<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 DECEMBER 31, 1995


          [ ]  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                                     95-42218
  (State or other jurisdiction of                       (IRS Employer
   incorporation or organization)                    Identification No.)



                          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 19,113,431 shares of the registrant's $.001 par value Common Stock
                     outstanding as of  February 9, 1996.



<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 Operations                                4

             Condensed Consolidated Statements of Cash Flows                                5

             Notes to Condensed Consolidated Financial Statements                         6-7


    Item 2.  Management's Discussion and Analysis
               of Financial Condition and Results of Operations                          8-14


PART II.  OTHER INFORMATION

    Item 1.  Legal Proceedings                                                             15

    Item 2.  Changes in Securities                                                         15

    Item 3.  Defaults Upon Senior Securities                                               15

    Item 4.  Submission of Matters to a Vote of Security Holders                           15

    Item 5.  Other Items                                                                15-16

    Item 6.  Exhibits and Reports on Form 8-K                                              16

SIGNATURES                                                                                 17
</TABLE>

                                        2

<PAGE>   3
                                  XIRCOM, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

                                                                              

<TABLE>
<CAPTION>
                                                                 (Unaudited)
                                                             December 31, 1995           September 30, 1995
                                                             -----------------           ------------------
<S>                                                              <C>                           <C>
Current assets:
    Cash and cash equivalents                                     $  8,385                     $ 13,658
    Accounts receivable                                             20,247                       11,592
    Income tax receivable                                            5,362                        8,362
    Inventories                                                     21,525                       19,174
    Deferred income taxes                                            9,017                        9,017
    Other current assets                                             2,895                        1,459
                                                                  --------                     --------
Total current assets                                                67,431                       63,262
Equipment and improvements, net                                     17,503                       17,588
Other assets                                                         7,466                        7,892
                                                                  --------                     --------
Total assets                                                      $ 92,400                     $ 88,742
                                                                  ========                     ========


Current liabilities:

    Notes payable to bank                                         $ 10,799                     $    600
    Accounts payable                                                 9,346                       18,561
    Accrued liabilities                                             15,890                       14,313
    Current portion of long-term obligations                           915                          401
    Accrued income taxes                                               835                        1,141
                                                                  --------                     --------
Total current liabilities                                           37,785                       35,016
Long-term obligations                                                1,640                          631

Shareholders' equity:
    Common stock                                                        19                           19
    Paid-in capital                                                 77,306                       76,666
    Retained earnings (accumulated deficit)                        (24,350)                     (23,590)
                                                                  --------                     -------- 
Total shareholders' equity                                          52,975                       53,095
                                                                  --------                     --------
Total liabilities and shareholders' equity                        $ 92,400                     $ 88,742
                                                                  ========                     ========
</TABLE>


           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       3
<PAGE>   4
                                  XIRCOM, INC.

          CONDENSED CONSOLIDATYED STATEMENTS OF OPERATIONS (UNAUDITED)

                  (In thousands, except per share information)




                                                                              
<TABLE>
<CAPTION>
                                                                           Three months ended
                                                                               December 31
                                                                        ------------------------
                                                                         1995             1994
                                                                        -------          -------
<S>                                                                     <C>              <C>
Net sales                                                               $37,698          $40,106
Cost of sales                                                            23,944           20,080
                                                                        -------          -------
Gross profit                                                             13,754           20,026
                                           
Operating expenses:

    Research and development                                              3,007            3,229
    Sales and marketing                                                   9,121            8,384
    General and administrative                                            2,365            1,589                               
                                                                        -------          -------                               
         Total operating expenses                                        14,493           13,202
                                                                        -------          -------
Operating income (loss)                                                    (739)           6,824
Other income (expense), net                                                (283)             376
                                                                        -------          -------
Income (loss) before income taxes                                        (1,022)           7,200
Income tax provision (benefit)                                             (262)           2,664
                                                                        -------          -------
Net income (loss)                                                       $  (760)         $ 4,536
                                                                        =======          =======
                                                                   
Weighted average shares outstanding                                      18,989           16,947
Net income (loss) per share                                             $  (.04)         $   .27
</TABLE>



           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>   5
                                  XIRCOM, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                 (In thousands)



<TABLE>
<CAPTION>
                                                                           Three months ended
                                                                               December 31
                                                                      ----------------------------
                                                                        1995                1994
                                                                      --------             -------
<S>                                                                   <C>                  <C>
Operating activities:
    Net income (loss)                                                 $   (760)            $ 4,536
    Adjustments to reconcile net income (loss) to net
    cash used in operating activities:
         Depreciation and amortization                                   1,995               1,190
         Deferred rent                                                       -                 (24)
         Changes in assets and liabilities:
             Accounts receivable                                        (8,655)             (9,533)
             Income tax receivable                                       3,000                   -
             Inventories                                                (2,351)             (2,699)
             Other current assets                                       (1,436)                436
             Accounts payable and accrued liabilities                   (7,638)              1,105
             Income taxes payable                                         (170)              2,035 
                                                                      --------             -------
    Net cash used in operating activities                              (16,015)             (2,954)
                                                                      --------             ------- 

Investing activities:                                                 
Purchase of short-term investments                                           -              (3,005)
    Sale of short-term investments                                           -              11,004
    Purchases of equipment and improvements                             (1,521)             (5,002)
    Other                                                                   37                  13
                                                                      --------            --------
    Net cash provided by (used in) investing activities                 (1,484)              3,010
                                                                      --------            --------

Financing activities:
    Proceeds from issuance of capital stock                                504                 982
    Proceeds from issuance of long-term debt                             1,800                   -
    Net borrowings under line-of-credit agreement                       10,199                   -
    Long-term debt repayments                                             (277)               (126)
                                                                      --------            -------- 
    Net cash provided by financing activities                           12,226                 856
                                                                      --------            --------

Net increase (decrease) in cash                                         (5,273)                912
Cash and cash equivalents at beginning of period                        13,658              14,379
                                                                      --------            --------
Cash and cash equivalents at end of period                            $  8,385            $ 15,291
                                                                      ========            ========

Supplemental cash flow disclosures:
    Cash paid for:
         Interest                                                     $     41            $     20
         Income taxes                                                        -                 629
    Tax benefit related to employee stock options                     $    136            $    498
</TABLE>


           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       5
<PAGE>   6
                                  XIRCOM, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1995



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, 1995, 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 December 31, 1995 and the consolidated
results of operations for the three-month periods ended December 31, 1995 and
1994, and cash flows for the three-month periods ended December 31, 1995 and
1994, 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 1995 annual report on
Form 10-K.

The results of operations for the three-month period ended December 31, 1995
are not necessarily indicative of the results to be expected for the entire
fiscal year.


NET INCOME (LOSS) PER SHARE

Net income (loss) 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.


INVENTORIES

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

<TABLE>
<CAPTION>
                                              December 31       September 30                           
                                                 1995               1995                                
                                              -----------       ------------                                
   <S>                                         <C>                 <C>                                    
   Finished goods                               $ 5,823            $ 6,555                               
   Subassemblies                                  7,673              6,629                               
   Work-in-process                                3,813              2,495                               
   Component parts                                4,216              3,495                               
                                                -------            -------                               
                                                $21,525            $19,174                               
                                                =======            =======                               
</TABLE>





                                       6
<PAGE>   7
                                  XIRCOM, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1995


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.  Netaccess products have a five-year
hardware warranty and a 90-day software warranty, and ISDN products have a
two-year hardware and a one-year software warranty. 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.





                                       7
<PAGE>   8
                                  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 income as a percentage of net
sales:

<TABLE>
<CAPTION>
                                                     Three months ended                               
                                                         December 31 
                                                   ----------------------
                                                    1995            1994                               
                                                   ------          ------                               
<S>                                                <C>              <C>                                  
Net sales                                          100.0%           100.0%                             
Cost of sales                                       63.5             50.1                              
                                                   -----            -----                              
Gross profit                                        36.5             49.9                              
                                                                                                       
Operating expenses:                                                                                    
    Research and development                         8.0              8.0                              
    Sales and marketing                             24.2             20.9                              
    General and administrative                       6.3              4.0                              
                                                   -----            -----                              
                                                    38.5             32.9                              
                                                   -----            -----                              
Operating income (loss)                             (2.0)            17.0                              
Other income (expense), net                         (0.7)              .9                              
                                                   -----            -----                              
Income (loss) before income taxes                   (2.7)            17.9                              
Income tax provision (benefit)                      (0.7)             6.6                              
                                                   -----            -----                              
Net  income (loss)                                  (2.0)%           11.3%                             
                                                   =====            =====                  
</TABLE>


NET SALES

LAN ADAPTER AND MODEM PRODUCT SALES. Net sales of LAN adapters and modems
("client products") for the three months ended December 31, 1995, decreased 17%
from the corresponding period a year ago primarily because of increased
competition.  A decline in market share year-over-year caused a 2% decline in
total unit shipments and the greater competition required the Company to reduce
prices for its PC Card LAN adapters.  In addition, the continuing shift in mix
of revenue towards the lower-priced PC Card Ethernet adapters from parallel
port versions contributed to lower overall selling prices although this was
partially offset by a greater proportion of revenues derived from the
higher-priced combination Ethernet+Modem PC Card products.





                                       8
<PAGE>   9
                                  XIRCOM, INC.

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


The Company believes its overall market share for LAN adapters for portable PCs
has stabilized during the last two quarters based in part on its more
competitive pricing policies adopted during fiscal 1995.  The Company estimates
that unit sales of its client products by its distributors increased
approximately 15% in the December 1995 quarter from the September 1995 quarter.
This increase was attributable to increasing shipments of portable PCs, a
stabilized market share and higher sales of the Company's latest version of its
Ethernet+Modem PC Card, which was introduced in July 1995.

SYSTEMS PRODUCT SALES.  The Company completed its acquisition of Primary Rate
Incorporated ("PRI"), a provider of Integrated Services Digital Network (ISDN)
products to original equipment manufacturers (OEMs) in June 1995.  Revenues
from this new product line accounted for approximately 11% of net sales for the
December 1995 quarter.  Net sales of Netaccess remote access server and Netwave
wireless LAN product lines accounted for 1% of net sales during the first
quarter of fiscal 1996.

Sales of the Company's wireless LAN products are dependent on the Company's
ability to create greater awareness of its products among value-added
resellers, system integrators and end users. The Company expects that this
market will continue to develop slowly until standards are finalized (now
expected later in 1996) and users become more aware of the types of
applications that will make wireless LAN connections useful.  There can be no
assurances that the Company will be able to devote adequate sales and marketing
resources or further develop the products to achieve such awareness or
acceptance.  In January 1996, the Company announced that it is having
discussions with other companies which might be interested in partnering
arrangements with respect to development and marketing of Netwave or in the 
purchase of the product line.

International sales (shipments to customers located outside the U.S.) were 36%
of total net sales for the three-month period ended December 31, 1995, compared
to 38% for the corresponding period of fiscal 1995.  The decrease in the
percentage of international sales during the first quarter was due to the
addition of ISDN OEM sales in fiscal 1996, which are predominantly U.S.-based,
and the fact that certain international approvals required to ship the latest
version of the Credit Card Ethernet+Modem were not received until late in the
quarter.

Many of the Company's products (such as Netaccess, Netwave, modem-only and ISDN
products) and planned new products (combination modem products) that include
radio devices or that are designed to connect to public telecommunications
networks require approvals for use in certain countries.  While the Company
attempts to design its products to meet the requirements of most countries
worldwide, the testing and approvals process takes additional time.
Historically, the time between first shipments to the U.S. market and major
international markets for these products requiring





                                       9
<PAGE>   10
                                  XIRCOM, INC.

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


approvals, has been six to twelve months.  As a result, the proportion of
international sales may be lower than historical levels during product
introduction periods.


GROSS PROFIT

Gross profit margins for the quarter ended December 31, 1995 declined to 36.5%
compared with 49.9% for the comparable prior-year period due to the increased
proportion of sales of PC Card adapters, which have lower gross profit margins
than the Company's parallel port adapters, and to selling price reductions on
PC Card products during fiscal 1995.  In addition, start-up expenses related to
the commencement of operations for the Company's own manufacturing of PC Cards
in the December 1995 quarter had a negative impact on gross margins.

Gross margins improved from a negative 2.6% for the immediately preceding
quarter (September 1995) because of inventory reserves provided in the
September 1995 period and higher revenues relative to fixed operating costs in
the December quarter.  Higher margins on ISDN OEM products also contributed to
the increased overall gross profit margins.


OPERATING EXPENSES

Operating expenses for the three-month period ended December 31, 1995 increased
by 10% compared to the corresponding prior-year period because of expansion of
product lines, the acquisition of PRI and expanded international operations.
It also increased as a percentage of sales due to the lower sales in the
December 1995 period.  Compared to the preceding quarter, operating expenses
for the first fiscal quarter of 1996 were reduced by 20% through more focused
product development activities, a reduction in certain promotional spending and
employee attrition.

Research and development expenses decreased in the first quarter of fiscal 1996
compared to the corresponding prior-year period and the fourth quarter of
fiscal 1995 due to reduced product line expansion efforts and employee
attrition.  Current plans are to maintain research and development expenses at
approximately the same amount for the remainder of fiscal 1996.

Sales and marketing expenses increased by 9% for the three-month period ended
December 31, 1995 as compared with the prior-year as the result of added sales
and marketing personnel related to the acquisition of Primary Rate Incorporated
in 1995, geographic expansion in certain major international markets and
expansion of domestic field sales personnel.  Sales and marketing expenditures
were reduced from $11.8 million in the September 1995 quarter to $9.1 million
in the December 1995 quarter through consolidation of certain sales operations,
reduced overall promotional spending and attrition.  Current plans are for a
further reduction in sales and marketing





                                       10
<PAGE>   11
                                  XIRCOM, INC.

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


expenses in the second quarter of fiscal 1996 and then a flat level of expenses
for the balance of the year.

General and administrative expenses increased primarily due to expanded
information systems hardware and software and the amortization of goodwill and
other intangible assets related to the acquisition of PRI in 1995.


OTHER INCOME (EXPENSE), NET

Net other income or expense includes interest income from the investment of
available cash, prompt payment discounts earned by the company offset by prompt
payment discounts taken by customers, foreign currency transaction gains or
losses and interest expense on capital leases.  Net other expense for the
fiscal 1996 period compared to net other income for the fiscal 1995 period is
due primarily to lower interest income and higher interest expense as a result
of reduced cash balances and borrowings under its credit facilities.  Interest
expense is expected to increase in the future as a result of borrowings
required to fund operations.


INCOME TAXES

The Company's effective tax benefit for the three-month period ended December
31, 1995 was 25.6%.  The difference between the effective tax benefit in the
current quarter and the expected tax rate is due primarily to the
nondeductibility of goodwill amortization.


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.  In 1994,
the PC Card market overtook the market for parallel port adapters, and
competition increased substantially beginning in 1995.  Companies with greater
name recognition in the PC, desktop LAN adapter and PC Card modem industries
and with greater financial resources gained market share during 1994 and 1995
and now have a significant presence in the PC Card LAN adapter market.  In the
last four quarters, the Company's net sales and gross margin were adversely
impacted by a combination of factors: increased price competition, loss of
market share in the PC Card LAN adapter market, a lower proportion of sales
from parallel port products, higher than normal levels of inventories in the
Company's distribution channels and the related effect of reducing those
channel inventory levels. The Company believes its share of the PC Card LAN
adapter market stabilized in the September and December 1995 quarters because
of its more competitive pricing strategy for PC Card products adopted during
fiscal 1995 and because of its success with its latest version of its
combination Ethernet LAN and Modem PC Card.  Some of this success can be
attributed to technical difficulties that the Company believes its principal
competitor in this market segment has experienced.





                                       11
<PAGE>   12
                                  XIRCOM, INC.

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


This competitive product will likely become available in the second quarter of
fiscal 1996 and other competitors have recently introduced combination LAN and
modem PC Cards that compete with the Company's product.  Because of these
factors and others, there can be no assurances that market share erosion will
not occur in the future.

The Company believes that the market for PC Card LAN adapters will be price
competitive for the long-term and thus result in lower gross profit margins
than the Company had earned from such products in the past.  While the Company
believes its current product costs are competitive, it continues to redesign
its products for cost savings.  The Company's new manufacturing facility, which
began volume production in the December 1995 quarter, is expected to further
reduce its manufacturing costs, although efficiencies related to the new
manufacturing facility are not expected to be realized until the second half of
fiscal 1996.  There can be no assurances that such cost reductions will be
achieved or, if achieved, will keep pace with competitors' cost reductions or
be sufficient to allow price reductions required to maintain 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.  While the Company
has taken actions to reduce expenses over the last six months based on lower
revenues, its plans for future expenditures are still based in part on its
estimates of future sales.  If net sales do not meet expectations, the Company
may not be able to further reduce expenses commensurately in the near-term, and
profitability could 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.
The Company saw an increase in the level of channel inventories during the last
half of fiscal 1994 and the first half of fiscal 1995 as product sell-through
slowed.  The Company reduced the level of such channel inventories to more
normal levels during the second half of fiscal 1995 by significantly reducing
its shipments to its distributors.

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, if the Company
does not make sufficient expenditures in the sales and marketing areas, the
Company may have difficulty in establishing its presence in markets that are
just emerging, such as wireless LANs, or in which the Company does not have
significant brand recognition, such as remote access.

Although only about 15% of the December 1995 sales were from parallel port LAN
adapters, the Company expects that PC Card LAN adapters will further increase
as a proportion of LAN adapter revenues throughout 1996.  As indicated earlier,
the





                                       12
<PAGE>   13
                                  XIRCOM, INC.

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


Company's PC Card products generally sell for lower prices than the Company's
comparable parallel port products and have lower gross profit margins. The
Company introduced a line of modem-only PC Card products late in fiscal 1995,
utilizing existing technologies from its combination LAN and modem PC 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.  While systems-based product areas such as remote access and ISDN are
expected to contribute higher gross profit margins, the level of sales to be
achieved in these areas and therefore any positive impact on overall gross
margins is uncertain.

The Company established in-house manufacturing capabilities in Penang, Malaysia
at the end of fiscal 1995 and commenced a transition from manufacturing its PC
Card products at its subcontractors to its own facilities at that time.
Because all PC Card products are being manufactured at its own facilities
beginning in January 1996, 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.  In addition,
although the Company has hired experienced management personnel to oversee its
manufacturing operations, the Company has no previous experience in such
operations.  Interruptions could also occur due to political or economic
changes in Malaysia.  Also, the Company will continue to incur start-up
manufacturing costs at least through the second quarter of fiscal 1996 which
could adversely affect gross profit margins.

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 the shipments 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.

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.  Increased
competition in the PC Card market has resulted in shorter product life cycles
than in the past.  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





                                       13
<PAGE>   14
                                 XIRCOM, INC.

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


the underlying market for portable networking products as well as the Company's
ability to retain its market share.

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 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, 1995.


LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1995 the Company had $8.4 million in cash and cash equivalents.
The Company's operating activities used cash of approximately $16.0 million in
the three-month period ended December 31, 1995, primarily as a result of losses
from operations, increases in accounts receivable and inventories and a
decrease in accounts payable.  The Company had capital expenditures of $1.5
million in the first three months of fiscal 1996 primarily for manufacturing
equipment and leasehold improvements at its new Malaysian manufacturing
facility.  The Company has no material fixed commitments for capital
expenditures.

The Company has a domestic credit facility that permits borrowings up to $15.0
million at the prime rate plus 1-1/4%.  Advances under the agreement are based
on eligible accounts receivable and inventories and are secured by all
U.S.-based assets of the Company.  As of December 31, 1995, there was $9.8
million outstanding under this agreement, which expires in November 1996.  The
Company also has a credit facility in Malaysia totaling $7.2 million with
interest rates ranging from 1/2% to 1-1/2% over the bank's reference rate.  As
of December 31, 1995, there was $3.3 million outstanding under this facility,
which expires in December 1998.

At December 31, 1995 the Company had approximately $4.4 million in borrowings
available under its credit facilities.  In January 1996 the Company received
$4.4 million in income tax refunds which it used to reduce the outstanding
balance on its credit facilities.

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, during the last
three fiscal quarters, the Company has experienced reduced revenue levels,
losses from operations and negative cash flow.  While the Company expects that
revenues will increase and results of operations will improve in the March 1996
period, there can be no assurances that operating results will improve or 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.





                                       14
<PAGE>   15
                                  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 Annual Meeting of Shareholders of the Company was held on
             January 19, 1996.  The following is a brief description of each
             matter voted upon at the meeting and the number of affirmative
             votes and the number of negative votes cast with respect to each
             matter.

             (a)  The shareholders elected the following persons as directors
                  of the Company:  Kenneth J. Biba, Gary J. Bowen, Bruce C.
                  Edwards, Dirk I. Gates, J. Kirk Mathews and William J. 
                  Schroeder.  The votes for and against (withheld) each 
                  nominee were as follows:

<TABLE>
<CAPTION>
                     Nominee                           Votes For             Votes Withheld
                     -------                          ----------             --------------
                 <S>                                  <C>                        <C>
                 Kenneth J. Biba                      17,476,395                 218,534
                 Gary J. Bowen                        17,477,172                 218,534
                 Bruce C. Edwards                     17,459,893                 218,534
                 Dirk I. Gates                        17,480,706                 218,534
                 J. Kirk Mathews                      17,450,785                 218,534
                 William J. Schroeder                 17,481,070                 218,534
</TABLE>

             (b)  The shareholders approved an amendment to the Company's Stock
                  Option Plan to increase the number of shares of common stock
                  reserved for issuance thereunder from 5,300,000 shares to
                  6,000,000 shares.  There were 16,375,018 votes in favor of and
                  951,781 votes cast against the amendment.  There were 277,956
                  abstentions.

             (c)  The shareholders ratified the appointment of Ernst & Young
                  LLP as independent auditors for the Company for the year 
                  ending September 30, 1996.  There were 17,548,451 votes in 
                  favor of and 55,960 votes cast against the appointment of 
                  Ernst & Young LLP as independent auditors.  There were 
                  86,334 abstentions.


ITEM 5.      OTHER ITEMS

             In December 1995, Kenneth W. Bauer was appointed Vice President,
             Human Resources.  In September 1995, Mark B. Galvin resigned as
             Vice President and General Manager, ISDN Products Division, in
             October 1995, Kenneth J. Biba resigned as Executive Vice President
             and General Manager,





                                       15
<PAGE>   16
                                  XIRCOM, INC.

                           PART II OTHER INFORMATION


             Wireless Products Division and in December 1995, Philip H.
             Belanger resigned as Vice President, Product Development, Wireless
             Products. In January 1996, William F. Rosenberger was appointed
             Vice President and General Manager, Systems Division.


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a) Exhibits
                 
                 Exhibit 27       Financial Data Schedule


             (b) Reports on Form 8-K

                 None





                                       16
<PAGE>   17
                                  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:   February 12, 1996                        /s/ DIRK I. GATES
      ----------------------                     -------------------------------
                                                     Dirk I. Gates
                                                     Chairman of the Board, 
                                                     President and
                                                     Chief Executive Officer



Date:  February 12, 1996                         /s/ JERRY N. ULRICH
      ----------------------                     -------------------------------
                                                     Jerry N. Ulrich
                                                     Chief Operating Officer and
                                                     Chief Financial Officer



Date:  February 12, 1996                         /s/ STEVEN F. DEGENNARO
      ----------------------                     -------------------------------
                                                     Steven F. DeGennaro
                                                     Vice President, Finance and
                                                     Chief Accounting Officer





                                       17