UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-Q

---

(Mark One)

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

For the quarterly period ended September 30, 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 October 16, 2002, approximately 34,921,239 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
        
          September 30, 2002 (Unaudited) and December 31, 2001                             | 3       
|                                                                                                                                                |         
|Condensed Consolidated Statements of Operations for the 
        
          three and nine months ended September 30, 2002 and 2001 (Unaudited) | 4       
|                                                                                                                                                |         
|Condensed Consolidated Statements of Cash Flows
        
          for the nine months ended September 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                                                                            | 21      
|                                                                                                                                                |         
|Item 4.   Controls and Procedures                                                                                                               | 21      
|                                                                                                                                                |         
|PART II.  Other Information                                                                                                                     |         
|                                                                                                                                                |         
|Item 1.   Legal Proceedings                                                                                                                     | 21      
|                                                                                                                                                |         
|Item 2. Changes in Securities and Use of Proceeds                                                                                               | 21      
|                                                                                                                                                |         
|Item 3. Defaults Upon Senior Securities                                                                                                         | 21      
|                                                                                                                                                |         
|Item 4. Submission of Matters to a Vote of Security Holders                                                                                     | 21      
|                                                                                                                                                |         
|Item 5. Other Information                                                                                                                       | 21      
|                                                                                                                                                |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                      | 22      
|                                                                                                                                                |         
|Signatures                                                                                                                                      | 22      
|                                                                                                                                                |         
|Certifications                                                                                                                                  | 23      

---

PART I -- FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

---

CENTILLIUM COMMUNICATIONS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

September 30, December 31,
                                                         2002          2001
                                                     ------------  ------------
                                                     (unaudited)
                        ASSETS
Current assets:
  Cash and cash equivalents........................ $     90,133  $     93,724
  Short-term investments...........................        7,444        17,129
  Accounts receivable - net of allowance for
   doubtful accounts of $618 at September 30,
   2002 and $1,026 at December 31, 2001............        7,206         4,042
  Inventories......................................        4,865         9,356
  Other current assets.............................        2,545         2,147
                                                     ------------  ------------
    Total current assets...........................      112,193       126,398
Property and equipment, net........................       11,079        11,483
Goodwill ..........................................        5,835         5,190
Other acquisition intangibles, net.................          125           895
Other assets.......................................          338           242
                                                     ------------  ------------
    Total assets................................... $    129,570  $    144,208
                                                     ============  ============

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable................................. $      8,842  $      7,854
  Accrued payroll & related expenses...............        3,602         3,272
  Accrued liabilities..............................       13,989        11,268
  Deferred revenue.................................          170           --
  Accrued taxes....................................          353            77
  Long-term debt-current portion...................          --            264
                                                     ------------  ------------
    Total current liabilities......................       26,956        22,735
Other liabilities..................................          290           315
Commitments and contingencies

Stockholders' equity:
Common stock.......................................           35            35
Additional paid in capital.........................      228,055       229,224
Accumulated other comprehensive income.............           (1)           66
Deferred compensation..............................       (3,424)       (8,734)
Accumulated deficit................................     (122,341)      (99,433)
                                                     ------------  ------------
    Total stockholders' equity.....................      102,324       121,158
                                                     ------------  ------------
    Total liabilities and stockholders' equity..... $    129,570  $    144,208
                                                     ============  ============
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

         (Unaudited, In Thousands Except Per Share Data)

Three Months Ended    Nine Months Ended
                                             September 30,         September 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         --------- ----------  --------- ----------
Net revenues........................... $  23,264  $  46,804  $  80,283  $ 125,030
Cost of revenues.......................    12,549     23,579     45,898     63,065
                                         ---------  ---------  ---------  ---------
Gross profit...........................    10,715     23,225     34,385     61,965
                                         ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.............    11,343     16,038     39,312     44,055
  Sales and marketing..................     2,943      4,763     11,948     13,846
  General and administrative...........     2,202      3,432      7,746     11,095
  Amortization of goodwill and other
   acquisition-related intangibles.....        42        822        125      2,464
  In-process research and development..       --         --         --       7,422
                                         ---------  ---------  ---------  ---------
    Total operating expenses...........    16,530     25,055     59,131     78,882
                                         ---------  ---------  ---------  ---------
Operating loss.........................    (5,815)    (1,830)   (24,746)   (16,917)
Interest income........................       445        847      1,478      2,986
Interest expense.......................        (2)       (17)       (23)       (57)
Gain (loss) on non-current investment..       --         --         440       (990)
                                         ---------  ---------  ---------  ---------
Loss before provision for income taxes.    (5,372)    (1,000)   (22,851)   (14,978)
Provision for income taxes.............         6        286         57        520
                                         ---------  ---------  ---------  ---------
Net loss............................... $  (5,378) $  (1,286) $ (22,908) $ (15,498)
                                         =========  =========  =========  =========

Basic and diluted net loss per share... $   (0.15) $   (0.04) $   (0.66) $   (0.47)
                                         =========  =========  =========  =========
Weighted average common shares
   outstanding--basic and diluted......    34,765     33,782     34,533     33,328
                                         =========  =========  =========  =========
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (Unaudited, In Thousands)
For the Nine Months
                                                                 Ended September 30,
                                                               ----------------------
                                                                  2002        2001
                                                               ----------  ----------
Operating activities
Net loss..................................................... $  (22,908) $  (15,498)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Amortization of deferred compensation......................      2,313      12,759
  Depreciation and amortization expense......................      5,246       3,274
  Net loss on retirements of property and equipment..........         24         --
  Amortization of goodwill and other acquisition
   related intangibles.......................................        125       2,465
  Acquired in-process research and development...............        --        7,422
  Loss (gain) on non-current investment......................       (440)        990
  Stock-based compensation...................................        378         --
  Changes in operating assets and liabilities:
    Accounts receivable......................................     (3,164)      7,395
    Inventories..............................................      4,491      (9,040)
    Other current assets.....................................       (399)     (1,475)
    Other assets.............................................        (96)        (42)
    Accounts payable.........................................        989      (7,612)
    Accrued payroll and related expenses.....................        330       1,142
    Deferred revenue.........................................        170         739
    Accrued liabilities......................................      2,721       5,401
    Other liabilities........................................        260         282
                                                               ----------  ----------
Net cash provided by (used in) operating activities..........     (9,960)      8,202

Investing activities
  Purchases of short-term investments........................     (8,981)    (26,439)
  Sales and maturities of short-term investments.............     18,599      24,567
  Purchases of property and equipment........................     (4,866)     (5,891)
  Proceeds from sale of  non-current investment..............        440         --
  Cash acquired in acquisition...............................        --          258
                                                               ----------  ----------
Net cash provided by (used in) investing activities..........      5,192      (7,505)

Financing activities
  Principal payments on long term debt obligations...........       (264)       (322)
  Proceeds from issuance of common stock, net of repurchases.      1,441       3,164
  Proceeds from stockholders note receivable.................        --          430
                                                               ----------  ----------
Net cash provided by financing activities....................      1,177       3,272
                                                               ----------  ----------
Net increase (decrease) in cash and cash equivalents.........     (3,591)      3,969
Cash and cash equivalents at beginning of period.............     93,724      71,240
                                                               ----------  ----------
Cash and cash equivalents at end of period................... $   90,133  $   75,209
                                                               ==========  ==========
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, Palladia and Entropia families of products.
Centillium has incurred significant losses since inception
and, as of September 30, 2002, had an accumulated deficit of approximately
$122.3 million including a net loss for the nine months ended September 30, 2002
of $22.9 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
nine month periods ended September 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, both of which are located in Japan,
accounted for more than 10% of net revenues for the respective reporting periods
below:

Three Months Ended    Nine Months Ended
                                             September 30,         September 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         ---------  ---------  ---------  ---------
Sumitomo Electric Industries...........        27%        65%        44%        52%
NEC....................................        52%        22%        40%        35%
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, along with other contractual royalty related obligations.
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, "Business Combinations" (SFAS 141), 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, "Goodwill and Other Intangible
Assets" (SFAS 142), 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.
The company completed its transitional impairment test during the quarter ended
June 30, 2002 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.
In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" (SFAS 146), which
addresses financial accounting and reporting for costs associated with exit or
disposal activities and supersedes Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity, including Certain Costs Incurred
in a Restructuring" (EITF 94-3).  SFAS146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan.  In addition,
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability.  SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002.  The effect of adoption of SFAS
146 is dependant on the Company's activities subsequent to adoption.

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):

September 30, December 31,
                                       2002          2001
                                   ------------  ------------
  Work-in-process................ $      3,107  $      6,600
  Finished goods.................        1,758         2,756
                                   ------------  ------------
                                  $      4,865  $      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 nine months ended September 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    Nine Months Ended
                                                 September 30,         September 30,
                                             --------------------  ----------------------
                                               2002       2001        2002        2001
                                             ---------  ---------  ----------  ----------
  Net loss:
   As reported............................. $  (5,378) $  (1,286)    (22,908) $  (15,498)
   Goodwill amortization...................       --         502         --        1,506
   Workforce amortization..................       --         278         --          834
                                             ---------  ---------  ----------  ----------
   As adjusted............................. $  (5,378) $    (506)    (22,908) $  (13,158)
                                             =========  =========  ==========  ==========
Basic and diluted net loss per share:
   As reported............................. $   (0.15) $   (0.04)      (0.66) $    (0.47)
   Goodwill amortization...................       --        0.01         --         0.05
   Workforce amortization..................       --        0.01         --         0.03
                                             =========  =========  ==========  ==========
   As adjusted............................. $   (0.15) $   (0.02)      (0.66) $    (0.39)
                                             =========  =========  ==========  ==========
Other acquisition related intangible assets subject to
amortization were as follows (in thousands):

September 30, December 31,
                                                    2002          2001
                                                ------------  ------------
  Other purchased intangibles................. $        500  $        500
  Less accumulated amortization...............         (375)         (250)
                                                ------------  ------------
  Other purchased intangibles, net............ $        125  $        250
                                                ============  ============
Amortization expense for other intangible assets was $125,000
for the nine months ended September 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.  Accrued Liabilities
The components of accrued liabilities are as follows
(in thousands):

September 30, December 31,
                                       2002          2001
                                   ------------  ------------
  Accrued royalties.............. $     11,494  $      8,788
  Accrued other liabilities......        2,495         2,480
                                   ------------  ------------
                                  $     13,989  $     11,268
                                   ============  ============
5.  Provision for Income Taxes
The provision for income taxes for the three and nine month
periods ended September 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 nine month periods ended September 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 reserve the Company's deferred tax assets,
consisting primarily of net operating loss carryforwards.

6.  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    Nine Months Ended
                                             September 30,         September 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         ---------  ---------  ---------  ---------
  Net loss............................. $  (5,378) $  (1,286) $ (22,908) $ (15,498)
                                         =========  =========  =========  =========
  Basic and diluted:
  Weighted average shares of common
   stock outstanding...................    34,862     34,351     34,713     34,075
  Less weighted average shares
   subject to repurchase...............        97        569        180        747
                                         ---------  ---------  ---------  ---------
  Weighted average shares used in
   computing basic and diluted net
   (loss) per share....................    34,765     33,782     34,533     33,328
                                         =========  =========  =========  =========

  Basic and diluted net loss per share. $   (0.15) $   (0.04)     (0.66) $   (0.47)
                                         =========  =========  =========  =========
As of September 30, 2002 and 2001, there were 12,461,725 and
10,132,624 respectively, outstanding warrants, stock options, and shares subject
to repurchase by the Company 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    Nine Months Ended
                                             September 30,         September 30,
                                         --------------------  --------------------
                                            2002       2001       2002       2001
                                         ---------  ---------  ---------  ---------
Net loss............................... $  (5,378) $  (1,286) $ (22,908) $ (15,498)

Change in unrealized gain on
  available-for-sale investments.......        (6)        85        (67)        92
                                         ---------  ---------  ---------  ---------
   Total comprehensive loss............ $  (5,384) $  (1,201)   (22,975) $ (15,406)
                                         =========  =========  =========  =========
7.  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 $454,000, $903,000 and $2.5 million and $1.2
million of products to Broadxent, Inc. for the three and nine-month periods
ended September 30, 2002 and 2001, respectively.  As of September 30, 2002 and
December 31, 2001, the Company had $1,000 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.
8.  Restructuring
In the third quarter of 2002, as part of an ongoing
review of our operations, we implemented a restructuring plan to reduce expenses
and align our cost structure with our business outlook.  The restructuring plan
included a reduction in workforce of 30 employees and the closing of our Dallas,
Texas design center.  Total costs of the restructuring were $525,000 and have
been included in our statement of operations in the above expense categories.
The amount accrued and unpaid as of September 30, 2002 is not material.


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 September 30, 2002 and
2001
Net Revenues.  Our net revenues were $23.3
million for the three months ended September 30, 2002 compared to $46.8 million
for the three months ended September 30, 2001.  The decrease in revenues
primarily reflects a decrease in average selling prices of our DSL products and
a decrease in unit volume shipments.  Our major customers for the three months
ended September 30, 2002, were NEC and Sumitomo Electric Industries
("Sumitomo") who represented 52% and 27% of net revenues,
respectively.  For the three months ended September 30, 2001, NEC and Sumitomo
represented 22% and 65% of net revenues, respectively.  The change in customer
mix was due to timing of purchases and lower net revenues in the third quarter
of 2002, as compared to the third quarter of 2001.  Net revenues to
international customers, who were primarily located in Japan, comprised 81% and
91% of our net revenues for the three months ended September 30, 2002 and 2001,
respectively.
Cost of Revenues and Gross Profit.  Cost of
revenues was $12.6 million for the three months ended September 30, 2002
resulting in a gross profit of $10.7 million or 46% of net revenues.  This
compares to a gross profit of $23.2 million or 50% of net revenues for the three
months ended September 30, 2001.  The decrease in gross profit and gross profit
percentage was primarily due to lower net sales from lower sales unit volume and
a decrease in average selling price per unit, partially offset by improved
product yields and lower per unit product costs.
Research and Development Expenses.  Research and
development expenditures decreased 29% to $11.3 million for the three months
ended September 30, 2002 as compared to $16.0 million for the three months ended
September 30, 2001.  This decrease was primarily due to a $1.9 million decrease
in the amortization of deferred compensation, a decrease in software tool costs,
a decrease in non-recurring engineering costs and a decrease in salary and
related costs due to fewer employees, partially offset by increases in
depreciation and severance costs related to a reduction in workforce of 13
employees in the third quarter of 2002.
Sales and Marketing Expenses.   Sales and
marketing expenditures decreased 38% to $2.9 million for the three months ended
September 30, 2002 as compared to $4.8 million for the three months ended
September 30, 2001. The decrease was due primarily to a $1.5 million decrease in
the amortization of deferred compensation, a decrease in customer evaluation
board costs, a decrease in sales commissions, partially offset by the salary and
severance costs related to a reduction in workforce of 15 employees in the third
quarter of 2002.
General and Administrative Expenses.  General and
administrative expenditures decreased 36% to $2.2 million for the three months
ended September 30, 2002 from $3.4 million for the three months ended September
30, 2001.  This decrease was primarily due to a $684,000 decrease in the
amortization of deferred compensation, a decrease in bad debt expense and
decreases in expensed software and legal and stock administration fees.
Amortization of Deferred Compensation.  In the
three months ended September 30, 2002, we recorded a benefit of $890,000 in
amortization of deferred compensation as compared to a charge of $3.3 million
for the three months ended September 30, 2001.  As required by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB25), we recorded a benefit to amortization of deferred
compensation in the third quarter related to employees who forfeited options for
which compensation expense had been recognized using the graded vesting method,
but which were unvested on the date their employment terminated.
Amortization of Goodwill and Other Acquisition
Intangibles.  Amortization of goodwill and other acquisition-related
intangibles decreased to $42,000 for the three months ended September 30, 2002
from $822,000 for the three months ended September 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 Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142), we reclassified assembled
workforce to goodwill which eliminated the amortization of assembled workforce
effective January 1, 2002.
Interest Income.   Interest income decreased 47%
to $445,000 in the three months ended September 30, 2002 as compared to $847,000
for the three months ended September 30, 2001. This decrease was primarily due
to lower interest rates obtained on our cash, cash equivalents and short-term
investment portfolio and lower average invested balances.

Provision for Income Taxes.  Income tax expense
was $6,000 for the three months ended September 30, 2002 compared to $286,000
for the three months ended September 30, 2001.  The provision for income taxes
for the three months ended September 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 September 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 reserve the Company's deferred
tax assets, consisting primarily of net operating loss carryforwards.
Results of Operations for the Nine Months Ended September
30, 2002 and 2001
Net Revenues.  Our net revenues were $80.3
million for the nine months ended September 30, 2002 compared to $125.0 million
for the nine months ended September 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 nine months ended September 30, 2002 were Sumitomo and
NEC who represented 44% and 40% of net revenues, respectively.  For the nine
months ended September 30, 2001, Sumitomo and NEC represented 52% and 35% of net
revenues, respectively.  Revenues to international customers, who were primarily
located in Japan, comprised 87% and 90% of our net revenues for the nine months
ended September 30, 2002 and 2001, respectively.
Cost of Revenues and Gross Profit.  Cost of
revenues was $45.9 million for the nine months ended September 30, 2002
resulting in a gross profit of $34.4 million or 43% of net revenues.  This
compares to a gross profit of $62.0 million or 50% of net revenues for the nine
months ended September 30, 2001.  The decrease in gross profit and gross profit
percentage was primarily due to lower net sales from lower sales unit volume and
a decrease in average selling price per unit, partially offset by lower per unit
product costs.
Research and Development Expenses.  Research and
development expenditures decreased 11% to $39.3 million for the nine months
ended September 30, 2002 as compared to $44.1 million for the nine months ended
September 30, 2001.  This decrease was primarily due to a $5.0 million decrease
in the amortization of deferred compensation.
Sales and Marketing Expenses.
Sales and marketing expenditures decreased 14% to $11.9 million for the nine
months ended September 30, 2002 as compared to $13.8 million for the nine months
ended September 30, 2001. The decrease was due primarily to a $2.5 million
decrease in the amortization of deferred compensation, a decrease in customer
evaluation board costs and a decrease in sales commissions, partially offset by
salary and severance costs.
General and Administrative Expenses.  General and
administrative expenditures decreased 30% to $7.7 million for the nine months
ended September 30, 2002 from $11.1 million for the nine months ended September
30, 2001.  This decrease was primarily due to a $2.5 million decrease of in the
amortization of deferred compensation, a decrease in bad debt expense and
decreases in expensed software and legal and stock administration fees, offset
by increases in business insurance.
Amortization of Deferred Compensation.  In the
nine months ended September 30, 2002, we recorded $2.3 million in amortization
of deferred compensation as compared to $12.8 million for the nine months ended
September 30, 2001.  The decrease is primarily related 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, and an
adjustment in the third quarter of 2002 related to forfeited options.  As
required by APB25, we recorded a benefit to amortization of deferred
compensation in the third quarter related to employees who forfeited options for
which compensation expense had been recognized using the graded vesting method,
but which were unvested on the date their employment terminated.
Amortization of Goodwill and Other Acquisition
Intangibles.  Amortization of goodwill and other acquisition-related
intangibles decreased to $125,000 for the nine months ended September 30, 2002
from $2.5 million for the nine months ended September 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 nine months ended September 30, 2001, we recorded $7.4 million in charges
for in-process research and development related to the acquisition of vEngines,
Inc. There were no comparable amounts for the nine months ended September 30,
2002.

Gain on Non-Current Investment.  For the nine
months ended September 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 impairment.  In January
2002, we sold this non-current equity investment for $440,000 and have included
this as a gain in the nine months ended September 30, 2002.
Interest Income.   Interest income decreased 51%
to $1.5 million in the nine months ended September 30, 2002 as compared to $3.0
million for the nine months ended September 30, 2001. This decrease was
primarily due to lower interest rates obtained on our cash, cash equivalents and
short-term investment portfolio and lower average invested balances.
Provision for Income Taxes.  Income tax expense
was $57,000 for the nine months ended September 30, 2002 compared to $520,000
for the nine months ended September 30, 2001.  The provision for income taxes
for the nine months ended September 30, 2002 relates to current taxes payable
for the Company's subsidiaries located in foreign jurisdictions.  The provision
for income taxes for the nine months ended September 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 reserve the Company's deferred tax assets,
consisting primarily of 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 September 30, 2002, we had $97.6 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 $10 million for
the nine months ended September 30, 2002.  The net cash used in operating
activities was primarily due to our net loss of $22.9 million and an increase in
our accounts receivable of $3.2 million.  The increase in accounts receivable
was due to differences in the timing of related shipments and payments in the
nine-month periods ended September 2002 and 2001, respectively.  Net cash used
in operating activities was offset by non-cash charges of $2.3 million for the
amortization of deferred compensation, depreciation and amortization expense of
$5.3 million, a decrease in inventory of $4.5 million and increases in accrued
liabilities and accounts payable of $2.7 million and $1.0 million, respectively.
The decrease in inventory was due to lower inventory levels required to support
lower sales volumes and the increases in accrued liabilities and accounts
payable were due to timing of payments.
For the nine months ended September 30, 2002, net cash
provided by investing activities was $5.2 million.  Net cash provided by
investing activities primarily related to net sales and maturities of short-term
investments of $18.6 million offset by purchases of property and equipment of
$4.9 million, principally related to the purchase of software development tools,
lab equipment and computer hardware to support our research and development
activities.
Net cash provided by financing activities was $1.2 million
for the nine month periods ended September 30, 2002.   Net cash provided by
financing activities primarily consisted of net proceeds of $1.4 million from
employee stock plans partially offset by principal payments on long term debt
obligations.
Our principal source of liquidity as of September 30, 2002
consisted of $97.6 million of cash and cash equivalents, and short-term
investments.  We believe our current cash, cash equivalents and marketable
securities will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least 12 months. The rate at which we
will consume cash will be dependent on the cash needs of future operations which
will, in turn, be directly affected by the levels of demand for our products.
We expect to devote capital resources to continue our research and development
efforts, to support our sales, marketing, and product development programs 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.
If our existing resources and cash generated from operations
are insufficient to satisfy our liquidity requirements, we may seek to raise
additional funds through public or private debt or equity financings. The sale
of equity or debt securities could result in additional dilution to our
stockholders, and we cannot be certain that additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned product development and sales and marketing efforts, which could
harm our business, financial condition and operating results.
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 $22.9
million for the nine months ended September 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;























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 84%
of net revenues for the nine months ended September 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 and has subsequently deployed these competing
technologies. If these competing technologies continue to be 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 nine months
ended September 30, 2002 and for the year ended December 31, 2001, 87% 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; and
- complying 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 nine months ended September 30,
2002 were Sumitomo and NEC, accounting for 44% and 40% 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; and
- slow 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; and
- evolving 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.

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.

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
digital semiconductor wafers from Taiwan Semiconductor Manufacturing Co., Ltd
and we obtain analog silicon wafers from United Microelectronics Corporation. If
we fail to obtain components in sufficient quantities when required or if we
cannot adequately control manufacturing process quality, product yields or
production costs, our business could be harmed. 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; or
- be subject to production disruptions such as earthquakes.

WE MAY EXPERIENCE DIFFICULTIES IN TRANSITIONING TO
SMALLER GEOMETRY PROCESS TECHNOLOGIES OR IN ACHIEVING HIGHER LEVELS OF DESIGN
INTEGRATION AND THAT MAY RESULT IN REDUCED MANUFACTURING YIELDS, DELAYS IN
PRODUCT DELIVERIES AND INCREASED EXPENSES.

In order to remain competitive, we expect to continue
to transition our products to increasingly smaller line width geometries.  This
transition will require us to modify the manufacturing processes for our
products and redesign some products.  We periodically evaluate the benefits, on
a product-by-product basis, of migrating to smaller geometry process
technologies to reduce our costs, and we have designed some of our products to
be manufactured in .35 micron, .25 micron, .18 micron and .13 micron geometry
processes.  In the past, we have experienced some difficulties in shifting to
smaller geometry process technologies or new manufacturing processes, which
resulted in reduced manufacturing yields, delays in product deliveries and
increased expenses.  We may face similar difficulties, delays and expenses as we
continue to transition our products to smaller geometry processes.  We are
dependent on our relationships with our foundries to transition to smaller
geometry processes successfully.  We cannot assure you that our foundries will
be able to effectively manage the transition or that we will be able to maintain
our foundry relationships.  If our foundries or we experience significant delays
in this transition or fail to efficiently implement this transition, our
business, financial condition and results of operations could be materially and
adversely affected.  As smaller geometry processes become more prevalent, we
expect to continue to integrate greater levels of functionality, as well as
customer and third party intellectual property, into our products.  However, we
may not be able to achieve higher levels of design integration or deliver new
integrated products on a timely basis, or at all.

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; and
- the 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.

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 September 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 $16,000 decrease in the fair value of our available-for-sale
securities as of September 30, 2002.



ITEM 4. CONTROLS AND PROCEDURES

The Company's Principal Executive Officer and Principal
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.  Based
on that evaluation, the Chief Executive Officer and Principal Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion.

There have been no significant changes in internal controls,
or in factors that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer and Principal Financial Officer completed
their evaluation.



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



None



ITEM 5.  OTHER INFORMATION



In accordance with Section 10A of the Securities Exchange Act
of 1934, as amended by Section 202 of the Sarbanes Oxley Act of 2002, non-audit
services approved in the third quarter by the company's Audit Committee to be
performed by Ernst & Young, the company's independent auditors, are as
follows: tax-related services.





ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

99.1. Certification of Faraj Aalaei, Chief Executive
Officer and Co-Founder of Centillium Communications, Inc., Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

99.2. Certification of Darrel Slack, Vice-President and Chief
Financial Officer of Centillium Communications, Inc., Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

(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: November 8, 2002



| | By:                                                                                     | 
| | --------------------------------------------------------------------------------------- | 
| | /s/ Darrel Slack                                                                       
| | Darrel Slack                                                                           
| | Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

---



CERTIFICATIONS

I, Faraj Aalaei, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of
Centillium Communications, Inc.;

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

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

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

a)	designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b)	evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

a)	all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b)	any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

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

Date: November 8, 2002

/s/ Faraj Aalaei                   	Faraj Aalaei
                   	Chief Executive Officer and Co-Founder

---

CERTIFICATIONS

I, Darrel Slack, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of
Centillium Communications, Inc.;

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

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

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

a)	designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b)	evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

a)	all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b)	any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

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

Date: November 8, 2002

/s/ Darrel Slack                   	Darrel Slack
                   	Vice President and Chief Financial Officer

---