<PAGE>   1
                                 UNITED STATES
                       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 September 28, 1996,

                                       or

[x]  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: 0-27482

                               XETEL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

          DELAWARE                                             74-2310781
(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                          Identification Number)

                              2525 BROCKTON DRIVE
                              AUSTIN, TEXAS 78758
          (Address of principal executive offices, including zip code)

                                 (512) 435-1000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such other 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 [ ]

Number of shares outstanding of the issuer's common stock, $0.0001 par value,
as of November 1, 1996: 8,790,685.



<PAGE>   2

                               XETEL CORPORATION

                                     INDEX

<TABLE>
<CAPTION>
<S>                                                                            <C>
PART I. FINANCIAL INFORMATION

Item 1. Interim Financial Statements

        Balance Sheet as of September 28, 1996 and March 30, 1996 .........    3

        Statement of Operations for the three and six months ended
        September 28, 1996 and September 30, 1995 .........................    4

        Statement of Changes in Stockholders' Equity for the six
        months ended September 28, 1996 ...................................    5

        Statement of Cash Flows for the three and six months ended
        September 28, 1996 and September 30, 1995 .........................    6

        Notes to Financial Statements .....................................    7

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations .............................................    9


PART II. OTHER INFORMATION

Item 1. Legal Proceedings .................................................   13

Item 6. Exhibits and Reports on Form 8-K ..................................   13

        Signatures ........................................................   14
</TABLE>






                                       2
<PAGE>   3

                               XETEL CORPORATION
                                 BALANCE SHEET
                        IN THOUSANDS, EXCEPT SHARE DATA
                                     ASSETS

<TABLE>
<CAPTION>
                                                       September 28,    March 30,
                                                           1996            1996
                                                       ------------    ------------
                                                       (unaudited)
<S>                                                    <C>             <C>         
Current assets:
   Cash and cash equivalents                           $      6,605    $      5,142
   Trade accounts receivable, net of
      allowance for doubtful accounts
      of $240 and $240, respectively                         13,462          19,547
   Inventories                                               10,950
                                                                             14,721
   Prepaid expenses and other                                 1,272           1,220
                                                       ------------    ------------
                  Total current assets                       32,289          40,630

Property and equipment, net                                   4,570           4,488
Land held for investment                                         38              38
Goodwill                                                        604            --
                                                       ------------    ------------
                  Total assets                         $     37,501    $     45,156
                                                       ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Trade accounts payable                              $      8,066    $     14,601
   Accrued federal income tax                                  --             2,674
   Accrued expenses and other liabilities                     2,553           2,795
                                                       ------------    ------------
                  Total current liabilities                  10,619          20,070

Deferred income taxes                                           164             164
Long term debt                                                  105            --

Commitments (Note 8)

Stockholders' equity:
   Common stock, $0.0001 par value,
      25,000,000 shares authorized,
      8,790,685 and 8,542,168 shares
      issued and 8,771,935 and 8,523,418
      shares outstanding, respectively                       20,929          19,430
   Retained earnings                                          6,025           5,547
   Deferred compensation                                       (341)            (55)
                                                       ------------    ------------
                  Total stockholders' equity                 26,613          24,922
                                                       ------------    ------------
                  Total liabilities and
                     stockholders' equity              $     37,501    $     45,156
                                                       ============    ============
</TABLE>

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


                                       3
<PAGE>   4

                               XETEL CORPORATION
                            STATEMENT OF OPERATIONS
                        IN THOUSANDS, EXCEPT SHARE DATA
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                           Three Months Ended               Six Months Ended
                                       ----------------------------    ---------------------------
                                       September 28,   September 30,   September 28,  September 30,
                                           1996            1995            1996           1995
                                       ------------    ------------    ------------   ------------
<S>                                    <C>             <C>             <C>            <C>         
Net sales                              $     20,129    $     28,498    $     48,391   $     49,630
Cost of sales                                19,272          24,856          44,628         43,315
                                       ------------    ------------    ------------   ------------
Gross profit                                    857           3,642           3,763          6,315
Selling, general and administrative
   expenses                                   1,531           1,327           3,133          2,558
                                       ------------    ------------    ------------   ------------
(Loss) income from operations                  (674)          2,315             630          3,757
Other income (expense), net                      83            (190)            134           (329)
                                       ------------    ------------    ------------   ------------
(Loss) income before income taxes              (591)          2,125             764          3,428
(Benefit) provision for income taxes           (223)            765             286          1,234
                                       ------------    ------------    ------------   ------------
Net (loss) income                      $       (368)   $      1,360    $        478   $      2,194
                                       ============    ============    ============   ============
Net (loss) income per share            $      (0.04)   $       0.18    $       0.05   $       0.30
                                       ============    ============    ============   ============
Weighted average
   shares outstanding                         8,742           7,265           9,591          7,292
                                       ============    ============    ============   ============
</TABLE>


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





                                       4
<PAGE>   5

                               XETEL CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                  IN THOUSANDS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                Total
                                 Common Stock        Deferred     Retained   Stockholders'
                               Shares     Amount       Comp       Earnings      Equity
                              --------   --------    --------    ----------  ------------
<S>                              <C>     <C>         <C>         <C>          <C>       
Balance, March 30, 1996          8,523   $ 19,430    $    (55)   $    5,547   $   24,922
Stock options exercised             42         54        --            --             54
Amortization of deferred
   compensation                   --         --             8          --              8
Net income                        --         --          --             478          478
Acquisition                        207      1,448        (294)         --          1,154
Other                             --           (3)       --            --             (3)
                              --------   --------    --------    ----------   ----------

Balance, September 28, 1996      8,772   $ 20,929    $   (341)   $    6,025   $   26,613
                              ========   ========    ========    ==========   ==========
</TABLE>



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




                                       5
<PAGE>   6

                               XETEL CORPORATION
                            STATEMENT OF CASH FLOWS
                                  IN THOUSANDS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Three Months Ended               Six Months Ended
                                                          ----------------------------    ----------------------------
                                                          September 28,   September 30,   September 28,   September 30,
                                                              1996            1995            1996            1995
                                                          ------------    ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>             <C>         
Cash flows from operating activities:
   Net (loss) income                                      $       (368)   $      1,360    $        478    $      2,194
   Adjustments to reconcile net income
      to net cash provided by (used in)
      operating activities:
      Depreciation and amortization                                499             329             920             643
      (Gain) loss on disposal of equipment                         (13)           --               (13)             94
   Changes in operating assets and liabilities:
      (Increase) decrease in --
        Trade accounts receivable                                3,623          (2,526)          6,373          (3,822)
        Inventories                                                393          (4,957)          4,074          (9,044)
        Prepaid expenses and other                                (328)           (283)             55             (44)
      Increase (decrease) in --
        Trade accounts payable                                  (1,267)          5,336          (6,619)          6,088
        Accrued expenses and other liabilities                    (837)            911          (3,174)          2,003
                                                          ------------    ------------    ------------    ------------
        Cash provided by (used in) operating activities          1,702             170           2,094          (1,888)
                                                          ------------    ------------    ------------    ------------
Cash flows from investing activities:
   Purchases of property and equipment                            (371)         (1,150)           (634)         (1,480)
   Acquisition, net of cash acquired                               (18)           --               (18)           --
                                                          ------------    ------------    ------------    ------------
         Cash used in investing activities                        (389)         (1,150)           (652)         (1,480)
                                                          ------------    ------------    ------------    ------------
Cash flows from financing activities:
   Net borrowings under debt agreements                            (30)            985             (30)          3,361
   Proceeds from stock options exercised                            39              19              54              28
   Other                                                          --              --                (3)           --
                                                          ------------    ------------    ------------    ------------
         Cash provided by financing activities                       9           1,004              21           3,389
                                                          ------------    ------------    ------------    ------------
Increase  in cash and cash equivalents                           1,322              24           1,463              21
Cash and cash equivalents, beginning of period                   5,283           1,319           5,142           1,322
                                                          ------------    ------------    ------------    ------------
Cash and cash equivalents, end of period                  $      6,605    $      1,343    $      6,605    $      1,343
                                                          ============    ============    ============    ============
</TABLE>


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




                                       6
<PAGE>   7

                               XETEL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 BUSINESS

As of September 28, 1996, XeTel Corporation ("XeTel" or the "Company") was a
49% owned subsidiary of Rohm USA, Inc. ("Rohm"), a wholly-owned subsidiary of
Rohm Co. Ltd., Japan. XeTel provides advanced design and prototype services,
manufactures sophisticated surface mount assemblies and supplies turnkey
solutions to original equipment manufacturers primarily in the
telecommunications, networking, industrial and computer industries. XeTel
incorporates its design and prototype services and assembly capabilities
together with materials management, advanced testing and systems integration
services, to provide turnkey solutions for its customers.

NOTE 2  BASIS OF PRESENTATION

The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations.

Certain reclassifications have been made to the fiscal year 1996 data to
conform to the fiscal year 1997 presentation.

In the opinion of management, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, operating results, and cash flows for
those periods presented. These financial statements should be read in
conjunction with the financial statements, and notes thereto, for the fiscal
year ended March 30, 1996 as presented in the Company's 10-K filed with the
SEC.

NOTE 3 ACQUISITION

In July of 1996, the Company acquired Maxtron Corporation located in Dallas,
Texas. The fair value of the assets acquired, excluding cash, amounted to
approximately $1 million. The cost in excess of net assets acquired amounted to
approximately $637,000 and will be amortized as goodwill over a five year
period. The Company may have to pay additional contingent consideration upon
the achievement of certain performance goals. This transaction was accounted
for under the purchase method of accounting with the results of operations from
the acquired business included in the Company's results of operations from the
acquisition date forward.

NOTE 4  NET INCOME PER SHARE

Net income per share is computed based on the weighted average number of
outstanding common stock and common equivalent shares, which includes preferred
stock and stock options, and gives effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculation
where the effect of their inclusion would be antidilutive, except that, in
conformity with the SEC requirements, stock options issued during the
twelve-month period prior to the filing of the Company's initial public
offering have been included in the calculation as if they were outstanding for
all periods, using the treasury stock method.

NOTE 5 INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                    September 28,     March 30,
                                                        1996            1996
                                                    ------------    ------------
<S>                                                 <C>             <C>         
Raw materials                                       $      8,109    $     11,037
Work in progress                                           2,592           3,396
Finished goods                                               249             288
                                                    ------------    ------------
                                                    $     10,950    $     14,721
                                                    ============    ============
</TABLE>

As of September 28, 1996 and March 30, 1996, the Company had allowances for
obsolete raw materials (principally printed circuit board assembly components)
of $490,000 and $490,000, respectively. Cost of sales for the three and six
months ended September 28, 1996 and September 30, 1995 include provisions to
the allowance for obsolete materials of $3,000, $31,000, $223,000 and $223,000,
respectively.



                                       7
<PAGE>   8



NOTE 6 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                   September 28,     March 30,
                                                       1996            1996
                                                   ------------    ------------
<S>                                                <C>             <C>         
Machinery and equipment                            $     12,385    $     11,397
Furniture and fixtures                                      334             334
Leasehold improvements                                      409             405
                                                   ------------    ------------
                                                         13,128          12,136
Less: Accumulated depreciation
          and amortization                               (8,558)         (7,648)
                                                   ------------    ------------

                                                   $      4,570    $      4,488
                                                   ============    ============
</TABLE>

NOTE 7 NOTES PAYABLE AND LONG-TERM DEBT

The Company has (i) a revolving line of credit for $3 million from Rohm, (ii)
an equipment financing facility for $4 million from a financial services
company, and (iii) a revolving credit facility for $7 million from a commercial
bank. There were no outstanding balances from the Rohm or commercial bank
revolving lines of credit.

The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable on demand and expires March 31, 1997. The
equipment financing facility provides for the leasing of equipment over a
five-year period commencing on the date of acceptance of such equipment. The
bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime (such
rate determined based upon the amounts and period of loans), matures August
1998 and is secured by certain assets of the Company. The bank facility
requires the payment of a monthly commitment fee equal to one-eighth of one
percent (1/8%) on the unused balance, and borrowings are limited based upon
certain collateral availability requirements.

The equipment financing facility, the master lease agreements, the bank
facility and the revolving line of credit contain certain restrictions which
including maintenance of a minimum level of tangible net worth and other
operating and financial ratios.

Interest paid totaled $6,600, $6,600, $136,000 and $335,000 for the three and
six months ended September 28, 1996 and September 30, 1995, respectively.

NOTE 8 LEASE COMMITMENTS

XeTel leases its operating facilities and certain office equipment under
noncancellable operating leases. Rental expense under all operating leases was
approximately $311,000, $616,000, $187,000 and $374,000 during the three and
six months ended September 28, 1996 and September 30, 1995, respectively.
Future noncancellable minimum rental payments under all operating leases with
initial terms of greater than one year are $736,000 in the remainder of 1997,
$1,407,000 in 1998, $1,378,000 in 1999, $1,398,000 in 2000, $1,401,000 in 2001
and an aggregate of $917,000 thereafter. As of September 28, 1996, Rohm has
guaranteed rental payments of $683,000 related to the lease of the Company's
operating facilities.

NOTE 9 RELATED PARTY TRANSACTIONS

In addition to the debt arrangements and the operating facility lease guarantee
described in Notes 7 and 8, the Company has transactions with certain divisions
of Rohm Corporation, a wholly-owned subsidiary of Rohm, during the normal
course of business. Purchases from such divisions were $141,000, $321,000,
$228,000 and $457,000 for the three and six months ended September 28, 1996 and
September 30, 1995, respectively. Accounts payable to such divisions were
$77,000 and $141,000 as of September 28, 1996 and March 30, 1996, respectively.
Accounts receivable from such divisions were not significant.





                                       8
<PAGE>   9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements throughout this document as a result of the risk
factors set forth below and other risks described in the Company's other filed
SEC documents such as those associated with the Company's initial public
offering and Form 10-K filing.

OVERVIEW

XeTel was founded in 1984. In 1986, Rohm acquired a controlling interest in the
Company. Since its inception, the Company has manufactured surface mount
assemblies and performed other manufacturing services for original equipment
manufacturers ("OEMs") in the electronics industry. In a number of cases, such
services were and may be rendered during periods in which customers experience
fluctuations in demand for their products. During such periods, the Company's
net sales and operating results were and are subject to significant
fluctuations that often were and are tied to the market demand for its
customers' products and their need to utilize independent manufacturers to
maintain sufficient product supply to meet such demand. In addition, in the
past, the Company's customer base was more highly concentrated within the
computer industry. Due to intense competitive pressures within the computer
industry, as well as fluctuations in overall demand and lower production
volumes, the Company generally experienced lower gross margins. In an effort to
achieve greater stability and higher gross margins, the Company made a
strategic decision in 1993 to reduce its dependence on the computer industry
and expand its service offerings in order to establish long-term relationships
with targeted customers in the telecommunications, networking, industrial and
instrumentation segments of the electronics industry.

The development and growth of the Company's business generally has followed the
trend by OEMs in the electronics industry to outsource certain of their
manufacturing requirements. Recognizing the benefits offered by using
independent manufacturers, OEMs in the electronics industry have increasingly
relied on independent manufacturers not only as a source of additional
manufacturing capacity during periods of fluctuating demand, but as the primary
source for their manufacturing and assembly needs. In addition, the Company has
developed competencies in additional areas where it can add value to its
customers' requirements, such as design, prototype, systems integration and
order fulfillment and has sought to use such competencies to forge long-term
relationships as a single source provider of turnkey solutions for its
customers. In July, 1996, XeTel acquired another independent contract
manufacturer in Dallas, Texas to further establish and expand long-term
relationships with OEM's of advanced electronic products in targeted geographic
areas.

The Company has and continues to focus certain of its resources to establish
capabilities in product design, prototype and other manufacturing services and
to expand and diversify its customer base. The Company has reduced its role as
a source of additional capacity for OEMs during periods of fluctuating product
demand and has positioned itself to provide a more comprehensive set of
services within the electronics manufacturing services industry. This shift in
strategic focus, combined with improved materials management processes and the
establishment of dedicated customer teams, have enabled the Company to offer
additional services to support its customers' products throughout their life
cycles. XeTel Corporation holds an ISO 9002 and BABT certification and in its
assembly operations, has developed capabilities in next-stage technologies such
as ball grid array.

RISK FACTORS

Fluctuations in Operating Results. XeTel's operating results are affected by a
number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results also can be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may
materially and adversely affect the demand for the Company's services. The
Company's customers generally require short delivery cycles, and a substantial
portion of the Company's backlog typically is scheduled for delivery within 120
days. In the absence of substantial backlog, quarterly sales and operating
results depend on the volume and timing of bookings received during the quarter
which can be difficult to forecast. Backlog fluctuations affect the Company's
ability to plan production and inventory levels, which could lead to
fluctuations in operating results. Variations in the size and delivery
schedules of purchase orders received by the Company, as well as changes in
customers' delivery requirements or the rescheduling or cancellation of orders
and commitments, may result in substantial fluctuations in backlog from period
to period. The Company believes that backlog may not be a meaningful indicator
of future operating results.

A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Results of operations in any period should not be considered
indicative of the results 




                                       9
<PAGE>   10

for any future period, and fluctuations in operating results may result in
fluctuations in the price of the Company's common stock. Due to the foregoing
factors, among others, the Company's operating results in some quarters may be
below the expectations of stock market analysts and investors. In such event,
there could be an immediate and significant adverse effect on the trading price
of the common stock.

Concentration of Customers. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 15%, 13% and
10%, respectively, of net sales for the six months ended September 28, 1996.
The loss of, or a significant curtailment of purchases by, one or more of these
customers, or any other significant customer of the Company, would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company anticipates that a significant portion of
its sales will continue to be concentrated in a small number of customers for
the foreseeable future.

Unavailability of Components and Materials. Components and material used by
XeTel in producing surface mount assemblies and turnkey solutions are purchased
by XeTel from approved suppliers of its customers. Any failure on the part of
suppliers to deliver required components to the Company or any failure of such
components to meet performance requirements could impair the Company's ability
to meet scheduled shipment dates and could delay sales of systems by the
Company's customers and thereby adversely affect the Company's business,
financial condition and results of operations. The Company has in the past
experienced shortages of certain types of electronic components, and currently
experiences shortages of certain electronic components that are in short supply
generally within the electronics industry. Component shortages or price
fluctuations, to the extent not absorbed by the customer under its agreements
with the Company, could have a material adverse effect on the Company's
business, financial condition and results of operations. Certain components
used in a number of the Company's customer programs are obtained from a single
source.

Variability of Customer Requirements; Absence of Long-Term Purchase Orders. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term
purchase orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that
it will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
During the six months ended September 28, 1996, certain major customers reduced
significant orders with the Company due to orders which did not materialize and
efforts to rebalance inventories. Significant or numerous cancellations,
reductions or delays in orders by customers, or inability by customers to pay
for services provided by the Company or to pay for components and materials
purchased by the Company on such customer's behalf, could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Management of Growth and Expansion. The Company's design, prototype, assembly
and turnkey solutions businesses have grown rapidly in recent years. This
growth has increased the Company's fixed costs and required it to hire
additional personnel. Furthermore, the Company plans to establish one or more
regional design and prototype centers which will increase the Company's fixed
costs and will require additional personnel. A continuing period of rapid
growth, including geographic expansions, could place a significant strain on
the Company's management, operations and other resources. The Company's ability
to manage its growth will require it to manage its existing resources more
efficiently, to continue to invest in its operations, including its financial
and management information systems and internal process controls, and to
retain, motivate and manage its employees. If the Company's management is
unable to manage growth effectively, the quality of the Company's services and
its ability to retain key personnel could be materially and adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

RESULTS OF OPERATIONS


Net sales for the six months ended September 28, 1996 decreased 2.5% to $48.4
million from $49.6 million for the corresponding period of the prior year. Net
sales for the three months ended September 28, 1996 decreased 29.4% to $20.1
million from $28.5 million for the same prior year period. Lower sales were
primarily attributable to cancellations and rescheduled orders from certain
major telecommunications and networking customers.

Gross profit for the six months ended September 28, 1996 decreased 40.4% to
$3.8 million from $6.3 million in the comparable prior year period. Gross
profit for the three months ended September 28, 1996 decreased 76.5% to $0.9
million from $3.6 million in the second quarter of fiscal 1996. Gross profit is
defined as net sales less cost of sales. Cost of sales consists of direct
labor, direct material and manufacturing overhead (which includes manufacturing
and process engineering expenses). Gross margin (gross profit as a percentage
of net sales) decreased to 7.8% for the first six months of the 1997 fiscal
year from 12.7% for the comparable prior year period. Gross margin decreased to
4.3% for the second quarter of the 1997 fiscal year from 12.8% for the
comparable prior year period. The decrease in the Company's gross margin
predominately reflects the effects of higher material content associated with
increased turnkey sales and a lower absorption of fixed costs due to lower
sales levels. On October 14, 1996, the Company announced a reduction in force
of 




                                      10
<PAGE>   11

approximately 7% of its workforce. The Company believes this action, together
with other cost saving measures were necessary to bring expenses more in line
with revenues. Management intends to continue to expand the range of services
it provides and focus on market opportunities where its capabilities in
rendering value added services in a cost effective manner can improve
productivity, product yields and utilization.

Selling, general and administrative ("SG&A") expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, and sales
commissions paid to direct sales personnel and independent sales representative
organizations. SG&A expenses for the six months ended September 28, 1996
increased 22.5% to $3.1 million from $2.6 million in the corresponding period
in fiscal 1996. SG&A expenses represented 6.5% of net sales for the six months
ended September 28, 1996 as compared to 5.2% for the six months ended September
30, 1995. SG&A expenses for the three months ended September 28, 1996 increased
15.4% to $1.5 million from $1.3 million in the corresponding period in fiscal
1996. SG&A expenses represented 7.6% of net sales for the three months ended
September 28, 1996 as compared to 4.7% for the three months ended September 30,
1995. Higher SG&A expenses were primarily attributable to increased public
company related expenses and additional expense associated with a newly
acquired business.

Other income (expense), net for the six months ended September 28, 1996
reflected income of $134,000 compared to an expense of $329,000 in the
corresponding period in fiscal 1996. Other income (expense), net for the three
months ended September 28, 1996 reflected income of $83,000 compared to
$190,000 of expense in the corresponding period in fiscal 1996. The change was
due to interest earned from an increase in cash and cash equivalents and a
decrease in interest paid resulting from the payment of all amounts outstanding
under the revolving line of credit and notes payable to Rohm with a portion of
the proceeds from the Company's initial public offering, effective February 14,
1996.

The provision for income taxes of $286,000 and $1,234,000 reflects an effective
tax rate of 37% and 36% for the six months ended September 28, 1996 and
September 30, 1995, respectively. The benefit for income taxes of $223,000 and
the provision for income taxes of $765,000 reflects an effective tax rate of
38% and 36% for the three months ended September 28, 1996 and September 30,
1995, respectively. The lower effective tax rate for the six and three months
ended September 30, 1995 was primarily due to a reduction in valuation
allowance against net deferred tax assets during those periods.

LIQUIDITY AND CAPITAL RESOURCES

Since 1986 when Rohm acquired a controlling interest in the Company, XeTel has
financed its business through cash generated by operations and a line of credit
and other borrowings provided by Rohm. In February 1996, the Company made an
initial public offering of its common stock. Net proceeds from the offering
were $14.8 million.

During the prior fiscal year, additional borrowings were made from Rohm for
working capital and capital equipment. The Company used a portion of the net
proceeds of its initial public offering, effective February 14, 1996, to repay
all amounts outstanding under the revolving line of credit and notes payable to
Rohm. No amounts were outstanding to Rohm as of September 28, 1996 and March
30, 1996.

Net cash provided by operating activities during the three and six months ended
September 28, 1996 was $1.7 million and $2.1 million resulting primarily from
cash provided by a decrease in inventory and accounts receivable offset by cash
used by decreases in accounts payable, accrued expenses and other liabilities.
Net cash provided by operating activities was $0.2 million for the three months
ended September 30, 1995 and net cash used by operating activities was $2.1
million for the six months ended September 30, 1995.

Capital expenditures during the three and six months ended September 28, 1996
and September 30, 1995 were $371,000, $634,000, $1.2 million and $1.5 million,
respectively. Management anticipates that capital expenditures in each of its
1997 and 1998 fiscal years will exceed the level of capital expenditures made
in fiscal 1996. The Company's expenditures on research and development in the
first and second quarters of fiscal 1997 and 1996 were $46,000, $45,000,
$36,400 and $40,600, respectively.

As of September 28, 1996 and March 30, 1996, the Company's primary source of
liquidity consisted of cash and cash equivalents of $6.6 million and $5.1
million, respectively. Working capital was $21.7 million and $20.6 million as
of September 28, 1996 and March 30, 1996, respectively.

The Company has (i) a revolving line of credit for $3 million from Rohm, (ii)
an equipment financing facility for $4 million from a financial services
company, and (iii) a revolving credit facility for $7 million from a commercial
bank. There were no outstanding balances from the Rohm or commercial bank
revolving lines or credit.

The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable on demand and expires March 31, 1997. The
equipment financing facility provides for the leasing of equipment over a
five-year period commencing on the date of acceptance of such equipment. The
bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime (such
rate determined based upon the amounts and period of loans), matures August
1998 and is secured by certain assets of the Company. The bank facility




                                      11
<PAGE>   12

requires the payment of a monthly commitment fee equal to one-eighth of one
percent (1/8%) on the unused balance, and borrowings are limited based upon
certain collateral availability requirements.

The equipment financing facility, the master lease agreements, the bank
facility and the revolving line of credit contain certain restrictions which
including maintenance of a minimum level of tangible net worth and other
operating and financial ratios.

Interest paid totaled $6,600, $6,600, $136,000 and $335,000 for the three and
six months ended September 28, 1996 and September 30, 1995, respectively.

The Company believes that its working capital, together with cash generated
from operations and the net proceeds received from the offering, will be
sufficient to satisfy anticipated sales growth and investment in manufacturing
facilities and equipment through its 1997 fiscal year end. On October 2, 1996,
the Company signed an agreement to lease a new manufacturing facility in Austin
comprised of 92,500 square feet with a planned relocation in the first fiscal
quarter of 1998.

BACKLOG

The Company's backlog as of September 28, 1996 was approximately $40.5 million
compared to approximately $40.1 million at June 29, 1996 and $80.7 million as
of March 30, 1996. Backlog consists of purchase orders received by the Company
and commitments under scheduled releases, both of which generally specify
delivery dates within twelve months. Variations in the size and delivery
schedules of purchase orders received by the Company, as well as changes in
customers' delivery requirements or the rescheduling or cancellation of orders
and commitments, has resulted in the past and may result in substantial
fluctuation in backlog from period to period. The Company believes, although
there can be no assurance, that backlog may not be a meaningful indicator of
future operating results. See "Variability of Customer Requirements" and
"Fluctuations in Operating Results."

ACQUISITION

In July of 1996, the Company acquired Maxtron Corporation located in Dallas,
Texas. Maxtron is a contract manufacturer focusing on high complexity, custom
assemblies. The Company believes this acquisition will further establish and
expand long-term relationships with OEM's of advanced electronic products in
targeted geographic areas. However, no assurance can be given that such
expansion will have a positive effect on the Company's operating results.

EMPLOYEES

As of September 28, 1996, the Company had 512 full-time employees supplemented
from time to time by part-time employees. The employees are not represented by
a union, and the Company believes its employee relations to be satisfactory.




                                      12
<PAGE>   13

ITEM 3.  LEGAL PROCEEDINGS

To the Company's knowledge, there are no pending legal proceedings to which it
is a party or to which any of its property is subject that are material to the
Company or its business.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

<TABLE>
<CAPTION>
         Exhibit
         Number                       Description
         ------                       -----------
         <S>      <C>
         3.2(1)   Second Restated Certificate of Incorporation.

         3.3(1)   Restated Bylaws of the Registrant, as amended.
 
         3.4(1)   Registration Rights, dated June 18, 1986 among the Registrant
                  Rohm Corporation, Julian C. Hart, David W. Gault and Emory C.
                  Garth.

         4.1(1)   Reference is made to Exhibits 3.2 and 3.3.

         4.2(1)   Specimen Common Stock certificate.

         10.1(1)  Company's 1992 Stock Option Plan.

         10.2(1)  Form of Indemnification Agreement between the Registrant and
                  each of its directors and certain executive officers.

         10.3(1)  Lease Agreement dated September 22, 1992 between Mellon Bank,
                  N.A., Trustee for the Consolidation Retirement Trust for the
                  LTV Corporation and Affiliates (the "LTV Trust"), as
                  Landlord, and the Registrant, as Tenant.

         10.4(1)  First Amendment to Lease Agreement effective April 1, 1994
                  between the LTV Trust, as Landlord, and the Registrant, as
                  Tenant.

         10.5(1)  Amended and Restated Guaranty of Lease effective April 1,
                  1994 between Rohm USA, Inc., as Guarantor, and the LTV Trust,
                  as Landlord.

         10.6(1)  Waiver of Right of First Refusal dated May 2, 1994 by the
                  Registrant, as Tenant, and the LTV Trust, as Landlord.

         10.7(1)  Security Agreement dated October 14, 1992 between the
                  Registrant and Rohm Corporation.

         10.8(1)  $570,000 Secured Promissory Note issued October 14, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.9(1)  $110,000 Secured Promissory Note issued October 22, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.10(1) Security Agreement dated November 4, 1992 between Rohm
                  Corporation, as Secured Party, and the Registrant.

         10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the
                  Registrant in favor of Rohm Corporation.

         10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A.,
                  Inc., as Secured Party, and the Registrant, as Debtor.

         10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
                  Registrant in favor of Rohm U.S.A., Inc.

         10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A.,
                  Inc., as Secured Party, and the Registrant, as Debtor.

         10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by
                  the Registrant in favor of Rohm USA, Inc.

         10.18(1) Manufacturing Services Agreement dated November 18, 1994
                  between Primary Access and the Registrant.

         10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
                  Corporation and the Registrant, as the Consenting Party.

         10.20(1) Manufacturing Services Agreement February 22, 1989 between
                  Motorola, Inc., MOS Memory Products Division and the
                  Registrant, and letter from Motorola, Inc., Fast Static RAM
                  Module Division related thereto.

         10.21(1) Mobile Communication Standard Terms and Conditions dated
                  August 5, 1994 for Westinghouse Electric.

         10.22(2) Master Lease Agreement between XeTel Corporation and General
                  Electric Capital Corporation.

         10.23(2) $3,000,000 Promissory Note between XeTel Corporation and Rohm
                  USA, Inc.

         10.24    $7,000,000 Promissory Note between XeTel Corporation and
                  Texas Commerce Bank National Association

         10.25    Lease Agreement between XeTel Corporation and Braker Phase
                  III, Ltd.

         11.1(3)  Computation of Net Income (Loss) per Share.

         24.1(1)  Power of Attorney (see page II-4 of the Registration
                  Statement as filed on November 20, 1995).

         24.2(1)  Assistant Secretary's Certificate of Resolutions of the Board
                  of Directors.

         27.1     Financial Data Schedule
</TABLE>




                                      13
<PAGE>   14

               (1)  Incorporated by reference to the like-numbered exhibits
                    previously filed with Registrant's Registration Statement
                    on Form S-1, No. 33-99632 filed with the Securities and
                    Exchange Commission on February 14, 1996.

               (2)  Incorporated by reference to the like-numbered exhibits
                    previously filed with the Registrant's 1996 Form 10-K.

               (3)  Included on the Statement of Operations.

         (b)  Reports on Form 8-K

              During the fiscal quarter ended September 28, 1996 no current
              reports on Form 8-K were filed.



                                  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.

                                        XETEL CORPORATION
                                        (Registrant)

Date: November 1, 1996                  By: /s/ ANGELO A. DECARO, JR.
                                           -------------------------------
                                           Angelo A. DeCaro, Jr.
                                           President and Chief Executive Officer


Date: November 1, 1996                      /s/ RICHARD S. CHILINSKI
                                           -------------------------------
                                           Richard S. Chilinski
                                           Vice President,
                                           Chief Financial Officer
                                           and Assistant Secretary






                                      14
<PAGE>   15

                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
         Exhibit
         Number                       Description
         ------                       -----------
         <S>      <C>
         3.2(1)   Second Restated Certificate of Incorporation.

         3.3(1)   Restated Bylaws of the Registrant, as amended.
 
         3.4(1)   Registration Rights, dated June 18, 1986 among the Registrant
                  Rohm Corporation, Julian C. Hart, David W. Gault and Emory C.
                  Garth.

         4.1(1)   Reference is made to Exhibits 3.2 and 3.3.

         4.2(1)   Specimen Common Stock certificate.

         10.1(1)  Company's 1992 Stock Option Plan.

         10.2(1)  Form of Indemnification Agreement between the Registrant and
                  each of its directors and certain executive officers.

         10.3(1)  Lease Agreement dated September 22, 1992 between Mellon Bank,
                  N.A., Trustee for the Consolidation Retirement Trust for the
                  LTV Corporation and Affiliates (the "LTV Trust"), as
                  Landlord, and the Registrant, as Tenant.

         10.4(1)  First Amendment to Lease Agreement effective April 1, 1994
                  between the LTV Trust, as Landlord, and the Registrant, as
                  Tenant.

         10.5(1)  Amended and Restated Guaranty of Lease effective April 1,
                  1994 between Rohm USA, Inc., as Guarantor, and the LTV Trust,
                  as Landlord.

         10.6(1)  Waiver of Right of First Refusal dated May 2, 1994 by the
                  Registrant, as Tenant, and the LTV Trust, as Landlord.

         10.7(1)  Security Agreement dated October 14, 1992 between the
                  Registrant and Rohm Corporation.

         10.8(1)  $570,000 Secured Promissory Note issued October 14, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.9(1)  $110,000 Secured Promissory Note issued October 22, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.10(1) Security Agreement dated November 4, 1992 between Rohm
                  Corporation, as Secured Party, and the Registrant.

         10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by
                  the Registrant in favor of Rohm Corporation.

         10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the
                  Registrant in favor of Rohm Corporation.

         10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A.,
                  Inc., as Secured Party, and the Registrant, as Debtor.

         10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
                  Registrant in favor of Rohm U.S.A., Inc.

         10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A.,
                  Inc., as Secured Party, and the Registrant, as Debtor.

         10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by
                  the Registrant in favor of Rohm USA, Inc.

         10.18(1) Manufacturing Services Agreement dated November 18, 1994
                  between Primary Access and the Registrant.

         10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
                  Corporation and the Registrant, as the Consenting Party.

         10.20(1) Manufacturing Services Agreement February 22, 1989 between
                  Motorola, Inc., MOS Memory Products Division and the
                  Registrant, and letter from Motorola, Inc., Fast Static RAM
                  Module Division related thereto.

         10.21(1) Mobile Communication Standard Terms and Conditions dated
                  August 5, 1994 for Westinghouse Electric.

         10.22(2) Master Lease Agreement between XeTel Corporation and General
                  Electric Capital Corporation.

         10.23(2) $3,000,000 Promissory Note between XeTel Corporation and Rohm
                  USA, Inc.

         10.24    $7,000,000 Promissory Note between XeTel Corporation and
                  Texas Commerce Bank National Association

         10.25    Lease Agreement between XeTel Corporation and Braker Phase
                  III, Ltd.

         11.1(3)  Computation of Net Income (Loss) per Share.

         24.1(1)  Power of Attorney (see page II-4 of the Registration
                  Statement as filed on November 20, 1995).

         24.2(1)  Assistant Secretary's Certificate of Resolutions of the Board
                  of Directors.

         27.1     Financial Data Schedule
</TABLE>

               (1)  Incorporated by reference to the like-numbered exhibits
                    previously filed with Registrant's Registration Statement
                    on Form S-1, No. 33-99632 filed with the Securities and
                    Exchange Commission on February 14, 1996.

               (2)  Incorporated by reference to the like-numbered exhibits
                    previously filed with the Registrant's 1996 Form 10-K.

               (3)  Included on the Statement of Operations.