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, 2002 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 000-30649

CENTILLIUM COMMUNICATIONS, INC.(Exact name of registrant as specified in its charter)



|Delaware                                                       | 94-3263530                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number)

47211 Lakeview BoulevardFremont, California     94538

(510) 771-3700







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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [  ],

On July 16, 2002, approximately 34,873,202 shares of the Registrant's Common
Stock, $0.001 par value, were outstanding.









Centillium Communications, Inc.

                                TABLE OF CONTENTS



|PART I.   Financial Information                                                                                                           | Page No.
|----------------------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                                          |         
|Item 1.   Financial Statements                                                                                                            |         
|                                                                                                                                          |         
|Condensed Consolidated Balance Sheets as of
        
          June 30, 2002 (Unaudited) and December 31, 2001                            | 3       
|                                                                                                                                          |         
|Condensed Consolidated Statements of Operations for the 
        
          three and six months ended June 30, 2002 and 2001 (Unaudited) | 4       
|                                                                                                                                          |         
|Condensed Consolidated Statements of Cash Flows
        
          for the six months ended June 30, 2002 and 2001 (Unaudited)            | 5       
|                                                                                                                                          |         
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                          | 6       
|                                                                                                                                          |         
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                     | 10      
|                                                                                                                                          |         
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                      | 19      
|                                                                                                                                          |         
|PART II.  Other Information                                                                                                               |         
|                                                                                                                                          |         
|Item 1.   Legal Proceedings                                                                                                               | 20      
|                                                                                                                                          |         
|Item 2: Changes in Securities and Use of Proceeds                                                                                         | 20      
|                                                                                                                                          |         
|Item 3: Defaults Upon Senior Securities                                                                                                   | 20      
|                                                                                                                                          |         
|Item 4: Submission of Matters to a Vote of Security Holders                                                                               | 20      
|                                                                                                                                          |         
|Item 5: Other Information                                                                                                                 | 20      
|                                                                                                                                          |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                | 20      
|                                                                                                                                          |         
|Signatures                                                                                                                                | 21      

---

PART I -- FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

---

CENTILLIUM COMMUNICATIONS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

June 30,   December 31,
                                                            2002         2001
                                                        -----------  -----------
                                                        (unaudited)
                        ASSETS
Current assets:
  Cash and cash equivalents........................... $    96,126  $    93,724
  Short-term investments..............................       7,402       17,129
  Accounts receivable - net of allowance for doubtful
   accounts of $868 at June 30, 2002 and $1,026
   at December 31, 2001...............................       6,527        4,042
  Inventories.........................................       5,423        9,356
  Other current assets................................       2,773        2,147
                                                        -----------  -----------
    Total current assets..............................     118,251      126,398
Property and equipment, net...........................      11,089       11,483
Goodwill .............................................       5,835        5,190
Other acquisition intangibles, net....................         167          895
Other assets..........................................         350          242
                                                        -----------  -----------
    Total assets...................................... $   135,692  $   144,208
                                                        ===========  ===========

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................... $     6,982  $     7,854
  Accrued payroll & related expenses..................       4,276        3,272
  Accrued liabilities.................................      13,559       11,268
  Accrued purchase commitments........................       1,461           --
  Deferred revenue....................................         491           --
  Accrued taxes.......................................         130           77
  Long-term debt-current portion......................          --          264
                                                        -----------  -----------
    Total current liabilities.........................      26,899       22,735
Other liabilities.....................................         299          315
Commitments and contingencies

Stockholders' equity:
Common stock..........................................          35           35
Additional paid in capital............................     230,413      229,224
Accumulated other comprehensive income................           5           66
Deferred compensation.................................      (4,996)      (8,734)
Accumulated deficit...................................    (116,963)     (99,433)
                                                        -----------  -----------
    Total stockholders' equity........................     108,494      121,158
                                                        -----------  -----------
    Total liabilities and stockholders' equity........ $   135,692  $   144,208
                                                        ===========  ===========
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

         (Unaudited, In Thousands Except Per Share Data)

Three Months Ended    Six Months Ended
                                              June 30,              June 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         --------- ----------  --------- ----------
Net revenues........................... $  34,413  $  46,371  $  57,019  $  78,226
Cost of revenues.......................    21,283     23,315     33,349     39,486
                                         ---------  ---------  ---------  ---------
Gross profit...........................    13,130     23,056     23,670     38,740
                                         ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.............    14,360     13,745     27,969     28,017
  Sales and marketing..................     4,107      4,809      9,005      9,083
  General and administrative...........     2,501      4,178      5,544      7,663
  Amortization of goodwill and other
   acquisition-related intangibles.....        41        821         83      1,642
  In-process research and development..        --         --         --      7,422
                                         ---------  ---------  ---------  ---------
    Total operating expenses...........    21,009     23,553     42,601     53,827
                                         ---------  ---------  ---------  ---------
Operating loss.........................    (7,879)      (497)   (18,931)   (15,087)
Interest income........................       510        956      1,033      2,139
Interest expense.......................        (8)       (19)       (21)       (40)
Gain (loss) on non-current investment..        --       (990)       440       (990)
                                         ---------  ---------  ---------  ---------
Loss before provision for income taxes.    (7,377)      (550)   (17,479)   (13,978)
Provision for income taxes.............        27        205         51        234
                                         ---------  ---------  ---------  ---------
Net loss............................... $  (7,404) $    (755) $ (17,530) $ (14,212)
                                         =========  =========  =========  =========

Basic and diluted net loss per share... $   (0.21) $   (0.02) $   (0.51) $   (0.43)
                                         =========  =========  =========  =========
Weighted average common shares
   outstanding--basic and diluted......    34,538     33,426     34,416     33,101
                                         =========  =========  =========  =========
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (Unaudited, In Thousands)
For the Six
                                                                Months Ended June 30,
                                                               ----------------------
                                                                  2002        2001
                                                               ----------  ----------
Operating activities
Net loss..................................................... $  (17,530) $  (14,212)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Amortization of deferred compensation......................      3,203       9,433
  Depreciation and amortization expense......................      3,305       2,132
  Amortization of goodwill and other acquisition
   related intangibles.......................................         83       1,643
  Acquired in-process research and development...............         --       7,422
  Loss (gain) on non-current investment......................       (440)        990
  Stock-based compensation...................................        307          --
  Changes in operating assets and liabilities:
    Accounts receivable......................................     (2,485)     15,200
    Inventories..............................................      3,933     (19,736)
    Other current assets.....................................       (626)       (504)
    Other assets.............................................       (108)       (111)
    Accounts payable.........................................       (872)     (1,462)
    Accrued payroll and related expenses.....................      1,004         589
    Accrued purchase commitments.............................      1,461          --
    Deferred revenue.........................................        491       2,716
    Accrued liabilities......................................      2,291       2,250
    Other liabilities........................................         46          51
                                                               ----------  ----------
Net cash provided by (used in) operating activities..........     (5,937)      6,401

Investing activities
  Purchases of short-term investments........................     (6,456)    (18,431)
  Sales and maturities of short-term investments.............     16,122      20,955
  Purchases of property and equipment........................     (2,911)     (3,736)
  Proceeds from sale of  non-current investment..............        440          --
  Cash acquired in acquisition...............................         --         258
                                                               ----------  ----------
Net cash provided by (used in) investing activities..........      7,195        (954)

Financing activities
  Principal payments on long term debt obligations...........       (264)       (257)
  Proceeds from issuance of common stock, net of repurchases.      1,408       2,446
  Proceeds from stockholders note receivable.................         --         430
                                                               ----------  ----------
Net cash provided by financing activities....................      1,144       2,619
                                                               ----------  ----------
Net increase in cash and cash equivalents....................      2,402       8,066
Cash and cash equivalents at beginning of period.............     93,724      71,240
                                                               ----------  ----------
Cash and cash equivalents at end of period................... $   96,126  $   79,306
                                                               ==========  ==========
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Business and Basis of Presentation
Nature of Operations

Centillium Communications, Inc. (Centillium or the Company) was incorporated in California on February 21, 1997
for the purpose of developing and marketing semiconductor devices for equipment manufacturers serving the
broadband communications markets.  The Company has focused initially on developing products designed for the
Digital Subscriber Line (DSL) and Voice over Packet markets.The Company's revenues are derived from the sale of our DSL and Voice over Packet products, which include the
CopperFlite CO, CopperFlite CPE, Optimizer and Entropia families of products.Centillium has incurred significant losses since inception and, as of June 30, 2002, had an accumulated deficit of
approximately $117.0 million including a net loss for the six months ended June 30, 2002 of $17.5 million.Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements 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.  Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.  In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been
included.  Operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002.The balance sheet as of December 31, 2001 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally accepted accounting principles for
complete financial statements.For further information, refer to the consolidated financial statements and footnotes thereto for the year ended
December 31, 2001 included in the Company's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 27, 2002.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 the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.Customer Concentrations

The following customers accounted for more than 10% of net revenues for the respective reporting periods below:For the Three MonthsEnded June 30,
For the Six MonthsEnded June 30,2002
2001
2002
2001Sumitomo Electric Industries
        NEC
44%
42%
52%
45%
50%
36%
45%
42%

Loss on Purchase Commitments and Inventory Write-down

The Company does not own or operate a fabrication facility, and foundries located in Asia currently supply
substantially all of its wafer and packaging requirements.  The Company's purchase obligations to these foundries
are based on wafer supply agreements or non-cancelable purchase orders.  For the three months ended June 30,
2002, the Company recorded a loss on non-cancelable purchase commitments of $1.5 million and an inventory
write-down of $1.2 million, which have been included in cost of revenues.  These charges were recorded due to a
decrease in forecasted sales volume of a product that is approaching end of life.  The charges were calculated based on the
inventory levels and purchase commitments in excess of expected demand for that product.Contingent Matters

The semiconductor and telecommunications industries are characterized by substantial litigation regarding patent
and other intellectual property rights. From time to time, the Company receives various inquiries or claims in
connection with these rights and may become party to associated claims.  In certain cases, management has accrued
estimates of the amounts it expects to pay upon resolution of such matters and such amounts are included in accrued
liabilities.  Should the Company not be able to secure the terms it expects, these estimates may change and will be
recognized in the period in which they are identified.  Depending on the amount and timing of the resolutions of
these claims, our future cash flows could be materially adversely affected in a particular period.Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 141 (SFAS 141), "Business Combinations," which requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business combination completed after June 30,
2001.  As of July 1, 2001, the Company adopted this accounting standard.As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142),
"Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting standards for
goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill
no longer be amortized, and instead, be tested for impairment at least annually.  In addition, within six months of
adopting the new accounting standard, a transitional impairment test must be completed and any impairments
identified must be reported as a cumulative effect of a change in accounting principle.  For the three months ended
June 30, 2002, the company completed its transitional impairment test and no impairment was recognized.  For
further discussion, see Note 3, "Goodwill and Other Intangible Assets."In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), which addresses financial accounting and reporting for impairment or disposal of long-lived
assets and was effective January 1, 2002.  SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions
relating to the disposal of segments of a business under Accounting Principles Board Opinion No. 30.  The adoption
of SFAS 144 did not have a significant impact on the Company's financial statements.Reclassifications

Certain prior year balances have been reclassified to conform to current year presentation.2.  Inventories

The components of inventories are as follows (in thousands):

June 30,   December 31,
                                       2002         2001
                                   -----------  -----------
  Work-in-process................ $     3,520  $     6,600
  Finished goods.................       1,903        2,756
                                   -----------  -----------
                                  $     5,423  $     9,356
                                   ===========  ===========
3.  Goodwill and Other Intangible Assets


With the adoption of SFAS 142, the Company ceased amortizing goodwill effective January 1, 2002.  In addition,
the Company reclassified assembled workforce, which is no longer defined as an acquired intangible under SFAS
141 to goodwill.  Accordingly, there was no amortization of assembled workforce recognized during the three and
six months ended June 30, 2002.The following table presents a reconciliation of previously reported net loss and net loss per share to the amounts
adjusted to exclude goodwill and acquired workforce amortization (in thousands, except per share data):

Three Months Ended    Six Months Ended
                                                  June 30,              June 30,
                                             --------------------  ----------------------
                                               2002       2001        2002        2001
                                             ---------  ---------  ----------  ----------
  Net loss:
   As reported............................. $  (7,404) $    (755)    (17,530) $  (14,212)
   Goodwill amortization...................        --        502          --       1,004
   Workforce amortization..................        --        278          --         556
                                             ---------  ---------  ----------  ----------
   As adjusted............................. $  (7,404) $      25     (17,530) $  (12,652)
                                             =========  =========  ==========  ==========
Basic and diluted net loss per share:
   As reported............................. $   (0.21) $   (0.02)      (0.51) $    (0.43)
   Goodwill amortization...................        --       0.01          --        0.03
   Workforce amortization..................        --       0.01          --        0.02
                                             =========  =========  ==========  ==========
   As adjusted............................. $   (0.21) $    0.00       (0.51) $    (0.38)
                                             =========  =========  ==========  ==========
Other intangible assets subject to amortization were as follows (in thousands):

June 30,   December 31,
                                                    2002         2001
                                                -----------  -----------
  Other purchased intangibles.................         500          500
  Less accumulated amortization...............        (333)        (250)
                                                -----------  -----------
  Other purchased intangibles, net............ $       167  $       250
                                                ===========  ===========
Amortization expense for other intangible assets was $83,000 for the six months ended June 30, 2002.  The
estimated annual amortization expense for other intangible assets is $167,000 for the year ended December 31, 2002
and $83,000 for the year ended December 31, 2003.4.  Net Loss Per Share and Comprehensive Net Loss



The following table presents the computation of basic and diluted net loss per share (in thousands, except per share
amounts):

Three Months Ended    Six Months Ended
                                              June 30,              June 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         ---------  ---------  ---------  ---------
  Net loss............................. $  (7,404) $    (755) $ (17,530) $ (14,212)
                                         =========  =========  =========  =========
  Basic and diluted:
  Weighted average shares of common
   stock outstanding...................    34,706     34,149     34,637     33,937
  Less weighted average shares
   subject to repurchase...............       168        723        221        836
                                         ---------  ---------  ---------  ---------
  Weighted average shares used in
   computing basic and diluted net
   (loss) per share....................    34,538     33,426     34,416     33,101
                                         =========  =========  =========  =========

  Basic and diluted net loss per share. $   (0.21) $   (0.02)     (0.51) $   (0.43)
                                         =========  =========  =========  =========
As of June 30, 2002 and 2001, there were 12,158,188 and 10,084,652, respectively, of stock options and warrants
excluded from the calculation of diluted net loss per share because these securities are antidilutive for all periods
presented.In December 2001, the Company offered a voluntary stock option exchange program to its employees and officers.
Under the program, participants were able to tender for cancellation stock options that have an exercise price equal
to or greater than $10 per share for replacement options to be granted on a date which is at least six months plus one
day from the date of cancellation of the tendered options.  The exercise price of the replacement options is equal to
100 percent of the market price of Centillium's common stock on the grant date of the replacement options.  The
terms and conditions of the replacement options, including the vesting schedules, are substantially the same as the
terms and conditions of the options cancelled.  On June 4, 2002, the Company issued 5,094,918 stock options at an
option price of $6.62 under this option exchange program.Comprehensive Net Loss

The components of comprehensive net loss were as follows (in thousands):

Three Months Ended    Six Months Ended
                                              June 30,              June 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         ---------  ---------  ---------  ---------
Net loss............................... $  (7,404) $    (755) $ (17,530) $ (14,212)

Change in unrealized gain on
  available-for-sale investments.......        17         (5)        61          7
                                         ---------  ---------  ---------  ---------
   Total comprehensive loss............ $  (7,387) $    (760)   (17,469) $ (14,205)
                                         =========  =========  =========  =========
5.  Provision for Income Taxes

The provision for income taxes for the three and six month periods ended June 30, 2002 relates to current taxes
payable for the Company's subsidiaries located in foreign jurisdictions.  The provision for income taxes for the three
and six month periods ended June 30, 2001 relates to current taxes payable for the Company's subsidiaries located
in foreign jurisdictions and federal alternative minimum taxes based on projected U.S. taxable income for the fiscal
year 2001.  Income tax expense differs from the expected benefit that was derived by applying the applicable U.S.
federal statutory rate to the loss from operations primarily due to losses which are not currently benefited. Due to the
Company's loss position, a full valuation allowance has been established to offset the deferred tax assets, primarily
related to net operating loss carryforwards.6.  Related Party Transactions

In the second quarter of 2000, the Company invested $990,000 in equity securities of Broadxent, Inc., a majority
owned subsidiary of Creative Technology Ltd.  In the second quarter of 2001, in connection with an ongoing
evaluation of this non-current equity investment, the Company wrote down the basis of this investment to zero as a
result of impairment in the value of this asset.  In the first quarter of 2002, the Company sold this non-current equity
investment for $440,000 and reported this amount as a gain.The Company sold $2.0 million of products to Broadxent, Inc. in both the six month period ended June 30, 2002 and
the year ended December 31, 2001.  As of June 30, 2002 and December 31, 2001, the Company had $222,000 and
$486,000, respectively, in accounts receivable from Broadxent, Inc.  Broadxent, Inc., is a wholly owned subsidiary
of Creative Technology Ltd.  One of the Company's directors is also a director of Creative Technology Ltd.
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our consolidated financial statements and
the related notes thereto included in our Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 27, 2002. The information in this report is not a complete description of our business or the
risks associated with an investment in our common stock. We urge you to carefully review and consider the various
disclosures made by us in this report and in our other reports filed with the SEC.Our discussion contains "forward-looking statements" that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally preceded by words that
imply a future state such as "expected" or "anticipated" or imply that a particular future event or events will occur
such as "will."  Investors are cautioned that all forward-looking statements involve risks and uncertainties and those
actual results could be materially different from those discussed in this report.The section entitled "Risk Factors" and similar discussions in our other SEC reports filed with the SEC discuss some
of the important risk factors that may affect our business, results of operations and financial condition. Copies of our
reports filed with the SEC are available from us without charge and on the SEC's website at www.sec.gov. You
should carefully consider those risks, in addition to the other information in this report and in our other filings with
the SEC, before deciding to invest in our Company or to maintain or increase your investment.Results of Operations for the Three Months Ended June 30, 2002 and 2001

Net Revenues.  Our net revenues were $34.4 million for the three months ended June 30, 2002 compared to
$46.4 million for the three months ended June 30, 2001.  The decrease in revenues primarily reflects a decrease in
average selling prices of our DSL products partially offset by an increase in unit volume shipments.  Our major
customers for the three months ended June 30, 2002, were Sumitomo Electric Industries ("Sumitomo") and NEC
who represented 44% and 42% of net revenues, respectively.  For the three months ended June 30, 2001, Sumitomo
and NEC represented 52% and 45% of net revenues, respectively.  Revenues to international customers, who were
primarily located in Japan, comprised 91% and 97% of our net revenues for the three months ended June 30, 2002
and 2001, respectively.Cost of Revenues and Gross Profit.  Cost of revenues was $21.3 million for the three months ended June
30, 2002 resulting in a gross profit of $13.1 million or 38% of net revenues.  This compares to a gross profit of $23.1
million or 50% of net revenues for the three months ended June 30, 2001.  The decrease in gross profit and gross
profit percentage was primarily due to a loss on non-cancelable purchase commitments of $1.5 million, an inventory
write-down of $1.2 million and a decrease in average selling prices of our DSL products.Research and Development Expenses.  Research and development expenditures increased 4% to $14.4
million for the three months ended June 30, 2002 as compared to $13.7 million for the three months ended June 30,
2001.  This increase was primarily due to additions in engineering personnel and related salary costs, increased
usage of materials necessary to build prototypes, an increase in depreciation resulting from additional purchases of
laboratory equipment and an increase in maintenance and support costs for software development tools, offset by a
$1.3 million decrease in the amortization of deferred compensation.Sales and Marketing Expenses.   Sales and marketing expenditures decreased 15% to $4.1 million for the
three months ended June 30, 2002 as compared to $4.8 million for the three months ended June 30, 2001. The
decrease was due primarily to a $424,000 decrease in the amortization of deferred compensation, a decrease in
customer evaluation board costs and a decrease in sales commissions, offset by the addition of sales personnel and
related salary costs.General and Administrative Expenses.  General and administrative expenditures decreased 40% to $2.5
million for the three months ended June 30, 2002 from $4.2 million for the three months ended June 30, 2001.  This
decrease was primarily due to a $702,000 decrease in the amortization of deferred compensation, a decrease in bad
debt expense and decreases in payroll and recruiting costs, legal fees, and travel related expenses.Amortization of Deferred Compensation.  Amortization of deferred compensation, which is allocated
among the above expense categories, decreased 64% to $1.4 million for the three months ended June 30, 2002 from
$3.9 million for the three months ended June 30, 2001.  This decrease was primarily attributable to the use of the
graded vesting method, which results in accelerated amortization of deferred compensation expense in the earlier
years of the awards' expected life.Amortization of Goodwill and Other Acquisition Intangibles.  Amortization of goodwill and other
acquisition-related intangibles decreased to $41,000 for the three months ended June 30, 2002 from $821,000 for the
three months ended June 30, 2001.  This was due to the implementation of SFAS 142, which required us to
discontinue the amortization of goodwill effective January 1, 2002.  In addition, in accordance with SFAS 142 we
reclassified assembled workforce to goodwill which eliminated the amortization of assembled workforce effective
January 1, 2002.Gain (Loss) on Non-Current Investment.  In June 2001, in connection with the ongoing evaluation and
review of our non-current equity investment, we recorded a non-cash charge of $990,000 to write down the basis of
our investment to zero as a result of an impairment of value.Interest Income.   Interest income decreased 47% to $510,000 in the three months ended June 30, 2002 as
compared to $956,000 for the three months ended June 30, 2001. This decrease was primarily due to lower interest
rates obtained on our cash, cash equivalents and short-term investment portfolio.Provision for Income Taxes.  Income tax expense was $27,000 for the three months ended June 30, 2002
compared to $205,000 for the three months ended June 30, 2001.  The provision for income taxes for the three
months ended June 30, 2002 relates to current taxes payable for the Company's subsidiaries located in foreign
jurisdictions.  The provision for income taxes for the three months ended June 30, 2001 relates to current taxes
payable for the Company's subsidiaries located in foreign jurisdictions and federal alternative minimum taxes based
on projected U.S. taxable income for the fiscal year 2001. Due to the Company's loss position, a full valuation
allowance has been established to offset the deferred tax assets, primarily related to net operating loss carryforwards.Results of Operations for the Six Months Ended June 30, 2002 and 2001

Net Revenues.  Our net revenues were $57.0 million for the six months ended June 30, 2002 compared to
$78.2 million for the six months ended June 30, 2001.  The decrease in revenues is primarily due to a decrease in
average selling prices of our DSL products.  Our major customers for the six months ended June 30, 2002 were
Sumitomo and NEC who represented 50% and 36% of net revenues, respectively.  For the six months ended June
30, 2001, Sumitomo and NEC represented 45% and 42% of net revenues, respectively.  Revenues to international
customers, who were primarily located in Japan, comprised 90% and 89% of our net revenues for the six months
ended June 30, 2002 and 2001, respectively.Cost of Revenues and Gross Profit.  Cost of revenues was $33.3 million for the six months ended June 30,
2002 resulting in a gross profit of $23.7 million or 42% of net revenues.  This compares to a gross profit of $38.7
million or 50% of net revenues for the six months ended June 30, 2001.  The decrease in gross profit and gross profit
percentage was primarily due to a decrease in average selling prices of our DSL products
and a $1.5 million loss on non-cancelable purchase commitments relating to excess and obsolete products.Research and Development Expenses.  Research and development expenditures were $28.0 million for the
six months ended June 30, 2002 and 2001.  Research and development expenses remained unchanged primarily due
to the $3.1 million decrease in the amortization of deferred compensation being offset by additions in engineering
personnel and related salary costs, increased usage of materials necessary to build prototypes, an increase in
depreciation resulting from additional purchases of laboratory equipment and an increase in maintenance and
support costs for software development tools.Sales and Marketing Expenses.   Sales and marketing expenditures were $9.0 million for the six months
ended June 30, 2002 as compared to $9.1 million for the six months ended June 30, 2001. The decrease was due
primarily to a $1.0 million decrease in the amortization of deferred compensation and decreases in customer
evaluation board costs and sales commissions, offset by the addition of sales personnel and related salary costs.General and Administrative Expenses.  General and administrative expenditures decreased 28% to $5.5
million for the six months ended June 30, 2002 from $7.7 million for the six months ended June 30, 2001.  This
decrease was primarily due to a $1.8 million decrease in the amortization of deferred compensation and a decrease
in bad debt expense.Amortization of Deferred Compensation.  Amortization of deferred compensation, which is allocated
among the above expense categories, decreased 66% to $3.2 million for the six months ended June 30, 2002 from
$9.4 million for the six months ended June 30, 2001.  This decrease was primarily attributable to the use of the
graded vesting method, which results in accelerated amortization of deferred compensation expense in the earlier
years of the awards' expected life.Amortization of Goodwill and Other Acquisition Intangibles.  Amortization of goodwill and other
acquisition-related intangibles decreased to $83,000 for the six months ended June 30, 2002 from $1.6 million for
the six months ended June 30, 2001.  This was due to the implementation of SFAS 142, which required us to
discontinue the amortization of goodwill effective January 1, 2002.  In addition, in accordance with SFAS 142 we
reclassified assembled workforce to goodwill which eliminated the amortization of assembled workforce effective
January 1, 2002.In-Process Research and Development Expense.  For the six months ended June 30, 2001, we recorded
$7.4 million in charges for in-process research and development related to the acquisition vEngines Inc. There were
no comparable amounts for the six months ended June 30, 2002.Gain on Non-Current Investment.  For the six months ended June 30, 2001, as a result of an ongoing
evaluation and review of our non-current equity investment, we recorded a non-cash charge of $990,000 to write
down the basis of our investment to zero for an impairment.  In January 2002, we sold this non-current equity
investment for $440,000 and have included this as a gain in the six months ended June 30, 2002.Interest Income.   Interest income decreased 52% to $1.0 million in the six months ended June 30, 2002 as
compared to $2.1 million for the six months ended June 30, 2001. This decrease was primarily due to lower interest
rates obtained on our cash, cash equivalents and short-term investment portfolio.Provision for Income Taxes.  Income tax expense was $51,000 for the six months ended June 30, 2002
compared to $234,000 for the six months ended June 30, 2001.  The provision for income taxes for the six months
ended June 30, 2002 relates to current taxes payable for the Company's subsidiaries located in foreign jurisdictions.
The provision for income taxes for the six months ended June 30, 2001 relates to current taxes payable for the
Company's subsidiaries located in foreign jurisdictions and federal alternative minimum taxes based on projected
U.S. taxable income for the fiscal year 2001. Due to the Company's loss position, a full valuation allowance has
been established to offset the deferred tax assets, primarily related to net operating loss carryforwards.Liquidity and Capital Resources

Since our inception, we have financed our operations through a combination of sales of equity securities and cash
generated by operations.  At June 30, 2002, we had $103.5 million in cash, cash equivalents and short-term
investments as compared to $110.9 million at December 31, 2001.Net cash used in operating activities was $5.9 million for the six months ended June 30, 2002.  The net cash used in
operating activities was primarily due to our net loss of $17.5 million and an increase in our accounts receivable of
$2.5 million.  Net cash used in operating activities was offset by non-cash charges of $3.2 million for the
amortization of deferred compensation, depreciation and amortization expense of $3.3 million, a decrease in
inventory of $3.9 million and increases in accrued liabilities and accrued purchase commitments of $2.3 million and
$1.5 million, respectively.For the six months ended June 30, 2002, net cash provided by investing activities was $7.2 million.  Net cash provided by
investing activities primarily related to net sales and maturities of short-term investments of $9.7 million and
proceeds from the sale of a non-current investment of $440,000 offset by purchases of property and equipment of
$2.9 million.Net cash provided by financing activities was $1.1 million for the six month periods ended June 30, 2002.   Net cash
provided by financing activities primarily consisted of net proceeds from employee stock plans offset by
principal payments on long term debt obligations.Our principal source of liquidity as of June 30, 2002 consisted of $103.5 million of cash and cash equivalents, and
short-term investments.  We anticipate that our existing capital resources will be sufficient to maintain our current
level of operations and planned operations and capital expenditures for at least the next 12 months.We expect to devote capital resources to continue our research and development efforts, to support our sales,
marketing, and product development programs, to establish additional facilities worldwide and to fund other general
corporate activities.  From time to time, we receive various inquiries or claims in connection with intellectual
property and other rights and may become party to associated claims. In certain cases, management has accrued
estimates of the amounts it expects to pay upon resolution of such matters.  Depending on the amount and timing of
the resolutions of these claims, our future cash flows could be materially adversely affected in a particular period.Risk Factors

You should carefully consider the risks described below and all of the information contained in this Form 10-Q and
on our Form 10-K, filed with the Securities and Exchange Commission on March 27, 2002.  If any of the following
risks actually occurs, our business, financial condition and results of operations could be harmed and the trading
price of our common stock could decline and you may lose all or part of your investment in our common stock.WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

We have not reported an operating profit for any year since our incorporation and have experienced net losses of
approximately $17.5 million for the six months ended June 30, 2002 and $19.7 million and $46.0 million for the
years ended December 31, 2001 and 2000, respectively.OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.

The market price of our common stock has been volatile and will likely continue to fluctuate significantly in
response to the following factors, some of which are beyond our control:variations in our quarterly operating results;changes in financial estimates of our revenues and operating results by securities
analysts;changes in market valuations of integrated circuit companies;announcements by us, our competitors or others in related market segments of
significant contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments;loss or decrease in sales to a major customer or failure to complete significant
transactions;loss or reduction in manufacturing capacity from one or more of our key
suppliers;additions or departures of key personnel;future sales of our common stock;inconsistent or low levels of trading volume of our common stock;commencement of or involvement in litigation;announcements by us or our competitors of key design wins and product
introductions;a decrease in the average selling price of our products;ability to achieve cost reductions; andfluctuations in the timing and amount of customer requests for product
shipments.A GENERAL ECONOMIC SLOWDOWN, AND A SLOWDOWN IN SPENDING IN THE
TELECOMMUNICATIONS INDUSTRY, HAS AFFECTED AND MAY CONTINUE TO NEGATIVELY
AFFECT OUR BUSINESS AND OPERATING RESULTS.

Many telecommunications service providers have reduced their spending on DSL equipment, which has resulted in
lower than expected sales volume for DSL equipment manufacturers including some of our major historical
customers.  This trend, if continued, could result in lower than expected demand for our products, which could have
a material adverse effect on our revenues and results of operations generally, and could cause the market price of our
common stock to decline.A SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN WOULD ADVERSELY AFFECT OUR BUSINESS  AND OPERATING
RESULTS.

Sales to customers located in Japan accounted for 86% of net revenues for the six months ended June 30, 2002 and
87% of net revenues for the year ended December 31, 2001.  Any slowdown in the demand for our customers'
equipment in Japan may cause our revenues to decline. Our sales have been historically denominated in U.S. dollars
and major fluctuations in currency exchange rates could materially affect our Japanese customers' demand, thereby
forcing them to reduce their orders, which could adversely affect our operating results.COMPETING DSL TECHNOLOGIES MAY BE DEPLOYED IN JAPAN, WHICH MAY ADVERSELY
IMPACT THE DEMAND FOR OUR DSL PRODUCTS, MARKET SHARE AND OPERATING RESULTS.

We have worked in partnership with local telecommunications companies to develop the Annex C standard for the
DSL market in Japan and have been able to achieve the majority market share of DSL equipment purchases, based
on our products, in Japan.  In July 2001, a certain service provider announced plans to deploy lower priced
competing DSL technologies in Japan.  If these competing technologies are successful, our market share in the DSL
market in Japan may decline and our business and operating results may be adversely affected.WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM INTERNATIONAL SOURCES, AND
DIFFICULTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.

A substantial portion of our revenues has been derived from customers located outside of the United States. For the
six months ended June 30, 2002 and for the year ended December 31, 2001, 90% and 89%, respectively, of our net
revenues were to customers located in Asia.  We may be unable to successfully overcome the difficulties associated
with international operations. These difficulties include:staffing and managing foreign operations;changes in regulatory requirements;licenses, tariffs and other trade barriers;political and economic instability;difficulties in protecting intellectual property rights in some foreign countries;a limited ability to enforce agreements and other rights in some foreign
countries;obtaining governmental approvals for products; andcomplying with a wide variety of complex foreign laws and treaties.Because sales of our products are denominated exclusively in United States dollars, increases in the value of the
United States dollar could increase the price of our products so that they become relatively more expensive to
customers in the local currency of a particular country, leading to a reduction in sales and profitability in that
country.WE DEPEND ON A FEW CUSTOMERS AND IF WE LOSE ANY OF THEM OUR SALES AND
OPERATIONS WILL SUFFER.

We sell our DSL products primarily to network equipment manufacturers. Our top two customers for the six months
ended June 30, 2002 were Sumitomo and NEC, accounting for 50% and 36% of our net revenues.  For the year
ended December 31, 2001, Sumitomo and NEC accounted for 48% and 38% of our net revenues, respectively.  We
do not have contractual volume commitments with these customers, but rather sell our products
to them on an order-by-order basis.  We expect to be dependent upon a relatively small number
of large customers in future periods,  although the specific customers may vary from period to
period.  If we are not successful in maintaining  relationships with key customers and winning
new customers, our business and results of operations will suffer.OUR CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR DELAY OUR SALES CYCLE, WHICH
WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our customers are in most cases larger than us and are able to exert a high degree of influence over us.  These
customers may have sufficient bargaining power to demand low prices and other terms and conditions that may
materially adversely affect our business, financial condition and results of operations.  In addition, prior to selling
our products to such customers, we must typically undergo lengthy product approval processes, often taking up to
one year.  Accordingly, we are continually submitting successive versions of our products as well as new products to
our customers for approval.  The length of the approval process can vary and is affected by a number of factors,
including customer priorities, customer budgets and regulatory issues affecting telecommunication service
providers.  Delays in the product approval process could materially adversely affect our business, financial condition
and results of operations.  While we have been successful in the past in obtaining product approvals from our
customers, such approvals and the ensuing sales of such products may not continue to occur.  Delays can also be
caused by late deliveries by other vendors, changes in implementation priorities and slower than anticipated growth
in demand for the services that our products support.  A delay in, or cancellation of, the sale of our products could
adversely affect our results from operations or cause them to significantly vary from quarter to quarter.SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF BROADBAND ACCESS
SERVICES, ESPECIALLY DSL. IF THE DEMAND FOR BROADBAND ACCESS SERVICE DOES NOT
INCREASE, WE MAY NOT BE ABLE TO GENERATE SUBSTANTIAL SALES.

Sales of our products depend on the increased use and widespread adoption of broadband access services, and DSL
services in particular, and the ability of telecommunications service providers to market and sell broadband access
services.  Our business would be harmed, and our results of operations and financial condition would be adversely
affected, if the use of broadband access services does not increase as anticipated.  Certain critical factors will likely
continue to affect the development of the broadband access service market. These factors include:inconsistent quality and reliability of service;lack of availability of cost-effective, high-speed service;lack of interoperability among multiple vendors' network equipment;congestion in service providers' networks;inadequate security; andslow deployment of new broadband services over DSL lines.BECAUSE THE SALES CYCLE FOR OUR PRODUCTS TYPICALLY LASTS UP TO ONE YEAR, AND MAY
BE SUBJECT TO DELAYS, IT IS DIFFICULT TO FORECAST SALES FOR ANY GIVEN PERIOD.

If we fail to realize forecasted sales for a particular period, our stock price could decline significantly.  The sales
cycle of our products is lengthy and typically involves a detailed initial technical evaluation of our products by our
prospective customers, followed by the design, construction and testing of prototypes incorporating our products.
Only after these steps are complete will we receive a purchase order from a customer for volume shipments.  This
process generally takes from 9 to 12 months, and may last longer.  Given this lengthy sales cycle, it is difficult to
accurately predict when sales to a particular customer will occur.  In addition, we may experience unexpected delays
in orders from customers, which may prevent us from realizing forecasted sales for a particular period.  Our
products are typically sold to equipment manufacturers, who incorporate our products in the products that they in
turn sell to consumers or to network service providers.  As a result, any delay by our customers, or by our customers'
customers, in the manufacture or distribution of their products will result in a delay in obtaining orders for our
products.RAPID CHANGES IN THE MARKET FOR DSL CHIP SETS MAY RENDER OUR CHIP SETS OBSOLETE
OR UNMARKETABLE.

The market for chip sets for DSL products is characterized by:intense competition;rapid technological change;frequent new product introductions by our competitors;changes in customer demands; andevolving industry standards.Any of these factors could make our products obsolete or unmarketable.  In addition, the life cycles of some of our
products may depend upon the life cycles of the end products into which our products will be designed.  Products
with short life cycles require us to closely manage production and inventory levels.  Unanticipated changes in the
estimated total demand for our products and/or the estimated life cycles of the end products into which our products
are designed may result in obsolete or excess inventories, which in turn may adversely affect our operating results.
To compete, we must innovate and introduce new products.  If we fail to successfully introduce new products on a
timely and cost-effective basis that meet customer requirements and are compatible with evolving industry
standards, then our business, financial condition and results of operations will be seriously harmed.BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE EFFECTIVELY WITH DSL
SERVICES, OUR PRODUCTS MAY NOT CAPTURE MARKET SHARE.

DSL services are competing with a variety of different broadband data transmission technologies, including cable
modems, satellite and other wireless technologies.  If any technology that is competing with DSL technology is
more reliable, faster and less expensive or has other advantages over DSL technology, then the demand for our DSL
products may decrease.OUR MARKETS ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS ARE
ESTABLISHED AND HAVE GREATER RESOURCES THAN WE HAVE.

The market for communications semiconductor and software solutions is intensely competitive.  Given our stage of
development, there is a substantial risk that we will not have the financial resources, technical expertise or marketing
and support capabilities to compete successfully.  In addition, a number of other semiconductor companies have
announced their intent to enter the market segments adjacent to or addressed by our products.  These competitors
have longer operating histories, greater name recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources than we have.  We may also face competition from customers' or
prospective customers' own internal development efforts.  Any of these competitors may be able to introduce new
technologies, respond more quickly to changing customer requirements or devote greater resources to the
development, promotion and sale of their products than we can.BECAUSE OUR PRODUCTS ARE COMPONENTS OF OTHER EQUIPMENT, IF BROADBAND
EQUIPMENT MANUFACTURERS DO NOT INCORPORATE OUR PRODUCTS IN THEIR EQUIPMENT,
WE MAY NOT BE ABLE TO GENERATE SALES OF OUR PRODUCTS IN VOLUME QUANTITIES.

Our products are not sold directly to the end-user; they are components of other products. As a result, we rely upon
equipment manufacturers to design our products into their equipment.  We further rely on the manufacturing and
deployment of the equipment to be successful.  If equipment that incorporates our products is not accepted in the
marketplace, we may not achieve sales of our products in volume quantities, which would have a negative impact on
our results of operations.BECAUSE MANUFACTURERS OF COMMUNICATIONS EQUIPMENT MAY BE RELUCTANT TO
CHANGE THEIR SOURCES OF COMPONENTS, IF WE DO NOT ACHIEVE DESIGN WINS WITH SUCH
MANUFACTURERS, WE MAY BE UNABLE TO SECURE SALES FROM THESE CUSTOMERS IN THE
FUTURE.

Once a manufacturer of communications equipment has designed a supplier's semiconductor into its products, the
manufacturer may be reluctant to change its source of semiconductors due to the significant costs associated with
qualifying a new supplier.  Accordingly, our failure to achieve design wins with equipment manufacturers, who have
chosen a competitor's semiconductor could create barriers to future sales opportunities with these manufacturers.IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED, AND THE
SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.

Our products are complex and have contained errors, defects and bugs when introduced and revised.  If we deliver
products with errors, defects or bugs or products that have reliability, quality or compatibility problems, our
credibility and the market acceptance and sales of our products could be harmed, which could adversely affect our
ability to retain existing customers or attract new customers.  Further, if our products contain errors, defects and
bugs, then we may be required to expend significant capital and resources to alleviate such problems and may have
our sales to customers interrupted or delayed.  If any of these problems are not found until we have commenced
commercial production, we may be required to incur additional development costs and product repair or replacement
costs.  Defects could also lead to potential liability as a result of product liability lawsuits against us or against our
customers.  We have agreed to indemnify our customers in some circumstances against liability from defects in our
products.  A successful product liability claim could seriously harm our business, financial condition and results of
operations, and may divert our technical and other resources from other development efforts.WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS OF OUR PRODUCTS.

We obtain certain parts, components and packaging used in the delivery of our products from sole sources of supply.
For example, we obtain certain semiconductor wafers from Mitsubishi Electric and Taiwan Semiconductor
Manufacturing Co., Ltd.  If we fail to obtain components in sufficient quantities when required, and are unable to
meet customer demand, our business could be harmed, as our customers would consider purchasing products from
our competitors.  We also rely on United Microelectronics Corporation to manufacture our analog silicon wafers.
Developing and maintaining these strategic relationships with our vendors is critical for us to be successful. Any of
our sole source suppliers may:enter into exclusive arrangements with our competitors;stop selling their products or components to us at commercially reasonable
prices;refuse to sell their products or components to us at any price; orbe subject to production disruptions such as earthquakes.FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY
INCREASE COMPETITION THAT COULD HARM OUR BUSINESS.

The markets in which we compete are characterized by increasing consolidation both within the telecommunications
equipment sector and by companies combining or acquiring data communications assets and assets for delivering
voice-related services.  We cannot predict with certainty how industry consolidation will affect our competitors.  We
may not be able to compete successfully in an increasingly consolidated industry.  Increased competition and
consolidation in our industry may require that we reduce the prices of our products or result in a loss of market
share, which could materially adversely affect our business, financial condition and results of operations.
Additionally, because we are now, and may in the future be, dependent on certain strategic relationships with third
parties in our industry, any additional consolidation involving these parties could reduce the demand for our
products and otherwise harm our business prospects.WE MAY MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE NUMEROUS RISKS.

Our business is highly competitive and, as such, our growth is dependent upon market growth, our ability to enhance
our existing products and our ability to introduce new products on a timely basis.  One of the ways we have
addressed and may continue to address the need to develop new products is through acquisitions of other companies.
Acquisitions involve numerous risks, including the following:difficulties in integration of the operations, technologies and products of the acquired
companies;the risk of diverting management's attention from normal daily operations of the
business;potential difficulties in completing projects associated with purchased in-process research
and development;risks of entering markets in which we have no or limited direct prior experience and
where competitors in such markets have stronger market positions; andthe potential loss of key employees of the acquired company.Mergers and acquisitions of high-technology companies are inherently risky, and no assurance can be given that our
previous or future acquisitions will be successful and will not materially adversely affect our business, operating
results or financial condition.We must also maintain our ability to manage such growth effectively.  Failure to manage growth effectively and
successfully integrate acquisitions could harm our business and operating results.BECAUSE OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT MAY HAVE THE ABILITY TO
CONTROL STOCKHOLDER VOTES, THE PREMIUM OVER MARKET PRICE THAT AN ACQUIRER
MIGHT OTHERWISE PAY MAY BE REDUCED AND ANY MERGER OR TAKEOVER MAY BE DELAYED.

Our officers and directors and their affiliates owned or controlled approximately 17.3% of our common stock as of
July 16, 2002.  Accordingly, our officers and directors and their affiliates, as a group, may have the ability to control
the election of a majority of the members of our board of directors and the outcome of corporate actions requiring
stockholder approval.  This concentration of ownership may have the effect of delaying, deferring or preventing a
change in control of us, or may impede a merger, consolidation, takeover or other business combination involving
us.  This concentration of ownership could also adversely affect our stock's market price or lessen any premium
over market price that an acquirer might otherwise pay.OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND THESE
OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.

We depend upon the continuing contributions of our key management, sales, customer support and product
development personnel. The loss of such personnel could seriously harm us. In addition, we have
not obtained key-man life insurance on any of our executive officers or key employees.OUR FUTURE SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO PROTECT OUR PROPRIETARY
RIGHTS AND THE TECHNOLOGIES USED IN OUR PRINCIPAL PRODUCTS, AND IF WE DO NOT
ENFORCE AND PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL BE HARMED.

We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality agreements and
other contractual provisions to protect our proprietary rights.  However, these measures afford only limited
protection.  Our failure to adequately protect our proprietary rights may adversely affect us.  Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use
trade secrets or other information that we regard as proprietary.The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the
United States, and many U.S. companies have encountered substantial infringement problems in these countries.
There is a risk that our efforts to protect proprietary rights may not be adequate.  For example, our competitors may
independently develop similar technology, duplicate our products or design around our patents or our other
intellectual property rights.  If we fail to adequately protect our intellectual property or if the laws of a foreign
jurisdiction do not effectively permit such protection, it would be easier for our competitors to sell competing
products.THIRD-PARTY CLAIMS REGARDING INTELLECTUAL PROPERTY MATTERS COULD CAUSE US TO
STOP SELLING OUR PRODUCTS, PAY MONETARY DAMAGES OR OBTAIN LICENSES ON ADVERSE
TERMS.

There is a significant risk that third parties, including current and potential competitors, will claim that our products,
or our customers' products, infringe on their intellectual property rights.  The owners of these intellectual property
rights may bring infringement claims against us or our customers.  Any such litigation, whether or not determined in
our favor or settled by us, would be costly and divert the attention of our management and technical personnel.
Inquiries with respect to the coverage of our intellectual property could develop into litigation.  In the event of an
adverse ruling for an intellectual property infringement claim, we could be required to obtain a license or pay
substantial damages or have the sale of our products stopped by an injunction.  Such a license may not be available
on reasonable terms, or at all.  In addition, if a customer of our products cannot acquire a required license on
commercially reasonable terms, that customer may choose not to use our products.  We have obligations to
indemnify our customers under some circumstances for infringement of third-party intellectual property rights.  If
any intellectual property claims from third parties against one of our customers whom we have indemnified is held
to be valid, the costs to us could be substantial and our business could be harmed.We have received correspondence from certain parties, including Texas Instruments, Alcatel and Ricoh, requesting
us to discuss the potential need for non-exclusive licenses permitting us to utilize technology covered by various
patents held by these parties.  We could be subject to claims similar to the Texas Instruments, Alcatel and Ricoh
claims in the future.  Depending on the amount and timing of any unfavorable resolutions of these claims, our future
results of operations or cash flows could be materially adversely affected.WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MIGHT NOT BE AVAILABLE OR WHICH,
IF AVAILABLE, COULD BE ON TERMS ADVERSE TO OUR COMMON STOCKHOLDERS.

We expect that our current cash and cash equivalents and short-term investment balances will be adequate to meet
our working capital and capital expenditure needs for at least twelve months.  After that, we may need to raise
additional funds, and we cannot be certain that we will be able to obtain additional financing on favorable terms, if
at all.  We may also require additional capital for the acquisition of businesses, products and technologies that are
complementary to ours.  Further, if we issue equity securities, the ownership percentage of our stockholders would
be reduced, and the new equity securities may have rights, preferences or privileges senior to those existing holders
of our common stock.  If we cannot raise needed funds on acceptable terms, we may not be able to develop or
enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business, operating results and financial condition.
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our cash and short-term investment activities is to preserve principal while concurrently
maximizing the income we receive from our investments without significantly increasing risk. Some of the
securities that we may invest in may be subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued
with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the current value of the
principal amount of our investment will decline. To minimize this risk in the future, we intend to maintain our
portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and certificates of deposit. In general, money
market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing
interest rate. As of June 30, 2002, all of our investments were in money market funds and government debt
securities. A hypothetical 100 basis point increase in interest rates would result in an approximate $39,000 decrease
in the fair value of our available-for-sale securities as of June 30, 2002.

PART II --  OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS

The Company is not currently a party to any material litigation.
ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders was held on June 11, 2002. At that time, there were present in person or by
proxy 30,304,556 shares representing 87.5% of the 34,636,776 shares then outstanding and entitled to vote.
Stockholders elected two Directors nominated in the April 29, 2002 Proxy Statement, incorporated herein by
reference, to hold office for a term of three years. Additionally, the stockholders ratified the proposal to confirm
Ernst & Young LLP as independent auditors of the Company for the year ending December 31, 2002.1. Results of stockholder voting are as follows:Election of Directors
Votes For
Votes WithheldKamran Elahian
Lip-Bu Tan
30,188,383
30,216,133
116,173
   88,423


2. Proposal to ratify the appointment of Ernst &Young LLP as independent auditors for the year ending
December 31, 2002:For
Against
Abstain29,942,904
356,777
4,875


ITEM 5.  OTHER INFORMATION

None
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
None(b) Reports on Form 8-K
None
SIGNATURES

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

CENTILLIUM COMMUNICATIONS, INC.
(Registrant)Dated: July 25, 2002
By:/s/ Darrel SlackDarrel SlackVice President and Chief Financial Officer
(Principal Financial and Accounting Officer)