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 28, 1997

                                      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 March 1, 1998, was $885,726,998.

        The number  of  shares  outstanding  of  the Registrant's only class of
common stock as of March 1, 1998,  was 20,576,916 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 product (''ASSP'') integrated  circuits  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 telephone 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 telecom market.

      NETWORKING PRODUCTS

      Level  One's  networking  products address the rapid evolution of the LAN
networking connectivity markets. For these markets, Level One produces Ethernet
and Fast Ethernet transceivers, single  chip  quad  Ethernet repeaters, managed
Ethernet repeaters, and integrated transceiver solutions.
      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.  During
1997, Level One introduced the LXT970  Fast  Ethernet  10/100  transceiver, and
shipped in excess of 4 million units.

      As  the  LAN  market  experiences 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 products service these evolving market needs.

      TELECOM PRODUCTS

      Level One's telecom 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.

      Intranets  and  WANs  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 WANs.
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.

      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.  Since 1996  the  Company  has  shipped
Subrate  HDSL or  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  T1/E1  quad  receivers,  which  are
incorporated  into  telephone  company  maintenance  and performance monitoring
equipment.   Level  One's  LXT360, LXT361, LXT350 and LXT351  integrated  T1/E1
transceivers are 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.

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.

      During 1997, Level One and its strategic partners  were  instrumental  in
the  development  of  the  standards for two new technologies: HDSL-2, which is
repeaterless T1 transmission  on  a  single  pair  of copper wires, and Gigabit
Ethernet  on  copper  wire  for  the networking market.   Both  standards  have
received preliminary approval by their respective standards bodies.

      Level One has from time to time  entered  into investment, development or
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 maintains six regional  sales  offices  in the United States.
In  addition,   there  are  23  sales  representatives or distributors  of  the
Company's products.  Internationally, Level  One  has  six  sales offices along
with 30 sales representatives or distributors operating in 46 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 28, 1997,  Level
One had  124  full-time  employees  engaged  in  research  and development. The
Company  currently anticipates that it will increase research  and  development
staffing levels  in  1998.  Expenditures  for research and development in 1997,
1996,  and  1995 were approximately $30.4 million,  $22.0  million,  and  $17.1
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  six  new products during 1997, consisting of three
networking products and three telecom  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 primary 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. At December  28, 1997, the Company had provided an aggregate of $20.6
million in capital equipment  financing and/or cash deposits to these foundries
to obtain committed foundry capacity.   During  the  first quarter of 1998, the
Company  paid  an  aggregate  $1.3  million  in  additional  deposits  per  its
agreements.  There are no additional deposits due under the Company's  existing
foundry 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 negative 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 28, 1997, the Company's total  backlog  scheduled  to  be
shipped  was   approximately   $70.9   million,   as  compared  to  backlog  of
approximately $32.6 million at December 29, 1996.    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

The Company's competition consists of semiconductor companies and semiconductor
divisions  of  vertically  integrated  companies.  In  the  telecom market, the
Company's  principal  competitors  are Brooktree Corporation (a  subsidiary  of
Rockwell International, Inc.), Crystal  Semiconductor,  Inc.  (a  subsidiary of
Cirrus   Logic,   Inc.)   ("Crystal"),   Dallas   Semiconductor,  Inc.,  Lucent
Technologies  Inc.  ("Lucent"),  PMC-Sierra  Inc.  and  Siemens   A.G.  In  the
networking  market,  the  Company's  principal  competitors are Advanced  Micro
Devices, Inc., Broadcom Corporation, Crystal, Integrated Circuit Systems, Inc.,
Lucent,  Micro  Linear  Corp.,  National  Semiconductor   Corporation,  Quality
Semiconductor,   Inc.,   Seeq   Technologies,   Inc.   and  Texas  Instruments,
Incorporated.

      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 28 United States patents that  expire from 2009 to 2017, 30
pending U.S. patent applications, 10 pending international patent applications,
and two issued international patents.  All of Level  One's products are covered
by  at  least  one  Level  One  patent.  The  Company  has  31 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 28,  1997,  the  Company  had 559 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:

      MANUFACTURING RISKS

      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,  current supplier interruptions  or  other  changes  will  not  have  a
material impact on the Company's business.

      Manufacturing  process  technologies  are  subject to rapid change. Other
companies  in  the industry have experienced difficulty  in  migrating  to  new
manufacturing processes,  and,  consequently,  have  suffered  reduced  yields,
delays  in  product  deliveries  and  increased  expense  levels. The Company's
business,  financial  condition and results of operations could  be  materially
adversely  affected  if  any   such  transition  is  substantially  delayed  or
inefficiently implemented.

      The Company is also dependent  upon  third-party  assembly companies that
package  or  test  the  Company's  devices.   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.

MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL

      The  Company  is  currently  experiencing a period of significant  growth
which has placed, and could continue  to  place,  a  significant  strain on the
Company's  personnel  and other resources. The Company's ability to manage  its
growth effectively will  require  continued  expansion  and  refinement  of the
Company's operational, financial, management and control systems, as well  as a
significant  increase  in  the Company's development, testing, quality control,
marketing, logistics and service  capabilities,  any  of  which  could  place a
significant  strain  on  the  Company's  resources.  The Company's success also
depends  to  a significant extent upon its ability to retain  and  attract  key
personnel. Competition  for  such  personnel  is  intense  and  there can be no
assurance that the Company will be able to retain and attract key personnel. If
the Company's management is unable to manage growth effectively,  maintain  the
quality  and  marketability  of  the  Company's  products  and retain, hire and
integrate  key  personnel,  the  Company's  business,  financial condition  and
results of operations could be materially 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, factors 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.

INTENSE COMPETITION

The semiconductor industry is  intensely competitive. The Company's competition
consists of semiconductor companies  and  semiconductor divisions of vertically
integrated  companies.  In  the  telecom  market,   the   Company's   principal
competitors  are Brooktree Corporation (a subsidiary of Rockwell International,
Inc.), Crystal  Semiconductor,  Inc.  (a  subsidiary  of  Cirrus  Logic,  Inc.)
("Crystal"),  Dallas  Semiconductor, Inc., Lucent Technologies Inc. ("Lucent"),
PMC-Sierra Inc. and Siemens  A.G.  In  the  networking  market,  the  Company's
principal  competitors  are Advanced Micro Devices, Inc., Broadcom Corporation,
Crystal, Integrated Circuit Systems, Inc., Lucent, Micro Linear Corp., National
Semiconductor Corporation, Quality Semiconductor, Inc., Seeq Technologies, Inc.
and Texas Instruments, Incorporated.  Many  of  these  competitors  have longer
operating histories, greater name recognition, access to larger customer  bases
and  significantly  greater financial and other resources than the Company with
which  to pursue engineering,  manufacturing,  marketing  and  distribution  of
products.

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  the Company's 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. There is no
assurance that the Company will be able to compete successfully against current
and future competitors. Increased competition may result  in  price reductions,
reduced  gross  margins  and  loss  of  market share, any of which may  have  a
material  adverse effect on the Company's  business,  financial  condition  and
results of operations.

INTERNATIONAL OPERATIONS

Due  to  its   reliance   on   international   sales  and  foreign  third-party
manufacturing and assembly operations, the Company  is  subject to the risks of
conducting   business  outside  of  the  United  States  including   government
regulatory  risks,   political,  social  and  economic  instability,  potential
hostilities and changes  in diplomatic and trade relationships. There can be no
assurance that one or more  of  the  foregoing factors will not have a material
adverse  effect on the Company's business,  financial  condition  or  operating
results.    The  recent  economic  downturn  in several Asian countries has not
affected the Company in a material way, but there  can  be  no  assurances that
continued economic problems in Asia or any other region of the world  will  not
affect the Company.

INCREASED LEVERAGE

As  a  result  of  the  Company's  sale  in August and September 1997 of its 4%
Convertible Subordinated Notes due 2004 (the "Notes"), the Company has incurred
approximately $115.0 million in additional  indebtedness  which  increases  the
ratio  of its long-term debt to its total capitalization from 3.0%, at June 29,
1997, to  48.8%,  at December 28, 1997. As a result of this increased leverage,
the Company's interest  obligations  will increase substantially. The degree to
which  the  Company  will be leveraged could  adversely  affect  the  Company's
ability to obtain additional  financing  for  working  capital, acquisitions or
other  purposes  and  could make it more vulnerable to economic  downturns  and
competitive pressures.  The  Company's  increased leverage could also adversely
affect  its  liquidity,  as  a  substantial  portion  of  available  cash  from
operations may have to be applied to meet debt service requirements and, in the
event  of  a  cash  shortfall,  the Company could be  forced  to  reduce  other
expenditures  and  forego potential  acquisitions  to  be  able  to  meet  such
requirements.

VOLATILITY OF NOTES AND STOCK PRICE

Economic and other external  factors,  many  of which are beyond the control of
the Company, may have a significant impact on the Company's business and on the
market price of its Notes and the Common Stock.  Such  factors include, without
limitation, fluctuations in product revenue and net income  of  the  Company or
its  competitors,  shortfalls  in  the  Company's operating results from levels
forecast  by securities analysts, announcements  concerning  the  Company,  its
competitors  or  customers,  announcements  of technological innovations by the
Company, its competitors or its customers, the  introduction of new products or
changes  in product pricing policies by the Company,  its  competitors  or  its
customers,  market  conditions  in  the  industry  and the general state of the
securities market. In addition, the stock prices of  many  technology companies
fluctuate  significantly for reasons that may be unrelated or  disproportionate
to  operating  results.  These  fluctuations,  as  well  as  general  economic,
political and market conditions such as recession or international instability,
may adversely affect the market price of the Notes and the Common Stock.

ITEM 2.   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, and
expire in 2008 and 2006, respectively.  The Company has entered into leases for
additional   space  currently  under  construction.   These  leases  relate  to
buildings with  24,100  square  feet of space and 139,500 square feet of space,
respectively, and terminate in 2013.

      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 also leases small office  facilities for the operation of
its design centers and for its domestic and international sales offices.

      The Company believes these facilities are adequate  for  its  current and
immediately foreseeable level of operations.

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 products used in Ethernet
system products.  The suit seeks damages and injunctive relief. Seeq has denied
the allegations. On January 21, 1998, the Court denied Seeq's motion to declare
claims of the Level One patents invalid.   The  Court  also  permitted  Seeq to
amend  its  counterclaim  to  include  a  claim  that  certain of the Company's
products infringe Seeq's U.S. Patent 5,504,738; the Company  has  denied  these
allegations.     Trial  is set for August 1998.   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.

      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 1997 fiscal year
to  a  vote  of  security  holders,  through  the  solicitation  of  proxies or
otherwise.

                                    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 $7{9}/{16} 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.

In July 1997, the Board of Directors authorized a 3 for 2 stock split, which
was effective on August 26, 1997.  All common stock amounts and per share
amounts have been retroactively adjusted to reflect the stock split. On
February 23, 1998, the Company announced that it had approved a 3-for-2 stock
split effective March 30, 1998, to shareholders of record on March 9, 1998.
Common stock amounts and per share data included in the Company's reports filed
prior to March 30, 1998 do not reflect the effect of this split.

<TABLE>
<CAPTION>
                               Year                                          High                      Low
<S>                                                                <C>                       <C>
                1997
                      Fourth Quarter                                          $47                    $25{7}/{8}
                      Third Quarter                                         $39{3}/{8}                $24 1/2
          Second Quarter                                                   $26{11}/{16}             $14{11}/{16}
          First Quarter                                                      $24 1/2                   $19
                1996
                      Fourth Quarter                                          $25                   $17{7}/{8}
                      Third Quarter                                        $19{ 11}/{16}            $10{13}/{16}
          Second Quarter                                                    $20{5}/{16}             $12{13}/{16}
          First Quarter                                                     $24{3}/{16}              $11{3}/{16}
</TABLE>

      On March 1, 1998, the closing  sale  price for the Company's Common Stock
was $44{15}/{16} per share. As of March 1, 1998,  there  were approximately 178
holders of record of the Company's Common Stock.

      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>
<S>                                <C>               <C>             <C>              <C>               <C>                         
                                                                    AS OF FISCAL YEAR END
(IN THOUSANDS)                            1997             1996             1995            1994            1993
BALANCE SHEET DATA:
<S>                                 <C>              <C>              <C>              <C>             <C>
   Cash and cash equivalents               $  25,234         $ 20,251         $ 21,628         $ 9,260        
$15,141
   Working capital                           166,239           50,871           50,834          48,231          21,605
   Total assets                              277,697          112,102          100,801          71,628          33,060
   Long-term obligations (less
      current portion)                       117,475            3,806            4,463             361           2,431
   Shareholders' equity                      123,445           95,581           78,965          63,309         
23,910
</TABLE>


<TABLE>
<CAPTION>
                                                                 FISCAL YEAR
<S>                                <C>                <C>            <C>                <C>            <C>                    
(IN THOUSANDS, EXCEPT PER SHARE           1997             1996             1995            1994     
      1993
DATA)
Statement of Income Data:
<S>                                 <C>              <C>              <C>              <C>             <C>
  Revenues                                  $156,262         $111,987         $ 78,018        $ 46,825        $
25,984
  Cost of sales                               65,299           48,477           33,300          18,785           9,782
  Gross margin                                90,963           63,510           44,718          28,040          16,202
  Operating expenses:
     Research and development (1)             30,398           24,505           17,857           9,956          
5,934
     Sales and marketing                      23,978           16,589           11,372           6,772           4,102
     General and administrative               10,212            6,741            5,752           3,424          
1,936
         Total operating expenses             64,588           47,835           34,981          20,152         
11,972
  Operating income                            26,375           15,675            9,737           7,888           4,230
  Net interest and other income (2)            2,263            2,293            2,064           1,440              12
  Provision for income taxes                   9,447            6,755            1,543           1,323             503
  Net income                               $  19,191          $11,213          $10,258         $ 8,005         $ 3,739
  Basic earnings per share                $     0.95        $    0.58        $    0.54        $   0.43        $   0.25
Diluted earnings per share                $     0.89        $    0.55        $    0.51       $    0.40        $   0.23
</TABLE>

(1)Includes one-time charges for research and development relating to the
acquisitions of Silicon Design Experts, Inc., in 1996 of $2,500,000, 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.

                     SELECTED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
        Fiscal 1997 Quarters                           Fiscal 1996 Quarters
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:              FIRST       SECOND       THIRD      FOURTH      
FIRST     SECOND       THIRD      FOURTH
<S>                               <C>           <C>          <C>         <C>         <C>        <C>         <C>        
<C>
  Revenues                              $30,107      $32,642     $42,438     $51,075    $27,542     $27,479    
$27,363     $29,603
  Cost of sales                          12,900       13,566      17,653      21,180     11,588      11,521     
11,756      13,612
                     Gross margin        17,207       19,076      24,785      29,895     15,954      15,958     
15,607      15,991
  Operating expenses:
       Research and development           6,341        6,738       8,135       9,184      5,675       5,739      
5,249       7,842
       Sales and marketing                4,299        4,754       6,470       8,455      4,001       3,989      
4,219       4,380
      General and administrative          1,802        2,221       2,826       3,363      1,766       1,765      
1,595       1,615
         Total operating expenses        12,442       13,713      17,431      21,002     11,442      11,493    
 11,063      13,837
  Operating income                        4,765        5,363       7,354       8,893      4,512       4,465      
4,544       2,154
  Net interest and other income             366          492         708         697        392         349      
1,084         468
  Provision for income taxes              1,674        1,932       2,661       3,180      1,618       1,590      
1,857       1,690
     Net income                        $  3,457     $  3,923     $ 5,401     $ 6,410     $3,286      $3,224     
$3,771     $   932
      Basic earnings per share        $    0.17    $    0.19    $   0.27    $   0.31    $  0.17     $  0.17     $ 
0.19     $  0.05
      Diluted earnings per share      $    0.17    $    0.18    $   0.25    $   0.29    $  0.16     $  0.16     $ 
0.18     $  0.05
</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 product
("ASSP") integrated circuits  and custom derivatives for the
telecom 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
101%  since  1990.   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 report  contains  forward-looking statements that
involve risks and uncertainties. The statements contained in
this  report  that are not purely  historical  are  forward-
looking statements  within the meaning of Section 27A of the
Securities Act of 1933  and  Section  21E  of the Securities
Exchange   Act   of   1934,   including  without  limitation
statements  regarding the Company's  expectations,  beliefs,
intentions or  strategies regarding the future. All forward-
looking statements  included  in  this document are based on
information available to the Company on the date hereof, and
the  Company  assumes  no  obligation  to  update  any  such
forward-looking  statements.  The Company's  actual  results
could differ materially  from  those  anticipated  in  these
forward-looking  statements.    See "Factors that May Affect
Future Results".

RESULTS OF OPERATIONS

      REVENUES:   Revenues  for  1997  increased  to  $156.3
million from $112.0 million in 1996  and  $78.0  million  in
1995.   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 - telecom and networking. In 1997 and
1995,  no  single customer accounted for more  than  10%  of
revenues.  In  1996,  sales to Hewlett-Packard were 11.2% of
total sales.

      Export sales, primarily consisting of sales to Canada,
Europe, and Asia, were  35% of revenues in 1997, 39% in 1996
and 33% in 1995.  All sales  were  in  U.S. dollars, thereby
eliminating any foreign currency impact  on revenues and net
income.   The  dollar  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.

      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  1997, the Company had $56,000 in revenues  from  NRE
contracts  versus $398,000 in 1996 and $289,000 in 1995.  In
1997, the Company  received  royalties of $987,000.  In 1996
and   1995,   royalties   were   $197,000    and   $312,000,
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 six  months  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)                           1997               1996               1995
<S>                                <C>                <C>                <C>
Product                      Sales           $155,219           $111,392            $77,417
<ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis><ellipsis>.
Cost of product sales<ellipsis><ellipsis>      65,299             48,477             33,300
<ellipsis><ellipsis><ellipsis>.
Gross margin                                $  89,920          $  62,915            $44,117
Gross margin % product                          57.9%              56.5%              57.0%
sales<ellipsis><ellipsis>..
</TABLE>

      Product  gross margin is affected by several
factors, including average selling prices, the mix
between older and  newer  products, test equipment
utilization, 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 $30.4 million in
1997, $24.5 million  in  1996 and $17.9 million in
1995.  As a percent of revenues, R&D expenses were
19.5%, 21.9%, and 22.9% in  1997,  1996  and 1995,
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.

      SALES  AND MARKETING:  Sales  and  marketing
expenses were $24.0 million in 1997, $16.6 million
in 1996 and $11.4  million  in 1995.  As a percent
of  revenue,  sales  and marketing  expenses  were
15.3%, 14.8% and 14.6%  in  1997,  1996  and 1995,
respectively.    The   increases   in   sales  and
marketing  expenses  are  largely due to increased
sales,  sales support and application  engineering
headcount  and  associated expense increases.  The
Company has also increased its international sales
offices and support staff.

      GENERAL  AND  ADMINISTRATIVE:   General  and
administrative expenses increased to $10.2 million
in 1997 from $6.7 million in 1996 and $5.8 million
in  1995.  As a percentage  of  revenue,  expenses
were  6.5%  in  1997, compared to 6.0% in 1996 and
7.4% in 1995.  The  expense  increases  in dollars
are primarily attributable to additional headcount
and  associated  expenses  due  to  the  Company's
growth.

      NET INTEREST AND OTHER INCOME:  The  Company
earns  interest  on  its  cash and investments and
incurs   interest  expense  on   its   convertible
subordinated  notes  and on lease obligations used
to   finance  certain  capital   equipment.    Net
interest  and  other  income for 1997 and 1996 was
$2.3  million versus $2.1  million  in  1995.   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 33.0% for 1997.   In
1996  and  1995,  the effective rate was 37.6% and
13.1%.   For  a reconciliation  of  the  Company's
effective tax rate  to  the  statutory federal tax
rate, see Note 6 of Notes to Financial Statements.




LIQUIDITY AND CAPITAL RESOURCES

      During the years ended 1997,  1996 and 1995,
the  Company  financed  its  operations  primarily
through  cash  flows  from operations and existing
cash  and investment balances.  During  the  third
quarter  of  1997  the Company raised $115 million
(less  discounts,  commissions   and  expenses  of
approximately   $3.5   million)  from  a   private
placement to qualified investors  of  subordinated
convertible  notes  due  2004  with  a  4% coupon.
Working  capital  as  of  December  28, 1997,  was
$166.2 million.

      The Company's principal sources of liquidity
as  of  December  28,  1997,  consisted of  $137.8
million  in  cash and short-term  investments  and
$10.0 million  available  under the Company's line
of credit.  As of December  28,  1997, the Company
had  no  outstanding  balance under this  line  of
credit.

      During  1997, the  Company  generated  $25.3
million of cash  from  its operating activities as
compared to $22.5 million in 1996 and $7.5 million
in  1995.   In  1997,  trade  accounts  receivable
increased by $12.4 million  due to increased sales
levels.  Inventories increased by $16.1 million to
$26.1  million  at  the  end  of  1997.   Days  of
inventory  on  hand were 111 days at  the  end  of
1997.  Current liabilities increased $24.1 million
from year end 1996 to 1997.

      During   1997,   1996,   and   1995,   total
expenditures  for  capital  equipment  were  $17.0
million,   $9.8  million,   and   $10.0   million,
respectively.    The  expenditures  in  each  year
consisted  primarily   of   equipment   used   for
designing  and  testing products.  Included in the
total capital expenditures  were  amounts  of $0.7
million  in  1996  and  $4.8  million  in 1995 for
equipment 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.  At  December  28,  1997,  the
Company had provided an aggregate of $20.6 million
in  capital   equipment   financing   and/or  cash
deposits  to  these  foundries to obtain committed
foundry  capacity. During  the  first  quarter  of
1998, the  Company  paid an aggregate $1.3 million
in additional deposits  per its agreements.  There
are no additional deposits due under the Company's
existing foundry agreements.

      The  Company expects  to  finance  its  1998
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  1998.   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 March 1, 1998, are as
follows:

<TABLE>
<CAPTION>
             NAME                        AGE                  POSITION WITH THE COMPANY
<S>                             <C>                  <C>
Robert S. Pepper, Ph.D.                  62          President, Chief Executive Officer
                                                     and Chairman of the Board of Directors
John Kehoe                               52          Senior Vice President and Chief Financial
                                                     Officer
Daniel S. Koellen                        40          Vice President, Quality and Reliability
George A. Papa                           49          Vice President, Worldwide Sales
Michael A. Ricci                         42          Vice President, Telecom
Michael R. Wodopian                      45          Vice President, Business Development and
                                                     Strategic Planning
Manuel D. Yuen                           57          Vice President, Operations
Thomas J. Connors(1)(2)                  68          Director
Paul Gray, Ph.D.                         55          Director
Martin Jurick (2)                        60          Director
Henry Kressel, Ph.D.(2)                  64          Director
Joseph P. Landy(1)                       36          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. Kehoe joined the Company in October 1995
as Vice President and Chief Financial Officer.  In
November 1997,  Mr.  Kehoe was elected Senior Vice
President.   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. Ricci joined the Company in August 1997.
Prior to joining the Company, Mr. Ricci was
Director of Wireless Communication at Advanced
Micro Devices.  Prior to this role, Mr. Ricci held
the position of Director, Desktop Networking, at
AMD.  Mr. Ricci worked at AMD for 17 years.  Prior
to AMD Mr. Ricci worked at Siliconix, Inc. in the
communications area for two years.

Mr. Wodopian joined the Company in January 1998.
Prior to joining Level One, Mr. Wodopian spent
over 16 years at Advanced Micro Devices, most
recently as the Director of Marketing for the
Communications Products Division.  Prior to that,
he spent four years at AMD's European headquarters
as Director of Marketing for Europe.  During the
balance of his tenure at AMD, he served in a
variety of program management and field
applications roles. Prior to working at AMD, Mr.
Wodopian was responsible for microprocessor based
system level designs for the process control and
aerospace industries.

      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     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., LLC (''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  IA  Corporation,  Nova
Corporation,    Maxis,     Inc.,    and    Trescom
International.

      Mr. Landy has been a director of the Company
since January 1991.  Since January 1994, Mr. Landy
has served as a Managing Director at EMW, 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
Corporation,  Indus International,  Inc.,  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  3,000  shares at
the  end  of  each  year.  In 1997, Warburg Pincus
Capital  Co.,  an affiliate  of  EMW,  distributed
substantially all  of its shares of Company stock.
Dr.  Kressel  and  Mr.   Landy  each  then  became
entitled  to  automatic  grants   of   options  to
purchase  an  aggregate  of  15,000 shares vesting
over five years.

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 28, 1997.



<PAGE>
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 whose compensation for the 1997
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
                                                          ANNUAL                 SECURITIES             OTHER
<S>                            <C>             <C>                           <C>                 <C>
                                                     COMPENSATION (1)            UNDERLYING        
COMPENSATION
 NAME AND PRINCIPAL POSITION       YEAR         SALARY ($)         BONUS ($)      
OPTIONS (#)            ($)(2)
<S>                           <C>            <C>               <C>              <C>               <C>
Robert S. Pepper, Ph.D.            1997                325,846          583,554           390,000             
2,794
        President,      Chief      1996                296,923          185,382            90,000              6,276
Executive
     Officer  and Chairman of      1995                220,000           97,172               ---              4,280
the
    Board
John Kehoe                         1997                186,056          201,859            80,000              1,617
    Senior Vice President and      1996                153,182           81,508            30,000             
1,800
    Chief Financial Officer        1995                 27,115           12,500           105,000                ---
George Papa                        1997                142,697          142,350           105,000             17,116
    Vice President, Worldwide Sales
Manuel D. Yuen                     1997                158,711           81,741            22,050              1,376
         Vice      President,      1996                142,654           28,028            37,950              2,811
Operations
                                   1995                119,674           16,846            49,500              2,443


Daniel S. Koellen                  1997                135,740           61,434             6,000              1,253
    Vice President, Quality &      1996                120,042           30,726            47,250             
3,283
    Reliability                    1995                106,292           15,227            34,650              3,120
</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  compensation  represents  the  Company's  401(k)
matching  contributions,  and, in the case of Mr. Papa,  an
automobile allowance.

      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  28, 1997. 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
                                                                                                 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)
              NAME        GRANTED (#)      FISCAL YEAR      ($/SHARE)           DATE         5%
($)         10% ($)
<S>                     <C>             <C>              <C>             <C>             <C>            <C>
Robert S. Pepper, Ph.D.         225,000             13.9           15.54          4/4/07      2,199,932     
5,575,498
                                165,000             10.2           28.13        12/18/07      2,918,464      7.392,961
John Kehoe                       45,000              2.8           15.54          4/4/07        439,986      1,115,099
                                 35,000              2.2           28.13        12/18/07        619,068      1,568,840
Manuel D. Yuen                   22,050              1.4           15.54          4/4/07        215,593       
546,398
Daniel S. Koellen                 6,000               .4           15.54          4/4/07         58,664        148,679
George Papa                     105,000              6.5           19.00         2/11/07      1,255.079     
3,180,867
</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 28,
1997:

       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 ($)(1)
                                                                            (#)
                           ON EXERCISE (#)    REALIZED($)      EXERCISABLE     
UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
<S>                      <C>                <C>             <C>               <C>               <C>               <C>
Robert S. Pepper, Ph.D.              85,000       2,950,397           208,034           577,500        
4,907,108         6,008,744
John Kehoe                            7,500          92,624            42,000           165,500           528,498        
1,692,745
Manuel D. Yuen                       56,250       2,510,218            45,487            97,763         1,047,062  
      1,591,577
Daniel S. Koellen                         0               0            65,362            75,188         1,588,245        
1,264,282
George Papa                               0               0                 0           105,000                 0          
918,750
</TABLE>

(1) Based  upon  the  market  price of $28.00 per share,
which  was the closing price per  share  on  the  NASDAQ
National  Market  System  on  the  last  day of the 1997
fiscal year, less the option exercise price  payable per
share.



<PAGE>

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 March 1,
1998,  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
                                                                                NUMBER                PERCENT (1)
<S>                                                                    <C>                      <C>
Kopp Investment Advisors, Inc. (2)                                                    2,999,181          14.6%
   6600 France Avenue South, Suite 672
   Edina, Minnesota 55435
Robert S. Pepper, Ph.D. (3)                                                             427,283          2.0%
Thomas J. Connors (4)                                                                    70,125            *
Paul Gray (5)                                                                            34,500            *
Martin Jurick (6)                                                                        24,000            *
Henry Kressel, Ph.D. (7)                                                                 18,780            *
Joseph P. Landy (8)                                                                      32,368            *
John Kehoe (9)                                                                           57,750            *
Daniel S. Koellen (10)                                                                  106,735            *
George Papa (11)                                                                         23,527            *
Manuel D. Yuen (12)                                                                      96,274            *
All Named Officers and Directors as a group (10 persons)                                891,342          4.3%
</TABLE>


(1)  Percent  ownership  is  based  on  20,576,916
shares  of Common Stock outstanding as of March 1,
1998, plus  shares issuable pursuant to options or
warrants held  by  the person or class in question
that are exercisable within 60 days after March 1,
1998.

(2)  Includes 2,873,181  shares  over  which  Kopp
Investment  Advisors,  Inc.  exercises  investment
discretion,  but  for  which  it is not the record
holder;   15,000  shares  which  Kopp   Investment
Advisors, Inc.,  owns directly; 6,000 shares owned
by Kopp Investment  Advisors, Inc., Profit Sharing
Plan;  75,000  shares  owned   by  LeRoy  C.  Kopp
Individual  Retirement  Plan;  and  30,000  shares
owned by Kopp Family Foundation.

(3) Includes 306,784 shares issuable  under  stock
options  held by Dr. Pepper exercisable within  60
days of March 1, 1998.

(4) Includes  43,125  shares  issuable under stock
options held by Mr. Connors exercisable  within 60
days of March 1, 1998.

(5)  Includes  34,500 shares issuable under  stock
options held by  Dr.  Gray  exercisable  within 60
days of March 1, 1998.

(6)  Includes  9,000  shares  issuable under stock
options held by Mr. Jurick exercisable  within  60
days of March 1, 1998.

(7)  Includes 993 shares held of record by Warburg
Pincus  Capital Co. ("Warburg").  Dr. Kressel is a
managing  director  of  a  Warburg  affiliate, and
disclaims beneficial ownership of such shares.

(8)    Includes  993  shares  held  of  record  by
Warburg.   Mr. Landy is a managing director  of  a
Warburg  affiliate,   and   disclaims   beneficial
ownership of such shares.

(9)    Includes 57,750 shares issuable under stock
options  held  by Mr. Kehoe exercisable within  60
days of  March 1, 1998.

(10) Includes 89,924  shares  issuable under stock
options held by Mr. Koellen exercisable  within 60
days of March 1, 1998.

(11)  Includes 21,000 shares issuable under  stock
options  held  by  Mr.  Papa exercisable within 60
days of March 1, 1998.

(12) Includes 76,236 shares  issuable  under stock
options  held  by  Mr. Yuen exercisable within  60
days of  March 1, 1998.


ITEM 13.  CERTAIN RELATIONSHIPS  AND  RELATED
TRANSACTIONS

      In connection with securing a loan from
Warburg in 1992, the Company issued a warrant
to  purchase  304,119  shares  of  its common
stock  at  an  exercise  price  of $1.03  per
share.  The warrant was exercised January 16,
1997, for 289,131 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
Warburg, 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
$77,400 during 1997 for  consulting  services
rendered under an agreement with the Company,
and  was  granted  options to purchase 22,500
shares at a price of  $15.54  per  share, the
market price on the grant date.




<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                                                  __
       Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996                 __
       Consolidated Statements of Income for fiscal years ended
        December 28, 1997, December 29, 1996, and December 30, 1995                              __
       Consolidated Statements of Shareholders' Equity for fiscal years ended
       December 28, 1997, December 29, 1996, and December 30, 1995                               __
       Consolidated Statements of Cash Flows for fiscal years ended December 28, 1997,
                December 29, 1996, and December 30, 1995                                         __
       Notes to Financial Statements                                                             __
       2. FINANCIAL STATEMENT SCHEDULES:
       II-Valuation and Qualifying Accounts                                                      __
</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*                       Amended and Restated Articles of Incorporation of the Company, as
amended.
      3.2(1)                      Bylaws of the Company, as amended.
      4.1(10)                     Indenture dated as of August 15, 1997 between the Company and State
Street Bank
                                  and Trust Company of California (National Association) as Trustee.
      4.2(10)                     Form of 4% Convertible Subordinated Note due 2004.
      10.1<circumflex><circumflex>(1) 1985 Incentive Stock Option, Nonqualified Stock Option
and Restricted Stock
                                  Purchase
                                  Plan, as amended.
      10.2<circumflex><circumflex>(9) 1993 Stock Option Plan, as amended and restated.
      10.3<circumflex><circumflex>(1) Amended and Restated Employee Stock Purchase Plan.
       10.4<circumflex><circumflex>(1) Form of Directors' Indemnification Agreement.
<S>                               <C>
      10.5<circumflex><circumflex>(2) Consulting Agreement with Thomas J. Connors, as
amended.
        10.6<circumflex><circumflex>(3) Consulting Agreement with Paul Gray
        10.7<circumflex>(4)       Agreement and Plan of Reorganization (San Francisco Telecom,
Inc.)
        10.8<circumflex>(5)       Foundry Agreement
        10.9<circumflex>(6)       Deposit Agreement
        10.10<circumflex>(7)      Agreement and Plan of Reorganization (Silicon Design Experts,
Inc.)
            10.11<circumflex>(8)  Amendment to Deposit Agreement
      22.1*                       Subsidiaries of Registrant. (see page S-3)
      24.1*                       Consent of Arthur Andersen LLP (see page S-4)
      25.1*                       Powers of Attorney  (see page S-1)
        27.1*                     Financial Data Schedule, December 28, 1997
</TABLE>


(1) Incorporated by reference to Registration
Statement No. 33-65810, August 19, 1994.

(2) Incorporated  by  reference  to  No.  33-
74088, February 8, 1995.

(3)  Incorporated  by  reference to Report on
Form 10-K for the Fiscal  Year Ended December
31, 1994.

(4) Incorporated by reference  to  Report  on
Form 10-Q for the Period Ended July 1, 1995.

(5)  Incorporated  by  reference to Report on
Form 10-Q for the Period  Ended September 29,
1995.

(6) Incorporated by reference  to  Report  on
Form  10-K for the Fiscal Year Ended December
30, 1995.

(7) Incorporated  by  reference  to Report on
Form 10-K for the Fiscal Year Ended  December
29, 1996.

(8)  Incorporated  by reference to Report  on
Form 10-Q for the Period Ended June 29, 1997

(9) Incorporated by reference to Registration
Statement No. 333-06300, September 23, 1996.

(10)    Incorporated    by    reference    to
Registration    Statement   No.    333-37957,
October 21, 1997.

  *   Filed herewith.

      <circumflex>   Confidential   treatment
granted.

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

(B)   REPORTS  ON  FORM  8-K.  No reports  on
Form 8-K were filed during the fourth quarter
of 1997.






<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  28,  1997  and
December 29, 1996, and the related statements
of  income,  shareholders'  equity  and  cash
flows for each  of  the three fiscal years in
the period ended December  28, 1997, December
29,  1996  and  December  30,  1995.    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  28, 1997 and
December 29, 1996, and the results  of  their
operations  and their cash flows for each  of
the three fiscal  years  in  the period ended
December   28,   1997,  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 audits 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
March 13, 1998









<PAGE>



<PAGE>

   LEVEL ONE COMMUNICATIONS, INCORPORATED
         CONSOLIDATED BALANCE SHEETS
  December 28, 1997, and December 29, 1996

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                             1997                          
1996
ASSETS
          Current Assets:
  <S>     <C>      <C>                                              <C>               <C>     <C>
               Cash and cash equivalents                            $      25,234          $       20,251
                 Short-term investments                                     112,560                  10,211
                 Trade accounts receivable, net of allowance for
                 doubtful    accounts of $343 and $156 for 1997              30,079                  17,671
                 and 1996, respectively
                 Other receivables                                            2,473                     608
                 Inventories                                                 26,118                   9,990
                 Deferred income tax benefit                                  4,050                   2,504
                 Prepaid expenses                                             2,502                   2,351
                 Total current assets                                       203,016                  63,586
                 Property and equipment, net                                 31,795                  23,676
                 Long-term investments                                       21,559                  12,440
                 Note acquisition costs                                       3,296                       -
                 Foundry deposits                                            14,000                   8,000
                 Other assets                                                 4,031                   4,400
                 Total assets                                         $     277,697           $     112,102
LIABILITIES AND SHAREHOLDERS' EQUITY
          Current Liabilities:
<S>     <C>      <C>                                              <C>               <C>     <C>
                 Current portion of capital lease obligations                $1,201                  $1,129
                 Accounts payable                                            20,614                   4,778
                 Accrued payroll costs                                        4,591                   1,985
                 Income taxes payable                                             -                   1,338
                 Deferred distributor revenues                                2,490                     864
                 Other accrued liabilities                                    7,881                   2,621
                 Total current liabilities                                   36,777                  12,715
                 Convertible subordinated notes                             115,000                       -
                 Capital lease obligations, less current portion              2,175                   3,194
                 Deferred lease expense                                         300                     612
                 Total liabilities                                          154,252                  16,521
<S>       <C>                                                  <C>                <C>      <C>
          Shareholders' Equity:
                 Common Stock, no par value                                  91,897                  83,230
<S>     <C>      <C>                                              <C>               <C>     <C>
                 Authorized - 157,500,000 shares
                 Outstanding - 20,559,374 and 19,674,341 shares for 1997 and 1996, respectively
                 Unrealized gain on available-for-sale                           18                      12
                 securities, net of tax
                 Retained earnings                                           31,530                  12,339
                 Total shareholders' equity                                 123,445                  95,581
                 Total liabilities and shareholders' equity           $     277,697           $     112,102
</TABLE>
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
       OF THESE FINANCIAL STATEMENTS.


   LEVEL ONE COMMUNICATIONS, INCORPORATED
      CONSOLIDATED STATEMENTS OF INCOME
  For Fiscal Years Ended December 28, 1997,
  December 29, 1996, and December 30, 1995

<TABLE>
<CAPTION>
<S>                                        <C>               <C>     <C>              <C>     <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)         1997                      1996                 
   1995
Revenues                                        $    156,262             $    111,987              $    78,018
Cost of sales                                         65,299                   48,477                   33,300
<S>     <C>                                    <C>              <C>    <C>             <C>    <C>
        Gross margin                                     90,963                 63,510                 44,718
Research and development*                             30,398                   24,505                   17,857
<S>                                        <C>               <C>     <C>              <C>     <C>
Sales and marketing                                   23,978                   16,589                   11,372
General and administrative                            10,212                    6,741                    5,752
<S>     <C>                                    <C>              <C>    <C>             <C>    <C>
        Total operating expenses                         64,588                 47,835                 34,981
Operating income                                      26,375                   15,675                    9,737
<S>                                        <C>               <C>     <C>              <C>     <C>
Interest income                                        3,959                    1,916                    2,108
Interest (expense)                                   (1,806)                    (352)                    (157)
Other income                                             110                      729                      113
Income before provision for income taxes              28,638                   17,968                   11,801
Provision for income taxes                             9,447                    6,755                    1,543
Net income                                     $      19,191             $     11,213              $    10,258
Basic earnings per share                     $          0.95           $         0.58            $        0.54
Diluted earnings per share                   $          0.89           $         0.55            $        0.51
</TABLE>


 *Includes one-time charges for acquisitions
    of $2,500 and $750 for 1996 and 1995,
                respectively.

 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
       OF THESE FINANCIAL STATEMENTS.



<PAGE>
   LEVEL ONE COMMUNICATIONS, INCORPORATED
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
                   EQUITY
For the Fiscal Years Ended December 28, 1997,
  December 29, 1996, and December 30, 1995

<TABLE>
<CAPTION>
                                                          Deferred                       Retained
                                          Common Stock               Compen-         Unrealized         Earnings
(IN THOUSANDS)                   Shares           Amount             sation          Gain(Loss)        
(Deficit)          Total
<S>                              <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>       
<C>   <C>
Balance at December 31, 1994         18,722           $72,442                $                 $         $(9,132)    
      $63,309
                                                                           (1)                 -
Issuance of common stock under
stock
      option and purchase plans           328               431                -                 -                -            
431
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Issuance of common stock upon
      exercise of warrants                  6                19                -                 -                -              19
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Tax benefit of stock option                             2,418                -                 -                -            
2,418
exercises
Stock issued in connection with
      acquisitions                        203             2,462                -                 -                -           2,462
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Unrealized gain on available-
for-sale
      securitiess, net of tax               -                 -                -                67                -              67
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Amortization of deferred
      compensation expense                  -                 -                1                 -                -               1
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Net income                                -                 -                -                 -           10,258            10,258
Balance at December 30, 1995     19,259                77,772                -                67            1,126      
     78,965
Issuance of common stock under
stock
      option and purchase plans           282             1,243                -                 -                -          
1,243
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Issuance of common stock upon
      exercise of warrants                  3                10                -                 -                -              10
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Tax benefit of stock option               -             1,205                -                 -                -            
1,205
exercises
Stock issued in connection with
      acquisitions                        130             3,000                -                 -                -           3,000
<S>                              <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>       
<C>   <C>
Unrealized loss on available-
for-sale
      securitiess, net of tax               -                 -                -              (55)                -            (55)
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Net income                                -                 -                -                 -           11,213            11,213
Balance at December 29, 1996     19,674                83,230                -                12           12,339     
      95,581
Issuance of common stock under
      stock option and purchase           596             3,538                                                              
3,538
      plans
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Issuance of common stock under
      cashless exercise of                289                 -                                                                   -
      warrants
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Tax benefit of stock option                             5,129                                                                 5,129
exercises
Unrealized gain on available-
for-sale
      securities, net of tax                                                                     6                                6
<S>   <C>                          <C>        <C>   <C>         <C>  <C>         <C>  <C>          <C>   <C>   
    <C>  <C>
Net income                                                                                                 19,191            19,191
Balance at December 28, 1997         20,559           $91,897        $       -       $        18         $ 31,530 
        $123,445
</TABLE>
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
       OF THESE FINANCIAL STATEMENTS.

 LEVEL ONE COMMUNICATIONS, INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  For Fiscal Years Ended December 28, 1997,
  December 29, 1996, and December 30, 1995

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                1997                         1996                        1995
Cash flows from operating activities:
         Net income                                                $    19,191               $    11,213                $   
10,258
<S>      <C>                                                <C>                <C>     <C>               <C>     <C>
         Adjustments to reconcile net income to net cash
             provided by operating activities:
                Depreciation and amortization                              9,714                    7,389                    
5,214
<S>     <C>     <C>                                            <C>               <C>    <C>               <C>     <C>
                Purchased research & development expenses                      -                    2,500                
      750
         Changes in assets and liabilities, net of effect
         of acquisitions:
                Trade receivables                                       (12,408)                  (3,259)                  
(8,832)
<S>     <C>     <C>                                            <C>               <C>    <C>               <C>     <C>
                Other receivables                                        (1,865)                      370                     (189)
                Inventories                                             (16,128)                    5,782                   (9,268)
                Deferred income tax benefit                              (1,546)                    1,785                    
(977)
                Prepaid expenses                                           (466)                      236                   (1,192)
                Accounts payable and accrued liabilities                  29,119                  (3,427)                 
  11,684
                Deferred lease expense                                     (312)                    (133)                        97
<S>      <C>                                                <C>                <C>     <C>               <C>     <C>
         Net cash provided by operating activities                      25,299                    22,456                  
   7,545
Cash flows from investing activities:
         Purchase of short-term investments                          (155,195)                  (12,754)                  
 (8,042)
<S>      <C>                                                <C>                <C>     <C>               <C>     <C>
         Proceeds from sales and maturities of short-term               52,852                    10,711             
       31,027
         investments
         Purchase of long-term investments                            (42,900)                  (11,780)                   
(3,681)
         Proceeds from sales and maturities of long-term                33,781                     4,035              
       1,000
         investments
         Net capital expenditures                                     (17,033)                   (9,837)                  
(10,033)
         Payments (receipts) for related party notes                         -                     1,225                   
(1,225)
         receivable
         Payments for foundry deposits and other assets                (5,951)                   (6,136)              
     (4,081)
<S>     <C>     <C>                                            <C>               <C>    <C>               <C>     <C>
                Net cash provided by (used in) investing               (134,446)                 (24,536)              
      4,965
                activities
Cash flows from financing activities:
<S>                                                    <C>                 <C>      <C>                <C>      <C>
         Net principal payments under capital lease                      (947)                     (550)                   
  (569)
         obligations
<S>      <C>                                                <C>                <C>     <C>               <C>     <C>
         Proceeds from issuance of convertible subordinated
         notes,
                net of acquisition costs                                 111,539                        -                         -
         Proceeds from issuance of stock, net of
         repurchases and costs
                of issuance                                                3,538                    1,253                       427
<S>     <C>     <C>                                            <C>               <C>    <C>               <C>     <C>
                Net cash provided by (used in) financing                 114,130                      703                 
   (142)
                activities
Net increase (decrease) in cash and cash equivalents                 4,983                     (1,377)               
       12,368
<S>                                                    <C>                 <C>      <C>                <C>      <C>
Cash and cash equivalents at beginning of year                      20,251                      21,628               
        9,260
Cash and cash equivalents at end of year                      $     25,234                $     20,251               
$      21,628
SUPPLEMENTARY DISCLOSURE OF CASH AND NON-CASH
TRANSACTIONS
         Non-cash and investing and financing activities:
                Equipment purchased under capital leases       $               -           $          726            $     
  4,770
<S>     <C>     <C>                                            <C>               <C>    <C>               <C>     <C>
                Tax benefit related to stock options                       5,129                    1,205                    
2,418
                Unrealized gain (loss) on available-for-sale
                securities,
                   net of tax                                                  6                     (55)                        67
                Cash payments for:
                   Interest                                                  199                      351                       142
                   Income taxes                                            3,861                    2,564                     1,268
</TABLE>


























   THE ACCOMPANYING NOTES ARE AN
  INTEGRAL PART OF THESE FINANCIAL
            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   application  specific
standard product ("ASPP") integrated
circuits and custom  derivatives 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.

2.    SUMMARY     OF     SIGNIFICANT
ACCOUNTING POLICIES

      BASIS  OF  PRESENTATION.   The
Company      prepares      financial
statements  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   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.

      INVESTMENTS.     The   Company
accounts for investments pursuant to
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. As of December 28, 1997
and December  29,  1996,  all of the
Company's investments are classified
as    available-for-sale   and   are
carried   at   fair   value.  As  of
December 28, 1997, and  December 29,
1996,  the  Company's  stockholders'
equity reflected an unrealized gain,
net of applicable taxes  of  $18,000
and $12,000, respectively.



<PAGE>

      The amortized cost and market
value of the Company's investments
available-for-sale as of December
28, 1997 and December 29, 1996, were
as follows:

<TABLE>
<CAPTION>
DECEMBER 28, 1997
<S>                             <C>            <C>    <C>             <C>    <C>            <C>   <C>
                                                           GROSS                  GROSS
(IN THOUSANDS)                     AMORTIZED            UNREALIZED             UNREALIZED    
       MARKET
                                     COST                  GAINS                 LOSSES               VALUE
Municipal bonds                    $    11,528         $           24                     $        $    11,552
                                                                                          -
Corporate debt and equity              122,561                     36                    30            122,567
securities
                                    $  134,089         $           60                     $         $  134,119
                                                                                         30
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 29, 1996
<S>                             <C>            <C>    <C>             <C>    <C>            <C>   <C>
                                                           GROSS                  GROSS
(IN THOUSANDS)                     AMORTIZED            UNREALIZED             UNREALIZED    
       MARKET
                                     COST                  GAINS                 LOSSES               VALUE
Municipal bonds                    $    20,531          $          29                     $         $   20,557
                                                                                          3
Corporate   debt   and   equity          2,100                      -                     6              2,094
securities
                                   $    22,631          $          29                     $         $   22,651
                                                                                          9
</TABLE>


      The  amortized cost and market
value of the  Company's  investments
available-for-sale, by maturity,  at
December 28, 1997, were as follows:


<TABLE>
<CAPTION>
DECEMBER 28, 1997
                                          AMORTIZED                      MARKET
<S>                                  <C>                 <C>       <C>
(IN THOUSANDS)                              COST                          VALUE
Due in one year or less                   $      112,536                $     112,560
Due  after  one  year  through  five              21,553                       21,559
years
                                          $      134,089                $     134,119
</TABLE>

      Proceeds   from  the  sale  of
available-for-sale       investments
during  fiscal  1997 and 1996   were
$86.6  million  and  $14.7  million,
respectively.  The  cost  basis used
in  determining  realized gains  and
losses  is specific  identification.
During 1997,  gross gains of $20,000
with no losses  were  realized,  and
gross  gains  of  $1,000  and  gross
losses  of $32,000 were realized  in
1996.

      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
convertible  subordinated notes, 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.



<PAGE>

      Inventories as of December 28,
1997, and December 29, 1996,
consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)                       1997                    1996
<S>                             <C>             <C>     <C>
Raw materials                      $      8,829          $           32
Work-in-process                          13,135                   7,948
Finished goods                            4,154                   2,010
Total inventories                   $    26,118            $      9,990
</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:


<TABLE>
<CAPTION>
Machinery and equipment                    3-5 years
<S>                                <C>
Furniture and fixtures                     3-5 years
Leasehold improvements                    6-10 years
</TABLE>


      Property and equipment, net,
is comprised of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S>                             <C>             <C>     <C>
                                     1997                    1996
Machinery and equipment              $   36,222               $  25,254
Furniture and fixtures                   18,066                  11,899
Leasehold improvements                    3,383                   3,485
                                         57,671                  40,638
Less accumulated depreciation          (25,876)                (16,962)
                                     $   31,795               $  23,676
</TABLE>

      Deferred Lease Expense.  Lease
payments for certain equipment 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
$2,490,000, $864,000, and $1,300,000
as of December  28,  1997,  December
29,  1996,  and  December  30, 1995,
respectively.  During 1997 and  1995
no  single  customer  accounted  for
more  than 10% of revenues. In 1996,
sales to  Hewlett-Packard were 11.2%
of total sales.

      Export  sales  as a percentage
of revenues were 35%,  39%,  and 33%
for    1997,    1996,    and   1995,
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 1997,  1996,  and
1995,    the   Company    recognized
revenues of  $56,000,  $398,000, and
$289,000,      respectively,      in
accordance   with    the    contract
milestones    in    the    Company's
agreements.

      The   Company   earns  royalty
income  under certain contracts  and
recognizes that income in the period
that income is earned.  During 1997,
1996,   and    1995    the   Company
recognized   revenues  of  $987,000,
$197,000,       and        $312,000,
respectively.

Revenues are comprised of the
following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S>                               <C>              <C>     <C>             <C>    <C>
                                        1997                    1996                   1995
Product sales                         $    155,219            $    111,392           $     77,417
Royalties,   licenses   and  non-
recurring
 engineering revenue                         1,043                     595                    601
 Total revenues                       $    156,262            $    111,987           $     78,018
</TABLE>


      INCOME   TAXES.   The  Company
accounts for income  taxes  pursuant
to Statement of Financial Accounting
Standards   No.   109   (SFAS  109),
"Accounting for Income Taxes."  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.


STOCK BASED COMPENSATION.   As of
December 31, 1995, the Company
adopted Statement of Financial
Accounting Standards No. 123,
"Accounting for Stock-Based
Compensation" ("SFAS 123").  This
statement defines a fair-value-based
method of accounting for stock-based
compensation.  As permitted by SFAS
123, the Company has not changed its
method of accounting for stock
options but has provided the
additional required disclosures.
The Company recognized no
compensation expense related to
stock options in 1997.

EARNINGS PER SHARE.   In February
1997, the Financial Accounting
Standards Board (the "FASB") issued
SFAS 128, "Earnings Per Share,"
which establishes standards for
computing and presenting earnings
per share ("EPS").  It replaces the
presentation of primary EPS with a
presentation of basic EPS.  It also
requires dual presentation of basic
and diluted EPS on the face of the
income statement for all entities
with complex capital structures and
requires reconciliation of the
numerator and denominator of the
basic EPS computation to the
numerator and denominator of the
diluted EPS computation.  The
statement is effective for financial
statements issued for periods ending
after December 15, 1997, and
requires restatement for all periods
presented.

      FINANCIAL        PRESENTATION.
Certain  prior year amounts  in  the
Consolidated   Financial  Statements
have been reclassified to conform to
the fiscal 1997 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 28, 1997,
and December 29, 1996, was zero.

4.    LONG-TERM DEBT

      The Company  sold $115 million
of 4% convertible subordinated notes
during 1997.  The notes  will mature
on   September   1,   2004.   Unless
previously  redeemed or repurchased,
the  notes are  convertible  at  any
time through  the  close of business
on the final maturity  date  of  the
notes,  into  common  stock  of  the
Company,  at  a  conversion price of
$40  per  share.   Interest  on  the
notes   is   payable  semi-annually,
commencing  March  1,  1998.   Total
interest accrued  on the convertible
subordinated notes  at  December 28,
1997 was approximately $1,550,000.

      After   September  2000,   the
notes  are  redeemable at the option
of the Company, in whole or in part.
The notes may be redeemed for either
cash or common stock at a repurchase
price  of  105%   of  the  principal
amount   of   the   notes    to   be
repurchased  plus accrued and unpaid
interest to the repurchase date.

      The   notes    are   unsecured
obligations of the Company  and  are
subordinated  to  all  existing  and
future  senior  indebtedness  of the
Company.  The indenture contains  no
limitations  on  the  incurrence  of
additional   indebtedness  or  other
liabilities by the Company.

5.    LEASES

      The   Company   conducts   its
operations using  leased  facilities
and equipment under both capital and
operating  leases.   Minimum  future
lease  payments  as of December  28,
1997, are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)                                   Capital               Operating Leases
                                                  Leases
Year Ending
        1998                                    $        1,415          $       12,747
<S>     <C>                                   <C>              <C>     <C>
        1999                                             1,252                  13,481
        2000                                               974                  12,070
        2001                                                74                   9,049
        2002                                                 -                   7,212
        Thereafter                                           -                  29,852
                                                 $       3,715           $      84,411
</TABLE>
<TABLE>
<CAPTION>
Less - Interest portion (7.38% to 12%)                  (339)
<S>                                        <C>                <C>      <C>
Capital lease obligations                               3,376
Less - Current portion                                (1,201)
        Long-term portion                               $2,175
</TABLE>

      Rent expense for operating
leases was approximately $9.0
million, $7.4 million, and $3.5
million for the years ended December
28, 1997, December 29, 1996, and
December 30, 1995.

6.    INCOME TAXES

The provision for income taxes
consists of:

<TABLE>
<CAPTION>
(IN THOUSANDS)
                                              1997                    1996                  1995
Current provision for income taxes:
       State                                 $     1,098             $       361          $     1,353
<S>    <C>                               <C>             <C>    <C>              <C>    <C>
       Federal                                     9,603                   4,609                2,660
Deferred provision (benefit):
       State                                         242                     696                (675)
<S>    <C>                               <C>             <C>    <C>              <C>    <C>
       Federal                                   (1,496)                   1,089              (1,795)
   Total tax provision                       $     9,447              $    6,755           $    1,543
</TABLE>


      The tax benefits associated
with nonqualified stock options
reduced taxes currently payable by
$5,129,000, $1,205,000, and
$2,418,000 in 1997, 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.

      The significant components of
the Company's deferred tax assets
and liabilities as of December 28,
1997, and December 29, 1996, are as
follows:


<TABLE>
<CAPTION>
(IN THOUSANDS)
                                                      1997                    1996
<S>     <C>                                     <C>              <C>     <C>
Deferred tax assets (liabilities):
        Inventory reserves                           $     1,893            $        397
<S>     <C>                                     <C>              <C>     <C>
        Deferred income on shipments to                      750                     374
        distributors
        Accounts receivable reserve                          114                      83
        Deferred lease expense                               151                     265
        Inventory Unicap adjustment                          796                     345
        Accrued vacation                                     445                     256
        AMT credit carryforwards                             365                     365
        R&D credit carryforwards                             573                     537
        Other                                                  -                     275
Accelerated depreciation                                   (356)                   (393)
Unrealized loss on Section 475 securities             (681)                         -
Net deferred income tax benefit                    $     4,050               $     2,504
</TABLE>

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

<TABLE>
<CAPTION>
                                         1997                  1996                  1995
<S>                                 <C>             <C>    <C>           <C>    <C>
Statutory federal tax rate                    35.0%                34.0%                  34.0%
Reversal of valuation allowance                   -                    -                (21.0%)
Foreign taxes & foreign sales                (2.6%)               (4.7%)                 (3.0%)
corporation
State taxes                                    4.9%                 3.3%                   5.7%
Non-deductible acquisition costs               0.6%                 5.5%                   2.2%
Research and development credits             (3.7%)                    -                      -
Other                                        (1.2%)               (0.5%)                 (4.8%)
Effective income tax rate                     33.0%                37.6%                  13.1%
</TABLE>

7.    SHAREHOLDERS' EQUITY AND
EARNINGS PER SHARE

In July 1997, the Board of Directors
authorized a 3 for 2 stock split,
which was effective on August 26,
1997.  The stock split was declared
on July 7, 1997, to holders of
record on August 5, 1997.   All
common stock amounts and per share
amounts have been retroactively
adjusted to reflect the stock split.

      On February 23, 1998, the
Board of Directors authorized a 3
for 2 stock split effective on March
30, 1998 to shareholders of record
on March 9, 1998.  Common stock
amounts and per share amounts have
not been adjusted to reflect the
stock split.

The Company adopted SFAS No. 128,
"Earnings per Share," effective
December 15, 1997.  As a result, the
Company's earnings per share for all
prior periods have been restated.
The following table reconciles the
numerator and denominator of the
basic and diluted earnings per share
computations.


<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT  EARNINGS PER                                                               
EARNINGS
SHARE)
                                                                                                     PER-SHARE
                                                   NET INCOME                    SHARES                AMOUNT
Net income
       1997                              $    19,191
<S>    <C>                               <C>          <C>   <C>           <C>   <C>          <C>   <C>
       1996                                    11,213
       1995                                    10,258
BASIC EPS:  income available to
       common shareholders
<S>    <C>                               <C>          <C>   <C>           <C>   <C>          <C>   <C>
       1997                                                    $   19,191             20,233           $    0.95
       1996                                                        11,213             19,439                0.58
       1995                                                        10,258             19,068                0.54
Effect of dilutive securities:
       Options:
<S>    <C>                               <C>          <C>   <C>           <C>   <C>          <C>   <C>
       1997                                                             -              1,361
       1996                                                             -              1,066
       1995                                                             -                910
DILUTED EPS:  income available to
       common stockholders plus
<S>    <C>                               <C>          <C>   <C>           <C>   <C>          <C>   <C>
       assumed conversions
       1997                                                    $   19,191             21,594           $    0.89
       1996                                                        11,213             20,505                0.55
       1995                                                        10,258             19,978                0.51
</TABLE>


      No  conversion  is assumed for
the  convertible subordinated  notes
issued in 1997 because it would have
an antidilutive  effect  on earnings
per   share.   Options  to  purchase
approximately  61,000,  98,000,  and
128,000  shares  of  common stock in
1997, 1996, and 1995,  respectively,
were not included in the computation
of diluted EPS because the  options'
exercise price was greater than  the
average  market  price of the common
shares,  making  the   shares  antidilutive.

8.    STOCK   OPTION   AND  PURCHASE
PLANS AND EMPLOYEE BENEFIT PLAN

      STOCK-BASED COMPENSATION
PLANS.  The Company has three stock
option plans, the 1985 Stock Option
Plan (the "1985 Plan"), the 1993
Stock Option Plan (the "1993 Plan"),
and 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  345,132
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 fixed
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
net income per common share would
have been reduced to the following
pro forma amounts:



<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
                                            1997                    1996                 1995
Net income
       As reported                         $    19,191             $    11,213         $    10,258
<S>    <C>                             <C>             <C>     <C>             <C>   <C>
       Pro forma                                15,401                   9,325               9,549
Earnings per share, as reported
       Basic                             $        0.95            $       0.58        $       0.54
<S>    <C>                             <C>             <C>     <C>             <C>   <C>
       Diluted                                    0.89                    0.55                0.51
Pro-forma earnings per share
       Basic                              $       0.76            $       0.48        $       0.50
<S>    <C>                             <C>             <C>     <C>             <C>   <C>
       Diluted                                    0.76                    0.48                0.50
</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 1997, 1996, and 1995.  In
calculating compensation cost:
risk-free interest rates of 6.12,
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 1997, 1996, and 1995,
respectively.

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 675,000 shares of
stock to its full-time employees
under the ESPP.  The Company has
sold 44,991 shares and 33,205 shares
as of December 28, 1997 and December
29, 1996, respectively, and has sold
a total of 112,433 shares through
December 28, 1997.  The Company
sells shares at 85% of the stock's
market price, which is either the
market price at the beginning or at
the end of offering period,
whichever is lower.

The Company may grant options for up
to 4,575,000 shares under the 1993
Plan.  The Company had 717,387
shares available for grant at
December 28, 1997.  Under the 1993
Option Plan the option exercise
price equals the market price on
date of grant.

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 28,
1997, December 29, 1996, and
December 30, 1995, at their
respective weighted average exercise
prices.

<TABLE>
<CAPTION>
                                          1997                          1996                          1995
<S>   <C>                   <C>        <C>  <C>        <C>  <C>        <C>  <C>        <C>  <C>        <C> 
<C>
                                             Wtd.Avg.                        Wtd.Avg.                        Wtd.Avg.
(SHARES IN THOUSANDS)      Shares          Exer.Price         Shares        Exer.Price        Shares  
     Exer.Price
<S>                      <C>         <C>   <C>         <C>  <C>        <C>  <C>        <C>  <C>        <C> 
<C>
Outstanding beginning of       2,855         $   10.10           2,235       $    7.60           1,635        $   
3.44
year
Granted
      Price = Fair Value              1,698             22.94             1,084            14.34            1,035            
11.98
<S>   <C>                       <C>         <C>   <C>         <C>   <C>         <C>  <C>         <C>  <C>      
  <C>  <C>
      Price < Fair Value                                                      -                -               38              0.45
Exercised                          (464)              5.59              (261)               3.70            (325)             
0.94
<S>                          <C>         <C>   <C>         <C>   <C>          <C>   <C>          <C>  <C>        
<C>  <C>
Cancelled                          (221)             12.58              (203)              13.44            (148)             
5.00
Outstanding end of year            3,868            $16.13              2,855             $10.10            2,235      
      $7.60
Exercisable, end of period           785                                  723                                 551
</TABLE>


The following table
summarizes information about
options outstanding under the
1985 Plan, 1993 Plan, and the
SFT Plan at December 28,
1997.

<TABLE>
<CAPTION>
                                                       OPTIONS OUTSTANDING                   OPTIONS
EXERCISABLE
(SHARES IN THOUSANDS)                 Shares             Wtd. Avg.                                  Shares
                                         Outstanding          Remaining                             Exercisable
                                       as of            Contractual           Wtd. Avg.         as of 12/28/97          Wtd.
Avg.
  Range of Exercise Prices           12/28/97              Life            Exercise Price                           
Exercise Price
<S>                          <C>   <C>           <C>   <C>           <C>   <C>             <C>  <C>            <C> 
 <C>
   $     0.26         $     11.00                 968                6.29           $     6.81               505         $    
4.05
<S>           <C>   <C>           <C>   <C>           <C>   <C>           <C>   <C>            <C> <C>         
 <C>  <C>
        11.17               15.17               1,019                8.00                12.90               236             
13.21
        15.54               24.00                 985                9.08                17.26                44              19.24
        24.50               40.75                 896                9.72                28.65                 -              25.08
   $     0.26         $     40.75               3,868                8.24               $16.13               785          $   
7.66
</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.

      401(K)        TAX
DEFERRED  SAVINGS 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
at least 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   28,
1997,   December    29,
1996,  and December 30,
1995, the  Company  has
contributed   $490,000,
$420,000, and $315,000,
respectively,   to  the
401(k) Plan.


9.    INCENTIVE PLANS

      The  Company  has
reserved 135,000 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  28,  1997, 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     $3,739,000,
$1,791,000,         and
$833,000 for 1997, 1996
and 1995, respectively.


10.   STOCK WARRANTS

      The  Company  has
issued    warrants   to
independent       sales
representatives      to
purchase  up  to 63,750
shares  of  its  Common
Stock   with   exercise
prices   ranging   from
$1.55   to  $14.00  per
share.  As  of December
28, 1997, an  aggregate
of  30,103  shares  has
been     issued    upon
exercise of warrants.

      In     connection
with  securing  a  loan
from investors in 1992,
the   Company    issued
warrants   to  purchase
304,119    shares    of
Common  Stock  with  an
exercise price of $1.03
per     share.      The
warrants were exercised
January 16,  1997,  for
289,131 shares, and the
balance             was
surrendered,  on  a net
appreciation basis,  in
an  amount equal to the
exercise price.


11.   PREFERRED STOCK

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

12.   RELATED     PARTY
TRANSACTIONS

      During 1997, 1996
and  1995,  the Company
paid consulting  and/or
directors'    fees   of
approximately $117,000,
$129,600,  and $130,000
respectively,  to three
members of the Board of
Directors.

      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
was accounted as 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    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.

13.   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 130,095
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 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       203,040
shares  of  its  common
stock      to     SFT's
shareholders,   assumed
existing    SFT   stock
options, which  will be
exercisable for a total
of  37,426  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 Operations.

14.   RISK FACTORS

      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,
current        supplier
interruptions or  other
changes will not have a
material impact on  the
Company's business.



<PAGE>

      The   Company  is
also   dependent   upon
third-party    assembly
companies  that package
or  test the  Company's
devices.   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.

      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.
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
subject.

15.   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
cash    deposits.    At
December  28, 1997, the
Company had provided an
aggregate   of    $20.6
million    in   capital
equipment     financing
and/or cash deposits to
these   foundries    to
obtain        committed
foundry       capacity.
During     the    first
quarter  of  1998,  the
Company     paid     an
aggregate  $1.3 million
in additional  deposits
per   its   agreements.
There are no additional
deposits due  under the
Company's      existing
foundry agreements.




<PAGE>








            SCHEDULE II

       LEVEL ONE
 COMMUNICATIONS, INC.
     VALUATION AND
  QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
       (IN THOUSANDS OF DOLLARS)    Balance at           Charged to                              
Balance at
<S>    <C>                         <C>           <C>   <C>            <C>   <C>            <C>   <C>
                                     Beginning            Costs and                                 End of
             Classification          of Period            Expenses            Deductions            Period
YEAR ENDED DECEMBER 28, 1997:
       Allowance for doubtful                156                                         -                 343
       accounts                                                   187
<S>    <C>                         <C>           <C>   <C>            <C>   <C>            <C>   <C>
YEAR ENDED DECEMBER 29, 1996:
       Allowance for doubtful                300                    -                  144                 156
       accounts
<S>    <C>                         <C>           <C>   <C>            <C>   <C>            <C>   <C>
YEAR ENDED DECEMBER 30, 1995:
       Allowance for doubtful                 90                  210                    -                 300
       accounts
</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  _________ DAY
OF MARCH, 1998.


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 27,
1998
        /S/ ROBERT
S. PEPPER
Robert S. Pepper,
 PRESIDENT, CHIEF
EXECUTIVE OFFICER
    (PRINCIPAL
EXECUTIVE OFFICER)
  AND CHAIRMAN OF
   THE BOARD OF
    DIRECTORS



Dated: March 27,
      1998      /S/ THOMAS
      J. CONNORS
       Thomas   J.
Connors,
           DIRECTOR




Dated: March 27,
1998
            /S/
PAUL GRAY
Paul Gray
     DIRECTOR
Dated: March 27
, 1998

/S/ MARTIN JURICk

          Martin
     Jurick,
        DIRECTOR



Dated:  March
271998
         /S/ HENRY
KRESSEL
              Henry
     Kressel,
             DIRECTOR

Dated:  March  27,
1998
       /S/  JOSEPH
P. LANDY
Joseph P. Landy,
            DIRECTOR

Dated: March 27,
1998
       /S/ JOHN
KEHOE
   John Kehoe,
   SENIOR VICE
  PRESIDENT AND
 CHIEF FINANCIAL
     OFFICER
    (PRINCIPAL
FINANCIAL OFFICER)
    (PRINCIPAL
    ACCOUNTING
     OFFICER)




<PAGE>







   EXHIBIT 22.1

 SUBSIDIARIES OF
    REGISTRANT

      Registrant
has  five  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;
Level          One
Communications
Europe SARL, which
is incorporated in
France   and  does
business under the
name   Level   One
Communications
Europe;        and
LOCSWEDE,    A.B.,
which           is
incorporated    in
Sweden   and  does
business under the
name   Level   One
Communications.




<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,     333-
06300   and   333-
48333.



      /S/   ARTHUR
ANDERSEN LLP


Sacramento,
California
March 27, 1998





<PAGE>
EX-3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
LEVEL ONE COMMUNICATIONS, INCORPORATED



      ROBERT S. PEPPER and JOHN KEHOE certify that:

      1.    They are the President and the Secretary, respectively, of Level
One Communications, Incorporated.

      2.    Subsection A of Article Third of the Restated Articles of
Incorporation of Level One Communications, Incorporated is amended to read in
its entirety as follows:

               "A. This Corporation is authorized to issue two classes of
      shares to be designated respectively Preferred Stock ("Preferred Stock")
      and Common Stock ("Common Stock").  The total number of shares of Common
      Stock this Corporation shall have authority to issue is Two Hundred
      Thirty-six Million, Two Hundred Fifty Thousand (236,250,000).  The total
      number of shares of Preferred Stock this Corporation shall have authority
      to issue is Ten Million (10,000,000).  The Board of Directors of this
      Corporation is authorized to determine or alter the rights, privileges,
      preferences and restrictions granted to or imposed upon any wholly
      unissued shares or series of shares of Preferred Stock, and within the
      limitations or restrictions stated in any resolution or resolutions of
      the Board of Directors originally fixing the number of shares
      constituting any series, to increase or decrease (but not below the
      number of shares of any series then outstanding) the number of shares of
      any such series subsequent to the issue of shares of that series, to
      determine the designation of any series, and to fix the number of shares
      of any series.

               "B. Upon the effective date of this Amendment to the Restated
      Articles of Incorporation, each outstanding share of Common Stock of the
      Corporation is split and converted to 1.5 shares of Common Stock."

   3.    The foregoing amendment of the Articles of Incorporation was duly
approved by the Board of Directors by unanimous written consent on February 13,
1998.

   4.    The change which has been made hereby to the Articles of Incorporation
is to effect a three-for-two stock split (including a proportionate increase in
the authorized number of Common Shares).  No shares of Preferred Stock are
outstanding.  Pursuant to Section 902(c) of the California Corporations Code,
shareholder approval is not required for this action.

   5.    The foregoing amendment of the Articles of Incorporation of Level One
Communications, Incorporated, shall become effective at the close of business
on March 9, 1998.

   The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.

   Executed at Sacramento, California on March 3, 1998.



                                  /S/ ROBERT S. PEPPER
                                 Robert S. Pepper, President



                                  /S/ JOHN KEHOE
                                 John Kehoe, Secretary



                               - 2 -

<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
LEVEL ONE COMMUNICATIONS, INCORPORATED



   ROBERT S. PEPPER and JOHN KEHOE certify that:

   1.    They are the President and the Secretary, respectively, of Level One
Communications, Incorporated.

   2.    Subsection A of Article Third of the Restated Articles of
Incorporation of Level One Communications, Incorporated is amended to read in
its entirety as follows:

               "A. This Corporation is authorized to issue two classes of
      shares to be designated respectively Preferred Stock ("Preferred Stock")
      and Common Stock ("Common Stock").  The total number of shares of Common
      Stock this Corporation shall have authority to issue is One Hundred and
      Fifty-seven Million Five Hundred Thousand (157,500,000).  The total
      number of shares of Preferred Stock this Corporation shall have authority
      to issue is Ten Million (10,000,000).  The Board of Directors of this
      Corporation is authorized to determine or alter the rights, privileges,
      preferences and restrictions granted to or imposed upon any wholly
      unissued shares or series of shares of Preferred Stock, and within the
      limitations or restrictions stated in any resolution or resolutions of
      the Board of Directors originally fixing the number of shares
      constituting any series, to increase or decrease (but not below the
      number of shares of any series then outstanding) the number of shares of
      any such series subsequent to the issue of shares of that series, to
      determine the designation of any series, and to fix the number of shares
      of any series.

               "B. Upon the effective date of this Amendment to the Restated
      Articles of Incorporation, each outstanding share of Common Stock of the
      Corporation is split and converted to 1.5 shares of Common Stock."

   3.    The foregoing amendment of the Articles of Incorporation was duly
approved by the Board of Directors at its duly held meeting on July 17, 1997,
at which a quorum was present and acting throughout.

   4.    The change which has been made hereby to the Articles of Incorporation
is to effect a three-for-two stock split (including a proportionate increase in
the authorized number of Common Shares).  No shares of Preferred Stock are
outstanding.  Pursuant to Section 902(c) of the California Corporations Code,
shareholder approval is not required for this action.

   5.    The foregoing amendment of the Articles of Incorporation of Level One
Communications, Incorporated, shall become effective at the close of business
on August 5, 1997.

   The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.

   Executed at Sacramento, California on August 4, 1997.


                                  /S/ ROBERT S. PEPPER
                                 Robert S. Pepper, President


                                  /S/ JOHN KEHOE
                                 John Kehoe, Secretary



                               - 3 -

<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
LEVEL ONE COMMUNICATIONS, INCORPORATED



   ROBERT S. PEPPER and JOHN ZIMMERMAN certify that:

   1.    They are the President and the Assistant Secretary, respectively, of
Level One Communications, Incorporated.

   2.    Subsection A of Article Third of the Restated Articles of
Incorporation of Level One Communications, Incorporated is amended to read in
its entirety as follows:

               "A. This Corporation is authorized to issue two classes of
      shares to be designated respectively Preferred Stock ("Preferred Stock")
      and Common Stock ("Common Stock").  The total number of shares of Common
      Stock this Corporation shall have authority to issue is One Hundred and
      Five Million (105,000,000).  The total number of shares of Preferred
      Stock this Corporation shall have authority to issue is Ten Million
      (10,000,000).  The Board of Directors of this Corporation is authorized
      to determine or alter the rights, privileges, preferences and
      restrictions granted to or imposed upon any wholly unissued shares or
      series of shares of Preferred Stock, and within the limitations or
      restrictions stated in any resolution or resolutions of the Board of
      Directors originally fixing the number of shares constituting any series,
      to increase or decrease (but not below the number of shares of any series
      then outstanding) the number of shares of any such series subsequent to
      the issue of shares of that series, to determine the designation of any
      series, and to fix the number of shares of any series.

               "B. Upon the effective date of this Amendment to the Restated
      Articles of Incorporation, each outstanding share of Common Stock of the
      Corporation is split and converted to 1.5 shares of Common Stock."

   3.    The foregoing amendment of the Articles of Incorporation was duly
approved by the Board of Directors at its duly held meeting on December 13,
1993, at which a quorum was present and acting throughout.

   4.    The change which has been made hereby to the Articles of Incorporation
is to effect a three-for-two stock split (including a proportionate increase in
the authorized number of Common Shares).  No shares of Preferred Stock are
outstanding.  Pursuant to Section 902(c) of the California Corporations Code,
shareholder approval is not required for this action.

   5.    The foregoing amendment of the Articles of Incorporation of Level One
Communications, Incorporated, shall become effective at the close of business
on December 30, 1993.

   The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.

   Executed at Sacramento, California on December 15, 1993.


                                  /S/ ROBERT S. PEPPER
                                 Robert S. Pepper, President


                                  /S/ JOHN ZIMMERMAN
                                 John Zimmerman, Assistant Secretary



                               - 4 -

<PAGE>
                             AMENDED AND RESTATED

                           ARTICLES OF INCORPORATION

                                      OF

                    LEVEL ONE COMMUNICATIONS, INCORPORATED


   Robert Pepper and  Joseph Landy hereby certify as follows:

   1.    That they are the President and Secretary, respectively, of Level One
Communications, Incorporated, a California corporation.

   2.    That the Articles of Incorporation of the corporation are hereby
amended and restated to read in full as follows:

   "FIRST:     The name of the corporation (hereinafter called the
"Corporation") is Level One Communications, Incorporated.

   SECOND:     The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.

   THIRD:

   A.    This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock").  The total number of shares of  Common Stock this Corporation
shall have authority to issue is Seventy  Million (70,000,000).  The total
number of shares of Preferred Stock this Corporation shall have authority to
issue is   Seventeen Million Five Hundred Seventy Thousand  (17,570,000), of
which Five Million Nine Hundred Seventy Thousand (5,970,000) shares are
designated "Series D Preferred Stock," and One Million Six Hundred Thousand
(1,600,000) shares are designated "Series E Preferred Stock."  The  Board of
Directors of this corporation is authorized to determine or alter the rights,
privileges, preferences and restrictions granted to or imposed upon any wholly
unissued shares or series of shares of Preferred Stock, and within the
limitations or restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of any
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series, to determine the designation of any series,
and to fix the number of shares of any series.  Upon the filing of these
Amended and Restated Articles of Incorporation, each ten (10) shares of Common
Stock then outstanding ("Old Common Stock") shall be combined into one (1)
share of Common Stock.  In lieu of fractional shares, the corporation will
distribute one whole share of Common Stock.


   B.    The rights, preferences, privileges, restrictions and other matters
relating to the Series D and E Preferred Stock are as follows:

         1.  DIVIDENDS.

               (a)   The holders of the Series D and E Preferred Stock shall be
entitled to receive, when and as declared by the  Corporation's Board of
Directors (the "Board of Directors"), and out of any funds legally available
therefor, cumulative dividends on each share at the rate of $0.125 per share
per annum, payable in cash annually as the Board of Directors may from time to
time determine.  Such dividends shall accrue on each share from the date of its
original issue and shall accrue from day to day, whether or not earned or
declared.  Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully paid before
any dividend (other than those payable solely in the Common Stock of the
Corporation) or other distribution shall be paid on or declared and set apart
for the Common Stock.

               Except as limited by the provisions of California Corporations
Code Sections 500 et. seq., in the event the Corporation conducts an initial
public offering of its Common Stock which would cause an automatic conversion
of the Series D and E Preferred Stock to Common Stock (as provided below), the
Board of Directors, prior to such conversion, shall declare a dividend of
accumulated and unpaid dividends, PROVIDED, HOWEVER, that the Board of
Directors in its sole discretion may declare such dividend to holders of the
Series D and E Preferred Stock as of a record date determined by the Board of
Directors (the "Dividend Record Date"), and payment of such dividend may be
made in shares of Common Stock in lieu of cash (the "Share Dividend").  The
number of shares of Common Stock to be paid in the Share Dividend shall be
calculated by dividing the cumulative dividend payable as of the Dividend
Record Date by the price at which shares of Common Stock are offered to the
public in the initial public offering, net of underwriting discounts.  The
Share Dividend shall be payable upon, and shall be contingent upon, the closing
of such initial public offering.  Upon payment of the Share Dividend, the
Corporation shall have no further obligation to pay dividends with respect to
the Series D and E Preferred Stock.

               (b)   In the event the Corporation shall declare a distribution
(OTHER THAN any distribution described in Section 2) payable in securities of
other persons, evidences of indebtedness issued by the Corporation or other
persons, assets (excluding cash dividends) or options or rights to purchase any
such securities or evidences of indebtedness, then, in each such case the
holders of the Series D and E Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the
Series D and E Preferred Stock were the holders of the number of shares of
Common Stock of the Corporation into which their respective shares of Series D
and E Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.

               (c)   Each holder of shares of Series D and E Preferred Stock
shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of
the General Corporation Law of the State of California, to distributions made
by the Corporation in connection with the repurchase of shares of Common Stock
issued to or held by employees or consultants upon termination of their
employment or services pursuant to agreements providing for such repurchase.

         2.  LIQUIDATION PREFERENCE.

               (a)   In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of the Series
D and E Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock by reason of their ownership thereof, the
amount of $1.25 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus all declared or accumulated but unpaid
dividends on such share for each share of Series D and E Preferred Stock then
held by them and no more.  If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series D and E Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series D and E Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.

               (b)   After payment to the holders of the Series D and E
Preferred Stock of the amounts set forth in subparagraph (a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock and the Series D and E Preferred Stock in proportion to the shares of
Common Stock then held by them and the shares of Common Stock which they then
have the right to acquire upon conversion of the shares of Series D and E
Preferred Stock then held by them.

               (c)   For purposes of this Section 2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring
corporation, or its subsidiary (other than a mere reincorporation transaction),
(ii) any transaction or series of transactions within any three-month period
pursuant to an agreement to which the Corporation is a party (other than a
registered public offering pursuant to which the Series D and E Preferred Stock
are automatically converted into Common Stock pursuant to Section 4(b) below)
in which greater than fifty percent (50%) of the Corporation's voting
securities (on an as-converted-to-Common Stock basis) shall be transferred, or
(iii) a sale of all or substantially all of the assets of the Corporation,
shall be treated as a liquidation, dissolution or winding up of the Corporation
and shall entitle the holders of Series D and E Preferred Stock to receive at
the closing in cash or securities (valued as provided in (d) below) amounts as
specified in subparagraphs (a) and (b) above.

               (d)   Whenever the distribution provided for in this Section 2
shall be payable in property other than cash, the value of such distribution
shall be the fair market value of such property as determined in good faith by
the Board of Directors.

         3.  VOTING RIGHTS; DIRECTORS.

               (a)   The holder of each share of the Series D and E Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such share of Series D and E Preferred Stock could be
converted and shall have voting rights and powers equal to the voting rights
and powers of the Common Stock (except as otherwise expressly provided herein
or as required by law, voting together with the Common Stock as a single class)
and shall be entitled to notice of any shareholders' meeting in accordance with
the Bylaws of the Corporation.  Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series D and E Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).  Each holder of Common Stock
shall be entitled to one vote for each share of Common Stock held.

               (b)     Prior to the conversion of the Series D and Series E
Preferred Stock to Common Stock, the Board of Directors shall consist of seven
(7) members.  The holders of Series D Preferred Stock, as a class, shall be
entitled to designate five (5) members of the Board of Directors.  The holders
of the Common Stock, as a class, shall be entitled to designate the remaining
two (2) members of the Board of Directors.  So long as any shares of Series D
Preferred Stock remain outstanding, the Corporation shall not, without the vote
or written consent of the holders of more than eighty percent (80%) of the then
outstanding shares of Series D Preferred Stock, change the authorized number of
directors of the Corporation or the terms of this Section 3(b).  The
Corporation shall not take any of the actions described in Sections 5 or 6
below without the approval of a majority of the Board of Directors.

               (c)   In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of the Series D Preferred
Stock or Common Stock pursuant to the second and third sentences of Section
3(b) hereof, the remaining director or directors so elected by the holders of
the Series D Preferred Stock or Common Stock may elect a successor or
successors to hold the office for the unexpired term of the director or
directors whose place or places shall be vacant.  Any director who shall have
been elected by the holders of the Series D Preferred Stock or Common Stock or
any director so elected as provided in the preceding sentence hereof, shall be
removed during the aforesaid term of office, whether with or without cause,
only by the affirmative vote of the holders of a majority of the Series D
Preferred Stock or Common Stock, as the case may be.

         4.  CONVERSION.  The holders of the Preferred Stock shall have
respective conversion rights as follows (the "Conversion Rights"):

               (a)   RIGHT TO CONVERT.  Each share of Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and
non-assessable shares of Old Common Stock as is determined by dividing $1.25 by
the Series D Conversion Price applicable to such share, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion.  The price at which shares of Old Common Stock shall be deliverable
upon conversion of shares of the Series D Preferred Stock (the "Series D
Conversion Price") shall initially be $.16848 per share of Old Common Stock.
Such initial Series D Conversion Price shall be adjusted as hereinafter
provided.

               Each share of Series E Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and non-assessable shares of Old Common
Stock as is determined by dividing $1.25 by the Series E Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion.  The price at which shares
of Old Common Stock shall be deliverable upon conversion of shares of the
Series E Preferred Stock (the "Series E Conversion Price") shall initially be
$.34 per share of Old Common Stock.  Such initial Series E Conversion Price
shall be adjusted as hereinafter provided.

               (b)   AUTOMATIC CONVERSION.  Each share of Series D Preferred
Stock shall automatically be converted into shares of Old Common Stock at the
then-effective Series D Conversion Price upon the earlier of (i) the date
specified by written agreement of at least eighty percent (80%) of the Series D
Preferred Stock then outstanding, or (ii) immediately upon the closing of the
sale of the Corporation's Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act of 1933, as amended (other
then a registration relating solely to a transaction under Rule 145 under such
Act (or any successor thereto) or to an employee benefit plan of the Company),
at a public offer price (prior to underwriter commissions and expenses) equal
to or exceeding  $6.00 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) and the
aggregate proceeds to the Corporation (after deduction for underwriter
commissions and expenses relating to the issuance, including without limitation
fees of the Corporation's counsel) of which equal or exceed $7,500,000.

               Each share of Series E Preferred Stock shall automatically be
converted into shares of Old Common Stock at the then-effective Series E
Conversion Price upon the earlier of (i) the date specified by written
agreement of at least eighty percent (80%) of the Series E Preferred Stock then
outstanding, or (ii) immediately upon the closing of the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act of 1933, as amended (other then a
registration relating solely to a transaction under Rule 145 under such Act (or
any successor thereto) or to an employee benefit plan of the Company), at a
public offer price (prior to underwriter commissions and expenses) equal to or
exceeding  $6.00 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) and the
aggregate proceeds to the Corporation (after deduction for underwriter
commissions and expenses relating to the issuance, including without limitation
fees of the Corporation's counsel) of which equal or exceed $7,500,000.

               (c)   MECHANICS OF CONVERSION.

                     (i)  Before any holder of Series D or E Preferred Stock
shall be entitled to convert the same into shares of Old Common Stock, he shall
surrender the certificate or certificates thereof, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein the name or names in which he wishes the
certificate or certificates for shares of  to be issued.  The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series D or E Preferred Stock, a certificate or certificates for
the number of shares of Common Stock to which he shall be entitled , after
taking into account the reverse stock split as provided in Article Third,
Section A of these Amended and Restated Articles of Incorporation.  Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of surrender of the shares of Series D or E Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.

                     (ii)  If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Series D or E
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of the
Series D or E Preferred Stock shall not be deemed to have converted such
Series D or E Preferred Stock until immediately prior to the closing of such
sale of securities.

               (d)   ADJUSTMENTS TO SERIES D AND SERIES E CONVERSION PRICE FOR
CERTAIN DILUTING ISSUES.

                     (i)  SPECIAL DEFINITIONS.  For purposes of this Section
4(d), the following definitions apply:

                           (1)   'OPTIONS' shall mean rights, options, or 
warrants to subscribe for,
purchase or otherwise acquire
either Common Stock or Convertible Securities.

  (2)   'ORIGINAL ISSUE DATE' shall mean the date on which a share of Series
D or E Preferred Stock was
first issued.

   (3)   'CONVERTIBLE SECURITIES' shall mean any evidences of
indebtedness, shares (other than the Common
Stock and Series D and E Preferred Stock) or other securities convertible 
into or exchangeable
for Common Stock.

                           (4)   'ADDITIONAL SHARES OF COMMON STOCK '
shall mean all shares of Common Stock issued (or, pursuant to Section
4(d)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
                                 (A)   upon conversion of shares of Series D or
 E Preferred Stock;

(B)   to officers, directors or bona fide employees of, or consultants to, the
Corporation pursuant
to stock option or stock purchase plans, 
on terms approved by the Board of Directors, but not
exceeding 9,652,067 shares of Old
Common Stock (including for purposes of
 calculating said 9,652,067 shares, 2,207,768 shares
outstanding on the Original Issue Date
and net of any repurchases of such 9,652,067 shares),
 subject to adjustment for all subdivisions
and combinations;

     (C)   in connection with lease or working capital financing on terms
approved by the Board of
Directors, but not exceeding
 2,418,950 shares of Old Common Stock (including shares issuable
upon exercise of any warrants issued in
connection with such lease or
 working capital financings), subject to adjustment for all
subdivisions and combinations;

    (D)   as a dividend or distribution on Series D or E Preferred Stock; or

   (E)   for which adjustment of the Series D or Series E Conversion Price is
made pursuant to Section
4(e).

                  (ii)  NO ADJUSTMENT OF CONVERSION PRICE.  No adjustment in
the Conversion Price for a series of Preferred Stock shall be made in respect
of the issuance of Additional Shares of Common Stock unless the consideration
per share (determined pursuant to Section 4(d)(v) hereof) for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation is less
than the respective Series D or Series E Conversion Price in effect on the date
of, and immediately prior to such issue.

                 (iii)  DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.  In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained
 therein designed to protect against
dilution) of Common Stock issuable
 upon the exercise of such Options or in the
case of Convertible Securities and Options
 therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a
 record date
shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined pursuant to Section
4(d)(v) hereof) of such Additional Shares of Common Stock would be less than
the Series D or E Conversion Price in effect on the date of and immediately
prior to such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Shares of Common Stock are
deemed to be issued:

                           (1)   no further adjustments in the Series D
 or E Conversion Price shall be made
upon the subsequent
issue of Convertible Securities or shares of Common Stock upon the exercise
 of such Options or
conversion or exchange of such
Convertible Securities;

                           (2)   if such Options or Convertible Securities
 by their terms provide, with the
passage of time or
otherwise, for any increase in the consideration payable to the Corporation,
 or decrease in the
number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Series D
 or E Conversion Price
computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto),
 and any subsequent
adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to
 reflect such increase or
decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible 
Securities (provided,
however, that no such adjustment of the
Series D or E Conversion Price shall effect Common Stock previously
 issued upon conversion of
the Series D or E Preferred Stock);

                           (3)   upon the expiration of any such Options
 or any rights of conversion or
exchange under such
Convertible Securities which shall not have been exercised, the 
Series D or E Conversion Price
computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and
 any subsequent
adjustments based thereon, shall, upon
such expiration, be recomputed as if:

                                 (A)   in the case of Convertible Securities
 or Options for Common Stock the
only Additional Shares
of Common Stock issued were the shares of Common Stock, if any,
 actually issued upon the
exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
 received therefor was the
consideration actually received by the
Corporation for the issue of all such
 Options, whether or not exercised, plus the consideration
actually received by the Corporation
upon such exercise, or for the issue
 of all such Convertible Securities which were actually
converted or exchanged, plus the
additional consideration, if any, actually
 received by the Corporation upon such conversion or
exchange; and

                                 (B)   in the case of Options for Convertible 
Securities only the Convertible
Securities, if any,
actually issued upon the exercise
 thereof were issued at the time of issue of such Options, and the
consideration received by the
Corporation for the issue of all such
 Options, whether or not exercised, plus the consideration
deemed to have been received by the
Corporation (determined pursuant to
 Section 4(d)(v) upon the issue of the Convertible Securities
with respect to which such Options
were actually exercised;

                           (4)   no readjustment pursuant to clause (2)
 or (3) above shall have the effect of
increasing the
Series D or E Conversion Price to an amount which exceeds the lower of
 (A) the Series D or E
Conversion Price on the original
adjustment date, or (B) the Series D or E Conversion Price that would
 have resulted from any
issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment date; and

                           (5)   in the case of any Options which expire
 by their terms not more than 30
days after the date of
issue thereof, no adjustment of the Series D or E Conversion Price shall be 
made until the
expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner
 provided in clause (3)
above.

                   (iv)  ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.  In the event this Corporation, at any time
after the Original Issue Date shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share less
than the Conversion Price with respect to any series of Preferred Stock in
effect on the date of and immediately prior to such issue, then and in such
event, the Conversion Price for such series of Preferred Stock shall be
reduced, concurrently with such issue, to a price calculated to the nearest
one-tenth of a cent) determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued.  For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series D or E
Preferred Stock and all Convertible Securities had been fully converted into
shares of Common Stock and any outstanding Options for the purchase of shares
of stock or Convertible Securities had been fully exercised (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as
of such date, but not including in any such calculation any additional shares
of Common Stock issuable with respect to shares of Series D or E Preferred
Stock, Convertible Securities, or outstanding Options for the purchase of
shares of stock or Convertible Securities, solely as a result of the adjustment
of the respective Conversion Prices (or other conversion ratios) resulting from
the issuances of Additional Shares of Common Stock causing such adjustment.

                     (v)   DETERMINATION OF CONSIDERATION.  For purposes of
this Section 4(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:

                           (1)   CASH AND PROPERTY: Such consideration shall:

                                 (A)   insofar as it consists of cash, 
be computed at the aggregate amount of
cash received by the
Corporation excluding amounts paid or payable for accrued interest
 or accrued dividends;

 (B)   insofar as it consists of property other than cash, be computed at the
fair value thereof at
the time of such issue, as determined in good faith by the Board; and

(C)   in the event Additional Shares of Common Stock are issued together
with other shares or
securities or other assets of the
 Corporation for consideration which covers both, be the
proportion of such consideration so
received, computed as provided in clauses (A) and (B) above, as determined
 in good faith by the
Board.

    (2)   OPTIONS AND CONVERTIBLE SECURITIES .  The consideration per
share received by the Corporation for
Additional Shares of Common Stock 
deemed to have been issued pursuant to Section 4(d)(iii),
relating to Options and Convertible
Securities, shall be determined by dividing

(A)   the total amount, if any, received or receivable by the Corporation as
consideration for the
issue of such Options or Convertible 
Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the
instruments relating thereto, without
 regard to any provision contained therein designed to
protect against dilution) payable to the
Corporation upon the exercise of such
 Securities, or in the case of Options for Convertible
Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such 
Convertible Securities by

 (B)   the maximum number of shares of Common Stock (as set forth in the
instruments relating
thereto, without regard to any provision contained therein designed to 
protect against the
dilution) issuable upon the exercise of
such Options or conversion or exchange of such Convertible Securities.

               (e)   ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND
FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK.  In the event that this
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise than by payment of a
dividend in Common Stock or in any right to acquire Common Stock), or in the
event the outstanding shares of Common stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, then the Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate.  In the event that this Corporation
shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration then the
Corporation shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon
exercises of such rights to acquire Common Stock.

               (f)   ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION.  If
the Common Stock issuable upon conversion of the Series D and E Preferred Stock
shall be changed into the same or a different number of shares of any other
class or class of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section
2(c) above), the Series D  and E Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series D and E Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series D and E Preferred Stock immediately before that
change.

               (g)  NO IMPAIRMENT.  The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series D and E Preferred Stock against impairment.

               (h)  CERTIFICATES AS TO ADJUSTMENTS.  Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and cause
independent public accountants selected by the corporation to verify such
computation and prepare and furnish to each holder of Series D  or E Preferred
Stock, within ten (10) days following the occurrence of the event causing such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.  The Corporation shall, upon the written
request at any time of any holder of Series D or E Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series D or
E Preferred Stock.

               (i)  NOTICES OF RECORD DATE.  In the event that the Corporation
shall propose at any time:  (i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
common Stock outstanding involving a change in the common Stock; (iv) to merge
or consolidate with or into any other corporation, or sell, lease or convey all
or substantially all of its assets, or to liquidate, dissolve or wind up; or
(v) to enter into any transaction or series of transactions within any
three-month period pursuant to any agreement to which the corporation is a
party (other than a registered public offering pursuant to which  the Series D
and E Preferred Stock is automatically converted into Common Stock pursuant to
Section 4(b) above) in which greater than fifty percent (50%)of the
Corporation's voting securities (on an as-converted-to-Common Stock basis)
shall be transferred;

         Then, in connection with each such event, the Corporation shall send
to holders of Series D and E Preferred Stock: (1) at least twenty (20) days'
prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying the date on which
the holders of Common Stock shall be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (iii), (iv)
and (v) above; and (2) in the case of the matters referred to in (iii), (iv)
and (v) above, at least twenty (20) days' prior written notice of that date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).

               (j)  ISSUE TAXES.   The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of common Stock on conversion of shares of Series D or E Preferred Stock
pursuant hereto; provided, however, that the corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.

               (k)  RESERVATION OF STOCK ISSUABLE UPON CONVERSION .  The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series D and E Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series D and E Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series D and E Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to this Certificate.

               (l) FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share or shares of Series D or E Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Series D or E Preferred Stock by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share.  If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of the Corporation).

               (m)  NOTICES.  Any notice required by the provisions of this
section 4 to be given to the holders of shares of Series D or E Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
certified and return receipt requested, and addressed to each holder of record
at the address appearing on the books of the Corporation provided that any
notice to be given to a holder of shares of Series D or E Preferred Stock
residing outside of the United States shall be given by facsimile and second
day courier service to the address of such holder as it appears on the books of
the Corporation.

         5.  AMENDMENT.  Except as provided in Section 3(b) herein, any term
relating to the Series D or E Preferred Stock may be amended and the observance
of any term relating to any shares of that series of Preferred Stock may be
waived (either generally or in a particular instance and either retroactively
or prospectively) only with the vote or written consent of holders of more that
fifty percent (50%) of that series of Preferred Stock then outstanding.  Any
amendment or waiver so effected shall be binding upon the Corporation and all
holders of such series of Preferred Stock.

         6.  RESTRICTIONS AND LIMITATIONS.

         Except as provided in Section 3(b) herein, so long as any shares of
Series D or E Preferred Stock remain outstanding, the Corporation shall not,
without the vote or written consent by the holders of more than fifty percent
(50%) of the then outstanding share of Series D and E Preferred Stock:

         (i)  Redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Series D
or E Preferred Stock otherwise than by conversion in accordance with Section 4
hereof, or

       (ii)  Pay any dividends on, or purchase, redeem or otherwise acquire (or
pay into or set aside for a sinking fund for such purpose), any of the Common
Stock of the Corporation, provided, however, that this restriction shall not
apply to the repurchase of shares of Common Stock from directors, officers,
consultants or employees of the corporation or any subsidiary pursuant to
agreements approved by the corporations's Board of Directors under which the
Corporation has the option to repurchase such shares at the repurchase price
set forth in such agreements, not to exceed original or the most recent
issuance price of such stock, upon the occurrence of certain events, such as
the termination of employment, or

      (iii)  Effect any sale, lease, assignment, transfer or other conveyance
of all or substantially all of the assets of the Corporation or any of its
subsidiaries, or any consolidation or merger involving the Corporation or any
of its subsidiaries, or

       (iv)  Permit any subsidiary to issue or sell, or obligate itself to
issue or sell, except to the Corporation or any wholly owned subsidiary, any
stock of such subsidiary, or

         (v)  Effect any reclassification, recapitalization or other change
with respect to any outstanding shares of stock which results in the issuance
of shares of stock having any preference or priority as to dividend or
redemption rights, liquidation preferences, conversion rights, voting rights or
otherwise, superior to any such preference or priority of the Series D or E
Preferred Stock, or

       (vi)  Increase of decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock of the Corporation or the
total number of such shares of Preferred Stock designated Series D or E
Preferred Stock, or

      (vii)  Authorize or issue, or obligate itself to issue, any other equity
security senior to the Series D or E Preferred Stock as to dividend or
redemption rights, liquidation preferences, conversion rights, voting rights or
otherwise, or create any obligation or security convertible into or
exchangeable for, or having any option rights to purchase, any such equity
security which is senior to the Series D or E Preferred Stock, or

     (viii)  Reduce the dividend rate on the Series D or E Preferred Stock
provided for herein, or make such dividends noncumulative, or defer the date
from which dividend will accrue, or cancel accrued and unpaid dividends, or
change the relative seniority rights of the holders of the Series D or E
Preferred Stock as to the payment of dividends in relation to the holders of
any other capital stock of the Corporation, or

       (ix)  Reduce the amount payable to the holders of the Series D or E
Preferred Stock upon the voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, or change the relative seniority of the
liquidation preferences of the holders of the Series D or E Preferred Stock to
the rights upon liquidation of the holders of any other capital stock of the
Corporation, or

         (x)  Make the Series D or E Preferred Stock redeemable at the option
of the Corporation; or

       (xi)  Cancel or modify the Conversion Rights provided for in Section 4
hereof.

         7.  NO REISSUANCE OF SERIES D OR E PREFERRED STOCK.  No share of
shares of Series D or E Preferred Stock acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued, and all
such shares shall be canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.

          FOURTH:

         A.  The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.

         B.  The Corporation is authorized to indemnify the directors and
officers of the Corporation to the fullest extent permissible under California
law.

         C.  Any repeal or modification of the foregoing provisions of this
Article  FOURTH by the shareholders of this Corporation shall not adversely
affect any right or protection of an agent of this Corporation existing at the
time of such appeal or modification.

         FIFTH:  That, effective upon conversion of the Series D and Series E
Preferred Stock to Common Stock, the number of Directors of the Corporation
shall be no fewer than five (5) nor more than nine (9).

         3.  That the foregoing Amendment and Restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of this
Corporation.

         4.  That the foregoing Amendment and Restatement of Articles of
Incorporation set forth herein has been duly approved by the required vote of
shareholders in accordance with Section 902 of the Corporations Code.  The
total number of shares entitled to vote on or consent to the Amendment and
Restatement is  8,411,768 shares of Old Common Stock , 5,970,000 shares of
Series D Preferred Stock  and 1,600,000 shares of Series E Preferred Stock.
The percentage of shares required to effect the amendment was (i) a majority of
the outstanding shares of Old Common Stock Preferred Stock, (ii)  50% of the
outstanding shares of the Series D Preferred Stock and (iii) 50% of the
outstanding Series E Preferred Stock.  The number of shares voting in favor of
this amendment exceeded the vote required.



                                        /S/ROBERT PEPPER
                                       Robert Pepper, President



                                        /S/JOSEPH LANDY
                                        Joseph Landy, Secretary

          We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in  this certificate are true
and correct of  our own knowledge.

         Executed at SACRAMENTO, California, on   July 30, 1993.



                                        /S/ROBERT PEPPER
                                       Robert Pepper, President




                                        Joseph Landy, Secretary




                               - 5 -

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 28, 1997, AND IS QUALIFIED IN ITS 
ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

EX-27.1

FINANCIAL DATA SCHEDULE

 
[MULTIPLIER] 1,000

[PERIOD-TYPE]       YEAR
[FISCAL-YEAR-END]        DEC-28-1997
[PERIOD-END]             DEC-28-1997
[CASH]              25234
[SECURITIES]             112560
[RECEIVABLES]       30422
[ALLOWANCES]        343    
[INVENTORY]              26118            
[CURRENT-ASSETS]         203016    
[PP&E]              57671
[DEPRECIATION]      25876
[TOTAL-ASSETS]      277697
[CURRENT-LIABILITIES]    36777
[BONDS]             115000 
[PREFERRED-MANDATORY]     0
[PREFERRED]              0
[COMMON]            91897
[OTHER-SE]               31548
[TOTAL-LIABILITY-AND-EQUITY]  277697    
[SALES]             155219
[TOTAL-REVENUES]         156262
[CGS]                    65299
[TOTAL-COSTS]       65299     
[OTHER-EXPENSES]         64588
[LOSS-PROVISION]         0
[INTEREST-EXPENSE]       1806
[INCOME-PRETAX]      28638     
[INCOME-TAX]        9447    
[INCOME-CONTINUING] 19191
[DISCONTINUED]      0
[EXTRAORDINARY]          0
[CHANGES]           0
[NET-INCOME]        19191
[EPS-PRIMARY]       .95  
[EPS-DILUTED]       .89