**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM
      10-Q**




(MARK
      ONE)




**[X] QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




**For
      the quarterly period ended September 30, 2006**




**OR**




**[   ]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _____________**




**Commission
      file number 0-25699**









**PLX
      Technology, Inc.**




(Exact
      name of Registrant as Specified in its Charter)




**Delaware**
            **94-3008334**(State or Other Jurisdiction of Incorporation or
                Organization)
            (I.R.S.
                Employer Identification Number)




**870
      Maude Avenue**


**Sunnyvale,
      California  94085**


**(408)
      774-9060**




(Address,
      including zip code, and telephone number, including area code, of registrant's
      principal executive offices)




Securities
      registered pursuant to Section 12(g) of the Act:




Common
      stock, $0.001 par value per share




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes[X] No[ ]





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      One):





Large
      accelerated filer [ ]   Accelerated filer [X]    Non-accelerated filer [ ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes [  ]    No
      [X]




As
      of October
      31, 2006 there
      were 28,396,942
      sharesof common
      stock, par value $0.001 per share,
      outstanding.







**PLX
      TECHNOLOGY, INC.**


**INDEX
        TO**
 **REPORT
        ON FORM 10-Q**
 **FOR
        QUARTER ENDED SEPTEMBER 30, 2006**
 
 **PART
                  I. FINANCIAL INFORMATION**
              **Page**Item
                  1.
              
              
              Financial
                  Statements (Unaudited)Condensed
                  Consolidated Balance Sheets at September 30, 2006 and
                  December 31, 2005
              
              
              3Condensed
                  Consolidated Statements of Operations for the three
                  and nine months ended September 30, 2006 and 2005
              
              
              4Condensed
                  Consolidated Statements of Cash Flows for the nine
                  months ended September 30, 2006 and 2005
              
              
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              
              
              6Item
                  2.
              
              
              Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              
              
              12Item
                  3.
              
              
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              
              
              19Item
                  4.
              
              
              Controls
                  and Procedures
              
              
              19**PART
                  II. OTHER INFORMATION**Item
                  1A.
              
              
              Risk
                  Factors
              
              
              20Item
                  6.
              
              
              Exhibits
              
              
              27Signature
              
              
              
              
              
              28







**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**PLX
      TECHNOLOGY, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(in
      thousands)




**September
                  30,**
              
              **December
                  31,****2006**
              
              **2005
                  (1)**(audited)**ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              30,232
              
              $
              21,028Short-term
                  marketable securities
              
              
              7,488
              
              
              14,015Accounts
                  receivable, net
              
              
              6,810
              
              
              6,203Inventories
              
              
              10,822
              
              
              4,328Other
                  current assets
              
              
              1,189
              
              
              1,842Total
                  current assets
              
              
              56,541
              
              
              47,416Property
                  and equipment, net
              
              
              29,059
              
              
              29,535Long-term
                  marketable securities
              
              
              1,965
              
              
              -Goodwill
              
              
              35,818
              
              
              35,818Other
                  purchased intangible assets
              
              
              3,296
              
              
              4,729Other
                  assets
              
              
              482
              
              
              413Total
                  assets
              
              $
              127,161
              
              $
              117,911**LIABILITIES**Current
                  Liabilities:Accounts
                  payable
              
              $
              5,709
              
              $
              4,530Accrued
                  compensation and benefits
              
              
              2,207
              
              
              1,754Deferred
                  revenues
              
              
              -
              
              
              1,963Accrued
                  commissions
              
              
              529
              
              
              298Other
                  accrued expenses
              
              
              1,319
              
              
              1,877Total
                  current liabilities
              
              
              9,764
              
              
              10,422Commitments**STOCKHOLDERS'
                  EQUITY**Common
                  stock, par value
              
              
              28
              
              
              28Additional
                  paid-in capital
              
              
              125,343
              
              
              118,313Accumulated
                  other comprehensive loss
              
              
              (80
              )
              
              (114
              )Accumulated
                  deficit
              
              
              (7,894
              )
              
              (10,738
              )Total
                  stockholders' equity
              
              
              117,397
              
              
              107,489Total
                  liabilities and stockholders' equity
              
              $
              127,161
              
              $
              117,911


(1)  Derived
      from audited financial statements




See
      accompanying notes to condensed consolidated financial statements.







**PLX
      TECHNOLOGY, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**


(in
      thousands, except per share amounts)




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  revenues
              
              $
              21,046
              
              $
              12,869
              
              $
              60,462
              
              $
              39,276Cost
                  of revenues
              
              
              8,836
              
              
              4,394
              
              
              24,558
              
              
              14,151Gross
                  margin
              
              
              12,210
              
              
              8,475
              
              
              35,904
              
              
              25,125Operating
                  expenses:Research
                  and development
              
              
              5,396
              
              
              4,849
              
              
              15,310
              
              
              13,626Selling,
                  general and administrative
              
              
              5,609
              
              
              3,791
              
              
              17,266
              
              
              12,238Amortization
                  of purchased intangible assets
              
              
              440
              
              
              512
              
              
              1,433
              
              
              1,536Total
                  operating expenses
              
              
              11,445
              
              
              9,152
              
              
              34,009
              
              
              27,400Income
                  (loss) from operations
              
              
              765
              
              
              (677
              )
              
              1,895
              
              
              (2,275
              )Interest
                  income and other, net
              
              
              484
              
              
              222
              
              
              1,247
              
              
              562Income
                  (loss) before provision for income taxes
              
              
              1,249
              
              
              (455
              )
              
              3,142
              
              
              (1,713
              )Provision
                  for income taxes
              
              
              227
              
              
              55
              
              
              298
              
              
              70Net
                  income (loss)
              
              $
              1,022
              
              $
              (510
              )
              $
              2,844
              
              $
              (1,783
              )Basic
                  net income (loss) per share
              
              $
              0.04
              
              $
              (0.02
              )
              $
              0.10
              
              $
              (0.07
              )Shares
                  used to compute basic per share amounts
              
              
              28,241
              
              
              27,482
              
              
              28,070
              
              
              27,067Diluted
                  net income (loss) per share
              
              $
              0.04
              
              $
              (0.02
              )
              $
              0.10
              
              $
              (0.07
              )Shares
                  used to compute diluted per share amounts
              
              
              28,783
              
              
              27,482
              
              
              28,843
              
              
              27,067





See
      accompanying notes to condensed consolidated financial statements.









**PLX
      TECHNOLOGY, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


(in
      thousands)




**Nine
                  Months Ended****September
                  30,****2006**
              
              **2005**Cash
                  flows from operating activitiesNet
                  income (loss)
              
              $
              2,844
              
              $
              (1,783
              )Adjustments
                  to reconcile net income (loss) to cash flows provided by operating
                  activities:Depreciation
                  and amortization
              
              
              1,479
              
              
              1,569Stock-based
                  compensation expense
              
              
              3,625
              
              
              -Amortization
                  of stock-based compensation
              
              
              47
              
              
              152Amortization
                  of purchased intangible assets
              
              
              1,433
              
              
              1,536Other
                  non-cash items
              
              
              (147
              )
              
              128Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (553
              )
              
              (1,371
              )Inventories
              
              
              (6,494
              )
              
              881Other
                  current assets
              
              
              653
              
              
              1,007Other
                  assets
              
              
              (70
              )
              
              (270
              )Accounts
                  payable
              
              
              1,179
              
              
              224Accrued
                  compensation and benefits
              
              
              453
              
              
              17Accrued
                  commissions
              
              
              231
              
              
              (8
              )Deferred
                  revenues
              
              
              (1,963
              )
              
              711Other
                  accrued expenses
              
              
              (558
              )
              
              (97
              )Net
                  cash provided by operating activities
              
              
              2,159
              
              
              2,696Cash
                  flows provided by investing activities:Purchases
                  of marketable securities
              
              
              (12,017
              )
              
              (3,657
              )Sales
                  and maturities of marketable securities
              
              
              16,728
              
              
              10,075Purchase
                  of property and equipment
              
              
              (1,003
              )
              
              (558
              )Net
                  cash provided by investing activities
              
              
              3,708
              
              
              5,860Cash
                  flows provided by financing activities:Proceeds
                  from exercise of common stock options
              
              
              3,358
              
              
              843Proceeds
                  from exercise of warrants
              
              
              -
              
              
              26Net
                  cash provided by financing activities
              
              
              3,358
              
              
              869Effect
                  of exchange rate fluctuations on cash and cash equivalents
              
              
              (21
              )
              
              (31
              )Increase
                  in cash and cash equivalents
              
              
              9,204
              
              
              9,394Cash
                  and cash equivalents at beginning of year
              
              
              21,028
              
              
              9,556Cash
                  and cash equivalents at end of year
              
              $
              30,232
              
              $
              18,950Non-cash
                  investing and financing activities:Common
                  stock issued for the acquisition of NetChip Technology, Inc.
              
              
              -
              
              $
              5,120


See
      accompanying notes to condensed consolidated financial statements.








**PLX
      TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


**1.
        Basis of Presentation**
  The
        accompanying unaudited condensed consolidated financial statements of PLX
        Technology, Inc. and its wholly-owned subsidiaries (collectively, “PLX” or the
“Company”) as of September 30, 2006 and for the three and nine month periods
        ended September 30, 2006 and 2005 have been prepared in accordance with
        generally accepted accounting principles for interim financial information
        and
        with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the
        opinion of management, the unaudited condensed consolidated financial statements
        include all adjustments (consisting only of normal recurring accruals) that
        management considers necessary for a fair presentation of the Company’s
        financial position, operating results and cash flows for the interim periods
        presented. Operating results and cash flows for interim periods are not
        necessarily indicative of results for the entire year.
  The
        unaudited condensed consolidated financial statements include all of the
        accounts of the Company and those of its wholly owned subsidiaries. All
        intercompany accounts and transactions have been eliminated.
  This
        financial data should be read in conjunction with the audited consolidated
        financial statements and notes thereto included in our Annual Report on Form
        10-K for the fiscal year ended December 31, 2005.
  ***Use
        of Estimates***
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect various accounts, including but not limited to
        goodwill, income taxes, inventories, revenue recognition and related sales
        reserves, allowance for doubtful accounts, stock-based compensation and warranty
        reserves as reported in the financial statements and accompanying notes.
        Actual
        results could differ from those estimates and such differences may be material
        to the financial statements.
  ***Comprehensive
        Net Income (Loss)***
  The
        Company’s comprehensive net income (loss) for the three and nine month periods
        ended September 30, 2006 and September 30, 2005 was as follows (in thousands):
 **Three
                    Months Ended**
                
                **Nine
                    Months Ended****September
                    30,**
                
                **September
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Net
                    income (loss)
                
                $
                1,022
                
                $
                (510
                )
                $
                2,844
                
                $
                (1,783
                )Unrealized
                    gain on marketable securities, net
                
                
                16
                
                
                38
                
                
                55
                
                
                62Cumulative
                    translation adjustments
                
                
                (9
                )
                
                (11
                )
                
                (21
                )
                
                (18
                )Comprehensive
                    net income (loss)
                
                $
                1,029
                
                $
                (483
                )
                $
                2,878
                
                $
                (1,739
                )
 ***Revenue
        Recognition***
  PLX
        recognizes revenue when persuasive evidence of an arrangement exists, delivery
        or customer acceptance, where applicable, has occurred, the fee is fixed
        or
        determinable, and collection is reasonably assured.
  Revenue
        from product sales to PLX direct customers and distributors is recognized
        upon
        shipment and transfer of risk of loss, if PLX believes collection is reasonably
        assured and all other revenue recognition criteria are met. PLX assesses
        the
        probability of collection based on a number of factors, including past
        transaction history and the customer’s creditworthiness.  At the end of
        each reporting period, the sufficiency of allowances for doubtful accounts
        is
        assessed based on the age of the receivable and the individual customer’s
        creditworthiness.
 
 In
        the
        first quarter ended March 31, 2006, PLX completed an evaluation of its revenue
        recognition methodology and concluded that it was more appropriate to recognize
        revenues on sales to distributors at the time of shipment to a distributor
        (also
        referred to as the sell-in basis of recognizing revenue). Prior to the first
        quarter, PLX recognized revenues on sales to distributors when the distributor
        resold the product to its end customer (also referred to as the sell-through
        basis of recognizing revenue). Statement of Financial Accounting Standards
        (“SFAS”) No. 48, *Revenue
        Recognition When Right of Return Exists* ,
        sets
        forth conditions that must be met to recognize revenue at the time of shipment.
        Among those conditions is that a company that provides a right of return
        or
        pricing concession to a buyer be able to reasonably estimate the amount of
        future returns or pricing concessions. In the past, PLX had concluded that
        it
        did not meet this condition and therefore used the sell-through basis of
        revenue
        recognition. In the first quarter of 2006, PLX concluded that it is able
        to
        reasonably estimate returns and pricing concessions, and therefore has
        implemented the sell-in method of accounting for sales to distributors. PLX
        recognized an additional $2.8 million in revenues during the first quarter
        of
        2006 as a result of this change.
 
 As
        of
        September 30, 2006, PLX has controls in place to monitor sales returns from
        and
        pricing concessions to its distributors. PLX uses data from a variety of
        controls, such as monthly monitoring of distributor inventory levels, Returns
        Material Authorization controls and regular monitoring of distributor pricing
        concession and product rotation requests. PLX uses this data to arrive at
        a
        reasonable estimate on sales returns from and pricing concessions to its
        distributors.
 
 ***Recent
        Accounting Pronouncements***
  In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
        (“FIN”) No. 48, *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement
        No. 109* .
        This
        Interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return, and provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure, and transition. SFAS 157 is effective for fiscal years beginning
        after December 15, 2006. The Company is currently assessing the impact of
        SFAS 157 on its financial statements.
  In
        September 2006, FASB issued SFAS No. 157, *Fair
        Value Measurements* . 
        SFAS 157 defines fair value, establishes a framework for measuring fair value
        in
        generally accepted accounting principles (“GAAP”) and expands disclosures about
        fair value measurements. SFAS 157 is effective for fiscal years beginning
        after
        November 15, 2007 and interim periods within those fiscal years. The
        Company is currently evaluating the effect that the adoption of SFAS 157
        will
        have on its financial position and results of operations.
 
 **2.**  **Stock
        Based Compensation**
 
 ***Stock
        Option Plans***
 
 In
        January 1998, the Company’s stockholders approved the 1998 Stock Incentive Plan
        (“1998 Plan”). Under the 1998 Plan, options generally vest over four years and
        have a maximum term of 10 years. The Board of Directors generally establishes
        the exercise price as the closing price quoted on NASDAQ on the date of grant.
        In addition to stock options, the 1998 Plan allows for the grant of restricted
        stock, stock appreciation rights, performance shares, performance units,
        dividends and dividend equivalents.
 
 In
        January 1999, the Company’s stockholders approved the 1999 Stock Incentive Plan
        (“1999 Plan”). The 1999 Plan has substantially the same terms as the 1998 Plan.
 
 ***Stock-Based
        Compensation Expense***
 
 On
        January 1, 2006, the Company adopted SFAS No. 123 (revised
        2004), *Share-Based Payment* ,
        (“SFAS
        123R”) which establishes standards for the accounting of transactions in which
        an entity exchanges its equity instruments for goods or services, primarily
        focusing on accounting for transactions where an entity obtains employee
        services in share-based payment transactions. SFAS 123R requires a public
        entity
        to measure the cost of employee services received in exchange for an award
        of
        equity instruments, including stock options, based on the grant-date fair
        value
        of the award and to recognize it as compensation expense over the period
        the
        employee is required to provide service in exchange for the award, usually
        the
        vesting period. SFAS 123R supersedes the Company’s previous accounting under
        Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB
        25”) for periods beginning in fiscal 2006. In March 2005, the Securities and
        Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”)
        relating to SFAS 123R. The Company has applied the provisions of SAB 107
        in its
        adoption of SFAS 123R.
  The
        Company adopted SFAS 123R using the modified prospective transition method,
        which requires the application of the accounting standard as of January 1,
        2006,
        the first day of the Company’s fiscal year 2006. The Company’s Condensed
        Consolidated Financial Statements as of and for the three and nine months
        ended
        September 30, 2006 reflect the impact of SFAS 123R. In accordance with the
        modified prospective transition method, the Company’s Condensed Consolidated
        Financial Statements for prior periods have not been restated to reflect,
        and do
        not include, the impact of SFAS 123R.
  SFAS
        123R
        requires companies to estimate the fair value of share-based payment awards
        on
        the date of grant using an option-pricing model. The value of the portion
        of the
        award that is ultimately expected to vest is recognized as expense over the
        requisite service periods in the Company’s Condensed Consolidated Statements of
        Operations. Prior to the adoption of SFAS 123R, the Company accounted for
        stock-based awards to employees and directors using the intrinsic value method
        in accordance with APB 25 as allowed under SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFAS
        123”). Under the intrinsic value method, no stock-based compensation expense
        had
        been recognized in the Company’s Consolidated Statements of Operations, other
        than as related to option grants to employees and directors below the fair
        market value of the underlying stock at the date of grant.
  Stock-based
        compensation expense recognized during the period is based on the value of
        the
        portion of share-based payment awards that is ultimately expected to vest
        during
        the period. Stock-based compensation expense recognized in the Company’s
        Condensed Consolidated Statements of Operations for the first nine months
        of
        fiscal 2006 included compensation expense for share-based payment awards
        granted
        prior to, but not yet vested as of December 31, 2005 based on the grant date
        fair value estimated in accordance with the pro forma provisions of SFAS
        123 and
        compensation expense for the share-based payment awards granted subsequent
        to
        December 31, 2005 based on the grant date fair value estimated in accordance
        with the provisions of SFAS 123R. As stock-based compensation expense recognized
        in the Condensed Consolidated Statement of Operations for the first nine
        months
        of  fiscal
        2006 is based on awards ultimately expected to vest, it has been reduced
        for
        estimated forfeitures. SFAS 123R requires forfeitures to be estimated at
        the
        time of grant and revised, if necessary, in subsequent periods if actual
        forfeitures differ from those estimates. Our estimated forfeiture rate for
        the
        three and nine months ended September 30, 2006 of approximately 30% was based
        on
        historical forfeiture experience to anticipate actual forfeitures in the
        future.
        In the Company’s pro forma information required under SFAS 123 for the periods
        prior to fiscal 2006, the Company accounted for forfeitures as they
        occurred.
  SFAS
        123R
        requires the cash flows resulting from the tax benefits generated from tax
        deductions in excess of the compensation cost recognized for those options
        to be
        classified as financing cash flows. Prior to the adoption of SFAS 123R those
        benefits would have been reported as operating cash flows had the Company
        received any tax benefits related to stock option exercises.
  The
        fair
        value of stock-based awards to employees is calculated using the Black-Scholes
        option pricing model, even though this model was developed to estimate the
        fair
        value of freely tradable, fully transferable options without vesting
        restrictions, which differ significantly from the Company’s stock options. The
        Black-Scholes model requires subjective assumptions, including future stock
        price volatility and expected time to exercise, which greatly affect the
        calculated values. The expected term of options granted is derived from
        historical data on employee exercises and post-vesting employment termination
        behavior. The risk-free rate is based on the U.S Treasury rates in effect
        during
        the corresponding period of grant. The
        Company calculated its expected volatility assumption required in the
        Black-Scholes model by blending the historical volatility of its stock with
        the
        implied volatility for traded options on its stock. These
        factors could change in the future, which would affect the stock-based
        compensation expense in future periods.
  ***Valuation
        and Expense Information Under SFAS 123R***
  The
        weighted-average fair value of stock-based compensation to employees is based
        on
        the multiple option valuation approach. Forfeitures are estimated and it
        is
        assumed no dividends will be declared. The estimated fair value of stock-based
        compensation awards to employees is amortized using the straight-line method
        over the vesting period of the options. The weighted-average fair value
        calculations are based on the following average assumptions:
  **Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2006**
              
              **September
                  30, 2006**Risk-free
                  interest rate
              
              
              4.50
              %
              
              4.80
              %Expected
                  volatility
              
              
              0.67
              
              
              0.68Expected
                  life (years)
              
              
              4.39
              
              
              4.39




The
      following table shows total stock-based compensation expense described for
      the
      three and nine months ended September 30, 2006, included in the Condensed
      Consolidated Statements of Operations (in thousands):


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2006**
              
              **September
                  30, 2006**Cost
                  of revenues
              
              $
              13
              
              $
              38Research
                  and development
              
              
              471
              
              
              1,476Selling,
                  general and administrative
              
              
              673
              
              
              2,111Pre-tax
                  stock-based compensation expense
              
              
              1,157
              
              
              3,625Income
                  tax
              
              
              -
              
              
              -Net
                  stock-based compensation expense
              
              $
              1,157
              
              $
              3,625




A
      summary
      of option activity under the Company’s stock equity plans during the nine months
      ended September 30, 2006 is as follows:


**Weighted
                  Average****Remaining**
              
              **Aggregate****Options
                  Available**
              
              **Number
                  of**
              
              **Weighted
                  Average**
              
              **Contractual
                  Term**
              
              **Intrinsic****Options**
              
              **for
                  Grant**
              
              **Shares**
              
              **Exercise
                  Price**
              
              **(in
                  years)**
              
              **Value**Outstanding
                  at December 31, 2005
              
              
              1,032,905
              
              
              4,483,051
              
              $
              10.57Granted
              
              
              (604,250
              )
              
              604,250
              
              
              12.86Exercised
              
              
              -
              
              
              (292,537
              )
              
              5.17Cancelled
              
              
              218,979
              
              
              (220,441
              )
              
              14.19Outstanding
                  at March 31, 2006
              
              
              647,634
              
              
              4,574,323
              
              $
              11.04
              
              
              5.94
              
              $
              15,280,392Authorized
              
              
              800,000
              
              
              -
              
              
              -Granted
              
              
              (109,500
              )
              
              109,500
              
              
              12.33Exercised
              
              
              -
              
              
              (202,151
              )
              
              4.86Cancelled
              
              
              125,965
              
              
              (127,512
              )
              
              11.84Outstanding
                  at June 30, 2006
              
              
              1,464,099
              
              
              4,354,160
              
              $
              11.33
              
              
              5.71
              
              $
              12,537,148Authorized
              
              
              -
              
              
              -
              
              
              -Granted
              
              
              (57,000
              )
              
              57,000
              
              
              10.02Exercised
              
              
              -
              
              
              (146,928
              )
              
              5.89Cancelled
              
              
              326,577
              
              
              (326,577
              )
              
              16.23Outstanding
                  at September 30, 2006
              
              
              1,733,676
              
              
              3,937,655
              
              $
              11.11
              
              
              5.52
              
              $
              6,777,704Exercisable
                  at September 30, 2006
              
              
              
              
              
              2,417,338
              
              $
              11.52
              
              
              4.96
              
              $
              5,234,192


The
      Black-Scholes weighted average fair values of options granted during the three
      months ended September 30, 2006 and 2005 were $5.58 and $6.91,
      respectively.





The
      Black-Scholes weighted average fair values of options granted during the nine
      months ended September 30, 2006 and 2005 were $7.18 and $6.58,
      respectively.





The
      following table summarizes ranges of outstanding and exercisable options as
      of
      September 30, 2006:


**Options
                  Outstanding**
              
              **Options
                  Exercisable****Weighted
                  Average****Remaining**
              
              **Weighted**
              
              
              
              **Weighted****Contractual
                  Term**
              
              **Average**
              
              
              
              **Average****Range
                  of Exercise Prices**
              
              **Number**
              
              **(in
                  years)**
              
              **Exercise
                  Price**
              
              **Number**
              
              **Exercise
                  Price**$0.88
                  - $7.65
              
              
              742,279
              
              
              5.18
              
              $
              4.73
              
              
              573,522
              
              $
              4.32$7.70
                  - $8.90
              
              
              869,715
              
              
              5.39
              
              
              8.36
              
              
              540,451
              
              
              8.16$9.00
                  - $9.55
              
              
              666,478
              
              
              5.98
              
              
              9.20
              
              
              466,541
              
              
              9.15$9.96
                  - $13.00
              
              
              815,750
              
              
              6.39
              
              
              12.13
              
              
              52,227
              
              
              11.52$13.11
                  - $25.94
              
              
              839,433
              
              
              4.73
              
              
              20.07
              
              
              780,597
              
              
              20.48$27.00
                  - $27.00
              
              
              4,000
              
              
              3.84
              
              
              27.00
              
              
              4,000
              
              
              27.00Total
              
              
              3,937,655
              
              
              5.52
              
              $
              11.11
              
              
              2,417,338
              
              $
              11.52


The
      total
      intrinsic value of options exercised during the three and nine months ended
      September 30, 2006 was approximately $0.6 million and $3.9 million,
      respectively. As of September 30, 2006, total unrecognized compensation costs
      related to nonvested stock options including estimated forfeitures was $4.0
      million which is expected to be recognized as expense over a weighted average
      period of approximately 1.31 years.





***Pro
      Forma Information Under SFAS 123 for Periods Prior to Fiscal
      2006***




Prior
      to
      fiscal 2006, the weighted-average fair value of stock-based compensation to
      employees was based on the multiple option valuation approach. Forfeitures
      were
      recognized as they occurred and it was assumed no dividends would be declared.
      The estimated fair value of stock-based compensation awards to employees was
      amortized ratably over the vesting period of the options. The weighted-average
      fair value calculations were based on the following weighted-average
      assumptions:




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2005**Risk-free
                  interest rate
              
              
              4.03
              %
              
              3.94
              %Volatility
              
              
              0.98
              
              
              1.00Expected
                  life (years)
              
              
              4.75
              
              
              4.75





Pro
      forma
      results are as follows (in thousands except per share amounts):


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2005**Net
                  loss as reported
              
              $
              (510
              )
              $
              (1,783
              )Add:
                  Stock-based compensation included in reported net loss
              
              
              20
              
              
              152Deduct:
                  Stock-based compensation cost under SFAS 123
              
              
              (1,295
              )
              
              (4,042
              )Pro
                  forma net loss
              
              $
              (1,785
              )
              $
              (5,673
              )Pro
                  forma basic and diluted net loss per common share:Pro
                  forma shares used in the calculation of pro formanet
                  loss per common share - basic and diluted
              
              
              27,482
              
              
              27,067Pro
                  forma net loss per common share - basic and diluted
              
              $
              (0.06
              )
              $
              (0.21
              )Reported
                  net loss per common share - basic and diluted
              
              $
              (0.02
              )
              $
              (0.07
              )





**3.**  **Inventories**





Inventories
      are valued at the lower of cost (first-in, first-out method) or market (net
      realizable value). Inventories were as follows (in thousands):




**September
                  30,**
              
              **December
                  31,****2006**
              
              **2005**(in
                  thousands)Work-in-process
              
              $
              1,940
              
              $
              1,605Finished
                  goods
              
              
              8,882
              
              
              2,723Total
              
              $
              10,822
              
              $
              4,328
  **4.
      Net Income (Loss) Per Share**





The
      following table sets forth the computation of basic and diluted net income
      (loss) per share (in thousands, except per share data):


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  income (loss)
              
              $
              1,022
              
              $
              (510
              )
              $
              2,844
              
              $
              (1,783
              )Weighted
                  average shares of common stock outstanding
              
              
              28,241
              
              
              27,482
              
              
              28,070
              
              
              27,067Net
                  income (loss) per share - basic
              
              $
              0.04
              
              $
              (0.02
              )
              $
              0.10
              
              $
              (0.07
              )Shares
                  used in computing basic net income (loss) per share
              
              
              28,241
              
              
              27,482
              
              
              28,070
              
              
              27,067Dilutive
                  effect of stock options
              
              
              542
              
              
              -
              
              
              773
              
              
              -Shares
                  used in computing diluted net income (loss) per share
              
              
              28,783
              
              
              27,482
              
              
              28,843
              
              
              27,067Net
                  income (loss) per share - diluted
              
              $
              0.04
              
              $
              (0.02
              )
              $
              0.10
              
              $
              (0.07
              )





Weighted
      average employee stock options to purchase approximately 1.6 million shares
      for
      each of the three and nine month periods ended September 30, 2006 were
      outstanding, but was
      not
      included in the computation of diluted earnings per share because the exercise
      price of the stock options was greater than the average share price of the
      common shares and, therefore, the effect would have been
      anti-dilutive.





The
      Company incurred a net loss for the three and nine month periods ended September
      30, 2005. Therefore, the effect of dilutive securities of approximately 4.5
      million equivalent shares for each of the three and nine month periods ended
      September 30, 2005 was excluded from the computation of diluted loss per share
      as their impact would be anti-dilutive. Dilutive securities include only stock
      options.





**5.
      Segments of an Enterprise and Related Information**




The
      Company has one operating segment, the sale of semiconductor devices. The Chief
      Executive Officer has been identified as the Chief Operating Decision Maker
      (CODM) because he has final authority over resource allocation decisions and
      performance assessment. The CODM does not receive discrete financial information
      about individual components of the Company’s business.





Revenues
      by geographic region based on customer location were as follows (in
      thousands):




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Revenues:
              
              
              (in
                  thousands)
              
              
              
              
              
              (in
                  thousands)United
                  States
              
              $
              5,316
              
              $
              3,578
              
              $
              14,915
              
              $
              10,865Taiwan
              
              
              4,344
              
              
              1,285
              
              
              11,380
              
              
              3,448Europe
              
              
              2,618
              
              
              2,145
              
              
              7,660
              
              
              6,388Singapore
              
              
              2,570
              
              
              1,991
              
              
              9,022
              
              
              5,056Japan
              
              
              2,210
              
              
              1,020
              
              
              5,970
              
              
              3,274China
              
              
              2,022
              
              
              1,474
              
              
              5,844
              
              
              5,516The
                  Americas - excluding United States
              
              
              1,119
              
              
              653
              
              
              2,983
              
              
              1,910Asia
                  - excluding Taiwan, Singapore, Japan and China
              
              
              847
              
              
              723
              
              
              2,688
              
              
              2,819Total
              
              $
              21,046
              
              $
              12,869
              
              $
              60,462
              
              $
              39,276


For
      the
      three months ended September 30, 2006, two distributors accounted for 31% and
      11%, respectively, of net revenues. As of September 30, 2006, the same two
      distributors accounted for 39% and 12%, respectively, of the total accounts
      receivable balance. For the same period in 2005, one distributor accounted
      for
      24% of net revenues. As of September 30, 2005, the same distributor accounted
      for 26% of the total accounts receivable balance. For both of these periods,
      no
      other individual direct customer or distributor represented greater than 10%
      of
      net revenues.




For
      the
      nine months ended September 30, 2006, two distributors accounted for 30% and
      11%, respectively, of net revenues. For the same period in 2005, one distributor
      accounted for 25% of net revenues. For both of these periods, no other
      individual direct customer or distributor represented greater than 10% of net
      revenues.




**6.
      Income Taxes**




Net
      income tax expense of $298,000 has been recorded for the nine month period
      ended
      September 30, 2006, compared to income tax expense of $70,000 for the same
      period in 2005. Income tax expense for the nine months ended September 30,
      2006
      was comprised of federal alternative minimum tax, miscellaneous state income
      taxes and foreign income taxes currently payable, partially offset by a $0.6
      million tax benefit for a release of tax reserves in the first quarter ended
      March 31, 2006. For the same period in 2005, the provision for income taxes
      related to projected federal, state and foreign taxes payable.




Deferred
      tax assets are recognized when there is sufficient evidence that it is more
      likely than not that such deferred tax assets will be realized. The Company
      has
      determined that such evidence does not currently exist. Therefore, a full
      valuation allowance has been established to reserve the Company's net deferred
      tax assets. However, in light of current operating results, the Company is
      reviewing the realizability of the asset balance in conjunction with preparing
      its 2007 business plan and upon completing this analysis in the fourth quarter
      of 2006, the Company will determine whether it is appropriate to adjust the
      valuation allowance.





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





This
      Report on Form 10-Q contains forward-looking statements within the "safe
      harbor" provisions of the Private Securities Litigation Reform Act of 1995,
      including statements regarding our expectations, hopes, intentions, beliefs
      or
      strategies regarding the future. Such forward-looking statements also include
      statements regarding our future gross margin, our future research and
      development expenses, our future selling, general and administrative expenses,
      our ability to meet our capital requirements for the next twelve months, our
      future capital requirements, current high turns fill requirements and our
      anticipation that sales to a small number of customers will account for a
      significant portion of our sales. Actual results could differ materially from
      those projected in such forward-looking statements. Factors that could cause
      actual results to differ include unexpected changes in the mix of our product
      sales, unexpected pricing pressures, or unexpected capital requirements that
      may
      arise due to other possible acquisitions or other events, unanticipated changes
      in the businesses of our suppliers, and unanticipated cash shortfalls. Actual
      results could also differ for the reasons noted under the sub-heading “Factors
      That May Affect Future Operating Results” in Item 1A, Risk Factors in Part II of
      this report on Form 10-Q and in other sections of this report on Form 10-Q.
      All
      forward-looking statements included in this Form 10-Q are based on
      information available to us on the date of this report on Form 10-Q, and we
      assume no obligation to update the forward-looking statements, or to update
      the
      reasons why actual results could differ from those projected in the
      forward-looking statements.





The
      following discussion should be read in conjunction with the audited consolidated
      financial statements and the notes thereto included in our Annual Report on
      Form
      10-K for the fiscal year ended December 31, 2005.





**OVERVIEW**




PLX
      was
      founded in 1986, and between 1994 and 2002 we focused on the development of
      I/O
      interface semiconductors and related software and development tools that are
      used in systems incorporating the PCI standard. In 1994 and 1995, a significant
      portion of our revenues were derived from the sale of semiconductor devices
      that
      perform similar functions as our current products, except they were based on
      a
      variety of industry standards. Our revenues since 1996 have been derived
      predominantly from the sale of semiconductor devices based on the PCI standard
      to a large number of customers in a variety of applications including networking
      and telecommunications, enterprise storage, imaging, industrial and other
      embedded applications as well as in related adapter cards. In 2002, we shifted
      the majority of our development efforts to PCI Express. In September 2004,
      we
      began shipping products based on the PCI Express standard for next-generation
      systems. We generate less than 2% of our revenues from sales of our software
      and
      development tools.




In
      May
      2003, we acquired HiNT Corporation which markets and sells PCI and PCI-X Bridge
      products into a variety of applications including networking and
      telecommunications, personal computer peripheral, imaging, industrial and other
      embedded applications. Beginning with the quarter ended June 30, 2003, our
      operating results include results of HiNT Corporation and its
      products.




In
      May
      2004, we acquired NetChip Technology, Inc. which markets and sells USB Device
      Controllers used in a range of peripheral and consumer applications, including
      printers, wireless LAN adapters, personal video recorders, and GPS systems.
      Beginning with the quarter ended June 30, 2004, our operating results include
      results of NetChip Technology, Inc. and its products.




We
      utilize a “fabless” semiconductor business model whereby we purchase wafers or
      packaged and tested semiconductor devices from independent manufacturing
      foundries. This approach allows us to focus on defining, developing, and
      marketing our products and eliminates the need for us to invest large amounts
      of
      capital in manufacturing facilities and work-in-process inventory.





We
      rely
      on a combination of direct sales personnel, distributors and manufacturers’
representatives throughout the world to sell a significant portion of our
      products. We pay manufacturers’ representatives a commission on sales while we
      sell products to distributors at a discount from the selling price.





Our
      gross
      margins have fluctuated in the past and are expected to fluctuate in the future
      due to changes in product and customer mix, write-downs and recoveries of excess
      or obsolete inventory, the position of our products in their respective life
      cycles, and specific product manufacturing costs.





The
      time
      period between initial customer evaluation and design completion can range
      from
      six to twelve months or more. Furthermore, there is typically an additional
      six
      to twelve month or greater period after design completion before a customer
      requests volume production of our products. Due to the variability and length
      of
      these design cycles and variable demand from customers, we may experience
      significant fluctuations in new orders from month to month. In addition, we
      typically make inventory purchases prior to receiving customer orders.
      Consequently, if anticipated sales and shipments in any quarter do not occur
      when expected, expenses and inventory levels could be disproportionately high,
      and our results for that quarter and potentially future quarters would be
      materially and adversely affected.





Our
      long-term success will depend on our ability to introduce new products. While
      new products typically generate little or no revenues during the first twelve
      months following their introduction, our revenues in subsequent periods depend
      upon these new products. Due to the lengthy sales cycle and additional time
      before our customers request volume production, significant revenues from our
      new products typically occur twelve to twenty-four months after product
      introduction. As a result, revenues from newly introduced products have, in
      the
      past, produced a small percentage of our total revenues in the year the product
      was introduced. See -“Our Lengthy Sales Cycle Can Result in Uncertainty and
      Delays with Regard to Our Expected Revenues” in Item 1A, Risk Factors, in Part
      II of this report on Form 10-Q.





**RESULTS
      OF OPERATIONS**





The
      following table summarizes historical results of operations as a percentage
      of
      net revenues for the periods shown.


**Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2006**
              
              
              **2005**
              
              
              **2006**
              
              
              **2005**Net
                  revenues
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of revenues
              
              42.0
              
              
              34.1
              
              
              40.6
              
              
              36.0Gross
                  margin
              
              58.0
              
              
              65.9
              
              
              59.4
              
              
              64.0Operating
                  expenses:Research
                  and development
              
              25.6
              
              
              37.7
              
              
              25.3
              
              
              34.7Selling,
                  general and administrative
              
              26.7
              
              
              29.5
              
              
              28.6
              
              
              31.2Amortization
                  of purchased intangible assets
              
              2.1
              
              
              4.0
              
              
              2.4
              
              
              3.9Total
                  operating expenses
              
              54.4
              
              
              71.2
              
              
              56.3
              
              
              69.8Income
                  (loss) from operations
              
              3.6
              
              
              (5.3)
              
              
              3.1
              
              
              (5.8)Interest
                  income and other, net
              
              2.3
              
              
              1.7
              
              
              2.1
              
              
              1.4Income
                  (loss) before provision for income taxes
              
              5.9
              
              
              (3.6)
              
              
              5.2
              
              
              (4.4)Provision
                  for income taxes
              
              1.1
              
              
              0.4
              
              
              0.5
              
              
              0.2Net
                  income (loss)
              
              4.8
              %
              
              (4.0)
              %
              
              4.7
              %
              
              (4.6)
              %





**Net
      Revenues**





Net
      revenues consist of product revenues generated principally by sales of our
      semiconductor devices. Net revenues for the three months ended September 30,
      2006 were $21.0 million, an increase of 63.5% from $12.9 million for the three
      months ended September 30, 2005. The increase was primarily due to the increased
      unit shipments of our PCI Express products due to the general market adoption
      of
      the PCI Express standard, higher sales of our PCI I/O devices, and higher sales
      of our USB products across a broad set of customers. For the three months ended
      September 30, 2006, sales of our PCI I/O devices, PCI Express products and
      USB
      products accounted for 60.5%, 21.8%, and 17.7%, respectively, of our total
      net
      revenues. For the three months ended September 30, 2005, sales of our PCI I/O
      devices, PCI Express products and USB products accounted for 80.8%, 4.9%, and
      14.3%, respectively, of our total net revenues.




For
      the
      three months ended September 30, 2006, two distributors accounted for 31% and
      11% of net revenues. For the same period in 2005, one distributor accounted
      for
      24% of net revenues. For both of these periods, no other individual direct
      customer or distributor represented greater than 10% of net revenues.




In
      the
      first quarter ended March 31, 2006, PLX completed an evaluation of its revenue
      recognition methodology and concluded that it was more appropriate to recognize
      revenues on sales to distributors at the time of shipment to a distributor
      (also
      referred to as the sell-in basis of recognizing revenue). Prior to the first
      quarter, PLX recognized revenues on sales to distributors when the distributor
      resold the product to its end customer (also referred to as the sell-through
      basis of recognizing revenue). SFAS No. 48, *Revenue
      Recognition When Right of Return Exists* ,
      sets
      forth conditions that must be met to recognize revenue at the time of shipment.
      Among those conditions is that a company that provides a right of return or
      pricing concession to a buyer be able to reasonably estimate the amount of
      future returns or pricing concessions. In the past, PLX had concluded that
      it
      did not meet this condition and therefore used the sell-through basis of revenue
      recognition. In the first quarter of 2006, PLX concluded that it is reasonably
      able to estimate returns and pricing concessions, and therefore has implemented
      the sell-in method of accounting for sales to distributors. PLX recognized
      an
      additional $2.8 million in revenues during the first quarter of 2006 as a result
      of this change.





Net
      revenues for the nine months ended September 30, 2006 were $60.5 million, an
      increase of 53.9% from $39.3 million for the nine months ended September 30,
      2005. The
      increase was primarily due to the increased unit shipments of our PCI Express
      products due to the general market adoption of the PCI Express standard, higher
      sales of our USB products across a broad set of customers and higher sales
      of
      our PCI I/O devices. Included in net revenues for the nine months ended
      September 30, 2006 is an increase of $2.8 million related to the change in
      our
      estimates for revenues to distributors. For the nine months ended September
      30,
      2006, sales of our PCI I/O devices, PCI Express products and USB products
      accounted for 60.8%, 20.7%, and 18.5%, respectively, of our total net revenues.
      For the nine months ended September 30, 2005, sales of our PCI I/O devices,
      PCI
      Express products and USB products accounted for 81.4%, 3.9%, and 14.7%,
      respectively, of our total net revenues.




For
      the
      nine months ended September 30, 2006, two distributors accounted for 30% and
      11%
      of net revenues. For the same period in 2005, one distributor accounted for
      25%
      of net revenues. For both of these periods, no other individual direct customer
      or distributor represented greater than 10% of net revenues.




Customer
      demand for semiconductors can change quickly and unexpectedly.  Our revenue
      levels have been highly dependent on the amount of new orders that are received
      for products to be delivered to the customer within the same quarter, also
      called “turns fill” orders.  Because of the long cycle time to build our
      products and our lack of visibility into demand when turns fill orders are
      high,
      it is difficult to predict which products to build to match future demand. 
We believe the current high turns fill requirements will continue
      indefinitely.  The sustainability of improved customer demand is
      uncertain and highly dependent on economic conditions.  The high turns fill
      orders requirement together with the uncertainty of product mix and pricing,
      makes it difficult to predict future levels of sales and profitability and
      may
      require us to carry higher levels of inventory.





**Gross
      Margin**





Gross
      margin represents net revenues less the cost of revenues. Cost of revenues
      includes the cost of (1) purchasing semiconductor devices or wafers from our
      independent foundries, (2) package, assembly and test services from our
      independent foundries, assembly contractors and test contractors and (3) our
      operating costs associated with the procurement, storage, and shipment of
      products as allocated to production.





Gross
      margin for the three months ended September 30, 2006 was 58.0%, as compared
      to
      65.9% for the same period in 2005. In absolute dollars, gross margin increased
      by $3.7 million or 44.1% to $12.2 million for the three months ended September
      30, 2006 from $8.5 million for the same period in 2005. The decrease in gross
      margin as a percent of sales for the three months ended September 30, 2006
      when
      compared to the same period in 2005 was primarily attributable to higher sales
      of PCI Express and USB products, which yield lower margins relative to the
      PCI
      I/O devices and lower production yields on certain first generation PCI Express
      products.





Gross
      margin for the nine months ended September 30, 2006 was 59.4%, as compared
      to
      64.0% for the same period in 2005. In absolute dollars, gross margin increased
      by $10.8 million or 42.9% to $35.9 million for the nine months ended September
      30, 2006 from $25.1 million for the same period in 2005. Gross margin for the
      nine months ended September 30, 2006 includes an increase of $1.9 million
      related to the change in our estimates for revenues to distributors. The
      decrease in gross margin as a percent of sales for the nine months ended
      September 30, 2006 when compared to the same period in 2005 was primarily
      attributable to higher sales of PCI Express and USB products, which yield lower
      margins relative to the PCI I/O devices and lower production yields on certain
      first generation PCI Express products.





Future
      gross profit and gross margin are highly dependent on the product and customer
      mix, write-downs and recoveries of excess or obsolete inventory, the position
      of
      our products in their respective life cycles, and specific manufacturing costs.
      Accordingly, we are not able to predict future gross profit levels or gross
      margins with certainty.





**Research
      and Development Expenses**





Research
      and development (“R&D”) expenses consist primarily of salaries and related
      costs of employees engaged in research, design, and development activities.
      In
      addition, expenses for outside engineering consultants and engineering tooling
      costs at our independent foundries are included in research and development
      expenses. Beginning on January 1, 2006, stock-based compensation expenses as
      prescribed by SFAS123R is included in research and development expenses. The
      focus of our R&D efforts is to bring new products, as well as new versions
      of existing products, to market.





R&D
      as a percentage of net revenues decreased to 25.6% for the three months ended
      September 30, 2006, as compared to 37.7% for the same period in 2005. The
      percentage decrease is due primarily to an increase in net revenues, partially
      offset by an increase in stock-based compensation expense. In absolute dollars,
      R&D expenses increased by $0.6 million or 11.3% to $5.4 million for the
      three months ended September 30, 2006 from $4.8 million for the same period
      in
      2005. The increase in R&D was due to the expensing of $0.5 million in
      stock-based compensation expense beginning on January 1, 2006 as well as higher
      compensation and benefit expenses of $0.1 million.





R&D
      as a percentage of net revenues decreased to 25.3% for the nine months ended
      September 30, 2006, as compared to 34.7% for the same period in 2005. The
      percentage decrease is due primarily to an increase in net revenues, partially
      offset by an increase in stock-based compensation expense. In absolute dollars,
      R&D expenses increased by $1.7 million or 12.4% to $15.3 million for the
      nine months ended September 30, 2006 from $13.6 million for the same period
      in
      2005. The increase in R&D was due primarily to the expensing of $1.5 million
      in stock-based compensation expense beginning on January 1, 2006.





We
      believe continued spending on research and development to develop new products
      is critical to our success and, consequently, expect research and development
      expenses to increase in absolute dollars in future periods.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses consist primarily of
      employee-related expenses, professional fees, trade show and other promotional
      expenses, and sales commissions to manufacturers’ representatives. Also,
      beginning on January 1, 2006, stock-based compensation expenses as prescribed
      by
      SFAS123R is included in selling, general and administrative expenses.




SG&A
      as a percentage of net revenues decreased to 26.7% for the three months ended
      September 30, 2006, as compared to 29.5% for the same period in 2005. The
      percentage decrease is due primarily to an increase in net revenues, partially
      offset by an increase in stock-based compensation expense. In absolute dollars,
      SG&A expenses increased by $1.8 million or 48.0% to $5.6 million for the
      three months ended September 30, 2006 from $3.8 million for the same period
      in
      2005. The increase in SG&A was due primarily to the expensing of $0.7
      million in stock-based compensation expense beginning on January 1, 2006 as
      well
      as increases in (1) compensation and benefit expenses of $0.4 million, (2)
      professional fees of $0.2 million, and (3) commission expense of $0.2 million
      resulting from higher revenues.





SG&A
      as a percentage of net revenues decreased to 28.6% for the nine months ended
      September 30, 2006, as compared to 31.2% for the same period in 2005. The
      percentage decrease is due primarily to an increase in net revenues, partially
      offset by an increase in stock-based compensation expense. In absolute dollars,
      SG&A expenses increased by $5.1 million or 41.1% to $17.3 million for the
      nine months ended September 30, 2006 from $12.2 million for the same period
      in
      2005. The increase in SG&A was due primarily to the expensing of $2.1
      million in stock-based compensation expense beginning on January 1, 2006 as
      well
      as increases in (1) compensation and benefit expenses of $1.3 million due to
      increased headcount, (2) commission expense of $0.5 million resulting mainly
      from higher revenues, (3) subsidiary expenses of $0.4 million due to the
      establishment of our Taiwan and China offices, (4) travel expenses of $0.2
      million, and (5) employee expenses of $0.2 million.




We
      expect
      SG&A expenses in absolute dollars to likely increase in future
      periods.




**Amortization
      of Purchased Intangible Assets**





Amortization
      of purchased intangible assets decreased by $0.1 million or 14.1% to $0.4
      million for the three months ended September 30, 2006 from $0.5 million for
      the
      same period in 2005. Amortization of purchased intangible assets consists of
      amortization expense related to developed/core technology and customer base
      acquired as a result of the HiNT Corporation acquisition in May 2003 and NetChip
      Technology, Inc. acquisition in May 2004.





Amortization
      of purchased intangible assets decreased by $0.1 million or 6.7% to $1.4 million
      for the nine months ended September 30, 2006 from $1.5 million for the same
      period in 2005. Amortization of purchased intangible assets consists of
      amortization expense related to developed/core technology and customer base
      acquired as a result of the HiNT Corporation acquisition in May 2003 and NetChip
      Technology, Inc. acquisition in May 2004.





**Interest
      Income and Other, Net**





Interest
      income reflects interest earned on cash, cash equivalents, short-term marketable
      securities and long-term marketable securities balances. Interest income and
      other increased by $0.3 million to $0.5 million for the three months ended
      September 30, 2006 from $0.2 million from the same period in 2005. The increase
      was primarily due to higher cash and investment balances and higher interest
      rates.





Interest
      income and other increased by $0.6 million to $1.2 million for the nine months
      ended September 30, 2006 from $0.6 million from the same period in 2005. The
      increase was primarily due to higher cash and investment balances and higher
      interest rates.





**Provision
      for Income Taxes**





Net
      income tax expense of $298,000 has been recorded for the nine month period
      ended
      September 30, 2006, compared to income tax expense of $70,000 for the same
      period in 2005. Income tax expense for the nine months ended September 30,
      2006
      was comprised of federal alternative minimum tax, miscellaneous state income
      taxes and foreign income taxes currently payable, partially offset by a $0.6
      million tax benefit for a release of tax reserves in the first quarter ended
      March 31, 2006. For the same period in 2005, the provision for income taxes
      related to projected federal, state and foreign taxes payable




Deferred
      tax assets are recognized when there is sufficient evidence that it is more
      likely than not that such deferred tax assets will be realized. We have
      determined that such evidence does not currently exist. Therefore, a full
      valuation allowance has been established to reserve our net deferred tax assets.
      However, in light of current operating results, we are reviewing the
      realizability of the asset balance in conjunction with preparing our 2007
      business plan and upon completing this analysis in the fourth quarter of 2006,
      we will determine whether it is appropriate to adjust the valuation
      allowance.





**Liquidity
      and Capital Resources**





Cash,
      cash equivalents, short-term and long-term marketable securities were $39.7
      million at September 30, 2006, an increase of $4.7 million from $35.0 million
      at
      December 31, 2005. The increase was due primarily to (1) net income of $2.8
      million adjusted for non-cash expenses of $6.4 million, which includes
      stock-based compensation of $3.7 million, (2) an increase in accounts payable
      of
      $1.2 million due primarily to increased inventory purchases, (3) a decrease
      in
      other current assets of $0.7 million due to a reduction in license prepayments,
      and (4) cash received of $3.4 million from the exercise of stock options. These
      cash inflows were partially offset by (1) an increase in inventory of $6.5
      million due to higher revenues and longer lead times imposed by our suppliers,
      (2) a decrease in deferred revenues of $2.0 million due to the change in our
      estimates for revenues to distributors, and (3) capital expenditures of $1.0
      million.





In
      September 2002, our Board of Directors authorized the repurchase of up
      to 2,000,000 shares of common stock.  At the discretion of the
      management, we can repurchase the shares from time to time in the open market
      or
      in privately negotiated transactions.  Approximately 774,000 shares had
      been repurchased for approximately $1.9 million in cash in 2003. We did not
      repurchase any shares in 2004 or 2005, or during the nine month period ended
      September 30, 2006.





As
      of
      September 30, 2006, we had the following significant contractual obligations
      and
      commercial commitments (in thousands):


**Payments
                  due in**Total
              
              Less
                  than
                1
                  Year
              
              1-3
                YearsOperating
                  leases - facilities and equipment
              
              $
              95
              
              $
              73
              
              $
              22Software
                  licenses
              
              
              3,715
              
              
              1,651
              
              
              2,064Inventory
                  purchase commitments
              
              
              5,041
              
              
              5,041
              
              
              -Total
                  cash obligations
              
              $
              8,851
              
              $
              6,765
              
              $
              2,086


We
      believe that our existing resources, together with cash generated from our
      operations will be sufficient to meet our capital requirements for at least
      the
      next twelve months. Our future capital requirements will depend on many factors,
      including the inventory levels we maintain, the level of investment we make
      in
      new technologies and improvements to existing technologies and the levels of
      monthly expenses required to launch new products. From time to time, we may
      also
      evaluate potential acquisitions and equity investments complementary to our
      technologies and market strategies. To the extent that existing resources and
      future earnings are insufficient to fund our future activities, we may need
      to
      raise additional funds through public or private financings. Additional funds
      may not be available or, if available, we may not be able to obtain them on
      terms favorable to us and our stockholders.





**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities,
      revenues and expenses and related disclosures of contingent assets and
      liabilities in the condensed consolidated financial statements and accompanying
      notes. The SEC has defined a company’s critical accounting policies as the ones
      that are most important to the portrayal of the company’s financial condition
      and results of operations, and which require the company to make its most
      difficult and subjective judgments, often as a result of the need to make
      estimates of matters that are inherently uncertain. Based on this definition,
      we
      have identified the critical accounting policies and judgments addressed below.
      We also have other key accounting policies which involve the use of estimates,
      judgments and assumptions that are significant to understanding our results.
      Although we believe that our estimates, assumptions and judgments are
      reasonable, they are based upon information presently available. Actual results
      may differ significantly from these estimates under different assumptions,
      judgments or conditions.





***Revenue
      Recognition***





PLX
      recognizes revenue when persuasive evidence of an arrangement exists, delivery
      or customer acceptance, where applicable, has occurred, the fee is fixed or
      determinable, and collection is reasonably assured.




Revenue
      from product sales to PLX direct customers and distributors is recognized upon
      shipment and transfer of risk of loss, if PLX believes collection is reasonably
      assured and all other revenue recognition criteria are met. PLX assesses the
      probability of collection based on a number of factors, including past
      transaction history and the customer’s creditworthiness.  At the end of
      each reporting period, the sufficiency of allowances for doubtful accounts
      is
      assessed based on the age of the receivable and the individual customer’s
      creditworthiness.





In
      the
      first quarter ended March 31, 2006, PLX completed an evaluation of its revenue
      recognition methodology and concluded that it was more appropriate to recognize
      revenues on sales to distributors at the time of shipment to a distributor
      (also
      referred to as the sell-in basis of recognizing revenue). Prior to the first
      quarter, PLX recognized revenues on sales to distributors when the distributor
      resold the product to its end customer (also referred to as the sell-through
      basis of recognizing revenue). SFAS No. 48, *Revenue
      Recognition When Right of Return Exists* ,
      sets
      forth conditions that must be met to recognize revenue at the time of shipment.
      Among those conditions is that a company that provides a right of return or
      pricing concession to a buyer be able to reasonably estimate the amount of
      future returns or pricing concessions. In the past, PLX had concluded that
      it
      did not meet this condition and therefore used the sell-through basis of revenue
      recognition. In the first quarter of 2006, PLX concluded that it is able to
      reasonably estimate returns and pricing concessions, and therefore has
      implemented the sell-in method of accounting for sales to distributors. PLX
      recognized an additional $2.8 million in revenues during the first quarter
      of
      2006 as a result of this change.





As
      of
      September 30, 2006, PLX has controls in place to monitor sales returns from
      and
      pricing concessions to its distributors. PLX uses data from a variety of
      controls, such as monthly monitoring of distributor inventory levels, Returns
      Material Authorization controls, and regular monitoring of distributor pricing
      concession and product rotation requests. PLX uses this data to arrive at a
      reasonable estimate on sales returns from and pricing concessions to its
      distributors.





***Inventory
      Valuation***





We
      evaluate the need for potential write-downs for inventory by considering a
      combination of factors. Based on the life of the product, sales history,
      obsolescence, and sales forecast, we may record write-downs to our inventory
      of
      up to 100%. Any adverse changes to our future product demand may result in
      increased write-downs, resulting in decreased gross margin. In addition, future
      sales on any of our previously written down inventory may result in increased
      gross margin in the period of sale.





***Allowance
      for Doubtful Accounts***





We
      evaluate the collectibility of our accounts receivable based on length of time
      the receivables are past due, generally thirty days. We record reserves for
      bad
      debts against amounts due to reduce the net recognized receivable to the amount
      we reasonably believe will be collected. We have certain customers with
      individually large amounts due at any given balance sheet date. Any
      unanticipated change in one of those customers’ creditworthiness or other
      matters affecting the collectibility of amounts due from such customers could
      have a material affect on our results of operations in the period in which
      such
      changes or events occur.





***Stock-Based
      Compensation***





Upon
      adoptions of SFAS 123R on January 1, 2006, we began estimating the value of
      employee stock options on the date of grant using the Black-Scholes model.
      Prior
      to the adoption of SFAS 123R, the value of each employee stock option was
      estimated on the date of grant using the Black-Scholes model for the purpose
      of
      the pro forma financial disclosure in accordance with SFAS 123. The
      determination of fair value of stock-based payment awards on the date of grant
      using an option-pricing model is affected by our stock price as well as
      assumptions regarding a number of highly complex and subjective variables.
      These
      variables include, but are not limited to the expected stock price volatility
      over the term of the awards and the actual and projected employee stock option
      exercise behaviors. The expected term of options granted is derived from
      historical data on employee exercises and post-vesting employment termination
      behavior. We calculated our expected volatility assumption required in the
      Black-Scholes model by blending the historical volatility of our stock with
      the
      implied volatility for traded options on our stock. As of January 1, 2006 we
      have adopted the modified prospective transition method and its effect is
      included in our first quarter 2006 financial statements.





***Taxes*** ****




We
      account for income taxes using the liability method. Deferred taxes are
      determined based on the differences between the financial statement and tax
      bases of assets and liabilities, using enacted tax rates in effect for the
      year
      in which the differences are expected to reverse. Valuation allowances are
      established when necessary to reduce deferred tax assets to the amounts expected
      to be realized. As of September 30, 2006, we carried a valuation allowance
      for
      the entire deferred tax asset as a result of uncertainties regarding the
      realization of the asset balance. However, in light of current operating
      results, we are reviewing the realizability of the asset balance in conjunction
      with preparing our 2007 business plan and upon completing this analysis in
      the
      fourth quarter of 2006, we will determine whether it is appropriate to adjust
      the valuation allowance.




Future
      taxable income and/or tax planning strategies may eliminate all or a portion
      of
      the need for the valuation allowance. In the event we determine we are able
      to
      realize our deferred tax asset, an adjustment to the valuation allowance may
      increase income in the period such determination is made.




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




We
      have
      an investment portfolio comprised of fixed income securities, including amounts
      classified as cash equivalents, short-term investments and long-term
      investments. Our investment portfolio totaled $35.6 million at September 30,
      2006. These securities are subject to interest rate fluctuations and will
      decrease in market value if interest rates increase.





The
      primary objective of our investment activities is to preserve principal while
      at
      the same time maximizing yields without significantly increasing risk. While
      our
      investment policy allows us to invest in high quality, short-term and long-term
      debt instruments, our investment portfolio as of September 30, 2006 is comprised
      of cash equivalents, short-term investments and long-term investments. A
      hypothetical 100 basis point increase in interest rates would result in less
      than a $0.1 million decrease (less than 1%) in the fair value of our
      available-for-sale securities.




**ITEM
      4. CONTROLS AND PROCEDURES**




**(a)**
            **Evaluation
                of disclosure controls and
                procedures.**




Based
      on
      their evaluation as of September 30, 2006, our Chief Executive Officer and
      Interim Chief Financial Officer, have concluded that our disclosure controls
      and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
      Securities Exchange Act of 1934, as amended) were effective to ensure that
      the
      information required to be disclosed by us in this Quarterly Report on
      Form 10-Q was recorded, processed, summarized and reported within the time
      periods specified in the SEC's rules and instructions for Form 10-Q.




**(b) Changes
      in internal controls.**




There
      have been no significant changes in our internal control over financial
      reporting that occurred during our most recent fiscal quarter that has
      materially affected or is reasonably likely to materially affect our internal
      control over financial reporting.











**PART
      II. OTHER INFORMATION**





**ITEM
      1A. RISK FACTORS**





**FACTORS
      THAT MAY AFFECT FUTURE OPERATING RESULTS**





This
      quarterly report on Form 10-Q contains forward-looking statements which involve
      risks and uncertainties. Our actual results could differ materially from those
      anticipated by such forward-looking statements as a result of certain factors,
      including those set forth below. The following risk factors have been updated
      from those set forth in Item 1A. of Part I of our Annual Report on Form 10-K
      for
      the year ended December 31, 2005, and are restated in full.





**Our
      Operating Results May Fluctuate Significantly Due To Factors Which Are Not
      Within Our Control**





Our
      quarterly operating results have fluctuated significantly in the past and are
      expected to fluctuate significantly in the future based on a number of factors,
      many of which are not under our control. Our operating expenses, which include
      product development costs and selling, general and administrative expenses,
      are
      relatively fixed in the short-term. If our revenues are lower than we expect
      because we sell fewer semiconductor devices, delay the release of new products
      or the announcement of new features, or for other reasons, we may not be able
      to
      quickly reduce our spending in response.




Other
      circumstances that can affect our operating results include:




·
            the
                timing of significant orders, order cancellations and
                reschedulings,


·
            the
                loss of a significant customer(s),


·
            the
                availability of production capacity at the fabrication facilities
                that
                manufacture our products,


·
            our
                significant customers could lose market share that may affect our
                business,


·
            integration
                of our product functionality into our customers’
                products,


·
            our
                ability to develop, introduce and market new products and technologies
                on
                a timely basis,


·
            introduction
                of products and technologies by our competitors,


·
            unexpected
                issues that may arise with devices in production


·
            shifts
                in our product mix toward lower margin
                products,


·
            changes
                in our pricing policies or those of our competitors or suppliers,
                including decreases in unit average selling prices of our
                products,


·
            the
                availability and cost of materials to our
                suppliers,


·
            general
                economic conditions, and


·
            political
                climate.




These
      factors are difficult to forecast, and these or other factors could adversely
      affect our business. Any shortfall in our revenues would have a direct impact
      on
      our business. In addition, fluctuations in our quarterly results could adversely
      affect the market price of our common stock in a manner unrelated to our
      long-term operating performance.





**Our
      Potential Future Acquisitions May Not Be Successful Because Of Our Limited
      Experience With Acquisitions In The Past**




As
      part
      of our business strategy, we expect to review acquisition prospects that would
      complement our existing product offerings, improve market coverage or enhance
      our technological capabilities. Future acquisitions could result in any or
      all
      of the following:




·
            potentially
                dilutive issuances of equity
                securities,


·
            large
                acquisition-related write-offs,


·
            the
                incurrence of debt and contingent liabilities or amortization expenses
                related to other intangible assets,


·
            difficulties
                in the assimilation of operations, personnel, technologies, products
                and
                the information systems of the acquired
                companies,


·
            diversion
                of management’s attention from other business
                concerns,


·
            risks
                of entering geographic and business markets in which we have no or
                limited
                prior experience, and


·
            potential
                loss of key employees of acquired
                organizations.




We
      have
      had limited experience with acquisitions in the past and may not be able to
      successfully integrate any businesses, products, technologies or personnel
      that
      may be acquired in the future. Our failure to do so could have a material
      adverse effect on our business.





**A
      Downturn In The Global Economy May Adversely Affect Our Revenues, Results Of
      Operations And Financial Condition**




Demand
      for semiconductor components is increasingly dependent upon the rate of growth
      in the global economy. If the rate of global economic growth slows, or
      contracts, customer demand for products could be adversely affected, which
      in
      turn could adversely affect revenues, results of operations and financial
      condition. Many factors could adversely affect regional or global economic
      growth. Some of the factors that could slow global economic growth include:
      rising interest rates in the United States, a slowdown in the rate of growth
      of
      the Chinese economy, a significant act of terrorism which disrupts global trade
      or consumer confidence, and geopolitical tensions including war and civil
      unrest. Reduced levels of economic activity, or disruptions of international
      transportation, could adversely affect sales on either a global basis or in
      specific geographic regions.




**Because
      A Substantial Portion Of Our Net Sales Is Generated By A Small Number Of Large
      Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net
      Revenues And Earnings Will Be Harmed**




Historically,
      a relatively small number of customers have accounted for a significant portion
      of our net revenues in any particular period. For the three months ended
      September 30, 2006, two distributors accounted for 31% and 11% of net revenues.
      For the same period in 2005, one distributor accounted for 24% of net revenues.
      For the nine months ended September 30, 2006, two distributors accounted for
      30%
      and 11% of net revenues. For the same period in 2005, one distributor accounted
      for 25% of net revenues. For both of these periods, no other individual direct
      customer or distributor represented greater than 10% of net revenues.




We
      have
      no long-term volume purchase commitments from any of our significant customers.
      We cannot be certain that our current customers will continue to place orders
      with us, that orders by existing customers will continue at the levels of
      previous periods or that we will be able to obtain orders from new customers.
      In
      addition, some of our customers supply products to end-market purchasers and
      any
      of these end-market purchasers could choose to reduce or eliminate orders for
      our customers' products. This would in turn lower our customers' orders for
      our
      products.





We
      anticipate that sales of our products to a relatively small number of customers
      will continue to account for a significant portion of our net sales. Due to
      these factors, the following have in the past and may in the future reduce
      our
      net sales or earnings:




·
            the
                reduction, delay or cancellation of orders from one or more of our
                significant customers;


·
            the
                selection of competing products or in-house design by one or more
                of our
                current customers;


·
            the
                loss of one or more of our current customers;
                or


·
            a
                failure of one or more of our current customers to pay our
                invoices.




**A
      Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors
      Who May Terminate Their Relationships With Us At Any Time**





We
      depend
      on distributors to sell a significant portion of our products. For the nine
      months ended September 30, 2006 and 2005, sales through distributors accounted
      for approximately 70% and 62%, respectively, of our net revenues. Some of our
      distributors also market and sell competing products. Distributors may terminate
      their relationships with us at any time. Our future performance will depend
      in
      part on our ability to attract additional distributors that will be able to
      market and support our products effectively, especially in markets in which
      we
      have not previously distributed our products. We may lose one or more of our
      current distributors or may not be able to recruit additional or replacement
      distributors. The loss of one or more of our major distributors could have
      a
      material adverse effect on our business, as we may not be successful in
      servicing our customers directly or through manufacturers’
representatives.





**Our
      Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our
      Expected Revenues**




Our
      customers typically perform numerous tests and extensively evaluate our products
      before incorporating them into their systems. The time required for test,
      evaluation and design of our products into a customer’s equipment can range from
      six to twelve months or more. It can take an additional six to twelve months
      or
      more before a customer commences volume shipments of equipment that incorporates
      our products. Because of this lengthy sales cycle, we may experience a delay
      between the time when we increase expenses for research and development and
      sales and marketing efforts and the time when we generate higher revenues,
      if
      any, from these expenditures.




In
      addition, the delays inherent in our lengthy sales cycle raise additional risks
      of customer decisions to cancel or change product plans. When we achieve a
      design win, there can be no assurance that the customer will ultimately ship
      products incorporating our products. Our business could be materially adversely
      affected if a significant customer curtails, reduces or delays orders during
      our
      sales cycle or chooses not to release products incorporating our
      products.





**Failure
      Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial
      Condition**





We
      believe that our growth prospects depend upon our ability to gain customer
      acceptance of our products and technology. Market acceptance of products depends
      upon numerous factors, including compatibility with other products, adoption
      of
      relevant interconnect standards, perceived advantages over competing products
      and the level of customer service available to support such products. There
      can
      be no assurance that growth in sales of new products will continue or that
      we
      will be successful in obtaining broad market acceptance of our products and
      technology.





We
      expect
      to spend a significant amount of time and resources to develop new products
      and
      refine existing products. In light of the long product development cycles
      inherent in our industry, these expenditures will be made well in advance of
      the
      prospect of deriving revenues from the sale of any new products. Our ability
      to
      commercially introduce and successfully market any new products is subject
      to a
      wide variety of challenges during this development cycle, including start-up
      bugs, design defects and other matters that could delay introduction of these
      products to the marketplace. In addition, since our customers are not obligated
      by long-term contracts to purchase our products, our anticipated product orders
      may not materialize, or orders that do materialize may be cancelled. As a
      result, if we do not achieve market acceptance of new products, we may not
      be
      able to realize sufficient sales of our products in order to recoup research
      and
      development expenditures. The failure of any of our new products to achieve
      market acceptance would harm our business, financial condition, results of
      operation and cash flows.





**We
      Must Make Significant Research And Development Expenditures Prior To Generating
      Revenues From Products**





To
      establish market acceptance of a new semiconductor device, we must dedicate
      significant resources to research and development, production and sales and
      marketing. We incur substantial costs in developing, manufacturing and selling
      a
      new product, which often significantly precede meaningful revenues from the
      sale
      of this product. Consequently, new products can require significant time and
      investment to achieve profitability. Investors should understand that our
      efforts to introduce new semiconductor devices or other products or services
      may
      not be successful or profitable. In addition, products or technologies developed
      by others may render our products or technologies obsolete or
      noncompetitive.





We
      record
      as expenses the costs related to the development of new semiconductor devices
      and other products as these expenses are incurred. As a result, our
      profitability from quarter to quarter and from year to year may be adversely
      affected by the number and timing of our new product launches in any period
      and
      the level of acceptance gained by these products.





**Our
      Independent Manufacturers May Not Be Able To Meet Our Manufacturing
      Requirements**





We
      do not
      manufacture any of our semiconductor devices. Therefore, we are referred to
      in
      the semiconductor industry as a “fabless” producer of semiconductors.
      Consequently, we depend upon third party manufacturers to produce semiconductors
      that meet our specifications. We currently have third party manufacturers
      principally located in Japan, Taiwan, Singapore and Malaysia, that can produce
      semiconductors which meet our needs. However, as the semiconductor industry
      continues to progress towards smaller manufacturing and design geometries,
      the
      complexities of producing semiconductors will increase. Decreasing geometries
      may introduce new problems and delays that may affect product development and
      deliveries. Due to the nature of the semiconductor industry and our status
      as a
“fabless” semiconductor company, we could encounter fabrication-related problems
      that may affect the availability of our semiconductor devices, delay our
      shipments or may increase our costs.





None
      of
      our semiconductor devices are currently manufactured by more than one supplier.
      We place our orders on a purchase order basis and do not have a long term
      purchase agreement with any of our existing suppliers. In the event that the
      supplier of a semiconductor device was unable or unwilling to continue to
      manufacture this product in the required volume, we would have to identify
      and
      qualify a substitute supplier. Introducing new products or transferring existing
      products to a new third party manufacturer or process may result in unforeseen
      device specification and operating problems. These problems may affect product
      shipments and may be costly to correct. Silicon fabrication capacity may also
      change, or the costs per silicon wafer may increase. Manufacturing-related
      problems may have a material adverse effect on our business.




**Intense
      Competition In The Markets In Which We Operate May Reduce The Demand For Or
      Prices Of Our Products**





Competition
      in the semiconductor industry is intense. If our main target market, the
      microprocessor-based systems market, continues to grow, the number of
      competitors may increase significantly. In addition, new semiconductor
      technology may lead to new products that can perform similar functions as our
      products. Some of our competitors and other semiconductor companies may develop
      and introduce products that integrate into a single semiconductor device the
      functions performed by our semiconductor devices. This would eliminate the
      need
      for our products in some applications.




In
      addition, competition in our markets comes from companies of various sizes,
      many
      of which are significantly larger and have greater financial and other resources
      than we do and thus can better withstand adverse economic or market conditions.
      Also, we will compete with established microprocessor-based companies and
      others. Many of these indirect competitors and microprocessor-based companies
      have significantly greater financial, technical, marketing and other resources
      than PLX. Therefore, we cannot assure you that we will be able to compete
      successfully in the future against existing or new competitors, and increased
      competition may adversely affect our business. See “Business -- Competition,”
and “-- Products” in Part I of Item I of our Form 10-K for the year ended
      December 31, 2005.





**Failure
      To Have Our Products Designed Into The Products Of Electronic Equipment
      Manufacturers Will Result In Reduced Sales**





Our
      future success depends on electronic equipment manufacturers that design our
      semiconductor devices into their systems. We must anticipate market trends
      and
      the price, performance and functionality requirements of current and potential
      future electronic equipment manufacturers and must successfully develop and
      manufacture products that meet these requirements. In addition, we must meet
      the
      timing requirements of these electronic equipment manufacturers and must make
      products available to them in sufficient quantities. These electronic equipment
      manufacturers could develop products that provide the same or similar
      functionality as one or more of our products and render these products obsolete
      in their applications.





We
      do not
      have purchase agreements with our customers that contain minimum purchase
      requirements. Instead, electronic equipment manufacturers purchase our products
      pursuant to short-term purchase orders that may be canceled without charge.
      We
      believe that in order to obtain broad penetration in the markets for our
      products, we must maintain and cultivate relationships, directly or through
      our
      distributors, with electronic equipment manufacturers that are leaders in the
      embedded systems markets. Accordingly, we will incur significant expenditures
      in
      order to build relationships with electronic equipment manufacturers prior
      to
      volume sales of new products. If we fail to develop relationships with
      additional electronic equipment manufacturers to have our products designed
      into
      new microprocessor-based systems or to develop sufficient new products to
      replace products that have become obsolete, our business would be materially
      adversely affected.





**Lower
      Demand For Our Customers’ Products Will Result In Lower Demand For Our
      Products**





Demand
      for our products depends in large part on the development and expansion of
      the
      high-performance microprocessor-based systems markets including networking
      and
      telecommunications, enterprise storage, imaging and industrial applications.
      The
      size and rate of growth of these microprocessor-based systems markets may in
      the
      future fluctuate significantly based on numerous factors. These factors include
      the adoption of alternative technologies, capital spending levels and general
      economic conditions. Demand for products that incorporate high-performance
      microprocessor-based systems may not grow.




**Defects
      In Our Products Could Increase Our Costs And Delay Our Product
      Shipments**





Our
      products are complex. While we test our products, these products may still
      have
      errors, defects or bugs that we find only after commercial production has begun.
      We have experienced errors, defects and bugs in the past in connection with
      new
      products.





Our
      customers may not purchase our products if the products have reliability,
      quality or compatibility problems. This delay in acceptance could make it more
      difficult to retain our existing customers and to attract new customers.
      Moreover, product errors, defects or bugs could result in additional development
      costs, diversion of technical and other resources from our other development
      efforts, claims by our customers or others against us, or the loss of
      credibility with our current and prospective customers. In the past, the
      additional time required to correct defects has caused delays in product
      shipments and resulted in lower revenues. We may have to spend significant
      amounts of capital and resources to address and fix problems in new
      products.




We
      must
      continuously develop our products using new process technology with smaller
      geometries to remain competitive on a cost and performance basis. Migrating
      to
      new technologies is a challenging task requiring new design skills, methods
      and
      tools and is difficult to achieve.





**We
      Could Lose Key Personnel Due To Competitive Market Conditions And
      Attrition**





Our
      success depends to a significant extent upon our senior management and key
      technical and sales personnel. The loss of one or more of these employees could
      have a material adverse effect on our business. We do not have employment
      contracts with any of our executive officers.





Our
      success also depends on our ability to attract and retain qualified technical,
      sales and marketing, customer support, financial and accounting, and managerial
      personnel. Competition for such personnel in the semiconductor industry is
      intense, and we may not be able to retain our key personnel or to attract,
      assimilate or retain other highly qualified personnel in the future. In
      addition, we may lose key personnel due to attrition, including health, family
      and other reasons. We have experienced, and may continue to experience,
      difficulty in hiring and retaining candidates with appropriate qualifications.
      If we do not succeed in hiring and retaining candidates with appropriate
      qualifications, our business could be materially adversely
      affected.





**The
      Demand For Our Products Depends Upon Our Ability To Support Evolving Industry
      Standards**





A
      majority of our revenues are derived from sales of products, which rely on
      the
      PCI, PCI-X, USB and PCI Express standards. If markets move away from these
      standards and begin using new standards, we may not be able to successfully
      design and manufacture new products that use these new standards. There is
      also
      the risk that new products we develop in response to new standards may not
      be
      accepted in the market. In addition, these standards are continuously evolving,
      and we may not be able to modify our products to address new specifications.
      Any
      of these events would have a material adverse effect on our
      business.





**The
      Successful Marketing And Sales Of Our Products Depend Upon Our Third Party
      Relationships, Which Are Not Supported By Written
      Agreements**





When
      marketing and selling our semiconductor devices, we believe we enjoy a
      competitive advantage based on the availability of development tools offered
      by
      third parties. These development tools are used principally for the design
      of
      other parts of the microprocessor-based system but also work with our products.
      We will lose this advantage if these third party tool vendors cease to provide
      these tools for existing products or do not offer them for our future products.
      This event could have a material adverse effect on our business. We have no
      written agreements with these third parties, and these parties could choose
      to
      stop providing these tools at any time.




**Our
      Limited Ability To Protect Our Intellectual Property And Proprietary Rights
      Could Adversely Affect Our Competitive Position**





Our
      future success and competitive position depend upon our ability to obtain and
      maintain proprietary technology used in our principal products. Currently,
      we
      have limited protection of our intellectual property in the form of patents
      and
      rely instead on trade secret protection. Our existing or future patents may
      be
      invalidated, circumvented, challenged or licensed to others. The rights granted
      there under may not provide competitive advantages to us. In addition, our
      future patent applications may not be issued with the scope of the claims sought
      by us, if at all. Furthermore, others may develop technologies that are similar
      or superior to our technology, duplicate our technology or design around the
      patents owned or licensed by us. In addition, effective patent, trademark,
      copyright and trade secret protection may be unavailable or limited in foreign
      countries where we may need protection. We cannot be sure that steps taken
      by us
      to protect our technology will prevent misappropriation of the
      technology.





We
      may
      from time to time receive notifications of claims that we may be infringing
      patents or other intellectual property rights owned by third parties. While
      there is currently no intellectual property litigation pending against us,
      litigation could result in significant expenses to us and adversely affect
      sales
      of the challenged product or technology. This litigation could also divert
      the
      efforts of our technical and management personnel, whether or not the litigation
      is determined in our favor. In addition, we may not be able to develop or
      acquire non-infringing technology or procure licenses to the infringing
      technology under reasonable terms. This could require expenditures by us of
      substantial time and other resources. Any of these developments would have
      a
      material adverse effect on our business.





**The
      Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances
      In The Demand For Our Products**





In
      the
      past, the semiconductor industry has been characterized by significant downturns
      and wide fluctuations in supply and demand. Also, during this time, the industry
      has experienced significant fluctuations in anticipation of changes in general
      economic conditions. This cyclicality has led to significant variances in
      product demand and production capacity. It has also accelerated erosion of
      average selling prices per unit. We may experience periodic fluctuations in
      our
      future financial results because of industry-wide conditions.





**Because
      We Sell Our Products To Customers Outside Of North America And Because Our
      Products Are Incorporated With Products Of Others That Are Sold Outside Of
      North
      America We Face Foreign Business, Political And Economic
      Risks**





Sales
      outside of North America accounted for approximately 70% of our revenues for
      the
      nine months ended September 30, 2006. In 2005, 2004, and 2003, sales outside
      of
      North America accounted for approximately 68%, 68%, and 63% of our revenues,
      respectively. Sales outside of North America may fluctuate in future periods
      and
      may continue to account for a large portion of our revenues. In addition,
      equipment manufacturers who incorporate our products into their products sell
      their products outside of North America, thereby exposing us indirectly to
      foreign risks. Further, most of our semiconductor products are manufactured
      outside of North America. Accordingly, we are subject to international risks,
      including:




·
            difficulties
                in managing distributors,


·
            difficulties
                in staffing and managing foreign subsidiary and branch
                operations,


·
            political
                and economic instability,


·
            foreign
                currency exchange fluctuations,


·
            difficulties
                in accounts receivable collections,


·
            potentially
                adverse tax consequences,


·
            timing
                and availability of export
                licenses,


·
            changes
                in regulatory requirements, tariffs and other
                barriers,


·
            difficulties
                in obtaining governmental approvals for telecommunications and other
                products, and


·
            the
                burden of complying with complex foreign laws and
                treaties.




Because
      sales of our products have been denominated to date exclusively in United States
      dollars, increases in the value of the United States dollar will increase the
      price of our products so that they become relatively more expensive to customers
      in the local currency of a particular country, which could lead to a reduction
      in sales and profitability in that country.




**Our
      Principal Stockholders Have Significant Voting Power And May Take Actions That
      May Not Be In The Best Interests Of Our Other Stockholders**





Our
      executive officers, directors and other principal stockholders, in the
      aggregate, beneficially own a substantial amount of our outstanding common
      stock. Although these stockholders do not have majority control, they currently
      have, and likely will continue to have, significant influence with respect
      to
      the election of our directors and approval or disapproval of our significant
      corporate actions. This influence over our affairs might be adverse to the
      interests of other stockholders. In addition, the voting power of these
      stockholders could have the effect of delaying or preventing a change in control
      of PLX.





**The
      Anti-Takeover Provisions In Our Certificate of Incorporation Could Adversely
      Affect The Rights Of The Holders Of Our Common Stock**





Anti-takeover
      provisions of Delaware law and our Certificate of Incorporation may make a
      change in control of PLX more difficult, even if a change in control would
      be
      beneficial to the stockholders. These provisions may allow the Board of
      Directors to prevent changes in the management and control of PLX.




As
      part
      of our anti-takeover devices, our Board of Directors has the ability to
      determine the terms of preferred stock and issue preferred stock without the
      approval of the holders of the common stock. Our Certificate of Incorporation
      allows the issuance of up to 5,000,000 shares of preferred stock. There are
      no
      shares of preferred stock outstanding. However, because the rights and
      preferences of any series of preferred stock may be set by the Board of
      Directors in its sole discretion without approval of the holders of the common
      stock, the rights and preferences of this preferred stock may be superior to
      those of the common stock. Accordingly, the rights of the holders of common
      stock may be adversely affected. Consistent with Delaware law, our Board of
      Directors may adopt additional anti-takeover measures in the
      future.







**ITEM
      6. EXHIBITS**




**Exhibit****Number**
              
              **Description**31.1
              
              Certification
                  of Chief Executive Officer
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  of Chief Financial Officer
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
              
              Certification
                  of Chief Executive Officer
                  Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United
                  States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act
                  of 2002.32.2
              
              Certification
                  of Chief Financial Officer
                  Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United
                  States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act
                  of 2002.










**SIGNATURE**





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.





**PLX
      TECHNOLOGY, INC.**





Date: November
      3, 2006  By  /s/
      Michael J. Salameh


Michael
      J. Salameh


Chief
      Executive Officer


( *Principal
      Executive Officer)*











**EXHIBIT
      INDEX**




**Exhibit****Number**
                
                **Description**31.1
                
                Certification
                    of Chief Executive Officer
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002.31.2
                
                Certification
                    of Chief Financial Officer
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002.32.1
                
                Certification
                    of Chief Executive Officer
                    Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United
                    States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                    Act
                    of 2002.32.2
                
                Certification
                    of Chief Financial Officer
                    Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United
                    States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                    Act
                    of 2002.