<PAGE>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED March 31, 2002


                        Commission File Number: 000-31851


                        MULTILINK TECHNOLOGY CORPORATION
                        --------------------------------
             (Exact Name of Registrant as Specified in its Charter)


           California                                     95-4522566
           ----------                                     ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or organization)

          300 Atrium Drive, 2/nd/ Floor, Somerset, New Jersey    08873
          ------------------------------------------------------------
        (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (732) 537-3700
                                                           --------------

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [_]

     As of May 8, 2002, the number of shares of the Registrant's common stock,
$0.0001 par value per share, issued and outstanding, were: 47,569,358 shares of
Class A Common Stock and 27,000,000 shares of Class B Common Stock.

================================================================================

<PAGE>

                        MULTILINK TECHNOLOGY CORPORATION

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
PART I.    FINANCIAL INFORMATION                                                                                       PAGE
                                                                                                                       ----
<S>                                                                                                                    <C>
Item 1.    Financial Statements (unaudited):

           Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001.........................     1

           Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001.......     2

           Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001.......     3

           Notes to Unaudited Financial Statements..................................................................     4

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

Item 3.    Quantitative and Qualitative Disclosures about Market Risk...............................................    29

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings........................................................................................    31

Item 2.    Changes in Securities and Use of Proceeds................................................................    31

Item 3.    Defaults Upon Senior Securities..........................................................................    31

Item 4.    Submission of Matters to a Vote of Security Holders......................................................    31

Item 5.    Other Information........................................................................................    31

Item 6.    Exhibits and Reports on Form 8-K.........................................................................    31
</TABLE>

<PAGE>

                          Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

                MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                  (in thousands, except for per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                March 31,   December 31,
                                                                   2002         2001
                                                                   ----         ----
<S>                                                             <C>         <C>
ASSETS
Current assets:
    Cash and cash equivalents ...............................   $  37,675    $  49,779
    Short term investments ..................................      53,572       42,903
    Accounts receivable, net ................................       7,802       19,849
    Inventories .............................................       7,966        8,735
    Prepaid expenses and other current assets ...............       7,886       10,485
                                                                ---------    ---------
         Total current assets ...............................     114,901      131,751
                                                                ---------    ---------
Property and equipment, net .................................      35,895       28,160
Deferred income taxes .......................................      29,194       22,790
Other assets ................................................       4,325        4,352
                                                                ---------    ---------
    Total assets ............................................   $ 184,315    $ 187,053
                                                                =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable ........................................   $   7,182    $   8,366
    Accrued expenses ........................................      19,075       20,506
    Accrued warranty costs ..................................       1,070        1,293
    Software and equipment financing--current portion .......       3,865        1,995
    Lease obligations--current portion ......................       1,844        1,060
                                                                ---------    ---------
         Total current liabilities ..........................      33,036       33,220
                                                                ---------    ---------
Lease obligations--net of current portion ...................          32          221
Software and equipment financing--net of current portion.....       5,493        1,452
                                                                ---------    ---------

Commitments and contingencies
Shareholders' equity:
    Common stock, $.0001 par value:
         Class A ............................................           5            4
         Class B ............................................           3            3
    Additional paid-in-capital ..............................     196,374      192,212
    Deferred stock compensation .............................     (14,679)     (15,207)
    Accumulated deficit .....................................     (35,342)     (24,851)
    Accumulated other comprehensive (loss) income ...........          (6)         117
    Shareholder loan ........................................        (483)          --
    Treasury stock, at cost .................................        (118)        (118)
                                                                ---------    ---------
         Total shareholders' equity .........................     145,754      152,160
                                                                ---------    ---------
         Total liabilities and shareholders' equity .........   $ 184,315    $ 187,053
                                                                =========    =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       -1-

<PAGE>

                MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except for per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                    March 31,
                                                                              --------------------
                                                                                2002        2001
                                                                              --------    --------
<S>                                                                           <C>         <C>
Total revenues ............................................................   $ 10,091    $ 31,068
                                                                              --------    --------
Cost of revenues
     Product ..............................................................      5,445      11,349
     Inventory write down and related charges .............................         --       4,895
     Deferred stock compensation ..........................................        564         477
                                                                              --------    --------
Total cost of revenues ....................................................      6,009      16,721
                                                                              --------    --------

Gross profit ..............................................................      4,082      14,347
                                                                              --------    --------
Operating expenses:
     Research and development, excluding deferred stock compensation ......     12,789      12,536
     Sales and marketing, excluding deferred stock compensation ...........      3,932       3,527
     General and administrative, excluding deferred stock compensation ....      2,398       2,946
     Deferred stock compensation ..........................................      2,213       2,580
                                                                              --------    --------
         Total operating expenses .........................................     21,332      21,589
                                                                              --------    --------

Operating loss ............................................................    (17,250)     (7,242)
Other income and expenses
     Interest expense .....................................................        (88)        (97)
     Other income (including $57 and $130 of equity losses in affiliate
         during the three months ended March 31, 2002 and 2001,
         respectively) ....................................................        479         212
                                                                              --------    --------

Loss before benefit for income taxes ......................................    (16,859)     (7,127)
Benefit for income taxes ..................................................     (6,368)     (2,676)
                                                                              --------    --------
Net loss ..................................................................    (10,491)     (4,451)
Accretion of redeemable convertible preferred stock to redemption value ...         --          24
                                                                              --------    --------
Net loss attributable to common shareholders ..............................   $(10,491)   $ (4,475)
                                                                              ========    ========

Net loss per share, basic and diluted .....................................   $  (0.15)   $  (0.15)
                                                                              ========    ========

Weighted average shares of common stock, basic and diluted ................     70,704      30,060
                                                                              ========    ========

The composition of the amortization of deferred
   stock compensation is as follows:
Research and development ..................................................   $  1,363    $  1,380
Sales and marketing .......................................................        271         422
General and administrative ................................................        579         778
                                                                              --------    --------
     Total ................................................................   $  2,213    $  2,580
                                                                              ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       -2-

<PAGE>

                MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                         March 31,
                                                                                 -----------------------
                                                                                    2002        2001
                                                                                 ----------  -----------
<S>                                                                              <C>         <C>
Cash flows from operating activities:
    Net loss .................................................................   $(10,491)   $ (4,451)
    Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:
        Depreciation and amortization ........................................      2,942       1,802
        Deferred stock compensation ..........................................      2,777       3,057
        Deferred income taxes ................................................     (6,404)     (4,034)
        Equity losses in affiliate ...........................................         57         130
        Changes in working capital items, net ................................     11,152       1,301
        Other                                                                         199          24
                                                                                 --------    --------
          Net cash provided by (used in) operating activities ...............         232      (2,171)
                                                                                 --------    --------

Cash flows from investing activities:
    Purchases of property and equipment ......................................     (1,103)     (4,260)
    Purchases of non-marketable securities ...................................         --      (1,667)
    Purchases of marketable securities .......................................    (10,770)         --
                                                                                 --------    --------
     Net cash used in investing activities ...................................    (11,873)     (5,927)
                                                                                 --------    --------

Cash flows from financing activities:
    Proceeds from stock option exercises .....................................      1,076         355
    Payments on lease obligations and software and equipment
       financing .............................................................     (1,064)       (516)
    Shareholder loan .........................................................       (483)         --
                                                                                 --------    --------
        Net cash used in financing activities ................................       (471)       (161)
                                                                                 --------    --------

Effect of exchange rate changes on cash ......................................          8         (23)
                                                                                 --------    --------
Net decrease in cash and cash equivalents ....................................    (12,104)     (8,282)
Cash and cash equivalents, beginning of period ...............................     49,779      29,159
                                                                                 --------    --------
Cash and cash equivalents, end of period .....................................   $ 37,675    $ 20,877
                                                                                 ========    ========

Supplemental disclosures of cash flow information--Cash paid during the
    period for:
    Income taxes .............................................................   $     --    $  1,150
    Interest .................................................................   $     88    $     97
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       -3-

<PAGE>

1.   BASIS OF PRESENTATION

         The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments consisting of normal recurring items considered necessary for the
fair presentation have been included. The results of operations for the three
months ended March 31, 2002 are not necessarily indicative of the results to be
expected for the entire year.

         The financial statements included herein have been prepared with the
understanding that the users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.

         Derivative Financial Instruments - During the three months ended March
31, 2002, the company utilized foreign currency forward contracts. The Company
is exposed to market risk from changes in foreign currency exchange rates
associated with forecasted foreign currency-denominated expenses. The Company
uses foreign currency forward contracts designated as cash flow hedges to hedge
this exposure and the fair value changes of the forward contracts related to the
effective portion of the hedges are initially recorded as a component of other
comprehensive income. The Company utilizes these foreign currency forward
contracts to hedge its variability in U.S. dollar cash flows associated with
probable forecasted foreign inter-company Euro denominated expenses because the
Company reimburses its German subsidiary for such expenses. Unrealized and
realized gains and losses on cash flow hedges accumulate in other comprehensive
income and are reclassified into earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. Gains and
losses on derivatives that are terminated prior to their maturity are also
reclassified into earnings when the underlying hedged items impact earnings,
unless it is no longer probable that the hedged forecasted transaction will
occur, whereby such gains and losses are recognized immediately in earnings. The
Company hedges forecasted exposures up to 12 months in the future. For the three
months ended March 31, 2002, hedge ineffectiveness associated with instruments
designated as cash flow hedges was not significant. For the three months ended
March 31, 2002, net losses of less than $0.1 million were reclassified into
earnings as an adjustment to research and development expense. These net losses
were offset by gains and losses on the transactions being hedged. At March 31,
2002, less than $0.1 million of net derivative gains/losses included in
accumulated other comprehensive income will be reclassified into earnings within
twelve months from that date. The unrealized amounts in accumulated other
comprehensive income will fluctuate based on changes in fair value of open
contracts at each reporting period. At March 31, 2002, the Company's liability
of less than $0.1 million relating to these forward contracts is included in
accrued expenses in the accompanying condensed consolidated balance sheet.

                                       -4-

<PAGE>

2.   EARNINGS PER SHARE

         Basic net income or loss per share excludes dilution for potentially
dilutive securities and is computed by dividing net income or loss attributable
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted net income or loss per share reflects the
potential dilution that could occur if securities or other instruments to issue
common stock were exercised or converted into common stock. Potentially dilutive
securities are excluded from the computation of diluted net income or loss per
share when their inclusion would be antidilutive. A reconciliation between basic
and diluted weighted average shares outstanding is as follows:

         (Amounts in thousands)                             Three Months
                                                           Ended March 31,
                                                       -----------------------
                                                          2002          2001
                                                       ---------      --------
Weighted average shares outstanding, basic ...........   70,704        30,060
Dilutive shares issuable in connection with stock
    plans ............................................   14,901        18,008
Dilutive shares issuable in connection with
    warrants granted .................................      507         2,984

Conversion of preferred stock to common stock ........       --        27,116
                                                       ---------      --------
Weighted average shares outstanding, diluted .........   86,112*       78,168*
                                                       =========      ========

* Since there was a loss attributable to common shareholders in these periods,
the basic weighted average shares outstanding were used in calculating diluted
loss per share, as inclusion of the incremental shares shown in this calculation
would be antidilutive. During the three months ended March 31, 2002, stock
options and warrants totaling 12,885,806 were excluded from the computation of
diluted shares outstanding due to their antidilutive effect.

3.   INVENTORIES

         Inventories consisted of the following:

          (Amounts in thousands)                       March 31,   December 31,
                                                         2002          2001
                                                      ----------- --------------
     Finished goods ...........................        $  2,230     $  2,007
     Work-in-progress .........................             607        1,577
     Raw materials ............................           5,129        5,151
                                                       --------     --------
          Total ...............................        $  7,966     $  8,735
                                                       ========     ========

                                       -5-

<PAGE>

4.   SEGMENT INFORMATION AND CONCENTRATION OF REVENUES

         Revenues to geographic locations are as follows:

         (Amounts in thousands)                           Three Months Ended
                                                                March 31,
                                                      --------------------------
                                                        2002              2001
                                                      --------          --------
         North America ........................       $ 8,672           $ 18,362
         Europe ...............................         1,419             12,661
         Asia .................................            --                 45
                                                      --------          --------
                                                      $10,091           $ 31,068
                                                      ========          ========

         Revenues to certain geographic locations within Europe are as follows:

         Italy ................................             *           $  3,118
                                                      ========          ========
         France ...............................             *           $  7,977
                                                      ========          ========

         The following is a summary of the percentage of revenues from major
         customers:

                                          Three Months
                                        Ended March 31,
                                       -----------------
                                       2002         2001
                                       ----         ----
         Alcatel .................      21%          49%
         TyCom ...................      44%          16%
         Lucent ..................      16%           *
         Cisco ...................       *           10%

* Customer's or country's revenues represents less than 10% of total revenue in
the respective period.

5.   COMPREHENSIVE LOSS

         The components of comprehensive loss, net of tax, are as follows:

         (Amounts in thousands)                              Three Months Ended
                                                                    March 31,
                                                            --------------------
                                                               2002      2001
                                                            ---------  ---------
         Net loss .......................................   $(10,491)  $ (4,451)
         Change in net unrealized loss on
         available-for-sale investments .................       (101)        --
         Cash flow hedge reclassification adjustments             17       (226)
         Foreign currency translation adjustment ........        (39)       (73)
                                                            ---------  ---------
         Comprehensive loss  ............................   $(10,614)  $ (4,750)
                                                            =========  =========

6.   COMMITMENTS AND CONTINGENCIES

         The Company, in the ordinary course of its business, is the subject of,
or party to, various pending or threatened legal actions. The Company believes
that an ultimate liability arising from these actions will not have a material
adverse effect on its financial position, results of operations or cash flows.

         As disclosed in prior filings, in May and June, 2001, a former employee
and current shareholder sent correspondence to the Company claiming, among other
things, that the Company's Chief Executive Officer and Executive Vice President
breached a promise relating to his compensation and misused their power to
reward themselves while engaging in a scheme to oust him from the Company. The
employee/shareholder alleged that his claims form the basis for a claim of
breach of fiduciary duty by those officers. The correspondence proposed
settlement payments by the Company of up to $1.0 million in cash and the
transfer of one million shares of common

                                       -6-

<PAGE>

stock. The Company received no correspondence regarding this matter subsequent
to June 2001. While the Company believes the allegations set forth in the
employee/shareholder's correspondence to it are without merit, it cannot predict
the ultimate outcome of any litigation, should it be initiated.

7.   RELATED PARTY TRANSACTIONS

         During the three months ended March 31, 2002, the Company paid $0.2
million and $0.4 million to IPAG and ASIP, respectively, under existing
development agreements with these entities and made $0.3 million and $0.5
million of purchases from TRW and IBM, respectively.

         In January 2002, the Company entered into a full-recourse promissory
note with its Executive Vice President and Co-Chairman, to assist the officer
with the purchase of a new home upon his transfer from the Company's European
headquarters in Germany to its California facility. The note is for $0.5
million, bears interest at 5.5% per annum and is due in January 2007 (including
all accrued and unpaid interest). The note is secured by a portion of the
officer's Class B common stock pursuant to a pledge agreement between the
Company and the officer and is payable upon the earlier of the stated due date
or 30 days after the officer's employment with the Company ceases.

8.   SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS

         During the three months ended March 31, 2002 and 2001, the Company
financed the acquisition of equipment or software in the amount of $7.5 million
and $0.9 million, respectively.

         During the three months ended March 31, 2002, the Company issued 1.2
million shares of restricted Class A common stock, and recorded $2.5 million of
deferred stock compensation, to its employees with vesting periods from 18
months to immediate vesting upon the attainment of certain performance criteria
in 2002. Also during the three months ended March 31, 2002, a shareholder
converted 1.0 million shares of the Company's Class B common stock into the same
number of shares of Class A common stock.

9.   RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." Statement No. 143, which is effective for the
Company on January 1, 2003, requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company does not expect that the adoption of this standard
will have a material impact on its financial position, results of operations or
cash flows.

         Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." With the adoption of Statement 142, goodwill is no
longer subject to amortization over its estimated useful life. Rather, goodwill
is subject to at least an annual assessment for impairment by applying a
fair-value-based test. Similarly, goodwill associated with equity method
investments is no longer amortized. Equity method goodwill is not, however,
subject to the new impairment rules; the impairment guidance in existing rules
for equity method investments continues to apply. The adoption of this standard
did not have a material impact on the Company's financial position or results of
operations. As of March 31, 2002, the Company had $0.7 million of unamortized
goodwill recorded resulting from one of its equity investments.

                                       -7-

<PAGE>

10.   SUBSEQUENT EVENT

During April 2002, the Company entered into an unsecured $6.0 million credit
facility with Comerica Bank-California. The amount drawn down under the facility
from May 2002 through October 2002 will be converted into a 30-month term loan
(referred to as Tranche A). The amount drawn down under the facility from
November 2002 through April 2003 will also be converted into a 30-month term
loan (referred to as Tranche B). The Tranche A and B term loans will have a
fixed interest rate determined at 150 basis points above the three year Treasury
Note at the time such amounts are converted into their respective term loan.
During each six-month draw down period, only monthly interest payments are due.
During this period, interest is calculated at the London Interbank Offered Rate
("LIBOR") plus 150 basis points. The agreement requires that the Company
maintain i) a liabilities to tangible net worth ratio of .50 to 1, ii) a minimum
cash balance of $50 million and iii) at least $12 million invested at Comerica
Bank-California.

                                      -8-

<PAGE>

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

     The following discussion should be read in conjunction with our condensed
consolidated financial statements included elsewhere in this Form 10-Q. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors including
those set forth under "Risk Factors" herein.

OVERVIEW

     We design, develop and market advanced integrated circuits, modules,
transponders and higher-level assemblies that enable next generation optical
networking systems. We outsource substantially all of our semiconductor
fabrication and focus our efforts on the design, development and marketing of
our products.

     From our inception on July 26, 1994 through December 31, 1996, our
operations consisted primarily of start-up activities, including development of
our initial products. During 1996, we began generating development revenues
through technology development contracts with several of our customers. In July
1997, we began shipping our first product for customer evaluation. During the
first quarter of 1998, we recognized our first significant product revenues and
further invested in research and development, sales and marketing, operations
and our general and administrative infrastructure.

     To date, we have generated a substantial portion of our revenues from a
limited number of customers. Our top three customers for the three months ended
March 31, 2002 were TyCom, Alcatel and Lucent, representing 44%, 21% and 16% of
our revenues, respectively. During the year ended December 31, 2001, TyCom with
34% and Alcatel with 29% accounted for more than 10% of our revenues and four
other customers each accounted for greater than 5% of our revenues. Our top
three customers for the year ended December 31, 2000 were Lucent, Alcatel and
Cisco, representing 34%, 28% and 11% of our revenues, respectively.

     A number of telecommunication service providers have curtailed the level of
their capital expenditures on their infrastructure build-out, which has
significantly reduced the demand for our products by communications equipment
manufacturers, including these principal customers. Our revenues declined
substantially in the first quarter of 2002 compared with the fourth quarter of
2001. We anticipate that second quarter of 2002 revenues will decrease further
compared with the first quarter of 2002 revenues. Due to general economic
conditions and slowdowns in purchases of optical networking equipment, it has
become increasingly difficult for us to predict the purchasing activities of our
customers and we expect that our operating results will fluctuate substantially
in the future. In particular, we expect our revenues to be lower and loss per
share to be greater for fiscal 2002 than in fiscal 2001. We expect that in
future periods our customer base will become less concentrated both generally
and within our top three customers. We have reduced our worldwide headcount from
a high of 420 at June 30, 2001 to 366 at March 31, 2002 while increasing
research and development headcount during this period. We will continue to
realign our headcount during the remainder of 2002. Although we have undergone
headcount reductions and may continue to align headcount based upon the current
business environment, we are committed to i) maintaining superior customer
service, ii) building our product portfolio, iii) providing industry leading
research and development activities, iv) expanding into new markets and v)
developing strong customer relationships.

     We have focused our sales and marketing efforts on North American and
European communications equipment manufacturers. We are in the process of
establishing a sales organization in Asia and have developed relationships with
most of the major communications equipment manufacturers within Asia. During the
three months ended March 31, 2002, we derived 86% of our total revenues from
communications equipment manufacturers in North America compared with 59% during
the comparable period in 2001. We currently sell through our direct sales force
in North America and Europe and through selected independent sales
representatives in the United States, Canada, Germany, the United Kingdom,
Italy, France, Israel, China, Korea and Japan. We have started to build an
infrastructure to support an internal international sales force by opening sales
offices in Canada, Italy, and the United Kingdom. International revenues are
denominated in U.S. dollars, which reduces our exposure to foreign currency
risks. We expect international revenues to continue to account for a significant
percentage of total revenues.

                                       -9-

<PAGE>

     Revenues. We recognize product revenues at the time of shipment. Our
customers are not obligated by long-term contracts to purchase our products and
can generally cancel or reschedule orders on short notice. The slowdown in the
build-out of the communications infrastructure has caused our revenues to
decrease as compared with prior years. Our revenues declined in the first
quarter of 2002, compared to the fourth quarter of 2001 and the first quarter of
2001, and we recently announced that we expect our revenues to decrease during
the second quarter of 2002 as compared with the first quarter of 2002. In the
ordinary course of business, we receive order cancellations and rescheduled
shipments. To the extent possible, we pursue order cancellation fees from our
customers. Depending upon the facts and circumstances surrounding these
cancellation fees, the receipt of such fees may have an immediate impact on
revenues in the period that such fees are collected or the fees may need to be
deferred and then recognized as revenue over some future period. We cannot
ensure that we will be able to collect an order cancellation fee for each order
canceled and we cannot project how such fees will affect revenue.

     Cost of Revenues. Cost of revenues consists of component and materials
cost, direct labor, deferred stock compensation relating to manufacturing labor,
manufacturing, overhead costs and estimated warranty costs. We outsource
substantially all of the fabrication and assembly, and a portion of the testing,
of our products. Accordingly, a significant portion of our cost of revenues
consists of payments to our third-party manufacturers. If revenues increase, we
believe favorable trends should occur in manufacturing costs due to our ability
to absorb overhead costs over higher volumes. However, there is a fixed
component to cost of revenues, and the announced decline in our revenues in
2002, as compared with 2001, will adversely effect our gross margins.

     Research and Development. Research and development expenses consist
primarily of salaries and related personnel costs, equipment, material,
third-party costs and fees related to the development and prototyping of our
products and depreciation associated with engineering and design software costs.
We expense our research and development costs as they are incurred, except for
the purchase of engineering and design software licenses, which are capitalized
and depreciated over their estimated useful life. Research and development is
key to our future success and we will continue to strategically invest in
research and development in order to maximize our product offerings.

     Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in sales,
marketing, customer service and application engineering support functions. We
expect that sales and marketing expenses will remain flat during the second
quarter of 2002 in absolute dollar amounts as we reduce certain personnel and
external sale representative costs offset by hiring additional internal sales
personnel, initiate additional marketing programs, establish sales offices in
additional domestic and international locations and expand our customer service
and support organizations.

     General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance, accounting,
facilities, information services, human resources, recruiting, professional fees
and other corporate expenses. We expect that general and administrative expenses
will decrease in the second quarter of 2002 in absolute dollar amounts as we
continue to execute various cost reduction programs that were initiated in 2001
with the purpose of maximizing the leverage within general and administrative
functions.

                                      -10-

<PAGE>

     Deferred Stock Compensation. In connection with the granting of stock
options and restricted stock to our employees, officers and directors, we
recorded deferred stock compensation. Deferred stock compensation represents the
difference between the grant price and the fair value of the common stock
underlying options granted during these periods. Deferred stock compensation is
presented as a reduction of shareholders' equity. We are amortizing our deferred
stock compensation using the graded vesting method, in accordance with FASB
Interpretation No. 28, over the vesting period of each respective option,
generally three to four years. Based on our balance of deferred stock
compensation as of March 31, 2002, we estimate our amortization of deferred
stock compensation for each of the periods below to be as follows:

           Year Ending December 31,                    Amount
           ------------------------                    ------
                                                   (in thousands)

    2002 (subsequent to March 31, 2002) .........     $  8,573
    2003 ........................................        4,555
    2004 ........................................        1,480
    2005 ........................................           71
                                                      --------
        Total ...................................     $ 14,679
                                                      ========

     Approximately $1.6 million of the remaining amortization of deferred stock
compensation will be charged to cost of revenues.

     Net Income (Loss). In addition to the items discussed above, net income
(loss) also includes interest expense, other income, income or loss associated
with our equity investments and a provision or benefit for income taxes.
Interest expense relates to interest associated with capital leases and
equipment and software financings. Other income represents investment earnings
on our cash and cash equivalents and short-term investments and any income or
loss associated with our equity investments.

RESULTS OF OPERATIONS

     Revenues. Revenues decreased to $10.1 million for the three months ended
March 31, 2002, compared with $31.1 million for the three months ended March 31,
2001. The decrease was due to reduced spending by communications equipment
manufacturers.

     Despite the market decline, we are expanding the total available market of
our product portfolio, as we consistently introduce new products. Recently, we
announced the development of Micro-ModuleTM technology using sophisticated
packaging techniques that allow us to offer extremely small multi-chip modules
for 10 Gb/s systems in the industry. Our transponder products have generated
orders from customers in North America and Europe. To support our activities in
long-haul and ultra-long haul DWDM applications, we have recently announced a
partnership with Alcatel-Optronics.

     Many of our recently introduced products have been designed to reduce line
card size, power consumption and overall system cost. We will continue to expand
our product portfolio and aggressively pursue design wins with the objective of
being strategically positioned to take advantage of a recovery in the
communications equipment manufacturers industry.

     Gross Profit. Cost of revenues, including $0.6 million of deferred stock
compensation, decreased to $6.0 million for the three months ended March 31,
2002, compared with $16.7 million for the three months ended March 31, 2001.
Gross profit as a percentage of revenues, or gross margin, decreased to 40% for
the three months ended March 31, 2001 compared with 46% for the three months
ended March 31, 2001. Our lower sales volume was the most significant factor
contributing to the gross margin reduction offset by the sale of inventory, with
a cost of $0.5 million, that was previously written down to its net realizable
value during the first quarter of 2001. Gross margins were increased to 40% from
37% from the sale of this previously written down inventory. The inventory was
written down during the first quarter of 2001 based upon information from the
sole customer of the product that they were moving from GaAs to SiGe technology.
The customer's transition from GaAs to SiGe has been delayed. We

                                      -11-

<PAGE>

expect to receive orders for this product during the second quarter of 2002 and
will continue to disclose the effect that such sales have on gross margin.

     Excluding the impact of deferred stock compensation and the $4.9 million
inventory write down and related charges recorded in the first quarter of 2001,
gross margins would have been 46% and 64% for the three months ended March 31,
2002 and 2001, respectively. As discussed above, this decrease in gross margin
is due predominantly to the decrease in sales volume offset by the sale of
inventory previously written down to its net realizable value. During the three
months ended March 31, 2002 compared to the comparable period in 2001, stock
based compensation expense associated with cost of revenues did not fluctuate
significantly.

     Research and Development. Research and development expenses, excluding
deferred stock compensation, remained relatively flat at $12.8 million for the
three months ended March 31, 2002 compared with $12.5 million for the three
months ended March 31, 2001. As a percentage of revenues, research and
development expenses increased to 127% for the three months March 31, 2002
compared with 40% for the comparable period in 2001. The increase as a percent
of revenues was due to the reduction in revenues discussed above. Despite the
reduction in communications equipment manufacturers spending, we will continue
to strategically invest in research and development and seek to build
relationships with an expanding global customer base of original equipment
manufacturers. Our goal is to continue to realize increased research and
development efficiencies while accelerating the introduction of new products.

     Sales and Marketing. Sales and marketing expenses, excluding deferred stock
compensation, increased to $3.9 million for the three months ended March 31,
2002, compared with $3.5 million for the three months ended March 31, 2001. As a
percentage of revenues, sales and marketing expenses increased to 39% for the
three months ended March 31, 2002 compared with 11% for the three months ended
March 31, 2001. The increase in absolute dollars was due primarily to the
addition of sales and marketing and application engineering personnel as we have
begun to expand our internal domestic and international sales force since the
first quarter of 2001. The majority of this expansion is now complete and sales
and marketing expenses actually decreased slightly as compared to the three
months ended December 31, 2001. The increase as a percentage of revenues is due
primarily to the reduced revenues discussed above. For the three months ended
March 31, 2002, there was no material change in stock based compensation expense
associated with sales and marketing as compared with the comparable period in
2001.

     General and Administrative. General and administrative expenses, excluding
deferred stock compensation, decreased to $2.4 million for the three months
ended March 31, 2002, compared with $2.9 million for the three months ended
March 31, 2001. As a percentage of revenues, general and administrative expenses
were 24% for the three months ended March 31, 2002, compared with 10% for the
three months ended March 31, 2001. The decrease in absolute dollars was due
primarily to our focused efforts to leverage our general and administrative
expenses by eliminating unnecessary spending and avoiding future costs before
they occur. There was no material change in stock-based compensation expense
associated with general and administrative expenses during the three months
ended March 31, 2002 compared with the comparable period in 2001.

     Deferred Stock Compensation. Operating expenses included amortization of
deferred stock compensation of $2.2 million for the three months ended March 31,
2002 compared with $2.6 million for the three months ended March 31, 2001. The
decrease is due to a greater proportion of deferred stock compensation expense
being recognized earlier in the vesting period coupled with the cancellation of
options due to employee terminations. Under the graded vesting method of
amortization, a greater proportion of deferred stock compensation is recorded in
the earlier years of the vesting period. Since the most significant portion of
deferred stock based compensation was recorded on option grants in 2000 and
early 2001, much of the deferred stock based compensation associated with these
grants has already been amortized as expense. Since our initial public offering
in June 2001, we have not issued any stock options with an exercise price below
fair value that would require the recognition of any deferred stock
compensation. However, during the later part of 2001 and during the first
quarter of 2002, we issued restricted stock to certain of our employees. The
deferred stock compensation associated with these restricted stock grants is
being amortized over the vesting period, which generally ranges from 18 months
to three years. The deferred stock compensation associated with the restricted
stock grants will increase deferred stock compensation expense in future
quarters.

                                      -12-

<PAGE>

     Other Income and Expenses, Net. Other income increased to $0.4 million for
the three months ended March 31, 2002, compared with other income of $0.1 for
the three months ended March 31, 2001. The increase was due primarily to an
increase in interest income as a result of having a higher average cash balance
during the three months ended March 31, 2002 from the proceeds of our June 2001
initial public offering coupled with a decrease of $0.1 million of losses from
our investment accounted for under the equity method of accounting.

     Net Income (Loss). Net loss increased to $10.5 million for the three months
ended March 31, 2002 compared with $4.5 million for the three months ended March
31, 2001. The increase in net loss is predominantly due to the items discussed
above including the reduction in revenue and the corresponding decrease in gross
profit and our continued spending in research and development offset by an
income tax benefit. The tax benefit was created as a result of our determination
that a valuation allowance against our deferred tax assets is not necessary. We
continue to believe that we will be able to realize the benefits of our deferred
tax assets and have recorded a tax benefit. We have recorded the benefit
associated with the increase in deferred tax assets, as we believe it is more
likely than not that we will be able to generate sufficient taxable income in
future periods to utilize such deferred tax assets. The utilization of our
deferred tax assets depends heavily on projected taxable income in future years.
If such taxable income is not recognized, we may be required to record a
valuation allowance against all or a portion of such assets. We evaluate the
recoverability of our deferred tax assets on a regular basis.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2002, we had cash and cash equivalents and short-term
investments of $91.2 million.

     Cash provided by operating activities was $0.2 million during the three
months ended March 31, 2002 compared with cash used in operating activities of
$2.2 million during the three months ended March 31, 2001. Net loss of $10.5
million includes non-cash charges of $2.9 million for depreciation and
amortization and $2.8 million for amortization of deferred stock compensation
offset by deferred tax benefits of $6.4 million. The improvement in cash
provided by operating activities is due predominantly to improved accounts
receivable collections from sales made during the later part of 2001.

     Cash used in investing activities increased to $11.9 million for the three
months ended March 31, 2002 from $5.9 million for the three months ended March
31, 2001. The increase was due to the purchase of $10.8 million of short-term
investments as we invest cash in order to maximize our investment returns and
$1.1 million of property and equipment as we continue to invest in research and
development.

     Cash used in financing activities was $0.5 million for the three months
ended March 31, 2002 compared with $0.2 million for the three months ended March
31, 2001. The increase in cash used in financing activities is predominantly due
to an increase in debt payments and a $0.5 million loan to our Co-Chairman and
Executive Vice President offset by proceeds from stock option exercises of $1.1
million. The loan was made to assist the officer with the purchase of a new home
upon his transfer from our European headquarters in Germany to our California
facility. During the three months ended March 31, 2002, we secured financing of
$7.5 million through vendor financings and negotiated extended payment terms
(generally payable within 12 months from purchase date) for another $2.5 million
for some of our equipment and software needs.

     Cash and cash equivalents and short-term investments decreased to $91.2
million at March 31, 2002 from $92.7 million on December 31, 2001 due
predominantly to the use of cash in investing and financing activities discussed
above.

     Cash and cash equivalents and short-term investments are expected to
decrease throughout the remainder of 2002. We expect that our quarterly net cash
usage will range from $15 to $17 million during the remaining quarters of 2002.
Given the short maturity of our short-term investments and their high liquidity,
a material change in interest rates will not materially affect our liquidity. We
believe that our current cash position and the availability of vendor financings
will satisfy our projected working capital and capital expenditure requirements
through at least the next 12 months.

     During April 2002, we entered into an unsecured $6.0 million credit
facility with Comerica Bank-California. The amount drawn down under the facility
from May 2002 through October 2002 will be converted into a 30-month term loan
(referred to as Tranche A). The amount drawn down under the facility from
November 2002

                                      -13-

<PAGE>

through April 2003 will also be converted into a 30-month term loan (referred to
as Tranche B). The Tranche A and B term loans will have a fixed interest rate
determined at 150 basis points above the three year Treasury Note at the time
such amounts are converted into their respective term loan. During each
six-month draw down period, only monthly interest payments are due. During this
period, interest is calculated at the London Interbank Offered Rate ("LIBOR")
plus 150 basis points. The agreement requires that the Company maintain i) a
liabilities to tangible net worth ratio of .50 to 1, ii) a minimum cash balance
of $50 million and iii) at least $12 million invested at Comerica
Bank-California.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." Statement No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. We do not expect that the adoption of this standard
will have a material impact on our financial position, results of operations or
cash flows.

                                      -14-

<PAGE>

FORWARD-LOOKING INFORMATION

     This Report contains forward-looking statements which include, but are not
limited to, statements concerning projected revenues, expenses, gross profit and
income, market acceptance of our products, the competitive nature of and
anticipated changes in our markets, our ability to achieve further product
integration, the status of evolving technologies and their growth potential, the
timing of new product introductions, the adoption of future industry standards,
our production capacity, our ability to migrate to smaller process geometries,
new technologies, and the need for additional capital. These forward-looking
statements are based on our current expectations, estimates and projections
about our industry, management's beliefs, and certain assumptions made by us.
Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "may," "will" and variations of these words or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that are
difficult to predict. Therefore, our actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result of
various factors, some of which are listed herein. We undertake no obligation to
revise or update publicly any forward-looking statements for any reason.

     As used in this Form 10-Q, "company," "we," "us," "our," "Multilink" and
"Multilink Technology" refer to Multilink Technology Corporation and its
subsidiary companies.

                                      -15-

<PAGE>

RISK FACTORS

Our quarterly revenues and operating results have declined substantially and are
expected to continue to decline because of a number of factors, any one of which
could adversely affect our stock price.

         Our revenues declined substantially in the first quarter of 2002, and
we anticipate an additional, substantial decline in the second quarter of 2002.
Due to general economic conditions and slowdowns in purchases of optical
networking equipment, it has become increasingly difficult for us to predict the
purchasing activities of our customers and we expect that our operating results
will fluctuate substantially in the future. In particular, we expect our
revenues to be significantly lower and loss per share to be greater for fiscal
2002 than in fiscal 2001. Future fluctuations in operating results may be caused
by a number of factors, many of which are outside our control. Factors that
could affect our future operating results include the following:

             .  the reduction, rescheduling or cancellation of orders by any of
                our customers or prospective customers;

             .  the loss of major customers;

             .  our ability to introduce new products and technologies on a
                timely basis;

             .  the announcement or introduction of new products and
                technologies by our competitors;

             .  competitive pressures on selling prices;

             .  the amounts and timing of costs associated with warranties and
                product returns;

             .  the amounts and timing of investments in research and
                development;

             .  market acceptance of our products and of our customers'
                products;

             .  the ability of our customers to obtain components from their
                other suppliers;

             .  fluctuations in manufacturing yields and inventory levels;

             .  the availability of external foundry capacity, purchased parts
                and raw materials;

             .  costs associated with acquisitions and the integration of
                acquired operations;

             .  general communications and semiconductor industry conditions;
                and

             .  general economic conditions.

         In the first quarter of 2002, we continued to identify areas of cost
reduction in an effort to bring our expenses in line with our reduced revenue
expectations. However, for at least the next several quarters, we do not expect
that these measures, implemented in the fourth quarter of 2001, will be
sufficient to offset lower revenues, and as such, we expect to continue to incur
increased net losses. In the past, we have recorded significant new product and
process development costs because our policy is to expense these costs at the
time that they are incurred. We may incur these types of expenses in the future.
These additional expenses will have a material and adverse effect on our results
in future periods. The occurrence of any of the above-mentioned factors could
have a material adverse effect on our business and on our financial results.

The market price for our Class A common stock has been volatile and future
volatility could cause the value of an investment in our company to decline.

         Our stock price has experienced significant volatility recently. In
particular, our stock price declined significantly in the context of
announcements made by us and other semiconductor suppliers of reduced revenue
expectations and of a general slowdown in the technology sector, particularly
the optical networking equipment sector. Given these general economic conditions
and the reduced demands for our products that we have experienced recently, we
expect that our stock price will continue to be volatile. In addition, the value
of our

                                      -16-

<PAGE>

company could decline due to the impact of any of the following factors, among
others, upon the market price of our Class A common stock:

             .  additional changes in financial analysts' estimates of our
                revenues and earnings (losses);

             .  our failure to meet financial analysts' performance
                expectations; and

             .  changes in market valuations of other companies in the
                semiconductor or fiber optic equipment industries.

         In addition, many of the risks described elsewhere in this section
could materially and adversely affect our stock price, as discussed in those
risk factors. The stock markets have recently experienced substantial price and
volume volatility. Fluctuations such as these have affected and are likely to
continue to affect the market price of our common stock.

         In the past, securities class action litigation has often been
instituted against companies following periods of volatility and decline in the
market price of such companies' securities. If instituted against us, regardless
of the outcome, such litigation could result in substantial costs and diversion
of our management's attention and resources and have a material adverse effect
on our business, financial condition and results of operations. We could be
required to pay substantial damages, including punitive damages, if we were to
lose such a lawsuit.

A long lasting downturn in the communications equipment industry could
negatively impact our revenues, profitability and cash flows.

         We derive substantially all of our revenues from communications
equipment manufacturers. The communications equipment industry, which is highly
cyclical, is experiencing a significant downturn. This downturn has had a
negative effect on the demand for our products. We cannot predict how long this
downturn will last. A prolonged downturn will adversely affect our profitability
and cash flows and will result in net losses and reduced cash balances for us.
In addition, our need to continue investment in research and development during
this downturn and to maintain extensive ongoing customer service and support
capability constrains our ability to reduce expenses. We may not be able to
generate sufficient cash to maintain our current spending levels if this
downturn continues for an extended period of time.

A few customers account for a majority of our sales, and the loss of one or more
key customers could significantly reduce our cash flows, revenues and any
profits.

         Historically, a relatively small number of customers has accounted for
a majority of our revenues. Our three largest customers accounted for
approximately 81% of our revenues for the three months ended March 31, 2002, 71%
of our revenues in 2001, and 73% of our revenues in 2000. Our top three
customers for the three months ended March 31, 2002 were TyCom, Alcatel and
Lucent, representing approximately 44%, 21% and 16% of our revenues,
respectively. Our top three customers for the year ended December 31, 2001 were
TyCom, Alcatel and Marconi, representing approximately 34%, 29% and 8% of our
revenues, respectively. Our top three customers in 2000 were Lucent, Alcatel and
Cisco, representing approximately 34%, 28% and 11% of our revenues,
respectively. We anticipate that relatively few customers will continue to
account for a significant portion of our revenues. A reduction, delay or
cancellation of orders from one or more significant customers or the loss of one
or more key customers in any period could significantly reduce our revenues and
any profits.

We have incurred net losses in the past and expect to incur net losses in the
future.

         We had net losses of $3.7 million in 2000, $12.4 million in 2001 and
$10.5 million in the first quarter of 2002. We had net income of $24,540 in
1999. We expect to continue to incur amortization of deferred stock compensation
and to maintain our current level of expenses for research and development in
the next few years. Consequently, our ability to achieve and maintain
profitability would be materially affected if we fail to significantly increase
our revenues. We anticipate incurring net losses for the foreseeable future.

                                      -17-

<PAGE>

Declining activity in the build-out of the communications infrastructure and
uncertainties in network service providers' purchasing programs, as well as
consolidation in the network service provider industry, may adversely affect our
future business and operating results.

         Our business prospects depend substantially on the continued build-out
of the communications infrastructure. Almost all network service providers have
curtailed the level of their capital expenditures on their infrastructure
build-out, which has significantly reduced the demand for our products by
communications equipment manufacturers. This slowdown has caused our revenues
and backlog to decline substantially. Our revenues declined in the first quarter
of 2002, compared to the comparable period in 2001 and the fourth quarter of
2001, and we recently announced that we expect our revenues to decline
substantially in the second quarter of 2002, compared with the first quarter of
2002. In addition, network service providers typically purchase network
equipment pursuant to multi-year purchasing programs that may increase or
decrease on a monthly basis as the providers adjust their capital equipment
budgets and purchasing priorities. Network service providers' further
curtailment or termination of purchasing programs or decreases in capital
budgets could materially and adversely affect our revenue and business
prospects. This is particularly true if significant and unanticipated by our
communications equipment manufacturer customers and us. Additionally,
consolidation among network service providers may cause delays in the purchase
of our products and a reexamination of strategic and purchasing decisions by
these network service providers and our current and potential communications
equipment manufacturer customers, including delaying the expansion of 10 Gb/s
systems and the migration to 40 Gb/s systems, which could harm our business and
financial condition.

We may not immediately benefit from a recovery in the communications equipment
industry.

         Our industry is currently experiencing a significant downturn due to a
corresponding downturn in the communications equipment industry. We expect to be
positively affected when the communications equipment industry begins to
recover. However, some of our customers may have significant inventory on hand
and a recovery in the communications equipment industry may not immediately
benefit us. Our customers will first utilize their current inventory levels
before placing orders with us. If our customers or potential customers are
maintaining a substantial amount of inventory, it may take a significant period
of time before we benefit from an improvement in the communications equipment
industry. We attempt to estimate inventory levels at our customers but we cannot
ensure that such estimates are materially accurate.

Our industry is subject to consolidation.

         There has been a trend toward consolidation among companies in our
industry for several years. We expect this trend toward industry consolidation
to continue as communications integrated circuit companies attempt to strengthen
or hold their positions in evolving markets. Consolidation may result in
stronger competitors, which in turn could have a material adverse effect on our
business, operating results, and financial condition. There has also been
consolidation among communication equipment manufacturers, which could reduce
the quantity of systems into which we could sell, which in turn could have a
material adverse effect on our business.

We sell substantially all of our products based on individual purchase orders,
and we cannot predict the size or timing of our orders. Our failure to
effectively plan production levels and inventory could materially harm our
business and operating results.

         We sell substantially all of our products based on individual purchase
orders, rather than long-term contracts. As a result, our customers generally
can cancel or reschedule orders on short notice and are not obligated to
purchase a specified quantity of any product. For example, we had significant
order cancellations during 2001. We cannot assure you that our existing
customers will continue to place orders with us, that orders by existing
customers will be repeated at current or historical levels or that we will be
able to obtain orders from new customers. We cannot predict the size, timing or
terms of incoming purchase orders; therefore, decreases in the number or size of
orders or the development of customer orders with new terms may adversely affect
our business and operating results.

         Because we do not have substantial non-cancelable backlog, we typically
plan our production and inventory levels based on internal forecasts of customer
demand that are highly unpredictable and can fluctuate

                                      -18-

<PAGE>

substantially. In anticipation of long lead times to obtain certain inventory
and materials, we order materials in advance of anticipated customer sales. This
advance ordering might result in excess inventory levels or unanticipated
inventory write-downs if our customers cancel orders or change the
specifications for their orders. If we are unable to plan inventory and
production levels effectively, our business and operating results could be
materially harmed.

We compete in highly competitive markets, against competitors with longer
operating histories, greater name recognition, greater resources or larger
market capitalization. Our failure to compete effectively would harm our
business.

         The markets in which we compete are highly competitive. Our ability to
compete successfully in our markets depends on a number of factors, including:

             .  product time-to-market;

             .  product performance;

             .  product price;

             .  product quality; product reliability;

             .  success in designing and subcontracting the manufacture of new
                products that implement new technologies;

             .  market acceptance of our competitors' products;

             .  efficiency of production; expansion of production of our
                products for particular systems manufacturers; and

             .  customer support and reputation.

         We compete primarily against Agere, Applied Micro Circuits, Broadcom,
Giga (acquired by Intel), Infineon, JDS Uniphase, Maxim, Mindspeed (a Conexant
company), NEL, Nortel (microelectronics division), NTT Electronics, Philips,
PMC-Sierra, Vitesse and various start-ups. Many of our competitors operate their
own fabrication facilities and have longer operating histories and a greater
presence in key markets, greater name recognition, access to larger customer
bases and significantly greater financial, sales and marketing, distribution,
technical and other resources. As a result, our competitors may be able to adapt
more quickly to new or emerging technologies, changes in customer requirements
or devote greater resources to the promotion and sale of their products. In
addition, our competitors may develop technologies that more effectively address
the transmission of digital information through existing analog infrastructures
at a lower cost, thereby rendering our products obsolete. Our competitors that
have large market capitalization or cash reserves are also better positioned
than we are to acquire other companies, thereby obtaining new technologies or
products. Any of these acquisitions could give our competitors a strategic
advantage that could adversely affect our business, financial condition and
results of operations. Additionally, these competitors' resources place them in
a stronger position to weather a continued downturn in our industry.

         Current and potential competitors have established or may establish
financial or strategic relationships among themselves or with existing or
potential customers, resellers or other third parties. Accordingly, it is
possible that new competitors or alliances forged by competitors could emerge
and rapidly acquire significant market share.

We may need additional capital, which may not be available, and our ability to
grow may be limited as a result.

         We may be required, or could elect, to seek additional funding at any
time. We anticipate incurring significant expenses in connection with increased
research and development activities, and we may engage in acquisitions. The
hiring of additional personnel to support these functions, including the
expansion of our sales and marketing organizations, will also require a
significant commitment of resources. In addition, if the market for our products
develops at a slower pace than anticipated, or if we fail to continue to expand
our market share, we may continue to utilize significant amounts of capital. If
cash from available sources is insufficient, or if cash is used for

                                      -19-

<PAGE>

acquisitions or other unanticipated uses, we may need additional capital sooner
than anticipated. In the event we are required, or elect, to raise additional
funds, we may not be able to do so on favorable terms, if at all.

We must incur substantial research and development expenses. If we do not have
sufficient resources to invest in research and development, our business could
be seriously harmed.

         In order to remain competitive, we must continue to make substantial
investments in research and development to develop new and enhanced products. We
cannot assure you that we will have sufficient resources to invest in the
development of new and enhanced technologies and competitive products. Our
failure to continue to make sufficient investments in research and development
programs could significantly reduce our revenue growth and harm our business.
Additionally, our products have a short life cycle; therefore, we have limited
time to capitalize upon our research and development investments and generate
revenues. We cannot assure you that our research and development investments
will result in revenues in excess of our expenses, if at all, or will result in
any commercially accepted products.

We incur research and development expenses in advance of obtaining access to the
required technology, and as a result, these investments may not result in the
production of any marketable products.

We often incur substantial research and development expenses for the development
of products incorporating emerging process technologies. We make these
substantial investments in the product design stage and prior to gaining access
to these process technologies. Failure to gain access to these process
technologies could prevent our products' development and commercialization and
materially harm our business.

Our future success depends on the continued service of our engineering,
technical and key management personnel and our ability to identify, hire and
retain additional engineering, technical and key management personnel, and our
failure to hire and retain such personnel would be harmful to our ongoing
operations and business prospects.

         There is intense competition for qualified personnel in our industry,
particularly for engineers and senior level management. We may not be able to
continue to attract and retain engineers or other qualified personnel necessary
for the development of our products and business or to replace engineers or
other qualified personnel who may leave us in the future. Loss of the services
of, or failure to recruit, engineers or other technical and key management
personnel could be significantly detrimental to our product and process
development programs and adversely affect our business and operating results.

Our future success depends in part on the continued service of our key
executives, and the loss of any of these key executives could adversely affect
our business and operating results.

         Our success depends in part upon the continued service of our executive
officers, particularly Dr. Richard N. Nottenburg, our President, Chief Executive
Officer and Co-Chairman of the Board, Dr. Jens Albers, our Executive Vice
President and Co-Chairman of the Board and Eric M. Pillmore, our Vice President
of Finance and Chief Financial Officer. Neither Dr. Nottenburg, Dr. Albers nor
Mr. Pillmore has an employment or non-competition agreement with us. The loss of
any of these key individuals would be detrimental to our ongoing operations and
prospects.

We will lose significant customer sales and may not be successful if customers
and prospective customers do not qualify our products to be designed into their
systems.

         Because our products must function as part of a larger system or
network, our customers often undertake extensive qualification processes prior
to placing large product orders. Once communications equipment manufacturers
decide to use a particular supplier's products or components, they incorporate
those products or components into their system design, which are known as
design-wins. Suppliers who fail to achieve design-wins are unlikely to make
sales to those customers for particular projects until at least the adoption of
future redesigned systems. Even then, many companies may be reluctant to
incorporate entirely new products into their new system designs, as this could
involve significant additional redesign efforts. If we fail to achieve
design-wins we will lose

                                      -20-

<PAGE>

the opportunity for significant sales to those customers for a lengthy period of
time. Although a design-win increases the likelihood that our products will be
incorporated into the systems of our customers or prospective customers, it does
not obligate that customer or prospective customer to purchase specified
quantities of our products.

Our products are incorporated into sophisticated systems, and defects may be
discovered only after full deployment, which could seriously harm our business.

         Our products are complex and are designed to be deployed in large
quantities across sophisticated networks. Because of the nature of our products,
they can only be fully tested when completely deployed in large networks with
high amounts of traffic. Our customers may discover errors or defects in our
products, or our products may not operate as expected, after they have been
fully deployed. If our products have defects or do not operate as expected, we
could experience:

             .  loss of, or delay in, revenues and loss of market share;

             .  loss of existing customers;

             .  failure to attract new customers or achieve market acceptance
                for our products;

             .  diversion of development resources;

             .  increased service and warranty costs;

             .  legal actions by our customers;

             .  increased insurance costs; and

             .  damage to our reputation and customer relationships.

         The occurrence of any of these problems could seriously harm our
business and result in decreased revenues and increased operating expenses.
Defects, integration issues or other performance problems in our products could
result in financial or other damages to our customers or could negatively affect
market acceptance for our products.

Our failure to protect our intellectual property adequately could adversely
affect our business, and patents obtained by our competitors may preclude us
from certain product development.

         Our intellectual property is critical to our ability to successfully
design products for the optical networking systems market. We currently have 1
U.S. patent issued and 11 U.S. patent applications pending. We cannot assure
you that our pending patent applications or any future applications will be
approved. Further, we cannot assure you that any issued patents will provide us
with competitive advantages or will not be challenged by third parties, or that
if challenged, will be found to be valid or enforceable. Additionally, we cannot
assure you that the patents of others will not have an adverse effect on our
ability to do business. Furthermore, others may independently develop similar
products or processes, duplicate our products or processes or design around any
patents that may be issued to us.

         We rely on the combination of maskwork protection under the
Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. Despite these efforts, we
cannot be certain that others will not independently develop substantially
equivalent intellectual property or otherwise gain access to our intellectual
property, or disclose such intellectual property, or that we can meaningfully
protect our intellectual property.

We could be harmed by litigation involving patents and proprietary rights.

         The semiconductor industry is characterized by substantial litigation
regarding patent and other intellectual property rights. We may be accused of
infringing upon the intellectual property rights of third parties. Additionally,
we have indemnification obligations to our customers with respect to
intellectual property infringement claims by

                                      -21-

<PAGE>

third parties. Such intellectual property infringement claims by third parties
or indemnification claims by our customers could harm our business.

     Any litigation relating to the intellectual property rights of third
parties, whether or not determined in our favor or settled by us, could be
costly and could divert the efforts and attention of our management and
technical personnel. In the event of any adverse ruling in any litigation, we
could be required to:

          .    pay substantial damages;

          .    cease the manufacturing, use and sale of certain products;

          .    discontinue the use of certain process technologies; and

          .    obtain a license from the third-party claiming infringement,
               which might not be available on reasonable terms, if at all.

Our success is dependent upon our ability to develop new products and reduce
costs in a timely manner.

     Our operating results will depend largely on our ability to continue to
introduce new and enhanced products on a timely basis. Successful product
development and introduction depends on numerous factors, including, among
others:

          .    our ability to anticipate customer and market requirements and
               changes in technology and industry standards;

          .    our ability to accurately define new products;

          .    our ability to timely complete development of new products and
               bring our products to market on a timely basis;

          .    our ability to differentiate our products from offerings of our
               competitors;

          .    our ability to understand overall system and network
               architecture; and

          .    overall market acceptance of our products.

     Furthermore, we are required to continually evaluate expenditures for
planned product development and to choose among alternative technologies based
on our expectations of future market growth. We cannot assure you that we will
be able to develop and introduce new or enhanced products in a timely and
cost-effective manner, that our products will satisfy customer requirements or
achieve market acceptance, or that we will be able to anticipate new industry
standards and technological changes. We also cannot assure you that we will be
able to respond successfully to new product announcements and introductions by
competitors.

     In addition, prices of established products may decline, sometimes
significantly, over time. We believe that in order to remain competitive we must
continue to reduce the cost of producing and delivering existing products at the
same time that we develop and introduce new or enhanced products. We cannot
assure you that we will be able to continue to reduce the cost of our products
to remain competitive.

Our future success depends in part on strategic relationships with certain of
our customers. If we cannot maintain these relationships or if these customers
develop their own solutions or adopt a competitor's solutions instead of buying
our products, our operating results would be adversely affected.

     In the past, we have relied on our strategic relationships with certain
customers who are technology leaders in our target markets. We intend to pursue
and continue to form these strategic relationships in the future but we cannot
assure you that we will be able to do so. These relationships often require us
to develop new products that typically involve significant technological
challenges. Our partners frequently place considerable pressure on us to meet
their tight development schedules. Accordingly, we may have to devote a
substantial amount of our limited resources to our strategic relationships,
which could detract from or delay our completion of other important development
projects. Delays in development could impair our relationships with our
strategic partners and

                                      -22-

<PAGE>


negatively impact sales of the products under development. Moreover, it is
possible that our customers may develop their own solutions or adopt a
competitor's solution for products that they currently buy from us. If that
happens, our business, financial condition and results of operations could be
materially and adversely affected.

We may need to make acquisitions in order to remain competitive in our market.
Our business or the value of your investment could be adversely affected as a
result of any potential acquisitions.

     To compete effectively, we may find it necessary to acquire additional
businesses, products or technologies. If we identify an appropriate acquisition
candidate, we may not be able to negotiate the terms of the acquisition
successfully, finance the acquisition or effectively integrate the acquired
business, products, technologies or personnel into our existing business and
operations. Further, completing a potential acquisition and integrating an
acquired business will cause significant diversions of management's time and
resources. If we consummate one or more significant acquisitions in which the
consideration consists of stock or other securities, the value of your
investment in our company could be significantly diluted. If we were to proceed
with one or more significant acquisitions in which the consideration included
cash, we could be required to use a substantial portion of our available cash,
including proceeds from our initial public offering in June 2001. In addition,
we may be required to amortize significant amounts of intangible assets in
connection with future acquisitions, which could significantly reduce our
operating and net income.

Our operating results are subject to fluctuations because of sales to foreign
customers.

     International sales accounted for approximately 14% of our revenues for the
three months ended March 31, 2002, 24% of our revenues for the year ended
December 31, 2001, and 27% of our revenues in 2000. International sales may
continue to account for a significant portion of our revenues, and as a result,
we will be subject to certain risks associated with international sales,
including:

          .    changes in regulatory requirements;

          .    increases in tariffs and other trade barriers;

          .    timing and availability of export licenses;

          .    political and economic instability;

          .    difficulties in accounts receivable collections;

          .    difficulties in staffing and managing foreign subsidiary and
               branch operations;

          .    difficulties in managing distributors;

          .    difficulties in obtaining governmental approvals for
               communications and other products;

          .    foreign currency exchange fluctuations;

          .    the burden of complying with a wide variety of complex foreign
               laws and treaties; and

          .    potentially adverse tax consequences.

     We are subject to the risks associated with the imposition of legislation
and regulations relating to the import or export of high technology products. We
cannot predict whether quotas, duties, taxes or other charges or restrictions
upon the importation or exportation of our products will be implemented by the
United States or other countries. Some of our customer purchase orders and
agreements are governed by foreign laws, which may differ significantly from
U.S. laws. Therefore, we may be limited in our ability to enforce our rights
under these agreements and to collect damages, if awarded.

     Because sales of our products are denominated in U.S. dollars, increases in
the value of the U.S. dollar could increase the price of our products so that
they become more expensive to customers in the local currency of a particular
country, leading to a reduction in sales and profitability in that country.
Future international activity may result in increased foreign currency
denominated sales. Gains and losses on the conversion to U.S. dollars of

                                      -23-

<PAGE>

accounts receivable, accounts payable and other monetary assets and liabilities
arising from international operations may contribute to fluctuations in our
results of operations.

If we become subject to unfair hiring claims we could incur substantial costs in
defending ourselves, or our management's attention could be diverted away from
our operations.

     Companies in our industry often hire individuals formerly employed by their
competitors. In such cases, these competitors frequently claim that the hiring
company has engaged in unfair hiring practices. We have received claims of this
kind in the past from our competitors, and we cannot assure you that we will not
receive claims of this kind in the future or that those claims will not result
in material litigation. We could incur substantial costs in defending ourselves
or our employees against such claims, regardless of the merits of the claims. In
addition, defending ourselves from such claims could divert the attention of our
management away from our operations.

Our dependence on third-party manufacturing and supply relationships could
negatively impact the production of our products and significantly harm our
business.

     We do not own or operate manufacturing facilities necessary for the
production of most of our products. We rely on several outside foundries and
other outsource partners for the manufacture and assembly of most of our
products, and we expect this to continue for the foreseeable future. Finding
alternative sources for these products will result in substantial delays in
production and additional costs.

     Our dependence upon third parties that manufacture, assemble, package or
supply components for our products may result in:

          .    lack of assured semiconductor wafer supply and reduced control
               over delivery schedules and quality;

          .    the unavailability of, or delays in obtaining access to, key
               process technologies;

          .    limited control over manufacturing yields and quality assurance;

          .    inadequate capacity during periods of excess demand;

          .    inadequate allocation of production capacity to meet our needs;

          .    increased costs of materials or manufacturing services;

          .    difficulties selecting and integrating new subcontractors;

          .    limited warranties on wafers or products supplied to us;

          .    inability to take advantage of price reductions; and

          .    misappropriation of our intellectual property.

Any one of these factors could adversely affect our business.

     While we believe we have good relations with our outside foundries and
suppliers, we cannot be certain that we will be able to maintain these favorable
relations. Additionally, because there is a limited number of foundries and
suppliers that can produce our products, establishing relationships and
increasing production with new outside foundries takes a considerable amount of
time. Thus, there is no readily available alternative source of supply for our
production needs. A manufacturing disruption, such as a raw material shortage,
experienced by any of our outside foundries and suppliers could impact the
production of some of our products for a substantial period of time. Our outside
foundries' and suppliers' inability to increase their production capacity or to
continue to allocate capacity to manufacture our components could also limit our
ability to grow our business.

     In addition, our internal manufacturing operations, though limited, are
complex and subject to disruption due to causes beyond our control. The
fabrication of integrated circuits is an extremely complex and precise process
consisting of hundreds of separate steps. It requires production in a highly
controlled, clean environment. Minute

                                      -24-

<PAGE>

impurities, errors in any step of the fabrication process, defects in the masks
used to print circuits on a wafer or a number of other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
not to function.

We may face production delays if the subcontractors we use to manufacture our
wafers or products discontinue the manufacturing processes needed to meet our
demands or fail to advance the process technologies needed to manufacture our
products.

     Our wafer and product requirements represent a small portion of the total
production of the third-party foundries that manufacture our products. As a
result, we are subject to the risk that our external foundries may not continue
to devote resources to the continued development and improvement of the process
technologies on which the manufacturing of our products are based. This could
increase our costs and harm our ability to deliver our products on time.

Our operating results substantially depend on manufacturing output and yields,
which may not meet expectations.

     Manufacturing semiconductors requires manufacturing tools that are unique
to each product produced. If one of these unique manufacturing tools of our
outside foundries were damaged or destroyed, then the ability of these foundries
to manufacture the related product would be impaired and our business would
suffer. In addition, our manufacturing yields decline whenever a substantial
percentage of wafers must be rejected or significant portions of each wafer are
nonfunctional. Such declines can be caused by many factors, including minute
levels of contaminants in the manufacturing environment, design imperfections,
defects in masks used to print circuits on a wafer and difficulties in the
fabrication process. Many of these problems are difficult to diagnose, are time
consuming and expensive to remedy and can result in shipment delays.

     Difficulties associated with adapting our technology and product design to
the proprietary process technology and design rules of our outside foundries can
lead to reduced yields. Since low yields may result from either design or
process technology failures, yield problems may not be effectively determined or
resolved until an actual product exists that can be analyzed and tested. As a
result, yield problems may not be identified until well into the production
process, and resolution of yield problems may require cooperation between our
manufacturers and us. In some cases this risk could be compounded by the
offshore location of some of our manufacturers, increasing the effort and time
required to identify, communicate and resolve manufacturing yield problems.
Manufacturing defects that we do not discover during the manufacturing or
testing process may lead to costly product recalls. Difficulties in diagnosing
and solving the complicated problems of assembling these types of semiconductors
could also reduce our yields.

If we are unable to commit to deliver sufficient quantities of our products to
satisfy our customers' needs, it may be difficult for us to attract new orders
and customers or we may lose current orders and customers.

     Our customers typically require that we commit to provide specified
quantities of products over a given period of time. We may be unable to deliver
sufficient quantities of our products for any of the following reasons:

          .    our reliance on third-party manufacturers;

          .    our limited infrastructure, including personnel and systems;

          .    the limited availability of raw materials;

          .    competing customer demands; and

          .    transportation.

If we are unable to commit to deliver sufficient quantities of our products to
satisfy a customer's anticipated needs, we may lose the order and the
opportunity for significant sales to that customer and may be unable to attract
new orders and customers.

                                      -25-

<PAGE>


Our business depends on the continued availability of raw materials and advanced
process technologies at reasonable prices. If adequate amounts of raw materials
or advanced process technologies are unavailable, our operating results would be
adversely affected.

     Highly specialized raw materials and advanced process technologies are
needed for the production of our products. In some cases, there are only two or
three suppliers of such materials and technologies in the world. We depend on
the continued availability of these materials and technologies at reasonable
prices. We may not be able to fulfill customer purchase requests if there is a
substantial increase in the price for these materials or if our outside
suppliers cannot provide adequate quantities of raw materials for the production
of our products. This may result in decreased revenues and adversely affect our
operating results.

The markets we serve are subject to rapid technological change, and if we are
unable to develop and introduce new products, our revenues could stop growing or
could decline.

     The markets we serve frequently undergo transitions in which products
rapidly incorporate new features and performance standards on an industry-wide
basis. Products for communications applications, as well as for high-speed
computing applications, are based on continually evolving industry standards. A
significant portion of our revenues in recent periods has been, and is expected
to continue to be, derived from sales of products based on existing transmission
standards. However, our ability to compete in the future will depend on our
ability to identify and ensure compliance with evolving industry standards.

     The emergence of new industry standards could render our products
incompatible with products developed by major communications equipment
manufacturers. If our products are unable to support the new features, the
enhanced integration of functions or the performance levels required by
communications equipment manufacturers in these markets, we would likely lose
business from an existing or potential customer. Moreover, we would not have the
opportunity to compete for new business until the next product transition
occurs. As a result, we could be required to invest significant time and effort
and to incur significant expense to redesign our products to ensure compliance
with relevant standards. If our products are not in compliance with prevailing
industry standards for a significant period of time, we could miss opportunities
to achieve crucial design-wins.

     Moreover, to improve the cost-effectiveness and performance of our
products, we may be required to transition one or more of our products to
process technologies with smaller components, other materials or higher speeds.
We may not be able to improve our process technologies and develop or otherwise
gain access to new process technologies in a timely or cost-effective manner. We
could record expenses or charges associated with such a transition. For example,
we wrote off $4.3 million of our inventory in the first quarter of 2001, which
resulted from a transition from certain GaAs products to SiGe products and an
order cancellation, reducing our gross profit.

     These risks may lead to increased costs or delay product delivery, which
would harm our profitability and customer relationships. Consequently, our
revenues could be significantly reduced for a substantial period if we fail to
develop products with required features or performance standards, if we
experience a delay as short as a few months in bringing a new product to market,
or if our customers fail to achieve market acceptance of their products.

Necessary licenses of third-party technology may not be available to us or may
be prohibitively expensive, which could adversely affect our ability to produce
and sell our products.

     From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third-party licenses will be available to us on commercially reasonable
terms, if at all. Our inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost, if at all, any of which could seriously harm our ability to sell our
products.

                                      -26-

<PAGE>

The communications industry is subject to U.S. and foreign government
regulations that could harm our business. Our failure to timely comply with
regulatory requirements, or obtain and maintain regulatory approvals, could
materially harm our business.

     The Federal Communications Commission, or FCC, has jurisdiction over the
entire communications industry in the United States and, as a result, our
products and our customers' products are subject to FCC rules and regulations.
Current and future FCC rules and regulations affecting communications services,
our products or our customers' businesses or products could negatively affect
our business. In addition, international regulatory standards could impair our
ability to develop products in the future. Delays caused by our compliance with
regulatory requirements could result in postponements or cancellations of
product orders, which would harm our business, results of operations and
financial condition. Further, we cannot be certain that we will be successful in
obtaining or maintaining any regulatory approvals that may, in the future, be
required to operate our business.

Our business is subject to environmental regulations.

     We are subject to various governmental regulations related to toxic,
volatile and other hazardous chemicals used in our manufacturing process. If we
fail to comply with these regulations, this failure could result in the
imposition of fines or in the suspension or cessation of our operations.
Additionally, we may be restricted in our ability to expand operations at our
present locations, or we may be required to incur significant expenses to comply
with these regulations.

If a significant number of shares become available for sale and are sold in a
short period of time, the market price of our stock could decline.

     The lock-up agreements in effect as of our initial public offering in June
2001 expired in December 2001. If our shareholders now sell substantial amounts
of our common stock in the public markets, the market price of our stock could
be materially adversely affected. Following the expiration of these agreements,
approximately 55 million shares, as well as additional shares issuable upon
exercise of options, became immediately eligible for sale in the public market,
subject to certain exceptions.

     In addition, under certain investors' rights agreements, some of our
current shareholders have "demand" and/or "piggyback" registration rights in
connection with future offerings of our common stock. "Demand" rights enable
shareholders to demand that their shares be registered and may require us to
file a registration statement under the Securities Act at our expense.
"Piggyback" rights require us to notify the shareholders of our stock if we
propose to register any of our securities under the Securities Act, and grant
such shareholders the right to include their shares in the registration
statement. Registration of these additional shares would make them generally
available to be sold in the public market.

Certain of our directors, executive officers and their affiliates can control
the outcome of matters that require the approval of our shareholders, and
accordingly we will not be able to engage in certain transactions without their
approval.

     We currently have approximately 47,000,000 shares of Class A common stock
outstanding, with each share entitling the holder to one vote. We currently have
27,000,000 shares of Class B common stock outstanding, each of which entitles
the holder to ten votes. All of the Class B common stock is held by officers,
directors or other persons or entities owning 5% or more of the outstanding
shares of our common stock.

     Our executive officers, directors and their affiliates beneficially own
approximately 50% of our outstanding common stock and over 50% of the total
voting control held by our shareholders. In particular, Dr. Richard Nottenburg,
as a result of his stock ownership and a voting trust agreement with Dr. Jens
Albers, alone controls approximately 50% of the outstanding voting power of our
capital stock. In addition, persons and entities owning more than 5% of our
outstanding shares of common stock, in the aggregate, control over 90% of the
outstanding voting power of our capital stock. As a result, our directors and 5%
shareholders acting together have the ability to control all matters submitted
to our shareholders for approval, including the election and removal of
directors and

                                      -27-

<PAGE>

the approval of any merger, consolidation or sale of all or substantially all of
our assets. These shareholders may make decisions that are adverse to the
interests of our other shareholders.

Our board of directors may issue, without shareholder approval, shares of
preferred stock that have rights and preferences superior to those of our shares
of common stock and that may prevent or delay a change of control.

     Our articles of incorporation provide that our board of directors may issue
new shares of preferred stock without shareholder approval. Some of the rights
and preferences of these shares of preferred stock would be superior to the
rights and preferences of shares of our common stock. Accordingly, the issuance
of new shares of preferred stock may adversely affect the rights of the holders
of shares of our common stock. In addition, the issuance of new shares of
preferred stock may prevent or delay a change of control of our company.

                                      -28-

<PAGE>

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

     We develop and market our products in North America, Europe and Asia. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As our sales are currently made or denominated in U.S. dollars, a strengthening
of the dollar could make our products less competitive in foreign markets.
Although we recognize our revenues in U.S. dollars, we incur expenses in
currencies other than U.S. dollars.

     Historically, we were exposed to fluctuations in the Euro, lita and the
Israeli shekel. During 2001, we opened sales offices in Canada, Italy and the
United Kingdom and accordingly, and are now exposed to fluctuations in the
Canadian dollar and British pound. The expenses of our foreign sales offices are
not material. During the three months ended March 31, 2002, total expenses
denominated in these currencies were $4.0 million or 15% of total expenses
before a benefit for income taxes. Expenses denominated in the Euro and shekel
represented approximately $2.3 million and $1.5 million, respectively, of
foreign expenses. We expect that our foreign expenses will increase as we expand
our research and development and sales efforts in foreign countries.

     During 2002, we entered into foreign forward contracts for 4.5 million
Euros with a notional amount of $3.9 million. The contracts mature through
December 2002 and were entered into to hedge a portion of Euro denominated
expenses. Although we have not experienced significant foreign exchange rate
losses to date, we may in the future, especially to the extent that we do not
engage in hedging. We do not enter into derivative financial instruments for
trading or speculative purposes.

     The economic impact of currency exchange rate movements on our operating
results is complex because such changes are often linked to variability in real
growth, inflation, interest rates, governmental actions and other factors. These
changes, if material, may cause us to adjust our financing and operating
strategies. Consequently, isolating the effect of changes in currency does not
incorporate these other important economic factors.

Interest Rate Risk

     Software and Equipment Financings

     All of our software and equipment financings have a fixed interest rate and
are not subject to interest rate fluctuations. An immediate 100 basis point
fluctuation in these rates would not have a material impact on our financial
condition, results of operations or cash flows.

     Short-term Investments

     At March 31, 2002, our investment portfolio included fixed and floating
rate securities of $53.6 million. The maximum maturity of these investments is
12 months with an overall dollar-weighted maturity of the portfolio of less than
six months. Fixed rate securities are subject to interest rate risk and will
decline in value if interest rates increase whereas floating rate securities may
produce less income than expected if interest rates decrease. Accordingly, our
future investment income may not meet expectations as a result of interest rate
fluctuations or a loss of principal may occur if we were to sell securities that
have declined in market value as a result of interest rate fluctuations. As a
result of the relatively short average maturity of the portfolio, an immediate
100 basis point increase in interest rates would not have a material impact on
our financial condition, results of operations or cash flows.

     We do not attempt to reduce our exposure to interest rate risk through the
use of derivative financial instruments due to the short-term nature of our
portfolio.

                                      -29-

<PAGE>

     Other Investments

     Our other investments include several strategic investments in privately
held companies. These investments have an inherent level of risk associated with
them, as they are comprised of investments in start-up or development stage
companies. We consider these investments long-term strategic investments. The
market for these technologies or products that they have under development is
typically in the early stages, and may never materialize. Accordingly, we could
lose our entire investment in these companies.

Critical Accounting Policies

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
We believe the most critical accounting policies that are significantly affected
by these estimates include allowance for doubtful accounts receivable, inventory
reserves, valuation allowance for deferred tax assets, warranty accruals and
related party transactions.

     Allowance for doubtful accounts receivable. Accounts receivable are reduced
by a valuation allowance to estimate the amount that will actually be collected
from our customers. Many of our customers have been adversely affected by
reduced carrier spending and have been paying us slower than in the past and are
attempting to negotiate longer payment terms. Our customers are aggressively
managing their cash flows while other customers have virtually no cash flows and
have filed for bankruptcy protection. If the financial condition of our
customers were to materially deteriorate, resulting in an impairment of their
ability to make payments, additional allowances would be required.

     Inventory reserves. Inventories are stated at the lower of cost or market
with cost being determined on the first-in, first-out method. Reserves for slow
moving and obsolete inventories are provided based on historical experience and
current product demand. If our estimate of future demand is not correct or if
our customers place significant order cancellations, actual inventory reserves
could materially differ from our estimate. We may also receive orders for
inventory that has been fully or partially reserved. To the extent that the sale
of reserved inventory has a material impact on our financial results, we will
appropriately disclose such effects. Our inventory carrying costs are not
material; thus we may not physically dispose of reserved inventory immediately.

     Valuation allowance for deferred tax assets. We record a valuation
allowance to reduce our deferred tax assets to an amount that is more likely
than not to be realized. While we have considered future taxable income and
ongoing tax planning strategies in assessing the need for a valuation allowance,
we cannot ensure that such future events will occur. In the event that we
determine that we will not be able to realize all or portion of our deferred tax
assets, an adjustment to reduce assets and increase deferred tax expense would
be recorded.

     Warranty accruals. Our warranty costs are predominantly driven by product
failure rates. Should actual failure rates differ from our estimates and vary
significantly from historical trends, revisions in the estimated warranty
liability would be required. We have also recently introduced many new products
with no historical failure data. A material failure in a new product would
materially affect the required warranty accrual.

         Related party transactions. We enter into transactions with some of our
equity holders for various products used in both the manufacturing and research
and development functions. We enter into these transactions, as these parties
are predominant, well-established suppliers in our industry for these products.

                                      -30-

<PAGE>

                           Part II. OTHER INFORMATION

Item 1.  Legal Proceedings

     As disclosed in prior filings, in May and June, 2001 a former employee,
Matthias Bussmann, sent correspondence to us claiming, among other things, that
our Chief Executive Officer and our Executive Vice President breached a promise
relating to Dr. Bussmann's compensation and misused their power to reward
themselves while engaging in a scheme to oust Dr. Bussmann from the Company. Dr.
Bussmann alleged that his claims form the basis for a claim of breach of
fiduciary duty by those officers. The correspondence proposed settlement
payments by us of up to $1.0 million in cash and the transfer of one million
shares of common stock. We received no correspondence regarding this matter
during the first quarter of 2002.

     While we believe the allegations set forth in Dr. Bussmann's letters to us
are without merit, we cannot predict the ultimate outcome of any litigation,
should it be initiated.

Item 2.  Changes in Securities and Use of Proceeds

(a)  None

(b)  None

(c)  None

(d)  None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

     We filed the following current reports on Form 8-K during the three months
ended March 31, 2002:

     1)  On January 30, 2002, we filed a Current Report on Form 8-K to announce
the issuance of our press release that addressed fourth quarter 2001 results.

     2)  On February 25, 2002, we filed a Current Report on Form 8-K to announce
that our Chief Executive Officer, President and Co-Chairman terminated his
trading plan under Securities and Exchange Commission Rule 10b5-1.

                                      -31-

<PAGE>

                                    SIGNATURE

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

                                     MULTILINK TECHNOLOGY CORPORATION


Date: May 14, 2002                   /s/ Eric M. Pillmore
                                     -------------------------------------------
                                     Eric M. Pillmore
                                     Chief Financial Officer
                                     (Principal Financial and Accounting Officer
                                     and Duly Authorized Officer)

                                      -32-