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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 30, 2003

OR

|  |  |                                                                                          | 
|- |  | ---------------------------------------------------------------------------------------- | 
|o |  | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission File No. 0-11007

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

|                                         |  |                    
|---------------------------------------- |  | -------------------
|Delaware                                 |  | 51-0300558         
|(State or other jurisdiction             |  | (I.R.S Employer    
|of incorporation or organization)        |  | Identification No.)
|                                         |  |                    
|3535 Harbor Boulevard                    |  |                    
|Costa Mesa, California                   |  | 92626              
|(Address of principal executive offices) |  | (Zip Code)         

(714) 662-5600(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 shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X No

As of May 8, 2003 the registrant had 82,344,829 shares of common stock
outstanding.



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TABLE OF CONTENTS



|                                                                                              |                                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements                                                                 
|                                                                                              | Condensed Consolidated Balance Sheets March 30, 2003 and June 30, 2002                                       
|                                                                                              | Condensed Consolidated Statements of Operations three and nine months ended March 30, 2003 and March 31, 2002
|                                                                                              | Condensed Consolidated Statements of Cash Flows nine months ended March 30, 2003 and March 31, 2002          
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                         
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|Item 4. Controls and Procedures                                                              
|Part II. OTHER INFORMATION                                                                   
|                                                                                              | Item 1. Legal Proceedings.                                                                                   
|                                                                                              | Item 6. Exhibits and Reports on Form 8-K                                                                     
|SIGNATURES                                                                                   
|EXHIBIT 99.1                                                                                 



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##### Table of Contents



EMULEX CORPORATION AND SUBSIDIARIES

INDEX

|                              |  |                                                                                                               |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                               |  | PAGE
|                              |  |                                                                                                               |  |     
|Part I. FINANCIAL
INFORMATION |  |                                                                                                              
|                             
|Item 1.
Financial Statements  |  |                                                                                                              
|                             
|                              |  | Condensed Consolidated Balance Sheets
March 30, 2003 and June 30, 2002                                        |  | 2   
|                             
|                              |  | Condensed Consolidated Statements of Operations
Three and nine months ended March 30, 2003
and March 31, 2002 |  | 3   
|                             
|                              |  | Condensed Consolidated Statements of Cash Flows
Nine months ended March 30, 2003
and March 31, 2002           |  | 4   
|                             
|                              |  | Notes to Condensed Consolidated Financial Statements                                                          |  | 5   
|                             
|Item 2.                       |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                         |  | 12  
|                             
|Item 3.                       |  | Quantitative and Qualitative Disclosures
about Market Risk                                                    |  | 35  
|                             
|Item 4.                       |  | Controls and Procedures                                                                                       |  | 35  
|                             
|Part II. OTHER INFORMATION    |  |                                                                                                              
|                             
|Item 1.                       |  | Legal Proceedings                                                                                             |  | 36  
|                             
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                              |  | 37  
|                             
|Signatures                    |  |                                                                                                               |  | 38  

1



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##### Table of Contents









Part I. FINANCIAL INFORMATION

Item 1. Financial Statements




EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)

|                                                                                                                                                                        |                                     |                            |           |           |         |   |           |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------- | --------- | --------- | ------- | - | --------- | ------- | ------- | 
|                                                                                                                                                                        |                                     |                            |           | March 30, |         |   | June 30,  |        
|Assets                                                                                                                                                                  |                                     | 2003                       |           |           | 2002    |  
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|Current assets:                                                                                                                                                         |                                     |                            |           |           |         |   |           |        
|                                                                                                                                                                        | Cash and cash equivalents           |                            | $         | 139,108   |         |   | $         | 282,561 |        
|                                                                                                                                                                        | Restricted cash                     |                            |           | 11,850    |         |   |           | 2,024   |        
|                                                                                                                                                                        | Investments                         |                            |           | 254,576   |         |   |           | 227,905 |        
|                                                                                                                                                                        | Accounts and other receivables, net |                            |           | 45,906    |         |   |           | 36,259  |        
|                                                                                                                                                                        | Litigation settlements receivable   |                            |           | 13,545    |         |   |           |        |        
|                                                                                                                                                                        | Inventories, net                    |                            |           | 18,427    |         |   |           | 14,833  |        
|                                                                                                                                                                        | Prepaid expenses                    |                            |           | 7,069     |         |   |           | 3,779   |        
|                                                                                                                                                                        | Deferred income taxes               |                            |           | 45,708    |         |   |           | 30,205  |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     | Total current assets       |           |           | 536,189 |   |           |         | 597,566 | 
|Property and equipment, net                                                                                                                                             |                                     |                            | 21,223    |           |         |   | 18,574    |        
|Investments                                                                                                                                                             |                                     |                            | 180,338   |           |         |   | 119,302   |        
|Goodwill, net                                                                                                                                                           |                                     |                            | 397,256   |           |         |   | 397,256   |        
|Other intangibles, net                                                                                                                                                  |                                     |                            | 28,517    |           |         |   | 32,874    |        
|Deferred income taxes                                                                                                                                                   |                                     |                            |          |           |         |   | 29,385    |        
|Other assets                                                                                                                                                            |                                     |                            | 6,759     |           |         |   | 12,407    |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     | $                          | 1,170,282 |           |         | $ | 1,207,364 |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|Liabilities and Stockholders Equity                                                                                                                                    |                                     |                            |           |           |         |   |           |        
|Current liabilities:                                                                                                                                                    |                                     |                            |           |           |         |   |           |        
|                                                                                                                                                                        | Accounts payable                    |                            | $         | 14,278    |         |   | $         | 12,663  |        
|                                                                                                                                                                        | Accrued liabilities                 |                            |           | 19,058    |         |   |           | 19,677  |        
|                                                                                                                                                                        | Accrued litigation settlements      |                            |           | 39,500    |         |   |           |        |        
|                                                                                                                                                                        | Income taxes payable                |                            |           | 4,943     |         |   |           | 7,020   |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     | Total current liabilities  |           |           | 77,779  |   |           |         | 39,360  | 
|Convertible subordinated notes                                                                                                                                          |                                     |                            | 208,518   |           |         |   | 345,000   |        
|Deferred income taxes                                                                                                                                                   |                                     |                            | 6,482     |           |         |   |          |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     |                            | 292,779   |           |         |   | 384,360   |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|Commitments and contingencies (Note 7)                                                                                                                                  |                                     |                            |           |           |         |   |           |        
|Stockholders equity:                                                                                                                                                   |                                     |                            |           |           |         |   |           |        
|Preferred stock, $0.01 par value; 1,000,000 shares
authorized (150,000 shares designated as Series A
Junior Participating Preferred Stock); none issued
and outstanding |                                     |                            |          |           |         |   |          |        
|Common stock, $0.10 par value; 240,000,000 shares
authorized; 82,071,316 and 81,800,909 issued
and outstanding at March 30, 2003 and
June 30, 2002, respectively        |                                     |                            | 8,207     |           |         |   | 8,180     |        
|Additional paid-in capital                                                                                                                                              |                                     |                            | 902,836   |           |         |   | 898,803   |        
|Deferred compensation                                                                                                                                                   |                                     |                            | (3,967    | )         |         |   | (7,156    | )      
|Accumulated deficit                                                                                                                                                     |                                     |                            | (29,573   | )         |         |   | (76,823   | )      
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     | Total stockholders equity |           |           | 877,503 |   |           |         | 823,004 | 
|                                                                                                                                                                        |                                     |                            |           |           |         |  
|                                                                                                                                                                        |                                     | $                          | 1,170,282 |           |         | $ | 1,207,364 |        
|                                                                                                                                                                        |                                     |                            |           |           |         |  

See accompanying notes to condensed consolidated financial statements.

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EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |         |         |   |         | 
|------------------------------------------------ | ---------------------------------------------------- | - | ------------------------- | ------ | ------------------ | ------ | ------- | ----------------- | - | ------ | --------- | ------ | - | --------- | ------- | ------- | - | ------- | 
|                                                 |                                                      |   |                           |        | Three Months Ended |        |         | Nine Months Ended |  
|                                                 |                                                      |   |                           |        |                    |        |         |                   |  
|                                                 |                                                      |   |                           |        | March 30,          |        |         | March 31,         |   |        | March 30, |        |   | March 31, |        
|                                                 |                                                      |   |                           |        | 2003               |        |         | 2002              |   |        | 2003      |        |   | 2002      |        
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |        
|Net revenues                                     |                                                      | $ | 79,573                    |        |                    | $      | 69,591  |                   |   | $      | 226,446   |        |   | $         | 184,546 |        
|Cost of sales                                    |                                                      |   | 29,088                    |        |                    |        | 27,465  |                   |   |        | 84,311    |        |   |           | 94,786  |        
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|                                                 |                                                      |   | Gross profit              |        |                    | 50,485 |         |                   |   | 42,126 |           |        |   | 142,135   |         |         |   | 89,760  | 
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Operating expenses:                              |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |         |        
|                                                 | Engineering and development                          |   |                           | 15,823 |                    |        |         | 12,237            |   |        |           | 45,418 |   |           |         | 34,699  |  
|                                                 | Selling and marketing                                |   |                           | 4,896  |                    |        |         | 4,494             |   |        |           | 13,919 |   |           |         | 14,816  |  
|                                                 | General and administrative                           |   |                           | 30,573 |                    |        |         | 3,418             |   |        |           | 36,641 |   |           |         | 9,092   |  
|                                                 | Amortization of goodwill and other
intangibles       |   |                           | 1,452  |                    |        |         | 39,026            |   |        |           | 4,357  |   |           |         | 117,154 |  
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|                                                 |                                                      |   | Total operating expenses  |        |                    | 52,744 |         |                   |   | 59,175 |           |        |   | 100,335   |         |         |   | 175,761 | 
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Operating income (loss)                          |                                                      |   | (2,259                    | )      |                    |        | (17,049 | )                 |   |        | 41,800    |        |   |           | (86,001 | )      
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Nonoperating income:                             |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |         |        
|                                                 | Gain on repurchase of convertible
subordinated notes |   |                           |       |                    |        |         |                  |   |        |           | 28,729 |   |           |         |        |  
|                                                 | Interest income                                      |   |                           | 3,142  |                    |        |         | 2,783             |   |        |           | 10,081 |   |           |         | 7,411   |  
|                                                 | Interest expense                                     |   |                           | (1,236 | )                  |        |         | (1,343            | ) |        |           | (4,267 | ) |           |         | (1,350  | )
|                                                 | Other income (expense), net                          |   |                           | (46    | )                  |        |         | (284              | ) |        |           | (132   | ) |           |         | (214    | )
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|                                                 |                                                      |   | Total nonoperating income |        |                    | 1,860  |         |                   |   | 1,156  |           |        |   | 34,411    |         |         |   | 5,847   | 
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Income (loss) before income taxes                |                                                      |   | (399                      | )      |                    |        | (15,893 | )                 |   |        | 76,211    |        |   |           | (80,154 | )      
|Income tax provision (benefit)                   |                                                      |   | (151                      | )      |                    |        | 595     |                   |   |        | 28,961    |        |   |           | 4,633   |        
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Net income (loss)                                |                                                      | $ | (248                      | )      |                    | $      | (16,488 | )                 |   | $      | 47,250    |        |   | $         | (84,787 | )      
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Net income (loss) per share:                     |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |         |        
|                                                 | Basic                                                |   | $                         | (0.00  | )                  |        | $       | (0.20             | ) |        | $         | 0.58   |   |           | $       | (1.04   | )
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|                                                 | Diluted                                              |   | $                         | (0.00  | )                  |        | $       | (0.20             | ) |        | $         | 0.57   |   |           | $       | (1.04   | )
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|Number of shares used in per share computations: |                                                      |   |                           |        |                    |        |         |                   |   |        |           |        |   |           |         |        
|                                                 | Basic                                                |   |                           | 82,055 |                    |        |         | 81,383            |   |        |           | 81,959 |   |           |         | 81,414  |  
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       
|                                                 | Diluted                                              |   |                           | 82,055 |                    |        |         | 81,383            |   |        |           | 83,511 |   |           |         | 81,414  |  
|                                                 |                                                      |   |                           |        |                    |        |         |                   |   |        |           |       

See accompanying notes to condensed consolidated financial statements.

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EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

|                                                                          |                                                                                          |                                                         |          |                   |         |   |           |         |         |  
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------- | -------- | ----------------- | ------- | - | --------- | ------- | ------- | -
|                                                                          |                                                                                          |                                                         |          | Nine Months Ended |        
|                                                                          |                                                                                          |                                                         |          |                   |        
|                                                                          |                                                                                          |                                                         |          | March 30,         |         |   | March 31, |        
|                                                                          |                                                                                          |                                                         |          | 2003              |         |   | 2002      |        
|                                                                          |                                                                                          |                                                         |          |                   |         |   |           |        
|Cash flows from operating activities:                                     |                                                                                          |                                                         |          |                   |         |   |           |        
|Net income (loss)                                                         |                                                                                          | $                                                       | 47,250   |                   |         | $ | (84,787   | )      
|                                                                          | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                         |          |                   |         |   |           |         |        
|                                                                          |                                                                                          | Depreciation and amortization of property and equipment |          |                   | 8,189   |   |           |         | 6,010   |  
|                                                                          |                                                                                          | Loss on sale of strategic investment                    |          |                   |        |   |           |         | 248     |  
|                                                                          |                                                                                          | Gain on repurchase of convertible subordinated notes    |          |                   | (28,729 | ) |           |         |        |  
|                                                                          |                                                                                          | Litigation settlements                                  |          |                   | 27,007  |   |           |         |        |  
|                                                                          |                                                                                          | Deferred stock-based compensation                       |          |                   | 3,447   |   |           |         | 2,848   |  
|                                                                          |                                                                                          | Amortization of goodwill and other intangibles          |          |                   | 4,357   |   |           |         | 117,154 |  
|                                                                          |                                                                                          | Loss on disposal of property and equipment              |          |                   | 164     |   |           |         | 355     |  
|                                                                          |                                                                                          | Deferred income taxes                                   |          |                   | 20,364  |   |           |         | (3,490  | )
|                                                                          |                                                                                          | Tax benefit from exercise of stock options              |          |                   | 2,308   |   |           |         | 7,797   |  
|                                                                          |                                                                                          | Provision for doubtful accounts                         |          |                   | 182     |   |           |         | 370     |  
|                                                                          | Changes in assets and liabilities, net of effects of business acquired:                  |                                                         |          |                   |         |   |           |         |        
|                                                                          |                                                                                          | Accounts and other receivables                          |          |                   | (9,828  | ) |           |         | 3,144   |  
|                                                                          |                                                                                          | Inventories                                             |          |                   | (3,594  | ) |           |         | 20,443  |  
|                                                                          |                                                                                          | Prepaid expenses and other assets                       |          |                   | (1,403  | ) |           |         | (4,492  | )
|                                                                          |                                                                                          | Accounts payable                                        |          |                   | 1,615   |   |           |         | (9,549  | )
|                                                                          |                                                                                          | Accrued liabilities                                     |          |                   | (1,493  | ) |           |         | 8,229   |  
|                                                                          |                                                                                          | Income taxes payable                                    |          |                   | (2,077  | ) |           |         | (171    | )
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|                                                                          | Net cash provided by operating activities                                                |                                                         |          | 67,759            |         |   |           | 64,109  |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|Cash flows from investing activities:                                     |                                                                                          |                                                         |          |                   |         |   |           |        
|Additions to property and equipment                                       |                                                                                          |                                                         | (11,002  | )                 |         |   | (5,900    | )      
|Net increase in restricted cash related to construction escrow account    |                                                                                          |                                                         | (9,826   | )                 |         |   |          |        
|Payment for purchase of Giganet, Inc., net of cash acquired               |                                                                                          |                                                         |         |                   |         |   | (24       | )      
|Purchases of investments                                                  |                                                                                          |                                                         | (500,510 | )                 |         |   | (470,060  | )      
|Maturities of investments                                                 |                                                                                          |                                                         | 412,803  |                   |         |   | 389,727   |        
|Proceeds from sale of strategic investment                                |                                                                                          |                                                         |         |                   |         |   | 152       |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|                                                                          | Net cash used in investing activities                                                    |                                                         |          | (108,535          | )       |   |           | (86,105 | )      
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|Cash flows from financing activities:                                     |                                                                                          |                                                         |          |                   |         |   |           |        
|Proceeds from issuance of common stock under stock option plans           |                                                                                          |                                                         | 1,055    |                   |         |   | 3,133     |        
|Proceeds from issuance of common stock under employee stock purchase plan |                                                                                          |                                                         | 437      |                   |         |   | 569       |        
|Repurchase of common stock                                                |                                                                                          |                                                         |         |                   |         |   | (10,539   | )      
|Net proceeds from issuance of convertible subordinated notes              |                                                                                          |                                                         |         |                   |         |   | 334,154   |        
|Repurchase of convertible subordinated notes                              |                                                                                          |                                                         | (104,169 | )                 |         |   |          |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|                                                                          | Net cash provided by (used in) financing activities                                      |                                                         |          | (102,677          | )       |   |           | 327,317 |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|Net increase (decrease) in cash and cash equivalents                      |                                                                                          |                                                         | (143,453 | )                 |         |   | 305,321   |        
|Cash and cash equivalents at beginning of period                          |                                                                                          |                                                         | 282,561  |                   |         |   | 36,471    |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|Cash and cash equivalents at end of period                                |                                                                                          | $                                                       | 139,108  |                   |         | $ | 341,792   |        
|                                                                          |                                                                                          |                                                         |          |                   |         |  
|Supplemental disclosures:                                                 |                                                                                          |                                                         |          |                   |         |   |           |        
|Noncash investing and financing activities:                               |                                                                                          |                                                         |          |                   |         |   |           |        
|                                                                          | Fair value of assets acquired                                                            |                                                         | $        |                  |         |   | $         |        |        
|                                                                          | Fair value of liabilities assumed                                                        |                                                         |          |                  |         |   |           | (139    | )      
|                                                                          | Common stock issued and options assumed for acquired business                            |                                                         |          |                  |         |   |           |        |        
|Cash paid during the period for:                                          |                                                                                          |                                                         |          |                   |         |   |           |        
|                                                                          | Interest                                                                                 |                                                         | $        | 4,878             |         |   | $         | 7       |        
|                                                                          | Income taxes                                                                             |                                                         |          | 8,852             |         |   |           | 496     |        

See accompanying notes to condensed consolidated financial statements.

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EMULEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements



|1. |  | Summary of Significant Accounting Policies and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which are normal
recurring accruals) necessary to present fairly the Companys financial
position as of March 30, 2003, and June 30, 2002, and the condensed
consolidated statements of operations for the three and nine months ended
March 30, 2003, and March 31, 2002, and the condensed consolidated
statements of cash flows for the nine month periods then ended. Certain
reclassifications have been made to the condensed consolidated balance sheet
as of June 30, 2002, to conform to the presentation as of March 30, 2003.
Interim results for the nine months ended March 30, 2003, are not
necessarily indicative of the results that may be expected for the year
ending June 29, 2003. The interim financial statements should be read in
conjunction with the Companys Annual Report on Form 10-K for the fiscal
year ended June 30, 2002.                                                                                                                                                                                                                                                                                                              
|  
|   |  | Effective July 1, 2002, the Company adopted Financial Accounting Standards
Board (FASB) Statement (Statement) 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, under which the recoverability of
long-lived assets is assessed by determining whether the carrying value of
an asset can be recovered through projected undiscounted future operating
cash flows over its remaining life. The amount of impairment, if any, is
measured based on fair value, which is determined using projected discounted
future operating cash flows. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. The adoption
of Statement 144 did not have a material impact on the Companys financial
position, results of operations, or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | In November 2002, the FASB issued Interpretation 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which addresses the disclosure to be made by a
guarantor in its interim and annual financial statements about its
obligations under guarantees. The required disclosures are included in Note
5. Interpretation 45 also requires the recognition of a liability by a
guarantor at the inception of certain guarantees. Interpretation 45
requires the guarantor to recognize a liability for the non-contingent
component of the guarantee. This is the obligation to stand ready to
perform in the event that specified triggering events or conditions occur.
The initial measurement of this liability is the fair value of the guarantee
at inception. The recognition of the liability is required even if it is
not probable that payments will be required under the guarantee or if the
guarantee was issued with a premium payment or as part of a transaction with
multiple elements. As noted above, the Company has adopted the disclosure
requirements of Interpretation 45 and has applied the recognition and
measurement provisions for all guarantees entered into or modified after
December 31, 2002.
|  
|   |  | The Emerging Issues Task Force (EITF) recently reached a consensus on its
tentative conclusions for EITF 00-21, Revenue Arrangements with Multiple
Deliverables. EITF 00-21 provides accounting guidance for customer
solutions where delivery or performance of products, services and/or
performance may occur at different points in time or over different periods
of time. Companies are required to adopt this consensus for fiscal periods
beginning after June 15, 2003. The Company believes the adoption of EITF
00-21 will not have a material impact on the Companys financial position,
results of operations, or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | In December 2002, the FASB issued Statement 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Statement 148 amends the
disclosure requirements in Statement 123, Accounting for Stock-Based
Compensation for annual periods ending after December 15, 2002, and for
interim periods beginning after December 15, 2002. The Company adopted the
disclosure provisions of Statement 148 during the three months ended March
30, 2003. Effective for financial statements for fiscal years ending after
December 15, 2002, Statement 148 also provides three alternative transition
methods for companies that choose to adopt the fair value measurement
provisions of Statement 123. Should the Company be required to adopt the
fair value measurement provisions of Statement 123 and Statement 148, it
would have a material impact on the Companys results of operations.
However, the Company has no plans to adopt the fair value measurement
provisions of Statement 123 unless required to under new accounting
standards and, as such, believes the adoption of Statement 148 will not have
a material impact at this time on the Companys financial position, results
of operations, or liquidity.                                                                  
|  
|   |  | The Company applies Accounting Principles Board (APB) Opinion No. 25 and
related Interpretations in accounting for its stock option plans. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under Statement 123, the Companys net income
(loss) would have been the pro forma amounts indicated below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

5



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##### Table of Contents



|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |           |  |   |          |       |  
|---------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------------------------- | ----- | - | ----------------- | ------- | ----- | --------- | - | ------- | --------- |  | - | -------- | ----- | -
|                                                                                                                             |                       |   | Three Months Ended                    |       |   | Nine Months Ended |        
|                                                                                                                             |                       |   |                                       |       |   |                   |        
|                                                                                                                             |                       |   | (in
thousands, except per share data)
|                                                                                                                             |                       |   | March 30,                             |       |   | March 31,         |         |       | March 30, |   |         | March 31, | 
|                                                                                                                             |                       |   | 2003                                  |       |   | 2002              |         |       | 2003      |   |         | 2002      | 
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |           | 
|Net income (loss) as reported                                                                                                |                       | $ | (248                                  | )     |   | $                 | (16,488 | )     |           | $ | 47,250  |           |  | $ | (84,787  | )    
|Add: Total stock-based compensation
expense included in net income (loss)
as reported                                        |                       |   | 817                                   |       |   |                   | 89      |       |           |   | 1,230   |           |  |   | 188      |      
|Deduct: Total stock-based compensation
expense determined under fair value
method for all awards, net of related
tax effects |                       |   | (6,987                                | )     |   |                   | (12,214 | )     |           |   | (23,548 | )         |  |   | (42,958  | )    
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          
|Pro forma net income (loss)                                                                                                  |                       | $ | ( 6,418                               | )     |   | $                 | (28,613 | )     |           | $ | 24,932  |           |  | $ | (127,557 | )    
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          
|Pro forma net income
(loss) per share:                                                                                       |                       |   |                                       |       |   |                   |         |       |           |   |         |           |  |   |          |      
|                                                                                                                             | Basic  as reported   |   | $                                     | (0.00 | ) |                   | $       | (0.20 | )         |   | $       | 0.58      |  |   | $        | (1.04 | )
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          
|                                                                                                                             | Basic  pro forma     |   | $                                     | (0.08 | ) |                   | $       | (0.35 | )         |   | $       | 0.30      |  |   | $        | (1.57 | )
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          
|                                                                                                                             | Diluted  as reported |   | $                                     | (0.00 | ) |                   | $       | (0.20 | )         |   | $       | 0.57      |  |   | $        | (1.04 | )
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          
|                                                                                                                             | Diluted  pro forma   |   | $                                     | (0.08 | ) |                   | $       | (0.35 | )         |   | $       | 0.30      |  |   | $        | (1.57 | )
|                                                                                                                             |                       |   |                                       |       |   |                   |         |       |           |   |         |          



|2. |  | Inventories                                 
|-- |  | --------------------------------------------
|  
|   |  | Inventories, net, are summarized as follows:

|               |  |                |        |  |          |   |        | 
|-------------- |  | -------------- | ------ |  | -------- | - | ------ | 
|               |  | March 30,      |        |  | June 30, |  
|               |  | 2003           |        |  | 2002     |  
|               |  |                |        |  |          |  
|               |  | (in thousands) |       
|Raw materials  |  | $              | 5,186  |  |          | $ | 4,166  | 
|Finished goods |  |                | 13,241 |  |          |   | 10,667 | 
|               |  |                |        |  |          |  
|               |  | $              | 18,427 |  |          | $ | 14,833 | 
|               |  |                |        |  |          |  



| |  | Starting in late September 2001, some of the Companys major customers made
announcements that general economic conditions, exacerbated by the increase
in economic uncertainty in the aftermath of the terrorist events of
September 11, 2001, were having a negative impact on their financial
results. The announcements made, and forecasts received, indicated
deteriorating demand for the Companys one gigabit per second (Gbps)
products as these customers were expected to migrate to two Gbps products
for future purchases. As a result, the Company recorded an excess and
obsolete inventory charge totaling $13.6 million during the three months
ended September 30, 2001. Subsequently, as a result of the sale of
previously reserved products, the Company recorded a reduction of $2.2
million of this excess and obsolete inventory reserve for the nine months
ended March 31, 2002, and a further reduction of $1.6 million for the first
nine months of fiscal 2003 ended March 30, 2003. After initially recording
its one Gbps reserve in September 2001, the Company has subsequently reduced
this reserve by a total of $5.2 million through March 30, 2003, as
previously reserved inventory has been sold. Overall, the Company has been
able to recover a significant portion of this reserved inventory that was
not expected based on the Companys forecasts and the forecasts received
from its customers when this excess and obsolete inventory charge was
recorded. In addition to the sale of some of this previously reserved
product, the Company has also scrapped $1.8 million of this reserved
inventory and negotiated and paid cancellation charges of $0.2 million
through March 30, 2003, related to this excess and obsolete inventory charge
since it was initially recorded. As of March 30, 2003, the remaining
reserve for one Gbps products was $6.4 million. However, as with all
inventory, the Company regularly compares forecasted demand for its one Gbps
products against inventory on hand and open purchase commitments and
accordingly, the Company may have to record additional excess and obsolete
inventory reserves if forecasted demand decreases. As of March 30, 2003,
the Company had unreserved one Gbps inventory on hand of approximately $1.6
million.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



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##### Table of Contents





|3. |  | Goodwill and Other Intangibles                      
|-- |  | ----------------------------------------------------
|  
|   |  | Goodwill and other intangibles, net, are as follows:

|                                                                  |                                               |                                                       |   |                |         |   |          |         |        |  
|----------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------------------- | - | -------------- | ------- | - | -------- | ------- | ------ | -
|                                                                  |                                               |                                                       |   | March 30,      |         |   | June 30, |        
|                                                                  |                                               |                                                       |   | 2003           |         |   | 2002     |        
|                                                                  |                                               |                                                       |   |                |         |   |          |        
|                                                                  |                                               |                                                       |   | (in thousands) |        
|Intangible assets not subject to amortization after July 1, 2002: |                                               |                                                       |   |                |         |   |          |        
|                                                                  | Goodwill, net                                 |                                                       | $ | 397,256        |         |   | $        | 395,470 |       
|                                                                  | Assembled workforce, net                      |                                                       |   |               |         |   |          | 1,786   |       
|                                                                  |                                               |                                                       |   |                |         |  
|                                                                  | Intangible assets not subject to amortization |                                                       | $ | 397,256        |         |   | $        | 397,256 |       
|                                                                  |                                               |                                                       |   |                |         |  
|Intangible assets subject to amortization:                        |                                               |                                                       |   |                |         |   |          |        
|                                                                  | Core technology and patents                   |                                                       | $ | 40,600         |         |   | $        | 40,600  |       
|                                                                  |                                               | Accumulated amortization, core technology and patents |   |                | (12,083 | ) |          |         | (7,733 | )
|                                                                  | Completed technology                          |                                                       |   | 20             |         |   |          | 20      |       
|                                                                  |                                               | Accumulated amortization, completed technology        |   |                | (20     | ) |          |         | (13    | )
|                                                                  |                                               |                                                       |   |                |         |  
|                                                                  | Intangible assets subject to amortization     |                                                       | $ | 28,517         |         |   | $        | 32,874  |       
|                                                                  |                                               |                                                       |   |                |         |  



| |  | Effective July 1, 2002, the Company adopted Statement 142, Goodwill and
Other Intangible Assets and, as a result, the Company ceased amortizing
goodwill of $397.3 million beginning July 1, 2002. Included in goodwill is
$1.8 million of assembled workforce that was reclassified to goodwill
effective July 1, 2002. In conjunction with the adoption of Statement 142,
the Company completed its transitional goodwill impairment test for its one
reporting unit during the three months ended September 29, 2002, with no
impairment charges resulting. The goodwill will be tested for impairment at
least annually.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The remaining intangible assets subject to amortization are being amortized
on a straight-line basis over seven years. Aggregated amortization expense
for other intangibles for the nine months ended March 30, 2003, was $4.4
million and for the next five fiscal years is expected to be (in thousands):                                                                                                                                                                                                                                                                                                                  

|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|For fiscal year ended 2003 |  | $ | 5,807 | 
|For fiscal year ended 2004 |  | $ | 5,800 | 
|For fiscal year ended 2005 |  | $ | 5,800 | 
|For fiscal year ended 2006 |  | $ | 5,800 | 
|For fiscal year ended 2007 |  | $ | 5,800 | 



| |  | The following table presents the impact on net income (loss) and net income
(loss) per share had Statement 142 been in effect for the three and nine
months ended March 31, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |      |  |           |         |         |   |  | 
|------------------------------------------------- | ------------------------------------------------------------------------ | - | -------------------------------- | ----- | ------------------------------------- | - | ------- | ----------------- | - | - | --------- | ---- |  | --------- | ------- | ------- | - |  | 
|                                                  |                                                                          |   |                                  |       | Three Months Ended                    |   |         | Nine Months Ended |  
|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |  
|                                                  |                                                                          |   |                                  |       | March 30,                             |   |         | March 31,         |   |   | March 30, |      |  | March 31, |        
|                                                  |                                                                          |   |                                  |       | 2003                                  |   |         | 2002              |   |   | 2003      |      |  | 2002      |        
|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |      |  |           |        
|                                                  |                                                                          |   |                                  |       | (in thousands, except per share data) |  
|Net income (loss)                                 |                                                                          | $ | (248                             | )     |                                       | $ | (16,488 | )                 |   | $ | 47,250    |      |  | $         | (84,787 | )      
|                                                  | Add back: Goodwill amortization,
net of tax                              |   |                                  |      |                                       |   |         | 37,406            |   |   |           |     |  |           |         | 112,294 |  
|                                                  | Add back: Assembled workforce
amortization, net of tax                   |   |                                  |      |                                       |   |         | 104               |   |   |           |     |  |           |         | 312     |  
|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |     
|Adjusted net income (loss)                        |                                                                          | $ | (248                             | )     |                                       | $ | 21,022  |                   |   | $ | 47,250    |      |  | $         | 27,819  |        
|                                                  | Add back: Interest expense on
convertible subordinated notes,
net of tax |   |                                  |      |                                       |   |         | 833               |   |   |           |     |  |           |         |        |  
|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |     
|Numerator for diluted net income
(loss) per share |                                                                          | $ | (248                             | )     |                                       | $ | 21,855  |                   |   | $ | 47,250    |      |  | $         | 27,819  |        
|                                                  |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |     
|Basic net income (loss) per share:                |                                                                          |   |                                  |       |                                       |   |         |                   |   |   |           |      |  |           |         |        
|                                                  | Net income (loss) per share                                              |   | $                                | (0.00 | )                                     |   | $       | (0.20             | ) |   | $         | 0.58 |  |           | $       | (1.04   | )
|                                                  |                                                                          |   | Add back: Goodwill amortization, |       |                                       |   |         |                   |   |   |           |      |  |           |         |         |   |  | 

7



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##### Table of Contents



|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |      |   |           |      |       |   |      | 
|------------------------------------ | --------------------------- | ----------------------------------------------------------- | ------------------------------------------------------ | ----- | ------------------------------------- | - | ---- | ----------------- | - | ---- | --------- | ---- | - | --------- | ---- | ----- | - | ---- | 
|                                     |                             |                                                             |                                                        |       | Three Months Ended                    |   |      | Nine Months Ended |  
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |  
|                                     |                             |                                                             |                                                        |       | March 30,                             |   |      | March 31,         |   |      | March 30, |      |   | March 31, |     
|                                     |                             |                                                             |                                                        |       | 2003                                  |   |      | 2002              |   |      | 2003      |      |   | 2002      |     
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |      |   |           |     
|                                     |                             |                                                             |                                                        |       | (in thousands, except per share data) |  
|                                     |                             |                                                             | net of tax                                             |       |                                       |  |      |                   |   | 0.46 |           |      |   |          |      |       |   | 1.38 | 
|                                     |                             |                                                             | Add back: Assembled workforce
amortization, net of tax |       |                                       |  |      |                   |   |     |           |      |   |          |      |       |   |     | 
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |     
|Adjusted net income (loss)           |                             | $                                                           | (0.00                                                  | )     |                                       | $ | 0.26 |                   |   | $    | 0.58      |      |   | $         | 0.34 |      
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |     
|Diluted net income (loss) per share: |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |      |   |           |      |      
|                                     | Net income (loss) per share |                                                             | $                                                      | (0.00 | )                                     |   | $    | (0.20             | ) |      | $         | 0.57 |   |           | $    | (1.04 | )
|                                     |                             |                                                             | Add back: Goodwill amortization,
net of tax            |       |                                       |  |      |                   |   | 0.44 |           |      |   |          |      |       |   | 1.37 | 
|                                     |                             | Add back: Assembled workforce
amortization, net of tax      |                                                        |       |                                      |   |      |                   |  |      |           |      |  |           |      |       |  |     
|                                     |                             | Add back: dilutive effect of
convertible subordinated notes |                                                        |       |                                      |   |      |                   |  |      |           |      |  |           |      |       |  |     
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |     
|Adjusted net income (loss)           |                             | $                                                           | (0.00                                                  | )     |                                       | $ | 0.24 |                   |   | $    | 0.57      |      |   | $         | 0.33 |      
|                                     |                             |                                                             |                                                        |       |                                       |   |      |                   |   |      |           |     



|4. |  | Other Assets                              
|-- |  | ------------------------------------------
|  
|   |  | Components of other assets are as follows:

|                                                                   |  |                |       |  |          |   |        | 
|------------------------------------------------------------------ |  | -------------- | ----- |  | -------- | - | ------ | 
|                                                                   |  | March 30,      |       |  | June 30, |  
|                                                                   |  | 2003           |       |  | 2002     |  
|                                                                   |  |                |       |  |          |  
|                                                                   |  | (in thousands) |      
|Deferred debt issuance costs 
convertible subordinated notes, net |  | $              | 4,996 |  |          | $ | 9,882  | 
|Prepaid licensing fee                                              |  |                | 667   |  |          |   | 1,417  | 
|Refundable deposits                                                |  |                | 1,096 |  |          |   | 1,108  | 
|                                                                   |  |                |       |  |          |  
|                                                                   |  | $              | 6,759 |  |          | $ | 12,407 | 
|                                                                   |  |                |       |  |          |  



|5. |  | Accrued Liabilities                              
|-- |  | -------------------------------------------------
|  
|   |  | Components of accrued liabilities are as follows:

|                                   |  |                |        |  |          |   |        | 
|---------------------------------- |  | -------------- | ------ |  | -------- | - | ------ | 
|                                   |  | March 30,      |        |  | June 30, |  
|                                   |  | 2003           |        |  | 2002     |  
|                                   |  |                |        |  |          |  
|                                   |  | (in thousands) |       
|Accrued payroll and related costs  |  | $              | 7,452  |  |          | $ | 6,369  | 
|Accrued inventory purchases        |  |                | 3,208  |  |          |   | 3,208  | 
|Accrued interest                   |  |                | 585    |  |          |   | 2,498  | 
|Warranty reserves                  |  |                | 2,631  |  |          |   | 2,244  | 
|Deferred revenue                   |  |                | 1,127  |  |          |   | 1,255  | 
|Accrued advertising and promotions |  |                | 1,159  |  |          |   | 1,628  | 
|Other                              |  |                | 2,896  |  |          |   | 2,475  | 
|                                   |  |                |        |  |          |  
|                                   |  | $              | 19,058 |  |          | $ | 19,677 | 
|                                   |  |                |        |  |          |  



| |  | Deferred revenue includes an accrual for estimated returns and allowances of
$0.9 million and $0.6 million at March 30, 2003, and June 30, 2002,
respectively. Deferred revenue also includes the revenue related to legacy
cLAN products with unspecified upgrade rights of $0.3 million and $0.7
million at March 30, 2003, and June 30, 2002, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company provides a warranty of between one and three years on its Fibre
Channel and Internet Protocol products and provides a warranty of between
one and five years on its traditional networking products. The reserve for
warranty costs is provided for at the time of shipment based upon actual
historical experience.                              
|
| |  | Changes to the warranty reserve for the nine months ended March 30, 2003,
were:                                                                                                                                                                                                                                                                               

|                                        |  |   |       |  
|--------------------------------------- |  | - | ----- | -
|Balance at June 30, 2002                |  | $ | 2,244 |  
|Additions charged to costs and expenses |  |   | 1,020 |  
|Amounts charged against reserve         |  |   | (633  | )
|                                        |  |   |      
|Balance at March 30, 2003               |  | $ | 2,631 |  
|                                        |  |   |      

8



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##### Table of Contents





|6. |  | Convertible Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On January 23, 2002, the Company announced a private placement of $300.0
million aggregate principal amount of 1.75 percent convertible subordinated
notes due February 1, 2007. Interest is payable in cash on February 1 and
August 1 of each year beginning August 1, 2002. In addition, the Company
granted the initial purchasers of the notes a 30-day option, which they
exercised, to purchase an additional $45.0 million principal amount of the
notes. These notes may be converted by the holder at any time into shares
of the Companys common stock at the conversion price of $53.84 per share,
subject to the potential adjustments described in the terms of the notes
issued. The Company may redeem the notes on or after February 5, 2005, in
whole or in part. The Company incurred associated issuance costs of
approximately $11.0 million (see Note 4). The $345.0 million transaction
closed on January 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During the three months ended September 29, 2002, the Companys Board of
Directors expanded the Companys stock repurchase program to include the
repurchase of the Companys convertible subordinated notes as well as shares
of the Companys common stock. The combined program authorizes the
repurchase of up to four million shares with three million shares of common
stock still available for repurchase at March 30, 2003, and up to an
additional $125.0 million to be spent on the repurchase of the convertible
subordinated notes. During the three months ended March 30, 2003, the
Companys Board of Directors further expanded the repurchase of the
convertible subordinated notes up to a total purchase price of $190.0
million, leaving $85.8 million authorized for repurchase at March 30, 2003.
In August 2002, the Company bought back at a discount to face value
approximately $136.5 million in face value of its convertible subordinated
notes, spending $104.2 million. The repurchased notes were cancelled,
leaving convertible subordinated notes outstanding with a face value of
$208.5 million, which, if converted, would result in the issuance of
approximately 3.9 million shares. The resulting net pre-tax gain of $28.7
million from the repurchase of the convertible subordinated notes was
recorded for the three months ended September 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|7. |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Beginning on or about February 20, 2001, the Company and certain of its
officers and directors were named as defendants in a number of securities
class action lawsuits filed in the United States District Court, Central
District of California. The plaintiffs in the actions represent purchasers
of the Companys common stock during various periods ranging from January
18, 2001, through February 9, 2001. The complaints allege that the Company
and certain of its officers and directors made misrepresentations and
omissions in violation of sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended. The complaints generally seek compensatory
damages, costs and attorneys fees in an unspecified amount. Pursuant to a
Stipulation and Court Order, the actions were consolidated. On August 24,
2001, an Amended and Consolidated Complaint was filed. Defendants motion
to dismiss was denied by way of an order dated March 7, 2002. Defendants
motion for reconsideration of that order was denied by an order dated May 3,
2002. Plaintiffs commenced discovery. The court certified the class action
by an order dated September 30, 2002. Following these class action
lawsuits, a number of derivative cases were filed in state courts in
California and Delaware, and in federal court in California, alleging that
certain officers and directors breached their fiduciary duties to the
Company in connection with the events alleged in the class action lawsuits.
The derivative cases filed in California state courts were consolidated in
Orange County Superior Court and plaintiffs filed a consolidated and amended
complaint on January 31, 2002. On May 10, 2002, the Orange County Superior
Court ordered that the consolidated actions be stayed pending resolution of
the federal class action described above. The derivative suit in Delaware
was dismissed on August 28, 2001. On March 15, 2002, the United States
District Court for the Central District of California ordered that the
federal derivative action be stayed pending resolution of the class action
lawsuit described above. The Company has received inquiries about events
giving rise to the lawsuits from the Securities and Exchange Commission and
the Nasdaq Stock Market. On April 22, 2003, the Company entered into two
Memoranda of Understanding (MOUs) agreeing to terms of settlement of both
the class action and derivative litigation. The MOUs call for settlement
payments totaling $39.0 million, plus up to $0.5 million of the cost of
providing notice to the class members. The settlements will require court
approval, which will be sought after the settlement documentation is
completed. Insurance proceeds are expected to reimburse the Company for
approximately $12.5 million of the settlement payments, and the probable net effect of the settlements
to the Company, based on the Companys current estimate of reimbursement
from the insurance carriers, is expected to be approximately $27.0 million, or
$16.7 million after tax.
|  
|   |  | Additionally, the Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Companys consolidated financial position, results of
operations or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|   |  | Other Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company recorded an estimated excess and obsolete inventory charge of
$13.6 million associated with older-generation one Gbps products during the
three months ended September 30, 2001. Subsequently, as a result of the
sale of previously reserved products, the Company recorded a reduction of
$2.2 million of this excess and obsolete inventory reserve for the nine
months ended March 31, 2002, and a further reduction of $1.6 million for the
first nine months of fiscal 2003 ended March 30, 2003. After initially
recording its one Gbps reserve in September 2001, the Company has
subsequently reduced this reserve by a total of $5.2 million through March
30, 2003, as previously reserved inventory has been sold. Overall, the
Company has been able to recover a significant portion of this reserved
inventory that was not expected based on the Companys forecast and the
forecasts received from its customers when this excess and obsolete
inventory charge was recorded. In addition to the sale of some of this
previously reserved product, the Company has also scrapped $1.8 million of
this reserved inventory and negotiated and paid cancellation charges of $0.2
million through March 30, 2003, related to this excess and obsolete
inventory charge since it was initially recorded. As of March 30, 2003,
the remaining reserve for one Gbps products was $6.4 million. However, as
with all inventory, the Company regularly compares forecasted demand for its
one Gbps products against inventory on hand and open purchase commitments
and accordingly, the Company may have to record additional excess and
obsolete inventory reserves if forecasted demand decreases. As of March 30,
2003, the Company had unreserved one Gbps inventory on hand of approximately
$1.6 million.
|  
|   |  | The Company was previously required to enter into an end-of-life purchase
agreement for a key inventory component as the sole-source manufacturer of
this component announced their discontinued manufacturing of the component.
As of March 30, 2003, the Companys remaining purchase obligation was $3.3
million. In relation to the excess and obsolete inventory charge associated
with older generation one Gbps products, the Company has accrued $3.2
million, which represented the Companys commitment to purchase this key
component in excess of forecasted demand and as a result was reserved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | During the third quarter of fiscal 2002, the Company entered into an
agreement to relocate its headquarters locally in Costa Mesa, California.
The Company will finance the build to suit construction phase of the new
facility with its own capital, before beginning a 10-year lease term with an
option to buy the land and buildings during the first six months of the
lease term. If the Company does not exercise its option to purchase the
facility, the landlord will obtain permanent financing and reimburse the
Company for the construction costs. The Companys total gross undiscounted
financial commitment for the 10-year lease term would be approximately $46.0
million. At March 30, 2003, the Company had restricted cash of $11.9
million in escrow associated with the construction of the headquarters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|8. |  | Earnings per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Basic net income (loss) per share and diluted net loss per share are
computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted net income per share
is computed by dividing adjusted net income by the weighted average number
of common shares outstanding during the period increased to include, if
dilutive, the number of additional common shares that would have been
outstanding if the dilutive potential common shares from stock option plans
and convertible subordinated notes had been issued. The dilutive effect of
outstanding stock options is reflected in diluted net income per share by
application of the treasury stock method. The following table sets forth
the computation of basic and diluted net income (loss) per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|             |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |        |           |  |   |         |   | 
|------------ | --------------------------------------------------------------------------------------- | ---------------------------- | - | ------------------------------------- | - |  | ----------------- | ------- | - | --------- | - | ------ | --------- |  | - | ------- | - | 
|             |                                                                                         |                              |   | Three Months Ended                    |   |  | Nine Months Ended |        
|             |                                                                                         |                              |   |                                       |   |  |                   |        
|             |                                                                                         |                              |   | March 30,                             |   |  | March 31,         |         |   | March 30, |   |        | March 31, | 
|             |                                                                                         |                              |   | 2003                                  |   |  | 2002              |         |   | 2003      |   |        | 2002      | 
|             |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |        |           | 
|             |                                                                                         |                              |   | (in thousands, except per share data) |  
|Numerator:   |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |        |           |  |   |        
|             | Net income (loss)                                                                       |                              | $ | (248                                  | ) |  | $                 | (16,488 | ) |           | $ | 47,250 |           |  | $ | (84,787 | )
|             |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |       
|Denominator: |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |        |           |  |   |        
|             | Denominator for basic net
income (loss) per share  weighted
average shares outstanding |                              |   | 82,055                                |   |  |                   | 81,383  |   |           |   | 81,959 |           |  |   | 81,414  |  
|             | Effect of dilutive securities:                                                          |                              |   |                                       |   |  |                   |         |   |           |   |        |           |  |   |         |  
|             |                                                                                         | Dilutive options outstanding |   |                                       |  |  |                   |         |  |           |   |        | 1,552     |  |   |         |  | 
|             |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |       
|             | Denominator for diluted net
income (loss) per share  adjusted
weighted average shares  |                              |   | 82,055                                |   |  |                   | 81,383  |   |           |   | 83,511 |           |  |   | 81,414  |  
|             |                                                                                         |                              |   |                                       |   |  |                   |         |   |           |   |       

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|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       |  |           |   |       |   |  | 
|------------------------------------------------------------------------------------------------------------------------------ |  | - | ------ | ------------------------------------- |  | - | ----------------- | - |  | --------- | ----- |  | --------- | - | ----- | - |  | 
|                                                                                                                               |  |   |        | Three Months Ended                    |  |   | Nine Months Ended |  
|                                                                                                                               |  |   |        |                                       |  |   |                   |  
|                                                                                                                               |  |   |        | March 30,                             |  |   | March 31,         |   |  | March 30, |       |  | March 31, |  
|                                                                                                                               |  |   |        | 2003                                  |  |   | 2002              |   |  | 2003      |       |  | 2002      |  
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       |  |           |  
|                                                                                                                               |  |   |        | (in thousands, except per share data) | 
|Basic net income (loss) per share                                                                                              |  | $ | (0.00  | )                                     |  | $ | (0.20             | ) |  | $         | 0.58  |  |           | $ | (1.04 | )
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       | 
|Diluted net income (loss) per share                                                                                            |  | $ | (0.00  | )                                     |  | $ | (0.20             | ) |  | $         | 0.57  |  |           | $ | (1.04 | )
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       | 
|Antidilutive options excluded from
the computation                                                                             |  |   | 10,382 |                                       |  |   | 9,437             |   |  |           | 6,778 |  |           |   | 9,437 |  
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       | 
|Antidilutive common shares from assumed
conversion of outstanding convertible
subordinates notes excluded from the
calculation |  |   | 3,873  |                                       |  |   | 6,408             |   |  |           | 3,873 |  |           |   | 6,408 |  
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       | 
|Average market price                                                                                                           |  | $ | 19.91  |                                       |  | $ | 38.61             |   |  | $         | 18.83 |  |           | $ | 29.36 |  
|                                                                                                                               |  |   |        |                                       |  |   |                   |   |  |           |       | 

As the Company recorded a net loss for the three months ended March 30, 2003,
and both the three and nine month periods ended March 31, 2002, all outstanding
stock options and the common stock equivalents associated with the convertible
subordinated notes were excluded from the calculation of diluted net loss per
share in those periods because the effect would have been antidilutive. The
antidilutive options were excluded from the computation of diluted earnings per
share for the nine month period ended March 30, 2003, because the options
exercise prices were greater than the average market price of the common shares
during the period. In addition, the common stock equivalents associated with
the convertible subordinated notes were excluded from the calculation of
diluted net income per share for the nine months ended March 30, 2003, because
the effect would have been antidilutive.

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

Forward-Looking Statements

Certain statements contained in this Form 10-Q may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. We may also make forward-looking statements in other reports filed
with the Securities and Exchange Commission, in materials delivered to
stockholders and in press releases. In addition, our representatives may from
time to time make oral forward-looking statements. Forward-looking statements
provide current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or
current fact. Words such as anticipates, in the opinion, believes,
intends, expects, may, will, should, could, plans, forecasts,
estimates, predicts, projects, potential, continue, and similar
expressions may be intended to identify forward-looking statements.

Actual future results could differ materially from those described in the
forward-looking statements as a result of a variety of factors, including those
discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations set forth below, and, in particular, the subsection
entitled Risk Factors set forth therein, and in our most recently filed
Annual Report on Form 10-K. These factors include the fact that the economy
generally, and the technology and storage segments specifically, have recently
been in a state of uncertainty making it difficult to determine if past
experience is a good guide to the future or if markets will grow or shrink in
the short term. Recently, our results have been significantly impacted by a
widespread slowdown in information technology spending that has also pressured
the storage networking market that is the mainstay of our business. A
prolonged downturn in information technology spending could adversely affect
our revenues and results of operations. As a result of this uncertainty, we
are unable to predict with any accuracy what future results might be. Other
factors affecting these forward-looking statements include, but are not limited
to, the following: slower than expected growth of the storage networking market
or the failure of our Original Equipment Manufacturer, or OEM, customers to
successfully incorporate our products into their systems; our dependence on a
limited number of customers and the effects of the loss of, or decrease or
delays in orders by, any such customers, or the failure of such customers to
make payment; the emergence of new or stronger competitors; the timing and
market acceptance of our or our OEM customers new or enhanced products; the
variability in the level of our backlog and the variable booking patterns of
our customers; the effects of terrorist activities and resulting political or
economic instability; the highly competitive nature of the markets for our
products as well as pricing pressures that may result from such competitive
conditions; our ability and the ability of our OEM customers to keep pace with
the rapid technological changes in our industry and gain market acceptance for
new products and technologies; the effect of rapid migration of customers
toward newer product platforms; possible transitions from board level to
application specific integrated circuit, or ASIC, solutions for selected
applications; a shift in unit product mix from high-end to midrange products; a
decrease in the average unit selling prices or an increase in the manufactured
cost of our products; delays in product development; our reliance on
third-party suppliers and subcontractors for components and assembly; any
inadequacy of our intellectual property protection or the potential for
third-party claims of infringement; our ability to attract and retain key
technical personnel; our dependence on foreign sales; the effect of our stock
price on stock compensation charges; the effect of acquisitions; changes in
federal, international, or state and local income tax laws or rates; or changes
in accounting standards.

Readers should carefully review these cautionary statements as they identify
certain important factors that could cause actual results to differ materially
from those in the forward-looking statements and from historical trends and are
in addition to other factors discussed elsewhere in this Form 10-Q, in our
filings with the Securities and Exchange Commission or in materials
incorporated therein by reference. We caution the reader, however, that these
lists of risk factors may not be exhaustive. We expressly disclaim any
obligation or undertaking to release publicly any updates or changes to these
forward-looking statements that may be made to reflect any future events or
circumstances. References contained herein to Emulex, the Company, our,
us, and we refer to Emulex Corporation and its subsidiaries.

Company Overview

Emulex Corporation is a leading designer, developer and supplier of a broad
line of storage networking host bus adapters, or HBAs, and ASICs that provide
connectivity solutions for storage area networks, or SANs, network attached
storage, or NAS, and redundant array of independent disks, or RAID, storage.
HBAs are the data communication products that enable servers to connect to
storage networks by offloading communication processing tasks as information is
delivered and sent to the SAN. Our products are based on internally developed
ASIC and embedded firmware and software technology, and offer support for a
wide variety of SAN protocols, configurations, system interfaces, operating
systems, and applications. Emulexs architecture offers customers a stable
applications program interface, or API, that has been preserved across

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multiple
generations of adapters and to which many of the worlds leading OEMs have
customized software for mission-critical server and storage system
applications.

Recently, the majority of our revenues have been comprised of products based on
Fibre Channel technology. Our Fibre Channel development efforts began in 1992
and we shipped our first Fibre Channel product in volume in 1996. According
to DellOro Group and Gartner Dataquest, in calendar 2002 we were the worlds
largest provider of Fibre Channel host bus adapters. In March 2001, we
acquired Giganet, a leading developer of storage networking products based on
Ethernet and Internet Protocol, or IP, technologies. Effective July 2, 2001,
Giganet was merged with and into Emulex Corporation, a California corporation
that is the primary operating subsidiary of Emulex. Giganets technology
allowed an extension of our market-leading HBA APIs into the emerging Internet
Small Computer Systems Interface, or iSCSI portion of the storage networking
market. Via a joint development agreement, Emulex and Intel are pioneering a
common storage processor architecture for Serial ATA, Serial Attached SCSI and
Fibre Channel interfaces, which also leverages our market-leading HBA APIs.
We have secured significant customer relationships with the worlds leading
storage and server suppliers, including Dell, EMC, Fujitsu-Siemens, Groupe
Bull, Hewlett-Packard, Hitachi Data Systems, IBM, NEC, Network Appliance and
Unisys. In addition, we include industry leaders Brocade, Computer Associates,
Intel, Legato, McDATA, Microsoft, and Veritas among our strategic partners. We
market to OEMs and end-users through our own worldwide selling organization, as
well as to distribution partners, including ACAL, Avnet, Bell Microproducts,
Info-X, Netmarks, Tech Data, TidalWire, and Tokyo Electron. Corporate
headquarters are located in Costa Mesa, California. As of March 30, 2003, we
had a total of 377 employees.

Results of Operations

The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements included elsewhere herein.

|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |      |           |  |       |      |      | 
|--------------------------------- | ---------------------------------------------- | ------------------------ | ----- | -------------------------- | ---- |  | -------------------------- | ---- | ---- | --------- | ----- | ---- | --------- |  | ----- | ---- | ---- | 
|                                  |                                                |                          |       | Percentage of Net Revenues |      |  | Percentage of Net Revenues |     
|                                  |                                                |                          |       | For the Three Months Ended |      |  | For the Nine Months Ended  |     
|                                  |                                                |                          |       |                            |      |  |                            |     
|                                  |                                                |                          |       | March 30,                  |      |  | March 31,                  |      |      | March 30, |       |      | March 31, | 
|                                  |                                                |                          |       | 2003                       |      |  | 2002                       |      |      | 2003      |       |      | 2002      | 
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |      |           | 
|Net revenues                      |                                                |                          | 100.0 | %                          |      |  | 100.0                      | %    |      |           | 100.0 | %    |           |  | 100.0 | %   
|Cost of sales                     |                                                |                          | 36.6  |                            |      |  | 39.5                       |      |      |           | 37.2  |      |           |  | 51.4  |     
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|                                  |                                                | Gross profit             |       |                            | 63.4 |  |                            |      | 60.5 |           |       |      | 62.8      |  |       |      | 48.6 | 
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|Operating expenses:               |                                                |                          |       |                            |      |  |                            |      |      |           |       |      |           |  |       |     
|                                  | Engineering and development                    |                          |       | 19.9                       |      |  |                            | 17.6 |      |           |       | 20.1 |           |  |       | 18.8 |     
|                                  | Selling and marketing                          |                          |       | 6.2                        |      |  |                            | 6.5  |      |           |       | 6.1  |           |  |       | 8.0  |     
|                                  | General and administrative                     |                          |       | 38.3                       |      |  |                            | 4.9  |      |           |       | 16.2 |           |  |       | 4.9  |     
|                                  | Amortization of goodwill and other intangibles |                          |       | 1.8                        |      |  |                            | 56.0 |      |           |       | 1.9  |           |  |       | 63.5 |     
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|                                  |                                                | Total operating expenses |       |                            | 66.2 |  |                            |      | 85.0 |           |       |      | 44.3      |  |       |      | 95.2 | 
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|Operating income (loss)           |                                                |                          | (2.8  | )                          |      |  | (24.5                      | )    |      |           | 18.5  |      |           |  | (46.6 | )   
|Nonoperating income               |                                                |                          | 2.3   |                            |      |  | 1.7                        |      |      |           | 15.2  |      |           |  | 3.2   |     
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|Income (loss) before income taxes |                                                |                          | (0.5  | )                          |      |  | (22.8                      | )    |      |           | 33.7  |      |           |  | (43.4 | )   
|Income tax provision (benefit)    |                                                |                          | (0.2  | )                          |      |  | 0.9                        |      |      |           | 12.8  |      |           |  | 2.5   |     
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     
|Net income (loss)                 |                                                |                          | (0.3  | )%                         |      |  | (23.7                      | )%   |      |           | 20.9  | %    |           |  | (45.9 | )%  
|                                  |                                                |                          |       |                            |      |  |                            |      |      |           |       |     

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Three months ended March 30, 2003, compared to three months ended March 31, 2002

Net Revenues.Net revenues for the third quarter of fiscal 2003 ended March
30, 2003, increased $10.0 million, or 14 percent, to $79.6 million, from the
comparative quarter of fiscal 2002 ended March 31, 2002.

|                                     |              |                    |   |              |          |  |              |            |        |           |        |        |            |  |  |      |    |  
|------------------------------------ | ------------ | ------------------ | - | ------------ | -------- |  | ------------ | ---------- | ------ | --------- | ------ | ------ | ---------- |  |  | ---- | -- | -
|Net Revenues by Distribution Channel
|                                    
|                                     |              |                    |   | Three Months |          |  | Three Months |            |        |           |        |        |            |  |  |     
|                                     |              |                    |   | Ended March  |          |  | Ended March  |            |        | Increase/ |        |        | Percentage | 
|(in thousands)                       |              | 30, 2003           |   |              | 31, 2002 |  |              | (Decrease) |        |           | Change |       
|                                     |              |                    |   |              |          |  |              |            |        |           |        |       
|Net revenues:                        |              |                    |   |              |          |  |              |            |        |           |        |        |            |  |  |     
|                                     | OEM          |                    | $ | 54,820       |          |  | $            | 55,166     |        |           | $      | (346   | )          |  |  | (  1 | %)
|                                     | Distribution |                    |   | 24,736       |          |  |              | 14,375     |        |           |        | 10,361 |            |  |  | 72   | % 
|                                     | End-User     |                    |   | 17           |          |  |              | 50         |        |           |        | (33    | )          |  |  | (66  | %)
|                                     |              |                    |   |              |          |  |              |            |        |           |        |       
|                                     |              | Total net revenues |   | $            | 79,573   |  |              | $          | 69,591 |           |        | $      | 9,982      |  |  |      | 14 | %
|                                     |              |                    |   |              |          |  |              |            |        |           |        |       

A major factor in the increased distribution net revenues is that beginning in
the three months ended June 30, 2002, one of our larger OEM customers began
sourcing more product through distribution rather than purchasing it directly.
We continue to believe that our net revenues in this market are being generated
primarily as a result of our product certifications and qualifications with OEM
customers, which take product both directly and through distribution channels.

From a product line perspective, net revenues generated from our Fibre Channel
products for the three months ended March 30, 2003, were $78.2 million, an
increase of $9.9 million, or 15 percent, representing substantially the entire
increase in net revenues from the comparative three months of fiscal 2002 and
98 percent of total net revenues for the three months ended March 30, 2003.

|                             |                        |                    |   |              |          |  |              |            |        |           |        |       |            |  |  |    |    |  
|---------------------------- | ---------------------- | ------------------ | - | ------------ | -------- |  | ------------ | ---------- | ------ | --------- | ------ | ----- | ---------- |  |  | -- | -- | -
|Net Revenues by Product Line
|                            
|                             |                        |                    |   | Three Months |          |  | Three Months |            |        |           |        |       |            |  |  |   
|                             |                        |                    |   | Ended March  |          |  | Ended March  |            |        | Increase/ |        |       | Percentage | 
|(in thousands)               |                        | 30, 2003           |   |              | 31, 2002 |  |              | (Decrease) |        |           | Change |      
|                             |                        |                    |   |              |          |  |              |            |        |           |        |      
|Net revenues:                |                        |                    |   |              |          |  |              |            |        |           |        |       |            |  |  |   
|                             | Fibre Channel          |                    | $ | 78,185       |          |  | $            | 68,240     |        |           | $      | 9,945 |            |  |  | 15 | % 
|                             | IP Networking          |                    |   | 311          |          |  |              | 245        |        |           |        | 66    |            |  |  | 27 | % 
|                             | Traditional Networking |                    |   | 1,077        |          |  |              | 1,106      |        |           |        | (29   | )          |  |  | (3 | %)
|                             |                        |                    |   |              |          |  |              |            |        |           |        |      
|                             |                        | Total net revenues |   | $            | 79,573   |  |              | $          | 69,591 |           |        | $     | 9,982      |  |  |    | 14 | %
|                             |                        |                    |   |              |          |  |              |            |        |           |        |      

Our IP Networking products consist of both our iSCSI products, which are
currently in development, and VI products, as well as legacy cLAN products.
Even though we continued to generate revenue from our cLAN and traditional
networking products, our efforts are not focused on these products. We expect
that our cLAN and traditional networking products will contribute negligible
revenues to succeeding quarters. Although we continue to devote significant
resources to iSCSI product development, the market remains in an early stage of
development and we do not expect material revenue from these products for the
foreseeable future.

In addition to direct sales, some of our larger OEM customers purchased or
marketed products indirectly through distributors, resellers, or other third
parties. Customers with direct revenues only or total direct and indirect
revenues, including customer-specific models purchased or marketed indirectly
through distributors, resellers, and other third parties, of more than 10
percent were as follows:

14



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##### Table of Contents



Net Revenues by Major Customers

|                            |                     |  |                    |    |   |                                    |  |    |                    |  |  |                    |   |  |  |    |  
|--------------------------- | ------------------- |  | ------------------ | -- | - | ---------------------------------- |  | -- | ------------------ |  |  | ------------------ | - |  |  | -- | -
|                            |                     |  | Direct Revenues    |    |   | Total Direct and Indirect Revenues | 
|                            |                     |  |                    |    |   |                                    | 
|                            |                     |  | Three Months Ended |    |   | Three Months Ended                 |  |    | Three Months Ended |  |  | Three Months Ended |  
|                            |                     |  | March 30, 2003     |    |   | March 31, 2002                     |  |    | March 30, 2003     |  |  | March 31, 2002     |  
|                            |                     |  |                    |    |   |                                    |  |    |                    |  |  |                    |  
|Net revenue
percentage (1): |                     |  |                    |    |   |                                    |  |    |                    |  |  |                    |   |  |  |   
|                            | IBM                 |  |                    | 28 | % |                                    |  | 19 | %                  |  |  | 32                 | % |  |  | 29 | %
|                            | Hewlett-Packard (2) |  |                    | 21 | % |                                    |  | 24 | %                  |  |  | 21                 | % |  |  | 24 | %
|                            | EMC                 |  |                    |   |   |                                    |  | 10 | %                  |  |  | 20                 | % |  |  | 25 | %



---

|(1) |  | Amounts less than 10 percent are not presented                                              
|--- |  | --------------------------------------------------------------------------------------------
|   
|(2) |  | Fiscal 2002 Hewlett-Packard percentages represent Hewlett-Packard and Compaq (if aggregated)

Direct sales to no other customer accounted for more than 10 percent of total
net revenues. Direct sales to our top five customers accounted for 69 percent
of total net revenues for the three months ended March 30, 2003, compared to 68
for the same relative three months of fiscal 2002. Our net revenues from our
customers can be significantly impacted by changes in the business models of
our customers. Beginning in the three months ended June 30, 2002, EMC began
sourcing more product through distribution rather than purchasing it directly.
Consequently, direct sales to EMC have been impacted. Additionally, EMC has
formed an alliance with Dell and entered into a worldwide manufacturing
agreement with Dell. Consequently, some of our models previously sold under
EMC-specific model numbers are now being sold under Dell-specific model
numbers, and some net revenues for EMC, including direct sales to EMC and their
customer-specific models purchased indirectly through other distribution
channels, have been shifted as a result of this Dell alliance.

For the three months ended March 30, 2003, domestic net revenues increased by
$4.7 million, or 12 percent, and international net revenues increased by $5.3
million, or 18 percent, compared to the three months ended March 31, 2002.

Net Domestic and International Revenues

|               |             |                    |   |                    |                |  |                    |            |        |           |        |       |            |  |  |     |    |  
|-------------- | ----------- | ------------------ | - | ------------------ | -------------- |  | ------------------ | ---------- | ------ | --------- | ------ | ----- | ---------- |  |  | --- | -- | -
|               |             |                    |   | Three Months Ended |                |  | Three Months Ended |            |        | Increase/ |        |       | Percentage | 
|(in thousands) |             | March 30, 2003     |   |                    | March 31, 2002 |  |                    | (Decrease) |        |           | Change |      
|               |             |                    |   |                    |                |  |                    |            |        |           |        |      
|Net revenue:   |             |                    |   |                    |                |  |                    |            |        |           |        |       |            |  |  |    
|               | Domestic    |                    | $ | 44,835             |                |  | $                  | 40,132     |        |           | $      | 4,703 |            |  |  | 12  | % 
|               | Europe      |                    |   | 28,398             |                |  |                    | 26,417     |        |           |        | 1,981 |            |  |  | 7   | % 
|               | Pacific Rim |                    |   | 6,340              |                |  |                    | 3,042      |        |           |        | 3,298 |            |  |  | 108 | % 
|               |             |                    |   |                    |                |  |                    |            |        |           |        |       |           
|               |             | Total net revenues |   | $                  | 79,573         |  |                    | $          | 69,591 |           |        | $     | 9,982      |  |  |     | 14 | %
|               |             |                    |   |                    |                |  |                    |            |        |           |        |       |           

We believe the increases in domestic and international net revenues were
principally a function of the overall size of the market for Fibre Channel
products and increased market acceptance of our Fibre Channel products.
However, because we sell to OEMs and distributors who ultimately resell our
products to their customers, the geographic mix of our net revenues may not be
reflective of the geographic mix of end-user demand or installations.

Gross Profit. Cost of sales included the cost of production of finished
products, as well as support costs and other expenses related to inventory
management, manufacturing quality, and order fulfillment. For the three months
ended March 30, 2003, gross profit increased $8.4 million, or 20 percent, to
$50.5 million from $42.1 million for the three months ended March 31, 2002.
Gross margin increased to 63 percent for the three months ended March 30, 2003,
compared to 61 percent in the comparable three months of fiscal 2002. The
increases in gross profit and gross margin for the three months ended March 30,
2003, compared to the same relative three months of fiscal 2002 were primarily
due to production cost reductions for Fibre Channel products, higher Fibre
Channel net revenues and volumes, and changes in product mix toward our newer
generation product models. Gross profit and gross margin were increased by a
$0.3 million and a $2.2 million reduction of our one gigabit per second, or
Gbps, excess and obsolete inventory reserve for the three months ended March
30, 2003 and March 31, 2002, respectively. Starting in late September 2001,
some of our major customers made announcements that general economic
conditions, exacerbated by the increase in economic uncertainty in the
aftermath of the terrorist events of September 11, 2001, were having a negative
impact on their financial results. The announcements made, and forecasts
received, indicated deteriorating demand for our one Gbps products as these
customers were expected to migrate to two Gbps products for future purchases.
As a result, we recorded an estimated excess and obsolete inventory charge
totaling $13.6 million during the first quarter of fiscal 2002. After
initially recording the one Gbps reserve during the first quarter of fiscal
2002, we have subsequently reduced this reserve by a total of $5.2 million
through March 30, 2003

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as previously reserved inventory has been sold.
Overall, we have been able to recover a significant portion of this reserved
inventory that was not expected based on our forecasts and the forecasts
received from our customers when this excess and obsolete charge was
recorded. In addition to the sale of this previously reserved product, we have also
scrapped $1.8 million of this reserved inventory and negotiated and paid
cancellation charges of $0.2 million through March 30, 2003, related to this
excess and obsolete inventory charge since it was initially recorded. Also,
cost of sales included $72 thousand and $9 thousand of amortized deferred
stock-based compensation expense for the three months ended March 30, 2003, and
March 31, 2002, respectively.

Engineering and Development.Engineering and development expenses consisted
primarily of salaries and related expenses for personnel engaged in the design,
development, and technical support of our products. These expenses included
third-party fees paid to consultants, prototype development expenses, and
computer services costs related to supporting computer tools used in the design
process. Engineering and development expenses were $15.8 million and $12.2
million for the three months ended March 30, 2003, and March 31, 2002,
representing 20 and 18 percent of net revenues, respectively. Engineering and
development expenses increased by $3.6 million, or 29 percent, for the three
months ended March 30, 2003, compared to the same three months of fiscal 2002.
This increase was due to our increased investment in Fibre Channel and IP
engineering and development, which represented substantially all of our
engineering and development efforts and expenses. Engineering expenses
included $0.9 million and $0.5 million of amortized deferred stock-based
compensation expenses for the three months ended March 30, 2003, and March 31,
2002, respectively. Due to the technical nature of our products, engineering
support is a critical part of our strategy during both the development of our
products and the support of our customers from product design through
deployment into the market. We intend to continue to make significant
investments in the technical support and enhancement of our current products,
as well as the continued development of new products. Engineering expenses can
fluctuate from quarter to quarter depending on several factors, including new
product introduction schedules, hiring patterns, and depreciation of capital
equipment.

Selling and Marketing.Selling and marketing expenses consisted primarily of
salaries, commissions, and related expenses for personnel engaged in the
marketing and sales of our products, as well as trade shows, product
literature, promotional support costs, and other advertising related costs.
Selling and marketing expenses were $4.9 million and $4.5 million for the three
months ended March 30, 2003, and March 31, 2002, respectively, representing six
percent of net revenues in both periods. Selling and marketing expenses
increased by $0.4 million, or nine percent, for the three months ended March
30, 2003, compared to the same three months of fiscal 2002. This increase was
primarily due to higher promotion and advertising costs, which increased by
$0.4 million. Selling and marketing expenses included $0.4 million and $0.3
million of amortized deferred stock-based compensation expenses for the three
months ended March 30, 2003, and March 31, 2002, respectively.

General and Administrative.Ongoing general and administrative expenses
consisted primarily of salaries and related expenses for executives, financial
accounting support, human resources, administrative services, professional
fees, and other associated corporate expenses. For the three months ended
March 30, 2003, general and administrative expenses also included a net charge
associated with the tentative settlements of securities class action and
derivative lawsuits of $27.0 million. General and administrative expenses were
$30.6 million and $3.4 million for the three months ended March 30, 2003, and
March 31, 2002, representing 38 and five percent of net revenues, respectively.
General and administrative expenses increased by $27.2 million, or 794
percent, for the three months ended March 30, 2003, compared to the same three
months of fiscal 2002. This increase was primarily due to a net $27.0 million
charge associated with the tentative settlements of securities class action and
derivative lawsuits. The net $27.0 million charge includes $39.5 million to be
paid to plaintiffs less an estimated $12.5 million probable minimum recovery
from our insurance carriers. In addition to the $12.5 million, our probable
minimum recovery also includes $1.0 million designated for
related legal fees. At March 30, 2003, all related unpaid legal
fees have been accrued as a liability. General and administrative expenses included $0.1 million and $60 thousand of
amortized deferred stock-based compensation expenses for the three months ended
March 30, 2003, and March 31, 2002, respectively.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill and
other intangibles included the amortization of intangible assets with estimable
lives for the three months ended March 30, 2003. For the three months ended
March 31, 2002, amortization of goodwill and other intangible assets included
the amortization of goodwill in addition to the amortization of other
intangible assets with estimable lives. All intangible assets relate to the
purchase of Giganet, completed during fiscal 2001. The amortization of
intangibles was $1.5 million for the three months ended March 30, 2003, and
amortization of goodwill and other intangibles was $39.0 million for the
comparative three months of fiscal 2002, representing two and 56 percent of net
revenues, respectively. For the three months ended March 30, 2003, the
amortization consisted of amortization for core technology and patents of $1.5
million and $2 thousand for completed technology. For the same three months of
fiscal 2002, the amortization consisted primarily of $37.4 million and $0.2
million for goodwill and assembled workforce, respectively; as well as $1.5
million for core technology and patents and $2

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thousand for completed
technology. We completed our transitional goodwill impairment analysis under
Financial Accounting Standards Board Statement, or FASB Statement, 142 during
the first quarter of fiscal 2003 with no impairment charges resulting. The
goodwill will be tested for impairment at least annually.

Nonoperating Income.Nonoperating income consisted primarily of interest
income partially offset by interest expense. Our nonoperating income increased
by $0.7 million to $1.9 million for the three months ended March 30, 2003, from
$1.2 million for the same three months of fiscal 2002. While lower interest
rates caused lower interest percentage yields, the increase in our invested
funds caused an increase in interest income to $3.1 million for the three
months ended March 30, 2003, from $2.8 million for the three months ended March
31, 2002. In addition, a decrease in other expense, which included a loss of
$0.2 million on the sale of a strategic investment for the three months ended
March 31, 2002, as well as a reduction in interest expense for our convertible
subordinated notes for the three months ended March 30, 2003, due to the
repurchase of convertible subordinated notes with a face value of $136.5
million earlier in fiscal 2003, also contributed to the increase in
nonoperating income.

Income Taxes.For the three months ended March 30, 2003, we recorded a tax
benefit in the amount of $0.2 million, or approximately 38 percent of our loss
before income taxes. For the three months ended March 31, 2002, we recorded a
tax provision in the amount of $0.6 million. We recorded a tax provision
rather than a tax benefit, and at a rate other than the statutory federal tax
rate, for the three months ended March 31, 2002, primarily due to the
non-deductibility of goodwill amortization.

The Internal Revenue Service recently completed an examination of our 1998 U.S.
tax return, and no adjustments were made to the return.

Nine months ended March 30, 2003, compared to nine months ended March 31, 2002

Net Revenues.Net revenues for the nine months of fiscal 2003 ended March 30,
2003, increased $41.9 million, or 23 percent, to $226.4 million from the
comparative nine-month period of fiscal 2002 ended March 31, 2002.

Net Revenues by Distribution Channel

|               |              |                    |   |                   |                |  |                   |            |         |           |   |            |        |  |  |     |    |  
|-------------- | ------------ | ------------------ | - | ----------------- | -------------- |  | ----------------- | ---------- | ------- | --------- | - | ---------- | ------ |  |  | --- | -- | -
|               |              |                    |   | Nine
Months Ended |                |  | Nine
Months Ended |            |         | Increase/ |   | Percentage
|(in thousands) |              | March 30, 2003     |   |                   | March 31, 2002 |  |                   | (Decrease) |         | Change   
|               |              |                    |   |                   |                |  |                   |            |         |          
|Net revenues:  |              |                    |   |                   |                |  |                   |            |         |           |   |            |        |  |  |    
|               | OEM          |                    | $ | 153,414           |                |  | $                 | 145,127    |         |           | $ | 8,287      |        |  |  | 6   | % 
|               | Distribution |                    |   | 72,907            |                |  |                   | 39,068     |         |           |   | 33,839     |        |  |  | 87  | % 
|               | End-user     |                    |   | 125               |                |  |                   | 351        |         |           |   | (226       | )      |  |  | (64 | %)
|               |              |                    |   |                   |                |  |                   |            |         |           |   |            |       
|               |              | Total net revenues |   | $                 | 226,446        |  |                   | $          | 184,546 |           |   | $          | 41,900 |  |  |     | 23 | %
|               |              |                    |   |                   |                |  |                   |            |         |           |   |            |       

A major factor in the increased distribution net revenues is that beginning in
the three months ended June 30, 2002, one of our larger OEM customers began
sourcing more product through distribution rather than purchasing it directly.
We continue to believe that our net revenues are being generated primarily as
a result of our product certifications and qualifications with OEM customers,
which take product both directly and through distribution channels.

From a product line perspective, net revenues generated from our Fibre Channel
products for the nine months ended March 30, 2003, were $223.2 million, an
increase of $43.8 million, or 24 percent, from the comparative nine-month
period of fiscal 2002, and represented 99 percent of total net revenues for the
nine months ended March 30, 2003.

Net Revenues by Product Line

|               |                        |                    |   |                   |                |  |                   |            |         |           |        |        |            |  |  |     |    |  
|-------------- | ---------------------- | ------------------ | - | ----------------- | -------------- |  | ----------------- | ---------- | ------- | --------- | ------ | ------ | ---------- |  |  | --- | -- | -
|               |                        |                    |   | Nine
Months Ended |                |  | Nine
Months Ended |            |         | Increase/ |        |        | Percentage | 
|(in thousands) |                        | March 30, 2003     |   |                   | March 31, 2002 |  |                   | (Decrease) |         |           | Change |       
|               |                        |                    |   |                   |                |  |                   |            |         |           |        |       
|Net revenues:  |                        |                    |   |                   |                |  |                   |            |         |           |        |        |            |  |  |    
|               | Fibre Channel          |                    | $ | 223,182           |                |  | $                 | 179,399    |         |           | $      | 43,783 |            |  |  | 24  | % 
|               | IP Networking          |                    |   | 2,128             |                |  |                   | 2,446      |         |           |        | (318   | )          |  |  | (13 | %)
|               | Traditional Networking |                    |   | 1,136             |                |  |                   | 2,701      |         |           |        | (1,565 | )          |  |  | (58 | %)
|               |                        |                    |   |                   |                |  |                   |            |         |           |        |        |           
|               |                        | Total net revenues |   | $                 | 226,446        |  |                   | $          | 184,546 |           |        | $      | 41,900     |  |  |     | 23 | %
|               |                        |                    |   |                   |                |  |                   |            |         |           |        |        |           

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In addition to direct sales, some of our larger OEM customers purchased or
marketed products indirectly through distributors, resellers, or other third
parties. Customers with direct revenues only or total direct and indirect
revenues, including products purchased or marketed indirectly through
distributors, resellers, and other third parties, of more than 10 percent were
as follows:

Net Revenues by Major Customers

|                            |                     |  |                   |    |   |                                    |  |    |                   |  |  |                   |   |  |  |    |  
|--------------------------- | ------------------- |  | ----------------- | -- | - | ---------------------------------- |  | -- | ----------------- |  |  | ----------------- | - |  |  | -- | -
|                            |                     |  | Direct Revenues   |    |   | Total Direct and Indirect Revenues | 
|                            |                     |  |                   |    |   |                                    | 
|                            |                     |  | Nine
Months Ended |    |   | Nine
Months Ended                  |  |    | Nine
Months Ended |  |  | Nine
Months Ended |  
|                            |                     |  | March 30, 2003    |    |   | March 31, 2002                     |  |    | March 30, 2003    |  |  | March 31, 2002    |  
|                            |                     |  |                   |    |   |                                    |  |    |                   |  |  |                   |  
|Net revenue percentage (1): |                     |  |                   |    |   |                                    |  |    |                   |  |  |                   |   |  |  |   
|                            | IBM                 |  |                   | 23 | % |                                    |  | 18 | %                 |  |  | 27                | % |  |  | 27 | %
|                            | Hewlett-Packard (2) |  |                   | 23 | % |                                    |  | 27 | %                 |  |  | 23                | % |  |  | 27 | %
|                            | EMC                 |  |                   |   |   |                                    |  |   |                   |  |  | 20                | % |  |  | 22 | %



---

|(1) |  | Amounts less than 10 percent are not presented                                              
|--- |  | --------------------------------------------------------------------------------------------
|   
|(2) |  | Fiscal 2002 Hewlett-Packard percentages represent Hewlett-Packard and Compaq (if aggregated)

Direct sales to no other customer accounted for more than 10 percent of total
net revenues during this period. Direct sales to our top five customers
accounted for 66 percent and 68 percent of total net revenues for the nine
months ended March 30, 2003, and the comparative nine-month period of fiscal
2002, respectively.

For the nine months ended March 30, 2003, domestic net revenues increased by
$27.7 million, or 26 percent, and international net revenues increased by $14.2
million, or 19 percent, compared to the nine months ended March 31, 2002.

Net Domestic and International Revenues

|               |             |                    |   |                   |                |  |                   |            |         |           |        |        |            |  |  |     |    |  
|-------------- | ----------- | ------------------ | - | ----------------- | -------------- |  | ----------------- | ---------- | ------- | --------- | ------ | ------ | ---------- |  |  | --- | -- | -
|               |             |                    |   | Nine
Months Ended |                |  | Nine
Months Ended |            |         | Increase/ |        |        | Percentage | 
|(in thousands) |             | March 30, 2003     |   |                   | March 31, 2002 |  |                   | (Decrease) |         |           | Change |       
|               |             |                    |   |                   |                |  |                   |            |         |           |        |       
|Net revenues:  |             |                    |   |                   |                |  |                   |            |         |           |        |        |            |  |  |    
|               | Domestic    |                    | $ | 135,894           |                |  | $                 | 108,160    |         |           | $      | 27,734 |            |  |  | 26  | % 
|               | Europe      |                    |   | 73,612            |                |  |                   | 67,979     |         |           |        | 5,633  |            |  |  | 8   | % 
|               | Pacific Rim |                    |   | 16,940            |                |  |                   | 8,407      |         |           |        | 8,533  |            |  |  | 101 | % 
|               |             |                    |   |                   |                |  |                   |            |         |           |        |        |           
|               |             | Total net revenues |   | $                 | 226,446        |  |                   | $          | 184,546 |           |        | $      | 41,900     |  |  |     | 23 | %
|               |             |                    |   |                   |                |  |                   |            |         |           |        |        |           

We believe the increases in domestic and international net revenues were
principally a function of the overall size of the market for Fibre Channel
products and increased market acceptance of our Fibre Channel products.
However, because we sell to OEMs and distributors who ultimately resell our
products to their customers, the geographic mix of our net revenues may not be
reflective of the geographic mix of end-user demand or installations.

Gross Profit. For the nine months ended March 30, 2003, gross profit increased
$52.4 million, or 58 percent, to $142.1 million, from $89.8 million for the
comparative nine-month period of fiscal 2002. Gross margin increased to 63
percent for the nine months ended March 30, 2003, compared to 49 percent for
the same relative nine months of fiscal 2002. Starting in late September 2001,
some of our major customers made announcements that general economic
conditions, exacerbated by the increase in economic uncertainty in the
aftermath of the terrorist events of September 11, 2001, were having a negative
impact on their financial results. The announcements made, and forecasts
received, indicated deteriorating demand for our one Gbps products as these
customers were expected to migrate to two Gbps products for future purchases.
As a result, we recorded an estimated excess and obsolete inventory charge
totaling $13.6 million during the first quarter of fiscal 2002. After
initially recording the one Gbps reserve during the first quarter of fiscal
2002, we have subsequently reduced this reserve by a total of $5.2 million
through March 30, 2003, as previously reserved inventory has been sold.
Overall, we have been able to recover a significant portion of this reserved
inventory that was not expected based on our forecasts and the forecasts
received from our customers when this excess and obsolete charge was recorded.
In addition to the sale of this previously reserved product, we have also
scrapped $1.8 million of this reserved inventory and negotiated and paid
cancellation charges of $0.2 million through March 30, 2003, related to this
excess and obsolete inventory charge since it was initially recorded. For the
nine months ended March 30, 2003, and March 31, 2002, the reduction was $1.6
million and $2.2 million, respectively. Excluding the reduction of the excess
and obsolete inventory reserve of $1.6 million

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for the nine months ended March
30, 2003, and the net excess and obsolete inventory charge of $11.4 million
from the same relative nine-month period of fiscal 2002, gross profit would
have been $140.5 million and $101.2 million, respectively, and gross margin
would have been 62 percent and 55 percent, respectively. The increase in gross
profit and gross margin for the nine months ended March 30, 2003, compared to
the same relative nine-month period of fiscal 2002 was also due to cost
reductions for Fibre Channel products, higher Fibre Channel net revenues and
volumes, and changes in product mix. Also, cost of sales included $0.1 million
and $40 thousand of amortized deferred stock-based compensation expense for the
nine months ended March 30, 2003, and March 31, 2002, respectively.

Engineering and Development. Engineering and development expenses were $45.4
million and $34.7 million for the nine months ended March 30, 2003, and March
31, 2002, representing 20 and 19 percent of net revenues, respectively.
Engineering and development expenses increased by $10.7 million, or 31 percent,
for the nine months ended March 30, 2003, compared to the same relative
nine-month period of fiscal 2002. This increase was due to our increased
investment in Fibre Channel and IP engineering and development, which
represented substantially all of our engineering and development efforts and
expenses. Engineering expenses included $2.1 million and $1.6 million of
amortized deferred stock-based compensation expenses for the nine months ended
March 30, 2003, and March 31, 2002, respectively.

Selling and Marketing.Selling and marketing expenses were $13.9 million and
$14.8 million for the nine months ended March 30, 2003, and March 31, 2002,
representing six and eight percent of net revenues, respectively. Selling and
marketing expenses decreased by $0.9 million, or six percent, for the nine
months ended March 30, 2003, compared to the same nine-month period of fiscal
2002. This decrease was primarily due to a reduction in travel-related
expenses of $0.3 million, a reduction in promotion and advertising costs of
$0.2 million, and a reduction in headcount related expenses of $0.1 million.
Selling and marketing expenses included $1.0 million of amortized deferred
stock-based compensation expenses for both the nine months ended March 30,
2003, and March 31, 2002.

General and Administrative.General and administrative expenses were $36.6
million and $9.1 million for the nine months ended March 30, 2003, and March
31, 2002, respectively, representing 16 and five percent of net revenues,
respectively. General and administrative expenses increased by $27.5 million,
or 303 percent, for the nine months ended March 30, 2003, compared to the same
nine-month period of fiscal 2002. This increase was primarily due to a net
charge of $27.0 million associated with the tentative settlements of securities
class action and derivative lawsuits. General and administrative expenses
included $0.3 million and $0.2 million of amortized deferred stock-based
compensation expenses for the nine months ended March 30, 2003, and March 31,
2002, respectively.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill and
other intangibles included the amortization of intangible assets with estimable
lives for the nine months ended March 30, 2003. For the nine months ended
March 31, 2002, amortization of goodwill and other intangible assets included
the amortization of goodwill in addition to the amortization of other
intangible assets with estimable lives. All intangible assets relate to the
purchase of Giganet, completed during fiscal 2001. The amortization of
intangibles was $4.4 million for the nine months ended March 30, 2003, and
amortization of goodwill and other intangibles was $117.2 million for the same
nine-month period of fiscal 2002, representing two and 63 percent of net
revenues, respectively. For the nine months ended March 30, 2003, the
amortization consisted of amortization for core technology and patents of $4.4
million and $7 thousand for completed technology. For the nine-month period of
fiscal 2002, the amortization consisted of $112.3 million and $0.5 million for
goodwill and assembled workforce, respectively; as well as $4.4 million for
core technology and patents and $6 thousand for completed technology.

Nonoperating Income.Nonoperating income consisted primarily of a net gain on
the repurchase of convertible subordinated notes and interest income partially
offset by interest expense. Our nonoperating income increased $28.6 million to
$34.4 million for the nine months ended March 30, 2003, from $5.8 million for
the comparative nine-month period of fiscal 2002. This increase is due
primarily to a $28.7 million gain on the repurchase of convertible subordinated
notes during the nine months ended March 30, 2003. Additionally, while lower
interest rates caused lower interest percentage yields, the increase in our
invested funds caused an increase in interest income to $10.1 million for the
nine months ended March 30, 2003, from $7.4 million for the same nine months of
fiscal 2002. The increase in interest income is offset for the nine months
ended March 30, 2003, by $2.9 million increase in interest expense due to us
having convertible subordinated notes outstanding for the entire nine months
ended March 30, 2003, while convertible subordinated notes were only
outstanding for approximately two months of the nine month period ended March
31, 2002. In addition, other expense included a loss of $0.2 million on the
sale of a strategic investment for the nine months ended March 31, 2002.

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Income Taxes.For the nine months ended March 30, 2003, we recorded a tax
provision in the amount of $29.0 million, or approximately 38 percent of income
before income taxes. For the same nine-month period of fiscal 2002, we
recorded a tax provision in the amount of $4.6 million. We recorded a tax
provision rather than a tax benefit, and at a rate other than the statutory
federal tax rate, for the nine months ended March 31, 2002, primarily due to
the non-deductibility of goodwill amortization.

New Accounting Standards

The Emerging Issues Task Force, or EITF, recently reached a consensus on its
tentative conclusions for EITF 00-21, Revenue Arrangements with Multiple
Deliverables. EITF 00-21 provides accounting guidance for customer solutions
where delivery or performance of products, services and/or performance may
occur at different points in time or over different periods of time. Companies
are required to adopt this consensus for fiscal periods beginning after June
15, 2003. We believe the adoption of EITF 00-21 will not have a material
impact on our financial position, results of operations, or liquidity.

In December 2002, the FASB issued Statement 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Statement 148 amends the disclosure
requirements in Statement 123, Accounting for Stock-Based Compensation for
annual periods ending after December 15, 2002, and for interim periods
beginning after December 15, 2002. We adopted the disclosure provisions of
Statement 148 during the three months ended March 30, 2003. Effective for
financial statements for fiscal years ending after December 15, 2002, Statement
148 also provides three alternative transition methods for companies that
choose to adopt the fair value measurement provisions of Statement 123. Should
we be required to adopt the fair value measurement provisions of Statement 123
and Statement 148, it would have a material impact on our results of
operations. However, we have no plans to adopt the fair value measurement
provisions of Statement 123 unless required to under new accounting standards
and, as such, the adoption of Statement 148 will not have a material impact at
this time on our financial position, results of operations, or liquidity.

Critical Accounting Policies

The preparation of the financial statements requires estimation and judgment
that affect the reported amounts of net revenues, expenses, assets, and
liabilities. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances and
which form the basis for making judgments about the carrying values of assets
and liabilities. Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and potentially result
in materially different results under different assumptions and conditions.

We have identified the following as critical accounting policies: revenue
recognition; allowance for doubtful accounts; goodwill, other intangibles, and
long-lived assets; inventories; income taxes; and stock-based compensation.

Revenue Recognition. Our revenue recognition policies are in accordance with
the Securities and Exchange Commissions Staff Accounting Bulletin No. 101. We
recognize revenue at the time of shipment when title and risk of loss have
passed, evidence of an arrangement has been obtained, and collectibility has
been reasonably assured. However, we make certain sales through two-tier
distribution channels and have various distribution agreements with selected
distributors and Master Value Added Resellers, or collectively the
Distributors. These distribution agreements may be terminated upon written
notice by either party. Additionally, these Distributors are generally given
privileges to return a portion of inventory and to participate in price
protection and cooperative marketing programs. Therefore, we recognize
revenues on our standard products sold to our Distributors based on data
received from the Distributors and managements estimates to approximate the
point that these products have been resold by the Distributors. As
OEM-specific models sold to our Distributors are governed under the related OEM
agreements rather than under these distribution agreements, we recognize
revenue at the time of shipment when title and risk of loss have passed,
evidence of an arrangement has been obtained, and collectibility has been
reasonably assured. Additionally, we maintain accruals and allowances for
these price protection and cooperative marketing programs.

For products with unspecified software upgrade
rights, which are our legacy cLAN products that contribute negligible
revenues, we apply the American
Institute of Certified Public Accountants Statement of Position, or SOP, 97-2,
Software Revenue Recognition as amended by SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition With Respect to Certain Transactions.
Under SOP 97-2, as amended by SOP 98-9, revenue is recognized from software
licenses, provided the software has been delivered to the customer, persuasive
evidence of an arrangement exists, the price charged to the customer is fixed
or determinable at fair value and there are no significant Company obligations
related to the sale, and the resulting receivable is deemed collectible, net of
an allowance for doubtful

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accounts. In accordance with SOP 97-2, as amended by
SOP 98-9, we have deferred the revenue over the upgrade period for certain
legacy cLAN products with unspecified software upgrade rights.

Furthermore, we provide a warranty of between one and three years on our Fibre
Channel and Internet Protocol products and provide a warranty of between one
and five years on our traditional networking products. The reserve for
warranty costs is provided for at the time of shipment based upon actual
historical experience.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful
accounts based upon historical write-offs as a percentage of net revenues.
Although we have not experienced significant losses on accounts receivable,
historically, our accounts receivable are concentrated with a small number of
customers. Consequently, any write off associated with one of these customers
could have a significant impact on our allowance for doubtful accounts.

Goodwill, Other Intangibles, and Long-Lived
Assets. Goodwill and other
intangibles resulting from the acquisition of Giganet are carried at cost less
accumulated amortization. For assets with determinable useful lives,
amortization is computed using the straight-line method over the estimated
economic lives of the respective intangible assets, ranging from two to seven
years. We adopted Statement 142 effective July 1, 2002, and no longer amortize
goodwill and other intangibles that have indeterminate useful lives. The
adoption of Statement 142 had a significant effect on our results of
operations. We have completed our transitional impairment analysis under
Statement 142 and found no impairment upon the adoption of Statement 142 as of
July 1, 2002. In accordance with Statement 142, goodwill and other intangibles
that have indeterminate lives will be tested for impairment at least annually.
Our annual impairment test will occur in the fourth quarter of fiscal 2003.
Any impairment loss could materially and adversely affect our financial
position and results of operations.

We apply Statement 144, under which the recoverability of long-lived assets is
assessed by determining whether the carrying value of an asset can be recovered
through projected undiscounted future operating cash flows over its remaining
life. The amount of impairment, if any, is measured based on fair value, which
is determined using projected discounted future operating cash flows. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

Inventories. Inventories are stated at the lower of cost or net realizable
value on a first-in, first-out basis. We use a standard cost system for
purposes of determining cost. The standards are adjusted periodically to
ensure they approximate actual cost. We regularly compare forecasted demand
and the composition of the forecast against inventory on hand and open
purchase commitments in an effort to ensure the carrying value of inventory is
at net realizable value. Accordingly, we may have to increase excess and
obsolete inventory reserves as forecasted demand changes.

Income Taxes. We account for income taxes using the asset and liability
method, which recognizes deferred tax assets and liabilities for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. We
regularly review historical and anticipated future pre-tax results of
operations to determine whether we will be able to realize the benefit of net
deferred tax assets.

Stock-Based Compensation. We account for our stock-based awards to employees
using the intrinsic value method. Stock-based awards to non-employees, if any,
are recorded using the fair value method. See Note 12 of the Consolidated
Financial Statements in our most recently filed Form 10-K for more information.
Although we have no plans to adopt the fair value provisions of Statement 123
unless required to under new accounting standards for all stock awards, if we
were required to account for all stock-based awards based on the fair value
method, it would have a material impact on our results of operations.

Liquidity and Capital Resources

At March 30, 2003, we had $ 458.4 million in working capital, and $585.9
million in cash and cash equivalents, restricted cash, current investments, and
long-term investments. At June 30, 2002, we had $558.2 million in working
capital, and $631.8 million in cash and cash equivalents, restricted cash,
current investments, and long-term investments. Our cash and cash equivalents
decreased by $143.5 million from $282.6 million as of June 30, 2002, to $139.1
million as of March 30, 2003. This decrease in cash and cash equivalents was
due to our investing and financing activities, which used $108.5 million and
$102.7 million of cash and cash equivalents, respectively. The use of cash by
investing and financing activities was partially offset by operating
activities, which provided $67.8 million of cash and cash equivalents.

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Operating activities provided $67.8 million of cash and cash equivalents for
the nine months ended March 30, 2003. This increase in cash and cash
equivalents was primarily from net income before the legal settlements charge
and other non-cash activities. Such non-cash activities consisted primarily of
the gain on the repurchase of convertible subordinated notes, deferred income
taxes, depreciation and amortization of property and equipment, amortization of
intangibles, deferred stock-based compensation, and the tax benefit from the
exercise of stock options. Additional decreases in cash and cash equivalents
were due to an increase in accounts and other receivables, an increase in
inventories, a decrease in income taxes payable, an increase in prepaid expenses
and other assets, and a decrease in accrued liabilities. These decreases to
net cash provided by operating activities were partially offset by an increase
in accounts payable. The increase in inventories of $3.6 million for the nine
months ended March 30, 2003, included the effect of the reduction of the excess
and obsolete inventory reserve of $1.6 million associated with older generation
one Gbps products. For the nine months ended March 31, 2002, operating
activities provided $64.1 million of cash and cash equivalents. This increase
in cash and cash equivalents provided by operating activities for the nine
months ended March 31, 2002, was primarily due to our net income before
non-cash activities such as the amortization of goodwill and other intangibles,
tax benefit from exercise of stock options, depreciation and amortization of
property and equipment, deferred income taxes and deferred stock-based
compensation, as well as changes in other working capital balances. The
changes in other working capital balances included the effect of a net excess
and obsolete charge of $11.4 million associated with older generation one Gbps
products.

Investing activities, including the purchases of investments of $500.5 million,
maturities of investments of $412.8 million, the increase in restricted cash
related to a construction escrow account of $9.8 million, and additions to
property and equipment of $11.0 million, used $108.5 million of cash and cash
equivalents for the nine months ended March 30, 2003. For the same nine months
of fiscal 2002, investing activities, which included primarily purchases of
investments of $470.1 million, maturities of investments of $389.7 million,
additions to property and equipment of $5.9 million, and proceeds from the sale
of a strategic investment of $0.2 million, used $86.1 million of cash and cash
equivalents.

Financing activities used $102.7 million of cash and cash equivalents for the
nine months ended March 30, 2003. This decrease in cash and cash equivalents
was primarily due to our repurchase at a discount to face value of
approximately $136.5 million in face value of convertible subordinated notes,
spending $104.2 million. This decrease in cash and cash equivalents was offset
by $1.1 million of proceeds from the issuance of common stock under stock
option plans and $0.4 million of proceeds from the issuance of common stock
under the employee stock purchase plan. For the nine months ended March 31,
2002, financing activities, which primarily consisted of the net proceeds from
the issuance of convertible subordinated notes, and proceeds from the exercise
of stock options, partially offset by our use of cash for the repurchase of
common stock, provided $327.3 million of cash and cash equivalents. Our Board
of Directors has authorized the repurchase of up to four million common shares
over the two years beginning in September 2001. The repurchase plan authorizes
us to make repurchases in the open market or through privately negotiated
transactions with the timing and terms of any purchase to be determined by
management based on market conditions. During the first quarter of fiscal
2002, we repurchased one million common shares and did not subsequently
repurchase any additional shares during fiscal 2002, or during the nine months
ended March 30, 2003. During the three months ended September 29, 2002, our
Board of Directors expanded our repurchase program to include the repurchase of
our convertible subordinated notes up to a purchase price of $125.0 million.
During the three months ended March 30, 2003, our Board of Directors further
expanded the repurchase program for the repurchase of our convertible
subordinated notes up to a total purchase price of $190.0 million. The
combined program authorizes the repurchase of up to four million shares of
common stock, leaving three million common shares authorized for repurchase at
March 30, 2003, and up to an additional $190.0 million to be spent on the
repurchase of convertible subordinated notes, leaving $85.8 million authorized
for repurchase at March 30, 2003.

In January 2002, we completed a $345.0 million private placement of convertible
subordinated notes, which are due February 1, 2007. Subsequently, in August
2002 we bought back at discount to face value approximately $136.5 million in
face value of our convertible subordinated notes, spending $104.2 million. The
repurchased notes were cancelled, leaving convertible subordinated notes
outstanding with a face value of $208.5 million, which, if converted, would
result in the issuance of approximately 3.9 million shares. The resulting net
pre-tax gain of approximately $28.7 million from the repurchase of the
convertible subordinated notes was recorded for the three months ended
September 29, 2002.

We were previously required to enter into an end-of-life purchase agreement for
a key inventory component as the sole-source manufacturer of this component
announced their discontinued manufacturing of the component. As of March 30,
2003, our remaining purchase obligation was $3.3 million.

For the three months ended March 30, 2003, we recorded a net $27.0 million
before-tax charge associated with the tentative settlements of securities class
action and derivative lawsuits. The net $27.0 million charge included $39.5
million to be paid

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to plaintiffs during the three months ending June 29, 2003,
less an estimated $12.5 million probable minimum recovery from our insurance
carriers expected in fiscal 2004. In addition to the $12.5 million, our
probable minimum recovery also includes $1.0 million designated
for related legal fees. At March 30, 2003, all related unpaid
legal fees have been accrued as a liability.

In 2002, we entered into an agreement to relocate our headquarters locally in
Costa Mesa, California. We will finance the build to suit construction phase
of the approximately 180 thousand square feet facility with our own capital,
before beginning a 10-year lease term with an option to buy the land and
buildings during the first six months of the lease term. If we do not exercise
our option to purchase the facility, the landlord will obtain permanent
financing and reimburse us for the construction costs. If purchased, we
believe the total cost, including the land, building, and other related capital
expenditures, would be less than $45 million. Our total gross undiscounted
financial commitment for the 10-year lease term would be approximately $46.3
million. At March 30, 2003, we had restricted cash of $11.9 million associated
with the construction of the headquarters.

Due to our projection of future taxable income, we believe it is more likely
than not that our deferred tax assets (related primarily to net operating loss
carryforwards and research credit carryforwards) will be essentially fully
utilized within the next six to twelve months. As such, we expect that our
future annual cash paid for income taxes will increase to a level that more
closely equates to annual income before income taxes multiplied by our expected
tax rate, and, in turn, will reduce cash flow from operations.

As part of our commitment to storage networking product development, including
Fibre Channel and IP Networking, we expect to continue our investments in
property and equipment, most notably for additional engineering equipment,
continued enhancement of our global IT infrastructure, and the local
relocation of our Costa Mesa, California facility. We believe that our
existing cash and cash equivalents balances, facilities and equipment leases,
investments, and anticipated cash flows from operating activities will be
sufficient to support our working capital needs and capital expenditure
requirements for at least the next 12 months.

The following summarizes our contractual obligations at March 30, 2003, and the
effect such obligations are expected to have on our liquidity and cash flow in
future periods:

|                                                               |  |                        |         |  |               |                   |        |       |     |   |        |     |  |       |         |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------- | ----------------- | ------ | ----- | --- | - | ------ | --- |  | ----- | ------- |  |  | - | ------ | 
|                                                               |  | Payments Due by Period |        
|                                                               |  |                        |        
|                                                               |  | (in thousands)         |        
|                                                               |  |                        |         |  |               | Less than 1 year: |        |       |     |   |        |     |  |       |         |  |  |   |       
|                                                               |  |                        |         |  |               | (Remaining        |        |       | 1-3 |   |        | 4-5 |  |       | After 5 | 
|Contractual Obligations                                        |  | Total                  |         |  | three months) |                   |        | years |     |   | years  |     |  | years |        
|                                                               |  |                        |         |  |               |                   |        |       |     |   |        |     |  |       |        
|Convertible subordinated notes and interest                    |  | $                      | 223,114 |  |               | $                 |       |       |     | $ | 7,298  |     |  | $     | 215,816 |  |  | $ |       | 
|Operating leases                                               |  |                        | 5,809   |  |               |                   | 899    |       |     |   | 3,887  |     |  |       | 991     |  |  |   | 32     | 
|Non-cancelable purchase obligations for end
of life components |  |                        | 3,287   |  |               |                   | 3,287  |       |     |   |       |     |  |       |        |  |  |   |       | 
|Litigation settlement                                          |  |                        | 39,500  |  |               |                   | 39,500 |       |     |   |       |     |  |       |        |  |  |   |       | 
|New corporate headquarters  lease option                      |  |                        | 46,259  |  |               |                   |       |       |     |   | 9,270  |     |  |       | 9,037   |  |  |   | 27,952 | 
|                                                               |  |                        |         |  |               |                   |        |       |     |   |        |     |  |       |        
|Total                                                          |  | $                      | 317,969 |  |               | $                 | 43,686 |       |     | $ | 20,455 |     |  | $     | 225,844 |  |  | $ | 27,984 | 
|                                                               |  |                        |         |  |               |                   |        |       |     |   |        |     |  |       |        

Risk Factors

A prolonged downturn in information technology spending in general or spending
on high-performance computer and storage systems in particular could adversely
affect our revenues and results of operations.

The demand for our Fibre Channel products, which represented 99 percent of our
net revenues for the nine months ended March 30, 2003, has been supported by
the demand for sophisticated networking and data storage solutions that support
enterprise computing requirements, including on-line transaction processing,
data mining, data warehousing, multimedia and Internet applications. Since the
beginning of calendar 2001, the global economy has experienced a significant
slowdown that has been exacerbated by the terrorist attacks on the United
States and the resulting economic and political uncertainty throughout the
world. Such downturn has resulted in substantial reductions in demand for
networking, data storage and other information technology solutions and
products. We are unable to predict the duration or depth of such

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downturn in
technology spending. In the event that such downturn grows more severe or
continues for an extended period of time, our business, results of operations,
and financial condition may be adversely affected. The adverse effects of any
sustained downturn in information technology spending on our operating results
may be exacerbated by our research and development investments, strategic
investments and merger and acquisition activity, as well as customer service
and support, which are expected to continue despite any such downturn.

Our business depends upon the continued growth of the storage networking
market, and our business will be adversely affected if such growth does not
occur or occurs more slowly than we anticipate.

The size of our potential market is dependent upon the broadening acceptance of
our storage networking technologies as alternatives to other technologies
traditionally utilized for network and storage communications, as well as the
overall demand for storage. We believe that our investment in the storage
networking market represents our greatest opportunity for revenue growth and
profitability for the foreseeable future. However, we cannot be certain that
the market for storage networking products will gain broader market acceptance
or that customers will continue to choose our technology and products.
Additionally, since our products are sold as parts of integrated systems, our
products demand is driven by the demand for these integrated systems,
including other companies complementary products. A lack of demand for the
integrated systems or a lack of complementary products required for these
integrated systems could have a material adverse effect on our business,
results of operations and financial condition. If the storage networking
market does not grow, attracts more competitors than we expect, as discussed
below, or if our products do not achieve market acceptance, our business,
results of operations, and financial condition would be materially adversely
affected.

We have secured numerous design wins for our storage networking products from
OEM customers. If our customers are unable to or otherwise do not ship systems
that incorporate our products, or if their shipped systems were not
commercially successful, our business, results of operations and financial
condition would be materially adversely affected.

Because a significant portion of our revenues are generated from sales to a
limited number of customers, none of which are the subject of exclusive or
long-term contracts, the loss of one or more of these customers could adversely
affect our business.

We rely almost exclusively on OEMs and sales through distribution channels for
our revenue. For the nine months ended March 30, 2003, we derived
approximately 68 percent of our net revenues from OEMs and 32 percent from
sales through distribution. We cannot be certain that we will retain our
current OEM and distributor customers or that we will be able to recruit
additional or replacement customers. As is common in the technology industry,
our agreements with OEMs and distributors are typically non-exclusive, have no
volume commitments, and often may be terminated by either party without cause.
Indeed, it is increasingly commonplace for our OEM and distributor customers to
carry or utilize competing product lines. If we were to lose business from one
or more significant OEM or distributor customers to a competitor, our business,
results of operations, and financial condition could be materially adversely
affected.

For the nine months ended March 30, 2003, direct sales to IBM were 23 percent
of our total net revenues and direct sales to Hewlett-Packard were 23 percent
of our total net revenues. Direct sales to our top five customers accounted
for 66 percent of total net revenues for the nine months ended March 30, 2003.
Additionally, some of our larger OEM customers purchased or marketed products
indirectly through distributors, resellers, or other third parties. Total net
revenues, including direct sales to our OEM customers and their OEM-specific
models purchased or marketed indirectly through other distribution channels,
amounted to 27 percent of our total net revenues for IBM, 23 percent for
Hewlett-Packard, and 20 percent for EMC for the nine months ended March 30,
2003.

Compaq and Hewlett-Packard consummated their merger in May 2002. Although we
cannot predict the remaining effects of such merger on our business, to the
extent that such merger results in decreased demand or margins for our
products, our business, results of operations, and financial condition could be
materially and adversely affected.

Although we have attempted to expand our base of customers, we believe our
revenues in the future will continue to be similarly derived from a limited
number of customers, especially given the consolidation the industry has
experienced. As a result, to the extent that sales to any of our significant
customers are reduced or impaired, our business, results of operations, and
financial condition could be materially and adversely affected.

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Our operating results are difficult to forecast and could be adversely affected
by many factors, and our stock price may decline if our results fail to meet
expectations.

Our revenues and results of operations have varied on a quarterly basis in the
past and may vary significantly in the future. Accordingly, we believe that
period-to-period comparisons of our results of operations are not necessarily
meaningful, and you should not rely on such comparisons as indications of our
future performance. There can be no assurance that we will maintain our
current levels of profitability in the future. Our revenues and results of
operations are difficult to forecast and could be adversely affected by many
factors, including, among others:



| |  |  | The gain or loss of significant OEMs, OEM design wins, or other customers;                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Changes in the size, timing and terms of OEM and other customer orders;                                                                                                                                               
|
| |  |  | Changes in the sales and deployment cycles for our products, particularly
those sold through our OEM sales channels;                                                                                                  
|
| |  |  | Changes in our significant customers desired inventory levels;                                                                                                                                                       
|
| |  |  | The timing and market acceptance of new or enhanced product introductions
by us, our OEM customers, and our competitors;                                                                                              
|
| |  |  | Changes in the selling price of our products;                                                                                                                                                                         
|
| |  |  | Changes in the mix of product sales or the mix of sales channels;                                                                                                                                                     
|
| |  |  | Difficulties in obtaining incremental market share growth;                                                                                                                                                            
|
| |  |  | Fluctuations in product development and other operating expenses;                                                                                                                                                     
|
| |  |  | Fluctuations in the cost of components we use to produce our products;                                                                                                                                                
|
| |  |  | Component shortages experienced by us, or reduced demand from our
customers if our customers are unable to acquire the components used in
conjunction with our products in their deployments;                         
|
| |  |  | The ability of our electronics manufacturing service providers to produce
and distribute our products in a timely fashion;                                                                                            
|
| |  |  | Difficulties with updates, changes or additions to our Enterprise
Resource Planning (ERP) System; and/or                                                                                                              
|
| |  |  | Changes in general social and economic conditions, including but not
limited to terrorism, public health and slower than expected market
growth, with resulting changes in customer technology budgeting and
spending;
|
| |  |  | Changes in technology, industry standards or consumer preferences;                                                                                                                                                    
|
| |  |  | Seasonality;                                                                                                                                                                                                          
|
| |  |  | Changes in our accounting or other policies resulting from the adoption of
new laws, regulations, or pronouncements;                                                                                                  
|
| |  |  | Fluctuations in foreign currency exchange rates.                                                                                                                                                                      

As a result of these and other unexpected factors or developments, it is
possible that our future operating results will be below the expectations of
investors or market analysts, which could have a material adverse effect on our
stock price.

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Unfilled orders and our tendency to generate a large percentage of our
quarterly sales near the end of the quarter contributes to possible quarterly
fluctuations in our operating results that could have an adverse impact on our
results of operations and stock price.

Historically, we have generally shipped products quickly after we receive
orders, meaning that we do not always have a significant backlog of unfilled
orders. As a result, our revenues in a given quarter may depend substantially
on orders booked in that quarter. Alternatively, orders already in backlog may
be deferred or cancelled. Also, we have typically generated a large percentage
of our quarterly revenues in the last month of the quarter. Our customers may
change their accounting practices and purchasing patterns, thus reducing our
ability to predict our quarterly sales. Additionally, we use blanket purchase
orders with some customers, with customer-provided forecasts and customer
controlled just-in-time pulls of products from hub warehouses, thus reducing
our ability to predict our quarterly sales. As a result of these and other
factors, we may not be able to accurately predict our quarterly sales. Because
our expense levels are partially based on our expectations of future sales, in
the event we experience unexpected decreases in quarterly sales, our expenses
may be disproportionately large relative to our revenues and we may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. A material shortfall in sales in relation to our quarterly
expectations or any delay of customer orders would likely have an immediate and
adverse impact on our results of operations and may adversely affect our stock
price.

A significant decrease or delay in orders from one or more of our customers
could adversely affect our business.

We experienced a downturn in Fibre Channel host bus adapter demand first
evidenced by order deferrals experienced and disclosed by us in early February
of calendar 2001. In the event such deferrals were to occur again, our
business, results of operations and financial condition could be materially
adversely affected.

The failure of one or more of our significant customers to make payments could
adversely affect our business.

We are subject to credit risk associated with the concentration of our accounts
receivable from our customers. Our days sales outstanding, or DSOs, were 41
days and 37 days at March 30, 2003, and June 30, 2002, respectively. There can
be no assurance they will remain at this level or improve. If one of our
current significant customers were to declare bankruptcy or if we were to lose
one of our current significant customers and did not receive their payments due
to us, we could experience a material adverse effect on our business, results
of operations and financial condition.

Some of our suppliers, our strategic partners, or our OEM customers could
become competitors.

Some of our suppliers, our strategic partners, and our OEM customers currently
have or could develop products internally that would replace or compete with
our products and technology. To the extent that our customers or suppliers are
successful in developing and marketing competitive solutions, the resulting
reductions in sales of our products could have a material adverse effect on our
business, results of operations and financial condition.

Our markets are highly competitive and our business and results of operations
may be adversely affected by entry of new competitors into the markets,
aggressive pricing, and the introduction or expansion of competitive products
and technologies.

The markets for our products are highly competitive and are characterized by
rapid technological advances, price erosion, frequent new product
introductions, and evolving industry standards. Our current and potential
competition consists of major domestic and international companies, some of
which have substantially greater financial, technical, marketing and
distribution resources than we have. We also expect that additional companies
may enter the markets for our storage networking products and new or stronger
competitors may emerge as a result of consolidation movements in the
marketplace. Furthermore, larger companies in other related industries may
develop or acquire technologies and apply their significant resources, such as
distribution channels and brand recognition, to acquire significant market
share. Emerging companies attempting to obtain a share of the existing markets
act as potential competition as well. Additionally, our competitors continue
to introduce products with improved price/performance characteristics, and we
will have to do the same to remain competitive. We expect that our market will
attract competition. As the market grows and matures, customers may qualify
multiple sources for OEM or standard products where we have prevailed
previously as a single source, thus introducing competition into our existing
customer accounts. Increased competition could result in significant price
competition, reduced revenues, lower profit margins, or loss of market share,
any of which would have a material adverse effect on our business, results of
operations, and financial condition.

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Alternative legacy technologies such as SCSI compete with our Fibre Channel and
IP storage networking technologies for customers. Our success depends in part
on our own ability and on the ability of our OEM customers to develop storage
networking solutions that are competitive with these alternative legacy
technologies. Some of our competitors already have well-established
relationships with our current and potential customers, have extensive
knowledge of the markets we serve and may have better name recognition and more
extensive development, sales and marketing resources than we have.
Additionally, in the future, other technologies that we are not currently
developing may evolve to address the applications served by Fibre Channel
today.

Our industry is subject to rapid technological change, and we must keep pace
with the changes to successfully compete.

The markets for our products are characterized by rapidly changing technology,
evolving industry standards, and the frequent introduction of new products and
enhancements. Our future success depends in a large part on our ability to
enhance our existing products and to introduce new products on a timely basis
to meet changes in customer preferences and evolving industry standards.
Currently, new technologies and proposed new technologies such as 4 gigabit per
second, or Gbps, solutions; 10 Gbps solutions; Infiniband; PCI-X 2.0; PCI
Express; iSCSI; Serial Advanced Technology Attachment, or Serial ATA; Serial
Attached SCSI, or SAS; VI; and Remote Direct Memory Access, or RDMA; are still
in development by many companies and it is impossible to know what the end
technology will provide. We cannot be certain that we will be successful in
developing, manufacturing and marketing new products or product enhancements
that respond to such changes in a timely manner and achieve market acceptance.
We also cannot be certain that we will be able to develop the underlying core
technologies necessary to create new products and enhancements, or that we will
be able to license the core technologies with commercially reasonable terms
from third parties. In addition, a key element of our current business
strategy is to develop ASICs in order to increase system performance, enhance
integration, and reduce manufacturing costs, thereby enhancing the
price/performance of our storage networking products. We cannot be certain
that we will be successful at developing and incorporating ASICs effectively
and in a timely manner. Additionally, the cost and time required for
developing ASICs has been increasing and we cannot be certain of the impact on
our business of such increases. If we are unable, for technological or other
reasons, to develop new products, enhance or sell existing products, or consume
existing products in a timely and cost-effective manner in response to
technological and market changes, our business, results of operations, and
financial condition may be materially adversely affected.

We have experienced losses in our history that may adversely affect our stock
price and financial condition.

We have experienced losses in our history, most recently a net loss of $96.2
million in fiscal 2002, and $23.6 million in fiscal 2001. The net loss in
fiscal 2002 included $156.2 million of amortization of goodwill and other
intangibles related to the acquisition of Giganet, Inc. and a net excess and
obsolete inventory charge of $10.1 million. The net loss in fiscal 2001
included $22.3 million of in-process research and development expenses and
$52.1 million of amortization of goodwill and other intangibles related to the
acquisition of Giganet, Inc. We had been amortizing goodwill and other
intangibles related to the acquisition of Giganet, Inc. over periods of two to
seven years. Beginning in the first quarter of fiscal 2003, when we adopted
Statement 142, Goodwill and Other Intangible Assets, we no longer amortize
goodwill and other intangibles that have indeterminate useful lives. Any
losses may adversely affect the perception of our business by analysts and
investors, which could adversely affect our stock price. While our recent
losses have not been accompanied by negative cash flow from operations, to the
extent that we are unable to generate positive operating profits and positive
cash flow from operations, our financial condition may be materially adversely
affected.

The migration of our customers toward newer product platforms may have a
significant adverse effect on our results of operations, including charges for
obsolete inventory.

As our customers migrate from one platform to the enhanced price/performance of
the next platform, we may experience reduced revenue, gross profit, and gross
margin levels associated with lower average selling prices and higher relative
product costs associated with improved performance. Also, economic conditions
during platform migration periods can have a significant impact on results.
This was evidenced in late September 2001, as some of our major customers made
announcements that general economic conditions, exacerbated by the increase in
economic uncertainty in the aftermath of the terrorist events of September 11,
2001, were having a negative impact on their financial results. The
announcements made, and forecasts received, indicated deteriorating demand for
our one Gbps products as these customers were expected to migrate to two Gbps
products for future purchases. As a result, we recorded a net inventory charge
of $10.1 million in 2002. After initially recording our one Gbps reserve of
$13.6 million during the first quarter of fiscal 2002, we subsequently
reduced this reserve by a total of $5.2 million through March 30, 2003, as this
previously reserved inventory has been sold. Overall, we have been able to
recover a significant portion of this reserved inventory that was not expected
based on our forecasts and the forecasts received from our customers when this
excess and obsolete inventory charge was

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recorded. In addition to the sale of
some of this previously reserved product, we have also scrapped $1.8 million of
this reserved inventory and negotiated and paid cancellation charges of $0.2
million through March 30, 2003, related to this excess and obsolete inventory
charge since it was initially recorded. As with all inventory, we regularly
compare forecasted demand for our one Gbps products against inventory on hand
and open purchase commitments and accordingly, we may have to record additional
excess and obsolete inventory reserves if forecasted demand decreases.

The failure of our OEM customers to keep up with rapid technological change
could adversely affect our business.

Our revenues depend significantly upon the ability and willingness of our OEM
customers to develop, promote and deliver, on a timely basis, products that
incorporate our technology. OEMs must commit significant resources to develop
a product that incorporates our technology or solutions. The ability and
willingness of OEM customers to develop, promote and deliver such products are
significantly influenced by a variety of factors, many of which are outside of
our control. We cannot be certain of the ability or willingness of our OEM
customers to continue developing, marketing and selling products that
incorporate our technology or solutions. Our business is dependent on our
relationships with our OEM and distributor customers, so the inability or
unwillingness of any of our significant customers to develop or promote
products that use our technology or solutions would have a material adverse
effect on our business, results of operations, and financial condition.

Rapid changes in the evolution of technology, including the unexpected extent
or timing of the transition from HBA solutions to lower-priced ASIC solutions,
could adversely affect our business.

Historically, the electronics industry has developed higher performance ASICs
that create chip level solutions that replace selected board level solutions at
a significantly lower average selling price. We have previously offered ASICs
to certain customers for certain applications that has effectively resulted in
a lower-priced solution when compared to an HBA solution. We anticipate that
this transition will occur for our products in certain applications as well.
The result of this transition may be an adverse effect on our revenues and
profit margin. If this transition is more abrupt or is more widespread than
anticipated, there can be no assurance that we will be able to modify our
business model in a timely manner, if at all, in order to mitigate the effects
of this transition on our business, results of operations and financial
position.

Rapid shifts in customer purchases from our high-end server and storage
solutions to midrange server and storage solutions could adversely affect our
business.

Historically, the majority of our Fibre Channel revenues has come from our
high-end server and storage solutions. In recent quarters, an increasing
percentage of revenues has come from midrange server and storage solutions,
which typically have lower average selling prices than our high-end server and
storage solutions. If this trend were to be more abrupt or more widespread
than anticipated, there can be no assurance that we will be able to modify our
business model in a timely manner, if at all, in order to mitigate the effect
of this trend on our business, results of operations, and financial position.

A decrease in the average unit selling prices or an increase in the
manufactured cost of our Fibre Channel products could adversely affect our
revenue, gross margins, and financial performance.

Since we introduced our first Fibre Channel products, we have experienced
downward pressure on their average unit selling prices. We may provide pricing
discounts to customers based upon volume purchase criteria, and achievement of
such discounts may reduce our average unit selling prices. To the extent that
growth in unit demand fails to offset decreases in average unit selling prices,
our revenues and financial performance could be materially adversely affected.
Although historically we have achieved offsetting cost reductions, to the
extent that average unit selling prices of our Fibre Channel products decrease
without a corresponding decrease in the costs of such products, our gross
margins and financial performance could be materially adversely affected.
Furthermore, if the manufactured cost of our products were to increase due to
inflation or other factors, our gross margins and financial performance could
be materially adversely affected.

Delays in product development could adversely affect our business.

We have experienced delays in product development in the past and may
experience similar delays in the future. Given the short product life cycles
in the markets for our products and the relatively long product development
cycles, any delay or unanticipated difficulty associated with new product
introductions or product enhancements could have a material adverse effect on
our business, results of operations, and financial condition. Prior delays have
resulted from numerous factors, such as:

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| |  |  | Difficulties in hiring and retaining necessary personnel;                         
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | Difficulties in reallocating engineering resources and other resource
limitations;
|
| |  |  | Difficulties with independent contractors;                                        
|
| |  |  | Unanticipated engineering or manufacturing complexity;                            
|
| |  |  | Undetected errors or failures in software and hardware; and                       
|
| |  |  | Changing OEM product specifications;                                              
|
| |  |  | Delays in the acceptance or shipment of products by OEM customers;                
|
| |  |  | Changing market or competitive product requirements.                              

Our joint development activities may result in products that are not
commercially successful or that are not available in a timely fashion.

We have engaged in joint development projects with third parties in the past
and we expect to continue doing so in the future. Joint development can
magnify several risks for us, including the loss of control over development of
aspects of the jointly-developed products and over the timing of product
availability. Accordingly, we face increased risk that joint development
activities will result in products that are not commercially successful or that
are not available in a timely fashion.

During April 2003, we announced a joint development activity with Intel
Corporation relating to storage processors that integrate Serial ATA, SAS and
Fibre Channel interfaces within a single architecture. Under the agreement,
Emulex will develop the protocol controller hardware, firmware and drivers.
Intel will integrate its Intel ® Xscale  microarchitecture as the core
technology for the new processors and will manufacture the processors on its
90-nanometer process technology. Emulex will market the resulting Fibre
Channel products and Intel will market the Serial ATA and SAS product. This
activity has risks resulting from unproven new-generation manufacturing
technology, from the licensing of Serial ATA and SAS technology to Intel, from
increased development costs, from reduced flexibility in making design changes
in response to market changes, and in reduced control over product completion
schedules.

A change in our business relationships with our third-party suppliers or our
electronics manufacturing service providers could adversely affect our
business.

We rely on third-party suppliers for components and the manufacture of our
products, and we have experienced delays or difficulty in securing components
and finished goods in the past. Delays or difficulty in securing components or
finished goods may be caused by numerous factors including, but not limited to:



| |  |  | Discontinued production by a vendor;                                                               
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | Undetected errors, failures, or production quality issues;                                         
|
| |  |  | Timeliness of product delivery;                                                                    
|
| |  |  | Financial stability and viability of our suppliers and electronics manufacturing service providers;
|
| |  |  | Changes in business strategies of our suppliers and electronics manufacturing service providers;   
|
| |  |  | Disruption in shipping channels;                                                                   
|
| |  |  | Natural disasters;                                                                                 
|
| |  |  | Environmental, tax, or legislative changes in the location where our products are produced;        

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| |  |  | Difficulties associated with foreign operations; and
| | - |  | ----------------------------------------------------
|
| |  |  | Market shortages.                                   

There is a risk that we will not be able to retain our current suppliers or
change to alternative suppliers. An interruption in supply or the cost of
shifting to a new supplier or electronics manufacturing service providers could
have a material adverse effect on our business, results of operations, and
financial condition.

Additionally, key components that we use in our products may only be available
from single sources with which we do not have contracts. We may obtain sole
source components from companies such as E20, Finisar, ICS, Intel, IBM,
Lattice, Micrel, Micron, and Siliconix. In addition, we design our own ASICs
that are embedded in our products, and these are manufactured by third-party
semiconductor foundries. In addition to hardware, we design software to
provide functionality to our hardware products. In the past, we have also
licensed software from third party providers for use with our traditional
networking products, and most of these providers are the sole source for the
software. However, both our software and the third party software are sold as
embedded programs within the hardware products. The loss of one or more of our
sole suppliers or third party foundries could have a material adverse effect on
our business, results of operations, and financial condition. In addition, an
announcement made by one of our sole suppliers or third party foundries that
they intend to stop producing a component in the future could cause us, based
on forecasted demand that may or may not materialize, to enter into a long-term
purchase commitment or make a last-time purchase that could have a material
adverse effect on our business, results of operations, and financial condition.

Because we outsource the production of our products to electronics
manufacturing service providers, MSL and Suntron Corporation, we only manage
the supply of a small number of our product components. Currently, we rely
upon MSL and Suntron to complete numerous component purchases for our products.
Consequently, we cannot be certain that the necessary components will be
available to meet our future requirements at favorable prices, if at all.

In July 2002, MSL notified us that they would be closing their facility within
the United States that manufactured our products. As a result, the facility
has been closed and we are transitioning a portion of the manufacturing of our
products to an alternative MSL facility within the United States. Although we
do not expect this move to have a significant impact on us, if we were to
experience significant delays in product qualifications, completing production
runs, or shipping product as a result of this move, and we were unable to
compensate for this disruption elsewhere, it could have a material adverse
effect on our business, results of operations, and financial condition.
Moreover, because we rely upon MSL and Suntron to manufacture, store and ship
our products, the manufacturing and sale of our products would be temporarily
suspended if either MSL or Suntron, or both, are unable or unwilling to
complete production runs for us in the future, or experience any significant
delays in completing production runs or shipping product. An interruption in
supply of our products and the cost of qualifying and shifting production to an
alternative manufacturing and distribution facility could have a material
adverse effect on our business, results of operations, and financial condition.
Furthermore, we rely upon the financial stability of our electronics
manufacturing service providers, and their ability and willingness to continue
as our electronics manufacturing service providers.

The inadequacy of our intellectual property protections could adversely affect
our business.

We believe that our continued success depends primarily on continuing
innovation, marketing and technical expertise, as well as the quality of
product support and customer relations. At the same time, our success is
partially dependent on the proprietary technology contained in our products.
We currently rely on a combination of patents, copyrights, trademarks, trade
secret laws, and contractual provisions to establish and protect our
intellectual property rights in our products. For a more complete description
of our intellectual property, you should read BusinessIntellectual Property
in our most recently filed Annual Report on Form 10-K.

We cannot be certain that the steps we take to protect our intellectual
property will adequately protect our proprietary rights, that others will not
independently develop or otherwise acquire equivalent or superior technology,
or that we can maintain such technology as trade secrets. In addition, the
laws of some of the countries in which our products are or may be developed,
manufactured or sold may not protect our products and intellectual property
rights to the same extent as the laws of the United States or at all.
Furthermore, we enter into various development projects and arrangements with
other companies. In some cases, these arrangements allow for the sharing or
use of our intellectual property. Our failure to protect our intellectual
property rights could have a material adverse effect on our business, results
of operations, and financial condition.

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Third-party claims of intellectual property infringement could adversely affect
our business.

We believe that our products and technology do not infringe on the intellectual
property rights of others or upon intellectual property rights that may be
granted in the future pursuant to pending applications. We occasionally
receive communications from third parties alleging patent infringement, and
there is always the chance that third parties may assert infringement claims
against us. Any such claims, with or without merit, could result in costly
litigation, cause product shipment delays, or require us to enter into royalty
or licensing agreements, which may or may not be available. However, we have
in the past obtained, and may be required in the future to obtain, licenses of
technology owned by other parties. We cannot be certain that the necessary
licenses will be available or that they can be obtained on commercially
reasonable terms. If we were to fail to obtain such royalty or licensing
agreements in a timely manner and on reasonable terms, our business, results of
operations and financial condition would be materially adversely affected.

The inability to attract or the loss of key managerial and technical personnel
could adversely affect our business.

Our success depends to a significant degree upon the performance and continued
service of key managers as well as engineers involved in the development of our
storage networking technologies and technical support of our storage networking
products and customers. Our future success depends upon our ability to
attract, train and retain such personnel. We may need to increase the number
of key managers as well as technical staff members with experience in
high-speed networking applications as we further develop our storage networking
product lines. Competition for such highly skilled employees in our local
community as well as our industry is intense, and we cannot be certain that we
will be successful in recruiting and retaining such personnel. In addition,
employees may leave our company and subsequently compete against us. If we are
unable to attract new managerial and technical employees, or are unable to
retain our current key managerial and technical employees, our business,
results of operations and financial condition could be materially adversely
affected.

Our international business activities subject us to risks that could adversely
affect our business.

For the nine months ended March 30, 2003, sales in the United States accounted
for 60 percent of our total net revenues, sales in Europe accounted for 33
percent of our total net revenues, and sales in the Pacific Rim countries
accounted for seven percent of our total net revenues. We expect that sales in
the United States and Europe will continue to account for the substantial
majority of our net revenues for the foreseeable future. All of our sales are
currently denominated in U.S. dollars. As a result, if the value of the U.S.
dollar increases relative to foreign currencies, our products could become less
competitive in international markets. Additionally, a significant portion of
our products is produced at a manufacturing subcontractors production facility
in Valencia, Spain and as a result we are subject to the risks inherent in
international operations. Our international business activities could be
affected, limited or disrupted by a variety of factors, including:



| |  |  | The imposition of governmental controls and regulatory requirements;         
| | - |  | -----------------------------------------------------------------------------
|
| |  |  | The costs and risks of localizing products for foreign countries;            
|
| |  |  | Longer accounts receivable payment cycles;                                   
|
| |  |  | Changes in the value of local currencies relative to our functional
currency;
|
| |  |  | Trade restrictions;                                                          
|
| |  |  | Changes in tariffs;                                                          
|
| |  |  | Loss of tax benefits due to international production;                        
|
| |  |  | General economic and social conditions within foreign countries; and         
|
| |  |  | Political instability, war, or terrorism.                                    

In addition, the revenues we earn in various countries in which we do business
may be subject to taxation by more than one jurisdiction, thereby adversely
affecting our earnings. All of these factors could harm future sales of our
products to international customers or future overseas production of our
products, and have a material adverse effect on our business, results of
operations, and financial condition.

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Export restrictions may adversely affect our business.

Our products are subject to U.S. Department of Commerce export control
restrictions. Neither our customers nor we may export such products without
obtaining an export license, where applicable. These U.S. export laws also
prohibit the export of our products to a number of countries deemed by the
United States to be hostile. These restrictions may make foreign competitors
facing less stringent controls on their products more competitive in the global
market than we or our customers are. The U.S. government may not approve any
pending or future export license requests. In addition, the list of products
and countries for which export approval is required, and the regulatory
policies with respect thereto, could be revised. The sale of our products
could be harmed by our inability or the inability of our customers to obtain
the required licenses or by the costs of compliance.

Potential acquisitions or strategic investments may be more costly or less
profitable than anticipated and may adversely affect the price of our company
stock.

We may pursue acquisitions or strategic investments that could provide new
technologies, products, or service offerings. Future acquisitions or strategic
investments may negatively impact our results of operations as a result of the
use of significant amounts of cash, potentially dilutive issuances of equity or
equity-linked securities, incurrence of debt, or amortization of intangible
assets with determinable lives. Furthermore, we may incur significant expenses
pursuing acquisitions or strategic investments that ultimately may not be
completed. Moreover, to the extent that any proposed acquisition or strategic
investment is not favorably received by stockholders, analysts and others in
the investment community, the price of our common stock could be adversely
affected. In addition, acquisitions or strategic investments involve numerous
risks, including:



| |  |  | Difficulties in the assimilation of the operations, technologies, products
and personnel of the acquired company;
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| |  |  | The diversion of managements attention from other business concerns;                                            
|
| |  |  | Risks of entering markets in which we have no or limited prior experience;
and                                   
|
| |  |  | The potential loss of key employees of the acquired company.                                                     

In the event that an acquisition or strategic investment does occur and we are
unable to obtain anticipated profits or successfully integrate operations,
technologies, products or personnel that we acquire, our business, results of
operations, and financial condition could be materially adversely affected.

Our stock price is volatile, which has and may result in lawsuits against us
and our officers and directors.

The stock market in general and the stock prices in technology-based companies
in particular have experienced extreme volatility that often has been unrelated
to the operating performance of any specific public company. The market price
of our common stock has fluctuated in the past and is likely to fluctuate in
the future as well. Factors that could have a significant impact on the market
price of our common stock include, but are not limited to, the following:



| |  |  | Quarterly variations in operating results;                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | Announcements of new products by us or our competitors;                                                              
|
| |  |  | The gain or loss of significant customers;                                                                           
|
| |  |  | Changes in analysts earnings estimates;                                                                             
|
| |  |  | Changes in analyst recommendations, price targets, or other
parameters that may not be related to earnings estimates;
|
| |  |  | Rumors or dissemination of false information;                                                                        
|
| |  |  | Pricing pressures;                                                                                                   
|
| |  |  | Short selling of our common stock;                                                                                   

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| |  |  | Dilution resulting from conversion of outstanding convertible
subordinated notes into shares of our common stock;
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| |  |  | General conditions in the computer, storage, or communications markets; or                                       
|
| |  |  | Events affecting other companies that investors deem to be comparable to
us.                                     

In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. In
this regard, we and certain of our officers and directors were named as
defendants in a number of securities class action lawsuits filed in the United
States District Court, Central District of California. The plaintiffs in the
actions represent purchasers of our common stock during various periods ranging
from January 18, 2001, through February 9, 2001. The complaints allege that we
and certain of our officers and directors made misrepresentations and omissions
in violation of sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended. The complaints generally seek compensatory damages, costs and
attorneys fees in an unspecified amount. In addition, we have received
inquiries about events giving rise to the lawsuits from the Securities and
Exchange Commission and the Nasdaq Stock Market. On April 22, 2003, we entered
into two Memoranda of Understanding agreeing to terms of settlement for both
the class action and derivative litigation. See Part II  Item 1  Legal
Proceedings for a more complete discussion of such litigation and Memoranda of
Understanding.

The final amount collected for our receivable from our insurance carriers
related to the tentative settlements of securities class action and derivative
lawsuits may be materially different from the receivable amount.

For the three months ended March 30, 2003, we recorded a $13.5 million
receivable from our insurance carriers related to the tentative settlements of
securities class action and derivative lawsuits. We had directors and officers
insurance with a primary limit of $10 million and a possible $10 million
reinstatement for the period of February 2000 through February 2002; and excess
insurance of $10 million for the period February 2000 through February 2001;
and excess insurance of $20 million for the period February 2001 to February
2002. Our insurance carriers have asserted various defenses including coverage
exclusions and late notice. Our actual insurance recovery may be materially
different from the recorded amount, depending on the strength of the defenses
asserted by our insurance carriers. If one or all of our insurance carriers
were unable or refused to make some or all payments due to us, or if an
arbitrator or court determines that the recovery should be an amount other than
the recorded amount, or if ultimately the amount received by us is more or less
than the recorded amount, we could experience a material effect on our results
of operations and financial condition.

Terrorist activities and resulting military and other actions could adversely
affect our business.

The terrorist attacks in New York and Washington, D.C. in September 2001
disrupted commerce throughout the United States and Europe. The continued
threat of terrorism within the United States and Europe and the military action
and heightened security measures in response to such threat may cause
significant disruption to commerce throughout the world. To the extent that
such disruptions result in delays or cancellations of customer orders, delays
in collecting cash, a general decrease in corporate spending on information
technology, or our inability to effectively market, manufacture or ship our
products, our business, financial condition, and results of operations could be
materially and adversely affected. We are unable to predict whether the threat
of terrorism or the responses thereto will result in any long-term commercial
disruptions or if such activities or responses will have any long-term material
adverse effect on our business, results of operations or financial condition.

Our corporate offices and principal product development facilities are located
in a region that is subject to earthquakes and other natural disasters.

Our California facilities, including our corporate offices and principal
product development facilities, are located near major earthquake faults. Any
disruption in our business activities, personal injury, or damage to the
facilities in excess of our currently insured amounts as a result of
earthquakes or other such natural disasters, could have a material adverse
effect on our business, results of operations, and financial condition.

Our shareholder rights plan, certificate of incorporation and Delaware law
could adversely affect the performance of our stock.

Our shareholder rights plan and provisions of our certificate of incorporation
and of the Delaware General Corporation Law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders.

33



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The shareholder rights plan and these provisions of our
certificate of incorporation and Delaware law are intended to encourage
potential acquirers to negotiate with us and allow our board of directors the
opportunity to consider alternative proposals in the interest of maximizing
stockholder value. However, such provisions may also discourage acquisition
proposals or delay or prevent a change in control, which could harm our stock
price. You should read Note 12 to the Consolidated Financial Statements in
our most recently filed Annual Report on Form 10-K, our certificate of
incorporation, and Delaware law for more information on the anti-takeover
effects of provisions of our shareholder rights plan.

The purchase accounting treatment of the acquisition of Giganet may result in
an impairment loss.

The valuation of our acquisition of Giganet was approximately $689.0 million
that initially resulted in our recording of approximately $642.0 million of
goodwill and other intangibles related to the acquisition. We had been
amortizing these intangibles over periods of two to seven years. Beginning in
the first quarter of fiscal 2003, when we adopted Statement 142, we no longer
amortize goodwill and other intangibles that have indeterminate useful lives.
In accordance with Statement 142, goodwill and other intangibles that have
indeterminate lives will be tested for impairment at least annually. Any
impairment loss could materially and adversely affect our financial position
and results of operations. We currently have net goodwill related to the
Giganet acquisition in the amount of $397.3 million.

Our products are complex and may contain undetected software or hardware errors
that could lead to an increase in our costs, reduce our net revenues, or damage
our reputation.

Our products are complex and may contain undetected errors when first
introduced or as new versions are released. The occurrence of hardware or
software errors could adversely affect sales of our products, cause us to incur
significant repair costs, divert the attention of our engineering personnel
from product development efforts, and cause us to lose credibility with current
or prospective customers.

Changes in laws, regulations, and financial accounting standards may affect our
reported results of operations.

The recently enacted Sarbanes-Oxley Act of 2002 and related regulations may
result in changes in accounting standards or accepted practices within our
industry. New pronouncements and varying interpretations of pronouncements
have occurred in the past and are likely to occur in the future as a result of
recent Congressional and regulatory actions. New laws, regulations, and
accounting standards, as well as the questioning of, or changes to, currently
accepted accounting practices in the technology industry may adversely affect
our reported financial results, which could have an adverse effect on our stock
price. Proposals have been made concerning the expensing of stock options that
could result in rules or laws that may adversely affect our reported financial
results, which could have an adverse effect on our stock price.

The final determination of our income tax liability may be materially different
from our income tax provisions and accruals.

We are subject to income taxes in both Unites States and international
jurisdictions. Significant judgment is required in determining our worldwide
provision for income taxes. In the ordinary course of our business, there are
many transactions where the ultimate tax determination is uncertain. Although
we believe our tax estimates are reasonable, there is no assurance that the
final determination of our income tax liability will not be materially
different than what is reflected in our income tax provisions and accruals.
Should additional taxes be assessed as a result of new legislation, an audit,
or litigation, or if our effective tax rate should change as a result of
changes in federal, international, or state and local tax laws, there could be
a material effect on our income tax provision and net income in the period or
periods in which that determination is made.

We may need additional capital in the future and such additional financing may
not be available on favorable terms.

While we believe we have adequate working capital to meet our expected cash
requirements for the immediate future, we may need to raise additional funds
through public or private debt or equity financings in order to:



| |  |  | Take advantage of unanticipated opportunities, including more rapid
international expansion or acquisitions of complementary businesses or
technologies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Develop new products or services;                                                                                                                       
|
| |  |  | Repay outstanding indebtedness; or                                                                                                                      
|
| |  |  | Respond to unanticipated competitive pressures.                                                                                                         

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We cannot assure you that any additional financing we may need will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to take
advantage of unanticipated opportunities, develop new products or services or
otherwise respond to unanticipated competitive pressures. In any such case,
our business, results of operations and financial condition could be materially
adversely affected.

In January 2002, we completed a $345.0 million private placement of convertible
subordinated notes, which are due February 1, 2007. Subsequently, during the
three months ended September 29, 2002, we repurchased and cancelled at a
discount to face value approximately $136.5 million in face value of such
notes. Opportunities for us to repurchase additional amounts of the
outstanding convertible subordinated notes may not be available at favorable
prices. To the extent that we utilize the proceeds of such private placement
in a manner that results in us not having sufficient liquidity and capital
resources to repay the principal amounts of the notes when due, we may be
forced to raise additional funds through public or private debt or equity
financings, which may not be available on favorable terms, if at all. If such
financings were not available on favorable terms, our results of operations and
financial condition could be materially adversely affected.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

At March 30, 2003, our investment portfolio consisted of fixed income
securities, excluding those classified as cash equivalents, of $434.9 million.
We have the positive intent and ability to hold these securities to maturity.
Currently, the carrying amount of these securities approximates fair market
value. However, the fair market value of these securities is subject to
interest rate risk and would decline in value if market interest rates
increased. If market interest rates were to increase immediately and uniformly
by 10 percent from the levels at March 30, 2003, the decline in the fair value
of the portfolio would not be material to our financial position, results of
operations and cash flows. However, if interest rates decreased and securities
within our portfolio matured and were re-invested in securities with lower
interest rates, interest income would decrease in the future.

Foreign Currency

We have executed and will continue to execute transactions in foreign
currencies. As a result, we may be exposed to financial market risk resulting
from fluctuations in foreign currency rates, particularly the British Pound and
the Euro. Given the relatively small number of foreign currency transactions,
we do not believe that our potential exposure to fluctuations in foreign
currency rates is significant.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that we are
able to collect the information we are required to disclose in the reports we
file with the Securities and Exchange Commission (SEC), and to process,
summarize, and disclose this information within the time periods specified in
the rules of the SEC. Based on their evaluation of our disclosure controls and
procedures which took place as of a date within 90 days of the filing date of
this report, the Chief Executive and Chief Financial Officers believe that
these controls and procedures are effective to ensure that we are able to
collect, process, and disclose the information we are required to disclose in
the reports we file with the SEC within the required time periods.

Since the date of the most recent evaluation of our internal controls by the
Chief Executive and Chief Financial Officers, there have been no significant
changes in such controls or in other factors that could have significantly
affected those controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

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Part II. OTHER INFORMATION




Item 1. Legal Proceedings.

Beginning on or about February 20, 2001, we and certain of our officers and
directors were named as defendants in a number of securities class action
lawsuits filed in the United States District Court, Central District of
California. The plaintiffs in the actions represent purchasers of our common
stock during various periods ranging from January 18, 2001, through February 9,
2001. The complaints allege that we and certain of our officers and directors
made misrepresentations and omissions in violation of sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, as amended. The complaints generally
seek compensatory damages, costs and attorneys fees in an unspecified amount.
Pursuant to a Stipulation and Court Order, the actions were consolidated. On
August 24, 2001, an Amended and Consolidated Complaint was filed. Defendants
motion to dismiss was denied by way of an order dated March 7, 2002.
Defendants motion for reconsideration of that order was denied by an order
dated May 3, 2002. Plaintiffs commenced discovery. The court certified the
class action by an order dated September 30, 2002. Following these class
action lawsuits, a number of derivative cases were filed in state courts in
California and Delaware, and in federal court in California, alleging that
certain officers and directors breached their fiduciary duties to us in
connection with the events alleged in the class action lawsuits. The
derivative cases filed in California state courts were consolidated in Orange
County Superior Court and plaintiffs filed a consolidated and amended complaint
on January 31, 2002. On May 10, 2002, the Orange County Superior Court ordered
that the consolidated actions be stayed pending resolution of the federal class
action described above. The derivative suit in Delaware was dismissed on
August 28, 2001. On March 15, 2002, the United States District Court for the
Central District of California ordered that the federal derivative action be
stayed pending resolution of the class action lawsuit described above. We
received inquiries about events giving rise to the lawsuits from the Securities
and Exchange Commission and Nasdaq Stock Market. On April 22, 2003, we entered
into two Memoranda of Understanding, or MOUs, agreeing to terms of settlement
for both the class action and derivative litigation. The MOUs call for
settlement payments totaling $39.0 million, plus up to $0.5 million of the cost
of providing notice to the class members. The settlements will require court
approval, which will be sought after the settlement documentation is completed.
Insurance proceeds are expected to reimburse us for a portion of the payments
and the probable net after tax effect of the settlements to us, based on our
current estimate of reimbursement from the insurance carriers, is expected to
be approximately $16.7 million.

Additionally, we are involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or liquidity.

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Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

|             |  |                                                                                                                                                                                                                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3.1  |  | Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K
for 1997).                                                                                                                                                                                                    
|Exhibit 3.2  |  | Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2000).                                                                                                                          
|Exhibit 3.3  |  | Bylaws of the Company, as amended. (incorporated by reference
to Exhibit 3.3 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 29, 2002).                                                                                                                                                              
|Exhibit 3.4  |  | Certificate of Designations of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4 to the
Companys Current Report on Form 8-K filed February 2, 1989).                                                                                                                                                    
|Exhibit 4.1  |  | Rights Agreement, dated January 19, 1989, as amended
(incorporated by reference to Exhibit 4 to the Companys Current
Report on Form 8-K filed February 2, 1989).                                                                                                                                                                            
|Exhibit 4.2  |  | Certificate regarding extension of Final Expiration Date of
Rights Agreement dated January 18, 1999 (incorporated by reference to
Exhibit 4.2 of Amendment No. 2 to the Registration Statement on Form
S-3, filed on May 17, 1999).                                                                                                          
|Exhibit 4.3  |  | Form of 1.75% Convertible Subordinated Note due February 1,
2007 (incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-3, amended on June 28, 2002).                                                                                                                                                             
|Exhibit 4.4  |  | Indenture between the Company, as Issuer, and State Street
Bank and Trust Company of California, N.A., as Trustee, dated January
29, 2002, related to the Companys 1.75% Convertible Subordinated
Notes due February 1, 2007 (incorporated by reference to Exhibit 4.9
to the Registration Statement on Form S-3, amended on June 28, 2002).
|Exhibit 4.5  |  | Registration Rights Agreement between the Company and Credit
Suisse First Boston Corporation dated January 29, 2002, related to
the Companys 1.75% Convertible Subordinated Notes due February 1,
2007 (incorporated by reference to Exhibit 4.10 to the Registration
Statement on Form S-3, amended on June 28, 2002).                     
|Exhibit 10.1 |  | Giganet, Inc. 1995 Stock Option Plan (incorporated by
reference to Exhibit 99.1 to the Companys Registration Statement on
Form S-8, filed March 2, 2001).                                                                                                                                                                                   
|Exhibit 10.2 |  | Emulex Corporation Employee Stock Option Plan, as amended
(incorporated by reference to Appendix B to the Proxy Statement filed
on October 21, 2002).                                                                                                                                                                                        
|Exhibit 10.3 |  | Emulex Corporation 1997 Stock Option Plan for Non-Employee
Directors, as amended (incorporated by reference to Appendix C to the
Companys 2002 Proxy Statement filed on October 21, 2002).                                                                                                                                                  
|Exhibit 10.4 |  | Emulex Corporation Employee Stock Purchase Plan, as amended
(incorporated by reference to Appendix D to the Companys 2002 Proxy
Statement filed on October 21, 2002).                                                                                                                                                                       
|Exhibit 99.1 |  | Certification of Periodic Financial Reports by the Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.                                                                                                                                                                                                   

(b)  Reports on Form 8-K

The registrant has not filed any reports on Form 8-K during the period
for which this report is filed.

37



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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.

Date: May 13, 2003

| |                    |                                                                                                                                                     
| | ------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | EMULEX CORPORATION
|
| | By:                | /s/ Paul F. FolinoPaul F. Folino
Chairman of the Board and Chief Executive Officer                                                                  
|
| | By:                | /s/ Michael J. RockenbachMichael J. Rockenbach
Executive Vice President and
Chief Financial Officer
(Principal Financial & Chief Accounting Officer)

38



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##### Table of Contents



CERTIFICATIONS

I, Paul F. Folino, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emulex
Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and
procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report in being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our
conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date.                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design
or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for
the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that
involves management or other employees who have a
significant roles in the registrants internal controls;
and                                                                                                                                       

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/ Paul F. Folino

39



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CERTIFICATIONS

I, Michael J. Rockenbach, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emulex
Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and
procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report in being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our
conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date.                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design
or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for
the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that
involves management or other employees who have a
significant roles in the registrants internal controls;
and                                                                                                                                       

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/ Michael J. Rockenbach

40



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##### Table of Contents



EXHIBIT INDEX

|             |  |                                                                                                                                                                                                                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3.1  |  | Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K
for 1997).                                                                                                                                                                                                    
|            
|Exhibit 3.2  |  | Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2000).                                                                                                                          
|            
|Exhibit 3.3  |  | Bylaws of the Company, as amended. (incorporated by reference
to Exhibit 3.3 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 29, 2002).                                                                                                                                                              
|            
|Exhibit 3.4  |  | Certificate of Designations of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4 to the
Companys Current Report on Form 8-K filed February 2, 1989).                                                                                                                                                    
|            
|Exhibit 4.1  |  | Rights Agreement, dated January 19, 1989, as amended
(incorporated by reference to Exhibit 4 to the Companys Current
Report on Form 8-K filed February 2, 1989).                                                                                                                                                                            
|            
|Exhibit 4.2  |  | Certificate regarding extension of Final Expiration Date of
Rights Agreement dated January 18, 1999 (incorporated by reference to
Exhibit 4.2 of Amendment No. 2 to the Registration Statement on Form
S-3, filed on May 17, 1999).                                                                                                          
|            
|Exhibit 4.3  |  | Form of 1.75% Convertible Subordinated Note due February 1,
2007 (incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-3, amended on June 28, 2002).                                                                                                                                                             
|            
|Exhibit 4.4  |  | Indenture between the Company, as Issuer, and State Street
Bank and Trust Company of California, N.A., as Trustee, dated January
29, 2002, related to the Companys 1.75% Convertible Subordinated
Notes due February 1, 2007 (incorporated by reference to Exhibit 4.9
to the Registration Statement on Form S-3, amended on June 28, 2002).
|            
|Exhibit 4.5  |  | Registration Rights Agreement between the Company and Credit
Suisse First Boston Corporation dated January 29, 2002, related to
the Companys 1.75% Convertible Subordinated Notes due February 1,
2007 (incorporated by reference to Exhibit 4.10 to the Registration
Statement on Form S-3, amended on June 28, 2002).                     
|            
|Exhibit 10.1 |  | Giganet, Inc. 1995 Stock Option Plan (incorporated by
reference to Exhibit 99.1 to the Companys Registration Statement on
Form S-8, filed March 2, 2001).                                                                                                                                                                                   
|            
|Exhibit 10.2 |  | Emulex Corporation Employee Stock Option Plan, as amended
(incorporated by reference to Appendix B to the Proxy Statement filed
on October 21, 2002).                                                                                                                                                                                        
|            
|Exhibit 10.3 |  | Emulex Corporation 1997 Stock Option Plan for Non-Employee
Directors, as amended (incorporated by reference to Appendix C to the
Companys 2002 Proxy Statement filed on October 21, 2002).                                                                                                                                                  
|            
|Exhibit 10.4 |  | Emulex Corporation Employee Stock Purchase Plan, as amended
(incorporated by reference to Appendix D to the Companys 2002 Proxy
Statement filed on October 21, 2002).                                                                                                                                                                       
|            
|Exhibit 99.1 |  | Certification of Periodic Financial Reports by the Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.