**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 June 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 August
      2, 2006 there
      were 28,183,319 shares of common
      stock, par value $0.001 per share,
      outstanding.







**PLX
      TECHNOLOGY, INC.**


**INDEX
      TO**


**REPORT
      ON FORM 10-Q**


**FOR
      QUARTER ENDED JUNE 30, 2006**


**PART
                  I. FINANCIAL INFORMATION**
              
              **Page**Item
                  1.
              
              Financial
                  Statements (Unaudited)Condensed
                  Consolidated Balance Sheets at June 30, 2006 and
                  December 31, 2005
              
              3Condensed
                  Consolidated Statements of Operations for the three
                  and six months ended June 30, 2006 and 2005
              
              4Condensed
                  Consolidated Statements of Cash Flows for the six
                  months ended June 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
              
              19Item
                  4.
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              26Item
                  6.
              
              Exhibits
              
              27Signature
              
              
              
              
              28








**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**





**PLX
      TECHNOLOGY, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(in
      thousands)


**June
                  30,**
              
              **December
                  31,****2006**
              
              **2005
                  (1)**(unaudited)ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              36,824
              
              $
              21,028Short-term
                  marketable securities
              
              
              1,441
              
              
              14,015Accounts
                  receivable, net
              
              
              6,098
              
              
              6,203Inventories
              
              
              10,112
              
              
              4,328Other
                  current assets
              
              
              1,568
              
              
              1,842Total
                  current assets
              
              
              56,043
              
              
              47,416Property
                  and equipment, net
              
              
              29,201
              
              
              29,535Goodwill
              
              
              35,818
              
              
              35,818Other
                  purchased intangible assets
              
              
              3,736
              
              
              4,729Other
                  assets
              
              
              345
              
              
              413Total
                  assets
              
              $
              125,143
              
              $
              117,911LIABILITIESCurrent
                  Liabilities:Accounts
                  payable
              
              $
              7,105
              
              $
              4,530Accrued
                  compensation and benefits
              
              
              2,153
              
              
              1,754Deferred
                  revenues
              
              
              -
              
              
              1,963Accrued
                  commissions
              
              
              407
              
              
              298Other
                  accrued expenses
              
              
              1,146
              
              
              1,877Total
                  current liabilities
              
              
              10,811
              
              
              10,422CommitmentsSTOCKHOLDERS'
                  EQUITYCommon
                  stock, par value
              
              
              28
              
              
              28Additional
                  paid-in capital
              
              
              123,307
              
              
              118,313Accumulated
                  other comprehensive loss
              
              
              (87
              )
              
              (114
              )Accumulated
                  deficit
              
              
              (8,916
              )
              
              (10,738
              )Total
                  stockholders' equity
              
              
              114,332
              
              
              107,489Total
                  liabilities and stockholders' equity
              
              $
              125,143
              
              $
              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**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  revenues
              
              $
              19,411
              
              $
              13,185
              
              $
              39,416
              
              $
              26,407Cost
                  of revenues
              
              
              8,225
              
              
              4,900
              
              
              15,722
              
              
              9,757Gross
                  margin
              
              
              11,186
              
              
              8,285
              
              
              23,694
              
              
              16,650Operating
                  expenses:Research
                  and development
              
              
              4,835
              
              
              4,665
              
              
              9,914
              
              
              8,777Selling,
                  general and administrative
              
              
              5,982
              
              
              4,021
              
              
              11,657
              
              
              8,447Amortization
                  of purchased intangible assets
              
              
              481
              
              
              512
              
              
              993
              
              
              1,024Total
                  operating expenses
              
              
              11,298
              
              
              9,198
              
              
              22,564
              
              
              18,248Income
                  (loss) from operations
              
              
              (112
              )
              
              (913
              )
              
              1,130
              
              
              (1,598
              )Interest
                  income and other, net
              
              
              421
              
              
              185
              
              
              763
              
              
              340Income
                  (loss) before provision for income taxes
              
              
              309
              
              
              (728
              )
              
              1,893
              
              
              (1,258
              )Provision
                  for income taxes
              
              
              28
              
              
              4
              
              
              71
              
              
              15Net
                  income (loss)
              
              $
              281
              
              $
              (732
              )
              $
              1,822
              
              $
              (1,273
              )Basic
                  net income (loss) per share
              
              $
              0.01
              
              $
              (0.03
              )
              $
              0.07
              
              $
              (0.05
              )Shares
                  used to compute basic per share amounts
              
              
              28,081
              
              
              26,932
              
              
              27,983
              
              
              26,857Diluted
                  net income (loss) per share
              
              $
              0.01
              
              $
              (0.03
              )
              $
              0.06
              
              $
              (0.05
              )Shares
                  used to compute diluted per share amounts
              
              
              28,938
              
              
              26,932
              
              
              28,868
              
              
              26,857





See
      accompanying notes to condensed consolidated financial statements.









**PLX
      TECHNOLOGY, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


(in
      thousands)


**Six
                  Months Ended****June
                  30,****2006**
              
              **2005**Cash
                  flows from operating activities :Net
                  income (loss)
              
              $
              1,822
              
              $
              (1,273
              )Adjustments
                  to reconcile net income (loss) to cash flows provided by operating
                  activities:Depreciation
                  and amortization
              
              
              976
              
              
              1,069Stock-based
                  compensation expense
              
              
              2,500
              
              
              132Amortization
                  of purchased intangible assets
              
              
              993
              
              
              1,024Other
                  non-cash items
              
              
              (107
              )
              
              97Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              170
              
              
              (386
              )Inventories
              
              
              (5,784
              )
              
              1,637Other
                  current assets
              
              
              274
              
              
              476Other
                  assets
              
              
              68
              
              
              (340
              )Accounts
                  payable
              
              
              2,575
              
              
              (532
              )Accrued
                  compensation and benefits
              
              
              399
              
              
              (108
              )Accrued
                  commissions
              
              
              109
              
              
              14Deferred
                  revenues
              
              
              (1,963
              )
              
              176Other
                  accrued expenses
              
              
              (731
              )
              
              (28
              )Net
                  cash provided by operating activities
              
              
              1,301
              
              
              1,958Cash
                  flows provided by investing activities:Purchases
                  of marketable securities
              
              
              (4,073
              )
              
              (800
              )Sales
                  and maturities of marketable securities
              
              
              16,728
              
              
              8,075Purchase
                  of property and equipment
              
              
              (642
              )
              
              (391
              )Net
                  cash provided by investing activities
              
              
              12,013
              
              
              6,884Cash
                  flows provided by financing activities:Proceeds
                  from exercise of common stock options
              
              
              2,494
              
              
              643Proceeds
                  from exercise of warrants
              
              
              -
              
              
              26Net
                  cash provided by financing activities
              
              
              2,494
              
              
              669Effect
                  of exchange rate fluctuations on cash and cash equivalents
              
              
              (12
              )
              
              (20
              )Increase
                  in cash and cash equivalents
              
              
              15,796
              
              
              9,491Cash
                  and cash equivalents at beginning of year
              
              
              21,028
              
              
              9,556Cash
                  and cash equivalents at end of year
              
              $
              36,824
              
              $
              19,047Non-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 June 30, 2006 and for the three and six month periods ended
        June 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 six month periods
        ended June 30, 2006 and June 30, 2005 was as follows (in thousands):
  **Three
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Net
                    income (loss)
                
                $
                281
                
                $
                (732
                )
                $
                1,822
                
                $
                (1,273
                )Unrealized
                    gain on marketable securities, net
                
                
                11
                
                
                52
                
                
                39
                
                
                24Cumulative
                    translation adjustments
                
                
                (10
                )
                
                (8
                )
                
                (12
                )
                
                (7
                )Comprehensive
                    net income (loss)
                
                $
                282
                
                $
                (688
                )
                $
                1,849
                
                $
                (1,256
                )
  ***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. PLX now has concluded that it is able to reasonably estimate
        returns and pricing concessions, and therefore has concluded to implement
        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
        June 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 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. This Interpretation is effective for fiscal years
        beginning after December 15, 2006. The Company is currently assessing the
        impact of the Interpretation on its financial statements.
 
 **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 Statement 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 six months
        ended
        June 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 Statement of Financial Accounting
        Standards 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 six 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 six 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 six months ended June 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 resulting 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 also 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**
                
                **Six
                    Months Ended****June
                    30, 2006**
                
                **June
                    30, 2006**Risk-free
                    interest rate
                5.04
                %
                
                4.94
                %Expected
                    volatility
                0.68
                
                
                0.68Expected
                    life (years)
                4.39
                
                
                4.39
 
 The
        following table shows total stock-based compensation expense described for
        the
        three and six months ended June 30, 2006, included in the Condensed Consolidated
        Statements of Operations (in thousands):
 **Three
                  Months Ended**
                
                **Six
                  Months Ended****June
                  30, 2006**
                
                **June
                  30, 2006**Cost
                    of revenues
                $
                15
                
                $
                25Research
                    and development
                
                556
                
                
                1,033Selling,
                    general and administrative
                
                865
                
                
                1,442Pre-tax
                    stock-based compensation expense
                
                1,436
                
                
                2,500Income
                    tax
                
                -
                
                
                -Net
                    stock-based compensation expense
                $
                1,436
                
                $
                2,500
  A
        summary
        of option activity under the Company’s stock equity plans during the six months
        ended June 30, 2006 is as follows:
 **Weighted
                    Average****Remaining**
                
                **Aggregate****Options
                    Available**
                
                **Number
                    of**
                
                **Weighted
                    Average**
                
                **Contratual
                    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
                
                $
                12,537,148Exercisable
                    at June 30, 2006
                
                
                
                
                
                2,627,467
                
                $
                12.02
                
                
                5.10
                
                $
                8,574,130
 
 The
        Black-Scholes weighted average fair values of options granted during the
        three
        months ended June 30, 2006 and 2005 were $7.01 and $6.12,
        respectively.
 
 The
        Black-Scholes weighted average fair values of options granted during the
        six
        months ended June 30, 2006 and 2005 were $7.31 and $6.55,
        respectively.
 
 The
        following table summarizes ranges of outstanding and exercisable options
        as of
        June 30, 2006:
  **Options
                    Outstanding**
                
                **Options
                    Exercisable****Weighted
                    Average****Remaining**
                
                **Weighted**
                
                
                
                **Weighted****Contratual
                    Term**
                
                **Average**
                
                
                
                **Average****Range
                    of Exercise Prices**
                
                **Number**
                
                **(in
                    years)**
                
                **Exercise
                    Price**
                
                **Number**
                
                **Exercise
                    Price**$0.88
                    - $7.65
                
                
                850,544
                
                
                5.37
                
                $
                4.65
                
                
                621,173
                
                $
                4.34$7.70
                    - $8.90
                
                
                915,184
                
                
                5.58
                
                
                8.37
                
                
                552,014
                
                
                8.14$9.00
                    - $10.00
                
                
                859,249
                
                
                6.31
                
                
                9.35
                
                
                447,350
                
                
                9.14$10.29
                    - $13.12
                
                
                727,750
                
                
                6.67
                
                
                12.73
                
                
                54,331
                
                
                11.65$14.05
                    - $24.50
                
                
                735,714
                
                
                5.26
                
                
                18.42
                
                
                686,880
                
                
                18.62$25.94
                    - $27.00
                
                
                265,719
                
                
                3.92
                
                
                25.95
                
                
                265,719
                
                
                25.95Total
                
                
                4,354,160
                
                
                5.71
                
                $
                11.33
                
                
                2,627,467
                
                $
                12.02
  The
        total
        intrinsic value of options exercised during the three and six months ended
        June
        30, 2006 was approximately $1.6 million and $3.4 million, respectively. As
        of
        June 30, 2006, total unrecognized compensation costs related to nonvested
        stock
        options including estimated forfeitures was $5.2 million which is expected
        to be
        recognized as expense over a weighted average period of approximately 1.42
        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**
                
                **Six
                    Months Ended****June
                    30, 2005**
                
                **June
                    30, 2005**Risk-free
                    interest rate
                3.65
                %
                
                3.89
                %Volatility
                1.00
                
                
                1.01Expected
                    life (years)
                4.75
                
                
                4.75
 
 Pro
        forma
        results are as follows (in thousands except per share amounts):
  **Three
                      Months Ended**
                  
                  **Six
                      Months Ended****June
                      30, 2005**
                  
                  **June
                      30, 2005**Net
                      loss as reported
                  
                  $
                  (732
                  )
                  $
                  (1,273
                  )Add:
                      Stock-based compensation included in reported net loss
                  
                  
                  33
                  
                  
                  132Deduct:
                      Stock-based compensation cost under SFAS 123
                  
                  
                  (1,371
                  )
                  
                  (2,747
                  )Pro
                      forma net loss
                  
                  $
                  (2,070
                  )
                  $
                  (3,888
                  )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
                  
                  
                  26,932
                  
                  
                  26,857Pro
                      forma net loss per common share - basic and diluted
                  
                  $
                  (0.08
                  )
                  $
                  (0.14
                  )Reported
                      net loss per common share - basic and diluted
                  
                  $
                  (0.03
                  )
                  $
                  (0.05
                  )
  **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):
  **June
                    30,**
                
                **December
                    31,****2006**
                
                **2005**(in
                    thousands)Work-in-process
                
                $
                2,152
                
                $
                1,605Finished
                    goods
                
                
                7,960
                
                
                2,723Total
                
                $
                10,112
                
                $
                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**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Net
                    income (loss)
                
                $
                281
                
                $
                (732
                )
                $
                1,822
                
                $
                (1,273
                )Weighted
                    average shares of common stock outstanding
                
                
                28,081
                
                
                26,932
                
                
                27,983
                
                
                26,857Net
                    income (loss) per share - basic
                
                $
                0.01
                
                $
                (0.03
                )
                $
                0.07
                
                $
                (0.05
                )Shares
                    used in computing basic net income (loss) per share
                
                
                28,081
                
                
                26,932
                
                
                27,983
                
                
                26,857Dilutive
                    effect of stock options
                
                
                857
                
                
                -
                
                
                885
                
                
                -Shares
                    used in computing diluted net income (loss) per share
                
                
                28,938
                
                
                26,932
                
                
                28,868
                
                
                26,857Net
                    income (loss) per share - diluted
                
                $
                0.01
                
                $
                (0.03
                )
                $
                0.06
                
                $
                (0.05
                )
 
 Employee
        stock options to purchase approximately 3.5 million shares for each of the
        three
        and six month periods ended June 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 six month periods ended June
        30,
        2005. Therefore, the effect of dilutive securities of approximately 4.7 million
        equivalent shares for each of the periods ended June 30, 2005 was excluded
        from
        the computation of diluted loss per share as its 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**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Revenues:
                
                
                (in
                    thousands)
                
                
                
                
                
                (in
                    thousands)United
                    States
                
                $
                4,843
                
                $
                3,631
                
                $
                9,599
                
                $
                7,287Taiwan
                
                
                3,702
                
                
                1,253
                
                
                7,036
                
                
                2,163Singapore
                
                
                3,311
                
                
                1,587
                
                
                6,452
                
                
                3,065Asia
                    - excluding Taiwan, Singapore and China
                
                
                2,455
                
                
                2,190
                
                
                5,601
                
                
                4,350Europe
                
                
                2,107
                
                
                1,907
                
                
                5,042
                
                
                4,243China
                
                
                2,028
                
                
                1,980
                
                
                3,822
                
                
                4,042The
                    Americas - excluding United States
                
                
                965
                
                
                637
                
                
                1,864
                
                
                1,257Total
                
                $
                19,411
                
                $
                13,185
                
                $
                39,416
                
                $
                26,407
  For
        the
        three months ended June 30, 2006, two distributors accounted for 32% and
        12%,
        respectively, of net revenues. As of June 30, 2006, the same two distributors
        accounted for 37% and 7%, respectively, of the total accounts receivable
        balance. For the same period in 2005, one distributor accounted for 26% of
        net
        revenues. As of June 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
        six months ended June 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 $71,000 has been recorded for the six month period
        ended
        June 30, 2006, compared to income tax expense of $15,000 for the same period
        in
        2005. Income tax expense for the six months ended June 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.
 
 **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 future deferred compensation expenses, our ability to meet our capital
        requirements for the next twelve months, our future capital requirements,
        current high turns fill requirements, our anticipation that sales to a small
        number of customers will account for a significant portion of our sales,
        and our
        belief that we enjoy a competitive advantage based on our availability of
        development tools offered by third parties. 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**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Net
                    revenues
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %Cost
                    of revenues
                
                
                42.4
                
                
                37.2
                
                
                39.9
                
                
                36.9Gross
                    margin
                
                
                57.6
                
                
                62.8
                
                
                60.1
                
                
                63.1Operating
                    expenses:Research
                    and development
                
                
                24.9
                
                
                35.4
                
                
                25.2
                
                
                33.2Selling,
                    general and administrative
                
                
                30.8
                
                
                30.5
                
                
                29.6
                
                
                32.0Amortization
                    of purchased intangible assets
                
                
                2.5
                
                
                3.9
                
                
                2.5
                
                
                3.9Total
                    operating expenses
                
                
                58.2
                
                
                69.8
                
                
                57.3
                
                
                69.1Income
                    (loss) from operations
                
                
                (0.6
                )
                
                (7.0
                )
                
                2.8
                
                
                (6.0
                )Interest
                    income and other, net
                
                
                2.2
                
                
                1.4
                
                
                1.9
                
                
                1.3Income
                    (loss) before provision for income taxes
                
                
                1.6
                
                
                (5.6
                )
                
                4.7
                
                
                (4.7
                )Provision
                    for income taxes
                
                
                0.1
                
                
                0.0
                
                
                0.2
                
                
                0.1Net
                    income (loss)
                
                
                1.5
                %
                
                (5.6
                )%
                
                4.5
                %
                
                (4.8
                )%
  **Net
        Revenues**
 
 Net
        revenues consist of product revenues generated principally by sales of our
        semiconductor devices. Net revenues for the three months ended June 30, 2006
        were $19.4 million, an increase of 47.2% from $13.2 million for the three
        months
        ended June 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 an increase in sales of our PCI I/O devices. For the three
        months
        ended June 30, 2006, sales of our PCI I/O devices, PCI Express products and
        USB
        products accounted for 58.9%, 20.9%, and 20.2%, respectively, of our total
        net
        revenues. For the three months ended June 30, 2005, sales of our PCI I/O
        devices, PCI Express products and USB products accounted for 79.9%, 4.5%,
        and
        15.6%, respectively, of our total net revenues.
  For
        the
        three months ended June 30, 2006, two distributors accounted for 32% and
        12% of
        net revenues. For the same period in 2005, one distributor accounted for
        26% 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. PLX now has concluded that it is reasonably able to estimate
        returns and pricing concessions, and therefore has concluded to implement
        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 six months ended June 30, 2006 were $39.4 million, an increase
        of 49.3% from $26.4 million for the six months ended June 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 six months ended June
        30,
        2006 is an increase of $2.8 million related to the change in our estimates
        for
        revenues to distributors. For the six months ended June 30, 2006, sales of
        our
        PCI I/O devices, PCI Express products and USB products accounted for 60.9%,
        20.1%, and 19.0%, respectively, of our total net revenues. For the six months
        ended June 30, 2005, sales of our PCI I/O devices, PCI Express products and
        USB
        products accounted for 81.8%, 3.4%, and 14.8%, respectively, of our total
        net
        revenues.
  For
        the
        six months ended June 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 June 30, 2006 was 57.6%, as compared to
        62.8%
        for the same period in 2005. In absolute dollars, gross margin increased
        by $2.9
        million or 35.0% to $11.2 million for the three months ended June 30, 2006
        from
        $8.3 million for the same period in 2005. The decrease in gross margin as
        a
        percent of sales for the three months ended June 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 six months ended June 30, 2006 was 60.1%, as compared to 63.1%
        for the same period in 2005. In absolute dollars, gross margin increased
        by $7.0
        million or 42.3% to $23.7 million for the six months ended June 30, 2006
        from
        $16.7 million for the same period in 2005. Included in gross margin for the
        six
        months ended June 30, 2006 is 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 six months ended June 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 24.9% for the three months ended
        June 30, 2006, as compared to 35.4% 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 $0.1 million or 3.6% to $4.8 million for the three
        months
        ended June 30, 2006 from $4.7 million for the same period in 2005. The increase
        in R&D was due to increases in stock-based compensation expense of $0.5
        million and higher compensation and benefit expenses of $0.3 million. This
        was
        partially offset by decreases in external engineering expenses of $0.5 million
        and decreases in employee expenses of $0.1 million.
 
 R&D
        as a percentage of net revenues decreased to 25.2% for the six months ended
        June
        30, 2006, as compared to 33.2% 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, R&D
        expenses increased by $1.1 million or 13.0% to $9.9 million for the six months
        ended June 30, 2006 from $8.8 million for the same period in 2005. The increase
        in R&D was due to (1) increases in stock-based compensation expense of $1.0
        million, (2) higher compensation and benefit expenses of $0.6 million, and
        (3)
        increases in professional fees of $0.2 million. This was partially offset
        by (1)
        decreases in external engineering expenses of $0.2 million, (2) decreases
        in
        employee expenses of $0.2 million, and (3) decreases in software lease expenses
        of $0.1 million.
 
 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 increased to 30.8% for the three months ended
        June 30, 2006, as compared to 30.5% for the same period in 2005. The percentage
        increase is due primarily to an increase in stock-based compensation expense.
        In
        absolute dollars, SG&A expenses increased by $2.0 million or 48.8% to $6.0
        million for the three months ended June 30, 2006 from $4.0 million for the
        same
        period in 2005. The increase in SG&A was due primarily to increases in (1)
        stock-based compensation expense of $0.9 million, (2) compensation and benefit
        expenses of $0.5 million, (3) rental expenses from the opening of our Taiwan
        sales office of $0.1 million, (4) travel expenses of $0.2 million, (5) marketing
        expenses of $0.1 million, and (6) commission expense of $0.1 million resulting
        mainly from higher revenues.
 
 SG&A
        as a percentage of net revenues decreased to 29.6% for the six months ended
        June
        30, 2006, as compared to 32.0% for the same period in 2005. The percentage
        decrease is due primarily to an increase in revenues, partially offset by
        an
        increase in stock-based compensation expense. In absolute dollars, SG&A
        expenses increased by $3.2 million or 38.0% to $11.7 million for the six
        months
        ended June 30, 2006 from $8.4 million for the same period in 2005. The increase
        in SG&A was due primarily to increases in (1) stock-based compensation
        expense of $1.4 million, (2) compensation and benefit expenses of $0.9 million,
        (3) rental expenses from the opening of our Taiwan sales office of $0.1 million,
        (4) travel expenses of $0.2 million, (5) marketing expenses of $0.1 million,
        and
        (6) commission expense of $0.3 million resulting mainly from higher
        revenues.
  We
        expect
        SG&A expenses in absolute dollars to likely increase in future
        periods.
  **Amortization
        of Purchased Intangible Assets**
 
 Amortization
        of purchased intangible assets remained relatively flat at $0.5 million for
        the
        three months ended June 30, 2006 and 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 remained relatively flat at $1.0 million for
        the
        six months ended June 30, 2006 and 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 and short-term
        and
        long-term marketable securities balances. Interest income and other increased
        by
        $0.2 million to $0.4 million for the three months ended June 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 $0.5 million to $0.8 million for the six months
        ended June 30, 2006 from $0.3 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 $71,000 has been recorded for the six month period
        ended
        June 30, 2006, compared to income tax expense of $15,000 for the same period
        in
        2005. Income tax expense for the six months ended June 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.
 
 **Liquidity
        and Capital Resources**
 
 Cash
        and
        cash equivalents and short term marketable securities were $38.3 million
        at June
        30, 2006, an increase of $3.3 million from $35.0 million at December 31,
        2005.
        The increase was due primarily to (1) net income of $1.8 million adjusted
        for
        non-cash expenses of $4.4 million, which includes stock-based compensation
        of
        $2.5 million, (2) an increase in accounts payable of $2.6 million due primarily
        to increased inventory purchases, (3) an increase in accrued compensation
        and
        benefits of $0.5 million, (4) a decrease in other current assets of $0.3
        million, and (5) cash received of $2.5 million from the exercise of stock
        options. These cash inflows were partially offset by (1) a decrease in other
        accrued expenses of $0.7 million, (2) an increase in inventory of $5.8 million
        due to increased purchases of PCI Express and other products as a result
        of
        increased demand, (3) a decrease in deferred revenues of $2.0 million due
        to the
        change in our estimates for revenues to distributors, and (4) capital
        expenditures of $0.6 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 six month period ended
        June
        30, 2006.
 
 As
        of
        June 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
                
                $
                132
                
                $
                98
                
                $
                34Software
                    licenses
                
                
                3,865
                
                
                1,265
                
                
                2,600Inventory
                    purchase commitments
                
                
                9,840
                
                
                9,840
                
                
                -Total
                    cash obligations
                
                $
                13,837
                
                $
                11,203
                
                $
                2,634
  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. PLX now has concluded that it is able to reasonably estimate
        returns and pricing concessions, and therefore has concluded to implement
        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
        June 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 customer’s 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 June 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. 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 and short-term investments. Our investment
        portfolio totaled $34.4 million at June 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 June 30, 2006 is comprised
        of
        cash equivalents and short-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 June 30, 2006, our Chief Executive Officer and acting
        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
        June
        30, 2006, two distributors accounted for 32% and 12% of net revenues. For
        the
        same period in 2005, one distributor accounted for 26% of net revenues. For
        the
        six months ended June 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 six
        months ended June 30, 2006 and 2005, sales through distributors accounted
        for
        approximately 71% and 61%, 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 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
        six months ended June 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
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
        HOLDERS**
 
 At
        the
        Company’s Annual Meeting of Stockholders held on May 25, 2006, the following
        proposals were submitted to a vote of stockholders:
 
 Proposal
        No. 1: Election of Directors
 
 The
        following votes were cast for each director nominee and each such nominee
        was
        reelected to the Company’s Board of Directors:
  **Name**
                  
                  
                  **Votes
                      For**
                  
                  
                  **Votes
                      Withheld**Michael
                      J. Salameh
                  
                  
                  26,448,909
                  
                  
                  167,410D.
                      James Guzy
                  
                  
                  25,644,976
                  
                  
                  971,343John
                      H. Hart
                  
                  
                  26,257,214
                  
                  
                  359,105Robert
                      H. Smith
                  
                  
                  26,436,542
                  
                  
                  179,777Thomas
                      Riordan
                  
                  
                  26,452,942
                  
                  
                  163,377Patrick
                      Verderico
                  
                  
                  26,452,842
                  
                  
                  163,477
  Proposal
        No. 2: Amendment and Restatement of the Company’s 1999 Stock Incentive Plan,
        which was approved:
  For
                
                
                18,686,728Against
                
                
                1,987,797Abstain
                
                
                984,749Broker
                    Non-Votes
                
                
                4,957,045Total
                    Shares Voted
                
                
                26,616,319
  Proposal
        No. 3: Ratification of Independent Registered Public Accountants, which was
        approved:
  For
                
                
                26,579,307Against
                
                
                24,556Abstain
                
                
                12,456Total
                    Shares Voted
                
                
                26,616,319
  
  **ITEM
        6. EXHIBITS**


**Exhibit****Number**
                **Description**10.1*
                Amended
                    and Restated PLX Technology, Inc. 1999
                    Stock Incentive Plan, filed as Appendix A to the Company's Proxy
                    Statement
                    on Schedule 14A, dated April 18, 2006, and incorporated herein
                    by
                    reference.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 Finanical 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: August
        4, 2006  By  /s/  Michael Salameh
 Michael
        Salameh
 Chief
        Executive Officer
 ( *Principal
        Executive Officer and*
 *Principal
        Financial Officer)*




---

**EXHIBIT
      INDEX**




**Exhibit****Number**
            **Description**10.1*
            Amended
                and Restated PLX Technology, Inc. 1999
                Stock Incentive Plan, filed as Appendix A to the Company's Proxy
                Statement
                on Schedule 14A, dated April 18, 2006, and incorporated herein by
                reference.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 Finanical 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.


---