2)           63        Director
Joseph P. Landy(1)                35        Director
</TABLE>

(1) Member of the Audit Committee
(2) Member of the Compensation Committee

     Dr. Pepper joined the Company in July 1986 as President,
Chief Executive Officer and a director. He became Chairman of
the Board of Directors  in  January  1993.   From  1979 until
1984,  Dr.  Pepper was Vice President and General Manager  of
the Solid State division of RCA Corporation. Prior to joining
RCA, Dr. Pepper  had spent over 15 years in the semiconductor
industry, including  positions  as Vice President and General
Manager of the Semiconductor Division at Analog Devices, Inc.
Dr. Pepper holds B.S., M.S. and Ph.D.  degrees  in Electrical
Engineering from the University of California at Berkeley.

     Mr. Crepin joined the Company in December 1986  as  Vice
President,  Marketing  and  Sales,  and  has  held  different
positions within the Company prior to becoming Vice President
of  Business  Development  in  1994.  Mr.  Crepin  served  as
Director of Strategic Planning for Information Communications
for  LSI Logic Corporation prior to joining Level One.  Prior
to joining  LSI,  Mr.  Crepin served for 17 years at National
Semiconductor Corporation,  the  last  four  of  which he was
Director of Worldwide Telecom Marketing. Mr. Crepin  holds an
M.B.A. from the University of Paris and a B.S. in Mathematics
and Science from Grenoble University.

     Mr.  Kehoe  joined  the  Company in October 1995 as Vice
President and Chief Financial Officer.   Immediately prior to
joining the Company Mr. Kehoe served as Senior Vice President
and  Chief  Financial  Officer  for  Focus Surgery,  Inc.,  a
medical device manufacturer. From 1992  to  1993 he served as
Vice  President,  Finance  and  Chief  Financial Officer  for
Celeritek, Inc., a microwave systems company.   From  1989 to
1992 he served as Vice President, Finance and Chief Financial
Officer  of  Poqet  Computer  Corp., a computer manufacturer.
Prior  to  1989  he  worked  in  various  financial  and  CFO
positions  for approximately 14 years  with  high  technology
companies, including  Texas  Instruments.  Mr. Kehoe holds an
MBA from Fordham University and a BBA from Manhattan College.

     Mr. Koellen has been responsible  for  the  Quality  and
Reliability  function  since he joined the Company in January
1989, serving as Manager until January 1992, then as Director
until January 1993 when  he was promoted to Vice President of
Quality and Reliability. From  1985  to 1989, Mr. Koellen was
Lead  Failure  Analysis  Engineer  for the  Denver  Aerospace
Division of Martin Marietta Corp.  Prior  to  joining  Martin
Marietta, Mr. Koellen managed the surface analysis laboratory
for  Mostek  Corporation, a supplier of dynamic random access
memory integrated  circuits.  Mr.  Koellen  holds  an M.S. in
Engineering  and  Applied  Science  from  Southern  Methodist
University and a B.S. in Applied Mathematics, Engineering and
Physics from the University of Wisconsin.

     Mr.  Papa  joined  the Company in February 1997 as  Vice
President, Worldwide Sales.  Prior to joining the Company, he
had been employed since 1991  as  Vice President of Sales for
North America by Siemens Components  Corporation,  a division
of  Siemens.   Previously  Mr.  Papa  was  employed  in other
management   and  sales  positions  with  Siemens  Components
Corporation, LSI  Logic  Corporation,  Intel Corporation, and
Tektronix.   Mr.  Papa  holds  a  B.S.E.E. from  Northeastern
University

     Mr. Yuen was Director of Operations  from  the  time  he
joined  the Company in February 1991 until January 1992, when
he was promoted  to  Vice  President  of Operations. Prior to
joining the Company, Mr. Yuen spent over 20 years at National
Semiconductor Corporation, a semiconductor  manufacturer,  as
Director  of its Santa Clara foundry from 1986 to 1987 and as
Vice President-Military Aerospace Division from 1987 to 1989.
Mr. Yuen holds  a  B.S. and an M.S. in Electrical Engineering
from the University of California at Berkeley.

     Mr. Connors has  been  a  director  of the Company since
April 1991. Since 1980, Mr. Connors has been the principal of
TJC Investments, an independent consulting  firm  that  works
with  companies  in the semiconductor and related industries.
Previously, Mr. Connors was employed by Motorola, Inc., where
he last served as  Vice  President and General Manager of the
Semiconductor Division. Mr.  Connors  is also a member of the
Board of Directors of Zilog, Inc., Open  Vision Technologies,
Inc., and SGS-Thomson Microelectronics, Inc.,  a wholly-owned
subsidiary of SGS-N.V.

     Dr. Gray has been a director since April 1994.  Dr. Gray
is  the Dean of the College of Engineering at the  University
of California,  Berkeley.   From  1990  to 1993, he served as
Chairman of the Electrical Engineering and  Computer Sciences
Department, and as Vice Chairman of the Department  from 1988
to  1990.  He served as a director of Microlinear Corporation
from 1988 to  1991.  He has published more than 100 papers in
the electrical  engineering  field,  has  served  on numerous
industry committees, and holds 10 patents.

     Mr.  Jurick  has  been  a director of the Company  since
April 1991. Since 1984, Mr. Jurick  has  been  a  Senior Vice
President  of  Silicon Systems, Inc. ("SSI"), a semiconductor
manufacturing company,  which  until  1996 was a wholly owned
subsidiary of TDK Corporation, and in 1996  became a division
of  Texas  Instruments  Inc.  Mr.  Jurick  also serves  as  a
director of Microsemi Corp.

     Dr.  Kressel  has been a director of the  Company  since
August 1987. Since 1985,  Dr.  Kressel  has  been  a Managing
Director  at  E.M. Warburg, Pincus & Co., Inc. (''EMW''),  an
investment firm, where he has been employed since 1983. Prior
to  joining  EMW,   Dr.   Kressel   spent  20  years  at  RCA
Laboratories,  where he became a Staff  Vice  President.  Dr.
Kressel is also a member of the Board of Directors of  Zilog,
Inc., Maxis, Inc., and Trescom International.

     Mr. Landy has  been  a  director  of  the  Company since
January  1991  and was appointed Secretary of the Company  in
July 1993. Since  January  1994,  Mr.  Landy  has served as a
Managing  Director  at  E.M.  Warburg,  Pincus  &  Co.,  Inc.
(''EMW''),  an  investment  firm,  where he has been employed
since 1985. Prior to joining EMW, Mr.  Landy  was employed by
Dean Witter Realty, Inc., the real estate investment  banking
affiliate  of  Dean  Witter  Reynolds,  Inc.,  as a financial
analyst.   He  also  serves as a director of NOVA Information
Systems and CN Biosciences, Inc.

     Directors are elected by the shareholders at each annual
meeting  to  serve  until   the   next   annual   meeting  of
shareholders  or until their successors are duly elected  and
qualified. Officers  are  elected  to  serve,  subject to the
discretion of the Board of Directors, until their  successors
are appointed. There are no family relationships between  any
directors  or  executive officers. There are no agreements or
other arrangements  or  understandings  pursuant to which any
director of the Company will be selected  as  a  director  or
nominee.

     Non-employee,  non-affiliated  Directors  of the Company
receive $1,800 per day for each day devoted to Company  Board
or  committee  meetings. The Company reimburses each director
for reasonable expenses of attending meetings of the Board of
Directors and any  committees  thereof.   Non-affiliated non-
employee directors receive an annual automatic  option  grant
of 2,000 shares at the end of each year.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To  the  Company's knowledge, based solely on its review
of the copies of  such  reports  furnished to the Company and
written representations that no other  reports were required,
all  Section  16(a)  filing  requirements applicable  to  its
officers, directors and greater  than  ten percent beneficial
owners  were  complied  with  during  the fiscal  year  ended
December 29, 1996, with the exception of  one  report for one
transaction  which  was  untimely  filed for each of  Messrs.
Pepper, Kehoe, Holmes, Koellen and Yuen.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth  the  compensation earned
by the Company's Chief Executive Officer and  the  four other
highest   paid  executive  officers,  plus  one  officer  who
resigned, whose  compensation for the 1995 fiscal year was in
excess of $100,000 (collectively the "Named Officers").


                 SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                    LONG-TERM
<S>                           <C>            <C>               <C>              <C>               <C>
                                                                                  COMPENSATION            ALL
</TABLE>
<TABLE>
<CAPTION>
                                                          ANNUAL                 SECURITIES             OTHER
<S>                            <C>             <C>                           <C>                 <C>
                                                     COMPENSATION (1)            UNDERLYING         COMPENSATION
<CAPTION>
 NAME AND PRINCIPAL POSITION       YEAR         SALARY ($)         BONUS ($)       OPTIONS (#)            ($)(2)
<S>                           <C>            <C>               <C>              <C>               <C>
Robert S. Pepper, Ph.D.            1996                296,923          185,382            60,000              6,276
         President,     Chief      1995                220,000           97,172               ---              4,280
Executive
     Officer  and Chairman of      1994                196,794           50,000           120,000             78,632
the
    Board
John Kehoe                         1996                153,182           81,508            20,000              1,800
    Vice President and             1995                 27,115           12,500            70,000                ---
    Chief Financial Officer
J. Fran<c,>ois Crepin              1996                137,271           14,625            27,000              4,594
    Vice President, Business       1995                129,126           16,323            35,500              4,284
    Development                    1994                124,650            9,500               ---              8,530
Manuel D. Yuen                     1996                142,654           28,028            25,300              2,811
         Vice      President,      1995                119,674           16,846            33,000              2,443
Operations
                                   1994                110,778           10,000               ---              2,853
Daniel S. Koellen                  1996                120,042           30,726            31,500              3,282
    Vice President, Quality &      1995                106,292           15,227            23,100              3,120
    Reliability                    1994                 98,566           11,000               ---              2,869
George B. Holmes (3)               1996                115,033           82,914            25,000              4,166
    Vice President Worldwide       1995                126,538          182,902            60,000              4,205
    Sales                          1994                 41,556           51,251               ---                433
</TABLE>

(1) Annual compensation amounts include amounts deferred at the election of the
Named Officer pursuant to the Company's 401(k) plan.

(2) Other   annual   compensation  represents  the  Company's  401(k)  matching
contributions.

(3) Mr. Holmes served as Vice President of Worldwide Sales until October 1996.



     OPTION GRANTS IN  LAST  FISCAL  YEAR AND YEAR-END OPTION
VALUES

     The  following  table  sets  forth  certain  information
concerning  grants  of  stock options to each  of  the  Named
Officers during the fiscal  year ended December 29, 1996. The
options listed were granted under  the  1993  Option Plan. In
accordance  with  the  rules  of the Securities and  Exchange
Commission,  also  shown  is the potential  realizable  value
based on the assumed rates  of stock price appreciation of 5%
and 10%, compounded annually,  from  the  date the option was
granted  over  the full option term. These amounts  represent
certain  assumed  rates  of  appreciation  only  and  do  not
represent  the  Company's  estimate  of  future  stock price.
Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock.


              OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                            INDIVIDUAL GRANTS                Potential Realizable
<CAPTION>
                                                                                                 Value at Assumed
<S>                      <C>              <C>               <C>              <C>             <C>
                             Number of       % of Total                                           Annual Rates of
                            Securities         Options                                              Stock Price
                            Underlying       Granted to         Exercise                         Appreciation for
                              Options       Employees in          Price        Expiration         OPTION TERM (1)
<CAPTION>
              NAME        GRANTED (#)      FISCAL YEAR      ($/SHARE)           DATE         5% ($)         10% ($)
<S>                     <C>             <C>              <C>             <C>             <C>            <C>
Robert S. Pepper, Ph.D.          60,000              6.3           18.25         1/20/06        688,878      1,745,890
J. Fran<c,>ois Crepin            22,000              2.3           18.25         1/20/06        252,598        640,160
                                  5,000               .5           16.75         7/26/06         52,688        133,533
John Kehoe                       20,000              2.1           18.25         1/20/06        229,626        581,963
Manuel D. Yuen                   11,300              1.1           18.25         1/20/06        129,739        328,809
                                 14,000              1.5           16.75         7/26/06        147,527        373,891
Daniel S. Koellen                21,500              2.3           18.25         1/20/06        246,848        625,610
                                 10,000              1.1           16.75         7/26/06        105,376        267,065
George B. Holmes                 20,000              2.1           18.25         1/31/97         18,865         37,760
                                  5,000               .5           16.75         7/26/06         52,688        133,532
</TABLE>

(1) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock  price  appreciation over the
5-year option term will be at the assumed 5% and 10% levels  or  at  any  other
defined  level.   Unless  the market price of the Common Stock appreciates over
the option term, no value will  be  realized from the option grants made to the
executive officers.



     The following table provides information with respect to
the Named Officers concerning the exercise  of options during
the  last  fiscal  year and unexercised options  held  as  of
December 29, 1996:

             AGGREGATED OPTION EXERCISES IN LAST
        FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                   NUMBER OF SECURITIES          VALUE OF UNEXERCISED
<S>                       <C>                 <C>              <C>                           <C>
                                SHARES                            UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                               ACQUIRED             VALUE       OPTIONS AT FISCAL YEAR END     At Fiscal Year End ($)(1)
                                                                            (#)
<CAPTION>
                           ON EXERCISE (#)    REALIZED($)      EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
<S>                      <C>                <C>             <C>               <C>               <C>               <C>
Robert S. Pepper, Ph.D.              10,000         347,917           140,356           180,000        $4,893,786         3,570,000
John Kehoe                                0               0            14,000            76,000           175,000         1,040,000
J. Fran<c,>ois Crepin                 9,000         147,717            10,000            57,000           251,233         1,029,000
George B. Holmes                          0               0            24,000            61,000           459,000         1,121,000
Manuel D. Yuen                            0               0            51,000            67,300         1,778,200         1,383,650
Daniel S. Koellen                         0               0            28,200            61,500           968,735         1,238,710
</TABLE>


(1) Based  upon  the  market  price  of $35.75 per share, which was the closing
price per share on the NASDAQ National  Market  System  on  the last day of the
1996 fiscal year, less the option exercise price payable per share.



ITEM  12.   SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

     The following table sets forth certain information
regarding beneficial ownership of the  Company's Common
Stock as of February 28, 1997, by (i) each  person  (or
group  of  affiliated  persons) known by the Company to
own beneficially more than  5%  of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each
Named  Officer,  and (iv) the Company's  directors  and
executive officers  as  a group. Except as indicated in
the footnotes to this table,  the persons named herein,
based  on information provided by  such  persons,  have
sole voting  and  investment  power with respect to all
shares of Common Stock shown as  beneficially  owned by
them,   subject   to  community  property  laws,  where
applicable.


<TABLE>
<CAPTION>
                                                                                         SHARES BENEFICIALLY
<S>                                                                          <C>
DIRECTORS, NAMED OFFICERS AND 5% SHAREHOLDERS                                                   OWNED
<CAPTION>
                                                                                NUMBER                PERCENT (1)
<S>                                                                    <C>                      <C>
Warburg, Pincus Capital Company, L.P. (2)                                             4,699,674          35.1%
   466 Lexington Avenue
   New York, New York 10017
Kopp Investment Advisors, Inc. (3)                                                    2,315,944          17.3%
   6600 France Avenue South, Suite 672
   Edina, Minnesota 55435
Robert S. Pepper, Ph.D. (4).                                                            293,689          2.2%
Thomas J. Connors (5)                                                                    44,000            *
Paul Gray (6)                                                                            16,000            *
Martin Jurick (7)                                                                        14,000            *
Henry Kressel, Ph.D. (2)(8)                                                           4,699,674          35.1%
Joseph P. Landy (2)(8)                                                                4,699,674          35.1%
John Kehoe (9)                                                                           19,000            *
J. Fran<c,>ois Crepin (10)                                                               40,670            *
Daniel S. Koellen (11)                                                                   54,586            *
Manuel D. Yuen (12)                                                                      80,817            *
George B. Holmes (13)                                                                     6,000            *
All Named Officers and Directors as a group (11 persons) (14)                         5,268,436          38.2%
</TABLE>


(1) Percent ownership is based on 13,405,475 shares of Common Stock outstanding
as  of  February 28, 1997, plus shares issuable pursuant to options or warrants
held by the  person  or  class  in question that are exercisable within 60 days
after February 28, 1997.

(2)     The shares listed are owned of record by Warburg, Pincus Capital
Company, L.P., a Delaware limited partnership ("WPCC"), and beneficial
ownership may be attributed to E.M. Warburg, Pincus & Co., LLC, a New York
Limited Liability Company ("EMW LLC"), the successor to Warburg, Pincus
Ventures, Inc., a Delaware corporation; and to Warburg, Pincus & Co., a New
York general partnership ("WP").   WP, the sole general partner of WPCC, has a
20% interest in the profits of WPCC. Lionel I. Pincus is the managing partner
of WP and the managing member of EMW LLC and may be deemed to control both WP
and EMW LLC.  The members of EMW LLC are substantially the same as the partners
of WP.  Henry Kressel and Joseph P. Landy, each a director of the Company, is a
Managing Director and a member of EMW LLC and a general partner of WP.  As
such, each of Messrs. Kressel and Landy may be deemed to have an indirect
pecuniary interest (within the meaning of Rule 16a-1 of the Securities Exchange
Act of 1934, as amended) in an indeterminate portion of the common shares
beneficially owned by WPCC and WP.  Each of Messrs. Kressel and Landy disclaims
beneficial ownership, for purposes of Section 16 of the Act and otherwise, of
such common shares.

(3)  Includes  2,231,944  shares over  which  Kopp  Investment  Advisors,  Inc.
exercises investment discretion,  but  for  which  it is not the record holder;
10,000 shares which Kopp Investment Advisors, Inc., owns directly; 4,000 shares
owned  by Kopp Investment Advisors, Inc., Profit Sharing  Plan;  50,000  shares
owned by  LeRoy  C. Kopp Individual Retirement Plan; and 20,000 shares owned by
Kopp Family Foundation.

(4) Includes 8,000  shares  held  of  record  by  the Robert S. and Star Pepper
Charitable Trust, and 195,356 shares issuable under  stock  options held by Dr.
Pepper exercisable within 60 days of February 28, 1997.

(5)  Includes 20,000 shares issuable under stock options held  by  Mr.  Connors
exercisable within 60 days of February 28, 1997.

(6) Includes  16,000  shares  issuable  under  stock  options  held by Dr. Gray
exercisable within 60 days of February 28, 1997.

(7)  Includes  4,000  shares  issuable  under stock options held by Mr.  Jurick
exercisable within 60 days of February 28, 1997.

(8)  Shares held of record by Warburg. Both  Dr.  Kressel  and  Mr.  Landy  are
managing  directors  of  EMW  and  general  partners  of WPC. All of the shares
indicated  as  owned by both Dr. Kressel and Mr. Landy are  owned  directly  by
Warburg and are  included  because  of their affiliation with Warburg. Both Dr.
Kressel and Mr. Landy disclaim beneficial ownership of such shares.

(9)    Includes 19,000 shares issuable  under  stock  options held by Mr. Kehoe
exercisable within 60 days of February 28, 1997.

(10) Includes 25,500 shares issuable under stock options  held  by  Mr.  Crepin
exercisable within 60 days of February 28, 1997.

(11)  Includes  43,575  shares issuable under stock options held by Mr. Koellen
exercisable within 60 days of February 28, 1997.

(12) Includes 67,825 shares  issuable  under  stock  options  held  by Mr. Yuen
exercisable within 60 days of February 28, 1997.

(13)  Includes  6,000  shares  issuable  under stock options held by Mr. Holmes
exercisable within 60 days of February 28, 1997.

(14) Includes an aggregate of 397,256 shares  issuable  upon  exercise of stock
options  held  by Named Officers and Directors exercisable within  60  days  of
February 28, 1997.  See footnotes (2), (4), (5), (6), (7),(8), (9), (10), (11),
(12) and (13) above.





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In connection with  securing  a  loan from WPCC in 1992,
the Company issued a warrant to purchase  202,746  shares  of
its  common  stock  at  an exercise price of $1.54 per share.
The  warrant was exercised  January  16,  1997,  for  192,754
shares,   and   the   balance   was  surrendered,  on  a  net
appreciation basis, in an amount equal to the exercise price.
Directors Kressel and Landy, each  of whom is an affiliate of
the entity controlling WPCC, disclaims  beneficial ownership,
for purposes of Section 16 of the Act and  otherwise, of such
common stock.





COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Compensation Committee currently  consists
of  directors  Connors,  Jurick and Kressel. The Compensation
Committee  reviews  and  approves  the  compensation  of  the
Company's executive officers.   The compensation of the Chief
Executive  Officer is subject to approval  by  the  Board  of
Directors.

     Mr. Connors was paid $129,600 during 1996 for consulting
services rendered under an agreement with the Company.









<PAGE>




                                 PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON
 FORM 8-K.

(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

<TABLE>
<CAPTION>
                                                                                              FORM 10-K
                                                                                              PAGE NO.
<S>                                                                                   <C>
         1. Financial Statements:
       Report of Independent Public Accountants                                                  32
       Consolidated Balance Sheets as of December 29, 1996 and December 30, 1995                 33
       Consolidated Statements of Income for fiscal years ended
        December 29, 1996, December 30, 1995, and December 31, 1994                              35
       Consolidated Statements of Shareholders' Equity for fiscal years ended
       December 29, 1996, December 30, 1995, and December 31, 1994                               37
       Consolidated Statements of Cash Flows for fiscal years ended December 29, 1996,
           December 30, 1995, and December 31, 1994                                              39
       Notes to Financial Statements                                                             41
       2. FINANCIAL STATEMENT SCHEDULES:
       II-Valuation and Qualifying Accounts                                                      53
</TABLE>

      ALL OTHER  SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR
THE REQUIRED INFORMATION  IS  SHOWN  IN THE FINANCIAL STATEMENTS OR NOTES
THERETO.

      3. EXHIBITS:

<TABLE>
<CAPTION>
            EXHIBIT
            NUMBER
<S>                            <C>
       3.1(1)                  Amended and Restated Articles of Incorporation of the Company.
      3.2(1)                   Bylaws of the Company, as amended.
      3.3(1)                   Amended and Restated Articles of Incorporation filed August 31, 1994.
      3.4(2)                   Certificate of Amendment to the Company's Amended and Restated Articles of
                               Incorporation, filed December 30, 1994.
      4.1                      Reference Exhibit 3.1.
      4.2(1)                   Investor Rights Agreement dated as of October 19, 1990, as amended.
      4.3(1)                   Stock Purchase Agreement dated as of April 24, 1991 between the Company and
                               Silicon
                               Systems, Inc.
      10.1<circumflex><circumflex>(1) 1985 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
                               Purchase
                               Plan, as amended.
      10.2<circumflex><circumflex>* 1993 Stock Option Plan, as amended and restated.
      10.3<circumflex><circumflex>(1) Amended and Restated Employee Stock Purchase Plan.
      10.4<circumflex><circumflex>(2) Employment Agreement between the Company and Robert S. Pepper dated as of July 14,
                               1986, as amended.
      10.5<circumflex><circumflex>(2) Employment Agreement between the Company and Daniel S. Koellen dated as of
                               February
                               11, 1989, as amended.
      10.6(1)                  Warrant to Purchase Common Stock dated February 24, 1993 issued to Warburg, Pincus
                               Capital Company, L.P.
      10.7(1)                  Warrant Agreement between the Company and Equitec Leasing Company dated March 7,
                               1986, as amended.
</TABLE>
<TABLE>
<CAPTION>


             EXHIBIT
             NUMBER
<S>                              <C>
       10.8(1)                   Warrant Agreement between the Company and Equitec Leasing Company dated October
                                 13, 1987, as amended.
      10.9(1)                    Warrant Agreement between the Company and Equitec Leasing Company dated October
                                 30, 1987, as amended.
      10.10(1)                   Business Loan Agreement dated as of October 21, 1991 between the Company and
                                 Silicon
                                 Valley Bank.
      10.11(1)                   Master Equipment Lease dated as of April 15, 1993 between the Company and Phoenix
                                 Leasing Incorporated.
      10.12(1)                   Leastec Master Lease Agreement dated as of January 24, 1991 between the Company
                                 and
                                 Leastec Corporation.
      10.13(1)                   Master Equipment Lease dated as of April 15, 1994 between the Company and Phoenix
                                 Leasing Incorporated.
      10.14<circumflex>(1)       Foundry Agreement dated as of March 25, 1993 between the Company and Austria
                                 Mikro Systems International GmbH.
      10.15<circumflex>(1)       Joint Development and License Agreement dated February 14, 1991 between the
                                 Company and Fujitsu Limited.
      10.16<circumflex>(1)       License Agreement dated April 24, 1991 between the Company and Silicon Systems
                                 Inc.,
                                 as amended.
      10.17<circumflex>(1)       License Agreement dated April 13, 1994 between the Company and Silicon Systems
                                 Inc.
      10.18<circumflex>(1)       License Agreement dated September 26, 1989 between the Company and Asahi Chemical
                                 Industry Co., Ltd.
      10.19<circumflex>(1)       Light Industrial Lease dated as of December 3, 1985 between the Company and Sparks
                                 Properties, Inc. for premises at 195 Lake Forest Way, as amended.
      10.20<circumflex>(1)       Development Agreement for a General DataComm Customer - Specific Line Interface
                                 Transceiver dated October 1, 1990.
      10.21(1)                   Form of Participation Agreement to a High Speed Digital Subscriber Line Interface
                                 Circuit Development Consortium.
      10.22<circumflex>(1)       Development and Supply Agreement for Integrated Circuits dated as of September 28,
                                 1993 between the Company and Northern Telecom, Inc.
      10.23<circumflex><circumflex>(1) Form of Directors' Indemnification Agreement.
      10.24(2)                   Form of Custody and Escrow Agreement for Selling Shareholders.
      10.25(2)                   Form of Selling Shareholder's Irrevocable Power of Attorney.
      10.26<circumflex><circumflex>(2) Consulting Agreement with Thomas J. Connors, as amended.
      10.27(1)                   Real Property Lease with Evergreen/Bradville IV dated July 16, 1994.
      10.28(1)                   Real Property Lease with EI Dorado Savings Bank dated July 28, 1994.
      10.29(2)                   Amendment to Real Property Lease with Evergreen/Bradville IV, dated November 5,
                                 1994.
      10.30(2)                   Amendment to Form of Participation Agreement to a High Speed Digital Subscriber
                                 Line
                                 Interface Circuit Development Consortium.
      10.31(2)                   Settlement Agreement between the Company and Fujitsu Limited, dated November 11,
                                 1994.
        10.32<circumflex><circumflex>(3) Consulting Agreement with Paul Gray
        10.33<circumflex>(4)     Foundry Agreement
        10.34<circumflex>(5)     Agreement and Plan of Reorganization (Maker Communications, Inc.)
        10.35<circumflex>(5)     Agreement and Plan of Reorganization (San Francisco Telecom, Inc.)
        10.36<circumflex>(5)     Equipment Lease Agreement
        10.37<circumflex><circumflex><circumflex>(6) Foundry Agreement
        10.38(7)                 Deposit Agreement
        10.39(7)                 Real Property Lease Agreement with Evergreen/Bradville IV dated December 29, 1995
        10.40*<circumflex><circumflex><circumflex> Agreement and Plan of Reorganization (Silicon Design Experts, Inc.)
      22.1*                      Subsidiaries of Registrant. (see page S3)
      24.1*                      Consent of Arthur Andersen & Co. (see page S4)
      25.1*                      Powers of Attorney. (see page S1)
        27.1*                    Financial Data Schedule, December 29, 1996
</TABLE>

(1) Incorporated  by  reference  to  Exhibit  filed  with  the  Company's
Registration  Statement  on  Form  S-1  (File  No.  33-65810),  which was
declared effective August 19, 1994.

(2)  Incorporated  by  reference  to  Exhibit  filed  with  the Company's
Registration  Statement-Form S-1 (File No. 33-74088), which was  declared
effective February 8, 1995.

(3) Incorporated  by reference to Exhibit filed with the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1994.
(4)  Incorporated by  reference  to  Exhibit  filed  with  the  Company's
Quarterly Report on Form 10-Q for the Period Ended April 1, 1995.

(5) Incorporated  by  reference  to  Exhibit  filed  with  the  Company's
Quarterly Report on Form 10-Q for the Period Ended July 1, 1995.

(6)  Incorporated  by  reference  to  Exhibit  filed  with  the Company's
Quarterly Report on Form 10-Q for the Period Ended September 29, 1995.

(7) Incorporated by reference to Exhibit filed with the Company's  Annual
Report on Form 10-K for the fiscal year ended December 30, 1995.

  *   Filed herewith.

      <circumflex> Confidential treatment granted.

<circumflex><circumflex>  Indicates  management  contract or compensatory
plan or arrangement.

<circumflex><circumflex><circumflex> Confidential treatment requested.

      Upon  written  request  to  the Company, the Company  will  furnish
shareholders with a copy of any Exhibit  upon  payment  of $.10 per page,
which  represents  the  Company's reasonable expenses in furnishing  such
Exhibits.


(b)   On October 10, 1996,  the Registrant filed a Current Report on Form
8-K relating to the September  27,  1996,  determination  to  change  the
Registrant's  fiscal  year,  which  now  ends  on the last Sunday nearest
calendar year end in a 52-53 week year.







<PAGE>




                ARTHUR ANDERSEN LLP


          Report of Independent Public Accountants

To the Shareholders and Board of Directors of
     Level One Communications, Incorporated:

We have audited the accompanying consolidated balance  sheets
of  LEVEL  ONE  COMMUNICATIONS,  INCORPORATED  (a  California
corporation),  and  subsidiaries as of December 29, 1996  and
December 30, 1995, and  the  related  statements  of  income,
shareholders'  equity  and  cash  flows for each of the three
fiscal years ended December 29, 1996,  December  30, 1995 and
December  31,  1994.   These  financial  statements  are  the
responsibility    of    the    Company's   management.    Our
responsibility is to express an  opinion  on  these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards.  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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial  statements  referred  to above
present  fairly,  in  all  material  respects,  the financial
position  of  Level  One  Communications,  Incorporated,  and
subsidiaries, as of December 29, 1996 and December  30, 1995,
and the results of their operations and their cash flows  for
each  of  the  three  fiscal  years  ended December 29, 1996,
December 30, 1995 and December 31, 1994  in  conformity  with
generally accepted accounting principles.

Our  audit  was made for the purpose of forming an opinion on
the  basic  financial  statements  taken  as  a  whole.   The
schedule listed  in  the  index  of  financial  statements is
presented  for purposes of complying with the Securities  and
Exchange Commission's  rules  and  is not a part of the basic
financial statements.  This schedule  has  been  subjected to
the  auditing  procedures  applied in the audit of the  basic
financial statements and, in  our  opinion,  fairly states in
all material respects the financial data required  to  be set
forth  therein  in relation to the basic financial statements
taken as a whole.
     /S/ ARTHUR ANDERSEN LLP

Sacramento, California
February 28, 1997







<PAGE>





<TABLE>
<CAPTION>
                             LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>  <C>  <C>  <C>  <C>  <C>                                <C>             <C>     <C>
                                   CONSOLIDATED BALANCE SHEETS
                             December 29, 1996 and December 30, 1995
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE AMOUNTS)                    1996                              1995
<CAPTION>
<S>  <C>  <C>  <C>  <C>  <C>                                <C>             <C>     <C>
                                                     ASSETS
                                            Current Assets:
                                  Cash and cash equivalents               $                     $
                                                                     20,251                21,628
                                     Short-term investments          10,211                 8,223
                      Accounts receivable, net of allowance          18,279                15,390
                     for doubtful accounts of $156 and $300
                            for 1996 and 1995, respectively
                                                Inventories           9,990                15,772
                                Deferred income tax benefit           2,504                 4,289
                                           Prepaid expenses           2,351                 2,905
                                       Total current assets
                                                                     63,586                68,207
                                Property and equipment, net          23,676                20,438
                                      Long-term investments          12,440                 4,695
                              Related party note receivable                                 1,225
                                                                          -
                                           Foundry deposits           8,000                 2,000
                                               Other assets           4,400                 4,236
                                               Total assets               $                     $
                                                                    112,102               100,801
                                       LIABILITIES AND SHAREHOLDERS' EQUITY
                                       Current Liabilities:
               Current portion of capital lease obligations               $                     $
                                                                      1,129                 1,059
                                           Accounts payable           4,778                 9,541
                                      Accrued payroll costs           1,985                 1,762
                                       Income taxes payable           1,338
                                                                                                -
                                           Deferred revenue                                   133
                                                                          -
                                  Other accrued liabilities           3,485                 4,878
                                  Total current liabilities          12,715                17,373
            Capital lease obligations, less current portion           3,194                 3,814
                                     Deferred lease expense             612                   649
                                          Total liabilities
                                                                     16,521                21,836
                                      Shareholders' Equity:
                                 Common Stock, no par value          83,230                77,772
                            Authorized - 105,000,000 shares
                    Outstanding - 13,116,227 and 12,839,319
                                  shares for 1996 and 1995,
                                               respectively
                      Unrealized gain on available-for-sale
                                     securities, net of tax              12                    67
                                          Retained earnings          12,339                 1,126
                                 Total shareholders' equity          95,581                78,965
                 Total liabilities and shareholders' equity               $                     $
                                                                    112,102               100,801
</TABLE>

       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.






<PAGE>





<TABLE>
<CAPTION>
                                     LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>        <C>                            <C>               <C>      <C>              <C>       <C>
                                        CONSOLIDATED STATEMENTS OF INCOME
               For Fiscal Years Ended December 29, 1996, December 30, 1995, and December 31, 1994
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<CAPTION>
                                                1996                       1995                       1994
<S>        <C>                            <C>               <C>      <C>              <C>       <C>
                                 Revenues                 $                         $                          $
                                                    111,987                    78,018                     46,825
                           Cost  of sales            48,477                    33,300                     18,785
           Gross margin                              63,510                    44,718                     28,040
                  Research & development*            24,505                    17,857                      9,956
                        Sales & marketing            16,589                    11,372                      6,772
                 General & administrative             6,741                     5,752                      3,424
           Total operating expenses                  47,835                    34,981                     20,152
                         Operating income            15,675                     9,737                      7,888
           Interest and other income, net             2,293                     2,064                      1,440
                  Income before provision
           for income taxes                          17,968                    11,801                      9,328
               Provision for income taxes             6,755                     1,543                      1,323
                               Net income                 $                         $                          $
                                                     11,213                    10,258                      8,005
                       Earnings per Share             $0.82                     $0.76                      $0.60
                  Weighted Average Common
           Shares Outstanding                        13,756                    13,465                     13,291
*Includes one-time charges for
acquisitions of $2,500 and $750 for 1996
                                and 1995,
                            respectively.
</TABLE>

       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.






<PAGE>





<TABLE>
<CAPTION>
                                              LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>                                <C>         <C>         <C>  <C>           <C>  <C>        <C> <C>       <C> <C>       <C>
                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        For Fiscal Years Ended December 29, 1996, December 30, 1995, and December 31, 1994
</TABLE>
<TABLE>
<CAPTION>
                                                                                                     Retained
<S>                                <C>         <C>         <C>  <C>           <C>  <C>         <C>  <C>        <C> <C>
(IN THOUSANDS)                          Common Stock                 Deferred      Unrealized        Earnings
                                     SHARES      AMOUNT         COMPENSATION       GAIN (LOSS)       (DEFICIT)       TOTAL
Balance at January 1, 1994                        $ 41,143                  $                $       $(17,137)      $ 23,910
                                     10,874                              (96)                -
Issuance of common stock under
stock         option and purchase           72                                                                           220
plans                                                  220                  -                -               -
Issuance of common stock upon
exercise
 of warrants                                                                                                              31
                                             6          31                  -                -               -
Issuance of common stock                 1,529      31,629                                                            31,629
                                                                            -                -               -
Stock issuance costs                                                                                                   (581)
                                             -       (581)                  -                -               -
Amortization of deferred
compensation expense                         -                                                               -            95
                                                         -                 95                -
Net income                                                                                                             8,005
                                             -           -                  -                -           8,005
Balance at December 31, 1994            12,481      72,442
                                                                          (1)                -         (9,132)        63,309
Issuance of common stock under
stock option and purchase plans
     and purchase plans                    219         431                  -                -               -           431
Issuance of common stock upon
exercise
     of warrants                                                                                                          19
                                             4          19                  -                -               -
Tax benefit of stock option                          2,418                                                             2,418
exercises                                    -                              -                -               -
Stock issued in connection with            135       2,462                                                             2,462
acquisitions                                                                -                -               -
Unrealized gain on available-for-
sale
     investments, net of tax                                                                                              67
                                             -           -                  -               67               -
Amortization of deferred
compensation expense                         -                                                                             1
                                                         -                  1                -               -
Net income                                                                                                            10,258
                                             -           -                  -                -          10,258
Balance at December 30, 1995            12,839      77,772
                                                                            -               67           1,126        78,965
Issuance of common stock under
stock option and purchase plans            188       1,243                                                             1,243
                                                                            -                -               -
Issuance of common stock upon
exercise
     of warrants                                                                                                          10
                                             2          10                  -                -               -
Tax benefit of stock option                          1,205                                                             1,205
exercises                                    -                              -                -               -
Stock issued in connection with                      3,000                                                             3,000
acquisitions                                87                              -                -               -
Unrealized loss on available-for-
sale
     investments, net of tax                                                                                            (55)
                                             -           -                  -             (55)               -
Net income                                                                                                            11,213
                                             -           -                  -                -          11,213
Balance at December 29, 1996            13,116    $ 83,230                  $                $       $  12,339      $ 95,581
                                                                            -               12
</TABLE>

       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.






<PAGE>





<TABLE>
<CAPTION>
                                     LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>     <C>    <C>                                        <C>            <C>    <C>           <C>   <C>
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               For Fiscal Years Ended December 29, 1996, December 30, 1995, and December 31, 1994
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
<CAPTION>
                                                               1996                 1995                1994
<S>     <C>    <C>                                        <C>            <C>    <C>           <C>   <C>
                    Cash flows from operating activities:
                                               Net income  $      11,213          $    10,258        $     8,005
          Adjustments to reconcile net income to net cash
           provided by operating activities:
                 Depreciation and amortization                     7,389                5,214              3,144
                 Purchased research & development                  2,500                  750
               expenses                                                                                        -
                     Changes in assets and liabilities, net of effect of
                                                           acquisitions:
                 Accounts receivable                             (2,889)              (9,021)            (2,028)
                 Inventories                                       5,782              (9,268)            (4,578)
                 Deferred tax assets                               1,785                (977)              (466)
                 Prepaid expenses                                    236                                 (1,481)
                                                                                      (1,192)
                 Accounts payable and accrued liabilities        (3,427)               11,684              2,881
                 Deferred revenues                                 (133)                   97            (1,148)
                     Net cash provided by operating               22,456                7,545              4,329
               activities
                    Cash flows from investing activities:
                       Purchase of short-term investments       (12,754)              (8,042)           (35,108)
         Proceeds from sales and maturities of short-term
                    investments                                   10,711               31,027              9,499
                        Purchase of long-term investments       (11,780)              (3,681)            (2,000)
          Proceeds from sales and maturities of long-term
                    investments                                    4,035                1,000
                                                                                                               -
                                 Net capital expenditures        (9,837)             (10,033)           (10,597)
              Payments (receipts) for related party notes          1,225              (1,225)
                                               receivable                                                      -
           Payments for foundry deposits and other assets
                                                                 (6,136)              (4,081)              (139)
                    Net cash provided by (used in)              (24,536)                4,965           (38,345)
               investing activities
                    Cash flows from financing activities:
               Net principal payments under capital lease          (550)                (569)            (3,164)
                                              obligations
                  Proceeds from issuance of stock, net of
           repurchases and costs of issuance                       1,253                  427             31,299
                    Net cash provided by (used in)                   703                (142)             28,135
               financing activities
     Net increase (decrease) in cash and cash equivalents        (1,377)               12,368            (5,881)
           Cash and cash equivalents at beginning of year         21,628                9,260             15,141
                 Cash and cash equivalents at end of year  $      20,251           $   21,628                  $
                                                                                                           9,260
               SUPPLEMENTARY DISCLOSURE OF CASH AND NONCASH TRANSACTIONS
             Non-cash investing and financing activities:
               Equipment purchased under capital leases                $          $     4,770                  $
                                                                     726                                   1,122
               Tax benefit related to stock options                1,205
                                                                                        2,418                  -
               Unrealized gain (loss) on available-for-
               sale investments                                     (55)
                                                                                           67                  -
               Cash payments for:
                    Interest                                         351                  142                222
                    Income taxes                                   2,564
                                                                                        1,268                766
</TABLE>

       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.






<PAGE>




                 LEVEL ONE COMMUNICATIONS, INCORPORATED
                      NOTES TO FINANCIAL STATEMENTS


1.   ORGANIZATION AND DESCRIPTION OF THE BUSINESS

     Level One Communications,  Incorporated  (the "Company")
was incorporated in California on November 26, 1985.

     The Company designs, develops and markets  mixed  signal
application  specific  standard  integrated  circuit products
("ASSPs") for silicon connectivity solutions.   The Company's
target   customers   are  the  worldwide  original  equipment
manufacturers of personal  computers,  workstations,  network
access  equipment, data transmission equipment and networking
equipment.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS  OF  PRESENTATION.  The Company prepares financial
statements  based on a 52-53 week  year.   During  the  3{rd}
Quarter of Fiscal  1996,  the Company changed its fiscal year
end from the last Saturday  nearest  to the calendar year end
to the last Sunday nearest the calendar year end.  The impact
of the change in fiscal year was immaterial  to the Company's
results of operations.

     The   consolidated  financial  statements  include   the
accounts of  the  Company  and its wholly owned subsidiaries.
Significant intercompany accounts  and transactions have been
eliminated.

     The  preparation of financial statements  in  conformity
with  generally   accepted   accounting  principles  requires
management to make estimates and  assumptions that affect the
reported amounts of assets and liabilities  and disclosure of
contingent  assets  and  liabilities  at  the  date   of  the
financial statements and the reported amounts of revenues and
expenses  during  the reporting period.  Actual results could
differ from those estimates.

     CASH  AND  CASH   EQUIVALENTS.    For  purposes  of  the
consolidated statements of cash flows, the  Company considers
all highly liquid debt instruments purchased with an original
maturity  of  three  months  or  less to be cash equivalents.
Cash  and cash equivalents consists  of  cash  deposits  with
banks,  tax  advantaged  municipal  bonds,  and  money market
instruments with insignificant interest rate risk.

     INVESTMENTS.  As of January 2, 1994, the Company adopted
Statement   of   Financial   Accounting  Standards  No.  115,
"Accounting  for  Certain  Investments  in  Debt  and  Equity
Securities"  (SFAS  115).   This   statement   requires  that
investments  be  classified  into  one  of  three categories:
held-to-maturity,   available-for-sale,   or   trading.    It
requires  that investments classified as held-to-maturity  be
reported at  amortized  cost,  that investments classified as
available for sale be reported at  fair value with unrealized
gains and losses, net of related tax,  reported as a separate
component  of  shareholders'  equity,  and  that  investments
classified  as  trading  be  reported  at  fair  value   with
unrealized gains and losses included in earnings.  In July of
1995, certain of the Companies previously classified held-to-
maturity   investments  were  sold,  causing  the  investment
portfolio to  be  reclassified  as  being available-for-sale.
The  unrealized gain at the time of the  reclassification  to
available-for-sale    was   immaterial   to   the   financial
statements.  As of December  29,  1996 and December 30, 1995,
all of the Company's investments are classified as available-
for-sale and are carried at fair value.  As  of  December 29,
1996,  and  December  30,  1995,  the Company's stockholders'
equity reflected an unrealized gain, net of applicable taxes,
of $12,000 and $67,000, respectively.

     The amortized cost and market value of the Company's
investments available for sale as of December 29, 1996, were
as follows:


<TABLE>
<CAPTION>
                                                           Gross Unrealized Gross Unrealized
                                        AMORTIZED COST          GAINS            LOSSES           MARKET
(IN THOUSANDS)                                                                                     VALUE
<S>                                        <C>                  <C>               <C>           <C>
Municipal Bonds                            $ 20,531             $ 29               $ 3           $ 20,557
Corporate Debt and Equity Securities           2,100               --                6               2,094
                                           $ 22,631             $ 29               $ 9           $ 22,651
</TABLE>

     The amortized cost and market value of the Company's
investments available for sale as of December 30, 1995, were
as follows:

<TABLE>
<CAPTION>
                                                           Gross Unrealized Gross Unrealized
                                         AMORTIZED COST         GAINS            LOSSES         MARKET VALUE
(IN THOUSANDS)
<S>                                        <C>                 <C>               <C>            <C>
Municipal Bonds                            $ 12,287             $ 107            $    --         $ 12,394
Corporate Debt and Equity Securities             518                 6                --               524
                                           $ 12,805             $ 113            $    --         $ 12,918
</TABLE>

     The amortized cost and market  value  of  the  Company's
investments,  by  maturity,  at  December  29, 1996, were  as
follows:


<TABLE>
<CAPTION>
<S>                                                  <C>
(IN THOUSANDS)                                                      AVAILABLE-FOR-SALE
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29, 1996                                     Amortized Cost              Market Value
<S>                                             <C>                        <C>
Due in one year or less                                  $ 10,212                   $ 10,211
Due after one year through five years                       12,419                     12,440
                                                          $22,631                    $ 22,651
</TABLE>


     Proceeds from the sale of available-for-sale investments
during  fiscal  1996  and  1995   were $14.7 million and $1.0
million, respectively.  The cost basis  used  in  determining
realized  gains and loses is specific identification.   Gross
gains of $1,000  and gross losses of $31,000, and gross gains
of $9,000, with no  losses,  were  realized on those sales in
1996 and 1995, respectively.







<PAGE>




     FINANCIAL  INSTRUMENTS.   The  following   methods   and
assumptions  were  used by the Company in estimating its fair
value disclosures for  financial  instruments:   For cash and
cash   equivalents,   accounts   receivable,  trade  accounts
payable,  and  related party notes receivable,  the  carrying
value  is  a  reasonable   estimate   of   fair  value.   For
investments, fair values are based on quoted market prices or
dealer quotes.

     INVENTORIES.   Inventories are stated at  the  lower  of
cost (first-in, first-out)  or market  and include materials,
labor and manufacturing overhead costs.

     Inventories as of December 29, 1996, and December 30,
1995, consisted of the following:


<TABLE>
<CAPTION>
(IN THOUSANDS)                                     1996                      1995
<S>                                     <C>                        <C>
Raw materials                                    $     32                  $      26
Work-in-process                                     7,948                    14,281
Finished goods                                      2,010                      1,465
                                                  $ 9,990                   $15,772
</TABLE>


     PROPERTY  AND EQUIPMENT.   Property  and  equipment  are
recorded at cost.   Depreciation  is  provided on a straight-
line basis over the following estimated useful lives:

     Machinery and equipment 3-5   years
     Furniture and fixtures 3-5   years
     Leasehold improvements 6-10 years

     Property and equipment, net is comprised of the
following:

<TABLE>
<CAPTION>
(IN THOUSANDS)                            1996                  1995
<S>                              <C>                    <C>
Machinery and equipment                  $25,254               $22,557
Furniture and fixtures                    11,899                  6,059
Leasehold improvements                      3,485                 2,185
                                          40,638                30,801
Less-Accumulated depreciation            (16,962)              (10,363)
                                        $ 23,676              $ 20,438
</TABLE>


     DEFERRED  LEASE  EXPENSE.  Lease payments  are
recognized as expense on a straight-line basis over
the term of the lease.

     PATENT  COSTS.  Patent  costs  include  direct
costs  of  obtaining  the  patents.    Upon  patent
approval,  patent  costs  are  amortized  over  the
estimated useful  life  of  the  patent  using  the
straight-line method.

     REVENUE   RECOGNITION.    Product   sales  are
generally  recognized  upon  shipment  of  product.
However, the Company defers recognition of revenues
and   gross   margin   from   sales   to   stocking
distributors  until  such  distributors resell  the
related products to their customers.    The Company
has deferred recognition of gross margin  amounting
to   $864,000,   $1,300,000,  and  $255,000  as  of
December 29, 1996,  December 30, 1995, and December
31,  1994,  respectively.    For   1996,  sales  to
Hewlett-Packard  were  11.2% of total  sales.   For
1995  and 1994, no single  customer  accounted  for
more than 10% of revenues.

     Export  sales as a percentage of revenues were
39%,  33%,  and  22%  for  1996,  1995,  and  1994,
respectively.

     The Company  from  time  to  time  enters into
development  and  license  agreements  with certain
customers      related     to     customer-specific
applications.   Related   costs   are  expensed  as
incurred   and   are   included  in  research   and
development  expenses,  while   revenue   for  non-
recurring  engineering contracts is deferred  until
contract milestones  are  met.   During 1996, 1995,
and  1994,  the  Company  recognized  revenues   of
$220,000, $155,000, and $1.4 million, respectively,
in  accordance  with the contract milestones in the
Company's agreements.

     The Company earns royalty income from products
sold by licensees and recognizes that income in the
period that income is earned.

Revenues are comprised of the following:


<TABLE>
<CAPTION>
(IN THOUSANDS)                           1996             1995              1994
<S>                                <C>               <C>             <C>
Product sales                          $111,392          $77,417          $45,104
Royalties, licenses and non-
recurring engineering revenue                 595             601            1,721
    Total revenues                     $111,987          $78,018          $46,825
</TABLE>


     INCOME TAXES.  The Company accounts for income
taxes pursuant to Statement of Financial Accounting
Standards No. 109,  "Accounting  for  Income Taxes"
(SFAS   109).    This  statement  provides  for   a
liability  approach  under  which  deferred  income
taxes are provided  based upon enacted tax laws and
rates applicable to the  periods in which the taxes
become payable.

     EARNINGS PER SHARE.   Earnings  per  share  is
based   on   the  weighted  average  common  shares
outstanding and  dilutive common equivalent shares.
Common equivalent  shares  include  dilutive  stock
options   and   warrants  when  appropriate.   Dual
presentation of primary  and fully diluted earnings
per  share  is  not  shown  on   the  face  of  the
statements  of  income because the differences  are
insignificant.

     RECLASSIFICATIONS.  Certain prior year amounts
on the Consolidated  Financial Statements have been
reclassified  to  conform   to   the   fiscal  1996
presentation.

3.   SHORT-TERM BORROWINGS

     The  Company has a $10 million revolving  line
of credit with a bank.  The Company compensates the
bank  for  credit   facilities   by  paying  annual
administrative fees.  The balance  of the Company's
short-term borrowings as of December  29, 1996, and
December 30, 1995, was zero.

4.   LEASES

     The  Company  conducts  its  operations  using
leased facilities and equipment under  both capital
and   operating   leases.    Minimum  future  lease
payments as of December 29, 1996, are as follows:

<TABLE>
<CAPTION>
                                                     CAPITAL                  OPERATING
              (IN THOUSANDS)                         LEASES                    LEASES
<S>                                         <C>                       <C>
YEAR ENDING
     1997                                            $ 1,415                   $  7,791
     1998                                              1,284                       6,982
     1999                                              1,252                       6,587
     2000                                                974                       6,175
     2001                                                  74                      3,316
     Thereafter                                            --                     7,205
                                                     $ 4,999                   $ 36,056
Less-Interest portion (7.38% to 12%)                    (676)
Capital lease obligations                              4,323
Less-Current portion                                  (1,129)
   Long-term portion                                 $ 3,194
</TABLE>


     Rent   expense   for  operating   leases   was
approximately $7.4 million,  $3.5 million, and $1.6
million  for  the  years ended December  29,  1996,
December 30, 1995, and December 31, 1994.







<PAGE>




5.   INCOME TAXES

The provision for income taxes consists of:


<TABLE>
<CAPTION>
(IN THOUSANDS)                               1996                1995                 1994
<S>                                    <C>               <C>                  <C>
Current provision for income taxes
  State                                    $    361             $ 1,353              $ 1,337
  Federal                                     4,609               2,660                   452
Deferred provision (benefits)
  State                                         696                 (675)               (466)
  Federal                                     1,089              (1,795)                   --
     Total tax provision                    $ 6,755             $ 1,543              $ 1,323
</TABLE>


     The tax benefits  associated with nonqualified
stock options reduced taxes  currently  payable  by
$1,205,000   and   $2,418,000  in  1996  and  1995,
respectively.  Such  benefits  were  recorded as an
increase to common stock.

     Deferred   tax  assets  and  liabilities   are
determined based  on  the  differences  between the
financial  reporting  and  tax basis of assets  and
liabilities.   They are measured  by  applying  the
enacted tax rates  and laws in effect for the years
in which such differences are expected to reverse.







<PAGE>




     The significant  components  of  the Company's
deferred tax assets and liabilities as  of December
29, 1996, and December 30, 1995, are as follows:


<TABLE>
<CAPTION>
(IN THOUSANDS)                                            1996                 1995
<S>                                                <C>                 <C>
Deferred tax assets:
  Inventory reserves                                     $   397              $   415
  Deferred income on shipments to distributors               374                  532
  Accounts receivable reserve                                  83                 145
  Deferred lease expense                                     265                  345
  Inventory Unicap adjustment                                345                  303
  Accrued vacation                                           256                  204
  AMT credit carryforwards                                   365                  497
  Capitalized R&D                                            537                1,780
  Other                                                      275                  187
     Total deferred taxes                                $ 2,897              $ 4,408
Deferred tax liabilities:
  Accelerated depreciation                              $   (393)           $   (119)
     Net deferred income tax assets                     $  2,504             $  4,289
</TABLE>


     The reconciliation of the federal tax rate to
the effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                     1996             1995             1994
<S>                                            <C>              <C>              <C>
Statutory federal tax rate                            34.0%            34.0%            34.0%
Reversal of valuation allowance                        --            (21.0)             --
Net operating loss deduction                          --               --             (29.1)
Foreign taxes & foreign sales corporation             (4.7)            (3.0)              .3
State taxes                                            3.3              5.7              9.0
Non-deductible acquisition costs                       5.5              2.2               --
Other                                                  (.5)            (4.8)             --
Effective income tax rate                             37.6%            13.1%            14.2%
</TABLE>



6.   STOCK OPTION AND PURCHASE PLANS

     The Company has three stock option plans,  the
1985  Stock Option Plan (the "1985 Plan"), the 1993
Stock  Option  Plan  (the  "1993  Plan"),  the  San
Francisco  Telecom  Stock  Option  Plan  (the  "SFT
Plan"),  and  an  employee stock purchase plan (the
"ESPP").  No further  options  may be granted under
either the 1985 Plan or the SFT  Plan,  and 400,242
options previously granted under these plans remain
outstanding.    The   Company   applies  Accounting
Principles   Board  Opinion  No.  25  and   related
interpretations   in   accounting  for  its  plans.
Accordingly,   no  compensation   cost   has   been
recognized  for  its   stock   option  plans.   Had
compensation cost for these plans  been  determined
consistent  with  Statement of Financial Accounting
Standards  No.  123,  "Accounting  for  Stock-Based
Compensation" (SFAS  123), the Company's net income
and earnings per share  would  have been reduced to
the following pro forma amounts:


<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)           1996             1995
<S>                                      <C>              <C>
Net income
    As reported                              $ 11,213         $ 10,258
    Pro forma                                $   9,325        $   9,549
Earnings per share
    As reported                             $     0.82        $   0.76
    Pro forma                               $     0.72        $   0.75
</TABLE>


The  fair  value  of  each  option grant  has  been
estimated on the date of the grant using the Black-
Scholes  option-pricing model  with  the  following
assumptions  used  for grants in 1996 and 1995.  In
calculating compensation  cost:  risk-free interest
rates of 6.15 and 5.90 percent,  respectively,  and
expected stock price volatility of 70%, an expected
life of six years and no dividend payments for both
1996 and 1995.

Because  the  SFAS 123 method of accounting has not
been applied to options granted prior to January 1,
1995, and due to  the  nature  and timing of option
grants, the resulting pro forma  compensation  cost
may not be representative of that to be expected in
future years.

The  Company  has  authorized the issuance of up to
450,000 shares of stock  to its full-time employees
under the ESPP.  The Company has sold 22,137 shares
and  15,079  shares as of December  29,  1996,  and
December 30, 1995,  respectively,  and  has  sold a
total  of  44,961 shares through December 29, 1996.
The company  sells shares in two six-month offering
periods per year.   The  price is 85% of the market
price of the stock on the start date or end date of
each offering period, whichever is lower.

The Company may grant options  for  up to 3,050,000
shares  under  the  1993  Plan.   The  Company  has
granted   options   on   1,777,850  shares  through
December 29, 1996.  Under  the 1993 Plan the option
exercise  price equals the stock's  closing  market
price on date of grant.







<PAGE>





The following  table presents the aggregate options
granted, forfeited,  and  exercised  under the 1985
Plan,  1993  Plan and SFT Plan for the years  ended
December 29, 1996,  December 30, 1995, and December
31,  1994,  at  their respective  weighted  average
exercise prices.


<TABLE>
<CAPTION>
(SHARES IN THOUSANDS)              1996                               1995                             1994
<CAPTION>
                                        Wtd. Avg.                        Wtd. Avg.                        Wtd. Avg.
<S>                    <C>            <C>           <C>   <C>         <C>             <C>   <C>         <C>
                            SHRS       EXER. PRICE           SHRS       EXER. PRICE            SHRS      EXER. PRICE
Outstanding, beginning
of period                       1,489       $ 11.41             1,090         $  5.16               941     $   1.67
Granted
   Price = Fair Value             722         21.59               690           17.97               272        15.85
   Price < Fair Value              --            --                25             .67                 4         3.86
Exercised                       (174)          5.55             (217)            1.41              (74)         1.90
Canceled                        (135)         20.16              (99)            7.50              (53)         2.72
Outstanding, end of             1,902       $ 15.19             1,489          $11.41             1,090      $  5.15
period
Exercisable, end of               482                             367                               334
period
</TABLE>


The following table  summarizes  information  about
options  outstanding under the 1985 Plan, 1993 Plan
and SFT Plan at December 29, 1996.


<TABLE>
<CAPTION>
                                              OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
<CAPTION>
(SHARES IN THOUSANDS)    Shares Outstanding    Weighted Avg.                           Shares
                           As of 12/29/96        Remaining        Weighted Avg.   Exercisable As of   Weighted Avg.
Range of Exercise Prices                     Contractual Life    Exercise Price       12/29/96       Exercise Price
<CAPTION>
$  0.38        $   0.67               390             5.96            $   0.40            344               $  0.39
<S>            <C>            <C>               <C>               <C>              <C>              <C>
    1.00          16.50               559             8.00               15.52              70                15.01
  16.75           19.75               480             8.67               17.57              31                17.85
  19.75           36.00               473             9.13               24.58              37                22.22
$  0.38        $ 36.00              1,902             8.03             $ 15.19            482               $  5.29
</TABLE>


Options for all plans are exercisable in
installments at intervals determined by the Board
of Directors, not to exceed ten years and one day.

7.   EMPLOYEE BENEFIT PLAN

     The Company  has a 401(k) Tax Deferred Savings
Plan  (the  "401(k)  Plan")  under  which  eligible
employees may elect to  have  a  portion  of  their
salary  deferred  and contributed to their accounts
under the 401(k) Plan.   Under the 401(k) Plan, the
Company will contribute a minimum of 1% and up to a
maximum  of  3%  of an eligible  employee's  annual
gross salary to the  employee's  account  under the
401(k)  Plan.   For the fiscal years ended December
29, 1996, December 30, 1995, and December 31, 1994,
the Company has contributed $420,000, $315,000, and
$184,000, respectively,  to the 401(k) Plan.






<PAGE>




8.   INCENTIVE PLANS

     The Company  has  reserved  90,000  shares  of
Common  Stock for issuance to employees pursuant to
a stock bonus  plan  to be agreed upon by the Board
of Directors.  As of December  29,  1996, no shares
had been issued.

     Beginning   in   January   1994,  the  Company
implemented  an incentive compensation  plan.   The
Company's incentive  compensation plan provides for
incentive  compensation   for   substantially   all
employees of the Company based upon the achievement
of  specified  operating  and  performance results.
Incentive    compensation    totaled    $1,791,000,
$833,000,  and  $497,000  for 1996, 1995 and  1994,
respectively.

9.   STOCK WARRANTS

     The Company has issued warrants to independent
sales  representatives  to purchase  up  to  43,879
shares  of its Common Stock  with  exercise  prices
ranging from  $2.33  to  $21.00  per  share.  As of
December  29,  1996, an aggregate of 13,208  shares
has been issued upon exercise of warrants.

     In  connection   with  securing  a  loan  from
investors in 1992, the  Company issued a warrant to
purchase  202,746  shares of  Common  Stock  at  an
exercise price of $1.54 per share.  The warrant was
exercised January 16, 1997, for 192,754 shares, and
the balance was surrendered,  on a net appreciation
basis, in an amount equal to the exercise price.

10.  PREFERRED STOCK

     No  shares  of Preferred Stock  are  currently
outstanding,  although   the   Company's  Board  of
Directors is authorized to issue  up  to 10,000,000
shares of Preferred Stock.

11.  RELATED PARTY TRANSACTIONS

     During  1996, 1995 and 1994, the Company  paid
fees  of  approximately   $129,600,  $130,363,  and
$140,000 respectively, to members  of  the Board of
Directors   for   consulting   services.   Services
performed included the development of marketing and
sales   strategies   and   services   relating   to
engineering matters.

     During   the   third   quarter  of  1996,   in
connection with a third-party  financing  for Maker
Communications, Inc. ("Maker"), the Company  sold a
portion  of  its minority interest in Maker for  an
aggregate  of approximately  $675,000.   This  sale
resulted in  a  one-time  gain  recorded  as "Other
Income" in the accompanying Consolidated Statements
of   Income.   The  Company  continues  to  hold  a
minority  interest  in Maker and to license certain
Maker  technology.  Other  contractual  rights  and
obligations,  including the Company's obligation to
provide  certain  loan  financing  to  Maker,  were
terminated   in  the  transaction.   Following  the
transaction, Maker repaid the Company approximately
$2.9  million,   the   total   balance   under   an
outstanding note.

12.  BUSINESS AND TECHNOLOGY ACQUISITIONS

     During  December  1996,  the  Company acquired
Silicon Design Experts, Inc. (SDE).   In connection
with   the  transaction,  the  Company  issued   an
aggregate  of  86,730  shares  of  its common stock
valued  at  $3,000,000  to SDE's shareholders,  and
agreed to issue additional  shares  of Common Stock
in the future to SDE's shareholders and  employees,
with the amount to be contingent upon the extent of
sales of products developed by SDE and Level  One's
stock   price.    The   total   purchase  price  of
$3,000,000 was allocated as follows:   $500,000  to
goodwill, and $2,500,000 for purchased research and
development.     The    purchased    research   and
development of $2,500,000 was reported  as  a  one-
time  charge.   The  transaction  was accounted for
under    the   purchase   method   of   accounting.
Accordingly, SDE's operating results after the date
of the acquisition are included in the Consolidated
Statements of Income.

     On June  6,  1995,  the  Company  acquired San
Francisco Telecom, Inc. ("SFT").  SFT operates as a
wholly-owned   subsidiary   of  the  Company.    In
connection with the transaction, the Company issued
an aggregate 135,360 shares of  its common stock to
SFT's  shareholders,  assumed  existing  SFT  stock
options, which will be exercisable  for  a total of
24,951 shares of Common Stock, and agreed  to issue
additional shares of Common Stock in the future  to
SFT's  shareholders  and employees, with the amount
to  be  contingent upon  the  extent  of  sales  of
products  developed  by  SFT.   The transaction was
accounted   for  under  the  purchase   method   of
accounting.   Accordingly,  SFT's operating results
after the date of the acquisition  are  included in
the Consolidated Statements of Income.


13.  RISK FACTORS

     The  Company  does not manufacture the  wafers
used  for its products.   To  date,  the  Company's
wafers  have been manufactured by foundries located
in  the  United  States,  Europe,  and  Asia.   The
Company depends  upon  these  suppliers  to produce
wafers at acceptable yields and to deliver  them to
the  Company  in  a  timely  manner  at competitive
prices.  The Company may sustain an adverse  impact
on operating  results  from problems with the cost,
timeliness, yield and quality  of  wafer deliveries
from  suppliers.  From time to time, the  available
industry-wide    foundry     capacity    fluctuates
significantly.   During  periods   of   constrained
supply,  the  Company may experience difficulty  in
securing an adequate  supply  of wafers, and/or its
suppliers may increase wafer prices  which  must be
paid  by  the  Company.   The  Company's  operating
results  depend  in substantial part on its ability
to maintain and to  increase the capacity available
to it from existing or new foundries.  Although the
Company believes that  it has planned appropriately
to meet customer demand, there can be no assurances
that unforeseen demand or unforeseen changes in the
conditions under which the  Company  does  business
with its foundries will not have a material  impact
on the Company's business in the future.

     The Company is also dependent upon third-party
assembly  companies  that package the semiconductor
die. The Company depends  upon  these  suppliers to
produce   products  in  a  timely  manner  and   at
competitive prices. The Company may sustain adverse
financial  impact  from  problems  with  the  cost,
timeliness, yield and quality of product deliveries
from these suppliers.

     The Company  relies  upon  patent,  trademark,
trade  secret  and  copyright  law  to protect  its
intellectual property.  There can be  no  assurance
that  such  intellectual  property  rights  can  be
successfully asserted in the future or will not  be
invalidated,     circumvented     or    challenged.
Litigation, regardless of its outcome, could result
in substantial cost and diversion of  resources  of
the  Company.   Any  infringement  claim  or  other
litigation  against or by the Company could have  a
material  effect   on   the   Company's   financial
condition  and  results of operations.  In November
1995 the Company  commenced infringement litigation
against a competitor.  There  are no other material
pending  legal  proceedings,  other   than  routine
litigation incidental to the Company's business, to
which the Company is a party or of which any of its
property is the subject.

14.  FOUNDRY COMMITMENTS

     The  Company's current wafer requirements  are
supplied primarily  by six foundries.  During 1995,
the Company entered into  five-year agreements with
three  of  its  suppliers  for   committed  foundry
capacity in consideration of equipment financing or
a cash deposit.  During 1995 and 1996,  the Company
provided  an aggregate of $14.6 million in  capital
equipment financing  and/or  cash deposits to these
three foundries in connection with such activities.
The Company has remaining funding  commitments  not
to exceed $18,000,000.








<PAGE>







                                                  SCHEDULE II

               LEVEL ONE COMMUNICATIONS, INC.
              VALUATION AND QUALIFYING ACCOUNTS
                  (in thousands of dollars)

<TABLE>
<CAPTION>
                                          BALANCE AT              CHARGED TO                                BALANCE AT
<S>                                 <C>                     <C>                     <C>                 <C>
                                           BEGINNING               COSTS AND                                  END OF
          CLASSIFICATION                   OF PERIOD               EXPENSES             DEDUCTIONS            PERIOD
YEAR ENDED DECEMBER 29, 1996:
    Allowance for doubtful accounts           300                     ---                   144                 156
YEAR ENDED DECEMBER 30, 1995:
    Allowance for doubtful accounts           90                      210                   ---                 300
YEAR ENDED DECEMBER 31, 1994:
    Allowance for doubtful accounts           85                       5                    ---                 90
</TABLE>














<PAGE>







                    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,  IN  THE COUNTY OF SACRAMENTO, STATE OF
CALIFORNIA, ON THE 29TH DAY OF MARCH, 1996.


LEVEL ONE COMMUNICATIONS, INCORPORATED



By: /S/ ROBERT S. PEPPER
Robert S. Pepper
PRESIDENT AND CHIEF EXECUTIVE OFFICER

     Each of the officers  and  directors  of Level
One  Communications,  Incorporated  whose signature
appears  below  hereby  constitutes  and   appoints
Robert S. Pepper and John Kehoe, and each of  them,
their true and lawful attorneys-in-fact and agents,
with full power of substitution, each with power to
act  alone,  to  sign  and execute on behalf of the
undersigned any amendment  or  amendments  to  this
Annual  Report,  and does hereby ratify and confirm
all that said attorneys-in-fact and agents shall 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
BY   THE  FOLLOWING  PERSONS  ON  BEHALF   OF   THE
REGISTRANT  AND  IN THE CAPACITIES AND ON THE DATES
INDICATED.

Dated: March 29, 1996
  /S/ ROBERT S. PEPPER
                 Robert S. Pepper,
       PRESIDENT AND CHIEF EXECUTIVE OFFICER
           (PRINCIPAL EXECUTIVE OFFICER)
       AND CHAIRMAN OF THE BOARD OF DIRECTORS
Dated: March 29, 1996
      /S/ THOMAS J. CONNORS
     Thomas J. Connors,
                     DIRECTOR

Dated: March 29, 1996

                             Paul Gray,
                     DIRECTOR

Dated: March 29, 1996
          /S/ MARTIN JURICK
                  Martin Jurick,
                     DIRECTOR

Dated: March 29, 1996
    /S/ HENRY KRESSEL
                  Henry Kressel,
                      DIRECTOR

Dated: March 29, 1996
   /S/ JOSEPH P. LANDY
                               Joseph P. Landy,
                     DIRECTOR

Dated: March 29, 1996
      /S/ JOHN KEHOE
                    John Kehoe,
    VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
           (PRINCIPAL FINANCIAL OFFICER)
          (PRINCIPAL ACCOUNTING OFFICER)


                             S1


<PAGE>







                   EXHIBIT 22.1

            SUBSIDIARIES OF REGISTRANT

     Registrant has four wholly-owned subsidiaries,
Level     One     Communications     International,
Incorporated, which  is  incorporated  in Barbados,
and  which  does business under the name Level  One
Communications   International,  Incorporated;  San
Francisco Telecom,  Inc.,  which is incorporated in
California, and which does business  under the name
San   Francisco   Telecom,   Inc.;  Silicon  Design
Experts, Inc. California, which  is incorporated in
California and does business under  the  name Level
One  Communications,  Incorporated;  and Level  One
Communications  Europe  SARL, which is incorporated
in France and does business  under  the  name Level
One Communications Europe.


                             S2


<PAGE>







                   EXHIBIT 24.1

      LEVEL ONE COMMUNICATIONS, INCORPORATED

     CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS




As   independent   public  accountants,  we  hereby
consent to the incorporation of our report included
in this Form 10-K, into  the  Company's  previously
filed  Registration  Statements File Nos. 33-65810,
33-72398, 33-93360, 33-95590 and 333-06300.



     /S/ ARTHUR ANDERSEN LLP


Sacramento, California
March 28, 1997



                             S3