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

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FORM 10-Q

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

For the quarterly period ended June 30, 2008

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.



|Delaware                                                       | 94-3263530                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

215 Fourier Avenue
Fremont, California      94539

(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.     x YES
      ̈ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer      ̈ | Accelerated filer    x | Non-accelerated filer     ̈ (Do not check if a smaller reporting company) | Smaller reporting company    x
|----------------------------- | ---------------------- | ------------------------------------------------------------------------ | ------------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
 ̈ YES     
x NO

The number of shares of the registrant's common stock, $0.001 par value, outstanding as of July 29, 2008 was 41,723,329.




Note:PDF provided as a courtesy

Centillium Communications, Inc.
                  TABLE OF CONTENTS

Page No.PART I. Financial InformationItem 1.
Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
3Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2008 and 2007
4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
5Notes to Unaudited Condensed Consolidated Financial Statements
6Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
20Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36Item 4.
Controls and Procedures
37PART II. Other InformationItem 1.
Legal Proceedings
37Item 1A.
Risk Factors
37Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
57Item 3.
Defaults Upon Senior Securities
57Item 4.
Submission of Matters to a Vote of Security Holders
57Item 5.
Other Information
57Item 6.
Exhibits
58Signatures
59Centillium Communications, Atlanta, Colt, Entropia, Mustang, Pharos, Voice Services Platform and the Centillium Logo are
trademarks of Centillium Communications, Inc. in the United States and certain other countries. All rights reserved.


2
Part I -- FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS


CENTILLIUM COMMUNICATIONS, INC. 
                     CONDENSED CONSOLIDATED BALANCE SHEETS 
                       (In thousands, except share and per share data) 

June 30,

December 31,2008

2007 (*)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents


$                 20,530

$                 32,596Short-term investments


14,425

4,209Accounts receivable (net of allowance for doubtful accountsof $18 at June 30, 2008 and $22 at December 31, 2007)


2,723

3,635Inventories


1,537

2,802Prepaid software tools


686

1,430Other current assets


1,329

1,377Assets held for sale


-

706Total current assets


41,230

46,755Restricted cash


1,800

-Property and equipment, net


837

1,193Other assets


660

678Total assets


$                 44,527

$                 48,626LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Short term bank borrowings


$                                    -

$                       1,500Accounts payable


4,234

4,765Accrued compensation and related expenses


2,619

3,869Accrued restructuring, current portion


668

475Accrued liabilities and other


10,396

11,333Total current liabilities


17,917

21,942Long-term liabilities:Accrued restructuring, long-term portion


898

891Other long-term liabilities


726

938Total long-term liabilities


1,624

1,829Total liabilities


19,541

23,771Commitments and contingencies  (Note 5)Stockholders' equity:Common stock; $0.001 par value:Authorized shares: 100,000,000; Issued and outstanding shares:41,718,329 at June 30, 2008 and 41,718,601 atDecember 31, 2007


42

42Additional paid-in capital


255,093

254,537Accumulated deficit


(230,165)

(229,727)Accumulated other comprehensive gain


16

3Total stockholders' equity


24,986

24,855Total liabilities and stockholders' equity


$                 44,527

$                 48,626_____________
  *   Derived from audited financial statements at December 31, 2007See accompanying notes to unaudited condensed consolidated financial statements.

3
CENTILLIUM COMMUNICATIONS, INC. 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
                                     (Unaudited)
                       (In thousands, except per share data) 


Three Months Ended June 30,

Six Months Ended June 30,2008

2007

2008

2007Net revenues


$          6,316

$        10,004

$        12,459

$           20,556Cost of revenues (a)


2,680

4,491

5,342

9,549Gross profit


3,636

5,513

7,117

11,007Operating expenses:Research and development (a)


4,076

7,326

9,248

14,071Selling, general and administrative (a)


3,804

4,836

7,682

9,827Gain on on sale of DSL related assets


(20)

-

(8,126)

-(Gain) loss on settlement


(2,009)

2,500

(2,009)

2,500Restructuring charges


643

308

2,917

308Reversal of accrued royalties


(990)

-

(1,840)

-Total operating expenses


5,504

14,970

7,872

26,706Operating loss


(1,868)

(9,457)

(755)

(15,699)Interest income and other


274

635

624

1,311Interest expense and other


124

(18)

180

(30)Loss before provision for income taxes


(1,718)

(8,804)

(311)

(14,358)Provision for income taxes


77

68

127

402Net loss


$        (1,795)

$       (8,872)

$             (438)

$          (14,760)Basic and diluted net loss per share


$           (0.04)

$           (0.22)

$         (0.01)

$                (0.36)Shares used to compute basic and dilutednet loss per share


41,698

41,229

41,693

41,189(a) Includes stock-based compensation as follows:Cost of revenues


$                    16

$                           9

$                     21

$                              19Research and development


99

225

209

466Selling, general and admininstrative


158

261

320

597$               273

$               495

$               550

$                 1,082See accompanying notes to unaudited condensed consolidated financial statements.


4
CENTILLIUM COMMUNICATIONS, INC. 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                     (Unaudited) 

Six Months Ended June 30,2008

2007OPERATING ACTIVITIESNet loss


$                        (438)

$                (14,760)Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation and amortization expense


491

918Stock-based compensation expense


550

1,082Reversal of accrued royalties


(1,840)

-Gain on sale of DSL related assets


(8,126)

-Changes in operating assets and liabilities:Accounts receivable


912

2,123Inventories


(637)

1,125Prepaid software tools


744

-Other current assets


(9)

301Other assets


18

(871)Accounts payable


(627)

(302)Accrued compensation and related expenses


(1,187)

160Accrued restructuring, current portion


193

-Accrued liabilities


(426)

2,910Accrued restructuring, long-term portion


7

-Other long-term liabilities


(141)

(21)Net cash used in operating activities


(10,516)

(7,335)INVESTING ACTIVITIESProceeds from the sale of DSL related assets


12,048

-Increase in restricted cash


(1,800)

-Purchases of available-for-sale securities


(13,303)

(24,410)Sales and maturities of available-for-sale securities


3,100

27,325Purchases of property and equipment


(101)

(380)Net cash (used in) provided by investing activities


(56)

2,535FINANCING ACTIVITIESShort-term bank borrowings


1,300

-Repayment of short-term bank borrowings


(2,800)

-Proceeds from issuance of common stock


6

370Net cash (used in) provided by financing activities


(1,494)

370Net decrease in cash and cash equivalents


(12,066)

(4,430)Cash and cash equivalents at beginning of period


32,596

26,121Cash and cash equivalents at end of period


$                 20,530

$                   21,691SUPPLEMENTAL DISCLOSURES OF CASH FLOWCash paid for income taxes


$                              171

$                           204Cash paid for interest


$                                     1

$                                      -See accompanying notes to unaudited condensed consolidated financial statements.

5
CENTILLIUM COMMUNICATIONS, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  (UNAUDITED)


Note 1. Description of Business

Centillium Communications, Inc. (Centillium or the Company) was incorporated in California in February 1997 and was
reincorporated in Delaware in December 1999. The Company designs, develops and supplies highly-integrated programmable system-on-a-chip
(SoC) solutions that enable high-speed broadband access, which is the delivery of high capacity bandwidth to consumers and enterprises
for networking of data, voice and video signals. The Company's SoC products incorporate digital and mixed-signal semiconductors and related
software. The Company serves the Voice over Internet Protocol (VoIP) and Fiber-To-The-Premises (FTTP), which is also known as optical
networking, markets. From inception until February 2008, the Company also served the Digital Subscriber Line (DSL) market. Its customers are
systems vendors and original equipment manufacturers that sell optical network equipment for deployment in central offices and customer
premises, and VoIP equipment, for use in carrier-class and enterprise-class gateways and consumer telephony applications.

On July 9,2008, the Company announced that it had entered into an agreement to be acquired by
TranSwitch Corporation for total consideration of 25 million shares of TranSwitch common stock and $15 million in cash. The transaction is
subject to customary closing conditions, and is described in more detail in Note 16 Subsequent Events, below. The foregoing description of the
merger agreement and other references to the merger agreement in this report do not purport to be complete and are qualified in their entirety
by reference to the full text of the merger agreement, a copy of which has been filed with the SEC.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation
S-X. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of normal
recurring adjustments) that are necessary for a fair presentation of Centillium's consolidated financial position at June 30, 2008, the
consolidated results of operations for the three and six months ended June 30, 2008 and 2007 and its consolidated cash flows for the six
months ended June 30, 2008 and 2007. Operating results for the six months ended June 30, 2008 include DSL activities through the date of
sale in February 2008. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008.

The unaudited condensed consolidated financial statements include all the accounts of Centillium and those of its wholly
owned subsidiaries. All intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements do not include certain financial footnotes
and disclosures required under U.S. generally accepted accounting principles for audited financial statements. Therefore, these financial
statements should be read in conjunction with Centillium's audited consolidated financial statements and footnotes thereto for the year ended
December 31, 2007 included in Centillium's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 17,
2008. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.

6Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting
principles requires Centillium to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities reported in the condensed consolidated financial statements and
accompanying notes. On an on-going basis, Centillium evaluates its estimates and assumptions related to revenue recognition, sales returns
and allowances, allowance for doubtful accounts, inventories, warranty, taxes, royalties, compensation, compensation related benefits and
litigation and contingencies. Estimates based on historical experience and on various other assumptions are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results
may differ from these estimates under different assumptions or conditions.
Revenue Recognition

Revenues related to product sales are generally recognized when the products have been shipped and risk of
loss has passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of an arrangement exists,
and the price is fixed or determinable. Certain royalty payments to a customer are recorded as a reduction in revenue. If sales arrangements
contain customer-specific acceptance requirements, revenue is deferred and is recognized upon receipt of customer acceptance. Revenue from
maintenance and support is deferred and recognized on a straight line basis over the life of the related agreement.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," or SFAS 157.
SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands
disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-1, "Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13", or FSP 157-1, and FASB Staff Position 157-2, "Effective Date of FASB
Statement No. 157", or FSP 157-2. FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-
2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. The
measurement and disclosure requirements related to financial assets and financial liabilities are effective for fiscal years beginning after
November 15, 2007. The Company adopted SFAS 157 in the first quarter of 2008, except as it applies to those non-financial assets and
non-financial liabilities as described in FSP 157-2, and it did not have an impact on its consolidated financial position, results of
operations or cash flows. The Company is currently evaluating the impact that SFAS 157 will have on its non-financial assets and non-financial
liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of 2009. See Note 14 to the Notes to
Unaudited Condensed Consolidated Financial Statements under Item 1 of Part I of this quarterly report for information and related disclosures
regarding the Company's fair value measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement No. 115", or SFAS 159, which permits entities to choose to
measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurements, which is consistent with the
FASB's long-term measurement objectives for accounting for financial instruments. SFAS 159 became effective for the Company beginning
January 1, 2008, although the Company has not chosen to measure eligible assets and liabilities at fair value under the provisions of FAS
159. As such, the adoption of SFAS 159 did not have an impact on the Company's condensed consolidated statements of position, results of
operations, or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standard "FAS No. 141(R)",
"Business Combinations," or SFAS 141R. SFAS 141R replaces SFAS No. 141 and provides greater consistency in the
accounting and financial reporting of business combinations. FAS 141R requires the acquiring entity in a business7combination to
recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective
for all assets acquired and liabilities assumed, establishes principles and requirements for how an acquirer recognizes and measures any
non-controlling interest in the acquiree and the goodwill acquired, and requires the acquirer to disclose the nature and financial effect of the business
combination. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated
useful life. Among other changes, this statement also required that "negative goodwill" be recognized in earnings as a gain attributable to the
acquisition, that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred and that any deferred
tax benefits resulted in a business combination are recognized in income from continuing operations in the period of the combination.
SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company will assess the impact that SFAS 141R may have on its financial
position and results of operations.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statements - an amendment of Accounting Research Bulletin No. 51," or SFAS 160. SFAS 160 addresses the accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008, and will be adopted by the Company in 2009. The Company currently has no noncontrolling interests, but will continue to
assess the impact of this standard on its future consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133" or SFAS 161, which requires additional disclosures about the objectives of
using derivative instruments, the method by which the derivative instruments and related hedged items are accounted for under FASB
Statement No. 133 and its related interpretations, and the effect of derivative instruments and related hedged items on financial position,
financial performance, and cash flows. SFAS 161 also requires disclosure of the fair values of derivative instruments and their gains and losses
in a tabular format. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early adoption encouraged. The Company is currently assessing the impact that the adoption of SFAS 161 will
have on its financial statement disclosures.


Note 3. Stock-based Compensation

Determining Fair ValueValuation and amortization method-The Company estimates the fair value of stock
options granted using the Black-Scholes option-pricing formula and a multiple option award approach. This fair value is then amortized on an
accelerated basis over the requisite service periods of the awards, which is generally the vesting period.

Expected Term

Expected Volatility

Expected Dividend-The Black-Scholes valuation model calls for a single expected dividend yield as an input.
The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash
dividends in the future.

Risk-Free Interest Rate

8

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Estimated Forfeitures-When estimating forfeitures, the Company considers voluntary
termination behavior as well as analysis of actual option forfeitures.

Fair Value

|                            |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|--------------------------- |  | --------------------------- |  | -------------------------
|                            |  | 2008                        |  | 2007                     
|Option Plan Shares          |  |                             |  |                          
|Expected term (in years)    |  | 2.7 years                   |  | 2.5 years                
|Volatility                  |  | 56%                         |  | 66%                      
|Expected dividend           |  | -%                          |  | -%                       
|Risk free interest rate     |  | 2.91%                       |  | 4.98%                    
|Estimated forfeitures       |  | 9.30%                       |  | 7.74%                    
|Weighted-average fair value |  | $0.30                       |  | $0.89                    
|                            |  |                             |  |                          
|ESPP Shares                 |  |                             |  |                          
|Expected term (in years)    |  | -                           |  | 0.5 years                
|Volatility                  |  | -%                          |  | 69%                      
|Expected dividend           |  | -%                          |  | -%                       
|Risk free interest rate     |  | -%                          |  | 5.10%                    
|Weighted-average fair value |  | $0.00                       |  | $0.68                    

Stock-Based Compensation Expense

Under the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004), "
Share-Based Payment
," or SFAS 123(R), the Company recorded
$273,000 and $495,000 of stock-based compensation expense in its consolidated statement of operations for the three months ended June 30,
2008 and 2007, and $550,000 and $1.1 million for the six months ended June 30, 2008 and 2007, respectively. The Company utilized the
Black−Scholes valuation model for estimating the fair value of the stock-based compensation granted both before and after the adoption
of SFAS 123(R).

At June 30, 2008 and 2007, the total compensation expense related to unvested stock-based awards granted to
employees under the Company's stock option plans but not yet recognized was approximately $1.7 million and $2.3 million, respectively, net of
estimated forfeitures of $571,000 and $360,000, respectively. The stock-based compensation expense related to unvested stock options was
approximately $0.8 million at June 30, 2008, which will be amortized on an accelerated basis over a weighted−average remaining period
of approximately 1.3 years, and will be adjusted for subsequent changes in estimated forfeitures. The stock-based compensation expense
related to restricted stock units not yet recognized was approximately $1.5 million at June 30, 2008, which will be amortized on a straight-line
basis over a weighted-average remaining period of approximately 3.2 years, and will be adjusted for subsequent changes in estimated
forfeitures. Total intrinsic value of options exercised for the three and six months ended June 30, 2008 was approximately $50 and $3,000,
respectively. Total intrinsic value of options exercised for the three and six months ended June 30, 2007 was approximately $600 and $2,700
respectively.

9

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The following is a summary of additional information with respect to the stock option plans as of June 30, 2008:

|                               |  | Number ofShares |  | WeightedAverageExercise Price |  | WeightedAverageRemainingContractualTerm,in Years |  | AggregateIntrinsicValue, inthousands
|------------------------------ |  | --------------- |  | ----------------------------- |  | ------------------------------------------------ |  | ------------------------------------
|Outstanding at January 1, 2008 |  | 8,003,130       |  | $              4.31           |  |                                                  |  |                                     
|Granted                        |  | 227,500         |  | $              0.81           |  |                                                  |  |                                     
|Exercised                      |  | (12,668)        |  | $              0.42           |  |                                                  |  |                                     
|Forfeitures                    |  | (1,398,063)     |  | $              2.74           |  |                                                  |  |                                     
|Outstanding at June 30, 2008   |  | 6,819,899       |  | $              4.52           |  | 5.16                                             |  | $                   3               
|Vested and expected to vest at |  |                 |  |                               |  |                                                  |  |                                     
|June 30, 2008                  |  | 6,676,752       |  | $              4.58           |  | 5.08                                             |  | $                   3               
|Exercisable at June 30, 2008   |  | 5,544,710       |  | $              5.12           |  | 4.36                                             |  | $                   3               

Restricted Stock Units

The Company issues new shares of common stock upon the vesting of restricted stock units. The Company calculates
the fair value of each restricted stock unit based upon the fair market value of the Company stock at the date of grant and recognizes the
expense straight line over the requisite period. The stock-based compensation expense related to these awards was $172,000 and $273,000 for
the three and six months ended June 30, 2008 and 2007, respectively. The stock-based compensation expense related to these awards was
$65,000 and $166,000 for the three and six months ended June 30, 2007. Restricted stock unit activity for the six months ended June 30, 2008
is summarized below:

|                               |  |  | Restricted Stock Units          
|------------------------------ |  |  | --------------------------------
|                               |  |  | RestrictedStock UnitsOutstanding
|Balance at January 1, 2008     |  |  | 549,063                         
|Awarded                        |  |  | 776,400                         
|Forfeitures                    |  |  | (220,351)                       
|Balance at June 30, 2008       |  |  | 1,105,112                       
|                               |  |  |                                 
|Vested and expected to vest at |  |  |                                 
|June 30, 2008                  |  |  | 932,988                         

10

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The weighted-average fair value on the date of the grant for the outstanding restricted stock units as of June 30, 2008
was $1.05.

The aggregate intrinsic value is hypothetically calculated as the difference between the exercise price of the shares which is zero, as the
shares are granted without cost to the recipient and the quoted price of the Company's common stock for the 1.1 million outstanding restricted
stock units at June 30, 2008.

Employee Stock Purchase Plan Information

To provide employees with an opportunity to purchase common stock of the Company through payroll deductions, the
Company established the 2000 Employee Stock Purchase Plan, or ESPP, and initially reserved 500,000 shares of common stock for issuance
to participants. In addition, the plan provides for automatic annual increases on the first day of each of the Company's years equal to the lesser
of 400,000 shares or 1% of the Company's outstanding common stock on the date of the annual increase, or a lesser number of shares
determined by the Board of Directors. Under the plan, the Company's employees, subject to certain restrictions, may purchase shares of
common stock at the lesser of 85 percent of the fair market value at either the beginning or end of each six-month offering period.

During the three and six months ended June 30, 2008, the shares issued under the Company's ESPP had no aggregate
intrinsic value. During the three and six months ended June 30, 2007, the aggregate intrinsic value of the shares issued under the Company's
ESPP was $92,340. No stock based compensation expense was recorded under the plan for the six months ended June 30, 2008. In light of the
announced transaction with TranSwitch, the Company has suspended the ESPP plan.

Note: 4. Financing Arrangements

Line of Credit

On September 27, 2007, the Company entered into a Loan and Security Agreement with a financial institution. The loan
agreement provides commitments for up to $10 million under a revolving line of credit. The line of credit may also be used for letters of credit. As
security for the line of credit, the Company granted the financial institution a security interest in all of its assets, except for the shares of certain
of its foreign subsidiaries and certain of its intellectual property rights. The loan agreement requires monthly interest payments. Principal
payments are not required on the revolving loan until the maturity date, or sooner if an event of default occurs. The maturity date under the loan
agreement is September 24, 2008, unless sooner terminated. The interest rate on any outstanding loans is the financial institution's prime rate
as then in effect and any adjustments to the interest rate are effective on the effective date of any prime rate changes. The credit agreement
also contains certain financial, operating and reporting covenants, including a quarterly "quick ratio" of at least 1.5 to 1.0 and a
tangible net worth ratio, and various negative covenants including, among others, prohibitions on certain dispositions, changes in business,
indebtedness, encumbrances, dividends or other distributions, and affiliate transactions. Legal expenses associated with the line of credit are
expensed as incurred and other fees are amortized over the life of the line of credit. The Company was in compliance with the loan covenants
as of June 30, 2008 and a consent from the bank was received for the sale of the DSL related assets in February 2008.

As of June 30, 2008, the Company had drawn down $0.8 million in letters of credit. The Company repaid $1.3 million of
borrowings during the three months ended June 30, 2008 and had no outstanding borrowings under the line of credit as of June 30, 2008,
resulting in an available, unused line of credit balance of $9.2 million. Further draws and other extensions of credit under the Loan Agreement
are subject to specified conditions, including the continued accuracy of the Company's representations (which include, among others, the
absence of specified litigation and of a material deterioration in the Company's financial condition, the absence of certain claims and other
conditions in respect of the collateral, continued legal compliance, and the continued absence of specified types of investments and equity
interests) and the absence of a material adverse change involving the Company since June 30, 2007.

11

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Note 5. Commitments and Contingencies

The Company leases its facilities under operating leases, expiring through February 2011. In conjunction with its lease
of facilities in Fremont, California, in March 2004 the Company capitalized $731,000 of lease incentives, which are being amortized over the
seven year lease period as a reduction of rent expense. Additionally, the Company is obligated to make future payments of $1.0 million in
connection with certain software licensing arrangements.

The Company does not own or operate a fabrication facility, and foundries located in Asia currently supply substantially
all of its wafer requirements. The Company's purchase obligations to these foundries are based on non-cancelable purchase orders. As of June
30, 2008, the Company's non-cancelable purchase obligations for wafers and masks, all expected to be delivered within the next six months,
were $0.9 million.

Under certain circumstances, Centillium provides intellectual property infringement protection to its customers.
Centillium indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party,
generally to its customers, in connection with certain patent, copyright or other intellectual property infringement claims by any third parties with
respect to its products. This indemnification obligation is generally perpetual but is typically subject to an overall cap on liability. Although these
indemnification obligations may give rise to material accruals, to date, Centillium has not incurred significant costs to defend itself or settle
claims related to these indemnification obligations. However, in accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies", or FAS 5, the Company had determined certain of these obligations are both probable and
reasonably estimable. Centillium had accrued $4.3 million in connection with certain contingent liabilities as of June 30, 2008 and as of
December 31, 2007. The indemnification obligations are included in the Company's royalty accrual.

In addition, Centillium responds to other claims arising in the ordinary course of business.
Although the ultimate outcome of such claims is not presently determinable, management believes that the resolution of these matters will not
have a material adverse effect on Centillium's results of operations, but could have a material adverse effect on its financial position and cash
flows. In July 2008, Aware, Inc. filed a suit against the Company in the United States District Court for the District of Massachusetts alleging,
among other things, that the Company breached the terms of the Development and License Agreement between Aware and the Company. The
Company intends to defend itself vigorously.

Note 6. Balance Sheet Information

Inventories (in thousands):

|                |  |  |  |  | June 30,              |  | December 31,      
|--------------- |  |  |  |  | --------------------- |  | ------------------
|                |  |  |  |  | 2008                  |  | 2007              
|Work-in-process |  |  |  |  | $                 838 |  | $            1,166
|Finished goods  |  |  |  |  | 699                   |  | 1,636             
|                |  |  |  |  | $            1,537    |  | $            2,802

In the three months ended June 30, 2008 and 2007, the Company recorded charges to cost of revenues for the write-down
of excess inventory of $99,000 and $329,000, respectively. Additionally, during the three months ended June 30, 2008 the Company's
recorded gross margin did not benefit from unexpected sales of previously written-down inventory compared to $260,000 of such sales in the
three months ended June 30, 2007. In the six months ended June 30, 2008 and 2007, the Company recorded charges to cost of revenues for
the write-down of excess inventory of $141,000 and $329,000, respectively. Additionally, during the six months ended June 30, 2008 the
Company's recorded gross margin benefited from unexpected sales of previously written-down inventory of $336,000, compared to $276,000 of
such sales in the six months ended June 30, 2007. The Company sold $2.0 million of inventory to Ikanos Communications, Inc., or Ikanos as
part of the sale of its DSL product lines in February 2008.

12

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Property and equipment, net (in thousands):

|                                          |  |  |  |  | June 30,             |  | December 31,    
|----------------------------------------- |  |  |  |  | -------------------- |  | ----------------
|                                          |  |  |  |  | 2008                 |  | 2007            
|Equipment and software                    |  |  |  |  | $        20,561      |  | $        20,492 
|Furniture and fixtures                    |  |  |  |  | 465                  |  | 469             
|Leasehold improvements                    |  |  |  |  | 1,396                |  | 1,388           
|                                          |  |  |  |  | 22,422               |  | 22,349          
|Accumulated depreciation and amortization |  |  |  |  | (21,585)             |  | (21,156)        
|Property and equipment, net               |  |  |  |  | $                837 |  | $          1,193

Assets held for sale of $0.7 million as of December 31, 2007 included $6.8 million of costs less $6.1 million of
accumulated depreciation for equipment related to the DSL product lines sold to Ikanos in February 2008 and were reported at the lower of the
carrying amount or fair value less costs to sell. See Note 11 of notes to consolidated financial statements, below. In accordance with the
provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets," the Company has not accounted for this
transaction as a discontinued operation because the operations and cash flows of these assets could not be clearly distinguished, operationally
or for financial reporting purposes, from the rest of the Company's business.

Accrued liabilities and other (in thousands):

|                                |  |  |  |  | June 30,          |  | December 31,     
|------------------------------- |  |  |  |  | ----------------- |  | -----------------
|                                |  |  |  |  | 2008              |  | 2007             
|Accrued royalties               |  |  |  |  | $           7,222 |  | $           9,117
|Accrued other liabilities       |  |  |  |  | 2,643             |  | 1,646            
|Accrued current tax liabilities |  |  |  |  | 531               |  | 570              
|                                |  |  |  |  | $        10,396   |  | $        11,333  

The Company periodically evaluates any contingent liabilities in connection with any payments to be made for any
potential intellectual property infringement asserted or unasserted claims in accordance with FAS 5, "Accounting for Contingencies".
The Company's accrued royalties as of June 30, 2008 and December 31, 2007 reflect the reversal of previously accrued royalties that can no
longer be recovered from the Company due to statutory limitations contained in the applicable patent law and represents the remaining amounts
previously accrued for certain asserted or unasserted claims for patent royalties.

Our current estimates of future reversals of the amounts of these royalties accrued as of June 30, 2008 are:

|               |  |  |  |  | Reversal             
|-------------- |  |  |  |  | ---------------------
|               |  |  |  |  | by                   
|               |  |  |  |  | Period               
|               |  |  |  |  |                      
|Remaining 2008 |  |  |  |  | $                 747
|2009           |  |  |  |  | 1,029                
|2010           |  |  |  |  | 1,078                
|2011           |  |  |  |  | 2,364                
|2012           |  |  |  |  | 1,401                
|2013           |  |  |  |  | 603                  
|Total          |  |  |  |  | $            7,222   

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Warranty reserve (in thousands):

|                                     | Three Months Ended June 30, |  | Six Months Ended June 30,
|------------------------------------ | --------------------------- |  | -------------------------
|                                     | 2008                        |  | 2007                     
|Balance at beginning of period       | $               83          |  | $             242        
|Product warranty accruals            | 16                          |  | (39)                     
|Adjustments related to pre-existing  |                             |  |                          
|warranties including expirations and |                             |  |                          
|changes in estimates                 | (14)                        |  |                          
|Warranty costs incurred              | (2)                         |  | (11)                     
|Balance at end of period             | $               83          |  | $             192        

Note 7. Cash Equivalents and Short-term Investments

Cash equivalents and short-term investments (in thousands):

|                                                  |  |  | June 30, 2008
|------------------------------------------------- |  |  | -------------
|                                                  |  |  |              
|                                                  |  |  |              
|                                                  |  |  | Amortized    
|                                                  |  |  | Cost         
|Cash Equivalents                                  |  |  |              
|Money Market Funds                                |  |  | $      16,067
|                                                  |  |  | 16,067       
|Short-term  Investments                           |  |  |              
|Obligations of the U.S. government and affiliated |  |  |              
|agencies                                          |  |  | 12,402       
|Corporate Bonds                                   |  |  | 2,007        
|                                                  |  |  | 14,409       
|Restricted Cash                                   |  |  |              
|Money Market Funds                                |  |  | 1,800        
|                                                  |  |  | 1,800        
|                                                  |  |  |              
|Total                                             |  |  | $      32,276

14

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|                                                  |  |  | December 31, 2007
|------------------------------------------------- |  |  | -----------------
|                                                  |  |  |                  
|                                                  |  |  |                  
|                                                  |  |  | Amortized        
|                                                  |  |  | Cost             
|Cash Equivalents                                  |  |  |                  
|Money market funds                                |  |  | $      27,883    
|                                                  |  |  | 27,883           
|                                                  |  |  |                  
|Short-term  Investments                           |  |  |                  
|Obligations of the U.S. government and affiliated |  |  |                  
|agencies                                          |  |  | 3,200            
|Corporate Bonds                                   |  |  | 1,006            
|                                                  |  |  | 4,206            
|                                                  |  |  |                  
|Total                                             |  |  | $      32,089    

See Note 14 for information and related disclosures regarding the Company's fair value measurements.

Note 8. Provision for Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, California and various state and foreign tax
jurisdictions in which the Company has a subsidiary or branch operations. All tax years from inception remain open to examination by the
Internal Revenue Service, the State of California and various states until such time as the net operating losses and research credits are either
fully utilized or expire. The foreign tax jurisdictions remain open to examination for the years between 2002 to 2007.

The provision for income taxes for the three and six months ended June 30, 2008 and 2007 relates to taxes payable for
Centillium's subsidiaries located in foreign jurisdictions. 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 that are not currently available for tax benefit. Due to the
Company's  loss position, a full valuation allowance has been established against its deferred tax assets, consisting primarily of net operating
loss carryforwards.

Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109", or FIN 48. The Company's policy is to
recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company's total unrecognized tax benefit as of the January 1, 2007 adoption date and as of June 30, 2008
was $9.7 million and $11.2 million, respectively.

The tax jurisdiction in India operates under a tax holiday which will expire at the end of March 2009. No changes to the
unrecognized tax benefits were recorded in the three and six months ended June 30, 2008.

15

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No changes to deferred tax assets for unrecognized tax benefits were recorded in the three and six months ended June
30, 2008.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component
of income tax expense. The Company had accrued interest and penalties as of June 30, 2008 and December 31, 2007, of $122,000 and
$105,000, respectively.

Note 9. Net Loss Per Share

Basic and diluted net loss per share have been computed using the weighted average number of shares of common
stock outstanding during the period. The following table presents the computation of basic and diluted net income (loss) per share (in
thousands, except per share amounts):

|                                   | Three Months Ended June 30, |  | Six Months Ended June 30,
|---------------------------------- | --------------------------- |  | -------------------------
|                                   | 2008                        |  | 2007                     
|Net loss                           | $        (1,795)            |  | $        (8,872)         
|Basic and diluted weighted average |                             |  |                          
|shares used to compute basic       |                             |  |                          
|and diluted net loss per share     | 41,698                      |  | 41,229                   
|                                   |                             |  |                          
|Basis and diluted net loss         |                             |  |                          
|per common share                   | $           (0.04)          |  | $            (0.22)      

Centillium has excluded all outstanding stock options and restricted stock units from the calculation of diluted net loss
per share because these securities are anti-dilutive for all periods presented. These excluded common share equivalents could be dilutive in the
future. Options to purchase 6,819,899 and 7,792,935 shares of common stock have been excluded at June 30, 2008 and 2007, respectively.
Restricted stock units to purchase 1,105,112 and 498,605 shares of common stock, have been excluded at June 30, 2008 and 2007,
respectively.

Note 10. Comprehensive Net Loss

The following table presents the computation of comprehensive net loss (in thousands):

|                               | Three Months Ended June 30, |  | Six Months Ended June 30,
|------------------------------ | --------------------------- |  | -------------------------
|                               | 2008                        |  | 2007                     
|Net loss as reported           | $        (1,795)            |  | $        (8,872)         
|Change in unrealized gain on   |                             |  |                          
|available-for-sale investments | (44)                        |  | (10)                     
|Total comprehensive loss       | $        (1,839)            |  | $        (8,882)         

Note 11.   Gain on Sale of DSL Related Assets

The Company recognized an $8.1 million gain on sale of DSL related assets during the three months ended March 31,
2008.

16

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accrual reversal that was associated with the employees transferred to Ikanos. In
accordance with the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets,"we did not
account for this transaction as a discontinued operation because the operations and cash flows of these assets could not be clearly
distinguished, operationally or for financial reporting purposes, from the rest of our business. The following is a summary of the gain on the sale
of DSL related assets (in thousands):

|                                           |  |  |  |  |  |  | Six Months       
|------------------------------------------ |  |  |  |  |  |  | -----------------
|                                           |  |  |  |  |  |  | Ended June 30,   
|Sale of DSL Related Assets                 |  |  |  |  |  |  | 2008             
|                                           |  |  |  |  |  |  |                  
|Proceeds from Sale                         |  |  |  |  |  |  | $        12,048  
|                                           |  |  |  |  |  |  |                  
|Costs:                                     |  |  |  |  |  |  |                  
|Inventory                                  |  |  |  |  |  |  | 1,998            
|Fixed assets, net and associated sales tax |  |  |  |  |  |  | 712              
|Transaction costs                          |  |  |  |  |  |  | 846              
|Retention accrual                          |  |  |  |  |  |  | 500              
|Release of sabbatical accrual              |  |  |  |  |  |  | (134)            
|Total                                      |  |  |  |  |  |  | 3,922            
|                                           |  |  |  |  |  |  |                  
|Gain on sale of DSL related assets         |  |  |  |  |  |  | $           8,126

Note 12.  Gain (Loss) on Settlement

In December 2005, Accton Technology Corporation, or Accton, filed a suit against Centillium in the California
Superior Court for the County of Alameda alleging a variety of claims, including breach of contract, breach of express warranty, and fraud and
concealment in connection with certain products Accton purchased in 2002 and 2003. The parties settled the dispute on July 12, 2007 for
a payment by Centillium of $2.5 million which was expensed in 2007.  In May 2008, the Company signed a settlement agreement with insurance
companies who agreed to pay $2.4 million to Centillium in connection with the Accton settlement and related legal fees. Net of expenses of
approximately $0.4 million, $2.0 million gain on settlement was recorded during the three months ended June 30, 2008.

Note 13.  Restructuring

In 2005, the Company recorded $2.2 million in charges for surplus space in its Fremont, California location, which it
abandoned. Due to current real estate market conditions, the Company increased the surplus space reserve, to extend the estimated vacant
lease period, by $0.8 million during 2007. The Company recorded a $0.4 million charge for additional surplus space in its Fremont, California
location, which it abandoned in the three months ended June 30, 2008. The operating lease for this location expires in February 2011.
Centillium has no future use for the surplus space as a result of the decrease in personnel in Fremont.

In February 2008, the Company announced a restructuring plan in conjunction with the sale of its DSL product lines,
which was intended to further reduce its operating and employee related costs. Restructuring charges of $2.9 million were incurred during the
six months ended June 30, 2008 which consisted primarily of $1.6 million of software license termination costs, $0.4 million of surplus space
reserve and $0.9 million of employee severance related expenses, net of $0.1 million reversal of sabbatical accrual related to severed
employees. Restructuring charges of $0.6 million were incurred during the three months ended June 30, 2008 which consisted of $0.4 million of
surplus space reserve and $0.2 million of software license costs.

A summary of the Company's restructuring expenses, accrued surplus space and accrued restructuring expenses is as
follows for the six month's ended June 30, 2008 (in thousands):

17

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|                                | Balance      |  |                |  |                 |  | Released         |  | Balance    
|------------------------------- | ------------ |  | -------------- |  | --------------- |  | ---------------- |  | -----------
|                                | December 31, |  |                |  |                 |  | from Asset       |  | June 30,   
|                                | 2007         |  | Accrued        |  | Paid            |  | /Liability       |  | 2008       
|Abandonment of surplus space*   | $     1,366  |  | $          438 |  | $         (248) |  | $           (55) |  | $     1,501
|Severance and related expenses  | -            |  | 938            |  | (932)           |  | -                |  | 6          
|Release of sabbatical accrual   | -            |  | (81)           |  | -               |  | 81               |  | -          
|Contract termination expenses** | -            |  | 1,622          |  | (1,000)         |  | (563)            |  | 59         
|                                | $     1,366  |  | $     2,917    |  | $    (2,180)    |  | $       (537)    |  | $     1,566

* Lease payments offset against reserve liability and leasehold asset reserve applied to accumulated depreciation 
** $563 Release of prepaid contract expense

Note 14.  Fair Value Measurements

SFAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:

Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to
access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that
market participants would use in pricing an asset or liability.

The Company's adoption of SFAS 157 did not have an impact on our financial position or results of operations. The
following table represents the fair value hierarchy for the financial assets (cash equivalents, short-term investments and restricted cash)
measured at fair value on a recurring basis as of June 30, 2008 (in thousands):

|                                       | Fair Value Measurements at Reporting Date Using
|-------------------------------------- | -----------------------------------------------
|                                       |                                                
|                                       |                                                
|                                       |                                                
|                                       |                                                
|                                       | Total                                          
|                                       |                                                
|Cash Equivalents                       |                                                
|Money Market Funds                     | $        16,067                                
|                                       |                                                
|Short-term  Investments                |                                                
|Obligations of the U.S. government and |                                                
|affiliated agencies                    | 12,416                                         
|Corporate Bonds                        | 2,009                                          
|                                       |                                                
|Restricted Cash                        |                                                
|Money Market Funds                     | 1,800                                          
|                                       | $        32,292                                

18

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Note 15. Business Segment Information and Customer Concentration

Centillium operates in one operating segment, broadband communications. Centillium's foreign operations consist
primarily of design centers in India and France, and sales and marketing offices in several locations around the world. Geographic sales
information is based on the location of the Company's end customer.

The following customers accounted for more than 10% of net revenues in the periods indicated:

|                                         | Three Months Ended June 30, |  | Six Months Ended June 30,
|---------------------------------------- | --------------------------- |  | -------------------------
|                                         | 2008                        |  | 2007                     
|Lucent Technologies                      | 30%                         |  | 12%                      
|Sumitomo Electric Industries             | 28%                         |  | 27%                      
|OKI Electric Industry Co., Ltd.          | 18%                         |  | -%                       
|Ericsson**                               | *                           |  | 25%                      
|NEC                                      | *                           |  | 19%                      
|_______________                          |                             |  |                          
|*    Less than 10%                       |                             |  |                          
|**  Indirect revenues through UR Holding

The following is a summary of net revenues by major geographic area (in thousands):

|                   | Three Months Ended June 30, |  | Six Months Ended June 30,
|------------------ | --------------------------- |  | -------------------------
|                   | 2008                        |  | 2007                     
|Japan              | $          2,996            |  | $            4,677       
|Europe             | 281                         |  | 3,175                    
|United States      | 2,487                       |  | 1,332                    
|China              | 307                         |  | 431                      
|Taiwan             | -                           |  | -                        
|Other Asia-Pacific | 245                         |  | 389                      
|                   | $          6,316            |  | $        10,004          

Long-lived assets by geographical area were as follows (in thousands):

|       |  |  | June 30,              |  | December 31,         
|------ |  |  | --------------------- |  | ---------------------
|       |  |  | 2008                  |  | 2007                 
|U.S.   |  |  | $                 759 |  | $                 717
|India  |  |  | 574                   |  | 899                  
|Others |  |  | 164                   |  | 255                  
|       |  |  | $            1,497    |  | $            1,871   

Note 16. Subsequent Events

On July 9, 2008, the Company announced that it had entered into an Agreement and Plan of Merger, which
is referred to in this report as the merger agreement, with TranSwitch Corporation. The merger agreement provides that, upon the terms and
subject to the conditions set forth in the agreement, Centillium will ultimately merge with and into a subsidiary of TranSwitch and exist as a
wholly owned subsidiary of TranSwitch.

Subject to the terms and conditions of the merger agreement, which has been unanimously approved by the boards of
directors of both companies, at the effective time and as a result of the merger, TranSwitch will pay Centillium shareholders and holders of
certain Centillium stock options an aggregate of 25 million shares of TranSwitch common stock and $15 million in cash. In the merger
agreement, TranSwitch and Centillium have made customary representations, warranties and covenants. Centillium has also agreed to use
commercially reasonable efforts to convene and hold a meeting of its stockholders to consider and vote upon the approval of the transaction.

19

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The foregoing description of the merger agreement and other references to the merger agreement in this Form 10-Q do not purport to be
complete and are qualified in their entirety by reference to the full text of the merger agreement, a copy of which has been filed with the SEC
and the terms of which are incorporated herein by reference.

Consummation of the merger is subject to customary conditions, including (a) approval of the transaction by the
stockholders of Centillium, (b) absence of any applicable law prohibiting the merger, (c) subject to certain exceptions, the accuracy
of the representations and warranties of each party, (d) performance in all material respects of each party of its obligations under the
Merger Agreement and (e) the delivery of customary opinions from counsel to TranSwitch and counsel to Centillium to the effect that the
receipt of stock merger consideration by Centillium stockholders will be a tax-free reorganization for federal income tax purposes, subject to the
exceptions provided therein.

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 condensed consolidated financial
statements and related notes in Item 1 above, and 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 17, 2008. 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.

All statements included or incorporated by reference in this report, other than statements or characterizations of
historical fact, are "forward-looking statements" that are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, statements concerning the anticipated
timing of our pending merger with TranSwitch; the anticipated benefits of the merger; projected net revenues, costs and expenses and gross
margin; anticipated cost savings; our anticipated cash flows and future capital resources; our accounting estimates, assumptions and
judgments; the impact of accounting rules related to the expensing of stock options on our future reported results; the impact of anticipated
market and customer trends and developments; our ability to penetrate the VoIP and FTTP markets and to expand our business after the recent
divestiture of our DSL product lines; our ability to control expenses; and the impact of competition and technological change in the
telecommunications and networking market. Additional forward-looking statements may be preceded by words that imply a future state such as
"expected," "estimated," "planned" or "anticipated" or imply that a particular future event or events
will occur such as "will". These forward-looking statements are based on our current expectations, estimates and projections about
our industry and business, management's beliefs, and certain assumptions made by us, all of which are subject to change. Investors are
cautioned that all forward-looking statements involve risks and uncertainties and actual results could be materially different from those
expressed in or implied by any forward-looking statement. We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.

Risks and uncertainties that could cause actual results to differ from those expressed or implied by our forward-looking
statements include the risk that the pending merger with TranSwitch may not be consummated; the risk that the closing of the merger will be
delayed; uncertainties concerning the effect of the transaction on relationships with customers, employees and suppliers of either or both of the
companies; the risk that the two companies will not be integrated successfully and in a timely manner even if the closing occurs as anticipated;
the risk that the transaction may involve unexpected costs or unexpected liabilities; and the other risk factors set forth in the section entitled
"Risk Factors" under Part II, Item 1A, and similar discussions in our other reports filed with the SEC. 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 Centillium or to maintain or increase your
investment.

Overview

We design, develop and supply highly-integrated programmable system-on-a-chip (SoC) solutions that enable high-speed
broadband access, which is the delivery of high capacity bandwidth to consumers and enterprises for networking of data, voice and video
signals. Our SoC products incorporate digital and mixed-signal semiconductors

20

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and related software. We serve the Voice over Internet Protocol
(VoIP) and Fiber-To-The-Premises (FTTP), which is also known as optical networking, markets. Our customers are systems vendors and
original equipment manufacturers, or OEMs, that sell optical network equipment, for deployment in central offices and customer premises, and
VoIP equipment, for use in carrier-class and enterprise-class gateways and consumer telephony applications. In February 2008, we sold our
digital subscriber line, or DSL, product lines in order to focus exclusively on our VoIP and FTTP businesses. Our DSL product lines had
previously accounted for a majority of our revenues but had been declining in recent periods. Our DSL products consisted of Asymmetric DSL
(ADSL), and a next generation of DSL products, referred to as VDSL2 products. Our DSL customers also consisted of systems vendors and
OEMs.

Pending Merger

On July 9, 2008, we entered into an Agreement and Plan of Merger, which we refer to as the merger
agreement, with TranSwitch Corporation, a Delaware corporation. The merger agreement provides that, upon the terms and subject to the
conditions set forth in the agreement, Centillium will ultimately merge with and into a subsidiary of TranSwitch and exist as a wholly owned
subsidiary of TranSwitch.

Subject to the terms and conditions of the merger agreement, which has been unanimously approved by the boards of
directors of both companies, at the effective time and as a result of the merger, TranSwitch will pay Centillium shareholders and holders of
certain Centillium stock options an aggregate of 25 million shares of TranSwitch common stock and $15 million in cash. In the merger
agreement, TranSwitch and Centillium have made customary representations, warranties and covenants. The merger is subject to various
closing conditions including the approval of our stockholders.   The foregoing is not a complete summary of all of the terms and conditions of the
merger agreement; reference is made to the full text of the merger agreement, which is filed as an exhibit to our Current Report on Form 8-K
dated July 9, 2008, for more information.

Sale of DSL Related Assets

In February 2008, we completed the sale of certain fixed and certain intangible assets comprising our DSL product
lines to Ikanos Communications, Inc., a publicly-held company, for total cash consideration of $12.0 million. Upon closing of the transaction,
Ikanos paid us net cash proceeds of $10.2 million after placing $1.8 million (or 15%) of the aggregate purchase price in an escrow for one year
as security for certain indemnification obligations pursuant to the asset sale agreement, including breaches of our representations and
warranties. Additionally, in February 2009 we may be obligated to pay Ikanos up to $0.5 million for certain contingency payments that were
stipulated in the asset sale agreement. In addition, we incurred approximately $0.8 million in transaction costs. We recorded a gain on this sale
of DSL related assets of $8.1 million in the first quarter of 2008. In accordance with the provisions of SFAS 144, "Accounting for the
Impairment or Disposal of Long-lived Assets,"we did not account for this transaction as a discontinued operation because the
operations and cash flows of these assets could not be clearly distinguished, operationally or for financial reporting purposes, from the rest of
our business. This sale significantly reduced the size of our business and revenues, and our business model now focuses exclusively on our
optical and VoIP products, which have historically generated fewer revenues than our legacy DSL products. In 2007, optical and VoIP net
revenues represented 15% and 25%, respectively, of our total net revenues.

Restructuring Plan

In February 2008, we also announced a restructuring plan in conjunction with the sale of our DSL product lines,
which was intended to further reduce our operating and employee related costs. Restructuring charges of $2.9 million were incurred during the
six months ended June 30, 2008 which consisted primarily of $1.6 million of software license termination costs, $0.4 million of surplus space
reserve and $0.9 million of employee severance related expenses. Restructuring charges of $0.6 million were incurred during the three months
ended June 30, 2008 which consisted primarily of $0.4 million of surplus space reserve and $0.2 million of software license termination costs.
Further execution of our restructuring plan in the third quarter of 2008 will result in additional estimated restructuring charges of $0.9 million
related to contract termination costs and severance related expenses.

21

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Reversal of Accrued Royalties

Operating expenses for the three and six months ended June 30, 2008 include $990,000 and $1.8 million benefit,
respectively, from partial reversals of certain royalty accruals. We periodically evaluate any contingent liabilities in connection with asserted or
unasserted claims for intellectual property infringement in accordance with FAS 5, "Accounting for Contingencies". Our accrued
royalties as of December 31, 2007 and June 30, 2008 reflect the partial reversal of certain royalties that were previously accrued. Based on the
applicability of statutory limitations contained in the patent law, however, these particular royalties could no longer be recovered from us. We
currently expect to further reverse such liabilities as the statutory limitations become applicable to future periods. The actual amounts of
reversals in any future period will depend upon factors including the then-applicable law and accounting standards.

Our current estimates of future reversals of the amounts of these royalties accrued as of June 30, 2008 are:

|               |  |  |  |  | Reversal              
|-------------- |  |  |  |  | ----------------------
|               |  |  |  |  | by                    
|               |  |  |  |  | Period                
|               |  |  |  |  |                       
|Remaining 2008 |  |  |  |  | $                  747
|2009           |  |  |  |  | 1,029                 
|2010           |  |  |  |  | 1,078                 
|2011           |  |  |  |  | 2,364                 
|2012           |  |  |  |  | 1,401                 
|2013           |  |  |  |  | 603                   
|Total          |  |  |  |  | $            7,222    

Trends and Factors Affecting Our Business

Our products are components of broadband access infrastructure equipment, and we rely on OEMs to select our
products over our competitors' products to be designed into their equipment. These "design wins" are an integral part of the long
sales cycle for our products. 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. Our focus is
on design, development, sales and marketing. We outsource our semiconductor fabrication, assembly and test functions.

We currently market and sell through our direct sales force, through independent sales representatives and through an
independent distributor in Europe and Russia.

We have not reported an operating profit for any year since inception and experienced a net loss of $0.4 million and
$14.8 million for the six months ended June 30, 2008 and 2007, respectively. We incurred a net loss of $17.6 million for the year ended
December 31, 2007. We expect to continue to incur operating losses and negative cash flows in the near term.

Our revenues were $12.5 million compared with $20.6 million for the six months ended June 30, 2008 and 2007,
respectively, a decrease of 39%. Furthermore, in 2007 our net revenues were $39.2 million, compared with $64.6 million in 2006, a decrease of
39%. We experienced a significant revenue decline in the DSL market in 2007 and 2006. We expect that our net revenues in 2008 will be
substantially lower than in 2007, due to the sale of our DSL product lines in February 2008. Revenues for the first quarter of 2008 included
$522,000 of DSL revenues. Our net loss for the six months ended June 30, 2008 was $0.4 million, which included the gain on the sale of the
DSL related assets, in comparison to a net loss of $14.8 million for the six months ended June 30, 2007. Our net loss in 2007 was $17.6 million,
compared with $10.7 million and $11.3 million in 2006 and 2005, respectively.

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From inception through the sale of our DSL product lines in February 2008, the majority of our net revenues were
derived primarily from the sale of our ADSL products to two customers in Japan. These two customers were NEC Corporation, or NEC, and
Sumitomo Electric Industries, Ltd., or Sumitomo. The ADSL new subscriber market in Japan shrank dramatically in 2007, 2006 and 2005. Our
Japan ADSL revenues declined 55%, 35% and 17% in 2007, 2006 and 2005, respectively. We consummated the sale of our DSL product lines
to Ikanos in February 2008 and as a result, we will no longer generate any future revenues from the sale of our DSL products. Revenues for the
first quarter of 2008 included $522,000 of DSL revenues.

Our VoIP revenues were $5.9 million and $5.2 million in the six months ended June 30, 2008 and 2007, respectively.
Our VoIP revenues were $9.9 million and $10.8 million for the years ended December 31, 2007 and 2006, respectively, and can vary
significantly from quarter to quarter. This is largely due to the variable nature of the growth of this market and the related deployments of VoIP
equipment by telecommunications service providers. Moreover, sales of our VoIP products are concentrated with a relatively limited number of
customers, which may cause our sales to vary widely depending on changes even in a single customer's deployment schedule and testing
requirements. We expect our net revenues from VoIP in the third quarter of 2008 to decline slightly, compared to the second quarter of 2008.

Our FTTP revenues were $6.1 million and $649,000 in the six months ended June 30, 2008 and 2007, respectively, and
$5.9 million and $4.0 million for the years ended December 31, 2007 and 2006, respectively. We have been heavily engaged in the
development of a gigabit Ethernet passive optical networking, or GEPON, solution for the FTTP market. We introduced our newest generation of
GEPON chips, called ME300, in 2007. We also entered into an agreement with a third party in May 2007 that gives us exclusive rights to an
EPON chip that they developed. This EPON chip was an improvement on a previous solution of this third party that had already been tested by
service providers in Japan. It was designed specifically to meet the requirements of the targeted service providers. Obtaining these exclusive
rights to this chip allows us to improve our chances of success by providing us with additional technology to penetrate our primary target market,
Japan. We refer to this EPON chip as the ME250.

After discussions with a major customer, we decided to move forward with the ME250 for this customer as the principal
telecommunications service provider in Japan has already accepted this customer's internal ME250 test results and has begun its own
validation of this customer's FTTP system with that chip. We also signed a strategic agreement with this customer for the delivery of the ME250
EPON chips. This customer's FTTP system with the ME250 has been validated by the principal telecommunications service provider but we
must obtain the anticipated market share of that service provider's business for us to grow our FTTP revenues from this product in 2008 and
beyond. There can be no assurance that this service provider will purchase our customer's FTTP systems with the ME250 in the anticipated
quantities or that the remainder of these orders will not be canceled, or the anticipated delivery delayed.

Our other FTTP product, the ME300, is also currently being validated internally by another customer. If the ME300 is
validated, we anticipate that it will be the platform that we will generally market going forward with other customers, due to its more aggressive
integration and ease of roadmap migration. There can be no assurance that the ME300 will be validated or selected by any customer and even
if it is, that it will meet our customers' requirements or that our customers will purchase this product and generate any revenues from it.
Moreover, even if all this occurs, there can be no assurance that any of our customers' FTTP systems with the ME300 will be validated by the
principal telecommunications service provider and even if it is, that this service provider will purchase any customer's FTTP systems with the
ME300 in the anticipated quantities, if at all.

We have traditionally sold our products on the basis of our standard terms and conditions. We are increasingly being
required to enter into purchase agreements with key customers and potential customers as a condition to doing business with them. These
agreements shift significantly more risk and cost on to us. Doing business under terms of this nature could increase our costs, cause us to bear
greater inventory risk and increase our liabilities, which could materially affect our business, results of operations and financial condition.

Our planned actions for 2008 and beyond are based on certain assumptions concerning the timing and progress of our
pending merger with TranSwitch, the adoption of broadband technologies, the successful qualification and deployment of our FTTP products in
Japan, the extent of demand for our VoIP products and the cost and expense structure of our business. These assumptions could prove to be
inaccurate. If economic or market conditions

23

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deteriorate to an unexpected degree, if our products and technologies are not accepted and
deployed to the extent we currently assume, if the pending TranSwitch merger does not occur as currently assumed or causes unexpected
disruption or expense until it is consummated, or if our planned actions are not successful in achieving our goals, there could be additional
adverse impact on our revenues, profitability, financial position and cash flows. In that case, we might need to modify our strategic focus or take
other corrective actions.

We anticipate that we will continue to incur operating losses and use cash for the foreseeable future. While we believe
that existing cash and short-term investments will be sufficient to support our current operations for the next twelve months, that cannot be
assured. This belief is based on a variety of assumptions that are subject to risks and uncertainties, and if any of those assumptions proves to
be inaccurate or if our cash flows from operations do not meet our expectations, our cash and short-term investments could be inadequate to
meet our liquidity requirements. For example, we have assumed that new product introductions will occur on a timely basis and will achieve
market acceptance, but there is no guarantee that this will happen. We also have significant litigation risk, and if we are required to make any
substantial payments due to adverse results in litigation, this could seriously affect our liquidity and materially affect our business, results of
operations and financial condition. Other risks that could cause our actual cash position to vary are set forth below, under item 1A, "Risk
Factors," of this report.

Our operating results have been and will continue to be materially affected by additional stock-based compensation
expense. Pursuant to Statement of Financial Accounting Standards No. 123 (revised 2004), or SFAS 123(R), which we adopted effective
January 1, 2006, we must reflect the fair value of stock options and other stock-based awards as an expense in our financial statements. We
anticipate that these stock-based compensation charges will continue to be material to our future operating results. As of June 30, 2008 and
2007, the total unrecognized compensation expense related to unvested stock-based awards, as determined by SFAS 123(R), using the
assumptions we had in effect as of that date, was approximately $1.8 million and $2.3 million, net of estimated forfeitures of $571,000 and
$360,000, respectively. That total expense is expected to be recognized over an estimated weighted average period of 1.2 years for unvested
stock-based awards to 3.1 years for restricted stock units.

Net Revenues. VoIP and FTTP revenues accounted for 96% of our net revenues and DSL accounted for 4% for
the six months ended June 30, 2008. We no longer generate any revenues from the sale of DSL products. Our DSL revenues accounted for
4%, 60%, 77% and 79% of our net revenues for the six months ended June 30, 2008 and for the years ended December 31, 2007, 2006 and
2005, respectively.

For the six months ended June 30, 2008, OKI Electric Industry Co., Ltd. (OKI) accounted for 24% of our net revenues.
For the six months ended June 30, 2008 and for the years ended December 31, 2007, 2006, and 2005, Lucent Technologies accounted for
27%, 15%, 12% and 13% of net revenues, and Sumitomo Electric Industries, Ltd (Sumitomo) accounted for 24%, 26%, 26% and 35% of net
revenue, respectively. For the years ended December 31, 2007, 2006, and 2005 NEC Corporation (NEC) accounted for 15%, 23% and 26% of
net revenue, respectively. Ericsson accounted for 23% and 16% of net revenues in 2007 and 2006, respectively. No other customer accounted
for 10% or more of our net revenues during the six months ended June 30, 2008 and the years ended December 31, 2007, 2006 and 2005.

The following is a summary of net revenues by product family for sales to NEC, Sumitomo, Lucent and Ericsson as a
percentage of revenue we generated from the sale of our product to that customer in 2007:

|Products |  | NEC  |  | SEI  |  | Lucent |  | Ericsson
|-------- |  | ---- |  | ---- |  | ------ |  | --------
|DSL      |  | 96%  |  | 74%  |  | -%     |  | 84%     
|VoIP     |  | 4    |  | -    |  | 100    |  | 16      
|FTTP     |  | -    |  | 26   |  | -      |  | -       
|Total    |  | 100% |  | 100% |  | 100%   |  | 100%    

While our sales have historically been denominated in U.S. dollars, major fluctuations in foreign currency exchange
rates could materially impact our customers' demand for our products as most of our major customers are foreign entities.

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The cycle for test, evaluation and adoption of our products by customers can range from three to more than six months
with an additional three to more than nine months before a customer commences volume production of equipment incorporating our products.
Additionally, this cycle may be as long as 18 to 24 months for certain VoIP and FTTP products. Due to this lengthy sales cycle, we may
experience significant delays from the time we incur expenses for research and development, marketing and selling, and investment in
inventory, to the time we generate corresponding revenues, if any. We anticipate that the rate of orders will vary significantly from quarter to
quarter. If anticipated shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high or
low, and our results of operations for that quarter, and potentially for future quarters, would be materially and adversely affected. This volatility
may become more pronounced as our sales for the remainder of 2008 will be generated entirely by our VoIP and FTTP products.

Competition and technological change in the rapidly evolving VoIP and optical networking markets have influenced, and
may continue to influence our quarterly and annual net revenues and results of operations. Average selling prices of our products tend to be
higher at the time of introduction and decline over time due to competitive pressures. We expect this pattern to continue with existing and future
products. Our average selling prices are also impacted by our customer and product mix. We are increasingly selling into certain markets where
pricing is very competitive. As a result, our gross margins are lower in these markets. If the gross profit generated from these markets is not
sufficient to offset the cost of business in these markets, this may have a negative impact on our financial results.

Cost of Revenues:  We are a fabless semiconductor company: we outsource the wafer fabrication, assembly and
testing of our products. Our cost of revenues primarily consists of purchased finished wafers, assembly and test services, royalties, overhead
associated with procurement and production engineering, provisions for excess and obsolete inventories, and product warranty costs.

Research and Development Expenses:  Research and development (R&D) expenses consist primarily of
employee compensation including stock-based compensation expense and related personnel expenses, fees paid to consultants, new product
development costs, evaluation and testing of pre-production parts and engineering design tools. We expense our research and development
costs as they are incurred. Several components of our research and development effort require significant expenditures, the timing of which can
cause significant quarterly variability in our expenses.

Selling, General and Administrative Expenses:  Selling, general and administrative (SG&A) expenses
include employee compensation including stock-based compensation expense and related personnel expenses in sales and marketing, product
marketing, applications engineering, and corporate functions including accounting, finance, legal, human resources and information systems.

Gain on Sale of DSL Related Assets:  In February 2008, we completed the sale of certain fixed and certain
intangible assets comprising our product lines serving DSL customers to Ikanos Communications, Inc., a publicly-held company, for total cash
consideration of $12.0 million. Upon closing of the transaction, Ikanos paid us net cash proceeds of $10.2 million after placing $1.8 million (or
15%) of the aggregate purchase price in an escrow for one year as security for certain indemnification obligations pursuant to the asset sale
agreement, including breaches of our representations and warranties. Additionally, in February 2009 we may be obligated to pay Ikanos up to
$0.5 million for certain contingency payments that were stipulated in the asset sale agreement. In addition, we incurred approximately $0.8
million in transaction costs. We recorded a gain on this sale of DSL related assets of $8.1 million in the first quarter of 2008. In accordance with
the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets,"we did not account for this
transaction as a discontinued operation because the operations and cash flows of these assets could not be clearly distinguished, operationally
or for financial reporting purposes, from the rest of our business.

Gain/(Loss) on Settlement:  In December 2005, Accton Technology Corporation, or Accton, filed a suit against us
in the California Superior Court for the County of Alameda alleging a variety of claims, including breach of contract, breach of express warranty,
and fraud and concealment in connection with certain products Accton purchased in 2002 and 2003. We settled the dispute on July 12,
2007 for a payment by Centillium of $2.5 million which was expensed in 2007.

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In May 2008, we signed a settlement agreement with insurance companies who agreed to pay $2.4 million to us in
connection with the Accton settlement and related legal fees. Net of expenses of approximately $0.4 million, $2.0 million gain on settlement was
recorded during the three months ended June 30, 2008.

Restructuring Charges: In February 2008, we announced a restructuring plan to reduce operating and employee
related costs. Restructuring charges of $2.9 million were incurred during the six months ended June 30, 2008, which consisted primarily of $1.6
million of software license termination costs, $0.4 million of surplus space reserve and $0.9 million of employee severance related expenses.
Restructuring charges of $0.6 million were incurred during the three months ended June 30, 2008 which consisted primarily of $0.4 million of
surplus space reserve and $0.2 million of software license termination costs. Further execution of our restructuring plan in the third quarter of
2008 will result in an additional restructuring charge, which we estimate will be approximately $0.9 million. In 2005, we recorded restructuring
charges for surplus space in our Fremont, California location, which we abandoned. Due to current real estate market conditions, we increased
the surplus space reserve in 2007, to extend the estimated vacant lease period through February 2011.

Reversal of Accrued Royalties:  Operating expenses include benefits from partial reversals of accrued royalties in
the first six months of 2008. We periodically evaluate any contingent liabilities in connection with any payments to be made for any asserted or
unasserted potential intellectual property infringement asserted or unasserted claims in accordance with FAS 5, "Accounting for
Contingencies". Our accrued royalties as of December 31, 2007 and June 30, 2008 reflect the partial reversal of certain royalties that were
previously accrued with respect to sales during a past period of time. However, because of the applicability of statutory limitations contained in
the patent law, these particular royalties can no longer be recovered from us. We currently expect to further reverse additional royalty accruals
as this statutory limitation becomes applicable to subsequent periods of time.



Interest and Other Income:  Interest income consists of interest earned on cash and cash equivalent balances and
short-term investments.

Interest and Other Expense:  Interest and other expense primarily consist of foreign currency losses.

Provision for Income Taxes:  The provisions for income taxes relate to current taxes payable for income
generated by our subsidiaries located in foreign jurisdictions. 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 that are not currently available for tax benefit. Due to
our loss position, a full valuation allowance has been established against our deferred tax assets, consisting primarily of net operating loss
carry-forwards, research and development tax credits and reserves and accruals not currently deductible.

Critical Accounting Policies

General:  Our discussion and analysis of our financial condition and results of operations are based upon our
condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires that we make assumptions, estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities reported in the condensed consolidated
financial statements and accompanying notes. On an on-going basis, we evaluate our estimates and assumptions related to revenue
recognition, sales returns and allowances, allowance for doubtful accounts, inventories, warranty and litigation and contingencies. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates
under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.

Revenue Recognition:  Revenues related to product sales are generally recognized when the products have
been shipped and risk of loss has passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of
an arrangement exists, and the price is fixed or determinable. Certain royalty payments to a customer are recorded as a reduction in revenue. If
sales arrangements contain customer-specific acceptance

26

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requirements, revenue is deferred and is recognized upon receipt of customer
acceptance. Revenue from maintenance and support is deferred and recognized on a straight line basis over the life of the related
agreement.

Stock-Based Compensation:  We adopted Statement of Financial Accounting Standards ("SFAS")
No. 123 (revised 2004), "Share-Based Payment," or SFAS 123(R), effective January 1, 2006. SFAS 123(R) requires the
recognition of the fair value of stock-based compensation in operating results. SFAS 123(R) is a new and very complex accounting standard.
Applying this standard requires significant judgment and the use of estimates, particularly surrounding Black-Scholes option pricing model
assumptions, such as stock price volatility and expected option lives, as well as expected option forfeiture rates to value equity-based
compensation. These assumptions and estimates are subject to change over time, which may affect the related stock-based compensation
expenses that we recognize in our financial statements. The fair value of our restricted stock units is calculated based upon the fair market value
of Company stock at the date of grant in accordance with SFAS 123(R). The stock-based compensation expense related to stock options is
amortized on an accelerated basis. The stock-based compensation expense related to restricted stock units is amortized on a straight-line
basis.

Sales Returns and Allowances:  Upon shipment of our products, we establish a provision for estimated returns.
Under certain circumstances, we allow our customers to return products and a provision is made for such returns. Our estimate of product
returns is based on contractual terms or sales agreements, historical experience and expectation of future conditions. Additional provisions and
allowances may be required, resulting in decreased net revenues and gross profit, should we experience increased product returns.

Allowance for Doubtful Accounts:  We perform ongoing credit evaluations of our customers and adjust credit limits,
as determined by our review of current credit information. We record allowances for doubtful accounts for estimated losses based upon
specifically identified amounts that we believe to be uncollectible. We record additional allowances based on certain percentages of our aged
receivables, which are determined based on historical experience and our assessment of the general financial condition of our customer base. If
our actual collections experience changes, revisions to our allowances may be required. We have a limited number of customers with
individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers' creditworthiness or other
matters affecting the collectibility of amounts due from such customers could have a material effect on our results of operations in the period in
which such changes or events occur.

Inventories:  Inventories are stated at the lower of standard cost, which approximates actual cost, or net
realizable value. Cost is based on a first-in, first-out basis. We perform detailed reviews of the net realizable value of inventories, both on hand
and those we are committed to purchase, with consideration given to deterioration, obsolescence, and other factors. Currently, we use a nine-
month rolling forecast based on the type of products, anticipated product orders, product order history, forecasts and backlog. We compare our
current or committed inventory levels to these forecasts on a regular basis and any adverse changes to our future product demand may result in
increased write-downs, resulting in decreased gross profit. In the event we experience unanticipated demand and are able to sell previously
written down inventories, gross profit will increase.

Warranty:  A limited warranty is provided on our products, generally for a period of one year, and allowances for
estimated warranty costs are recorded during the period of sale. While we engage in product quality programs and processes, including
monitoring and evaluating the quality of our suppliers, our warranty obligation is affected by product failure rates, the cost of replacing chipsets,
rework costs and freight incurred in replacing a chipset after failure. We monitor chipset returns for warranty and maintain a reserve for the
related warranty expenses based on historical experience of similar products. The determination of such allowances requires us to make
estimates of product return rates and expected costs to repair or replace the products under warranty. We periodically assess the adequacy of
the warranty liability and adjust such amounts as necessary.

Accounting for Uncertainty in Income Taxes:  Effective January 1, 2007, we adopted the provisions of Financial
Accounting Standards Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
109", or FIN 48, which prescribes how a company should recognize, measure, present and disclose uncertain tax positions that such
company has taken or expects to take in its income tax returns. FIN 48 requires that only income tax benefits that meet the "more likely than
not" recognition threshold be recognized or continue to be recognized on its effective date. Our policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense.

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Litigation and Contingencies: From time to time, we receive various inquiries or claims or are involved in litigation
in connection with patent and other intellectual property rights as well as breach of contract and other claims. When the liability is probable and
estimable, we have accrued estimates of the amounts we expect to pay upon resolution of such matters. Based on the applicable patent law
and depending on developments and new information in these matters, these estimates may change and may result in increased accruals,
resulting in decreased profit or decreased accruals, resulting in increased profit, respectively.

The above items are not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment
of a particular transaction is specifically dictated by U.S. generally accepted accounting principles with no need for our management's judgment
in their application. There are also areas in which our management's judgment in selecting any available alternative would not produce a
materially different result.

Results of Operations for the Three and Six Months Ended June 30, 2008 and 2007

The following table sets forth, for the periods presented, certain data from our unaudited condensed consolidated
statements of operations expressed as a percentage of net revenues.

|                                    | Three Months Ended June 30, |  | Six Months Ended June 30,
|----------------------------------- | --------------------------- |  | -------------------------
|                                    | 2008                        |  | 2007                     
|Net revenues                        | 100%                        |  | 100%                     
|Cost of revenues                    | 42                          |  | 45                       
|Operating expenses:                 |                             |  |                          
|Research and development            | 65                          |  | 73                       
|Selling, general and administrative | 60                          |  | 49                       
|Gain on sale of DSL related assets  | *                           |  | -                        
|Gain/loss on settlement             | (32)                        |  | 25                       
|Restructuring charges               | 10                          |  | 3                        
|Reversal of accrued royalties       | (16)                        |  | -                        
|Total operating expenses            | 87                          |  | 150                      
|Operating loss                      | (29)                        |  | (95)                     
|Interest income and other           | 4                           |  | 7                        
|Interest expense and other          | 2                           |  | *                        
|Income (loss) before provision      |                             |  |                          
|for income taxes                    | (27)                        |  | (88)                     
|Provision  for income taxes         | (1)                         |  | (1)                      
|Net loss                            | (28) %                      |  | (89) %                   

_________________________
     * Less than 1%

Net Revenues. The following tables present net revenues, cost of revenues and gross profit for the
three and six months ended June 30, 2008 and 2007 (in thousands except for percentages):

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|                 | Three Months Ended |          | Three Months Ended |  |                 |  |          
|---------------- | ------------------ | -------- | ------------------ |  | --------------- |  | ---------
|                 | June 30, 2008      |          | June 30, 2007      |  |                 |  |          
|                 |                    | % of Net |                    |  | % of Net        |  | Increase/
|                 | Amount             |          | Revenues           |  | Amount          |  | Revenues 
|Net revenues     | $        6,316     |          | 100%               |  | $      10,004   |  | 100%     
|Cost of revenues | 2,680              |          | 42%                |  | 4,491           |  | 45%      
|Gross Profit     | $        3,636     |          | 58%                |  | $         5,513 |  | 55%      
|                 |                    |          |                    |  |                 |  |          
|                 | Six Months Ended   |          | Six Months Ended   |  |                 |  |          
|                 | June 30, 2008      |          | June 30, 2007      |  |                 |  |          
|                 |                    | % of Net |                    |  | % of Net        |  | Increase/
|                 | Amount             |          | Revenues           |  | Amount          |  | Revenues 
|Net revenues     | $      12,459      |          | 100%               |  | $      20,556   |  | 100%     
|Cost of revenues | 5,342              |          | 43%                |  | 9,549           |  | 46%      
|Gross Profit     | $         7,117    |          | 57%                |  | $      11,007   |  | 54%      

During 2007 and 2006, our revenues were generated principally from sales of our DSL, VoIP and FTTP products. As
noted above, we sold our DSL product lines in February 2008. Our revenues are derived from sales of our VoIP and FTTP products. The
following tables present net revenues from each of our major product lines for the three and six months ended June 30, 2008 as compared to
the three and six months ended June 30, 2007 (in thousands except for percentages):

|             | Three Months Ended     |          | Three Months Ended |  |                |  |          
|------------ | ---------------------- | -------- | ------------------ |  | -------------- |  | ---------
|             | June 30, 2008          |          | June 30, 2007      |  |                |  |          
|             |                        | % of Net |                    |  | % of Net       |  | Increase/
|Products     | Amount                 |          | Revenues           |  | Amount         |  | Revenues 
|DSL          | $                    - |          | -%                 |  | $        6,722 |  | 67%      
|VoIP         | 3,459                  |          | 55%                |  | 2,885          |  | 29%      
|FTTP         | 2,857                  |          | 45%                |  | 397            |  | 4%       
|Net revenues | $        6,316         |          | 100%               |  | $      10,004  |  | 100%     
|             |                        |          |                    |  |                |  |          
|             |                        |          |                    |  |                |  |          
|             | Six Months Ended       |          | Six Months Ended   |  |                |  |          
|             | June 30, 2008          |          | June 30, 2007      |  |                |  |          
|             |                        | % of Net |                    |  | % of Net       |  | Increase/
|Products     | Amount                 |          | Revenues           |  | Amount         |  | Revenues 
|DSL          | $                522   |          | 4%                 |  | $      14,722  |  | 72%      
|VoIP         | 5,853                  |          | 47%                |  | 5,185          |  | 25%      
|FTTP         | 6,084                  |          | 49%                |  | 649            |  | 3%       
|Net revenues | $      12,459          |          | 100%               |  | $      20,556  |  | 100%     

Net revenues for the three months ended June 30, 2008 were $6.3 million, compared with $10.0 million for the three
months ended June 30, 2007, a decrease of $3.7 million or 37%. Revenues from our DSL products accounted for zero of net revenues in the
three months ended June 30, 2008, as compared to $6.7 million, or 67%, of net revenues in the three months ended June 30, 2007. The decline
in DSL revenues was due to the sale of our DSL product lines in February 2008. Net revenues for the six months ended June 30, 2008 were
$12.5 million, compared with $20.6 million for the six months ended June 30, 2007, a decrease of $8.1 million or 39%. Revenues from our DSL
products accounted for $522,000 of net revenues in the six months ended June 30, 2008, as compared to $14.7

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million, or 72%, of net
revenues in the six months ended June 30, 2007. The decline in DSL revenues was due to the sale of our DSL product lines in February 2008.

Revenues from VoIP products accounted for $3.5 million of net revenues in the three months ended June 30,
2008, as compared to $2.9 million of net revenues for the three months ended June 30, 2007, or 55% and 29% of net revenues, respectively.
Revenues from VoIP products accounted for $5.9 million of net revenues in the six months ended June 30, 2008, as compared to $5.2 million of
net revenues for the six months ended June 30, 2007, or 47% and 25% of net revenues, respectively. Our VoIP revenues vary significantly from
quarter to quarter as they are currently derived from only a few customers which have varying deployment schedules and testing requirements.
We expect that our VoIP revenues will slightly decline in the third quarter of 2008, compared to the second quarter of 2008.

Revenues from our FTTP products accounted for $2.9 million of net revenues in the three months ended June 30, 2008,
as compared to $397,000 of net revenues for the three months ended June 30, 2007, or 45% and 4% of net revenues, respectively. Revenues
from our FTTP products accounted for $6.1 million of net revenues in the six months ended June 30, 2008, as compared to $649,000 of net
revenues for the six months ended June 30, 2007, or 49% and 3% of net revenues, respectively. Shipments for the ME250 chip resulted in
revenues of $3.0 million in the six months ended June 30, 2008. Shipments for the ME250 chip began in Q307, which resulted in revenues of
$3.1 million in the last four months of 2007. Growth in FTTP revenues, if any, is highly dependent on the successful execution of our longer term
FTTP strategy, including the continued purchase of significant quantities of the ME250 chip by our customer, as well as having our ME300 chip
successfully validated by the principal telecommunications service provider and another Japan customer achieving the expected market share
with our ME300 chip.

Revenues from Japan, which are currently attributable to our FTTP products and historically were largely attributable to
our DSL products, were $3.0 million and $6.9 million for the three and six months ended June 30, 2008, respectively, as compared to $4.7
million and $8.3 million for the three and six months ended June 30, 2007, respectively. We anticipate revenues from Japan to remain
significant for the foreseeable future.

The following customers accounted for more than 10% of net revenues in the periods indicated:

|                                         | Three Months Ended June 30, |  | Six Months Ended June 30,
|---------------------------------------- | --------------------------- |  | -------------------------
|                                         | 2008                        |  | 2007                     
|Lucent Technologies                      | 30%                         |  | 12%                      
|Sumitomo Electric Industries             | 28%                         |  | 27%                      
|OKI Electric Industry Co., Ltd.          | 18%                         |  | -%                       
|Ericsson**                               | *                           |  | 25%                      
|NEC                                      | *                           |  | 19%                      
|_______________                          |                             |  |                          
|*    Less than 10%                       |                             |  |                          
|**  Indirect revenues through UR Holding

Gross Profit. Gross profit represents net revenues less the cost of revenues. Gross profit decreased to
$3.6 million for the three months ended June 30, 2008 as compared to $5.5 million for the three months ended June 30, 2007. Gross profit
decreased to $7.1 million in the six months ended June 30, 2008 as compared to $11.0 million in the six months ended June 30, 2007. The $1.9
million and $3.9 million decrease in gross profit for the three months and six months ended June 30, 2008 was primarily attributable to lower
revenue from our DSL business, which was sold in February 2008. Our gross profit benefited from a lower write-down of excess inventory of
$141,000 in the six months ended June 30, 2008, compared to a $329,000 write-down in the comparable period in 2007, but this was more than
offset by our lower revenues. Additionally, $336,000 of our gross profit, 2.7% of our gross margin, in the six months ended June 30, 2008
resulted from the unexpected sale of previously written down inventory. The gross margin was 58% and 57% for the three and six month
periods ended June 30, 2008, respectively, as compared to 55% and 54% in the respective periods of 2007. Our future gross profit margins
may be further affected by pricing pressures from our customers and competitors, fluctuations in unit volume, fluctuation in silicon wafer costs,

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changes in the costs charged by our assembly and test subcontractors, changes in product mix and write down of or benefit from unexpected
sales of excess or obsolete inventory, among other factors.

Research and Development Expenses.  Research and development expenses decreased by 44% to $4.1
million for the three months ended June 30, 2008, from $7.3 million for the three months ended June 30, 2007. The $3.2 million decrease
resulted primarily from $1.6 million decrease in compensation and related expenses, $0.6 million decrease in engineering design tool expense,
$0.4 million decrease of evaluation and testing of pre-production parts, $0.2 million in decreased depreciation expense, $0.1 million decrease
due to increased allocations to manufacturing efforts, $0.1 million decrease in new product development expenses, $0.1 million decrease in
travel and $0.1 million in lower stock-based compensation expense. The decrease in compensation and related expenses was primarily
attributable to the divestiture of our DSL business and our restructuring plan. We reduced the number of research and development employees
from 181 at December 31, 2007 to 99 at June 30, 2008.

Research and development expenses decreased by 34% to $9.3 million for the six months ended June 30, 2008, from
$14.1 million for the six months ended June 30, 2007. The $4.8 million decrease resulted primarily from $2.4 million decrease in compensation
and related expenses, $0.6 million decrease in engineering design tool expense, $0.8 million decrease of evaluation and testing of pre-
production parts, $0.4 million in decreased depreciation expense, $0.1 million decrease due to increased allocations to manufacturing efforts,
$0.2 million decrease in new product development expenses $0.3 million in lower stock-based compensation expense and $0.2 million
decrease in travel, partially offset by $0.2 million increase in consulting. The decreased compensation and related expenses was primarily
attributable to the divestiture of our DSL business and our restructuring plan.

We expect research and development expenses to increase in the third quarter of 2008 as compared to the second
quarter of 2008, as we anticipate a significant increase in tapeout expense, engineering evaluation board and preproduction expenses related to
our Atlanta product line.

We have been committed to significant research and development efforts to extend our technology in the broadband
communications markets in which we operate. We held 14 U.S. patents and 1 foreign patent as of June 30, 2008, and we maintain an active
program of filing for additional U.S. and foreign patents in the broadband communications field.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased
by 21% to $3.8 million for the three months ended June 30, 2008 as compared to $4.8 million for the three months ended June 30, 2007. The
$1.0 million decrease was primarily due to $0.5 million in decreased employee compensation and related expenses, $0.1 million in decreased
auditing and business insurance fees, $0.1 million in decreased legal expenses, $0.1 million decreased travel, $0.1 million in lower stock-based
compensation expense, and $0.1 million decrease in consulting. The decreased compensation and related expenses was primarily attributable
to the sale of our DSL related assets and our restructuring plan. We reduced the number of selling, general and administrative employees from
57 at December 31, 2007 to 41 at June 30, 2008. We expect that selling, general and administrative expenses in the third quarter of 2008 will
decline compared to the second quarter of 2008 primarily due to decreased legal expenses.

Selling, general and administrative expenses decreased by 22% to $7.7 million for the six
months ended June 30, 2008 as compared to $9.8 million for the six months ended June 30, 2007. The $2.1 million decrease was primarily due
to $0.7 million in decreased employee compensation and related expenses, $0.5 million in lower legal expense, $0.3 million in lower
stock-based compensation expense, $0.2 million decrease in consulting expense and $0.1 million in lower expenses for each of the areas of travel
expense, training, software contract maintenance expense and facilities expense.

Our overall selling, general and administrative expenses may increase further in the future, and there can be no
assurance that we will develop and sustain a cost structure that will lead to profitability under the current and expected revenue levels.

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Gain on Sale of DSL Related Assets. In February 2008, we completed the
sale of certain fixed and certain intangible assets comprising our product lines serving DSL customers to Ikanos Communications, Inc., a
publicly-held company, for total cash consideration of $12.0 million. Upon closing of the transaction, Ikanos paid us net cash proceeds of $10.2
million after placing $1.8 million (or 15%) of the aggregate purchase price in an escrow for one year as security for certain indemnification
obligations of ours pursuant to the asset sale agreement, including breaches of our representations and warranties. Additionally, in February
2009 we may be obligated to pay up to $0.5 million for certain contingency payments that were stipulated in the asset sale agreement. In
addition, we incurred approximately $0.8 million in transaction costs. We recorded a gain on this sale of DSL related assets of $8.1 million in the
first quarter of 2008. In accordance with the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-lived
Assets,"we did not account for this transaction as a discontinued operation because the operations and cash flows of these assets
could not be clearly distinguished, operationally or for financial reporting purposes, from the rest of our business.

Gain/(Loss) on Settlement.  In December 2005, Accton Technology Corporation, or Accton, filed a suit
against us in the California Superior Court for the County of Alameda alleging a variety of claims, including breach of contract, breach of express
warranty, and fraud and concealment in connection with certain products Accton purchased in 2002 and 2003. We settled the dispute on
July 12, 2007 for a payment by Centillium of $2.5 million which was expensed in 2007.

In May 2008, we signed a settlement agreement with insurance companies who agreed to pay $2.4 million to us in
connection with the Accton settlement and related legal fees. Net of expenses of approximately $0.4 million, $2.0 million gain on settlement was
recorded during the three months ended June 30. 2008.

Restructuring Charges. In February 2008, we announced a restructuring plan to reduce operating and
employee related costs. Restructuring charges of $2.9 million were incurred during the six months ended June 30, 2008, which consisted
primarily of $1.6 million of software license termination costs, $0.4 million of surplus space reserve and $0.9 million of employee severance
related expenses. Restructuring charges of $0.6 million were incurred during the three months ended June 30, 2008 which consisted primarily
of $0.4 million of surplus space reserve and $0.2 of million software license costs. Further execution of our restructuring plan in the third quarter
of 2008 will result in an additional restructuring charge, which we estimate will be approximately $0.9 million. In 2005, we recorded restructuring
charges for surplus space in our Fremont, California location, which we abandoned. Due to current real estate market conditions, we increased
the surplus space reserve in 2007, to extend the estimated vacant lease period through February 2011.

Reversal of Accrued Royalties.  Operating expenses for the three and six months ended June 30, 2008
include $990,000 and $850,000, respectively, benefit from partial reversals of royalty accruals. We periodically evaluate any contingent liabilities
in connection with any payments to be made for any potential intellectual property infringement asserted or unasserted claims in accordance
with FAS 5, "Accounting for Contingencies". Our accrued royalties as of December 31, 2007 and June 30, 2008 reflect the partial
reversal of certain royalties that were previously accrued but based on the applicability of statutory limitations contained in the patent law could
no longer be recovered from us. We currently expect to further reverse such liabilities as the statutory limitations become applicable to future
periods.



Interest and Other Income. Interest and other income, net, was $274,000 for the three months ended
June 30, 2008 as compared to $635,000 for the three months ended June 30, 2007, and was $624,000 and $1.3 million for the three and six
months ended June 30, 2008 and 2007, respectively. A decrease in cash available for investment and lower available interest rates resulted in
lower interest income for the three and months ended June 30, 2008 as compared to the comparable periods ended June 30, 2007.

Interest and Other Expense. Interest and other expense was $124,000 for the three months ended June
30, 2008 as compared to a gain of $18,000 for the three months ended June 30, 2007. Interest and other expense was $180,000 for the six
months ended June 30, 2008 as compared to a gain of $30,000 for the six months ended June 30, 2007. The increase in the expense was
primarily attributable to foreign currency exchange due to the weakening U.S. dollar.

Provision for Income Taxes. Income tax expense was $77,000 and $127,000 for the three and six months ended

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June 30, 2008, respectively, as compared to $68,000 and $402,000 for the three and six months ended June 30, 2007. The
provisions for income taxes relate to current taxes payable for income generated by Centillium subsidiaries located in foreign jurisdictions.
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 that are not currently available for tax benefit. Due to our loss position, a full valuation allowance has been
established against our deferred tax assets, consisting primarily of net operating loss carry-forwards.

The decrease in the provision was mainly due to $300,000 recorded in the three months ended March 31, 2007 as an
income tax expense for uncertain tax positions as an adjustment due to the adoption of Financial Accounting Standards Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109," or FIN 48. See Note 8 to the Notes to
Unaudited Condensed Consolidated Financial Statements under Item 1 of Part I of this quarterly report for information on the adoption of FIN
48." 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 that are not currently benefited. Due to our loss position, a full valuation allowance has been
established against our deferred tax assets, consisting primarily of net operating loss carry-forwards.

Recent Accounting Pronouncements



In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. SFAS 157, "Fair Value Measurements," or SFAS 157. SFAS 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. In
February 2008, the FASB issued FASB Staff Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13", or FSP 157-1, and FASB Staff Position 157-2, "Effective Date of FASB Statement No. 157", or FSP
157-2. FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS 157
for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. The measurement and disclosure requirements
related to financial assets and financial liabilities are effective for fiscal years beginning after November 15, 2007. We adopted
SFAS No. 157 in the first quarter of 2008, except as it applies to those non-financial assets and non-financial liabilities as described
in FSP FAS No. 157-2, and it did not have an impact on our consolidated financial position, results of operations or cash flows. We
are currently evaluating the impact that SFAS No. 157 will have on our non-financial assets and non-financial liabilities that are not measured at
fair value on a recurring basis beginning in the first quarter of 2009. See Note 14 to the Notes to Unaudited Condensed Consolidated
Financial Statements under Item 1 of Part I of this quarterly report for information and related disclosures regarding the Company's fair value
measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of FASB Statement No. 115", or SFAS 159, which permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurements, which is consistent with the
FASB's long-term measurement objectives for accounting for financial instruments. FAS 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. FAS 159 became effective for us beginning January 1, 2008, although the we have not
chosen to measure eligible assets and liabilities at fair value under the provisions of FAS 159. As such, the adoption of FAS 159 did not have an
impact on our condensed consolidated statements of position, results of operations, or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standard ("FAS") No. 141(R), "Business
Combinations," or FAS 141R. FAS 141R replaces FAS No. 141 and provides greater consistency in the accounting and
financial reporting of business combinations. FAS 141R requires the acquiring entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed, establishes principles and requirements for how an acquirer recognizes and measures any non-controlling
interest in the acquiree and the

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goodwill acquired, and requires the acquirer to disclose the nature and financial effect of the business
combination. Among other changes, this statement also required that "negative goodwill" be recognized in earnings as a gain attributable to the
acquisition, that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred and that any deferred
tax benefits resulted in a business combination are recognized in income from continuing operations in the period of the combination.
FAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We will assess the impact that FAS 141R may have on our financial position and
results of operations.

In December 2007, the FASB issued FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements
— an amendment of Accounting Research Bulletin No. 51," or FAS 160. FAS 160 addresses the accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent's ownership interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. FAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. FAS 160 is effective for fiscal years beginning after December 15, 2008, and will be
adopted by us in 2009. The Company currently has no noncontrolling interests, but will continue to assess the impact of this standard on our
future consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133" ("SFAS 161"), which requires additional disclosures about the
objectives of using derivative instruments, the method by which the derivative instruments and related hedged items are accounted for under
FASB Statement No.133 and its related interpretations, and the effect of derivative instruments and related hedged items on financial position,
financial performance, and cash flows. SFAS 161 also requires disclosure of the fair values of derivative instruments and their gains and losses
in a tabular format. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early adoption encouraged. We are currently assessing the impact that the adoption of SFAS 161 will have
on its financial statement disclosures.

Liquidity and Capital Resources

Our future capital requirements depend on many factors, some of which are outside of our control. We expect our cash
used in operations to decrease in 2008 as compared to 2007 due to the sale of the DSL product lines in February 2008, the settlement receipt
of a net $2.0 million related to the Accton claim and our restructuring activities. In February 2008, we received $10.2 million in cash
consideration from the sale of the DSL product lines after placing $1.8 million (or 15%) of the aggregate purchase price in an escrow for one
year as security for certain indemnification obligations pursuant to the asset sale agreement, including breaches of our representations and
warranties. Additionally, in February 2009 we may be obligated to pay Ikanos up to $0.5 million depending on contingencies specified in the
agreement. In addition, we incurred approximately $0.8 million in transaction costs. Although we have been incurring increased legal,
accounting and other administrative fees and costs in connection with our pending merger with TranSwitch, we believe that existing cash and
investment securities and anticipated cash flows from operations will be sufficient to support our current operating plan for the next twelve
months. However, these cash flow and operating results expectations are subject to numerous assumptions, many of which may not actually
occur. If some or all of such assumptions do not occur, our results may be substantially lower or different than expected, and our cash resources
could be reduced faster than currently anticipated. Such assumptions include, without limitation, assumptions about the timing and progress of
the TranSwitch merger, that our cost reduction efforts will be successful, that product introductions will occur on a timely basis and achieve
market acceptance, that customer testing and service provider deployments occur as anticipated, that our customer base will grow, that we do
not experience an adverse result in existing litigation or new legal or regulatory proceedings, and that our industry's competitive landscape will
not change adversely. For more information about the risks relating to our business, please read carefully the section of this report entitled
"Risk Factors".

We expect to devote capital resources to continue our research and development efforts, to support our sales and
marketing, and to fund general corporate activities. Depending on the needs of our business and if permitted under the terms of our merger
agreement with TranSwitch, we may also consider making strategic investments in

34

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complementary products or technologies, which could
require further cash expenditures. We expensed a $2.5 million loss in full settlement relating to the Accton matter in 2007. In May 2008, we
signed a settlement agreement with insurance companies who agreed to pay $2.0 million to us in connection with the Accton settlement and
related legal fees. Depending on the amount and timing of any future legal proceedings against us, our cash flows could be materially adversely
affected in one or more future periods, and our financial condition could be severely impaired.

Since our inception, we have financed our operations primarily through operating activities, the sale of equity securities,
the proceeds from the sale of our DSL product lines and our revolving line of credit established in 2007. 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, could require us to pledge
additional assets to secure the financing, or could impose additional restrictive covenants on us. These additional securities could have rights
senior to those of our common stock. We established a credit facility with a financial institution in September 2007, which provides for
commitments for up to $10.0 million of revolving loans or letters of credit which matures in September 2008. As security for the line of credit, we
granted the bank a security interest in all of our assets, except for the shares of certain foreign subsidiaries and certain intellectual property
rights. We received a consent from the bank for the sale of our DSL assets. Further extensions of credit will be subject to various conditions,
including the continued accuracy of our representations to the bank and the absence of a material adverse change, which is defined to include a
material impairment in the value of the collateral or in the bank's prospects of repayment. Due to these conditions, we cannot assure you that
we will be able to draw down further amounts under this agreement. 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 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, or to sell assets
or otherwise restructure our business to remain viable.

As of June 30, 2008, we had drawn down $0.8 million in letters of credit and had not drawn down under the line of credit,
resulting in an available, unused line of credit balance of $9.2 million. Further draws and other extensions of credit under this loan agreement
are subject to various conditions. The agreement includes affirmative and negative covenants, including compliance with a "quick
ratio" test and specified levels of tangible net worth, and restrictions on various actions including the incurrence of further indebtedness,
acquisitions, divestitures, mergers, changes in business, dividends and other distributions to stockholders, and investments. We were in
compliance with the loan covenants as of June 30, 2008.

At June 30, 2008, we had $36.8 million in cash, cash equivalents, short-term investments and restricted cash, which
includes $1.8 million of restricted cash, compared to $36.8 million in cash, cash equivalents and short-term investments at December 31, 2007,
which included $1.5 million in cash borrowed under our line of credit. The restricted cash will be held in escrow for one year (until February
2009) as security for certain of our indemnification obligations pursuant to the asset sale agreement with Ikanos, including breaches of our
representations and warranties.

Operating activities for the six months ended June 30, 2008 used $10.5 million in cash primarily due to our $0.4 million
net loss and non-cash expenses of $0.5 million for stock-based compensation expense and $0.5 million for depreciation adjusted for $8.1
million gain on sale of DSL related assets, $1.8 million of reversal of accrued  royalties and cash used of $1.2 million for net changes in assets
and liabilities. The cash used by net changes in assets and liabilities was primarily due to $0.2 million increase in accrued restructuring, current
portion, $0.7 million decrease in prepaid software tools and $0.9 million decrease in accounts receivable partially offset by $1.2 million decrease
in accrued compensation and related expenses, $0.4 million decrease in accrued liabilities, $0.6 million increase in inventories (net of DSL
asset sale), $0.2 million decrease in long-term liabilities and $0.6 million decrease in accounts payable.

The $1.2 million decrease in accrued compensation and related expenses corresponds to our decreased headcount
after our restructuring efforts and transfer of employees to Ikanos with the sale of the DSL product lines. The $0.4 million decrease in accrued
liabilities is due to activity related to the Ikanos sale. The decrease in other long-term liabilities, exclusive of the current year restructuring
charges, resulted from amortization of the prior years' restructuring charges related to surplus space, lease incentives and deferred rent.
Accounts payable decreased due to decreased business activity levels. The $0.2 million increase in current accrued restructuring is comprised of

35

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severance related costs to be paid in the third quarter 2008. The $0.7 million decrease in prepaid software tools is a result of write-off of $0.2
million due to our restructuring efforts and also due to timing of contract payments. The accounts receivable decrease of $0.9 million resulted
from increased collections in the quarter ended June 30, 2008.

Net cash used by investing activities was $0.1 million for the six months ended June 30, 2008. Net cash used by
investing activities was a result of $10.2 million purchases of available-for-sale securities and the purchase of $0.1 million of property and
equipment, partially offset by $12.0 million of proceeds from the divestiture of the DSL related assets, reduced by a $1.8 million increase in
restricted cash held in escrow pursuant to the terms of the DSL transaction.

Net cash used by financing activities was $1.5 million for the six months ended June 30, 2008, which consisted of $1.5
million of bank loan payments under the $10.0 million line of credit.

Our principal source of liquidity as of June 30, 2008 consisted of $36.8 million of unrestricted cash, cash equivalents and
short-term investments, which includes $1.8 million in restricted cash and $9.2 million available balance from the line of credit. As noted above,
our ability to borrow under the line of credit is subject to various conditions. We believe our cash, cash equivalents and investment securities will
be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months.

Significant contractual obligations and commercial commitments are shown in the table below (in thousands):

|                               | Payments Due by Period
|------------------------------ | ----------------------
|                               |                       
|                               | Total                 
|Operating leases  - facilities | $        1,618        
|Operating leases  - software   | 1,003                 
|Purchase obligations           | 871                   
|Contingency obligation         | 500                   
|Total                          | $        3,992        

Off-Balance Sheet Arrangements

As of June 30 2008, we did not have any significant off-balance-sheet arrangements, as defined in Item
303(a)(4)(ii) of SEC Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

The primary objective of our 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, with maturities of less than eighteen months. 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, 2008, all of our investments were in money
market funds, certificate of deposits, and government and non-government debt securities. A hypothetical 100
basis point increase in interest rates would result in a decrease of approximately $84,000 in the fair value of our available-for-sale securities as
of June 30, 2008.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Changes in internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In December 2005, Accton Technology Corporation, or Accton, filed a suit against the Company in the California
Superior Court for the County of Alameda alleging a variety of claims, including breach of contract, breach of express warranty, and fraud and
concealment in connection with certain products Accton purchased in 2002 and 2003. The complaint sought monetary damages against the
Company. We disputed each of these claims. The parties settled and expensed the dispute on July 12, 2007 for $2.5 million. In May
2008, we signed a settlement agreement with insurance companies who agreed to pay $2.4 million to us in connection with the Accton
settlement and related legal fees. Net of expenses of approximately $0.4 million, a $2.0 million gain on settlement was recorded during the three
months ended June 30, 2008.

We are involved in other litigation and responding to claims arising in the ordinary course of business. We intend
to defend ourselves vigorously in these other matters, although management is unable to predict the outcome of these other matters. 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 we not be able to secure the terms we expect, these estimates may change and will be recognized in the period in
which they are identified. Although the ultimate outcome of such inquiries is not presently determinable, management believes that the
resolution of these matters will not have a material adverse effect on our results of operations, but could have a material adverse effect on our
financial position or cash flows.

ITEM 1A. RISK FACTORS

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described
below, in addition to the other cautionary statements and risks described elsewhere and the other information contained in this Report and in
our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our
business. In addition, if our pending merger with TranSwitch is completed, the combined company will face additional risks. If any of these
known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be seriously
harmed.

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Risks Related to our Pending  Merger with TranSwitch

Failure to complete the mergers could negatively affect our stock price and our future business and
operations.

If the mergers are not completed for any reason, we may be subject to a number of material risks, including the
following:

- we may be required under certain circumstances to pay TranSwitch a termination fee of
$1.23 million;

- the price of our common stock may decline; and

- costs related to the mergers, such as financial advisory, legal, accounting and printing fees, must be paid even if the
mergers are not completed.

Failure to complete our merger with TranSwitch will subject us to financial risks and could cause our stock price to
decline.

If our merger with TranSwitch is not completed for any reason, we will be subject to a number of material risks,
including:

- under the merger agreement, we could be required to pay TranSwitch a termination fee of $1.23 million if
either party terminates the merger agreement where our  board of directors has withdrawn, qualified, amended or modified its recommendation
of the merger adversely to TranSwitch or if we enter into certain other acquisition transactions;

- our stock price may decline for various reasons, including whether the merger was terminated due to factors
adversely affecting us, to the extent that our shares are trading at a higher level than they might have been in the absence of the merger, and
the potential for substantial sales of our stock by short-term investors after any termination of the merger agreement;

- Customers, suppliers and others may believe that we cannot compete effectively in the marketplace without the
merger;

- Costs related to the merger, such as legal, accounting and a portion of our investment banking fees, must be paid
even if the merger is not completed, and could be substantial;

- The benefits that we expect to realize from the merger would not be realized, and we may have foregone attractive
business opportunities as a result of the covenants in the merger agreement;

- The diversion of management attention and the possible disruption of our relationships with employees, customers
and other business partners between the signing of the merger agreement and its termination, may make it difficult for our company to regain its
financial and market position if the merger does not occur; and

- If the merger agreement is terminated, we may be unable to find another business willing to engage in a similar
transaction on terms as favorable as those set forth in the merger agreement, or at all. This could limit our ability to pursue our strategic
goals.

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The combined company may not realize the benefits that we currently anticipate from the combination with
TranSwitch.

Although we and TranSwitch intend that the combined company will benefit from synergies and other benefits as a result
of the merger, those benefits may not be realized or may be delayed. The success of the transaction will depend on, among other things,
TranSwitch's ability to realize anticipated cost savings and to combine the businesses of TranSwitch and Centillium in a manner that does not
materially disrupt our existing customer relationships nor otherwise result in decreased revenues and that allows TranSwitch to capitalize on our
growth opportunities. If TranSwitch is not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully or at
all or may take longer to realize than expected.

TranSwitch and Centillium have operated and, until the completion of the mergers, will continue to operate,
independently. It is possible that the integration process could result in the loss of key employees, the disruption of TranSwitch's or our ongoing
businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect TranSwitch's ability to maintain
relationships with customers and employees or to achieve the anticipated benefits of the mergers. For instance, TranSwitch's employee
compensation policies may differ from ours.  To realize the benefits of the mergers, TranSwitch must retain our key employees.

The accomplishment of these post-merger objectives will involve considerable risk, including:

- the potential disruption of each company's ongoing business and distraction of their respective management
teams

- the difficulty of incorporating acquired technology and rights into TranSwitch's products and
services;

- unanticipated expenses related to technology integration; and

- potential unknown liabilities associated with the mergers.

If TranSwitch does not succeed in addressing these challenges or any other problems encountered in connection with
the mergers, its operating results and financial condition could be adversely affected.

Uncertainty regarding the merger may cause customers and suppliers to delay or defer decisions or otherwise cause
adverse developments with our business partners.

The mergers will happen only if stated conditions are met, including approval by our stockholders and the absence of
any material adverse effect in the business of Centillium or TranSwitch. Many of the conditions are outside our control, and both parties also
have stated rights to terminate the merger agreement. Accordingly, the completion of the mergers is not guaranteed. This uncertainty may
cause customers and suppliers to delay or defer decisions, which could negatively affect their respective businesses. Customers and suppliers
may also seek to change existing agreements with us as a result of the mergers. Similarly, uncertainty regarding the completion of the mergers
may cause other business partners to defer decisions or seek to change agreements with us, which could negatively affect our business. This
could have a material adverse effect on us, regardless of whether the merger is ultimately completed. Moreover, diversion of management focus
and resources from the day-to-day operation of our business to matters relating to the transaction could have a material adverse effect on our
business.

Failure to retain key employees could diminish the anticipated benefits of the mergers.

The success of the mergers will depend in part on the retention of personnel critical to the business and operations of
the combined company due to, for example, their technical skills or management expertise. Employees may experience uncertainty about their
future role with Centillium and TranSwitch until strategies with regard to these employees are announced or executed. This uncertainty may
cause us to lose employees and may make it more difficult to attract new employees as necessary to operate our business before the closing of
the transaction.  If we are unable to retain and attract key personnel, we would face operational disruptions, loss of customers, loss of key
expertise or know-how, and unanticipated additional recruitment and training costs.

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The mergers may go forward in certain circumstances even if TranSwitch or Centillium suffers a material adverse
effect.

In general, either we or TranSwitch can refuse to complete the mergers if a material adverse effect occurs with regard to
the other party before the closing. However, neither party may refuse to complete the mergers on that basis as a result of any change, event,
circumstance or condition resulting from:

- any failure by the party to meet any projections or forecasts or revenue or earnings predictions;

- any change in the stock price or trading volume of our common stock in the case of Centillium, or TranSwitch
common stock in the case of TranSwitch, in and of itself;

- any change, effect or circumstance resulting from the announcement or pendency of the merger agreement or the
consummation of the transactions contemplated by the merger agreement or the compliance with the terms of the merger;
- changes affecting any of the industries in which either TranSwitch or Centillium operates, to the extent they do not
affect TranSwitch or Centillium, as applicable, disproportionately;

- changes in general economic or political conditions or the securities market in general (whether as a result of acts
of terrorism, war, armed conflicts or otherwise) to the extent they do not affect TranSwitch or Centillium, as applicable;

- any action taken at the written request of TranSwitch or Centillium, as applicable;

- changes resulting from change in any domestic (federal, state of local) or foreign law, statute, ordinance, rule,
regulation, order, judgment or decree;

- changes resulting from change in any domestic (federal, state of local) or foreign law, statute, ordinance, rule,
regulation, order, judgment or decree; or

- changes to general accounting requirements.

If adverse changes occur but TranSwitch and Centillium must still complete the mergers, TranSwitch's stock price may
suffer. This in turn may reduce the value of the transaction to Centillium stockholders.

The termination fee and restrictions on solicitation contained in the merger agreement may discourage other
companies from trying to acquire us.

Until the completion of the mergers, with limited exceptions, the merger agreement prohibits us from entering into or
soliciting any acquisition proposal or offer for a merger or other business combination with a party other than TranSwitch. However, we may
engage in discussions with certain third parties making unsolicited offers to acquire us in compliance with the provisions of the merger
agreement. We have agreed to pay TranSwitch a termination fee of $1.23 million in specified circumstances, including where our board of
directors withdraws its support of the merger with TranSwitch to support a business combination with a third party. These provisions could
discourage other companies from trying to acquire us even though those other companies might be willing to offer greater value to our
stockholders than TranSwitch has offered pursuant to the merger agreement.

The market price of TranSwitch's common stock may decline as a result of the mergers.

The market price of TranSwitch's common stock may decline as a result of the mergers for a number of reasons,
including:

- the integration of Centillium by TranSwitch may be unsuccessful;

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- TranSwitch may not achieve the perceived benefits of the mergers as rapidly as, or to the extent, anticipated by
financial or industry analysts; or

- the effect of the mergers on TranSwitch's financial results may not be consistent with the expectations of financial or
industry analysts.

These factors are, to some extent, beyond TranSwitch's control. In addition, for Centillium stockholders who hold their
shares in certificated form, there will be a time period between the effective time of the mergers and the time when Centillium stockholders
actually receive book-entry shares evidencing TranSwitch common stock. Until book-entry shares are received, Centillium stockholders will not
be able to sell their shares of TranSwitch common stock in the open market and, thus, will not be able to avoid losses resulting from any decline
in the market price of TranSwitch common stock during this period.

Our officers and directors may have interests that may influence them to support or approve the mergers.

Certain directors and officers of Centillium have other interests that are different from, or in addition to, those of
Centillium's stockholders generally. Certain officers may become employees and participate in employment arrangements that become effective
upon consummation of the mergers that provide them with interests in the mergers that are different from, or in addition to, those of Centillium's
stockholders, although no agreements have been entered into and no terms, conditions or understandings have been finalized. In addition, all
directors and officers of Centillium will receive indemnification and liability insurance benefits from TranSwitch as a result of the mergers. Other
interests of our directors and executive officers include the following:

- Mr. Aalaei, our chief executive officer, and Mr. Srinivasan, one of our directors, are expected to become directors of
TranSwitch following the merger, and will receive customary compensation in that capacity;

- Mr. Aalaei, our chief executive officer, Mr. Elahian, our chairman of the board, and certain of our officers are parties
to change of control severance agreements providing them with certain payments and benefits, including acceleration of their equity awards,
upon certain events following the acquisition by TranSwitch;

- TranSwitch has agreed to honor our indemnification obligations to directors and officers as provided in our
organizational documents, and all directors and officers of Centillium will receive liability insurance benefits from TranSwitch as a result of the
mergers; and

- 5,000 shares of restricted stock held by each of our directors will become fully vested immediately prior to the
merger.

These directors and officers could be more likely to recommend the adoption and approval of the merger than if they did not
hold these interests. All of our directors and executive officers have also entered into voting agreements whereby they have agreed to vote their
shares in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby. Stockholders should consider
whether these interests might have influenced these directors and officers to support or recommend the adoption and approval of the merger
agreement and the transactions contemplated thereby.

Risks Related to Our Business

We have a history of losses and expect to continue to experience losses.

We have not reported an operating profit for any year since our inception and experienced net losses of $17.6 million,
$10.7 million and $11.3 million in 2007, 2006 and 2005, respectively. Additionally, stock-based compensation expense required to be recorded
in our financial statements by SFAS 123(R) since January 1, 2006 has had and will continue to have a material adverse impact on our operating
results.

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Our success will depend in large part upon the adoption and utilization of our optical and VoIP products and technology,
as well as our ability to effectively maintain existing relationships and develop new relationships with customers and strategic partners. If we do
not succeed in doing so, we will not achieve profitability. If we ever become profitable, we may not be able to maintain profitability. In particular,
we intend to expend significant financial and management resources on product development, sales and marketing, strategic relationships,
technology and operating infrastructure. This includes our focus on development of optical networking and VoIP products, given the sale of our
DSL product lines in February 2008, but those development efforts have not resulted in significant revenues. Our operating expenses may
increase further in the future, and we cannot assure you that we will develop and sustain a cost structure that will lead to profitability under
current and expected revenue levels. The disposition of our DSL product lines will reduce our overall revenues and will result in restructuring
charges and other costs in the short term. As a result, we expect to incur additional losses and continued negative cash flow from operations for
the foreseeable future.

Our strategic direction has changed through the recent sale of our DSL product lines, and our focus on our optical and VoIP product
lines may not be successful.

In February 2008, we sold certain assets associated with our DSL product lines to Ikanos Communications, Inc.
This sale significantly reduced the size of our business and revenues, and our business model now focuses exclusively on our optical and VoIP
products, which have historically generated fewer revenues than our legacy DSL products. In 2007, optical and VoIP net revenues represented
15% and 25%, respectively, of our total net revenues. There can be no assurance that our focus on these two product areas will produce
acceptable results. If we are not successful in expanding our optical and VoIP revenues and operating those product lines successfully, our
stock price will suffer. Moreover, any other future changes to our business may not prove successful in the short or long term due to a variety of
factors, including competition, customer acceptance and demand for our products, and other factors described in this section, and may have a
material negative impact on our financial results.

In addition, we have in the past and may in the future find it advisable to streamline operations and reduce expenses,
including such measures as reductions in the workforce, discretionary spending, or capital expenditures, as well as other steps to reduce
expenses. We have streamlined operations and reduced certain expense areas as a result of the sale of our DSL product lines, including
reductions in our workforce. We may find it advisable to undertake further actions of this type in 2008, to further align our resources with our
more focused business strategy. Any restructuring or streamlining places significant strains on management, our employees and our operational
and other resources, and could impair our sales and customer support efforts or alter our product development plans. Restructuring or
streamlining may also cause us to incur liability from early termination or assignment of contracts, potential failure to meet required support
levels due to loss of relevant employees, and other adverse effects. Those effects, and any restructuring-related accounting charges that we
may record, could have a negative impact on our financial results.

Because of our lack of diversity in geographic sources of revenues, factors specific to Japan may adversely affect
our business and operating results.

Historically, our revenues were largely dependent on the growth of new ADSL subscribers in Japan, but that market
declined significantly in recent periods, resulting in our decision to sell our DSL product lines in early 2008. Revenues from Japan comprised
49%, 52% and 64% of our net revenues for 2007, 2006 and 2005, respectively. Revenues from Japan in 2007 as compared to 2006, which
were largely attributable to our ADSL products, decreased by $16.0 million, or 55%.

We expect that approximately half of our VoIP and optical revenues in 2008 will be generated by sales into the
Japanese market. For the six months ended June 30, 2008, $6.9 million or 55% of our revenues originated in Japan. Because a substantial
portion of our revenues has been derived from sales into Japan, our revenues have been heavily dependent on developments in the Japanese
market. Our sales in Japan have been historically denominated in U.S. dollars and major fluctuations in currency exchange rates could
materially affect our Japanese customers' demand, thereby causing them to reduce their orders, which could adversely affect our operating
results. While part of our strategy is to diversify the geographic sources of our revenues, failure to further penetrate markets outside of Japan
could harm our business and results of operations and subject us to increased currency risk.

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After the sale of our DSL product lines in February 2008, we are now entirely dependent on our VoIP and FTTP
products, which previously accounted for less than half of our revenues.

Historically, the majority of our revenues was derived from the sale of our ADSL products, which accounted for 60%,
77% and 79% of our net revenues for the years ended December 31, 2007, 2006 and 2005, respectively. Due to our sale of those product lines
in early 2008, our future revenues will be entirely dependent on our VoIP and FTTP product lines, which were introduced more recently.
Because of our dependence on these products, we will be disproportionately affected by any decline in demand for optical or FTTP equipment
that arises due to changes in telecommunications service providers' strategies or deployment budgets, increased competition from other access
technologies, or other factors. We also expect to face increasing pricing pressures in our target markets. If we are unsuccessful in generating
meaningful sales of our VoIP and FTTP products, we will not achieve or sustain profitability.

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 do not expect to generate cash from operations for the foreseeable future. Our cash, cash equivalents, short-term
investments and restricted cash balance was $36.8 million as of June 30, 2008. We used approximately $10.5 million in cash for operations in
the first half of 2008. If any of the assumptions on which we have based our spending plans proves to be inaccurate, or if we encounter
unexpected cash demands due to adverse results in litigation or for other reasons, we may need to raise additional funds. We cannot be certain
that additional financing will be available in amounts or on terms acceptable to us, if at all. In 2007 we established a $10.0 million credit facility,
under which we had drawn down a $0.8 million letter of credit as of June 30, 2008, but there are significant conditions on our ability to borrow
further amounts under that facility. We may also require additional capital for the acquisition of businesses, products and technologies that are
complementary to ours, and for operational needs such as product development due to the rapidly changing technologies and customer
demands associated with our VoIP and optical product lines. 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. Our
existing credit facility restricts our ability to sell assets, merge, incur additional indebtedness, make investments, pay dividends and distributions,
or take other actions without the consent of the bank. The facility also requires us to comply with a "quick ratio" test and maintain
specified levels of tangible net worth. The terms of any new debt or equity financing may also include restrictive covenants that impair our
business and financial flexibility. If we are unable to obtain additional financing, 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 and could require us to sell assets or otherwise restructure our business to remain viable.

If we are unable to develop and introduce new products successfully and in a cost-effective and timely manner
or to achieve market acceptance of our new products, our operating results would be adversely affected.

Our future success is dependent upon our ability to develop new semiconductor products for existing and new markets,
introduce these products in a cost-effective and timely manner and have these products selected by leading equipment manufacturers for
design into their own new products. This is particularly important due to our sale of our DSL product lines in February 2008. The development of
new silicon products is highly complex, and from time to time we have experienced delays in completing the development and introduction of
new products and lower than anticipated manufacturing yields in the early production of such products, as well as unanticipated failures of
equipment manufacturers to select our products. Our ability to develop and deliver new products successfully will depend on various factors,
including our ability to:

- timely and accurately predict market requirements and evolving industry standards;
- successfully anticipate and develop new products;

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- timely and accurately identify opportunities in new markets;
- timely complete and introduce new product designs;
- scale our operations in response to changes in demand for our products and services;
- license any desired third party technology or intellectual property rights;
- timely qualify and obtain industry interoperability certification of our products and the products of our customers
into which our products will be incorporated;
- obtain sufficient foundry capacity and packaging materials;
- achieve high manufacturing yields;
- shift our products to smaller geometry process technologies to achieve lower cost and higher levels of design
integration; and
- gain market acceptance of our products and our customers' products.

If we are not able to develop and introduce new products successfully and in a cost-effective and timely manner, we
may need to explore purchasing new products, which could give rise to substantial costs and disruption of our existing operations and sales
efforts. Moreover, if we are unsuccessful in introducing or acquiring new products, we may be unable to attract new customers or to retain our
existing customers, which would materially and adversely affect our results of operations. For example, we previously entered into an
agreement with a third party that gives us exclusive rights to an EPON chip that they developed, which we refer to as the ME250. A customer
has agreed to purchase this EPON chip for its FTTP system through approximately the end of the third quarter of 2010. However, our
customer's FTTP system incorporating this EPON chip must obtain the anticipated market share of the principal telecommunications service
provider business for us to significantly grow our FTTP revenues in 2008 and beyond. We cannot predict whether this EPON chip, which we did
not design, will contain unexpected performance problems or whether we will encounter unexpected difficulties with the supply of this chip.
There also can be no assurance that our customer's FTTP system with this EPON chip will be validated by the targeted service provider and
that even if it is, that this service provider will purchase our customer's FTTP systems with the ME250 in the anticipated quantities, if at all.

In the first quarter of 2007, we also introduced our own next generation PON chip, which we refer to as the ME300. It is
in the process of being validated by our customer. If it is validated, it will be the platform that we will market going forward with other customers.
If we are not successful with this PON chip, however, it could lead us to decide to scale down or exit our own optical product line. This could
have a materially adverse effect on our results of operations for 2008 and future periods and would impair our growth prospects, particularly
given our recent sale of our DSL product lines, which had previously accounted for a substantial portion of our revenues despite continued
declines in the Japanese DSL market. Even if we are successful in convincing a customer to accept our new FTTP PON product, we may be
required to incur further product development and support expenses, and do not expect to recognize any appreciable revenues from this
product until the fourth quarter of 2008 at the earliest. There can be no assurance that our PON chip will be validated or will meet customer
requirements now or in the future and that even if it does meet these requirements, that our customers will purchase this product.

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 them 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, or our competitors' ability to achieve design wins, with equipment manufacturers, could create
barriers to future sales opportunities with these manufacturers.

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We depend on a few customers, and if we lose any of them, our sales and operations will suffer.

We sell our products primarily to a small number of network equipment manufacturers. Four manufacturers accounted
for 79% and 77% of our net revenues for the years ended December 31, 2007 and 2006, respectively. An additional manufacturer, OKI Electric
Industry Co., Ltd. (OKI) accounted for 24% of our net revenues for the six months ended June 30, 2008. For the six months ended June 30,
2008 and for the years ended December 31, 2007, 2006, and 2005, Lucent Technologies accounted for 27% 15%, 12% and 13% of net
revenues, and Sumitomo Electric Industries, Ltd (Sumitomo) accounted for 24%, 26%, 26% and 35% of net revenue, respectively. For the years
ended December 31, 2007, 2006, and 2005  NEC Corporation (NEC) accounted for 15%, 23% and 26% of net revenue, respectively. Ericsson
accounted for 23% and 16% of net revenues in 2007 and 2006, respectively. No other customer accounted for 10% or more of our net revenues
during the six months ended June 30, 2008 and the years ended December 31, 2007, 2006 and 2005.

We expect that our dependence on a few customers will be even more pronounced in 2008, because we sold our DSL
product lines in February 2008, and our remaining products are sold to an even more concentrated group of customers. We do not have
contractual volume commitments with these customers; instead, we sell our products to them on an order-by-order basis. Our ability to maintain
relationships with these large customers is essential to our operating results and financial condition. However, this dependence means that we
are especially susceptible to factors that affect their purchasing decisions that are, in many instances, outside of our direct control. These factors
include, among other things:

- the fact that many of our customers have pre-existing or concurrent relationships with our competitors that may
affect the customers' decision to purchase our products;
- the success of our largest OEM customers;
- competition for end customers' business from certain of our OEM customers, who develop their own
semiconductor solutions;
- our customers' budgeting processes and strategies; and
- the continued demand for our customers' systems products.

As a result, we may not be able to maintain or increase sales to certain of our large customers for various reasons. Our
concentration of business and on-going relationships with our major customers may also deter other potential customers who compete with
these existing customers from buying our products. 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. Sales of our VoIP and Optical products are currently highly
concentrated with only a few customers, which may lead to greater variability in our sales of those products depending on the actions of even a
single customer. If we are not successful in maintaining relationships with key customers and winning new customers, our business and results
of operations will suffer. Moreover, our customers are in most cases larger than us, and because our revenues are concentrated among a
relatively small number of customers, they tend to have greater bargaining power to demand lower prices and other terms and conditions that
may materially adversely affect our business, financial condition and results of operations. Among other things, our customers are increasingly
requiring us to agree to terms of sale that impose greater costs and risks on us than in the past.

Our quarterly operating results are volatile, which may cause our stock price to decline.

Our operating results have fluctuated from quarter to quarter based on a number of factors, many of which are outside of
our control. These factors include:

- the size, timing and shipment of orders, especially large orders from our largest customers;
- increasing operating expenses;
- difficulty forecasting customers' order levels, because they are susceptible to changes in customers' strategies,
budgets and success in selling their own systems;

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- excess inventory resulting from the need to make purchasing decisions in advance of customer purchase orders
and from any deferred or canceled orders; ongoing pricing pressure; and limitations on our ability to further reduce fixed expenses to
correspond to declines in revenues;
- ongoing pricing pressure;
- limitations on our ability to further reduce fixed expenses to correspond to declines in revenues;
- legal, accounting and other costs relating to our pending merger with TranSwitch, which we cannot predict with
certainty; and
- the impact of the sale of the DSL product lines on our business.

We anticipate lower margins as products mature and as we experience aggressive competition, which could adversely
affect our profitability.

We expect the average selling prices of our products to decline as they mature. Historically, competition in the
semiconductor industry has driven down the average selling prices of products. If we price our products too high, our customers may use a
competitor's product or an in-house solution. To maintain profit margins, we must reduce our costs sufficiently to offset declines in average
selling prices, or successfully sell proportionately more new products with higher average selling prices. Yield or other production problems, or
shortages of supply may preclude us from lowering or maintaining current product costs.

We have also experienced more aggressive price competition from competitors in certain market segments in which we
are attempting to expand our business. These circumstances may make some of our products less competitive and we may be forced to
decrease our prices significantly to win a design. We may lose design opportunities or may experience overall declines in gross margins and
gross profits as a result of increased price competition.

We base orders for inventory on our forecasts of our customers' demand and if our forecasts are inaccurate, our financial condition,
results of operation and cash flows will suffer.

We place orders with our suppliers based on our forecasts of our customers' demand. Our forecasts are based on
multiple assumptions, each of which may introduce errors into our estimates. In the past, when the demand for our customers' products
increased significantly, we were not always able to meet demand on a timely basis, and we expended a significant amount of time working with
our customers to allocate limited supply and maintain positive customer relations. If we underestimate customer demand, we may forego
revenue opportunities, lose market share and damage our customer relationships. Conversely, if we overestimate customer demand, we
may allocate resources to manufacturing products that we may not be able to sell when we expect to or at all. As a result, we would
have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our cost of revenues and create a
drain on our liquidity. For example, we recorded write-downs of $3.0 million of excess inventory in 2006 due to a substantial decrease in
customer forecasted customer purchases. We recorded write-downs of $643,000 for the year ended December 31, 2007. Our failure to
accurately manage inventory against demand would adversely affect our financial results.

Our markets are highly competitive and many of our competitors are established and have greater
resources than we have.

The market for communications semiconductor 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 entered or may enter the market segments adjacent to or addressed by our
products. These competitors may have longer operating histories, greater name recognition, larger installed customer bases and significantly
greater financial, technical and

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marketing resources than we have. We 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.

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. From time to time, third parties have asserted, and may in the future assert,
patent, copyright, trademark or other intellectual property rights to technologies that are important to our business and have demanded or in the
future may demand that we license their patents and technology. 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. For example, commencing in August 2004, we and our
Japanese subsidiary were subject to patent litigation brought in Japan by Fujitsu Limited. The complaint sought significant monetary damages,
and although we were successful in defending this lawsuit, we incurred substantial costs in defending it. In July 2008, a technology developer
and licensor filed a lawsuit against us in Massachusetts federal court alleging, among other things, that we had wrongfully transferred certain of
their intellectual property and violated their trade secrets in connection with the February 2008 sale of our DSL related assets. Inquiries with
respect to the coverage of our intellectual property could develop into litigation. In such a litigation, a court could issue a preliminary injunction
that would require us to withdraw or recall certain products. Moreover, we cannot assure you that we would prevail in litigation given the
complex technical issues and inherent uncertainties in intellectual property 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 (including treble damages) or have the sale of our
products stopped by a permanent injunction. Such a license may not be available on reasonable terms, or at all. We may be unable to redesign
our products to avoid infringing the third party's intellectual property rights. Even if we are able to do so, the redesign would likely require
considerable time and expense, and the redesigned products could be less attractive to customers. In addition, if a current or prospective
customer of our products cannot acquire a required license on commercially reasonable terms, that customer may choose not to use our
products.

We indemnify our customers under some circumstances for infringement of third-party intellectual property rights. We
have also received requests from certain customers to include increasingly broad indemnification provisions in our agreements with them.
These indemnification provisions may, in some circumstances, result in liability for combinations of components or system level designs and
consequential damages and/or lost profits and the associated costs to us could be substantial. Even if indemnification claims against us are not
valid or successfully asserted, responding to them could entail significant costs, impair customer goodwill, and divert the attention of
management and other key employees. Any third-party intellectual property claim against one of our customers whom we may be obligated to
indemnify could result in substantial costs to us, as well as damaging our customer relationships.

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid
product obsolescence and price erosion, evolving technical standards, short product life cycles and wide fluctuations in product supply and
demand. From time to time these and other factors, together with changes in general economic conditions, cause significant upturns and
downturns in the industry, and in our business in particular. Periods of industry downturns have been characterized by diminished product
demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. The semiconductor industry also
periodically experiences increased demand and production capacity constraints, which may affect our ability to ship product compared to our
competitors and result in deteriorating market share. These factors have caused substantial fluctuations in our revenues and results of
operations. We have experienced these cyclical fluctuations in our businesses in the past and we may experience cyclical fluctuations in the
future.

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Recent changes to environmental laws and regulations applicable to manufacturers of electrical and electronic
equipment are causing us to redesign our products, and may result in increases to our costs and greater exposure to liability.

The implementation of new environmental regulatory legal requirements, such as lead free initiatives, could impact
our product designs and manufacturing processes. The impact of such regulations on our product designs and manufacturing processes could
affect the timing of compliant product introductions as well as their commercial success. For example, a recent directive in the European Union
has banned the use of lead and other heavy metals in electrical and electronic equipment since July 1, 2006. As a result, our customers selling
products in Europe have been demanding product from component manufacturers that do not contain these banned substances. We have
redesigned our products to meet customer demands, but these redesigns may result in increased manufacturing and quality control costs. In
addition, the products that we manufacture that comply with the new regulatory standards may not perform as well as our current products.
Moreover, if we are unable to successfully and timely introduce new products that meet the standards set by environmental regulation and our
customers, sales of our products could decline, which could materially adversely affect our business, financial condition and results of
operations.

We depend on sole or limited source suppliers for the manufacture of our products.

As a fabless semiconductor company that neither owns nor operates a fabrication or manufacturing facility, we are
heavily dependent on certain suppliers. We obtain certain parts, components and packaging used in the delivery of our products from sole or
limited sources of supply. For example, we obtain certain semiconductor wafers on a sole source basis from Taiwan Semiconductor
Manufacturing Company and IBM. We will also be entirely dependent on a single third party for the supply of the ME250 EPON chip for our
optical business targeting the principal telecommunications service provider in Japan. Developing and maintaining these strategic relationships
with our vendors is critical for us to be successful. Any of our sole or limited source suppliers may:

- experience delays in meeting our customer demand on a timely basis, or at all;
- enter into exclusive arrangements with our competitors or compete with us through their own development efforts;
- 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 caused by factors such as power outages, labor problems, earthquakes and
financial difficulties.

Our business is susceptible to disruption, and our results of operations can be adversely affected, by any disruption
in supply or other adverse developments in our relationships with vendors. In periods of high demand in the semiconductor market, our
suppliers may have insufficient capacity to enable us to meet our customers' delivery requirements on a timely basis. In addition, we could
experience similar delays due to technical and quality control problems at our suppliers' facilities. If any of these events occur, or if our suppliers'
facilities suffer any damage or disruption, we may not be able to meet our customer demand on a timely basis, or at all, and may need to quickly
and successfully qualify an alternative supplier in order to not disrupt our business. We typically require a significant period of time to qualify a
new supplier or process before we can begin shipping products. If we cannot accomplish this qualification in a timely manner, we would
experience a significant interruption in supply of the affected products. If we are unable to secure sufficient capacity at our suppliers' existing
facilities, or in the event of a closure or significant delay at any of these facilities, our relationships with our customers would be harmed and our
market share and operating results would suffer as a result.

If the demand for VoIP and FTTP broadband access services 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,

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especially
VoIP and FTTP, and the ability of telecommunications service providers to market and sell broadband access services. Our business would be
harmed, and our financial condition and results of operations would be adversely affected, if the use of broadband access services, and in
particular the VoIP and FTTP services on which our future growth prospects are entirely dependent, 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.

In addition, our FTTP PON products, including the ME250 chip which we recently licensed on an exclusive basis from a
third party, are based on a variant of passive optical networking technology that is currently utilized by only a few service providers in Japan and
Asia. Accordingly, even if service providers deploy FTTP more widely in the future, demand for our products may not increase to a
commensurate extent or at all.

Rapid changes in the market for broadband access chip sets may render our chip sets obsolete or
unmarketable.

The market for our 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.

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Because the sales cycle for our products typically lasts up to one year or longer, and may be subject to delays, it is
difficult to forecast sales for any given period.

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. Our customers' evaluation
can include lengthy product approval processes. In the past, we have experienced delays and difficulties in obtaining product approvals from
some customers. Only after evaluation, approval and prototyping 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. Additionally, this cycle may be as long as 18 to 24 months
for certain VoIP products. 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 and in turn adversely impact our stock price. 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, which could cause our
business and results to suffer.

Other broadband technologies may compete effectively with the broadband services addressed by our products,
and a slowdown in deployment of FTTP or VoIP services, the lack of significant growth in the markets that we are targeting
and our lack of success in penetrating such markets would adversely affect our business and operating results.

Our revenues are heavily dependent on the demand for FTTP and VoIP services. Those services are competing with
several different broadband data transmission technologies, including cable modems, satellite and other wireless technologies. Competition
from other broadband access technologies, such as broadband over power lines, is expected in the future. While we recently decided to focus
exclusively on FTTP and VoIP, we have experienced difficulties in penetrating those markets. If any technology that is competing with the
technologies that we offer is more reliable, faster and/or less expensive or has any other advantages over the technologies for which we have
products, then the demand for our products may decrease. The lack of significant growth in those markets we are targeting in general and the
lack of success of our products in particular would also adversely affect our business, financial condition and results of operations.

Because our products are components of other equipment, if broadband equipment manufacturers do not
incorporate our products in their equipment, or if the equipment incorporating our products are not successful, 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 successful manufacturing and deployment of the
equipment, which we cannot control. Our customers are typically not obligated to purchase our products and can choose at any time to stop
using our products if their own products are not commercially successful or for any other reason. If equipment that incorporates our products is
not accepted in the marketplace, our revenues will be materially impaired.

We are subject to order and shipment uncertainties, and any significant order cancellations or deferrals
could adversely affect our business.

We typically sell products pursuant to purchase orders that customers cannot generally cancel or defer on short notice.
Increasingly, customers have been requesting to cancel or postpone orders on short notice and at times, we have accommodated such
requests. Any significant cancellations or deferrals in the future could materially and adversely affect our business, results of operations and
financial condition. In addition, cancellations or deferrals of product orders, the return of previously sold products or the overproduction of
products due to the failure of anticipated orders to materialize could cause us to hold excess or obsolete inventory, which could reduce our profit
margins, increase product obsolescence and restrict our ability to fund our operations. Furthermore, we generally recognize revenues upon
shipment of products to a customer. If a customer refuses to accept shipped products, we could incur significant charges against our
revenues.

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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. Customers
located in Asia accounted for 60%, 56%, 70% and 74% of our net revenues for the six months ended June 30, 2008 and the years ended
December 31, 2007, 2006 and 2005, respectively. Customers located in Europe accounted for 4%, 28%, 17% and 7% of our net revenues for
the six months ended June 30, 2008 and the years ended December 31, 2007, 2006 and 2005, respectively. We may be unable to successfully
overcome the difficulties associated with international operations. These difficulties include:

- exposure to different legal standards, particularly with respect to intellectual property;
- natural disasters and public health emergencies;
- nationalization of business and blocking of cash flows;
- trade and travel restrictions;
- the imposition of governmental controls and restrictions;
- burdens of complying with a variety of foreign laws, such as environmental directive and regulations governing the
content of semiconductor products;
- import and export license requirements and restrictions of the United States and each other country in which we
operate, as discussed more fully below;
- unexpected changes in regulatory requirements;
- foreign technical standards;
- changes in taxation and tariffs;
- difficulties in staffing and managing international operations;
- foreign currency exchange rates;
- political, social and economic instability;
- difficulties in collecting receivables from foreign entities or delayed revenue recognition; and
- potentially adverse tax consequences.

Any of the factors described above may have a material adverse effect on our ability to increase or maintain our foreign
sales.

We recently voluntarily notified the U.S. Department of Commerce that we had failed to make certain export control
reports and to obtain export licenses in respect of sales of VoIP and optical products in Europe and Asia. If we are subject to any regulatory
investigation or other proceeding resulting from this or any future export control issue, we could be required to expend substantial resources. An
adverse result in any regulatory proceeding relating to exports of our products could subject us to substantial fines or restrictions on selling our
products into certain countries until appropriate licenses are obtained. Any of these developments could have a material adverse effect on our
business, results of operations and financial condition.

Because sales of our products are denominated exclusively in United States dollars, increases in the value of the United
States dollar relative to a particular foreign currency could make our products more expensive to customers in that country, leading to a
reduction in sales and profitability.

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We are exposed to increased costs and risks associated with complying with increasing and new regulation
of corporate governance and disclosure standards.

Management continues to spend time and internal and external resources to comply with
changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002,
new SEC regulations and NASDAQ Stock Market rules. In particular, our management, including our CEO and CFO, does not expect that our
internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, involving Centillium have been, or will be, detected. These inherent limitations include the realities that judgments in decision making can
be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

Although our management determined, and our independent registered public accounting firm attested, that our internal
control over financial reporting was effective as of December 31, 2007, we cannot assure you that we or our independent registered public
accounting firm will not identify a material weakness in our internal control in the future. A material weakness in our internal control over financial
reporting would require management and our independent registered public accounting firm to assess our internal control as ineffective. If our
internal control over financial reporting is not considered effective, we may experience a loss of public confidence, which could have an adverse
effect on our business and our stock listing and price.

Additional slowdowns in spending in the telecommunications industry have affected and may continue to
negatively affect our business and operating results.

The worldwide telecommunications industry, including the broadband communications
segment, has experienced pronounced economic downturns that result in delays in the build-out of new infrastructure, lower equipment
production volumes, and reductions in component inventory levels. Any such downturn could result in lower than expected demand for our
products, excess inventories and intensified pricing pressures, 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. Specifically, during the most recent downturn in the
telecommunications industry, we experienced:

- reduced demand for our products;
- increased price competition for our products;
- increased risk of excess and obsolete inventories; and
- higher research and development and general and administrative costs, as a percentage of revenues.

Recent geopolitical and social turmoil in many parts of the world, including actual incidents
and potential future acts of terrorism and war, may continue to put pressure on global economic conditions. These geopolitical and social
conditions, together with the resulting economic uncertainties, make it extremely difficult for us, our customers and our vendors to accurately
forecast and plan future business activities. This reduced predictability challenges our ability to operate profitably or to increase revenues. In
particular, it is difficult to develop and implement strategies to create sustainable business models and efficient operations, and to effectively
manage outsourced relationships for services such as contract manufacturing and information technology. If the current uncertain economic
conditions continue or deteriorate, there could be an additional material adverse impact on our financial position, revenues, results of
operations, and cash flows.

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We have incurred, and expect to continue to incur, increased costs as a result of being a public company.

Laws and regulations affecting U.S. public companies, including the provisions of the Sarbanes-Oxley Act of 2002,
or Sarbanes-Oxley, and rules enacted by the SEC and the Nasdaq Stock Market, have resulted in substantially increased costs to us. In
particular, the costs to comply with Section 404 of Sarbanes-Oxley, as presently in effect, has and could continue to have an adverse
effect on our results of operations. The impact of these events could also make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, on committees of our board of directors, or as executive officers.

We may be unable to attract, retain and motivate qualified personnel, which could seriously harm our
business.

Our future success depends on our ability to attract, retain and motivate qualified personnel, including executive officers
and other key management and technical personnel. As the source of our technological and product innovations, our key technical personnel
represent a significant asset. The competition for such personnel can be intense in the semiconductor industry. We do not have employment
agreements with these executives, or any other key employees, that govern the length of their service. Additionally, in February 2008 we
completed the first phase of our restructuring plan. We have had, and may continue to have, particular difficulty attracting and retaining key
personnel during periods of poor operating performance and this period following our restructuring. Among other things, 99% of our stock
options had exercise prices above the closing price of our common stock on April 29, 2008. The loss of the services of certain key senior
management or technical personnel, or our inability to attract, retain and motivate qualified personnel, could materially and adversely affect our
business, financial condition and results of operations.

Future consolidation in the telecommunications and 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 how industry consolidation will affect our competitors or customers. 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.

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. In the future we
may experience further errors, defects and bugs. In the past, we have experienced, and may in the future experience, defects and bugs in
our products. 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 some of 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.

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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.

Our future success will depend in part on our ability to protect our

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
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 acquire other businesses that could harm our operating results, dilute our stockholders' ownership, increase our debt or cause
us to incur significant expense.

As part of our business strategy, we may pursue acquisitions of or investments in complementary businesses and
assets. If we make any acquisitions, we may not be able to integrate them successfully into our existing business, and we could assume
unknown or contingent liabilities. Any future acquisitions by us also could result in significant write-offs or the incurrence of debt and contingent
liabilities, any of which could harm our operating results. Integration of an acquired company also may require management resources that
otherwise would be available for ongoing development of our existing business. We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any acquisition, investment, technology license,
strategic alliance or joint venture.

To finance any acquisitions, we may choose to issue shares of our common stock as consideration, which would dilute
the ownership of our stockholders. However, if the price of our common stock is low or volatile, we may not be able to acquire other companies
for stock. Alternatively, it may be necessary for us to raise additional funds for acquisitions or through public or private financings. Additional
funds may not be available on terms that are favorable to us, or at all.

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Risks Related to Our Common Stock

We may not maintain Nasdaq listing requirements, which would adversely affect the price and liquidity of our common
stock.

To maintain the listing of our common stock on The Nasdaq Global Market, we are required to meet certain listing
requirements, including a minimum bid price of $1.00 per share. Our stock has traded below the $1.00 minimum bid price for 30 consecutive
business days, and we received a deficiency notice from Nasdaq on February 21, 2008 stating that we will have a grace period of 180 days, or
until August 19, 2008, to cure the deficiency by meeting the $1.00 per share trading price for 10 consecutive trading days. There can be no
assurance that we will achieve compliance with the minimum bid price requirement. If we fail to meet the minimum bid price for 10 consecutive
days during the grace period, our common stock may be delisted. Even if we are able to comply with the minimum bid requirement, there is no
assurance that in the future we will continue to satisfy Nasdaq listing requirements, with the result that our common stock may be delisted from
The Nasdaq Global Market. Should our common stock be delisted from The Nasdaq Global Market, and the delisting determination was based
solely on non-compliance with the $1.00 minimum bid price rule, we may consider applying to transfer our common stock to The Nasdaq Capital
Market if we satisfy all criteria for initial inclusion on such market other than the minimum bid price rule. In the event of such a transfer, the
Nasdaq Marketplace Rules provide that we would be provided an additional 180 calendar days to comply with the minimum bid price rule while
on The Nasdaq Capital Market. If our stock is delisted from the Nasdaq Global Market and Nasdaq Capital Market, it would likely be more
difficult to trade in or obtain accurate quotations as to the market price of our common stock. Delisting of our common stock could materially
adversely affect the market price and market liquidity of our common stock and our ability to raise necessary capital.

In light of our current stock price, the value of stock options and other equity incentives may cease to provide
sufficient incentive to our employees, and we may need to make additional equity grants to retain and motivate them.

Like many technology companies, we use stock options, restricted stock units and other equity-based awards to
recruit and retain executives, engineers and other senior level employees. Due to the significant decline in our stock price, the vast majority of
the outstanding options held by our employees have an exercise price significantly above the current market price of our common
stock. If our stock price does not increase above the exercise prices of our stock options, we may need to issue new options or other
equity incentives or increase other forms of compensation to motivate and retain our executives and other employees. We may undertake or
seek stockholder approval to undertake other equity-based programs to retain our employees, which may be viewed as dilutive to our
stockholders and could increase our compensation costs. Additionally, we cannot assure you that any incentive initiatives that we might
undertake, including any additional equity grants, will be successful in motivating and retaining our executives and other employees.

Our stock price may continue to be volatile.

The market price of our common stock has been volatile. From January 1, 2002 to July 28, 2008 our common stock
traded at prices as low as $0.59 and as high as $14.58 per share. Trading prices during the year ended December 31, 2007 ranged from $1.01
to $2.28 per share. The price of our common stock will likely continue to fluctuate significantly in response to the following factors, some of
which are beyond our control:

- developments in TranSwitch's business and financial condition, which may indirectly affect the trading price of our
stock due to our pending merger with TranSwitch;
- any adverse effects due to the pendency of the merger;
- 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;

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- 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;
- adverse results in legal proceedings;
- 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; and
- fluctuations in the timing and amount of customer requests for product shipments.

Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs
and divert our management's attention and resources.

In the past, securities class action litigation often has been brought against a company following periods of volatility
in the market price of its securities. Companies such as ours in the semiconductor industry and other technology industries are particularly
vulnerable to this kind of litigation due to the high volatility of their stock prices. We may in the future be the target of securities litigation. Any
securities litigation could result in substantial costs and could divert the attention and resources of our management.

If securities or industry analysts do not publish research or reports about our business or if they issue an adverse
opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities
analysts publish about us or our business. If one or more of the analysts who cover us issue an adverse opinion regarding our stock, our stock
price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Compliance with the requirements imposed by Section 404 of the Sarbanes-Oxley Act could harm our operating results, our
ability to operate our business and our investors' view of us.

If we fail to maintain the adequacy of our internal controls, as standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. There is a risk that neither we, nor our independent
registered public accounting firm, will be able to conclude that our internal controls over financial reporting are effective as required by
Section 404 of Sarbanes-Oxley. In addition, during the course of our testing we may identify significant deficiencies that we
may not be able to remediate in time to meet the deadline imposed by Sarbanes-Oxley for compliance with the requirements of
Section 404. Effective internal controls, particularly those related to revenue recognition, valuation of inventory and warranty provisions,
are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable
financial reports or prevent

56

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fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial
information, our ability to obtain additional financing could be impaired, our stock could be subject to delisting from NASDAQ, and the trading
price of our stock could drop significantly.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

Our 2008 Annual Meeting of Stockholders was held on June 19, 2008. At the meeting, our
stockholders voted on the following proposals and cast their votes as follows:

1. Election of the following nominee as Director for a three year term ending in 2011:

|               | Votes For  | Votes Withheld
|-------------- | ---------- | --------------
|Kamran Elahian | 28,561,020 | 924,677       
|               |            |               

The following Directors, who did not stand for election at the 2008 Annual Meeting, also currently sit on our Board of
Directors: Sam Srinivasan and Robert C. Hawk, whose terms expire in 2010; and Jere Drummond and Faraj Aalaei, whose terms expire in
2009.

2.  The Board of Directors was granted the authority to amend our certificate of incorporation to effect a reverse stock
split of our common stock, at any time after the date of the 2008 Annual Meeting but before December 31, 2008, at a specific ratio to be
determined by the Board of Directors within a range of not less than one-for-two and one-for-ten:

|For        | Against   | Abstain | 
|---------- | --------- | ------- | 
|28,045,701 | 1,252,200 | 187,796 | 

3. Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for
the year ending December 31, 2008:

|For        | Against | Abstain | 
|---------- | ------- | ------- | 
|29,130,506 | 197,127 | 158,064 | 

ITEM 5. OTHER INFORMATION

None

57

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ITEM 6. EXHIBITS

|3.1(1) | Certificate of Incorporation of the Registrant                                                                                                                                                    
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                   
|3.2(2) | Certificate of Correction of Certificate of Incorporation of the Registrant                                                                                                                       
|       |                                                                                                                                                                                                   
|4.2(1) | Bylaws of the Registrant                                                                                                                                                                          
|       |                                                                                                                                                                                                   
|31.1   | Certification of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|       |                                                                                                                                                                                                   
|31.2   | Certification of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|       |                                                                                                                                                                                                   
|32.1   | Certification of the Chief Executive 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.        
|       |                                                                                                                                                                                                   
|32.2   | Certification of the 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.        
|       |                                                                                                                                                                                                   
|(1)    | Incorporated by reference to the Exhibits of the same number filed with the Registrant's Registration Statement
on Form S-1 (No. 333-30772), declared effective by the Commission on May 23, 2000.
|       |                                                                                                                                                                                                   
|(2)    | Incorporated by reference to the Exhibit of the same number filed with the Registrant's Report on Form 10-Q filed
with the Commission on November 8, 2006.                                        

58

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SIGNATURES

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



| | CENTILLIUM COMMUNICATIONS, INC. (Registrant)
                               Dated: August 7, 2008                                     
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Linda C. Reddick 
                        Chief Financial Officer
                        (Principal Financial and Accounting Officer)

59

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Exhibit Index

|3.1(1) | Certificate of Incorporation of the Registrant                                                                                                                                                                            
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                           
|3.2(2) | Certificate of Correction of Certificate of Incorporation of the Registrant.                                                                                                                                              
|       |                                                                                                                                                                                                                           
|4.2(1) | Bylaws of the Registrant                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                           
|31.1   | Certification of the Chief Executive Officer Pursuant to Rules  13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.
     PDF as a courtesy
|       |                                                                                                                                                                                                                           
|31.2   | Certification of the Chief Financial Officer Pursuant to Rules  13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.
     PDF as a courtesy
|       |                                                                                                                                                                                                                           
|32.1   | Certification of the Chief Executive 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.
     PDF as a courtesy      
|       |                                                                                                                                                                                                                           
|32.2   | Certification of the 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.
     PDF as a courtesy      
|       |                                                                                                                                                                                                                           
|(1)    | Incorporated by reference to the Exhibits filed with the Registration Statement of Form S-1 (No. 333-30772),
declared effective by the Commission on May 23, 2000.                                                        
|       |                                                                                                                                                                                                                           
|(2)    | Incorporated by reference to the Exhibit of the same number filed with the Registrant's Report on Form 10-Q
filed with the Commission on November 8, 2006.                                                                

60

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