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

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FORM 10-Q

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(Mark One)

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

For the quarterly period ended March 31, 2003 or
 [  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________
Commission File Number 000-30649

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



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

47211 Lakeview BoulevardFremont, California     94538

(510) 771-3700




On April 18, 2003, approximately 35,292,336 shares of the Registrant's Common
Stock, $0.001 par value, were outstanding. 
 
      Centillium Communications, Inc.

                                TABLE OF CONTENTS  PART I.   Financial Information

Page No.Item 1.   Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of
        
          March 31, 2003 and December 31, 2002

3Condensed Consolidated Statements of Operations for the 
        
          three months ended March 31, 2003 and 2002

4Condensed Consolidated Statements of Cash Flows
        
          for the three months ended March 31, 2003 and 2002

5Notes to Condensed Consolidated Financial Statements

6Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations

11Item 3.   Quantitative and Qualitative Disclosures About Market Risk

20Item 4.   Controls and Procedures

20PART II.  Other InformationItem 1.   Legal Proceedings

21Item 2. Changes in Securities and Use of Proceeds

21Item 3. Defaults Upon Senior Securities

21Item 4. Submission of Matters to a Vote of Security Holders

21Item 5. Other Information

21Item 6.   Exhibits and Reports on Form 8-K

21Signatures

22Certifications

23 CENTILLIUM COMMUNICATIONS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (Unaudited, in thousands)

March 31,    December 31,
                                                         2003          2002
                                                     ------------  ------------

                        ASSETS
Current assets:
  Cash and cash equivalents........................ $     85,219  $     93,513
  Short-term investments...........................       14,307         8,489
  Accounts receivable - net of allowance for
   doubtful accounts of $122 at March 31,
   2003 and $160 at December 31, 2002..............        6,842         2,864
  Inventories......................................        2,195         4,130
  Other current assets.............................        2,870         2,622
                                                     ------------  ------------
    Total current assets...........................      111,433       111,618
Property and equipment, net........................        9,241        10,389
Other intangible assets, net.......................           42            83
Other assets.......................................          350           349
                                                     ------------  ------------
    Total assets................................... $    121,066  $    122,439
                                                     ============  ============

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable................................. $      7,384  $      8,485
  Accrued payroll & related expenses...............        4,141         3,991
  Accrued liabilities..............................       16,019        13,627
  Accrued taxes....................................          208           192
  Capital leases - current portion.................        1,843         1,528
                                                     ------------  ------------
    Total current liabilities......................       29,595        27,823
Capital leases - long-term portion.................           --           525
Other liabilities..................................          240           268
Commitments and contingencies

Stockholders' equity:
Common stock.......................................           35            35
Additional paid in capital.........................      228,417       228,847
Accumulated other comprehensive income.............            7             8
Deferred compensation..............................       (1,534)       (2,333)
Accumulated deficit................................     (135,694)     (132,734)
                                                     ------------  ------------
    Total stockholders' equity.....................       91,231        93,823
                                                     ------------  ------------
    Total liabilities and stockholders' equity..... $    121,066  $    122,439
                                                     ============  ============
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

         (Unaudited, in thousands except per share data)

Three Months Ended
                                              March 31,
                                          --------------------
                                             2003       2002
                                          --------- ----------
Net revenues............................ $  27,829  $  22,606
Cost of revenues........................    14,276     12,066
                                          ---------  ---------
Gross profit............................    13,553     10,540
                                          ---------  ---------
Operating expenses:
  Research and development..............    11,585     13,609
  Sales and marketing...................     2,789      4,898
  General and administrative............     2,380      3,043
  Amortization of other
   acquisition related intangibles......        42         42
                                          ---------  ---------
    Total operating expenses............    16,796     21,592
                                          ---------  ---------
Operating loss..........................    (3,243)   (11,052)
Interest income, net....................       324        510
Gain on non-current investment..........        --        440
                                          ---------  ---------
Loss before provision for income taxes..    (2,919)   (10,102)
Provision for income taxes..............        41         24
                                          ---------  ---------
Net loss................................ $  (2,960) $ (10,126)
                                          =========  =========

Basic and diluted net loss per share.... $   (0.08) $   (0.30)
                                          =========  =========
Weighted average shares used to compute
   basic and diluted net loss per share.    35,235     34,294
                                          =========  =========
See accompanying notes
CENTILLIUM COMMUNICATIONS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (Unaudited, in thousands)
Three Months
                                                                    Ended March 31,
                                                               ----------------------
                                                                  2003        2002
                                                               ----------  ----------
Operating activities
Net loss..................................................... $   (2,960) $  (10,126)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization expense......................      1,659       1,595
  Net loss on retirements of property and equipment..........         14          --
  Stock based compensation expense...........................        301       2,118
  Amortization of other acquisition related intangibles......         41          42
  Gain on non-current investment.............................         --        (440)
  Changes in operating assets and liabilities:
    Accounts receivable......................................     (3,978)     (1,942)
    Inventories..............................................      1,935       1,983
    Other current assets.....................................       (248)        161
    Other assets.............................................         (1)        (95)
    Accounts payable.........................................     (1,101)      3,073
    Accrued payroll and related expenses.....................        150         621
    Accrued liabilities......................................      2,408       1,117
    Other liabilities........................................        (28)         26
                                                               ----------  ----------
Net cash used in operating activities........................     (1,808)     (1,867)

Investing activities
  Purchases of short-term investments........................     (9,357)     (2,999)
  Sales and maturities of short-term investments.............      3,538       6,162
  Purchases of property and equipment........................       (525)     (1,642)
  Proceeds from sale of  non-current investment..............         --         440
                                                               ----------  ----------
Net cash provided by (used in) investing activities..........     (6,344)      1,961

Financing activities
  Principal payments on capital lease obligations............       (210)         --
  Principal payments on long term debt obligations...........         --         (68)
  Proceeds from issuance of common stock, net of repurchases.         68         313
                                                               ----------  ----------
Net cash provided by (used in) financing activities..........       (142)        245
                                                               ----------  ----------
Net increase (decrease) in cash and cash equivalents.........     (8,294)        339
Cash and cash equivalents at beginning of period.............     93,513      93,724
                                                               ----------  ----------
Cash and cash equivalents at end of period................... $   85,219  $   94,063
                                                               ==========  ==========
See accompanying notes


CENTILLIUM COMMUNICATIONS, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
The Company
Centillium Communications, Inc. (Centillium or the Company) was
incorporated in California on February 21, 1997 for the purpose of developing
and marketing semiconductor products for equipment manufacturers serving the
broadband communications markets. The Company develops products designed for the
Digital Subscriber Line (DSL) and Voice over Packet markets.
Our revenues are currently derived from the sale of our DSL and Voice over
Packet products, which include the CopperFlite CO, CopperFlite CPE, Palladia and
Entropia families of products.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months period ended March
31, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003.
The unaudited condensed consolidated financial statements include all the
accounts of the Company and those of its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2002 included in the Company's
Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission
on April 21, 2003.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain prior year cash flow balances have been
reclassified to conform to current year presentation.
Recent Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" (FIN 45).  FIN 45 requires that upon issuance of a guarantee, a
guarantor must recognize a liability for the fair value of an obligation assumed
under a guarantee. FIN 45 also requires additional disclosures by a guarantor in
its interim and annual financial statements about the obligations associated
with guarantees issued.  The recognition provisions of FIN 45 are effective for
any guarantees issued or modified after December 31, 2002.  The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002.  The adoption of FIN No. 45 did not have a
material effect on the Company's condensed consolidated financial position, results of
operations, or cash flows.
At the November 2002 Emerging Issues Task Force (EITF) meeting, the Task
Force reached a consensus on EITF No. 00-21, "Revenue Arrangements with
Multiple Deliverables" (EITF 00-21).  EITF 00-21 provides guidance on how
to determine whether an arrangement involves multiple deliverables and contains
more than one unit of accounting.   EITF 00-21 will be effective for
arrangements entered into after June 15, 2003.  The Company is evaluating the
impact of its adoption on its consolidated financial position, results of
operation and cash flows.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities"(FIN 46).FIN 46
addresses the consolidation and financial reporting of variable interest
entities. FIN No. 46 is effective for financial statements of interim or
annual periods beginning after June 15, 2002 for variable interest entities
created before February 1, 2003, or immediately for variable interest
entities created after January 31, 2003. The adoption of this interpretation is
not expected to have a material effect on the Company's consolidated financial
position, results of operations, or cash flows.
3. Stock-based Compensation
The Company has elected to account for its employee stock plans in
accordance with the intrinsic value method under Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued to Employees" (APB
Opinion No. 25) and elected the disclosure-only alternative under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), as amended by SFAS No. 148, "Accounting
for Stock Based Compensation-Transition and Disclosure".
Had compensation expense for the Company's stock options been recognized
based upon the estimated fair value on the grant date under the fair value
methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the
Company's net loss and loss per share would have been as follows (in thousands, except
per share amounts):

Three Months Ended
                                                                March 31,
                                                          -----------------------
                                                              2003       2002
                                                          ---------  ------------

Net loss as reported.................................... $  (2,960) $    (10,126)
Add: Stock-based employee compensation
  expense included in reported net income,
  net of related tax effects............................       301         2,108
Less: Total stock-based employee compensation
  expense under fair value based method for all
  awards, net of related tax effects....................    (7,169)       (5,102)
                                                          ---------  ------------
Pro forma net loss...................................... $  (9,828) $    (13,120)
                                                          =========  ============
Basic and diluted net loss per share - as reported...... $   (0.08) $      (0.30)
                                                          =========  ============
Basic and diluted net loss per share - pro forma........ $   (0.28) $      (0.38)
                                                          =========  ============

4. Commitments and Contingencies
The Company enters into standard indemnification agreements in the
ordinary course of business. Pursuant to these agreements, the Company
indemnifies, holds harmless, and agrees to reimburse the indemnified party for
losses suffered or incurred by the indemnified party, generally our business
partners or customers, in connection with certain patent  copyright or other
intellectual property infringement claims by any third parties with respect to
our products. The term of these indemnification agreements is generally
perpetual. We have not incurred significant costs to defend lawsuits or settle
claims related to these indemnification agreements and we have no liabilities
recorded for these agreements as of March 31, 2003.

The semiconductor and telecommunications industries are characterized by
substantial litigation regarding patent and other intellectual property rights.
From time to time, the Company receives various inquiries or claims in
connection with these rights and may become party to associated claims.  In
certain cases, management has accrued estimates of the amounts it expects to pay
upon resolution of such matters and such amounts are included in accrued
liabilities.  Should the Company not be able to secure the terms it expects,
these estimates may change and will be recognized in the period in which they
are identified, resulting in decreased profits.  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 the
Company's financial position or results of operations.
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 wafer supply agreements or noncancelable purchase orders.  As of March 31,
2003, the Company's non-cancelable purchase obligations for wafers expected to
be delivered within the next six months is $14.9 million.

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

March 31,    December 31,
                                       2003          2002
                                   ------------  ------------

  Work-in-process................ $      1,519  $      2,577
  Finished goods.................          676         1,553
                                   ------------  ------------
                                  $      2,195  $      4,130
                                   ============  ============
6. Other Acquisition Related Intangible Assets
Other acquisition related intangible assets subject to
amortization were as follows (in thousands):

March 31,    December 31,
                                                    2003          2002
                                                ------------  ------------

  Other purchased intangibles................. $        500  $        500
  Less accumulated amortization...............         (458)         (417)
                                                ------------  ------------
  Other purchased intangibles, net............ $         42  $         83
                                                ============  ============
Amortization expense for other intangible assets was $41,000
for the three months ended March 31, 2003. The unamortized balance for other
intangible assets of $42,000 will be fully expensed in the second quarter of
2003.
7. Warranty
Our products are warranted to be free from defect for a
period of one year.  The Company estimates the costs that may be incurred under
its warranty and records a liability for the costs at the time product revenue
is recognized. The Company periodically assesses the adequacy of the warranty
liability and adjusts such amounts as necessary.
Warranty activity for the three months ended March 31, 2003
was as follows (in thousands):

Accrued warranty obligations at December 31, 2002. $     608
   Provision for current quarter sales...............       143
   Warranty costs incurred...........................      (242)
                                                       ---------
   Accrued warranty obligations at March 31, 2003.... $     509
                                                       =========

8. Accrued Liabilities
The components of accrued liabilities are as follows (in
thousands):

March 31,    December 31,
                                       2003          2002
                                   ------------  ------------

  Accrued royalties.............. $     12,169  $     11,815
  Accrued other liabilities......        3,850         1,812
                                   ------------  ------------
                                  $     16,019  $     13,627
                                   ============  ============
9. Provision for Income Taxes
Income tax expense was $41,000 and $24,000 for the three months ended March
31, 2003 and 2002, respectively.  The provision for income taxes for the three
months ended March 31, 2003 and 2002 relates to current taxes payable for the
Company'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 benefited. Due to the Company's loss position, a full
valuation allowance has been established to reserve the Company's deferred tax
assets, consisting primarily of net operating loss carryforwards.
10. Net Loss Per Share and Comprehensive Net Loss
Basic and diluted net loss per share have been computed using the
weighted average number of shares of common stock outstanding during the period,
less shares subject to repurchase. The following table presents the computation
of basic and diluted net loss per share (in thousands, except per share
amounts):

Three Months Ended
                                                  March 31,
                                            --------------------
                                               2003       2002
                                            ---------  ---------
  Net loss................................ $  (2,960) $ (10,126)
                                            =========  =========
  Basic and diluted:
  Weighted average shares of common
   stock outstanding......................    35,279     34,571
  Less weighted average shares
   subject to repurchase..................       (44)      (277)
                                            ---------  ---------
  Weighted average shares used to compute
   basic and diluted net loss per share...    35,235     34,294
                                            =========  =========

  Basic and diluted net loss per share.... $   (0.08) $   (0.30)
                                            =========  =========
The Company has excluded all outstanding warrants, stock options, and shares
subject to repurchase by the Company from the calculation of basic and diluted
net loss per share because these securities are antidilutive for all periods
presented.  Options, warrants and shares subject to repurchase of approximately
13,156,000 and 6,379,000 shares of common stock have been excluded for the three
months ended March 31, 2003 and 2002, respectively.

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

Three Months Ended
                                             March 31,
                                         --------------------
                                            2003       2002
                                         ---------  ---------
Net loss............................... $  (2,960) $ (10,126)

Change in unrealized gain on
  available-for-sale investments.......        (1)       (44)
                                         ---------  ---------
   Total comprehensive loss............ $  (2,961) $ (10,170)
                                         =========  =========
11.  Business Segment Information and Customer
Concentration
Through March 31, 2003, the Company's revenues have been primarily
derived from one business segment, the sale of broadband communication products
for the DSL and VoP markets.  The Company sells primarily to original equipment
manufacturers and companies in the communications industries.
The Chief Executive Officer has been identified as the Chief Operating
Decision Maker (CODM) because he has final authority over resource allocation
decisions and performance assessment.  The CODM does not receive discrete
financial information about any individual components.
The following customers, both of whom are located in Japan, accounted for
more than 10% of net revenues:

Three Months Ended
                                             March 31,
                                         --------------------
                                            2003       2002
                                         ---------  ---------
Sumitomo Electric Industries...........        41%        60%
NEC....................................        42%        27%
The following is a summary of net revenues by major geographic area (in
thousands):

Three Months Ended
                                           March 31,
                                   --------------------
                                     2003       2002
                                   ---------  ---------
     Japan....................... $  23,241     19,799
     North America...............     3,219      2,627
     Asia -- excluding Japan.....       756        137
     All other...................       613         43
                                   ---------  ---------
     Total....................... $  27,829  $  22,606
                                   =========  =========

12. Related Party Transactions
In the second quarter of 2000, the Company invested $990,000 in equity
securities of Broadxent, Inc., a majority owned subsidiary of Creative
Technology Ltd. In the second quarter of 2001, in connection with an ongoing
evaluation of this non-current equity investment, the Company wrote down the
basis of this investment to zero as a result of impairment in the value of this
asset. In the first quarter of 2002, the Company sold this non-current equity
investment for $440,000 and reported this amount as a gain. Broadxent, Inc., is
a wholly owned subsidiary of Creative Technology Ltd. One of the Company's
directors is also a director of Creative Technology Ltd.
The Company sold $887,000 of products to Broadxent, Inc. during the three
months ended March 31, 2002. There were no sales to Broadxent, Inc. during the
three months ended March 31, 2003.

ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and the related notes thereto included in
our Annual Report on Form 10-K/A, filed with the Securities and Exchange
Commission on April 21, 2003. The information in this report is not a complete
description of our business or the risks associated with an investment in our
common stock. We urge you to carefully review and consider the various
disclosures made by us in this report and in our other reports filed with the
SEC.
Our discussion contains "forward-looking statements" that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are generally preceded by words that imply a
future state such as "expected" or "anticipated" or imply that a particular
future event or events will occur such as "will." Investors are cautioned that
all forward-looking statements involve risks and uncertainties and those actual
results could be materially different from those discussed in this report.
The section entitled "Risk Factors" and similar discussions in our other SEC
reports filed with the SEC discuss some of the important risk factors that may
affect our business, results of operations and financial condition. Copies of
our reports filed with the SEC are available from us without charge and on the
SEC's website at www.sec.gov. You should carefully consider those risks, in
addition to the other information in this report and in our other filings with
the SEC, before deciding to invest in our Company or to maintain or increase
your investment.
We provide semiconductor products that enable broadband communications to the
home and business enterprise. We serve the DSL and the Voice over Packet
markets. Our current customers are broadband access equipment vendors who
manufacture DSL equipment for use in the phone companies' communications
infrastructure or in the customer premise for high-speed Internet or other
network access in a home or small business. Our customers also include equipment
vendors who supply products that allow convergence of data and voice networks.
Our revenues are derived primarily from the sale of our DSL and Voice over
Packet semiconductor products, which include the CopperFlite CO, CopperFlite
CPE, Palladia, and Entropia families of products.
Critical Accounting Policies
There have been no significant changes in our critical accounting
policies during the three months ended March 31, 2003 as compared to the
accounting policies previously disclosed in our Annual Report on Form 10-K/A for
the year ended December 31, 2002, as filed with the Securities and Exchange
Commission on April 21, 2003.
Results of Operations for the Three Months Ended March 31, 2003 and
2002
Net Revenues. Our net revenues for the three months ended
March 31, 2003 were $27.8 million compared to $22.6 million for the three months
ended March 31, 2002, an increase of $5.2 million or a 23%. The increase in
revenues primarily reflects an increase in unit volume shipments of our DSL
products partially offset by a decline in the average selling prices of our products.
Revenues from our DSL products accounted for $27.2 million or 98% of net revenues for the three
months ended March 31, 2003, as compared to $21.2 million or 94% of net revenues for the
three months ended March 31, 2002. Revenues from Voice over Packet products
accounted for $464,000 of revenues in the first three months of 2003 as compared
to $848,000 in the first three months of 2002, or approximately 2% and
4% of net revenues, respectively. We anticipate that revenues from our DSL
products will continue to account for greater than 90% of our net revenues for
the balance of 2003.
Our major customers for the three months ended March 31, 2003, were NEC and
Sumitomo Electric Industries ("Sumitomo") who represented 42% and 41% of net
revenues, respectively. For the three months ended March 31, 2002, NEC and
Sumitomo represented 27% and 60% of net revenues, respectively. Net revenues to
international customers, who were primarily located in Japan, comprised 88% of
our net revenues for each of the three-month periods ended March 31, 2003 and
2002.
Cost of Revenues and Gross Profit. Cost of revenues was $14.3 million
for the three months ended March 31, 2003 resulting in a gross profit of $13.6
million or a gross margin of 49%. This compares to a gross profit of $10.5
million or a gross margin of 47% for the three months ended March 31, 2002. The
increase in gross profit and gross margin was primarily due to product mix. Our gross margins in
the future may be affected be competitive pricing strategies, product mix, and the future
introduction of certain lower margin products.
Research and Development Expenses. Research and development
expenditures decreased by approximately $2.0 million, or 15%, to $11.6 million
for the three months ended March 31, 2003 as compared to $13.6 million for the
three months ended March 31, 2002. This decrease was primarily due to a decrease
in the amortization of deferred compensation, a decrease in software tool
expense, and a decrease in salaries and related costs due to fewer employees.
Sales and Marketing Expenses. Sales and marketing expenditures
decreased by approximately $2.1 million, or 43%, to $2.8 million for the three
months ended March 31, 2003 as compared to $4.9 million for the three months
ended March 31, 2002. The decrease was due primarily to a decrease in the
amortization of deferred compensation, a decrease in customer evaluation board
costs, a decrease in sales commissions, and a decrease in salaries and related
costs.
General and Administrative Expenses. General and administrative
expenditures decreased by approximately $700,000, or 22%, to $2.4 million for
the three months ended March 31, 2003 from $3.0 million for the three months
ended March 31, 2002. This decrease was primarily due to a decrease in the
amortization of deferred compensation, a decrease in legal expense and decreases
in salaries and related costs, offset by higher business insurance expense.
Amortization of Deferred Compensation.  Stock-based compensation
expense, which is allocated among the above expense categories, was $301,000 in
the three months ended March 31, 2003 as compared to $2.1 million in the three
months ended March 31, 2002, a decrease of $1.8 million.  The decrease is
primarily related to the use of the graded vesting method, which results in
accelerated amortization of deferred compensation expense in the earlier years
of the awards' expected life.  As required by APB 25, we record an adjustment to
equity-based compensation related to employees who forfeit options for which
compensation expense had been recognized using the graded vesting method, but
which are unvested on the date their employment terminated.
Amortization of Goodwill and Other Acquisition Intangibles.
Amortization of goodwill and other acquisition-related intangibles was $42,000
for each of the three-month periods ended March 31, 2003 and 2002. The
unamortized balance of $42,000 at March 31, 2003 will be fully expensed in the
second quarter of 2003.
Interest Income, net. Interest income, net, was $324,000 for the
three months ended March 31, 2003 as compared to $510,000 for the three months
ended March 31, 2002, a decrease of $186,000 or 36%. This decrease was primarily
due to lower interest rates obtained on our cash, cash equivalents and short-
term investment portfolio and lower average invested balances.
Provision for Income Taxes. Income tax expense was $41,000 and
$24,000 for the three months ended March 31, 2003 and 2002, respectively.  The
provision for income taxes for the three months ended March 31, 2003 and 2002
relates to current taxes payable for the Company'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 benefited. Due to
the Company's loss position, a full valuation allowance has been established to
reserve the Company's deferred tax assets, consisting primarily of net operating
loss carryforwards.
Liquidity and Capital Resources
Since our inception, we have financed our operations through a combination of
sales of equity securities and cash generated by operations. At March 31, 2003,
we had $99.5 million in cash, cash equivalents and short-term investments as
compared to $102.0 million at December 31, 2002.
Cash and cash equivalents decreased to $85.2 million at March 31, 2003 from
$93.5 million at December 31, 2002.  Operating activities for the three months
ended March 31, 2003 used $1.8 million in cash. The net cash used in operating
activities was primarily the result of our net loss of $3.0 million, an increase
in our accounts receivable of $4.0 million and a decrease in accounts payable of
$1.1 million offset by non-cash charges of $1.7 million for depreciation and
amortization expense and $301,000 for the amortization of deferred compensation,
a decrease of $1.9 million in inventories, and increases in accrued liabilities
of $2.4 million.
For the three months ended March 31, 2003, net cash used by investing
activities was $6.3 million. Net cash used by investing activities related to
net purchases of short-term investments of $5.8 million and purchases of
property and equipment of $525,000, principally related to the purchase of
software development tools, lab equipment and computer hardware to support our
research and development activities.
Net cash used by financing activities was $142,000 for the three month
periods ended March 31, 2003. Net cash used by financing activities consisted of
principal payments on capital lease obligations of $210,000 offset by net
proceeds of $68,000 from employee stock plans.
Our principal source of liquidity as of March 31, 2003 consisted of $99.5
million of cash and cash equivalents, and short-term investments. We believe our
current cash, cash equivalents and marketable securities will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least 12 months. The rate at which we will consume cash will be dependent on
the cash needs of future operations that will, in turn, be directly affected by
the levels of demand for our products.
If we are able to sustain our current business plan and general economic
conditions stabilize, we anticipate achieving profitability on a quarterly basis
in the second half of 2003. We believe our revenue forecast and the steps we
have taken to reduce spending will allow us to achieve that objective.  Our
future capital requirements depend on many factors that affect our research,
development, collaboration and sales and marketing activities. We believe that
existing cash and investment securities and anticipated cash flow from
operations will be sufficient to support our current operating plan for 2003.
These cash flow and profitability 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.  Such assumptions include, without limitation, assumptions that
new product introductions will occur on a timely basis and achieve market
acceptance, that our existing and potential customer base will continue to grow,
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 Risk Factors set forth below.
We expect to devote capital resources to continue our research and
development efforts, to support our sales, marketing, and product development
programs and to fund other general corporate activities. From time to time, we
receive various inquiries or claims in connection with intellectual property and
other rights and may become party to associated claims. In certain cases,
management has accrued estimates of the amounts it expects to pay upon
resolution of such matters. Depending on the amount and timing of the
resolutions of these claims, our future cash flows could be materially adversely
affected in a particular period.
If our existing resources and cash generated from operations are insufficient
to satisfy our liquidity requirements, we may seek to raise additional funds
through public or private debt or equity financings. The sale of equity or debt
securities could result in additional dilution to our stockholders, and we
cannot be certain that additional financing will be available in amounts or on
terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and sales and marketing efforts, which could harm our business,
financial condition and operating results.
Risk Factors
You should carefully consider the risks described below and all of the
information contained in this Form 10-Q and on our Form 10-K/A, filed with the
Securities and Exchange Commission on April 21, 2003. If any of the following
risks actually occurs, our business, financial condition and results of
operations could be harmed and the trading price of our common stock could
decline and you may lose all or part of your investment in our common stock.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.
We have not reported an operating profit for any year since our
incorporation and have experienced net losses of approximately $3.0 million for
the three months ended March 31, 2003 and $33.1 million and $19.7 million for
the years ended December 31, 2002 and 2001, respectively.
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.
The market price of our common stock has been volatile and will
likely continue to fluctuate significantly in response to the following factors,
some of which are beyond our control:

variations in our quarterly operating results;
changes in financial estimates of our revenues and operating results by
securities analysts;
changes in market valuations of integrated circuit companies;
announcements by us, our competitors or others in related market segments of
significant contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments;
loss or decrease in sales to a major customer or failure to complete
significant transactions;
loss or reduction in manufacturing capacity from one or more of our key
suppliers;
additions or departures of key personnel;
future sales of our common stock;
inconsistent or low levels of trading volume of our common stock;
commencement of or involvement in litigation;
announcements by us or our competitors of key design wins and product
introductions;
a decrease in the average selling price of our products;
ability to achieve cost reductions; and
fluctuations in the timing and amount of customer requests for product
shipments.A GENERAL ECONOMIC SLOWDOWN, AND A SLOWDOWN IN SPENDING IN THE
TELECOMMUNICATIONS INDUSTRY, HAS AFFECTED AND MAY CONTINUE TO NEGATIVELY AFFECT
OUR BUSINESS AND OPERATING RESULTS.
There have been announcements throughout the worldwide
telecommunications industry of current and planned reductions in component
inventory levels and equipment production volumes, and of delays in the build-
out of new infrastructure.  Any of these trends, if continued, could result in
lower than expected demand for our products, which could have a material adverse
effect on our revenues and results of operations generally, and could cause the
market price of our common stock to decline.
A SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN WOULD ADVERSELY AFFECT OUR
BUSINESS AND OPERATING RESULTS.
Sales to customers located in Japan accounted for 84% of net revenues
for the three months ended March 31, 2003 and 86% of net revenues for the year
ended December 31, 2002. Any slowdown in the demand for our customers' equipment
in Japan may cause our revenues to decline. Our sales have been historically
denominated in U.S. dollars and major fluctuations in currency exchange rates
could materially affect our Japanese customers' demand, thereby forcing them to
reduce their orders, which could adversely affect our operating results.
COMPETING DSL TECHNOLOGIES MAY BE DEPLOYED IN JAPAN, WHICH MAY
ADVERSELY IMPACT THE DEMAND FOR OUR DSL PRODUCTS, MARKET SHARE AND OPERATING
RESULTS.
We have worked in partnership with local telecommunications companies
to develop the Annex C standard for the DSL market in Japan and have been able
to achieve the majority market share of DSL equipment purchases, based on our
products, in Japan. In July 2001, a certain service provider announced plans to
deploy lower priced competing DSL technologies in Japan and has subsequently
deployed these competing technologies. If these competing technologies continue
to be successful, our market share in the DSL market in Japan may decline and
our business and operating results may be adversely affected.
WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM INTERNATIONAL
SOURCES, AND DIFFICULTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HARM
OUR BUSINESS.
A substantial portion of our revenues has been derived from customers
located outside of the United States. For the three months ended March 31, 2003
and for the year ended December 31, 2002, 86% and 89%, respectively, of our net
revenues were to customers located in Asia. We may be unable to successfully
overcome the difficulties associated with international operations. These
difficulties include:

staffing and managing foreign operations;
changes in regulatory requirements;
licenses, tariffs and other trade barriers;
political and economic instability;
difficulties in protecting intellectual property rights in some foreign
countries;
a limited ability to enforce agreements and other rights in some foreign
countries;
obtaining governmental approvals for products; and
complying with a wide variety of complex foreign laws and treaties.Because sales of our products are denominated exclusively in United States
dollars, increases in the value of the United States dollar could increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, leading to a reduction in sales
and profitability in that country.
WE DEPEND ON A FEW CUSTOMERS AND IF WE LOSE ANY OF THEM OUR SALES AND
OPERATIONS WILL SUFFER.
We sell our DSL products primarily to network equipment manufacturers. Our
top two customers for the three months ended March 31, 2003 were NEC and
Sumitomo, accounting for 42% and 41% of our net revenues. For the year ended
December 31, 2002, NEC and Sumitomo accounted for 45% and 41% of our net
revenues, respectively. We do not have contractual volume commitments with these
customers, but rather sell our products to them on an order-by-order basis. We
expect to be dependent upon a relatively small number of large customers in
future periods, although the specific customers may vary from period to period.
If we are not successful in maintaining relationships with key customers and
winning new customers, our business and results of operations will suffer.
OUR CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR DELAY OUR SALES CYCLE,
WHICH WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our customers are in most cases larger than us and are able to exert
a high degree of influence over us. These customers may have sufficient
bargaining power to demand low prices and other terms and conditions that may
materially adversely affect our business, financial condition and results of
operations. In addition, prior to selling our products to such customers, we
must typically undergo lengthy product approval processes, often taking up to
one year. Accordingly, we are continually submitting successive versions of our
products as well as new products to our customers for approval. The length of
the approval process can vary and is affected by a number of factors, including
customer priorities, customer budgets and regulatory issues affecting
telecommunication service providers. Delays in the product approval process
could materially adversely affect our business, financial condition and results
of operations. While we have been successful in the past in obtaining product
approvals from our customers, such approvals and the ensuing sales of such
products may not continue to occur. Delays can also be caused by late deliveries
by other vendors, changes in implementation priorities and slower than
anticipated growth in demand for the services that our products support. A delay
in, or cancellation of, the sale of our products could adversely affect our
results from operations or cause them to significantly vary from quarter to
quarter.
SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF BROADBAND
ACCESS SERVICES, ESPECIALLY DSL. IF THE DEMAND FOR BROADBAND ACCESS SERVICE DOES
NOT INCREASE, WE MAY NOT BE ABLE TO GENERATE SUBSTANTIAL SALES.
Sales of our products depend on the increased use and widespread
adoption of broadband access services, and DSL services in particular, and the
ability of telecommunications service providers to market and sell broadband
access services. Our business would be harmed, and our results of operations and
financial condition would be adversely affected, if the use of broadband access
services does not increase as anticipated. Certain critical factors will likely
continue to affect the development of the broadband access service market. These
factors include:

inconsistent quality and reliability of service;
lack of availability of cost-effective, high-speed service;
lack of interoperability among multiple vendors' network equipment;
congestion in service providers' networks;
inadequate security; and
slow deployment of new broadband services over DSL lines.BECAUSE THE SALES CYCLE FOR OUR PRODUCTS TYPICALLY LASTS UP TO ONE
YEAR, AND MAY BE SUBJECT TO DELAYS, IT IS DIFFICULT TO FORECAST SALES FOR ANY
GIVEN PERIOD.
If we fail to realize forecasted sales for a particular period, our stock
price could decline significantly. The sales cycle of our products is lengthy
and typically involves a detailed initial technical evaluation of our products
by our prospective customers, followed by the design, construction and testing
of prototypes incorporating our products. Only after these steps are complete
will we receive a purchase order from a customer for volume shipments. This
process generally takes from 9 to 12 months, and may last longer. Given this
lengthy sales cycle, it is difficult to accurately predict when sales to a
particular customer will occur. In addition, we may experience unexpected delays
in orders from customers, which may prevent us from realizing forecasted sales
for a particular period. Our products are typically sold to equipment
manufacturers, who incorporate our products in the products that they in turn
sell to consumers or to network service providers. As a result, any delay by our
customers, or by our customers' customers, in the manufacture or distribution of
their products will result in a delay in obtaining orders for our products,
which could cause our business and results to suffer.
RAPID CHANGES IN THE MARKET FOR DSL CHIP SETS MAY RENDER OUR CHIP SETS
OBSOLETE OR UNMARKETABLE.
The market for chip sets for DSL products is characterized by:

intense competition;
rapid technological change;
frequent new product introductions by our competitors;
changes in customer demands; and
evolving industry standards.Any of these factors could make our products obsolete or unmarketable. In
addition, the life cycles of some of our products may depend upon the life
cycles of the end products into which our products will be designed. Products
with short life cycles require us to closely manage production and inventory
levels. Unanticipated changes in the estimated total demand for our products
and/or the estimated life cycles of the end products into which our products are
designed may result in obsolete or excess inventories, which in turn may
adversely affect our operating results. To compete, we must innovate and
introduce new products. If we fail to successfully introduce new products on a
timely and cost-effective basis that meet customer requirements and are
compatible with evolving industry standards, then our business, financial
condition and results of operations will be seriously harmed.
BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE EFFECTIVELY WITH DSL
SERVICES, OUR PRODUCTS MAY NOT CAPTURE MARKET SHARE.
DSL services are competing with a variety of different broadband data
transmission technologies, including cable modems, satellite and other wireless
technologies. If any technology that is competing with DSL technology is more
reliable, faster and less expensive or has other advantages over DSL technology,
then the demand for our DSL products may decrease.
OUR MARKETS ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS ARE
ESTABLISHED AND HAVE GREATER RESOURCES THAN WE HAVE.
The market for communications semiconductor and software solutions is
intensely competitive. Given our stage of development, there is a substantial
risk that we will not have the financial resources, technical expertise or
marketing and support capabilities to compete successfully. In addition, a
number of other semiconductor companies have announced their intent to enter the
market segments adjacent to or addressed by our products. These competitors have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than we have. We may also face competition from customers' or prospective
customers' own internal development efforts. Any of these competitors may be
able to introduce new technologies, respond more quickly to changing customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can.
BECAUSE OUR PRODUCTS ARE COMPONENTS OF OTHER EQUIPMENT, IF BROADBAND
EQUIPMENT MANUFACTURERS DO NOT INCORPORATE OUR PRODUCTS IN THEIR EQUIPMENT, WE
MAY NOT BE ABLE TO GENERATE SALES OF OUR PRODUCTS IN VOLUME QUANTITIES.
Our products are not sold directly to the end-user; they are components of
other products. As a result, we rely upon equipment manufacturers to design our
products into their equipment. We further rely on the manufacturing and
deployment of the equipment to be successful. If equipment that incorporates our
products is not accepted in the marketplace, we may not achieve sales of our
products in volume quantities, which would have a negative impact on our results
of operations.
BECAUSE MANUFACTURERS OF COMMUNICATIONS EQUIPMENT MAY BE RELUCTANT TO
CHANGE THEIR SOURCES OF COMPONENTS, IF WE DO NOT ACHIEVE DESIGN WINS WITH SUCH
MANUFACTURERS, WE MAY BE UNABLE TO SECURE SALES FROM THESE CUSTOMERS IN THE
FUTURE.
Once a manufacturer of communications equipment has designed a supplier's
semiconductor into its products, the manufacturer may be reluctant to change its
source of semiconductors due to the significant costs associated with qualifying
a new supplier. Accordingly, our failure to achieve design wins with equipment
manufacturers, who have chosen a competitor's semiconductor could create
barriers to future sales opportunities with these manufacturers.
THIRD-PARTY CLAIMS REGARDING INTELLECTUAL PROPERTY MATTERS COULD CAUSE
US TO STOP SELLING OUR PRODUCTS, PAY MONETARY DAMAGES OR OBTAIN LICENSES ON
ADVERSE TERMS.
There is a significant risk that third parties, including current and
potential competitors, will claim that our products, or our customers' products,
infringe on their intellectual property rights. The owners of these intellectual
property rights may bring infringement claims against us or our customers. Any
such litigation, whether or not determined in our favor or settled by us, would
be costly and divert the attention of our management and technical personnel.
Inquiries with respect to the coverage of our intellectual property could
develop into litigation. In the event of an adverse ruling for an intellectual
property infringement claim, we could be required to obtain a license or pay
substantial damages or have the sale of our products stopped by an injunction.
Such a license may not be available on reasonable terms, or at all. In addition,
if a customer of our products cannot acquire a required license on commercially
reasonable terms, that customer may choose not to use our products. We have
obligations to indemnify our customers under some circumstances for infringement
of third-party intellectual property rights. If any intellectual property claims
from third parties against one of our customers whom we have indemnified is held
to be valid, the costs to us could be substantial and our business could be
harmed.
We have received correspondence from certain parties, including Texas
Instruments, Alcatel and Ricoh, requesting us to discuss the potential need for
non-exclusive licenses permitting us to utilize technology covered by various
patents held by these parties. We could be subject to claims similar to the
Texas Instruments, Alcatel and Ricoh claims in the future. Depending on the
amount and timing of any unfavorable resolutions of these claims, our future
results of operations or cash flows could be materially adversely affected.
IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED,
AND THE SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.
Our products are complex and have contained errors, defects and bugs when
introduced and revised. If we deliver products with errors, defects or bugs or
products that have reliability, quality or compatibility problems, our
credibility and the market acceptance and sales of our products could be harmed,
which could adversely affect our ability to retain existing customers or attract
new customers. Further, if our products contain errors, defects and bugs, then
we may be required to expend significant capital and resources to alleviate such
problems and may have our sales to customers interrupted or delayed. If any of
these problems are not found until we have commenced commercial production, we
may be required to incur additional development costs and product repair or
replacement costs. Defects could also lead to potential liability as a result of
product liability lawsuits against us or against our customers. We have agreed
to indemnify our customers in some circumstances against liability from defects
in our products. A successful product liability claim could seriously harm our
business, financial condition and results of operations, and may divert our
technical and other resources from other development efforts.
WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS OF OUR
PRODUCTS.
We obtain certain parts, components and packaging used in the delivery of our
products from sole sources of supply. For example, we obtain digital
semiconductor wafers from Taiwan Semiconductor Manufacturing Co., Ltd and we
obtain analog silicon wafers from United Microelectronics Corporation. If we
fail to obtain components in sufficient quantities when required or if we cannot
adequately control manufacturing process quality, product yields or production
costs, our business could be harmed. Developing and maintaining these strategic
relationships with our vendors is critical for us to be successful.
Any of our sole source suppliers may:

enter into exclusive arrangements with our competitors;
stop selling their products or components to us at commercially reasonable
prices;
refuse to sell their products or components to us at any price; or
be subject to production disruptions such as earthquakes.WE MAY EXPERIENCE DIFFICULTIES IN TRANSITIONING TO SMALLER GEOMETRY
PROCESS TECHNOLOGIES OR IN ACHIEVING HIGHER LEVELS OF DESIGN INTEGRATION AND
THAT MAY RESULT IN REDUCED MANUFACTURING YIELDS, DELAYS IN PRODUCT DELIVERIES
AND INCREASED EXPENSES.
In order to remain competitive, we expect to continue to transition
our products to increasingly smaller line width geometries. This transition will
require us to modify the manufacturing processes for our products and redesign
some products. We periodically evaluate the benefits, on a product-by-product
basis, of migrating to smaller geometry process technologies to reduce our
costs, and we have designed some of our products to be manufactured in .35
micron, .25 micron, .18 micron and .13 micron geometry processes. In the past,
we have experienced some difficulties in shifting to smaller geometry process
technologies or new manufacturing processes, which resulted in reduced
manufacturing yields, delays in product deliveries and increased expenses. We
may face similar difficulties, delays and expenses as we continue to transition
our products to smaller geometry processes. We are dependent on our
relationships with our foundries to transition to smaller geometry processes
successfully. We cannot assure you that our foundries will be able to
effectively manage the transition or that we will be able to maintain our
foundry relationships. If our foundries or we experience significant delays in
this transition or fail to efficiently implement this transition, our business,
financial condition and results of operations could be materially and adversely
affected. As smaller geometry processes become more prevalent, we expect to
continue to integrate greater levels of functionality, as well as customer and
third party intellectual property, into our products. However, we may not be
able to achieve higher levels of design integration or deliver new integrated
products on a timely basis, or at all.
FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY
INCREASE COMPETITION THAT COULD HARM OUR BUSINESS.
The markets in which we compete are characterized by increasing
consolidation both within the telecommunications equipment sector and by
companies combining or acquiring data communications assets and assets for
delivering voice-related services. We cannot predict with certainty how industry
consolidation will affect our competitors. We may not be able to compete
successfully in an increasingly consolidated industry. Increased competition and
consolidation in our industry may require that we reduce the prices of our
products or result in a loss of market share, which could materially adversely
affect our business, financial condition and results of operations.
Additionally, because we are now, and may in the future be, dependent on certain
strategic relationships with third parties in our industry, any additional
consolidation involving these parties could reduce the demand for our products
and otherwise harm our business prospects.
WE MAY MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE NUMEROUS
RISKS.
Our business is highly competitive and, as such, our growth is dependent upon
market growth, our ability to enhance our existing products and our ability to
introduce new products on a timely basis. One of the ways we have addressed and
may continue to address the need to develop new products is through acquisitions
of other companies. Acquisitions involve numerous risks, including the
following:

difficulties in integration of the operations, technologies and products of
the acquired companies;
the risk of diverting management's attention from normal daily operations of
the business;
potential difficulties in completing projects associated with purchased
in-process research and development;
risks of entering markets in which we have no or limited direct prior
experience and where competitors in such markets have stronger market positions;
and
the potential loss of key employees of the acquired company.Mergers and acquisitions of high-technology companies are inherently risky,
and no assurance can be given that our previous or future acquisitions will be
successful and will not materially adversely affect our business, operating
results or financial condition.
We must also maintain our ability to manage such growth effectively. Failure
to manage growth effectively and successfully integrate acquisitions could harm
our business and operating results.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
We depend upon the continuing contributions of our key management, sales,
customer support and product development personnel. The loss of such personnel
could seriously harm us. In addition, we have not obtained key-man life
insurance on any of our executive officers or key employees.
OUR FUTURE SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO PROTECT OUR
PROPRIETARY RIGHTS AND THE TECHNOLOGIES USED IN OUR PRINCIPAL PRODUCTS, AND IF
WE DO NOT ENFORCE AND PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL BE
HARMED.
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality agreements and other contractual provisions to protect
our proprietary rights. However, these measures afford only limited protection.
Our failure to adequately protect our proprietary rights may adversely affect
us. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary.
The laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in these countries. There is
a risk that our efforts to protect proprietary rights may not be adequate. For
example, our competitors may independently develop similar technology, duplicate
our products or design around our patents or our other intellectual property
rights. If we fail to adequately protect our intellectual property or if the
laws of a foreign jurisdiction do not effectively permit such protection, it
would be easier for our competitors to sell competing products.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MIGHT NOT BE AVAILABLE OR
WHICH, IF AVAILABLE, COULD BE ON TERMS ADVERSE TO OUR COMMON STOCKHOLDERS.
We expect that our current cash and cash equivalents and short-term
investment balances will be adequate to meet our working capital and capital
expenditure needs for at least twelve months. After that, we may need to raise
additional funds, and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. We may also require
additional capital for the acquisition of businesses, products and technologies
that are complementary to ours. Further, if we issue equity securities, the
ownership percentage of our stockholders would be reduced, and the new equity
securities may have rights, preferences or privileges senior to those existing
holders of our common stock. If we cannot raise needed funds on acceptable
terms, we may not be able to develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business, operating results and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The primary objective of our cash and short-term investment activities is
to preserve principal while concurrently maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities
that we may invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the current value of the principal amount of our investment will decline.
To minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non- government debt
securities and certificates of deposit. In general, money market funds are not
subject to market risk because the interest paid on such funds fluctuates with
the prevailing interest rate. As of March 31, 2003, all of our investments were
in money market funds and government debt securities. A hypothetical 100 basis
point increase in interest rates would result in an approximate $119,000
decrease in the fair value of our available-for-sale securities as of March 31,
2003.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing date of this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14
promulgated under the Securities Exchange Act of 1934, as amended. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of that
date.
There have been no significant changes in our internal controls, or in other
factors that could significantly affect those internal controls, subsequent to
the date the Chief Executive Officer and Principal Financial Officer completed
their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM 5. OTHER INFORMATION
Our Audit Committee pre-approved all non-audit services performed by
Ernst & Young LLP, our independent auditors, during the first quarter of
2003. The pre-approved services relate to tax compliance, tax consulting, and
other technical, financial reporting and compliance services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(a) Exhibits
10.35. Offer letter between the Registrant and Tony Shakib dated March
24, 2003
10.36. Change of  Control Severance Agreement between the Registrant and
Tony Shakib dated March 31, 2003
99.1. Certification of Faraj Aalaei, Chief Executive Officer and Co-Founder
of Centillium Communications, Inc., Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2. Certification of Darrel Slack, Vice-President and Chief Financial
Officer of Centillium Communications, Inc., Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None


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

CENTILLIUM COMMUNICATIONS, INC.


(Registrant)

Dated: May 7, 2003
By:/s/ Darrel SlackDarrel SlackVice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

CERTIFICATIONS
I, Faraj Aalaei, certify that:1.	I have reviewed this quarterly report on Form 10-Q of Centillium
Communications, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3.	Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:a)	designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) 	presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;5.	The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent functions):a)	all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and6.	The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.Date: May 7, 2003
/s/ Faraj Aalaei	Faraj Aalaei
	Chief Executive Officer and Co-Founder
CERTIFICATIONS
I, Darrel Slack, certify that:1.	I have reviewed this quarterly report on Form 10-Q of Centillium
Communications, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3.	Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:a)	designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) 	presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;5.	The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent functions):a)	all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and6.	The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.Date: May 7, 2003
/s/ Darrel Slack	Darrel Slack
	Vice President and Chief Financial Officer