<PAGE>

SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 20549


FORM 10-Q

(Mark one)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarter ended June 30, 2000

[_]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

Commission file number 0-19856

XIRCOM, INC.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Telephone: (805) 376-9300

California  (State of incorporation)

95-4221884  (IRS Employer Identification No.)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

There were 29,924,333 shares of the Registrant's $.001 par value Common Stock
outstanding as of August 4, 2000.
<PAGE>

Xircom, Inc.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page in Form 10-Q
<S>                                                                                              <C>
PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

          Condensed Consolidated Balance Sheets                                                                3

          Condensed Consolidated Statements of Operations                                                      4

          Condensed Consolidated Statements of Cash Flows                                                      5

          Notes to Condensed Consolidated Financial Statements                                               6-9

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                    10-18

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES
          ABOUT MARKET RISK                                                                                   18

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS                                                                                   18

ITEM 2.   CHANGES IN SECURITIES                                                                               18

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                                                     18

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                 18

ITEM 5.   OTHER ITEMS                                                                                         18

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                                                 18-19

SIGNATURES                                                                                                    19
</TABLE>
<PAGE>

Xircom, Inc.

PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     (Unaudited)
                                                                                         June 30       September 30
(In thousands)                                                                              2000               1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>
Current assets:
     Cash and cash equivalents                                                          $129,310           $135,630
     Short-term investments                                                              230,432                  -
     Accounts receivable, net                                                             53,230             38,012
     Income tax receivable                                                                 1,102                300
     Inventories                                                                          18,473             23,563
     Deferred income taxes                                                                15,195             15,195
     Other current assets                                                                  6,792              9,696
--------------------------------------------------------------------------------------------------------------------
Total current assets                                                                     454,534            222,396

Property and equipment, net                                                               61,206             40,536
Other assets                                                                              56,640             12,564
--------------------------------------------------------------------------------------------------------------------
Total assets                                                                            $572,380           $275,496
--------------------------------------------------------------------------------------------------------------------


Current liabilities:
     Notes payable                                                                      $      -            $ 9,138
     Accounts payable                                                                     20,408             31,591
     Accrued liabilities                                                                  47,309             42,235
     Accrued income taxes                                                                      -              3,952
--------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                 67,717             86,916

Deferred income taxes                                                                     14,321             13,660

Shareholders' equity:
     Common stock                                                                             31                 24
     Paid-in capital                                                                     452,295            151,925
     Accumulated other comprehensive loss                                                   (411)                 -
     Retained earnings                                                                    38,427             22,971
--------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                               490,342            174,920
--------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                              $572,380           $275,496
--------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                                                 3  XIRCOM, INC.
<PAGE>

Xircom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Three months ended           Nine months ended
(In thousands, except per share information)                                June 30,                     June 30,
--------------------------------------------------------------------------------------------------------------------------
                                                                         2000          1999           2000          1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>            <C>           <C>
Net sales                                                            $126,706      $108,439       $362,067      $308,809
Cost of sales                                                          72,203        61,634        201,121       179,341
--------------------------------------------------------------------------------------------------------------------------
Gross profit                                                           54,503        46,805        160,946       129,468

Operating expenses:
 Research and development                                               8,845         6,520         25,054        17,508
 Sales and marketing                                                   23,856        22,604         72,214        62,951
 General and administrative                                             4,851         3,671         13,986        10,679
 In-process research and development and other
    acquisition-related non-recurring charges                          19,535             -         22,400             -
 Amortization of goodwill and other
    acquisition-related intangibles                                       544             -          1,762             -
 Provision for customer insolvency                                          -             -          4,150             -
--------------------------------------------------------------------------------------------------------------------------
     Total operating expenses                                          57,631        32,795        139,566        91,138
--------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                (3,128)       14,010         21,380        38,330
Other income, net                                                       2,828           554          6,202         1,316
--------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                        (300)       14,564         27,582        39,646
Provision for income taxes                                              4,807         4,700         12,126        12,712
--------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                     $(5,107)      $ 9,864        $15,456      $ 26,934
--------------------------------------------------------------------------------------------------------------------------

Basic earnings (loss) per share                                       $  (.17)       $  .41         $  .54        $ 1.12
Diluted earnings (loss) per share                                     $  (.17)       $  .39         $  .51        $ 1.06
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.
                                                              4  XIRCOM, INC.
<PAGE>

Xircom, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
(In thousands)
Nine Months Ended June 30                                                                   2000              1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>
Operating activities:
  Net income                                                                        $     15,456      $     26,934
  Adjustments to derive cash flows from operating activities:
       Depreciation and amortization                                                      14,490            10,471
       Write-off of in-process research and development                                   19,535                 -
       Non-cash charges                                                                    1,745                 -
       Foreign currency exchange (gain) loss                                               3,069              (434)
       Changes in assets and liabilities:
         Accounts receivable                                                             (14,767)          (16,097)
         Inventories                                                                       5,090             1,921
         Other current assets                                                              2,946              (481)
         Accounts payable and accrued liabilities                                        (12,733)            7,763
         Income taxes                                                                      3,914            13,674
------------------------------------------------------------------------------------------------------------------
  Net cash provided by operating activities                                               38,745            43,751
------------------------------------------------------------------------------------------------------------------

Investing activities:
  Purchases of short-term investments                                                 (1,138,119)                -
  Sales of short-term investments                                                        907,687                 -
  Purchases of property and equipment                                                    (33,084)          (14,428)
  Other                                                                                   (2,346)             (578)
------------------------------------------------------------------------------------------------------------------
  Net cash used in investing activities                                                 (265,862)          (15,006)
------------------------------------------------------------------------------------------------------------------

Financing activities:
  Issuance of Common Stock                                                               233,648            13,536
  Repurchase of Common Stock                                                              (7,863)          (19,775)
  Net proceeds (repayments) of notes payable                                              (4,988)            1,862
------------------------------------------------------------------------------------------------------------------
  Net cash provided by (used in) financing activities                                    220,797            (4,377)
------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                      (6,320)           24,368
Cash and cash equivalents at beginning of period                                         135,630           105,814
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                          $    129,310      $    130,182
------------------------------------------------------------------------------------------------------------------

Supplemental cash flow disclosures:
  Cash paid for income taxes                                                        $      7,899      $      4,268
  Non-cash transactions--Common Stock issued in
     lieu of indebtedness                                                           $      7,382      $          -
------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                                                 5  XIRCOM, INC.
<PAGE>

Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared
by the Company without audit (except for the balance sheet information as of
September 30, 1999, which was derived from audited consolidated financial
statements) pursuant to Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at June 30, 2000, the consolidated
statements of operations for the three- and nine-month periods ended June 30,
2000 and 1999, and cash flows for the nine-month periods ended June 30, 2000 and
1999, in accordance with generally accepted accounting principles. The
accompanying financial statements are condensed and do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's Current Report on Form
8-K dated November 10, 1999. The results of operations for the three- and
nine-month periods ended June 30, 2000 are not necessarily indicative of the
results to be expected for the entire fiscal year.

On October 1, 1999, the Company completed its acquisition of Entrega
Technologies, Inc. ("Entrega"). All prior period financial information has been
restated to reflect the combination of the Company and Entrega under pooling-of-
interests accounting.

Cash equivalents and short-term investments

All highly liquid investments with maturities of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest, which approximates market value. Short-term investments
primarily consist of obligations of government agencies, including tax-preferred
and tax-exempt auction rate securities, municipal bonds and investment grade
corporate securities such as auction rate preferred securities. The Company's
short-term investments are carried on the balance sheet at their fair market
value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:

                               June 30       September 30
(In thousands)                    2000               1999
---------------------------------------------------------
Finished goods                 $ 5,849            $12,757
Subassemblies                    1,090                492
Work-in-process                  3,210              3,578
Component parts                  8,324              6,736
---------------------------------------------------------
                               $18,473            $23,563
---------------------------------------------------------

Revenue recognition

The Company recognizes revenue from product sales when shipped. The Company has
contractual agreements that permit distributors and dealers to return products
or receive price protection credits under certain circumstances. The Company
makes a provision for the estimated amount of product returns or credits that
may occur under these contracts in the period of sale, and has a policy of
reserving channel inventory held by its customers in excess of a one-month
supply. The Company generally provides a lifetime limited warranty against
defects in the hardware component and a two-year limited warranty on the
software component of its network adapters and modem products, and makes
provisions for these costs in the period of sale. In addition, the Company
provides telephone support to purchasers of its products as needed to assist
them in their installation or use.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance for revenue recognition under various circumstances. The
accounting and disclosures prescribed by SAB 101 will be effective for the
fourth quarter of the Company's fiscal year ending September 30, 2001. The
effect of adopting SAB 101 is currently being evaluated, however, the Company
does not believe the effects of adoption will be material to its financial
position or results of operations.

Provision for customer insolvency

During the nine-month period ended June 30, 2000, the Company recorded a
provision for customer insolvency of $4.2 million related to the bankruptcy
filings of MicroAge, Inc. in the United States and two European subsidiaries of
CHS Electronics, Inc.

                                                                 6  XIRCOM, INC.
<PAGE>

Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Foreign currency transactions

The functional currency of most of the Company's foreign subsidiaries is the
U.S. dollar. However, beginning October 1, 1999, the majority of the Company's
sales in Europe are denominated in the Euro, and as such, the functional
currency of the Company's European trading subsidiary has been changed to the
Euro. Translation adjustments are recorded in Accumulated other comprehensive
loss.

The Company has a program to manage its foreign currency risk. As part of this
program, the Company enters into forward contracts to hedge exposures to foreign
currency fluctuations of certain assets and liabilities denominated in a
currency other than the functional currency. These contracts are designated as
effective hedges and, accordingly, gains and losses on these forward contracts
are recognized in the same period the offsetting gains and losses of hedged
assets and liabilities are realized and recognized. Gains and losses on forward
contracts, to the extent they differ in amount from the hedged assets and
liabilities, are included in Other income, net. There were no outstanding
forward contracts as of June 30, 2000.

Earnings per share

Basic earnings per share is calculated using the weighted average common shares
outstanding for the period, and excludes dilutive securities. Diluted earnings
per share reflects the dilution to earnings that would occur if stock options
and other dilutive securities resulted in the issuance of common stock. The
weighted average number of shares for basic and diluted earnings per share were
as follows:

(In thousands)

Three Months Ended June 30           2000        1999
-------------------------------------------------------
Weighted average number of
  shares--basic                    29,882      24,273
Effect of dilutive securities:
  Employee stock options                -       1,058
  Warrants                              -          44
  Other                                 -          39
-------------------------------------------------------
Weighted average number of
shares--diluted                    29,882      25,414
-------------------------------------------------------


(In thousands)

Nine Months Ended June 30            2000        1999
-------------------------------------------------------
Weighted average number of
 shares--basic                     28,471      23,991
Effect of dilutive securities:
  Employee stock options            1,893       1,333
  Warrants                              -         114
  Other                                 -          65
-------------------------------------------------------
Weighted average number of
 shares--diluted                   30,364      25,503
-------------------------------------------------------

For the three months ended June 30, 2000, common stock equivalent shares such as
employee stock options have been excluded from the computation of diluted
weighted average shares as their effect would be anti-dilutive.

Comprehensive income (loss)

During the three- and nine-month periods ended June 30, 2000, total
comprehensive income (loss) was ($5,056,000) and $15,045,000, respectively. The
difference between net income (loss) and total comprehensive income (loss)
relates to the Company's foreign currency translation adjustments.

Acquisition of Entrega Technologies, Inc.

On October 1, 1999, the Company completed its acquisition of Entrega.
Incorporated in January 1998, Entrega designed and manufactured a selection of
standardized devices for connecting peripherals to personal computers, including
Universal Serial Bus hubs, port converters and cables. These devices complement
the Company's own product offerings. The Company issued 266,195 shares of its
common stock in exchange for all of the outstanding shares of Entrega, and
assumed and exchanged all options to purchase Entrega stock for options to
purchase an aggregate of 76,914 shares of the Company's common stock. The
Company also issued 142,397 shares of its common stock to repay certain
indebtedness of Entrega. The acquisition was accounted for as a pooling-of-
interests. There were no intercompany transactions between the two companies.

Acquisition of Omnipoint Technologies, Inc.

On June 27, 2000, the Company purchased all of the outstanding shares of
Omnipoint Technologies, Inc.

                                                                 7  XIRCOM, INC.
<PAGE>

Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

("OTI") from VoiceStream Wireless Corporation. OTI is a developer and integrator
of advanced wireless communication technologies such as Global System for Mobile
Communication ("GSM") and General Packet Radio Services ("GPRS") which will
provide users access to mobile internet protocol ("IP") based data.

The acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the tangible and intangible net
assets acquired on the basis of their respective fair values on the acquisition
date. The fair value of intangible assets was determined based upon an
independent valuation using a combination of methods, including an income
approach for the acquired in-process technologies, an avoided cost approach for
the customer base and a cost approach for the value of the workforce-in-place.

Under the terms of the agreement, Xircom issued 1,201,079 shares valued at $50
million, in exchange for all outstanding shares of OTI. In addition, Xircom
assumed certain liabilities totaling approximately $5 million, unvested employee
stock options with an in-the-money value of approximately $8.3 million, and
other acquisition related expenses of approximately $400,000. The total purchase
price was allocated to tangible assets of $900,000 and intangible assets,
including in-process research and development of $19.5 million, customer base of
$500,000, workforce-in-place of $1.2 million and goodwill of $42.3 million.

Goodwill is being amortized over its estimated useful life of five years. The
other acquired intangible assets are being amortized over their estimated useful
lives of three to five years. The amount allocated to acquired in-process
research and development was charged to expense upon completion of the
acquisition because technological feasibility had not been established and no
future alternative uses existed. To determine the value of in-process research
and development, the expected future cash flows, including costs to achieve
technological feasibility, were discounted at an after-tax rate of 25%, taking
into account risks related to the characteristics and applications of the
technology, existing and future markets, and assessments of the life cycle stage
of the technology.

As of the acquisition date, it was estimated that the projects under
development, which primarily related to GSM and GPRS technologies, were
approximately 85% and 20% complete. These projects are expected to be completed
within the next twelve months.

This allocation is preliminary and subject to adjustments as the Company
completes its review and evaluation of the acquired assets and assumed
liabilities.

The following unaudited pro forma financial information presents the combined
results of operations of the Company and OTI as if the acquisition had occurred
as of the beginning of each period presented, after giving effect to certain
adjustments, including amortization of goodwill and intangible assets, but
excludes the non-recurring charge for the write-off of in-process research and
development related to OTI.

(In thousands except per share amounts)

Nine Months Ended June 30                  2000        1999
-------------------------------------------------------------
Net sales                              $362,761    $312,608
Net income                              $21,353     $14,779
Pro forma earnings per share:
Basic                                    $  .72      $  .62
Diluted                                  $  .67      $  .55

The pro forma results are not necessarily indicative of those that would have
actually occurred had the acquisitions taken place at the beginning of the
periods presented.

Other acquisition-related non-recurring charges
During the nine-month period ended June 30, 2000 the Company incurred
approximately $2.9 million of non-recurring transaction and transition charges
related to the acquisition of Entrega. Transaction charges include certain fees
and accounting and legal expenses. Transition charges include costs of severance
and future operating lease payments related to facilities that were vacated.

                                                                 8  XIRCOM, INC.
<PAGE>

Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Shareholders' equity

On December 9, 1999, the Company sold 4.6 million shares of Common Stock
(including the exercise of the underwriters' over-allotment option) in an
underwritten public offering at a price of $51.25, and realized net proceeds of
approximately $223.3 million. In June 2000, the Company announced that its Board
of Directors has authorized the repurchase of up to 1.5 million shares of its
common stock. The stock repurchase plan is intended to offset dilution caused by
the issuance of shares and assumption of employee stock options by Xircom in
connection with its acquisition of OTI. During the three months ended June 30,
2000, the Company repurchased approximately 168,000 shares of its common stock
at a total cost of $ 7.9 million under the repurchase program. Through August 4,
2000, the Company repurchased an additional 1.2 million shares of its common
stock for $47 million.

Reclassifications

Certain reclassifications of previously reported amounts have been made to
conform to the current period's presentation.

Segment information

The table below presents information about the Company's reportable segments for
the three- and nine-month periods ended June 30, 2000 and 1999.

<TABLE>
<CAPTION>
(In thousands)                                   Branded             OEM     Unallocated         Total
-------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>          <C>            <C>
Three months ended June 30, 2000

  Net sales                                   $   76,130        $ 50,576       $      -     $  126,706
   Operating income (loss)                    $   20,342        $ 14,454       $(37,924)    $   (3,128)
   Other income, net                          $        -        $      -       $  2,828     $    2,828
   Income (loss) before income taxes          $   20,342        $ 14,454       $(35,096)    $     (300)
-------------------------------------------------------------------------------------------------------
Three months ended June 30, 1999

   Net sales                                  $   88,185        $ 20,254       $      -     $  108,439
   Operating income                           $   22,442        $  4,526       $(12,958)    $   14,010
   Other income, net                          $        -        $      -       $    554     $      554
   Income before income taxes                 $   22,442        $  4,526       $(12,404)    $   14,564
-------------------------------------------------------------------------------------------------------

Nine months ended June 30, 2000

   Net sales                                  $  246,109        $115,958       $      -     $  362,067
   Operating income                           $   65,475        $ 34,126       $(78,221)    $   21,380
   Other income, net                          $        -        $      -       $  6,202     $    6,202
   Income before income taxes                 $   65,475        $ 34,126       $(72,019)    $   27,582
-------------------------------------------------------------------------------------------------------
Nine months ended June 30, 1999

   Net sales                                  $  258,066        $ 50,743       $      -     $  308,809
   Operating income                           $   62,706        $ 11,772       $(36,148)    $   38,330
   Other income, net                          $        -        $      -       $  1,316     $    1,316
   Income before income taxes                 $   62,706        $ 11,772       $(34,832)    $   39,646
-------------------------------------------------------------------------------------------------------
</TABLE>

                                                                 9  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Quarterly Report contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the trend
analysis and other forward-looking statements contained herein, as a result of
the risk factors set forth below and elsewhere in this report.

Results of Operations
---------------------

The following table sets forth the statements of operations as a percentage of
net sales:

<TABLE>
<CAPTION>
                                                                Three months ended             Nine months ended
                                                                     June 30                        June 30
-------------------------------------------------------------------------------------------------------------------
                                                                2000           1999            2000          1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>             <C>           <C>
Net sales                                                     100.0%         100.0%          100.0%        100.0%
Cost of sales                                                  57.0%          56.8%           55.5%         58.1%
-------------------------------------------------------------------------------------------------------------------
Gross profit                                                   43.0%          43.2%           44.5%         41.9%
Operating expenses:
  Research and development                                      7.0%           6.0%            6.9%          5.7%
  Sales and marketing                                          18.8%          20.9%           20.0%         20.4%
  General and administrative                                    3.8%           3.4%            3.9%          3.4%
  Provision for customer insolvency and acquisition-
    related charges and amortization                           15.9%             -%            7.8%            -%
-------------------------------------------------------------------------------------------------------------------
                                                               45.5%          30.3%           38.6%         29.5%
-------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                        (2.5)%         12.9%            5.9%         12.4%
Other income, net                                               2.3%           0.5%            1.7%          0.4%
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                              (0.2)%         13.4%            7.6%         12.8%
Provision for income taxes                                      3.8%           4.3%            3.3%          4.1%
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                              (4.0)%          9.1%            4.3%          8.7%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Net sales

Net sales increased 17% to $126.7 million and $362.1 million during the three-
and nine-month periods ended June 30, 2000, from $108.4 million and $308.8
million during the corresponding prior-year periods. We derive net sales
principally from shipments of Integrated PC Card, PC Card and Mini-PCI card
products (collectively "adapter products"). The adapter products connect
notebook PCs to networks, the Internet and online services using the following
functionalities:

 .    Fast Ethernet, Ethernet and Token Ring local area network ("LAN");

 .    Modem; and,

 .    Multifunction LAN and modem ("Combo cards").

We also derive net sales from shipments of USB port expansion solution products,
which enable users to add peripheral devices to their computer via a single USB
connection, sub-handheld or "wearable information accessory" products, and the
NetStation(TM) product family (our all-in-one conference room networking device
for notebook and handheld PC users).

The increase in net sales was primarily due to increased shipments of Fast
Ethernet PC Cards and Combo cards. We attribute this increase to growth in
overall market demand for local and wide area network connectivity products and
an increase in unit sales of our adapter products by our OEM customers.

Our OEM channel sales during the three- and nine-month periods ended June 30,
2000 increased by

                                                                 10 XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

150% and 129% over the corresponding prior-year periods. We believe this growth
in sales of our adapter products by OEM customers may be indicative of several
factors:

 .    Increased growth rate in shipments of notebook PCs, which in turn require
     network and modem connections;

 .    An increase in the rate that notebook PCs are attached to information
     sources;

 .    Continued increased market acceptance of our Combo cards and Fast Ethernet
     cards within our RealPort(R) and RealPort2(TM)Integrated PC Card families
     of products; and,

 .    An increase in shipments of our MiniPCI cards, which provide OEMs a
     flexible and low cost configuration alternative for communications
     functionality in notebook computers and handheld PCs.

Net sales by our distribution customers (the "branded" business) declined by 14%
and 5% during the three- and nine-month periods ended June 30, 2000 as compared
to the corresponding prior-year periods. We believe this decrease is primarily
due to a shift in fulfillment of orders through the OEM channel as opposed to
the distribution channel.

Total unit shipments of adapter products for the three- and nine-month periods
ended June 30, 2000 increased 52% and 44%, respectively, from the corresponding
prior year periods, but average selling prices declined due to increased
competition in the market for adapter products and an increased shipment mix of
MiniPCI cards which have lower selling prices than PC cards.

Revenues from our products as a percentage of total revenues were as follows:


Three Months Ended June 30            2000       1999
-------------------------------------------------------
LAN Adapters                           32%        31%
LAN+Modem                              59%        54%
Modem                                   7%        10%
Other                                   2%         5%
-------------------------------------------------------


Nine Months Ended June 30             2000       1999
-------------------------------------------------------
LAN Adapters                           32%        28%
LAN+Modem                              57%        57%
Modem                                   7%        11%
Other                                   4%         4%
-------------------------------------------------------

International sales. Total international sales (shipments to customers located
outside the U.S.) were 46% and 50% of total net sales for the three-and nine-
month periods ended June 30, 2000, compared to 52% and 55% for the comparable
prior year periods. Net sales from our adapter cards grew at a faster rate in
the U.S. than in the Europe and the Asia-Pacific regions during the three- and
nine-month periods ended June 30, 2000 as compared to the corresponding prior-
year periods.

Gross profit

Gross profit consists of net sales less cost of sales. Cost of sales includes
material, labor, manufacturing overhead and other costs of sales. Other costs of
sales include provisions for excess and obsolete inventory, warranty expense and
royalty payments to certain licensers of software incorporated into our
products. Gross profit margins were 43.0% and 44.5% for the three- and
nine-month periods ended June 30, 2000, compared to 43.2% and 41.9% for the
corresponding prior-year periods. The increase in gross profit as a percentage
of net sales during the nine-month period ended June 30, 2000 was primarily
attributable to:

 .    The greater product mix and higher gross margins of our RealPort Integrated
     PC Card family of products  versus the comparably  featured Type II PC Card
     products;

 .    A decrease in our fixed manufacturing costs as a percentage of sales; and,

 .    A decrease in sales of our modem-only products, which typically generate
     lower gross profit margins than our other products.

These increases in gross profit as a percentage of sales were partially offset
by a greater mix of sales to our OEM customers versus our distribution partners,
which generally result in lower gross profit margins.


                                                                11  XIRCOM, INC.
<PAGE>

Xircom, Inc.

Operating expenses

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

We increased our research and development expenses in the three-and nine-month
periods ended June 30, 2000 by 36% and 43% as compared to the corresponding
prior-year periods as a result of our decision to increase staffing and
expenditures to support expanded branded and OEM product offerings, including
our RealPort2 Integrated PC Cards, PortStation(TM) and PortGear(TM) port
expansion systems, CompactCard(TM) adapters, Rex(R) wearable information
accessories and NetStation products. We expect total expenditures for research
and development to continue to increase through the remainder of fiscal 2000 due
to our planned expenditures on product enhancements and new product
introductions, and our development of wireless data solutions for wireless wide
area, local area and personal area networks for mobile technology customers.

Our sales and marketing expenses increased by 6% and 15% in the three-and
nine-month periods ended June 30, 2000 as compared to the corresponding
prior-year periods primarily due to:

 .    Additional staffing and sales and marketing activities required to support
     expanded branded markets;

 .    Expenses to support new products such as the PortStation and PortGear port
     expansion systems, CompactCard adapters, Rex wearable information
     accessories, and NetStation conference room networking lines of products;

 .    Expansion of our OEM sales organization; and,

 .    Expansion of operations in our regional headquarters in Tokyo, Japan.

As we pursue further product and market expansion activities, we expect sales
and marketing expenses for the remainder of fiscal 2000 to continue to increase.

Our general and administrative expenses increased by 32% and 31% for the three-
and nine-month periods ended June 30, 2000 as compared to the corresponding
prior-year periods to support growth in our organization and continued
expenditures on our information systems hardware and software. We expect general
and administrative expenses to increase during the remainder of fiscal 2000.

In-process research and development and other acquisition-related non-recurring
charges.

As a result of our acquisition of Entrega in October 1999, we recorded
approximately $2.9 million of non-recurring transaction and transition charges.
Transaction charges include certain fees and accounting and legal expenses.
Transition charges include costs of severance and future operating lease
payments related to facilities we have vacated.

During the third quarter of fiscal 2000, we recorded a charge of $19.5 million
for the write-off of in-process research and development as a result of our
acquisition of OTI. We based the amounts allocated to in-process research and
development on established valuation techniques in the high technology industry.
As of the date of the OTI acquisition, the projects associated with the
in-process efforts had not yet reached technological feasibility and the
research and development in process had no alternative future uses. Accordingly,
we charged these amounts to expense on the date of the acquisition.

We determined the fair value of the in-process research and development
technology by using the income approach, which discounts expected future cash
flows to present value. The discount rate used in the present value calculation
of 25% was derived from a weighted average cost of capital analysis, adjusted
upward to reflect risks related to the characteristics and applications of the
technology, existing and future markets, and assessments of the life cycle stage
of the technology. We assumed no material expense reductions or synergies as a
result of integrating the acquired in-process technology and, therefore, the
valuation assumptions do not include such anticipated cost savings. As of the
acquisition date, we estimated that the projects under development, which
primarily related to GSM and GPRS technologies, were approximately 85% and 20%
complete. These projects are expected to be completed within the next twelve
months.


                                                                12  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Amortization of goodwill and other acquisition-related intangibles

As a result of our acquisition of the Rex product line in September 1999 and OTI
in June 2000, we recorded goodwill and other acquisition-related intangible
assets of approximately $55 million, and are amortizing them over 3 to 5 years.

Provision for customer insolvency

During the nine-month period ended June 30, 2000, we recorded a provision for
customer insolvency of $4.2 million related to the bankruptcy filings of
MicroAge, Inc. in the United States and two European subsidiaries of CHS
Electronics, Inc.

Other income, net

Other income, net is primarily comprised of interest and dividend income we earn
from our cash and short-term investments, offset by early payment discounts
taken by our customers and foreign currency transaction gains and losses. The
increase in Other income, net for the three- and nine-month periods ended June
30, 2000 compared to the corresponding prior-year periods was due primarily to
increased interest income resulting from a higher total balance of cash and
short-term investments and higher interest rates, partially offset by an
increase in foreign exchange losses.

Income taxes

We recognized a provision for income taxes of $4.8 million for the three months
ended June 30, 2000. Our effective tax rate for the three months ended June 30,
2000 was higher than the expected rate primarily due to the write-off of
non-deductible in-process research and development charges related to our
acquisition of OTI, partially offset by the use of tax preferred investments,
and benefits from the tax holiday status of our operations in Malaysia.

Our effective income tax rate for the nine-month period ended June 30, 2000 was
44.0% as compared to 32.1% for the corresponding prior-year period. The
difference between our effective tax rates and the 35% federal statutory tax
rate was due primarily to the factors discussed above and state income taxes. We
intend to seek renewal of the tax holiday of our operations in Malaysia before
its expiration on October 31, 2000, but we cannot assure that a renewal or
extension will be received. In addition, we have invested some of our short-term
investments and cash equivalents in tax preferred investment vehicles to further
reduce our effective tax rate. An income tax benefit has not been recorded for
the losses attributable to Entrega during the 1999 fiscal period since such
losses have been utilized at the shareholder level based on Entrega's S-
Corporation status during that period.

Risk Factors

We face the risk of being unable to remain competitive in the mobile information
access industry.

The market for notebook PC Card adapters has grown rapidly since the Personal
Computer Memory Card International Association ("PCMCIA") introduced a standard
form factor for PC Card LAN adapters in 1993. Companies in the PC, desktop LAN
adapter and modem industries with greater name recognition and greater financial
resources than us, have a significant presence in the PC Card adapter market. As
a result, we have faced increased competition in our industry. Actions by our
competitors, which continue to influence this competitive environment, include
price reductions, new product introductions, promotional efforts, and changes in
the level of channel inventory. We expect competition to remain intense and as a
result, we may lose some of our business to our competitors. Further, we believe
that the market for PC Card LAN adapters, modems and Combo cards will continue
to be price competitive and thus we could continue to experience lower selling
prices, lower gross profit margins and reduced profitability levels than earned
from such products in the past.

We face the risk of being unable to compete if our manufacturing facility
becomes unable to produce our products efficiently.

Our manufacturing facility, located in Malaysia, produces substantially all of
our PC Card adapter products. We may be unable to achieve significant additional
efficiencies from this facility. If we are unable to achieve additional cost
reductions through increased production or manufacturing efficiencies

                                                                13  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

we may be unable to keep pace with our competitors' cost or price reductions to
an extent necessary to maintain or increase our market share without adversely
affecting gross profit margins. In addition, interruptions in the supply of
products could occur if we are unable to accurately forecast demand levels, or
react sufficiently rapidly to changes. This in turn could adversely affect
future sales. We also face risks associated with maintaining production
facilities overseas, including management of a distant and remote manufacturing
facility, currency fluctuations and potential instability in the local country.
This is particularly of concern to us in light of recent economic and political
uncertainty in Malaysia and in Asia generally.

We face the risk of declining margins resulting from changes in the mix of
products we sell and in the types of customers to whom we sell.

Certain of our products have lower gross profit margins than others. As a
result, changes in our product mix could result in variations in overall gross
profit margin. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" for a discussion of the relative margins of our
different products. In addition, shipments to our OEM customers generally result
in lower average selling prices and gross profit margins than sales made through
our distribution partners. Furthermore, the increased percentage of revenue from
OEM customers during fiscal 2000 as compared to fiscal 1999 has resulted in an
increased concentration in our customer base. With this increased customer
concentration, we have increased our dependency on a more limited number of
customers at lower average selling prices and gross profit margins than sales
made through our distribution partners. These trends may continue, as we
anticipate a continuing increase in OEM revenues as a percentage of sales.

We face certain risks as a result of our international sales and manufacturing
activities.

Our sales may be subject to government controls and other risks such as:

 .    Federal restrictions on export;

 .    Export licenses;

 .    Trade restrictions;

 .    Changes in tariff and freight rates;

 .    Currency fluctuations;

 .    Economic instability; and,

 .    Political instability.

As a result of recent and potential factors such as currency fluctuations and
economic instability impacting international markets, we could encounter
difficulties in accessing new and existing international markets or experience
increased credit risks. Such credit risks could include insolvency of customers
or other impairments of customers' ability to repay amounts owed to us. These
credit risks could also include insolvency of vendors or other impairments of
our vendors' ability to supply materials to us.

Foreign currency fluctuations could adversely affect our results.

We face exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time and could have a material adverse impact on our
financial results. We do substantially all our manufacturing at our facility in
Malaysia and we operate sales and marketing headquarters located in Belgium,
Singapore and Japan. As a result a significant portion of our operating expenses
are denominated in the Malaysian ringgit, the Euro, the Singapore dollar and the
Japanese yen. The majority of our international sales were denominated in U.S.
dollars in 1999 and prior fiscal years. However, beginning with fiscal year
2000, the majority of our international sales are denominated in the Euro. We
hedge certain foreign currency fluctuations , and continue to evaluate the
impact of such foreign currencies on our foreign exchange exposure. We only
hedge foreign currency exposures associated with certain assets and liabilities
denominated in nonfunctional currencies and do not hedge anticipated foreign
currency cash flows. This hedging activity is intended to offset the financial
impact of foreign currency fluctuations on certain nonfunctional currency assets
and liabilities, but this hedging activity may not be successful in fully
offsetting such financial impact.

We face the risk of incurring unnecessary expenses if we are unable to
accurately predict sales of our products.

We generally ship products within one to four weeks

                                                                14  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

after receipt of orders. Therefore, our sales backlog is typically minimal.
Accordingly, our expectations of future net sales are based largely on our own
estimates of future demand and not on firm customer orders. If our net sales do
not meet expectations, profitability would be adversely affected, as we may not
be able to reduce expenses at the same pace in the near term.

We face the risk of a reduction in our sales if we are unable to respond quickly
to changes in demand for our products.

Our net sales can be affected by changes in the quantity of products that our
distributor and OEM customers maintain in their inventories. We believe that our
distribution partners carry relatively low quantities of our inventory compared
to that of our competitors'. We also have taken steps, beginning in the second
quarter of fiscal 1999, to reduce the levels of inventory maintained by our OEM
customers. We believe that these actions enable us to react more quickly to
changes in market demand. However, we may also be affected more directly and
more rapidly by changes in the market, including the impact of any slowdown or
rapid increase in end user demand. Despite our efforts to minimize channel
inventory exposure, distribution partners and OEM customers may still choose to
reduce their inventories below current levels, which could cause a reduction in
our net sales.

We face the risk of being unable to compete if we are not able to develop new
products in a timely manner.

Our success is dependent on our ability to continue to introduce new products
with advanced features, functionality and solutions that our customers demand.
We may be unable to continue to timely introduce new products that are accepted
by the market, or that sell through to end users in quantities sufficient to
make the products viable for the long-term. Sales of our new products may
negatively impact sales of existing products. In addition, we may have
difficulty establishing our products' presence in markets where we do not
currently have significant brand recognition.

We face the risk of being unable to successfully market wireless wide area
network products.

Our wireless wide area network product strategy is dependent on the success of
wireless carriers in their efforts to deploy GPRS and its packet switching
capabilities in their wireless GSM networks. We may be unable to achieve sell
through of our wireless wide area network products to end users in commercially
viable quantities if carriers fail to:

 .    Successfully complete GPRS network trials;

 .    Incorporate GPRS infrastructure into their GSM networks;

 .    Achieve satisfactory  throughput speeds; or,

 .    Market GPRS capable terminals in commercial quantities.

We face the risk of being unable to manufacture our products because we are
dependent on a limited number of qualified suppliers for our components.

Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture our products may fluctuate.
Because some components, including custom chipsets, are available from sole
suppliers, we risk having an inadequate supply of components due to a number of
factors, including:

 .    Supplier manufacturing constraints;

 .    Excess of demand versus supply;

 .    National political or economic changes; and,

 .    Other risks not within our control.

Although we have not experienced any significant parts shortages over the past
year, many components we use require long-lead purchase orders thereby limiting
our flexibility to change order quantities in the event of changes in demand.
Any supply source interruptions, limitations on availability, or inability to
develop alternative sources as needed could adversely affect our ability to
deliver products and, in turn, our future earnings.

We face the risk that rapid technological changes and short product life cycles
in our industry could harm our business.

                                                                15  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Rapid technological change and short product life cycles characterize the
industry in which we operate. The industry includes competitors with greater
financial and technical resources than us, including, in particular, 3Com. While
we have historically been successful in developing or integrating leading
technology into our products, ongoing investment in research and development is
required for us to maintain our technological position. We may need to increase
the rate of such investment depending on competitive factors, and we may not be
able to innovate as quickly as our competitors.

If networking capability is included in extension modules to PCs or in the PC
itself, it could result in a reduction in the demand for add-on networking
devices. Our ability to retain our market share and operating results are also
dependent on continued growth in the underlying markets for notebook networking
products, and notebook computers, and the notebook-to-network connection rate.

We face the risk that we could become involved in intellectual property disputes
and may be unable to enforce our intellectual property rights.

We may not be able to protect our intellectual property adequately through
patent, copyright, trademark and other protection. For example, patents issued
to us may not be upheld as valid if litigation over the patent were initiated.
Alternatively, competitors may succeed in designing around the claims of issued
patents, thereby avoiding infringement of applicable patents. If we are unable
to protect or enforce our intellectual property adequately, it could allow
competitors to duplicate our technology or may otherwise limit any competitive
technological advantage we may have. Because of the rapid pace of technological
change in the communications industry we believe our success is likely to depend
more upon continued innovation, technical expertise, marketing skills and
customer support and service rather than upon legal protection of our
proprietary rights. However, we will aggressively assert our intellectual
property rights when necessary.

With the proliferation of new products and rapidly changing technology in the
mobile information access market, there has been a significant volume of patents
or similar intellectual property rights held by third parties. Given the nature
of our products and development efforts, there are risks that third parties
could assert patent or intellectual property rights claims against us. These
risks include the cost of licensing or designing around a given technology. If a
claimant refuses to offer such a license on terms acceptable to us, there is a
risk of incurring substantial litigation or settlement costs regardless of the
merits of the allegations. In the event of litigation, if we do not prevail we
may be required to pay significant damages and/or to cease sales and production
of infringing products.

We currently use software licensed from third parties in certain of our Combo,
modem-only, Token Ring, port expansion system and wearable information accessory
products. Our operating results could be adversely affected by a number of
factors relating to this third-party software, including:

 .    Failure by a licensor to accurately develop, timely introduce, promote or
     support the software;

 .    Delays in shipment of our products;

 .    Excess customer support or product return costs experienced by us due to
     errors in licensed software; or,

 .    Termination of our relationship with such licensors.

We face the risk of being unable to attract and retain qualified managerial and
other skilled personnel.

Our continued success depends, in part, on our ability to identify, attract,
motivate and retain qualified managerial, technical and sales personnel. Because
our future success is dependent on our ability to manage effectively the
enhancement and introduction of existing and new products and the marketing of
such products, we are particularly dependant on our ability to identify,
attract, motivate and retain qualified managers, engineers and salespersons. The
loss of the services of a significant number of our engineers or sales people or
one or more of our senior officers or managers could be disruptive to our
development efforts or business relationships and could seriously harm our
business.

                                                                16  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

We face the risk of being unable to integrate effectively processes, products or
businesses that we create or acquire.

The recently acquired OTI business must be integrated with our existing business
structure. If we are ineffective in integrating OTI within our business or fail
to do so with acquisitions that we have made in the past or may make in the
future, we may face disruptions to our business activities, and our business may
be seriously harmed.

We face the risk of being unable to renew our tax holiday status in Malaysia.

We have received tax holiday status on our manufacturing operations in Malaysia.
Under this tax holiday, the earnings of our manufacturing subsidiary are not
taxable in Malaysia. This tax holiday expires in October 2000, and we cannot be
assured that we will be able to renew or extend this tax holiday.

The Company is also subject to additional risk factors as identified in its
Current Report on Form 8-K dated November 10, 1999.

Liquidity and Capital Resources
-------------------------------

As of June 30, 2000 we had $129.3 million in cash and cash equivalents and
$230.4 million in short-term investments. Our operating activities provided cash
of approximately $38.7 million during the nine-month period ended June 30, 2000,
primarily due to net income before depreciation and amortization expense and
in-process research and development and non-cash charges being offset by an
increase in accounts receivable and a decrease in accounts payable and other
accrued liabilities. Our accounts receivable increased primarily due to higher
revenues while accounts payable and other accrued liabilities decreased
primarily due to the timing of payment for material inventory purchases.

We used $265.9 million of cash in investing activities during the nine-month
period ended June 30, 2000, primarily for $230.4 million in net purchases of
short-term investments and $33.1 million in capital expenditures. Our short-term
investments consist of financial instruments, including auction rate securities
with interest rates or dividends that reset within 90 days, but with longer-term
underlying contractual maturities. Our capital expenditures were for information
systems hardware and software and for increased headcount, and the purchase of
manufacturing equipment for use in our Penang, Malaysia facility. We anticipate
an increase in our rate of capital expenditures over the next twelve months for
information systems hardware and software, and the anticipated moves of our
corporate headquarters to a new leased facility in Thousand Oaks, California and
of our Wireless Technology Group (formerly OTI) to a new leased facility in
Colorado Springs, Colorado.

Our financing activities provided $220.8 million in cash during the nine-month
period ended June 30, 2000. This was primarily the result of $223.3 in net
proceeds from the sale of 4,600,000 shares of our Common Stock (including the
exercise of the underwriters' over-allotment option) in an underwritten public
offering at a price of $51.25, and from the issuance of common stock through
stock option exercises and employee stock purchase plans. In addition, during
the nine-month period ended June 30, 2000 we used cash of $5.0 million to repay
notes payable. These increases were partially offset by the use of $7.9 million
to repurchase 168,000 shares of our stock under a plan authorized by our board
of directors in June 2000 to offset the dilution caused by the shares issued and
options assumed related to the OTI acquisition. Through August 4, 2000, we used
$47 million to repurchase an additional 1.2 million shares of our common stock.

We have an unsecured bank credit facility allowing borrowings up to $25.0
million. We also have credit facilities totaling $5.5 million, denominated in
Malaysian ringgit, with banks in Malaysia. We had no borrowings outstanding and
approximately $30.2 million in borrowings available under our credit facilities
as of June 30, 2000.

We believe that cash on hand, borrowings available under our existing facilities
or from other financing sources, and cash provided by operations will be
sufficient to support our working capital and capital expenditure requirements
for at least the next twelve months. However, there can be no assurances that
future cash requirements to fund operations will not require us to seek
additional capital sooner than the

                                                                17  XIRCOM, INC.
<PAGE>

Xircom, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

twelve months, or that such additional capital will be available when required
on terms acceptable to us.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk disclosures involves forward-
looking statements. Actual results could differ materially from those projected
in the forward-looking statements.

Since our portfolio of cash equivalents and short-term investments is of a
short-term nature, and since we have no borrowings outstanding, we are not
subject to significant market price risk related to investments. However, our
interest income is sensitive to changes in the general level of taxable and tax-
free short-term U.S. interest rates. Based on our investment mix and balances as
of June 30, 2000, had average short term market interest rates for taxable and
tax-free securities been 100 and 70 basis points lower over the last twelve
months, our interest income and income before taxes would have been
approximately $3.1 million lower.

Our operating results are exposed to weak economic conditions in foreign markets
and changes in exchange rates, primarily between the U.S. dollar and the Euro,
the Malaysian ringgit, and the Japanese yen. When the dollar strengthens against
the Euro or the Yen, we experience a decrease in the value of sales in
currencies other than the functional currency.

In our European and Japanese markets, respectively, we are a net receiver of the
Euro and the Yen. As such, we benefit from a weaker dollar versus the Euro and
the Yen. Our Malaysian operations are net payers of currencies other than the
U.S. dollar. As such, our operating results may be adversely affected by a
weaker U.S. dollar versus the Malaysian ringgit.

To mitigate the short-term effect of changes in currency exchange rates on our
foreign currency-based expenses, we purchase and hold Malaysian ringgits in
advance of the due date of our underlying obligations. In addition, we hedge our
Euro currency exposures associated with certain assets and liabilities
denominated in nonfunctional currencies by utilizing forward contracts. This
hedging program reduces, but does not eliminate, the impact of Euro currency
exchange rate movements.

Part II. Other Information
Item 1.  Legal Proceedings
None.

Item 2.  Changes in Securities
During the quarter ended June 30, 2000, VoiceStream Wireless Corporation
acquired 1,201,079 shares of our Common Stock in a private transaction in which
we acquired Omnipoint Technologies, Inc., a Delaware corporation.

Item 3.  Defaults Upon Senior Securities
None.

Item 4.  Submission of Matters to a Vote of Security Holders
None.

Item 5.  Other Items
None.

Item 6.  Exhibits and Reports on Form 8-K
(a) Exhibits
    Exhibit 10.37 Agreement and Plan of Reorganization by and among VoiceStream
                  Wireless Corporation, Omnipoint Finance, LLC, Omnipoint
                  Technology Holdings, Inc., Xircom, Inc., and OTHI Acquisition
                  Co. dated as of June 12, 2000.
    Exhibit 27    Financial Data Schedule

(b) Reports on Form 8-K
    1) On April 20, 2000, we filed a report on Form 8-K relating to the
       Company's financial results for the three and six-month periods ended
       March 31, 2000, as presented in a press release dated April 17, 2000.

    2) On June 15, 2000 we filed a report on Form 8-K to file two press releases
       issued by us on June 13, 2000. The first press release announced the
       signing of the definitive agreement for the acquisition by Xircom of
       Omnipoint Technologies, Inc. from VoiceStream Wireless Corporation. The
       second press release announced a stock

                                                                18  XIRCOM, INC.
<PAGE>

Xircom, Inc.

PART II -- OTHER INFORMATION

          repurchase program to be initiated by Xircom contingent on the closing
          of the acquisition of Omnipoint Technologies, Inc.

     3)   On June 28, 2000, we filed a report on Form 8-K to announce that on
          June 22, 2000, the Hart-Scott-Rodino Act waiting period expired, and
          on June 27, 2000, Xircom, Inc. completed its acquisition of Omnipoint
          Technologies, Inc. from VoiceStream Wireless Corporation.


                                  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.

                                                                    XIRCOM, INC.
                                                         -----------------------
                                                                    (Registrant)

Date: August 14, 2000                                          /s/ Dirk I. Gates
      ---------------                                    -----------------------
                                                                   Dirk I. Gates
                                            Chairman of the Board, President and
                                                         Chief Executive Officer

Date: August 14, 2000                                    /s/ Steven F. DeGennaro
      ---------------                                    -----------------------
                                                             Steven F. DeGennaro
                                                     Vice President, Finance and
                                                         Chief Financial Officer

                                                                19  XIRCOM, INC.