SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549   FORM 10-Q (Mark One) x      QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                 EXCHANGE ACT
OF 1934 For the quarterly period ended March 31, 2001  or  ̈       TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT
OF 1934 For the transition period from____________to____________  Commission File Number: 0-27246  ZORAN CORPORATION(Exact name of registrant as specified in its charter)  Delaware
  94-2794449(State or other jurisdiction of
  (I.R.S. Employerincorporation or organization)
  Identification No.)
  3112 Scott
  Boulevard, Santa Clara, California
  95054(Address of principal executive offices)
  (Zip Code)Registrant's telephone number, including
  area code:
  (408) 919-4111 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. Yesx                  No
 ̈  The
number of outstanding shares of the registrant's Common Stock, $.001 par value,
as of April 27, 2001 was 17,482,054.   ZORAN CORPORATION

INDEX

PART I.FINANCIAL INFORMATIONItem
  1.
  Financial
  StatementsCondensed Consolidated
  Balance Sheets March 31, 2001 and December 31, 2000Condensed
  Consolidated Statements of Operations Three Months Ended March 31, 2001 and
  2000Condensed
  Consolidated Statements of Cash Flows Three Months Ended March 31, 2001 and
  2000Notes
  to Condensed Consolidated Financial StatementsItem
  2.
  Managements
  Discussion and Analysis of Financial Condition and Results of OperationsItem
  3.
  Quantitative
  and Qualitative Disclosures About Market RiskPART II.   OTHER INFORMATIONItem 6.
  Exhibits
  and Reports on Form 8-KSIGNATURES

ZORAN CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)




March 31,
  December 31,2001
  2000ASSETSCurrent assets:Cash and cash
  equivalents
  $28,979
  $16,099Short-term
  investments
  108,588
  159,539Accounts
  receivable, net
  28,003
  27,065Inventory
  18,324
  17,453Prepaid expenses and
  other current assets
  5,735
  5,575Total current
  assets
  189,629
  225,731Property and
  equipment, net
  7,139
  6,972Other investments
  41,193
  13,899Goodwill and other
  intangibles
  102,192
  112,864$340,153
  $359,466LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
  $10,174
  $11,156Accrued expenses
  and other liabilities
  14,244
  16,856Total current
  liabilities
  24,418
  28,012Stockholders equity:Common Stock, $0.001 par value;
  55,000,000 shares authorized; 17,198,956 and 17,423,216 shares issued and
  outstanding
  17
  17Additional paid-in
  capital
  384,921
  388,655Warrants
  717
  717Deferred
  stock-based compensation
  (783)
  (919)Accumulated other comprehensive income
  (loss)
  (412)
  1,109Accumulated deficit
  (68,725)
  (58,125)Total
  stockholders' equity
  315,735
  331,454$340,153
  $359,466



The accompanying notes are an integral
part of these condensed consolidated financial statements.

ZORAN CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)




Three Months Ended
  March 31,2001
  2000Revenues:Product sales
  $17,315
  $14,222Software, licensing and development
  2,278
  3,420Total revenues
  19,593
  17,642Costs and expenses:Cost of product sales
  10,876
  8,136Research and development
  5,968
  3,269Selling, general and administrative
  5,243
  4,137Amortization of goodwill and other intangibles
  10,808
  --Total costs and expenses
  32,895
  15,542Operating income (loss)
  (13,302)
  2,100Interest and other income, net
  2,745
  2,006Income (loss) before income taxes
  (10,577)
  4,106Provision for income taxes
  43
  616Net income (loss)
  $(10,600)
  $3,490Basic net income (loss) per share
  $(0.61)
  $0.25Diluted net income (loss) per share
  $(0.61)
  $0.23Shares used to compute basic net income (loss) per share
  17,314
  13,988Shares used to compute diluted net income (loss) per share
  17,314
  15,486



The accompanying notes are an integral
part of these condensed consolidated financial statements.

ZORAN CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


Three Months Ended
  March 31,2001
  2000Cash flows from operating activities:Net income (loss)
  $(10,600)
  $3,490Adjustments to
  reconcile net income (loss) to net cash provided by (used in) operations:Depreciation,
  amortization and other
  852
  627Amortization of
  goodwill and other intangibles
  10,808
  --Changes in current
  assets and liabilities:Accounts
  receivable
  (977)
  2,297Inventory
  (871)
  (37)Prepaid expenses
  and other current assets
  (205)
  (765)Accounts payable
  (982)
  (1,131)Accrued expenses
  and other liabilities
  (2,305)
  (645)Net cash
  provided by (used in) operating activities
  (4,280)
  3,836Cash flows from investing activities:Capital expenditures
  for property and equipment
  (974)
  (726)Purchases of
  investments
  (43,855)
  (113,379)Sales and maturities
  of investments
  66,894
  114,311Purchases of equity
  investments
  (1,171)
  (2,250)Net cash
  provided by (used in) investing activities
  20,894
  (2,044)Cash flows from financing activities:Proceeds from issuance
  of Common Stock, net
  133
  843Repurchases of Common
  Stock
  (3,867)
  --Net cash
  provided by (used in) financing activities
  (3,734)
  843Net increase in cash and cash equivalents
  12,880
  2,635Cash and cash equivalents at beginning of period
  16,099
  12,665Cash and cash equivalents at end of period
  $28,979
  $15,300





The
accompanying notes are an integral part of these condensed consolidated
financial statements.

ZORAN
CORPORATIONNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.Basis of Presentation

The accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the financial information included therein.  While the Company believes that the disclosures
are adequate to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the audited consolidated
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.  Results for the interim periods presented
are not necessarily indicative of the results to be expected for the full year.

2.Comprehensive Income

The Company applies Statement of
Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income.

The following
are the components of comprehensive income (loss) (in thousands):

Three
  Months Ended March 31,‏‏
  2001
  2000Net income (loss)
  $(10,600)
  $3,490Unrealized gain (loss) on short-term investment
  (1,521)
  108Comprehensive income
  (loss)
  $(12,121)
  $3,598The
components of accumulated other comprehensive income are unrealized gain (loss)
on short-term investments which was ($412,000)and $1.1 million at March 31, 2001 and December
31, 2000 respectively.3.Balance Sheet Components(in thousands)

March 31,
  December 31,2001
  2000Inventory:Work-in-process
  $7,637
  $6,913Finished goods
  10,687
  10,540$18,324
  $17,453

4.Income Taxes

The
provision for income taxes reflects the estimated annualized effective tax rate
applied to earnings for the interim periods. 
The effective tax rate differs from the U.S. statutory rate due to
utilization of net operating losses, adjustments for the nondeductible
amortization of goodwill and other intangibles, and income tax rate differences
on foreign earnings.  The company has
provided tax on income in excess of net operating loss carryforwards for U.S.
Federal and State earnings.  The Company
has also provided tax on its foreign earnings.



5.Earnings Per Share

A reconciliation
of the numerators and the denominators of the basic and diluted per share
computation is as follows: (in thousands except per share amounts)

March
  31,2001
  2000Income
  Shares
  Per Share
  Income
  Shares
  Per Share(Numerator)
  (Denominator)
  Amount
  (Numerator)
  (Denominator)
  AmountBasic
  EPS:Net income (loss) available to common
  stockholders
  $(10,600)
  17,314
  $(0.61)
  $3,490
  13,988
  $0.25Effects
  of dilutive securities:Stock options
  -
  -
  
  -
  1,456Warrants
  -
  -
  
  -
  42Diluted
  EPS:Income (loss) available to common
  stockholders
  $(10,600)
  17,314
  $(0.61)
  $3,490
  15,486
  $0.236.Repurchase of Common Stock

During the quarter ended March 31, 2001
the Company repurchased 255,000 shares of its common stock for $3.9 million.

7.Recently Issued Accounting Standard

In June 1998,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS 133 requires that all derivatives
be recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS
133, as amended by SFAS 137, is effective for the Companys fiscal year 2001,
and will not have a material effect on the Companys consolidated financial
statements.

Item 2.   Management's
Discussion and Analysis of Financial Condition and Results
               of Operations



The following
discussion includes forward-looking statements with respect to the Companys
future financial performance.  Actual
results may differ materially from those currently anticipated depending upon a
variety of factors, including those described below under the sub-heading,
Future Performance and Risk Factors and discussed more fully in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000.

Overview

From our
inception in 1981 through 1991, we derived the substantial majority of our
revenue from digital filter processors and vector signal processors used
principally in military, industrial and medical applications. In 1989, we
repositioned our business to develop and market data compression products for the
evolving multimedia markets and discontinued development of digital filter
processor and vector signal processor products. In 1994, we discontinued
production of these products. Our current lines of digital audio and video
products include integrated circuits and related products used in digital
versatile disc players, movie and home theater systems, filmless digital
cameras and video editing systems.

We derive most
of our revenues from the sale of our integrated circuit products. Historically,
average selling prices in the semiconductor industry in general, and for our
products in particular, have decreased over the life of a particular product.
Average selling prices for our hardware products have fluctuated substantially
from period to period, primarily as a result of changes in our customer mix of
original equipment manufacturer, or OEM, sales versus sales to distributors and
the transition from low-volume to high-volume production. In the past, we
reduced the prices of some of our products in order to better penetrate the
consumer market. We believe that, as our product lines continue to mature and
competitive markets evolve, we are likely to experience further declines in the
average selling prices of our products, although we cannot predict the timing
and amount of such future changes with any certainty.

Our cost of
product sales consists primarily of fabrication costs, assembly and test costs,
and the cost of materials and overhead from operations. If we are unable to
reduce our cost of product sales to offset anticipated decreases in average
selling prices, our product gross margins will decrease. Our product gross
margin is also dependent on product mix and on the percentage of products sold
directly to our OEM customers versus indirectly through our marketing partners
who purchase our products at lower prices but absorb most of the associated
marketing and sales support expenses, maintain inventories and provide customer
support and training. Lower gross margins on sales to distributors are partially
offset by reduced selling and marketing expenses related to such sales. Product
sales in Japan are primarily made through Fujifilm, our strategic partner and
distributor in Japan. Fujifilm provides more sales and marketing support than
our other distributors. We expect both product and customer mix to continue to
fluctuate in future periods, causing further fluctuations in margins.

We also derive
revenue from licensing our software and other intellectual property. Licensing
revenue includes one-time license fees and royalties based on the number of
units distributed by the licensee. In addition, we have historically generated
a significant percentage of our total revenues from development contracts,
primarily with key customers, although development revenue has declined as a
percentage of total revenues over the past several years. These development
contracts have provided us with partial funding for the development of some of
our products. These development contracts provide for license and milestone
payments which are recorded as development revenue. We classify all development
costs, including costs related to these development contracts, as research and
development expenses. We retain ownership of the intellectual property
developed by us under these development contracts. While we intend to continue
to enter into development contracts with certain strategic partners, we expect
development revenue to continue to decline as a percentage of total revenues.

Our research
and development expenses consist of salaries and related costs of employees
engaged in ongoing research, design and development activities and costs of
engineering materials and supplies. We are also a party to research and
development agreements with the Chief Scientist in Israel's Ministry of
Industry and Trade and the Israel-United States Binational Industrial Research
and Development Foundation, which fund up to 50% of incurred project costs for
approved products up to specified contract maximums. These agreements require
us to use our best efforts to achieve specified results and require us to pay
royalties at rates of 3% to 5% of resulting product sales, and up to 30% of
resulting license revenues, up to a maximum of 100% to 150% of total funding
received. Reported research and development expenses are net of these grants,
which fluctuate from period to period. We believe that significant investments
in research and development are required for us to remain competitive and we
expect to continue to devote significant resources to product development,
although such expenses as a percentage of total revenues may fluctuate.

Our selling,
general and administrative expenses consist primarily of employee-related
expenses, royalties, sales commissions, product promotion and other
professional services. We expect that selling, general and administrative
expenses will continue to increase to support our anticipated growth.

We conduct
most of our research and development and certain sales and marketing and
administrative operations in Israel through our wholly-owned Israeli
subsidiary. As a result, some of our expenses are incurred in New Israeli
Shekels. To date, substantially all of our product sales and our development
and licensing revenue have been denominated in U.S. dollars and most costs of
product sales have been incurred in U.S. dollars. We expect that most of our
sales and costs of sales will continue to be denominated and incurred in U.S.
dollars for the foreseeable future. We have not experienced material losses or
gains as a result of currency exchange rate fluctuations and have not engaged
in hedging transactions to reduce our exposure to such fluctuations. We may in
the future elect to take appropriate action to reduce our foreign exchange
risk.

Our effective
income tax rate has benefited from the availability of net operating losses
which we have utilized to reduce taxable income for U.S. federal income tax
purposes and by our Israeli subsidiary's status as an "Approved
Enterprise" under Israeli law, which provides a ten-year tax holiday for
income attributable to a portion of our operations in Israel. Our U.S. federal
net operating losses expire at various times between 2001 and 2020, and the
benefits from our subsidiary's Approved Enterprise status expire at various
times beginning in 2003.

In June 1999,
we sold to MGI Software of Canada the intellectual property related to our
SoftDVD product line and transferred to MGI certain related software
development and support resources in exchange for cash, MGI common stock and
future royalties. We do not currently expect, however, that these royalties
will have a material impact on quarterly revenues for the foreseeable future.
In addition, the shares of MGI stock received by us as part of this transaction
are subject to future appreciation or depreciation. Our software revenues have
declined significantly as a result of the sale of the SoftDVD product line.

On June 29, 2000, we acquired PixelCam,
Inc. (PixelCam), a manufacturer of megapixel CMOS image sensors and
integrated lens/sensor modules, in exchange for 370,832 shares of Zoran common
stock and options to purchase 4,168 shares of Zoran common stock with an
aggregate value of $24.6 million.  The
acquisition was accounted for under the purchase method of accounting.
Additional information regarding this acquisition is contained in our Annual
Report on Form 10-K for the year ended December 31, 2000.

On October 26, 2000, we acquired Nogatech
Inc. (Nogatech) a public company that provides chips that compress digital
video images and establish connections, or video connectivity, between video
devices and computers, as well as between video devices across a variety of
networks, in exchange for 2,534,599 shares of our common stock and options to
purchase 168,472 shares of our common stock with an aggregate value of $163.6
million.  The acquisition was accounted
for under the purchase method of accounting. Additional information regarding
this acquisition is contained in our Annual Report on Form 10-K for the year
ended December 31, 2000.

Results of Operations

Revenues

Total revenues for the quarter ended
March 31, 2001 increased by 11.1% to $19.6 million from $17.6 million for the
same period in 2000.  Product sales for
the quarter increased by 21.7% to $17.3 million from $14.2 million for first quarter
of 2000.  The increase in product sales
was driven by the Companys acquisition of Nogatech in the fourth quarter of
2000 and increased unit sales of our COACH and DVD and Super VCD product lines.  Software, licensing and development revenues
decreased by 33.4% to $2.3 million compared to $3.4 million for the first
quarter of 2000. This decrease was primarily due to the timing of new licensing
contracts as well as the timing of revenue recognition on long-term development
contracts. Development revenue is recognized on a percentage of completion
basis.

Product Gross Margin

Product gross margin for the quarter
ended March 31, 2001 decreased by 5.6 percentage points to 37.2% from 42.8% for
the same period in 2000.  The decrease
was due to a product sales mix that included an increased percentage of
lower-margin products and a shift in customer mix to a lower percentage of
direct sales to original equipment manufacturer customers compared to the same
quarter in 2000. Our product gross margin was also effected by increased demand
for our low margin DVD companion chip due to a parts shortage problem in the
preceding quarter. In addition, we experienced a decline in the average selling
price of our older DVD Vaddis III chip that is being phased out as we transition
our customer base to our new DVD Vaddis IV Plus chip.

Research and Development

Research and development (R&D)
expenses for the quarter ended March 31, 2001 increased by 82.6% to $6.0
million from $3.3 million for the same period in 2000.  R&D expenses increased as a result of
our acquisitions of PixelCam and Nogatech, in June 2000 and October 2000,
respectively, the timing of major project expenses such as tape-outs and the
timing and recognition of project funding from external sources.  R&D expenses increased as a percentage
of total revenues for the quarter from 18.5% for the first quarter of 2000 to
30.5% for the first quarter of 2001.

Selling, General and Administrative

Selling, general and administrative
expenses for the quarter ended March 31, 2001 increased by 26.7% to $5.2
million from $4.1 million for the same period in 2000.  The increase was due to our acquisitions of
PixelCam, Inc. and Nogatech, Inc. in June 2000 and October 2000, respectively,
and increased sales and marketing expenses related to product market
development and to support planned revenue growth particularly in the Taiwan
and China markets.

Amortization of Goodwill and other Intangibles

Amortization
of goodwill and other intangibles for the quarter ended March 31, 2001 was $10.8
million. There were no such charges during the same period in 2000. The charges
were associated with our acquisitions of PixelCam and Nogatech.

Interest and Other Income, Net

Net interest and other income for the
quarter ended March 31, 2001 increased to $2.7 million from $2.0 million for
the same period in 2000. The increase resulted primarily from increased
interest income on higher cash balances following our acquisition of Nogatech.

Provision for Income Taxes

Excluding charges related to the amortization
of goodwill and other intangibles our estimated effective tax rate remained at
15% for the current quarter, the same as last years effective tax rate.

Liquidity and Capital Resources

At March 31,
2001, we had $29.0 million of cash and cash equivalents, $108.6 million of
short-term investments and $165.2 million of working capital. In addition, we
had $37.6 million of long-term investments in marketable securities.

Our operating
activities used cash of $4.3 million during the three months ended March 31,
2001, primarily due to the reduction in accrued expenses and other liabilities.
A decrease in accounts payable and an increase in accounts receivable and
inventory also contributed to our use of cash during the quarter.

Cash provided
by investing activities was $20.9 million during the three months ended March
31, 2001, principally reflecting the sale of investments that was partially
offset by purchases of investments and capital equipment.

Cash used in
financing activities was $3.7 million for the three months ended March 31,
2001, primarily due to the repurchase of 255,000 shares of our common stock.

We believe
that our current balances of cash, cash equivalents and short-term investments,
and anticipated cash flow from operations, will satisfy our anticipated working
capital and capital expenditure requirements at least through the next 12
months. Nonetheless, our future capital requirements may vary materially from
those now planned and will depend on many factors including, but not limited
to:

 the levels at which we maintain inventory and
accounts receivable; the market acceptance of our products; the levels of promotion and advertising required
to launch our new products or to enter markets and attain a competitive
position in the marketplace; our business, product, capital expenditure and
research and development plans and technology roadmap; volume pricing concessions; capital improvements to new and existing
facilities; technological advances; the response of competitors to our products; and our relationships with our suppliers and
customers.In addition,
we may require an increase in the level of working capital to accommodate
planned growth, hiring and infrastructure needs. Additional capital may also be
required for consummation of any acquisitions of businesses, products or
technologies.

To the extent
that our existing resources and cash generated from operations, are
insufficient to fund our future activities, we may need to raise additional
funds through public or private financings or borrowings. If additional funds
are raised through the issuance of debt securities, these securities could have
rights, preferences and privileges senior to holders of common stock, and the
terms of this debt could impose restrictions on our operations. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. We cannot be certain that additional financing
will be available in amounts or on terms acceptable to us, if at all. If we are
unable to obtain this additional financing, we may be required to reduce the
scope of our planned product development and sales and marketing efforts, which
could harm our business, financial condition and operating results.



Future Performance and Risk Factors

The Company's
future business, operating results and financial condition are subject to
various risks and uncertainties, including those described below.

Our quarterly revenues and
operating results fluctuate due to a variety of factors, which may result in
volatility or a decline in the price of our stock.

Our quarterly
operating results have varied significantly due to a number of factors,
including:

 fluctuation in demand for our products; the timing of new product introductions by us and
our competitors; the level of market acceptance of new and
enhanced versions of our products and our customers' products; the timing of large customer orders; the length and variability of the sales cycle for
our products; the cyclical nature of the semiconductor
industry; the availability of development funding and the
timing of development revenue; changes in the mix of products sold; seasonality in demand for our products; competitive pricing pressures; and the evolving and unpredictable nature of the
markets for products incorporating our integrated circuits and embedded
software.We expect that
our operating results will continue to fluctuate in the future as a result of
these factors and a variety of other factors, including:

 the cost and availability of adequate foundry
capacity; fluctuations in manufacturing yields; the emergence of new industry standards; product obsolescence; and the amount of research and development expenses
associated with new product introductions.Our operating
results could also be harmed by:

 economic conditions generally or in various
geographic areas where we or our customers do business; other conditions affecting the timing of customer
orders; or a downturn in the markets for our customers' products,
particularly the consumer electronics market.These factors
are difficult or impossible to forecast. We place orders to purchase our
products from independent foundries several months in advance of the scheduled
delivery date, often in advance of receiving non-cancelable orders from our
customers. If anticipated shipments in any quarter are canceled or do not occur
as quickly as expected, expense and inventory levels could be
disproportionately high. If anticipated license revenues in any quarter are
canceled or do not occur, gross margins may be reduced. A significant portion
of our expenses are relatively fixed, and the timing of increases in expenses
is based in large part on our forecast of future revenues. As a result, if
revenues do not meet our expectations we may be unable to quickly adjust
expenses to levels appropriate to actual revenues, which could harm our
operating results.

As a result of
these factors, our operating results may vary significantly from quarter to
quarter. Any shortfall in revenues or net income from levels expected by
securities analysts could cause a decline in the trading price of our stock.

Our success for the foreseeable future will be dependent on
growth in demand for integrated circuits for digital versatile disc, or DVD,
Super Video CD, digital audio, video editing and filmless digital camera
applications and our ability to market and sell our products to manufacturers
who incorporate those types of integrated circuits into their products.

In  2000 and the first quarter of 2001, we
derived a majority of our product revenues from the sale of integrated circuits
for DVD and Super Video CD applications. We expect that sales of our products
for DVD and Super Video CD applications, digital audio applications and video editing
applications will continue to account for a significant portion of our revenues
for the near future. Our ability to sell our products for filmless digital
camera applications will also have a significant impact on our financial
performance for the foreseeable future. If the markets for these products and
applications decline or fail to develop as expected, or we are not successful
in our efforts to market and sell our products to manufacturers who incorporate
integrated circuits into these products, our financial results will be harmed.

Our customers experience fluctuating product cycles and
seasonality, which causes our sales to fluctuate.

Because the
markets our customers serve are characterized by numerous new product
introductions and rapid product enhancements, our operating results may vary
significantly from quarter to quarter. During the final production of a mature
product, our customers typically exhaust their existing inventory of our
products. Consequently, orders for our products may decline in those
circumstances, even if our products are incorporated into both mature products
and replacement products. A delay in the customer's transition to commercial
production of a replacement product would delay our ability to recover the lost
sales from the discontinuation of the related mature product. Our customers
also experience significant seasonality in the sales of their consumer
products, which affects their orders of our products. Typically, the fourth
calendar quarter represents a disproportionate percentage of sales for our
customers due to the holiday period, and therefore a disproportionate
percentage of our sales. We expect these sales fluctuations to continue for the
foreseeable future.

Product supply and demand in the semiconductor industry is
subject to cyclical variations.

The
semiconductor industry is subject to cyclical variations in product supply and
demand. Downturns in the industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. These downturns
have been characterized by abrupt fluctuations in product demand, production
over-capacity and accelerated decline of average selling prices. In some cases,
these downturns have lasted more than one year. A downturn in the semiconductor
industry could harm our sales and revenues if demand drops or our gross margins
if average selling prices decline.



The development and evolution of markets for our integrated
circuits is dependent on factors such as industry standards, over which we have
no control; for example, if manufacturers adopt new or competing industry
standards with which our products are not compatible, our existing products
would become less desirable to the manufacturers and our sales would suffer.

The emergence
of markets for our products is affected by a variety of factors beyond our
control. In particular, our products are designed to conform to current
specific industry standards. Manufacturers may not continue to follow these
standards, which would make our products less desirable to manufacturers and
reduce our sales. Also, competing standards may emerge that are preferred by
manufacturers, which could also reduce our sales and require us to make significant
expenditures to develop new products. The emergence of new markets for our
products is also dependent in part upon third parties developing and marketing
content in a format compatible with commercial and consumer products that
incorporate our products. If content compatible with commercial and consumer
products that incorporate our products is not available, manufacturers may not
be able to sell products incorporating our integrated circuits, and our sales
to manufacturers would suffer.

We rely on independent foundries and contractors for the
manufacture, assembly and testing of our integrated circuits, and the failure
of any of these third parties to deliver products or otherwise perform as
requested could damage our relationships with our customers and harm our sales
and financial results.

We do not
operate any manufacturing facilities, and we rely on independent foundries to
manufacture substantially all of our products. These independent foundries
fabricate products for other companies and may also produce products of their
own design. From time to time there are manufacturing capacity shortages in the
semiconductor industry. We do not have long-term supply contracts with any of
our suppliers, including our principal supplier, Taiwan Semiconductor Manufacturing
Company, or TSMC. Therefore, TSMC is not obligated to manufacture products for
us for any specific period, in any specific quantity or at any specified price,
except as may be provided in a particular purchase order.

Our reliance
on independent foundries involves a number of risks, including:

 the inability to obtain adequate manufacturing
capacity; the unavailability of or interruption in access
to certain process technologies necessary for manufacture of our products;
reduced control over delivery schedules;
reduced control over quality assurance; reduced control over manufacturing yields and
cost; and potential misappropriation of our intellectual
property.In addition,
TSMC and some of our other foundries are located in areas of the world which
are subject to natural disasters such as earthquakes. While the 1999 earthquake
in Taiwan did not have a material impact on our independent foundries, a
similar event centered near TSMC's facility could severely reduce TSMC's
ability to manufacture our integrated circuits. The loss of any of our
manufacturers as a supplier, our inability to expand the supply of our products
in response to increased demand, or our inability to obtain timely and adequate
deliveries from our current or future suppliers due to a natural disaster or
any other reason could delay or reduce shipments of our products. Any of these
circumstances could damage our relationships with current and prospective
customers and harm our sales and financial results.

We also rely
on independent contractors for the assembly and testing of our products. At
present, all of our semiconductor products are assembled by one of five
independent contractors: ASE, Amkor, ASAT, National Semiconductor, or Vate. Our
semiconductor products are tested by these contractors or other independent
contractors. Our reliance on independent assembly and testing houses limits our
control over delivery schedules, quality assurance and product cost.
Disruptions in the services provided by our assembly or testing houses or other
circumstances that would require us to seek alternative sources of assembly or
testing could lead to supply constraints or delays in the delivery of our
products. These constraints or delays could damage our relationships with
current and prospective customers and harm our sales and financial results.

Because foundry capacity is limited from time to time we may
be required to enter into costly long-term supply arrangements to secure
foundry capacity.

If we are not
able to obtain additional foundry capacity as required, our relationships with
our customers would be harmed and our sales would likely be reduced. In order
to secure additional foundry capacity, we have considered and will continue to
consider various arrangements with suppliers, which could include, among
others:

 option payments or other prepayments to a
foundry; nonrefundable deposits with or loans to foundries
in exchange for capacity commitments; contracts that commit us to purchase specified
quantities of silicon wafers over extended periods; issuance of our equity securities to a foundry; investment in a foundry; joint ventures; or other partnership relationships with foundries.We may not be
able to make any such arrangement in a timely fashion or at all, and such
arrangements, if any, may not be on terms favorable to us. Moreover, if we are
able to secure foundry capacity, we may be obligated to utilize all of that
capacity or incur penalties. Such penalties may be expensive and could harm our
financial results.

If our independent foundries do not achieve satisfactory
yields, our relationships with our customers may be harmed.

The
fabrication of silicon wafers is a complex process. Minute levels of
contaminants in the manufacturing environment, defects in photomasks used to
print circuits on a wafer, difficulties in the fabrication process or other
factors can cause a substantial portion of the integrated circuits on a wafer
to be non-functional. Many of these problems are difficult to detect at an
early stage of the manufacturing process and may be time consuming and
expensive to correct. As a result, foundries often experience problems
achieving acceptable yields, which are represented by the number of good
integrated circuits as a proportion of the number of total integrated circuits
on any particular wafer.  Poor yields
from our independent foundries would reduce our ability to deliver our products
to customers, harm our relationships with our customers, and harm our business.

To be successful, we must efficiently develop new and
enhanced products to meet rapidly changing customer requirements and industry
standards.

The markets
for our products are characterized by:


rapidly changing technologies; evolving industry standards; frequent new product introductions; and short product life cycles.We expect to
increase our product development expenses, and our future success will depend
to a substantial degree upon our ability to develop and introduce, on a timely
and cost-effective basis, new and enhanced products that meet rapidly changing
customer requirements and industry standards. We may not successfully develop,
introduce or manage the transition to new products. Delays in the introduction
or shipment of new or enhanced products, lack of market acceptance for such
products or problems associated with new product transitions could harm our
sales and financial results.

We face competition or potential competition from companies
with greater resources than ours, and if we are unable to compete effectively with
these companies, our market share may decline and our business could be harmed.

Competition in
the compression technology market has historically been dominated by large
companies such as STMicroelectronics and companies that develop and use their
own integrated circuits, such as Sony. As this market continues to develop, we
face competition from other large semiconductor vendors, including:

 C-Cube Microsystems; Cirrus Logic (Crystal Semiconductor); Conexant; Fujitsu; LSI Logic; Motorolla; and Texas Instruments.For example,
in the markets for JPEG-based products for use in filmless digital cameras,
Conexant is providing CMOS sensor and camera DSP solutions to third parties. We
also face competition from internally-developed solutions developed and used by
major Japanese original equipment manufacturers, who may also be our customers.

Many of our
existing and potential competitors have substantially greater resources than
ours in many areas, including:


finances; manufacturing; technology; marketing; and distribution.Many of our
competitors have broader product lines and longer standing relationships with
customers than we do. Moreover, our competitors may foresee the course of
market developments more accurately than we do and could in the future develop
new technologies that compete with our products or even render our products
obsolete. In addition, a number of private companies have announced plans for
new products to address the same digital multimedia compression problems that our
products address. If we are unable to compete successfully against our current
and future competitors, we could experience price reductions, order
cancellations and reduced gross margins, any one of which could harm our
business.

The DVD market
is growing, and additional competitors are expected to enter the market for DVD
players and software. Some of these potential competitors may develop captive
implementations for use only with their own PC and consumer electronics
products. It is also possible that application software vendors, such as
Microsoft, may attempt to enter the DVD application market in the future. This
increased competition may result in price reductions, reduced profit margins
and loss of market share.

Our products are characterized by average selling prices that
decline over relatively short time periods; if we are unable to reduce our
costs or introduce new products with higher average selling prices, our
financial results would suffer.

Average
selling prices for our products decline over relatively short time periods.
Many of our manufacturing costs are fixed. When our average selling prices
decline, our revenues decline unless we sell more units, and our gross margins
decline unless we are able to reduce our manufacturing costs by a commensurate
amount. Our operating results suffer when gross margins decline. We have
experienced these problems and may continue to experience them in the future
and cannot predict when they may occur or their severity.

We derive most of our revenue from sales to a small number of
large customers, and if we are not able to retain these customers, or they
reschedule, reduce or cancel orders, our revenues would be reduced and our
financial results would suffer.

Our largest
customers account for a substantial percentage of our revenues. In 2000, sales
to Fujifilm accounted for 25.2% of our total revenues and 27.5% of our product
sales. Our four largest customers in 2000 accounted for approximately 45.4% of
our total revenues.  During 1999, our
four largest customers accounted for approximately 56.9% of our revenues with
Fujifilm accounting for 37.3%. Sales to these large customers have varied
significantly from year to year and will continue to fluctuate in the
future.  These sales also may fluctuate
significantly from quarter to quarter. We may not be able to retain our key
customers or these customers may cancel purchase orders or reschedule or
decrease their level of purchases from us. Any substantial decrease or delay in
sales to one or more of our key customers could harm our sales and financial
results. In addition, any difficulty in collecting amounts due from one or more
key customers could harm our financial results.

We are dependent on our relationship with Fujifilm for a
significant percentage of our product sales, and if this relationship were
terminated, our business would be harmed.

Fujifilm has
been our largest customer in four of the last five years. Fujifilm purchases
our products primarily as a distributor. Under our arrangement with Fujifilm,
Fujifilm acts as the primary distributor in Japan of products developed by us
under development contracts with Fujifilm. Fujifilm also sells some of these
products in Japan under its own name. We may sell these products directly in
Japan only to specified customers and must first buy the products from
Fujifilm. Fujifilm provides more sales and marketing support than our other
distributors. Fujifilm also has a nonexclusive license to distribute most of
our products outside of Japan. Fujifilm has provided wafer manufacturing
services on a most-favored terms basis to us since 1993 and has also provided
funding to support our development efforts. If our relationship with Fujifilm
were terminated, our business would be harmed.

Our products generally have long sales cycles and
implementation periods, which increases our costs in obtaining orders and
reduces the predictability of our earnings.

Our products
are technologically complex. Prospective customers generally must make a
significant commitment of resources to test and evaluate our products and to
integrate them into larger systems. As a result, our sales process is often
subject to delays associated with lengthy approval processes that typically
accompany the design and testing of new products. The sales cycles of our
products often last for many months or even years. Longer sales cycles require
us to invest significant resources in attempting to make sales and delay the
generation of revenue.

Long sales
cycles also subject us to other risks, including customers' budgetary
constraints, internal acceptance reviews and cancellations. In addition, orders
expected in one quarter could shift to another because of the timing of
customers' purchase decisions. The time required for our customers to
incorporate our products into their own can vary significantly with the needs
of our customers and generally exceeds several months, which further
complicates our planning processes and reduces the predictability of our
operating results.

We are not protected by long-term contracts with our
customers.

We generally
do not enter into long-term purchase contracts with our customers, and we
cannot be certain as to future order levels from our customers. When we do
enter into a long-term contract, the contract is generally terminable at the
convenience of the customer. In the event of an early termination by one of our
major customers, it is unlikely that we will be able to rapidly replace that
revenue source, which would harm our financial results.

We are dependent upon our international sales and operations;
economic, political or military events in a country where we make significant
sales or have significant operations could interfere with our success or
operations there and harm our business.

During the
first quarter of 2001, 82% of our total revenues were derived from
international sales. We anticipate that international sales will continue to
represent a significant portion of our total revenues for the foreseeable
future. In addition, substantially all of our semiconductor products are
manufactured, assembled and tested outside of the United States by independent
foundries and subcontractors.

We are subject
to the risks inherent in doing business internationally, including:

 unexpected changes in regulatory requirements; fluctuations in exchange rates; political and economic instability; imposition of tariffs and other barriers and
restrictions; and the burdens of complying with a variety of
foreign laws.The majority
of our research and development personnel and facilities and a significant
portion of our sales personnel are located in Israel. Political, economic and
military conditions in Israel directly affect our operations. Some of our
officers and employees in Israel are obligated to perform up to 39 days of
military reserve duty annually. The absence of these employees for significant
periods during the work week may cause us to operate inefficiently during these
periods.

During 1998,
we opened an office in Shenzhen, China. Our operations in China are subject to
the economic and political uncertainties affecting that country. For example,
the Chinese economy has experienced significant growth in the past decade, but
such growth has been uneven across geographic and economic sectors and has
recently been slowing. This growth may continue to decrease and any slowdown
may have a negative effect on our business. During 2000 and the beginning of
2001 we also opened offices in Taipei Taiwan, Hong Kong and Seoul Korea. Our
operations are subject to the economic and political uncertainties affecting
these countries as well.

The prices of our products may become less competitive due to
foreign exchange fluctuations.

Foreign
currency fluctuations may affect the prices of our products. Prices for our
products are currently denominated in U.S. dollars for sales to our customers
throughout the world. If there is a significant devaluation of the currency in
a specific country, the prices of our products will increase relative to that
country's currency and our products may be less competitive in that country.
Also, we cannot be sure that our international customers will continue to be
willing to place orders denominated in U.S. dollars. If they do not, our
revenue and operating results will be subject to foreign exchange fluctuations.

Our ability to compete could be jeopardized if we are unable
to protect our intellectual property rights from challenges by third parties.

Our success
and ability to compete depend in large part upon protecting our proprietary
technology. We rely on a combination of patent, trade secret, copyright and
trademark laws, non-disclosure and other contractual agreements and technical
measures to protect our proprietary rights. These agreements and measures may
not be sufficient to protect our technology from third-party infringement, or
to protect us from the claims of others. Monitoring unauthorized use of our
products is difficult and we cannot be certain that the steps we have taken
will prevent unauthorized use of our technology, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The laws of certain foreign countries in which our products are or may
be developed, manufactured or sold, including various countries in Asia, may
not protect our products or intellectual property rights to the same extent as
do the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries. If competitors are able
to use our technology, our ability to compete effectively could be harmed.

We could become subject to claims and litigation regarding
intellectual property rights, which could seriously harm our business and
require us to incur significant costs.

In recent
years, there has been significant litigation in the United States involving
patents and other intellectual property rights. In the past, we have been
subject to claims and litigation regarding alleged infringement of other
parties' intellectual property rights. We could become subject to litigation in
the future either to protect our intellectual property or as a result of
allegations that we infringe others' intellectual property rights. Claims that
our products infringe proprietary rights would force us to defend ourselves and
possibly our customers or manufacturers against the alleged infringement. These
claims and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could force us to do one or more of
the following:

 stop selling our products that incorporate the
challenged intellectual property; obtain from the owner of the infringed
intellectual property right a license to sell or use the relevant technology,
which license may not be available on reasonable terms or at all; pay damages; or redesign those products that use such technology.If we are
forced to take any of the foregoing actions, our business could be severely
harmed.

If necessary licenses of third-party technology are not
available to us or are very expensive, our products could become obsolete.

From time to
time we may be required to license technology from third parties to develop new
products or product enhancements. Third party licenses may not be available to
us on commercially reasonable terms, if at all. If we are unable to obtain any
third-party license required to develop new products and product enhancements,
we may have to obtain substitute technology of lower quality or performance
standards or at greater cost, either of which could seriously harm the
competitiveness of our products.

If we are not able to apply our net operating losses against
taxable income in future periods, our financial results will be harmed.

Our future net
income and cash flow will be affected by our ability to apply our net operating
losses, which totaled approximately $55.0 million for federal tax reporting
purposes as of December 31, 2000, against taxable income infuture periods. Our net operating losses
incurred prior to the consummation of our initial public offering in 1995 that
we can use to reduce future taxable income for federal tax purposes are limited
to approximately $3.0 million per year. Changes in tax laws in the United
States may further limit our ability to utilize our net operating losses. Any
further limitation on our ability to utilize our net operating losses could
harm our financial condition.

Any acquisitions we make could disrupt our business and
severely harm our financial condition.

We have made
investments in, and acquisitions of, complementary companies, products and
technologies. During 2000, we acquired PixelCam and Nogatech and we may acquire
additional businesses, products, or technologies in the future. In the event of
any future acquisitions, we could:

 issue stock that would dilute our current
stockholders' percentage ownership; incur debt; assume liabilities;
incur amortization expenses related to goodwill and other intangible assets; or incur large and immediate write-offs.Our operation
of any acquired business will also involve numerous risks, including:


problems combining the purchased operations, technologies or products; unanticipated costs; diversion of management's attention from our core
business; adverse effects on existing business
relationships with customers; risks associated with entering markets in which
we have no or limited prior experience; and potential loss of key employees, particularly
those of the purchased organizations.We may not be
able to successfully integrate any businesses, products or technologies or
personnel that we might acquire in the future and any failure to do so could
disrupt our business and seriously harm our financial condition.

Our products could contain defects, which could reduce sales
of those products or result in claims against us.

We develop
complex and evolving products. Despite testing by us and our customers, errors
may be found in existing or new products. This could result in, among other
things, a delay in recognition or loss of revenues, loss of market share or
failure to achieve market acceptance. These defects may cause us to incur
significant warranty, support and repair costs, divert the attention of our
engineering personnel from our product development efforts and harm our
relationships with our customers. The occurrence of these problems could result
in the delay or loss of market acceptance of our products and would likely harm
our business. Defects, integration issues or other performance problems in our
products could result in financial or other damages to our customers or could
damage market acceptance of our products. Our customers could also seek damages
from us for their losses. A product liability claim brought against us, even if
unsuccessful, would likely be time consuming and costly to defend.

If we do not maintain our current development contracts or
are unable to enter into new development contracts, our business could be
harmed.

We
historically have generated a significant percentage of our total revenues from
development contracts, primarily with key customers. These development contracts
have provided us with partial funding for the development of some of our
products. Under these contracts, we receive payments upon reaching certain
development milestones. If we fail to achieve the milestones specified in our
existing development contracts, if our existing contracts are terminated or we
are unable to secure future development contracts, our ability to
cost-effectively develop new products would be reduced and our business would
be harmed.

We may need additional funds to execute our business plan,
and if we are unable to obtain such funds, we will not be able to expand our
business as planned.

We may require
substantial additional capital to finance our future growth, secure additional
foundry capacity and fund our ongoing research and development activities
beyond 2001. Our capital requirements will depend on many factors, including:

 acceptance of and demand for our products; the types of arrangements that we may enter into
with our independent foundries; and the extent to which we invest in new technology
and research and development projects.To the extent
that our existing sources of liquidity and cash flow from operations are
insufficient to fund our activities, we may need to raise additional funds. If
we raise additional funds through the issuance of equity securities, the
percentage ownership of our existing stockholders would be reduced. Further,
such equity securities may have rights, preferences or privileges senior to
those of our common stock. Additional financing may not be available to us when
needed or, if available, it may not be available on terms favorable to us.

If we fail to manage our future growth, if any, our business
would be harmed.

We anticipate
that our future growth, if any, will require us to recruit and hire a
substantial number of new engineering, managerial, sales and marketing
personnel. Our ability to manage our growth successfully will also require us
to expand and improve our administrative, operational, management and financial
systems and controls. Many of our key operations, including the major portion
of our research and development operations and a significant portion of our
sales and administrative operations, are located in Israel. A majority of our
sales and marketing and certain of our research and development and
administrative personnel, including our President and Chief Executive Officer
and other officers, are based in the United States. The geographic separation
of these operations places additional strain on our resources and our ability
to effectively manage our growth. If we are unable to manage growth
effectively, our business would be harmed.

We rely on the services of our executive officers and other
key personnel, whose knowledge of our business and industry would be extremely
difficult to replace.

Our success
depends to a significant degree upon the continuing contributions of our senior
management. The loss of key management personnel could delay product
development cycles or otherwise harm our business. We may not be able to retain
the services of any of our key employees. We believe that our future success
will also depend in large part on our ability to attract, integrate and retain
highly-skilled engineering, managerial, sales and marketing personnel, both in
the United States and in Israel. Competition for such personnel is intense, and
we may not be successful in attracting, integrating and retaining such
personnel. Failure to attract, integrate and retain key personnel could harm
our ability to carry out our business strategy and compete with other
companies.

The Israeli rate of inflation may negatively impact our costs
if it exceeds the rate of devaluation of the New Israeli Shekel against the
U.S. dollar.

A portion of
the cost of our operations, relating mainly to our personnel and facilities in
Israel, is incurred in New Israeli Shekels. As a result, we bear the risk that
the rate of inflation in Israel will exceed the rate of devaluation of the New
Israeli Shekel in relation to the dollar, which will increase our costs as expressed
in dollars. To date, we have not engaged in hedging transactions. In the
future, we may enter into currency hedging transactions to decrease the risk of
financial exposure from fluctuations in the exchange rate of the U.S. dollar
against the New Israeli Shekel. These measures may not adequately protect us
from the impact of inflation in Israel.

The government programs we participate in and tax benefits we
receive require us to meet several conditions and may be terminated or reduced
in the future, which would increase our costs.

In the year
ended December 31, 2000, we received an aggregate of $333,000 in grants for
research and development from the Chief Scientist in Israel's Ministry of
Industry and Trade. To continue to be eligible for these grants, our
development projects must be approved by the Chief Scientist on a case-by-case
basis.  If our development projects are
not approved by the Chief Scientist, we will not receive grants to fund these
projects, which would increase our research and development costs. We also
receive tax benefits, in particular exemptions and reductions as a result of
the "Approved Enterprise" status of our existing operations in
Israel. To be eligible for these tax benefits, we must maintain our Approved
Enterprise status by meeting conditions, including making specified investments
in fixed assets located in Israel and investing additional equity in our
Israeli subsidiary. If we fail to meet these conditions in the future, the tax
benefits would be canceled and we could be required to refund the tax benefits
already received. These tax benefits may not be continued in the future at
their current levels or at any level. Israeli governmental authorities have
indicated that the government may reduce or eliminate these benefits in the
future, which would harm our business.

We have anti-takeover provisions in our charter documents and
there are provisions of Delaware law that could prevent or delay a change in
control of our company.00

Our
certificate of incorporation, our bylaws and Delaware law contain provisions
that could make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. These include provisions:

 prohibiting a merger with a party that has
acquired control of 15% or more of our outstanding common stock, such as a
party that has completed a successful tender offer, until three years after
that party acquired control of 15% of our outstanding common stock; authorizing the issuance of up to 3,000,000
shares of "blank check" preferred stock; eliminating stockholders' rights to call a
special meeting of stockholders; and requiring advance notice of any stockholder
nominations of candidates for election to our board of directors.Our stock price has fluctuated and may continue to fluctuate
widely.

The market
price of our common stock has fluctuated significantly since our initial public
offering in 1995. Between January 1, 2000 and December 31, 2000, the sale price
of our common stock, as reported on the Nasdaq National Market, ranged from a
low of $13.19 to a high of $74.31. 
During the first quarter of 2001 the sale price ranged from a low of
$13.00 to a high of $22.1875.  The
market price of our common stock is subject to significant fluctuations in the
future in response to a variety of factors, including:

announcements
concerning our business or that of our competitors or customers;quarterly variations
in operating results; changes in analysts' earnings estimates;announcements of
technological innovations; the introduction of new products or changes in
product pricing policies by us or our competitors; proprietary rights or other litigation; general conditions in the semiconductor industry;
and developments in the financial markets.In addition, the stock market has, from
time to time, experienced extreme price and volume fluctuations that have
particularly affected the market prices for semiconductor companies or
technology companies generally and which have been unrelated to the operating performance
of the affected companies. Broad market fluctuations of this type may reduce
the future market price of our common stock.

Item
3.   Quantitative and Qualitative
Disclosures About Market Risk



We are exposed
to financial market risks including changes in interest rates and foreign
currency exchange rates.

The fair value
of our investment portfolio or related income would not be significantly
impacted by either a 10% increase or decrease in interest rates due mainly to
the short-term nature of the major portion of our investment portfolio.

A majority of
our revenue and capital spending is transacted in U.S. dollars, although a
portion of the cost of our operations, relating mainly to our personnel and
facilities in Israel, is incurred in New Israeli Shekels. We have not engaged
in hedging transactions to reduce our exposure to fluctuations that may arise
from changes in foreign exchange rates. Based on our overall currency rate
exposure at March 31, 2001, a near-term 10% appreciation or depreciation of the
New Israeli Shekel would have an immaterial affect on our financial condition.



PART II.     OTHER INFORMATION



Item
  6.      Exhibits and Reports on Form
  8-K(a)   ExhibitsNo exhibits.(b)   Reports on Form 8-KNo reports on Form 8-K were filed during the three
  months ended March 31, 2001.











SIGNATURES





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



ZORAN
  CORPORATIONDate:  May 15, 2001
  
  
  /s/  Karl SchneiderKarl
  SchneiderVice
  President FinanceAnd
  Chief Financial Officer(Principal
  Financial and Accounting Officer)