<PAGE>   1



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

                          ---------------------------

                                    FORM 10-Q
                                   (Mark one)

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

                      FOR THE QUARTER ENDED MARCH 31, 1997

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


                         Commission file number 0-19856

                         ------------------------------

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


        CALIFORNIA                                    95-4221884 
(State or other jurisdiction of              (IRS Employer Identification No.) 
 incorporation or organization)                
               


                           2300 CORPORATE CENTER DRIVE
                         THOUSAND OAKS, CALIFORNIA 91320
               (Address of principal executive offices & zip code)

                  REGISTRANT'S TELEPHONE NUMBER: (805) 376-9300

               ---------------------------------------------------

   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 22,774,166 shares of the registrant's $.001 par value Common Stock
outstanding as of May 7, 1997.


<PAGE>   2


                                  XIRCOM, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                             Page
                                                                                             ----

<S>                                                                                          <C> 
PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets                                                  3

         Condensed Consolidated Statements of Income                                            4

         Condensed Consolidated Statements of Cash Flows                                        5

         Notes to Condensed Consolidated Financial Statements                                 6-8


     Item 2.  Management's Discussion and Analysis
                of Financial Condition and Results of Operations                             9-16


PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings                                                                17

     Item 2.  Changes in Securities                                                            17

     Item 3.  Defaults Upon Senior Securities                                                  17

     Item 4.  Submission of Matters to a Vote of Security Holders                              17

     Item 5.  Other Items                                                                      17

     Item 6.  Exhibits and Reports on Form 8-K                                                 17

SIGNATURES                                                                                     18
</TABLE>


                                       2
<PAGE>   3


                                  XIRCOM, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   (Unaudited)
                                                   March 31, 1997     September 30, 1996
                                                   --------------     ------------------
Current assets:
<S>                                                   <C>                <C>      
     Cash and cash equivalents                        $  65,537          $  21,377
     Accounts receivable                                 49,408             25,006
     Income tax receivable                                 --                2,652
     Inventories                                         16,680             13,771
     Deferred income taxes                                5,409              5,409
     Other current assets                                 2,643              3,330
                                                      ---------          ---------
Total current assets                                    139,677             71,545
Equipment and improvements, net                          18,030             18,136
Net assets of discontinued operations                    15,557             17,151
Other assets                                                390                369
                                                      ---------          ---------
Total assets                                          $ 173,654          $ 107,201
                                                      =========          =========
                                                                         
                                                                         
Current liabilities:                                                     
     Notes payable to bank                            $      --          $   5,100
     Accounts payable                                    14,516             10,260
     Accrued liabilities                                 18,304             18,986
     Current portion of long-term obligations             1,769              1,422
     Accrued income taxes                                 2,656              1,066
                                                      ---------          ---------
Total current liabilities                                37,245             36,834
Long-term obligations                                     1,839              1,860
Deferred income taxes                                     2,904              2,904
                                                                         
Shareholders' equity:                                                    
     Common stock                                            23                 20
     Paid-in capital                                    140,483             83,221
     Retained earnings (accumulated deficit)             (8,840)           (17,638)
                                                      ---------          ---------
Total shareholders' equity                              131,666             65,603
                                                      ---------          ---------
Total liabilities and shareholders' equity            $ 173,654          $ 107,201
                                                      =========          =========
                                                                     
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                        3

<PAGE>   4


                                  XIRCOM, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                  (In thousands, except per share information)

<TABLE>
<CAPTION>
                                             Three months ended        Six months ended
                                               March 31                  March 31
                                            1997         1996          1997          1996
                                            ----         ----          ----          ----
<S>                                     <C>           <C>           <C>           <C>      
Net sales                               $  57,140     $  39,978     $ 113,449     $  73,783
Cost of sales                              35,400        26,281        70,893        48,306
                                        ---------     ---------     ---------     ---------
Gross profit                               21,740        13,697        42,556        25,477

Operating expenses:
     Research and development               2,738         2,424         5,679         4,692
     Sales and marketing                   10,401         7,635        20,483        15,749
     General and administrative             1,660         1,524         3,589         3,212
                                        ---------     ---------     ---------     ---------
          Total operating expenses         14,799        11,583        29,751        23,653
                                        ---------     ---------     ---------     ---------
Operating income from continuing
  operations                                6,941         2,114        12,805         1,824
Other income (expense), net                    34          (352)           86          (631)
                                        ---------     ---------     ---------     ---------
Income from continuing operations
  before income taxes                       6,975         1,762        12,891         1,193
Provision for income taxes                  2,092           564         3,867           430
                                        ---------     ---------     ---------     ---------
Income from continuing operations           4,883         1,198         9,024           763
Discontinued operations:
     Operating income (loss), net of
       related tax effects                   (542)          175          (226)         (150)
                                        ---------     ---------     ---------     ---------
Net income                              $   4,341     $   1,373     $   8,798     $     613
                                        =========     =========     =========     =========

Weighted average shares outstanding        21,748        19,448        21,201        19,428
Net income (loss) per share:
  Continuing operations                 $     .22     $     .06     $     .42     $     .04
  Discontinued operations                    (.02)          .01          (.01)         (.01)
                                        ---------     ---------     ---------     ---------
  Net income                            $     .20     $     .07     $     .41     $     .03
                                        =========     =========     =========     =========
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        4
<PAGE>   5



                                  XIRCOM, INC.

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            Six months ended
                                                                                 March 31
                                                                           1997           1996
                                                                           ----           ----
<S>                                                                      <C>          <C>     
Operating activities:
     Income from continuing operations                                   $  9,024     $    763
     Adjustments to reconcile income from continuing operations
       to net cash used in continuing operating activities:
         Depreciation and amortization                                      3,707        3,050
         Changes in assets and liabilities:
              Accounts receivable                                         (24,402)      (8,891)
              Income tax receivable                                         2,652        7,926
              Inventories                                                  (2,909)      (6,693)
              Other current assets                                            739         (193)
              Accounts payable and accrued liabilities                      3,574        1,750
              Income taxes payable                                          3,603          406
                                                                         --------     --------
     Net cash used in continuing operating activities                      (4,012)      (1,882)
                                                                         --------     --------

     Loss from discontinued operating activities                             (226)        (150)
         Depreciation and amortization                                      1,168          999
         Net change in net assets of discontinued operations                  927       (2,656)
                                                                         --------     --------
     Net cash provided by (used in) discontinued operating activities       1,869       (1,807)
                                                                         --------     --------
     Net cash used in operating activities                                 (2,143)      (3,689)
                                                                         --------     --------

Investing activities:
     Purchases of equipment and improvements                               (3,627)      (5,766)
     Other                                                                    (47)          74
                                                                         --------     --------
     Net cash used in continuing investing activities                      (3,674)      (5,692)
     Net cash used in investing activities of discontinued operations        (501)        (163)
                                                                         --------     --------
     Net cash used in investing activities                                 (4,175)      (5,855)
                                                                         --------     --------

Financing activities:
     Net borrowings under line-of-credit agreement                         (5,100)       8,715
     Proceeds from issuance of long-term debt                                 971        1,800
     Long-term debt repayments                                               (645)        (493)
     Proceeds from issuance of capital stock                               55,252        1,739
                                                                         --------     --------
     Net cash provided by financing activities                             50,478       11,761
                                                                         --------     --------

Net increase in cash                                                       44,160        2,217
                                                                         --------     --------
Cash and cash equivalents at beginning of period                           21,377       13,043
                                                                         --------     --------
Cash and cash equivalents at end of period                               $ 65,537     $ 15,260
                                                                         ========     ========

Supplemental cash flow disclosures:
     Cash paid for interest                                              $    301     $     41
     Cash paid for income taxes                                          $     82     $      -
     Tax benefit related to employee stock options                       $  2,013     $    581
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>   6


                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997



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, 1996, 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 March 31, 1997 and the consolidated
results of operations for the three- and six-month periods ended March 31, 1997
and 1996, and cash flows for the six-month periods ended March 31, 1997 and
1996, in accordance with generally accepted accounting principles. The
accompanying financial statements are condensed and do not include footnotes and
certain 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 1996 annual report on
Form 10-K.

The results of operations for the three- and six-month periods ended March 31,
1997 are not necessarily indicative of the results to be expected for the entire
fiscal year.

NET INCOME PER SHARE

Net income per share is computed using the weighted average number of shares of
common stock and dilutive common stock equivalents (stock options) outstanding.
Fully diluted amounts for each period do not materially differ from the amounts
presented herein.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") was issued in February 1997 and must be adopted by the Company on
December 31, 1997. Early adoption is not permitted, however, all prior year
earnings per share data must be restated upon adoption to conform to the new
standard. SFAS 128 simplifies the calculation of earnings per share data by
replacing primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share excludes dilutive
securities including stock options, and is calculated using the weighted average
common shares outstanding for the period. Diluted earnings per share, which is
generally consistent with the fully diluted calculation under present accounting
rules, reflects the dilution to earnings that would occur if securities, stock
options and other dilutive securities resulted in the issuance of common stock.
The Company anticipates that prior period earnings per share, when restated for
SFAS 128, will remain unchanged or will be slightly higher. If the Company had
been permitted to adopt SFAS 128 in the second quarter of 1997, the Company
would have reported basic earnings from continuing operations per common share 
of $0.23. The impact of

                                       6
<PAGE>   7
                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997



Statement 128 on fully diluted earnings per share is not expected to be 
material.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                  March 31      September 30
                                    1997            1996
                                    ----            ----
<S>                               <C>            <C>    
Finished goods                    $ 7,498        $ 5,723
Subassemblies                         577          1,348
Work-in-process                     2,462            543
Component parts                     6,143          6,157
                                  -------        -------
                                  $16,680        $13,771
                                  =======        =======
</TABLE>
                                                               
REVENUE RECOGNITION

The Company recognizes revenue from product sales when shipped. 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. In addition, the Company provides telephone
support to purchasers of its products as needed to assist them in installation
or use of the products. The Company makes provisions for these costs in the
period of sale. The Company also has policies and/or contractual agreements
which permit distributors and dealers to return products under certain
circumstances. The Company makes a provision for the estimated amount of product
returns that may occur under these programs and contracts in the period of sale.

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest.

DISCONTINUED OPERATIONS

On April 14, 1997, the Company announced its intention to divest Netaccess, Inc.
("Netaccess"), its remote access subsidiary and, as a result, will now account
for this activity as a discontinued operation. Accordingly, the accompanying
financial statements have been prepared to reflect the historical financial
position and results of operations of Netaccess as discontinued operations.


                                       7
<PAGE>   8

                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997



The results of operations of Netaccess, net of related tax effects, have been
reported separately as discontinued operations in the Condensed Consolidated
Statements of Income. Operating income (loss) from discontinued operations is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                            Three months              Six months
                                               ended                    ended
                                             March 31                  March 31
                                       1997          1996        1997           1996
                                       ----          ----        ----           ----

<S>                                  <C>          <C>          <C>          <C>     
Net sales                            $  4,063     $  5,347     $ 10,065     $  9,240
Income (loss) before income taxes    $   (774)    $    257     $   (323)    $   (196)
Income tax provision (benefit)           (232)          82          (97)         (46)
                                     --------     --------     --------     --------
Net income (loss)                    $   (542)    $    175     $   (226)    $   (150)
                                     ========     ========     ========     ========
</TABLE>

The net assets of Netaccess, comprised principally of accounts receivable,
inventory, fixed assets, goodwill and other intangibles, offset by trade
payables and other liabilities, have been classified as Net assets of
discontinued operations in the accompanying Condensed Consolidated Balance Sheet
for all reported periods.

COMMON STOCK

On February 28, 1997 Intel Corporation ("Intel") completed the purchase of a
12.5 percent interest in the Company's common stock (2,516,405 newly issued
shares) and acquired warrants to purchase an additional 7.5 percent of the
Company's common stock (1,509,903 newly issued shares). The value of the initial
Intel equity investment was approximately $52 million. In addition, the Company
and Intel have signed a three-year technology and OEM agreement.


                                       8
<PAGE>   9


                                  XIRCOM, INC.
                     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            Six months
                                                           ended                    ended
                                                           March 31                March 31
                                                       1997      1996          1997       1996
                                                       ----      ----          ----       ----

<S>                                                    <C>       <C>           <C>        <C>   
Net sales                                              100.0%    100.0%        100.0%     100.0%
Cost of sales                                          62.0%     65.7%         62.5%      65.5%
                                                       -----     -----         -----      -----
Gross profit                                           38.0%     34.3%         37.5%      34.5%
                                                   
Operating expenses:                                
     Research and development                           4.8%      6.1%          5.0%       6.4%
     Sales and marketing                               18.2%     19.1%         18.0%      21.3%
     General and administrative                         2.9%      3.8%          3.2%       4.3%
                                                        ----      ----          ----       ----
                                                   
                                                       25.9%     29.0%         26.2%      32.0%
                                                       -----     -----         -----      -----
Operating income from continuing                   
  operations                                           12.1%      5.3%         11.3%       2.5%
Other income (expense), net                             0.1%     (0.9%)         0.1%      (0.9%)
                                                        ----    ------          ----     ------
Income from continuing operations                  
  before income taxes                                  12.2%      4.4%         11.4%       1.6%
Provision for income taxes                              3.7%      1.4%          3.4%       0.6%
                                                        ----      ----          ----       ----
Income from continuing operations                       8.5%      3.0%          8.0%       1.0%
Discontinued operations:                           
     Operating income (loss), net of               
       income taxes                                    (0.9%)     0.4%         (0.2%)     (0.2%)
                                                       -----      ----        ------     ------
Net income                                              7.6%      3.4%          7.8%       0.8%
                                                        ====      ====          ====       ====
</TABLE>
                                               
NET SALES

Net sales of LAN adapters, modems and multifunction LAN and modem cards ("Combo
cards") (collectively "client products") for the three- and six-month periods
ended March 31, 1997 increased 43% and 54%, respectively, from the corresponding
prior-year periods primarily due to growth in overall market demand for these
products. The growth in channel sell-through may be indicative of several
factors: an increased growth rate in shipments of portable PCs, which in turn
require network connections; a more competitive pricing strategy adopted by the
Company; continuing increased


                                       9
<PAGE>   10
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



market acceptance of the Company's Combo cards and Fast Ethernet cards; and
increased sales of the Company's modem-only PC Card products. Unit shipments of
client products for the three- and six-month periods ended March 31, 1997
increased 80% and 94%, respectively, from the corresponding prior year periods
but average selling prices declined due to increased competition in the PC Card
LAN adapter market and to a continuing shift in mix of products from
higher-priced parallel port versions to PC Card versions.

INTERNATIONAL SALES. Total international sales (shipments to customers located
outside the U.S.) were 49% of total net sales for each of the three- and
six-month periods ended March 31, 1997, compared to 45% and 42% from the
comparable prior year periods. PC Card sales in Europe and Asia-Pacific grew at
a faster rate than in the U.S. during the 1997 periods primarily because of
greater market growth in Asia and shorter delays in 1997 as compared to 1996
between initial shipment of new products in the U.S. and the shipment of
internationally approved versions of such products.

GROSS PROFIT

Gross profit margins for the three- and six-month periods ended March 31, 1997
were 38.0% and 37.5%, respectively, compared to 34.3% and 34.5%, respectively,
for the comparable prior-year periods. The increase in gross profit as a
percentage of net sales was primarily attributable to increased shipments and
the resulting decrease in fixed costs as a percentage of total cost of sales, as
well as the favorable impact of cost reduction efforts including the successful
transition of all the Company's PC Card production to its own manufacturing
facility in Penang, Malaysia. A change in the discount structure on products
sold into the distribution channel beginning in the September 1996 quarter, and
an increase in the percentage of revenue derived from higher-margined Fast
Ethernet LAN products also contributed to the increase in gross profit margins.
These positive margin impacts were partially offset by the increased portion of
sales represented by PC Card products which have lower gross profit margins than
the Company's parallel port products, and by selling price reductions on PC Card
products. In addition, start-up expenses related to the Malaysian manufacturing
facility had a negative impact on gross margins in the December 1995 quarter
and, to a lesser extent, in the March 1996 quarter.


                                       10
<PAGE>   11
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OPERATING EXPENSES

Total operating expenses for the three- and six-month periods ended March 31,
1997 increased by 28% and 26%, respectively, compared to the corresponding
prior-year periods primarily due to the continued expansion of product lines and
international operations, and an increase in certain sales and marketing
programs. Total operating expenses decreased as a percentage of sales for both
periods primarily due to increased sales and more focused product development
activities. Total operating expenses are expected to increase for the remainder
of fiscal 1997 but may fluctuate as a percentage of net sales.

Research and development expenses for the three- and six-month periods ended
March 31, 1997 increased by 13% and 21%, respectively, compared to the
corresponding prior-year periods. Increased expenses for both periods are due to
additional staffing to support expanded product lines as well as the
internalization of certain contracted development expenses, offset partially by
reduced expenses of the Netwave product line, which was sold in August 1996.
Research and development expenses decreased as a percentage of sales due to
increased sales and more focused product development efforts. Research and
development expenses are expected to continue to increase due to planned
expenditures on product enhancements and new product introductions.

Sales and marketing expenses for the three- and six-month periods ended March
1997 increased by 36% and 30%, respectively, compared to the corresponding
prior-year periods. The increases are related to additional headcount and
marketing activities to support the increased sales levels and expanding markets
as well as increased distributor related sales and marketing expenses. As
discussed in "Gross profit" above, the Company changed its discount structure on
products sold into the distribution channel beginning in the September 1996
quarter and, as a result, improved its gross profit margins. However, the
additional gross profit dollars were applied to distributor related expenses,
which increased the amount of sales and marketing expenses. Sales and marketing
expenses decreased as a percentage of due to the consolidation of certain sales
operations and reduced overall promotional spending resulting from a more
focused product line. Sales and marketing expenses are expected to increase
through the remainder of fiscal 1997 to support planned new product
introductions. Sales and marketing expenses are expected to increase through the
remainder of fiscal 1997 to support planned new product introductions and
additional geographic expansion.

General and administrative expenses for the three- and six-month periods ended
March 1997 increased by 9% and 12% respectively compared to the corresponding
prior-year periods. This increase was due to the need to support growth in the
overall organization. These expenses decreased as a percentage of sales
primarily due to increased sales. General and administrative expenses are
expected to increase moderately for the remainder of fiscal 1997.

                                       11
<PAGE>   12
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OTHER INCOME (EXPENSE), NET

Net other income or expense includes interest income from the investment of
available cash, early payment discounts earned by the Company offset by early
payment discounts taken by customers, foreign currency transaction gains and
losses, and interest expense on notes payable and capital leases. Net other
income for the fiscal 1997 periods compared to net other expense for the fiscal
1996 periods is due primarily to lower interest expense and higher interest
income as a result of increased cash balances and reduced borrowings under the
Company's credit facilities.

INCOME TAXES

The Company's effective tax rate for the six months ended March 31, 1997 was
30.0%. The difference between the effective tax rate in the current year and the
35% federal statutory tax rate is due primarily to benefits from the tax holiday
status of the Company's operations in Malaysia. The Company's effective tax rate
for the six months ended March 31, 1996 was 36% as a result of an expected 32%
tax rate for profitable operations in the second quarter of fiscal 1996 and the
25.6% tax benefit related to a pre-tax loss recorded in the first quarter of
fiscal 1996.

DISCONTINUED OPERATIONS

The financial results of Netaccess, Inc., which includes remote access server
products sold to original equipment manufacturers ("OEMs") and through two-tier
distribution channels, have been reported as discontinued operations in the
Condensed Consolidated Statements of Income for all periods. Operating loss from
discontinued operations, net of income tax benefit, was $226,000 for the six
months ended March 31, 1997, compared with $150,000 in the comparable prior year
period. Additional information with respect to discontinued operations is
included in the Notes to Condensed Consolidated Financial Statements.

RISK FACTORS

The market for portable PC LAN adapters has grown rapidly since the Personal
Computer Memory Card International Association (PCMCIA) introduced a standard
form factor for PC Card (originally "PCMCIA") LAN adapters in 1993. Companies
with greater name recognition in the PC, desktop LAN adapter and PC Card modem
industries and with greater financial resources now have a significant presence
in the PC Card adapter market. As a result, the Company's net sales and gross
profit margins have been and could continue to be adversely impacted by several
competitive factors, including increased price competition, new product
introductions by


                                       12
<PAGE>   13
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



competitors, promotional efforts by competitors, any reduction in the Company's
percentage market share of the PC Card adapter markets, and the levels of
inventories in the Company's distribution channels. Although competition is
expected to remain intense, the Company believes its share of the PC Card LAN
adapter market stabilized in 1996 and the six months of fiscal 1997, primarily
because of a more competitive pricing strategy for PC Card products adopted
during fiscal 1995, the success of its combination Ethernet LAN and Modem PC
Card, and the introduction of several new PC Card products in late 1996,
including the Company's Fast Ethernet PC Card which began shipping in June 1996,
its CardBus Ethernet adapter which began shipping in October 1996, and its
fourth-generation Combo cards which began shipping in September 1996.

The Company believes that the market for PC Card LAN adapters, modems and Combo
cards will continue to be price competitive for the long-term and thus could
continue to result in lower gross profit margins than the Company has earned
from such products in the past. In addition, the Company's manufacturing
facility, which began volume production in early fiscal 1996 and is now
producing all of the Company's PC Card products, is operating at a greater
efficiency level than in the first half of fiscal 1996. While the in-house
manufacturing facility is expected to continue to have a positive impact on cost
reduction efforts, the proportion of revenues derived from the Combo and
modem-only PC Cards, which have lower gross profit margins compared to LAN PC
Cards, have negatively impacted overall gross margins and may continue to offset
improvements from manufacturing and design efficiencies if such revenue mix
changes continue. In addition, there can be no assurances that cost reductions
achieved through increased manufacturing efficiencies will keep pace with
competitors' cost reductions or will be sufficient in the event of anticipated
competitive price reductions to allow price reductions required to maintain or
increase market share without adversely affecting gross profit margins.

The Company generally ships products within one to six weeks after receipt of
orders and therefore its sales backlog is typically minimal. Accordingly, the
Company's expectations of future net sales are based largely on its own estimate
of future demand and not on firm customer orders. If net sales do not meet
expectations, the Company may not be able to reduce expenses commensurately in
the near-term, and profitability would be adversely affected.

The Company's net sales may be affected by its distributors' decisions as to the
quantity of the Company's products to be maintained in their inventories. At
March 1997, the Company believes its distributors had what the Company considers
to be normal levels of inventory overall. However, there can be no assurance
that distributors will not choose to reduce inventory levels nonetheless, which
would adversely affect net sales.


                                       13
<PAGE>   14
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



There can be no assurances that new products that the Company may introduce will
achieve market acceptance or sell through to end users in sufficient quantities
to make them viable for the long-term. In addition, the Company may have
difficulty in establishing its presence in markets in which it does not have
significant brand recognition.

The Company introduced a line of modem-only PC Card products late in fiscal
1995, utilizing existing technologies from its Combo cards and modem-based
remote access products. While the PC Card modems generally have lower gross
profit margins than PC Card LAN adapters, increased sales volume from modems
would have a positive impact on coverage of fixed manufacturing costs, which in
time could partially offset the generally lower margins on modem products.

Because all PC Card products are being manufactured at the Company's own
facilities, interruptions in supply of products could occur if the Company is
unable to accurately forecast or react to changes in product demand, which in
turn could adversely affect future sales. Interruptions could also occur due to
political or economic changes in Malaysia.

In summary, gross profit margins are impacted by a number of factors, including
the rate of sales growth, competitive pricing pressures, the mix of product
sales, component and manufacturing costs, and shipment of new products, which
often have lower margins until market acceptance and increased volumes permit
component cost reductions and manufacturing efficiencies. Frequent product
transitions also increase the risk of inventory obsolescence and interruptions
of sales.

The Company's corporate headquarters, research and development facilities and
other critical business operations are located near major earthquake faults.
Operating results could be materially adversely affected in the event of a major
earthquake.

A number of additional factors could have an impact on the Company's future
operating results. The industry in which the Company operates is characterized
by rapid technological change and short product life cycles. While the Company
has historically been successful in developing leading technology for its
products, ongoing investment in research and development will be required to
maintain the Company's technological position, and the Company could be required
to increase the rate of such investments depending on competitive factors. Many
of the Company's competitors have greater financial and technical resources than
the Company. It is also possible that networking capability could be included in
the PC itself or in extension modules to PCs, which could cause a reduction in
the demand for add-on networking devices. The Company's results are also
dependent on continued growth in the underlying market for portable networking
products as well as the Company's ability to retain its market share.

The Company is aware that competitors have duplicated certain functionality of
the Company's products. There can be no assurance that the Company's patents,
copyrights, trademarks and other efforts to protect its intellectual property
will prevent

                                       14
<PAGE>   15
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



duplication of the Company's technology or that they will provide a competitive
advantage. The Company is also aware that there can be no assurance that a
patent issued to the Company would be upheld as valid if litigation over a
patent were initiated. The Company believes that, due to the rapid pace of
technological change in the LAN communications industry, the Company's success
is likely to depend more upon continued innovation, technical expertise,
marketing skills and customer support and service than legal protection of the
Company's proprietary rights.

With the proliferation of new products and rapidly changing technology in the PC
Card market, there is a significant volume of patents or similar intellectual
property rights held by third parties. Given the nature of the Company's
products and development efforts, there are risks that claims associated with
such patents or intellectual property rights could be asserted by third parties.
These risks may include the following: the cost of licensing a given technology
if the Company believes it may be prudent to secure such rights; the claimant
may not offer such a license on terms acceptable to the Company; the cost of
litigation or settlement of such claims could be substantial regardless of the
merits of the allegations; the Company may not prevail in the event of
litigation; if the Company did not prevail in litigation, it could be required
to pay significant damages, and/or to cease sales and production of infringing
products, and only make future sales of a noninfringing design.

The Company currently includes software licensed from third parties in certain
of its Ethernet+Modem, modem-only and Token Ring products, which, in the
aggregate, accounted for 57% of revenues in the second quarter of fiscal 1997.
The Company's operating results could be adversely affected by a number of
factors relating to this third-party software, including failure by a licensor
to promote or support the software, delays in shipment of the Company's products
as a result of delays in the introduction of licensed software or errors in the
licensed software, excess customer support costs or product returns experienced
by the Company due to errors in licensed software, or termination of the
Company's relationship with such licensors.

Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture the Company's products may
fluctuate. Some components, including custom chipsets, are available from only
one supplier. Any interruptions in these supply sources or limitations on
availability could impact the Company's ability to deliver its products and in
turn adversely affect future earnings.

The Company has announced its intention to divest Netaccess, Inc., its remote
access subsidiary, and is now accounting for this activity as a discontinued
operation. There can be no assurance that a buyer will be found in the near
term, or that proceeds from such a divestiture will exceed the carrying value of
the net assets of the discontinued operation.

The Company is also subject to additional risk factors as identified in its
Annual Report to Shareholders and filing on Form 10-K for the year ended
September 30, 1996.


                                       15
<PAGE>   16
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997 the Company had $65.5 million in cash and cash equivalents.
The Company's continuing operating activities used cash of approximately $4
million in the six-month period ended March 31, 1997, primarily as a result of
increases in accounts receivable and inventories offset partially by income from
operations, income tax refunds received and an increase in accounts payable.
Accounts receivable increased due to higher quarterly revenue and fewer early
payment discounts offered in the March 1997 quarter compared to the September
1996 quarter. Inventories increased primarily due to an increase in the volume
of PC Card business. The Company had capital expenditures of $3.6 million in the
first six months of fiscal 1997 primarily for manufacturing equipment at its
Malaysian manufacturing facility. The Company has no material fixed commitments
and does not expect an increase in the rate of capital expenditures during the
remainder of fiscal 1997 except that it has signed a letter of intent to
purchase its manufacturing facilities in Penang, Malaysia for approximately $5.6
million. The Company is currently evaluating its options for funding the
purchase price.

The Company has a two-year credit facility with a bank that permits borrowings
up to $25.0 million under base rate advances at the prime rate or under London
Interbank Offered Rate ("LIBOR") advances at the related LIBOR rate plus 1-1/4%.
As of March 31, 1997, there were no borrowings outstanding under this agreement,
which expires in December 1998. The Company also has a credit facility in
Malaysia totaling $10.8 million with interest ranging from a fixed rate of
approximately 7.0% to a variable rate of 1/2% to 1-1/2% over the bank's
reference rate. As of March 31, 1997, there were no demand notes and $3.6
million in term loans outstanding under this facility, which expires in December
1998. At March 31, 1997 the Company had approximately $33.4 million in
borrowings available under its credit facilities.

On March 3, 1997 the Company announced that Intel Corporation ("Intel") had
completed the purchase of a 12.5 percent interest in the Company's common stock
(2,516,405 newly issued shares) and acquired a warrant to purchase an additional
7.5 percent of the Company's common stock (1,509,903 newly issued shares). The
value of the initial Intel equity investment was approximately $52 million. The
Company intends to use the proceeds from the equity investment for working
capital purposes.

The Company believes that cash on hand, borrowings available under its existing
facilities or from other financing sources and cash provided by operations will
be sufficient to support its 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 the
Company to seek additional capital sooner than the twelve months, or that such
additional capital will be available when required on terms acceptable to the
Company.

                                       16
<PAGE>   17


                                  XIRCOM, INC.
                            PART II OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS
              Not applicable.

ITEM 2.       CHANGES IN SECURITIES
              Not applicable.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES
              Not applicable.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              The results of voting at the Annual Meeting of Shareholders of the
              Company were reported in the Company's Form 10-Q for the period
              ended December 31, 1996.

ITEM 5.       OTHER ITEMS
              Not applicable.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K
              (a)  Exhibits

                  10.31       Xircom,  Inc.  Common  Stock and Warrant  Purchase
                              Agreement,  of January 13,  1997, between Xircom, 
                              Inc. and Intel Corporation
                  10.31a      Warrant to Purchase Shares of Common Stock of 
                              Xircom, Inc., dated February 28, 1997
                  10.31b      Investor Rights Agreement,  dated February 28, 
                              1997,  between Xircom,  Inc. and Intel Corporation
                  27          Financial Data Schedule

              (b) Reports on Form 8-K
                  A Report on Form 8-K was filed by the Company on April 3, 1997
                  pursuant to Item 5 of Form 8-K ("Other Events"). The report
                  related to a press release concerning finalization of an
                  investment agreement between the Company and Intel
                  Corporation. A copy of the press release was filed as an
                  exhibit to such report.

                  A Report on Form 8-K was filed by the Company on April 23,
                  1997 pursuant to Item 5 of Form 8-K ("Other Events"). The
                  report related to a press release for the Company's second
                  quarter 1997 earnings. A copy of the press release was filed
                  as an exhibit to such report.


                                       17
<PAGE>   18





                                   SIGNATURES





Pursuant to the requirements of the Securities and 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: May 14, 1997                          /s/ Dirk I. Gates
      -------------                         -----------------
                                            Dirk I. Gates
                                            Chairman of the Board, President and
                                            Chief Executive Officer



Date: May 14, 1997                          /s/ Steven F. DeGennaro
      ------------                          -----------------------
                                            Steven F. DeGennaro
                                            Vice President, Finance and
                                            Chief Financial Officer


                                       18