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

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FORM 10-Q

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

For the quarterly period ended September 30, 2007

OR

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

For the transition period from ________to _________

Commission file number  0-15071



Adaptec, Inc.



|Delaware                                                       | 94-2748530                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

691 S. Milpitas Blvd.
Milpitas, California     95035

(408) 945-8600

N/A(Former name, former address
and former fiscal year, if changed since last report)

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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 reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      ̈ Accelerated filer    x Non-accelerated filer     ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES     ̈ NO    x The number of shares of Adaptec's common stock outstanding as of November 2, 2007 was 121,072,883.
Note:PDF provided as a courtesy
Adaptec, Inc.TABLE OF CONTENTS

|Part I.  | Financial Information |                                                                                      
|-------- | --------------------- | -------------------------------------------------------------------------------------
|         | Item 1.               | Financial Statements:                                                                
|         |                       | Unaudited Condensed Consolidated Statements of Operations                            
|         |                       | Unaudited Condensed Consolidated Balance Sheets                                      
|         |                       | Unaudited Condensed Consolidated Statements of Cash Flows                            
|         |                       | Notes to Unaudited Condensed Consolidated Financial Statements                       
|         | Item 2.               | Management's Discussion and Analysis of Financial Condition and Results of Operations
|         | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                           
|         | Item 4.               | Controls and Procedures                                                              
|Part II. | Other Information     |                                                                                      
|         | Item 1A.              | Risk Factors                                                                         
|         | Item 6.               | Exhibits                                                                             
|         | Signatures            |                                                                                      

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADAPTEC, INC.
                                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (unaudited)

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                      (in thousands, except per share amounts)       
Net revenues                                                      $    43,974  $    73,553  $    86,361  $   142,624
Cost of revenues                                                       28,596       47,010       56,986       93,811
                                                                   -----------  -----------  -----------  -----------
    Gross profit                                                       15,378       26,543       29,375       48,813
                                                                   -----------  -----------  -----------  -----------
Operating expenses:
    Research and development                                           10,858       13,560       22,648       30,854
    Selling, marketing and administrative                              14,297       15,693       29,286       31,087
    Amortization of acquisition-related intangible assets                 720        1,470        1,453        3,056
    Restructuring charges                                               3,428        1,085        4,954        4,096
    Other charges (gains)                                                 115           --       (5,799)      13,942
                                                                   -----------  -----------  -----------  -----------
        Total operating expenses                                       29,418       31,808       52,542       83,035
                                                                   -----------  -----------  -----------  -----------
Loss from continuing operations                                       (14,040)      (5,265)     (23,167)     (34,222)
Interest and other income, net                                          7,797        5,825       14,518       11,728
Interest expense                                                         (955)        (883)      (1,969)      (1,759)
                                                                   -----------  -----------  -----------  -----------
Loss from continuing operations before income taxes                    (7,198)        (323)     (10,618)     (24,253)
Provision for (benefit from) income taxes                                 290      (49,080)         505      (48,186)
                                                                   -----------  -----------  -----------  -----------
Income (loss) from continuing operations, net of taxes                 (7,488)      48,757      (11,123)      23,933
                                                                   -----------  -----------  -----------  -----------
Discontinued operations, net of taxes
    Income (loss) from discontinued operations, net of taxes               --         (132)          --          132
    Income (loss) from disposal of discontinued
         operations, net of taxes                                        (144)       2,440         (144)       3,730
                                                                   -----------  -----------  -----------  -----------
        Income (loss) from discontinued operations, net of taxes         (144)       2,308         (144)       3,862
                                                                   -----------  -----------  -----------  -----------
Net income (loss)                                                 $    (7,632) $    51,065  $   (11,267) $    27,795
                                                                   ===========  ===========  ===========  ===========
Income (loss) per share:
Basic
    Continuing operations                                         $     (0.06) $      0.42  $     (0.09) $      0.21
    Discontinued operations                                             (0.00)        0.02        (0.00)        0.03
    Net income (loss)                                             $     (0.06) $      0.44  $     (0.10) $      0.24
Diluted
    Continuing operations                                         $     (0.06) $      0.36  $     (0.09) $      0.19
    Discontinued operations                                             (0.00)        0.02        (0.00)        0.03
    Net income (loss)                                             $     (0.06) $      0.38  $     (0.10) $      0.22

Shares used in computing income (loss) per share:
    Basic                                                             118,405      116,325      118,151      115,967
    Diluted                                                           118,405      136,735      118,151      135,991`

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

---

ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

September 30, 2007    March 31, 2007
                                                                             ------------------  ------------------
                                                                                       (in thousands)
Assets
Current assets:
    Cash and cash equivalents                                               $          178,777  $           95,922
    Marketable securities                                                              418,821             476,501
    Restricted marketable securities                                                     1,665               1,660
    Accounts receivable, net                                                            26,672              34,127
    Inventories                                                                         19,751              28,717
    Prepaid expenses and other current assets                                           26,648              31,832
    Assets held for sale                                                                    --              12,509
                                                                             ------------------  ------------------
        Total current assets                                                           672,334             681,268
Property and equipment, net                                                             14,297              15,852
Restricted marketable securities, less current portion                                     807               1,584
Other intangible assets, net                                                             3,867               7,011
Other long-term assets                                                                   8,667               9,687
                                                                             ------------------  ------------------
Total assets                                                                $          699,972  $          715,402
                                                                             ==================  ==================Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                        $           19,585  $           28,101
    Accrued and other liabilites                                                        32,697              37,134
                                                                             ------------------  ------------------
        Total current liabilities                                                       52,282              65,235
3/4% Convertible Senior Subordinated Notes ("3/4% Notes")                              225,161             225,000
Other long-term liabilities                                                              6,255               3,009
                                                                             ------------------  ------------------
        Total liabilities                                                              283,698             293,244
                                                                             ------------------  ------------------
Commitments and contingencies (Note 13)
Stockholders' equity:
    Common stock                                                                           121                 119
    Additional paid-in capital                                                         194,982             190,236
    Accumulated other comprehensive income, net of taxes                                 5,130               3,178
    Retained earnings                                                                  216,041             228,625
                                                                             ------------------  ------------------
        Total stockholders' equity                                                     416,274             422,158
                                                                             ------------------  ------------------
Total liabilities and stockholders' equity                                  $          699,972  $          715,402
                                                                             ==================  ==================




See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Six-Month Period Ended
                                                                                        September 30,
                                                                             --------------------------------------
                                                                                    2007                2006
                                                                             ------------------  ------------------
                                                                                       (in thousands)
Cash Flows From Operating Activities:
Net income (loss)                                                           $          (11,267) $           27,795
Less: income (loss) from discontinued operations, net of taxes                            (144)              3,862
                                                                             ------------------  ------------------
Income (loss) from continuing operations, net of taxes                                 (11,123)             23,933
Adjustments to reconcile income (loss) from continuing operations, net of
    taxes, to net cash provided by (used in) operating activities:
    Stock-based compensation                                                             2,612               4,566
    Inventory-related charges                                                            4,857               2,776
    Depreciation and amortization                                                        4,897               9,299
    Impairment of long-lived assets                                                         --              13,203
    Gain on sale of long-lived assets                                                   (6,735)                 --
    Non-cash effect of tax settlement                                                       --             (45,955)
    Other non-cash items                                                                   267                 681
    Changes in assets and liabilities                                                    1,832             (18,173)
                                                                             ------------------  ------------------
Net Cash Used in Operating Activities of Continuing Operations                          (3,393)             (9,670)
Net Cash Provided by Operating Activities of Discontinued Operations                     2,246               2,564
                                                                             ------------------  ------------------
Net Cash Used in Operating Activities                                                   (1,147)             (7,106)
                                                                             ------------------  ------------------Cash Flows From Investing Activities:
Purchases of property and equipment                                                       (473)             (1,845)
Proceeds from sale of long-lived assets                                                 19,881                  --
Purchases of marketable securities                                                     (22,663)           (165,839)
Sales of marketable securities                                                          54,780             111,337
Maturities of marketable securities                                                     27,820              14,029
Maturities of restricted marketable securities                                             844                 844
Payment of holdback in connection with acquisition of Platys                                --              (1,507)
                                                                             ------------------  ------------------
Net Cash Provided by (Used in) Investing Activities                                     80,189             (42,981)
                                                                             ------------------  ------------------Cash Flows From Financing Activities:
Proceeds from issuance of common stock                                                   2,571               4,272
                                                                             ------------------  ------------------
Net Cash Provided by Financing Activities                                                2,571               4,272
                                                                             ------------------  ------------------
Effect of Foreign Currency Translation on Cash and Cash Equivalents                      1,242               1,030
                                                                             ------------------  ------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                    82,855             (44,785)
Cash and Cash Equivalents at Beginning of Period                                        95,922             131,373
                                                                             ------------------  ------------------
Cash and Cash Equivalents at End of Period                                  $          178,777  $           86,588
                                                                             ==================  ==================



See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

ADAPTEC, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  (unaudited)


1. Basis of Presentation
In the opinion of management, the accompanying Unaudited Condensed Consolidated Interim Financial
Statements ("financial statements") of Adaptec, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") have been prepared on a consistent basis with the March 31, 2007 audited consolidated financial
statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set
forth therein. The financial statements have been prepared in accordance with the regulations of the SEC, and, therefore, omit certain
information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in
the United States of America. These financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended on March 31,
2007, which was filed with the SEC on June 6, 2007. The second quarters of fiscal 2008 and 2007 ended on September 28, 2007 and
September 29, 2006, respectively. For presentation purposes, the accompanying financial statements have been shown as ending on
September 30. The results of operations for the second quarter and first half of fiscal 2008 are not necessarily indicative of the results
to be expected for the entire fiscal year.

Unless otherwise indicated, the Notes to the Unaudited Condensed Consolidated Financial Statements relate to
the discussion of the Company's continuing operations.

The glossary of key acronyms used in the Company's industry and accounting rules and regulations
referred to within this Quarterly Report on Form 10-Q is listed in alphabetical order in Note 17.

2. Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, which permits fair value remeasurement for
any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation.  SFAS No. 155 also
clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all hybrid financial
instruments held, obtained or issued by the Company for fiscal years beginning with its fiscal 2008. The adoption of SFAS No. 155 did
not have a material impact on the Company's results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a
framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 is effective beginning with the Company's fiscal 2009, and interim periods within that fiscal year.
The Company is currently evaluating the impact that SFAS No. 157 will have on its results of operations and financial position.

In February 2007, FASB issued SFAS No. 159, which permits companies to choose to measure certain
financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard
requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.
SFAS No. 159 is effective beginning with the Company's fiscal 2009. The Company is currently evaluating the impact that SFAS
No. 159 will have on its results of operations and financial position.In June 2007, the FASB
ratified EITF No. 07-3, which requires nonrefundable advance research and development payments for goods and services to be
deferred and capitalized and subsequently expensed when the research and development activities are performed, subject to an
assessment of recoverability.  EITF No. 07-03 is effective for new contractual arrangements entered into beginning with the Company's
fiscal 2009, and interim periods within that fiscal year. The Company does not believe EITF No. 07-03 will have a material effect on its
results of operations and financial position.

3. Stock Benefit Plans and Stock-Based Compensation

Stock Benefit Plans

The Company grants stock options and other stock-based awards to employees, directors and consultants
under two equity incentive plans, the 2004 Equity Incentive Plan and the 2006 Director Plan.  In addition, the Company has outstanding
options issued under equity incentive plans that have terminated and equity plans that it assumed in connection with acquisitions.  The
Company also enabled eligible employees to participate in its 1986 Employee Stock Purchase Plan, which expired in April 2006. For a
complete discussion of these plans, please refer to the Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended March 31, 2007.

The Company issued 0.4 million shares under the ESPP in the second quarter and first half of fiscal 2008.  As
of September 30, 2007, 2.6 million shares remained available to cover shares to be issued pursuant to one offering period that
remains in effect even though the 1986 ESPP has expired. This offering period will terminate on February 14, 2008. As of September
30, 2007, the total unamortized stock-based compensation expense related to shares issuable under the ESPP was $0.1 million,
and this expense is expected to be recognized over a remaining weighted-average period of 0.38 years.

As of September 30, 2007, the Company had an aggregate of 28.0 million shares of its common stock reserved
for issuance under its 2004 Equity Incentive Plan, of which 11.1 million shares were subject to outstanding options and 16.9 million
shares were available for future grants of options and other stock awards.  As of September 30, 2007, the Company had an
aggregate of 2.1 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 0.5 million shares
were subject to outstanding options and 1.6 million shares were available for future grants of options and other stock awards. As
of September 30, 2007, the Company had 0.1 million shares of common stock reserved that were subject to outstanding options under
plans assumed by previous acquisitions.Stock-Based Compensation
The Company measured and recognized compensation expense for all stock-based awards made to its
employees and directors, including employee stock options, employee stock purchase plans, and other stock-based awards, based on
estimated fair values using a straight-line amortization method over the respective requisite service period of the awards and adjusted it
for estimated forfeitures. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for
the second quarters and first halves of fiscal 2008 and 2007 was as follows:

Three-Month Period Ended  Six-Month Period Ended
                                                                     September 30,             September 30,
                                                               ------------------------  ------------------------
                                                                  2007         2006         2007         2006
                                                               -----------  -----------  -----------  -----------
                                                                                (in thousands)
Stock-based compensation expense by caption:
Cost of revenues                                              $        76  $       141  $       172  $       329
Research and development                                              292          865          928        2,090
Selling, marketing and administrative                                 688        1,017        1,512        2,147
                                                               -----------  -----------  -----------  -----------
    Stock-based compensation expense effect on income
        from continuing operations, net of taxes              $     1,056  $     2,023  $     2,612  $     4,566
                                                               ===========  ===========  ===========  ===========
Stock-based compensation expense by type of award:
Stock options                                                 $       619  $     1,642  $     1,349  $     3,546
Restricted stock awards and restricted stock units                  1,022          263        1,664          306
Employee stock purchase plan (1)                                     (585)         118         (401)         714
                                                               -----------  -----------  -----------  -----------
    Stock-based compensation expense effect on income
        from continuing operations, net of taxes              $     1,056  $     2,023  $     2,612  $     4,566
                                                               ===========  ===========  ===========  ===========

____________
(1) The Company recorded a reduction to expense for the employee stock purchase plan in the second quarter and first half of
fiscal 2008 based on (a) the actual purchase that occurred on August 14, 2007 and (b) no new
offering period exists as the 1986 ESPP expired in April 2006, with exception to one offering period that remains in effect, which will
close on February 14, 2008.Stock-based compensation expense in the above table does not reflect any
significant income taxes, which is consistent with the Company's treatment of income or loss from its U.S. operations. For the first
halves of fiscal 2008 and 2007, there was no income tax benefit realized for the tax deductions from option exercises of the share-
based payment arrangements. In addition, there was no stock-based compensation costs capitalized as part of an asset in the second
quarter and first half of fiscal 2008 and during fiscal 2007.

Valuation Assumptions

The Company used the Black-Scholes option pricing model for determining the estimated fair value for
stock options and stock-based awards. The fair value of stock options and other stock-based awards granted in the second quarters
and first halves of fiscal 2008 and 2007 was estimated using the following weighted-average assumptions:


Three-Month Period Ended  Six-Month Period Ended
                                                                     September 30,             September 30,
                                                               ------------------------  ------------------------
                                                                  2007         2006         2007         2006
                                                               -----------  -----------  -----------  -----------
Equity Incentive Plans:
Expected life (in years)                                             4.27   3.87 - 4.22        4.27   3.87 - 4.22
Risk-free interest rates                                       4.38 - 4.99% 4.60 - 4.89% 4.38 - 4.99% 4.60 - 5.11%
Expected volatility                                                     39%          44%     39 - 40%          44%
Dividend yield                                                         --           --           --           --
Weighted average fair value                                   $      3.37  $      2.38  $      3.27  $      2.65

ESPP:
Expected life (in years)                                               n/a  1.00 - 1.25          n/a  1.00 - 1.25
Risk-free interest rates                                               n/a  5.07 - 5.11%         n/a  5.07 - 5.11%
Expected volatility                                                    n/a           44%         n/a           44%
Dividend yield                                                         n/a          --           n/a          --
Weighted average fair value                                            n/a $      1.11           n/a $      1.11


Stock Benefit Plans ActivitiesEquity Incentive Plans: A summary of option activity under all of the Company's equity incentive
plans as of September 30, 2007 and changes during the first half of fiscal 2008 is presented below:

`Weighted
                                                                                           Average
                                                                             Weighted    Remaining
                                                                              Average    Contractual   Aggregate
                                                                             Exercise       Term      Intrinsic
                                                                 Shares        Price       (Years)       Value
                                                               -----------  -----------  -----------  -----------
                                                             (in thousands, except exercise price and contractual terms)
                                                                                                                 
Outstanding at March 31, 2007                                      12,992         7.11
    Granted                                                           225         3.82
    Exercised                                                        (435)        3.25
    Forfeited and cancelled                                        (1,283)        8.98
                                                               -----------
Outstanding at September 30, 2007                                  11,499  $      6.98         3.60  $     1,162
                                                               ===========  ===========  ===========  ===========

Options vested and expected to vest at September 30, 2007          10,919  $      7.10         3.49  $     1,151
                                                               ===========  ===========  ===========  ===========

Options exercisable at September 30, 2007                           8,867  $      7.60         3.00  $     1,119
                                                               ===========  ===========  ===========  ===========`

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying
awards and the price of the Company's common stock on The NASDAQ Global Market for the 3.0 million shares subject to options that
were in-the-money at September 30, 2007. During the second quarters of fiscal 2008 and 2007, the aggregate intrinsic value of options
exercised under the Company's equity incentive plans was $0.2 million and $0.3 million, respectively, determined as of the date of
option exercise.   During the first halves of fiscal 2008 and 2007, the aggregate intrinsic value of options exercised under the
Company's equity incentive plans was $0.2 million and $0.7 million, respectively, determined as of the date of option exercise. As of
September 30, 2007, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated
forfeitures, was $3.7 million, and this expense is expected to be recognized over a remaining weighted-average period of 2.42 years.



Restricted Stock Awards and Restricted Stock Units: Restricted stock awards and restricted stock units
were granted under the Company's 2004 Equity Incentive Plan and 2006 Director Plan. The restricted stock awards and restricted stock
units are converted into shares of the Company's common stock upon vesting.  As of September 30, 2007, there were 2.2 million
shares of service-based restricted stock awards and 0.3 million restricted stock units outstanding, all of which are subject to forfeiture
if employment terminates prior to the release of restrictions.  Under the 2004 Equity Incentive Plan, restrictions lapse either (1) 50% one
year from the date of grant and the remainder at the second anniversary or (2) 100% one year from the date of grant. Under the 2006
Director Plan, restrictions lapse one year from the date of grant. The cost of these awards, determined to be the fair market value of the
shares at the date of grant, is expensed ratably over the period the restrictions lapse.



A summary of activity for restricted stock awards and restricted stock units as of September 30, 2007 and
changes during the first half of fiscal 2008 was as follows:

`Weighted
                                                                                           Average
                                                                                         Grant-Date
                                                                                            Fair
                                                                              Shares        Value
                                                                            -----------  -----------
                                                                          (in thousands, except weighted
                                                                          average grant-date fair value)
                                                                                                      
Nonvested stock at March 31, 2007                                                1,179  $      4.37
Granted                                                                          1,799         3.50
Vested                                                                            (325)        4.29
Forfeited                                                                         (205)        4.13
                                                                            -----------
Nonvested stock at September 30, 2007                                            2,448  $      3.76
                                                                            ===========  ===========`

As of September 30, 2007, the total unrecognized compensation expense related to non-vested restricted
stock awards and restricted stock units that are expected to vest, net of estimated forfeitures, was $6.2 million.  This expense is
expected to be recognized over a remaining weighted-average period of 1.16 years.



4. Business Dispositions



IBM i/p Series RAID: On September 30, 2005, the Company entered into a series of arrangements
with IBM pursuant to which the Company sold its IBM i/p Series RAID business to IBM.  Under the terms of the agreements, the
Company granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to
the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID business. Under the terms
of the nonexclusive license, IBM paid royalties to the Company for the sale of its board-level products on a quarterly basis through
March 31, 2007, which were recognized as contingent consideration in discontinued operations when earned. In the second quarter
and first half of fiscal 2007, the Company recorded royalties, net of taxes, of $2.4 million and $3.7 million, respectively, which the
Company recorded in "Income from disposal of discontinued operations, net of taxes," in the Condensed Consolidated
Statements of Operations.



OEM Block-based Portion of Its Systems Business:
On January 31, 2006, the Company signed a definitive agreement with Sanmina-SCI Corporation and its wholly owned
subsidiary, Sanmina-SCI USA, Inc., for the sale of the Company's OEM block-based portion of its systems business for
$14.5 million, of which $2.5 million will be received by March 2008. In addition, Sanmina-SCI USA agreed to pay the
Company contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three-year
period. As of September 30, 2007, the Company believes that it is unlikely that revenue levels to earn this contingent consideration will
be achieved.



Net revenues and the components of income (loss) related to the OEM block-based portion of the Company's
systems business included in discontinued operations, were as follows:

`Three-Month          Six-Month
                                                                                Period Ended        Period Ended
                                                                             September 30, 2006  September 30, 2006
                                                                             ------------------  ------------------
                                                                                       (in thousands)              
Net revenues (1)                                                            $              418  $            2,036
                                                                             ==================  ==================
Income (loss) from discontinued operations
    before income taxes                                                     $             (181) $              149
Provision for (benefit from) income taxes                                                  (49)                 17
                                                                             ------------------  ------------------
Income (loss) from discontinued operations, net of taxes                    $             (132) $              132
                                                                             ==================  ==================`

____________

(1) The Company received revenue from one customer that remained with the Company after the divestiture of the OEM block-
based systems business.



5. Balance Sheets Details



Inventories:

`September 30, 2007    March 31, 2007
                                                                             ------------------  ------------------
                                                                                       (in thousands)              
Raw materials                                                               $              169  $              390
Work-in-process                                                                          1,389               3,536
Finished goods                                                                          18,193              24,791
                                                                             ------------------  ------------------
    Total                                                                   $           19,751  $           28,717
                                                                             ==================  ==================`

Accrued and Other Liabilities:

`September 30, 2007    March 31, 2007
                                                                             ------------------  ------------------
                                                                                       (in thousands)              
Tax related                                                                 $              810  $            6,266
Net deferred tax liability                                                               3,755               3,324
Acquisition related                                                                      2,377               2,123
Accrued compensation and related taxes                                                  10,141               7,672
Deferred margin                                                                          4,541               5,265
Other                                                                                   11,073              12,484
                                                                             ------------------  ------------------
    Total                                                                   $           32,697  $           37,134
                                                                             ==================  ==================`

6.  Other Intangible Assets, Net

The components of other intangible assets, net at September 30, 2007 and March 31, 2007 were as
follows:

`September 30, 2007                  March 31, 2007
                                            ----------------------------------  ----------------------------------
                                              Gross                    Net        Gross                    Net
                                             Carrying   Accumulated  Carrying    Carrying   Accumulated  Carrying
                                              Amount    Amortization  Amount      Amount    Amortization  Amount
                                            ----------  ----------  ----------  ----------  ----------  ----------
                                                                              (in thousands)                      
Acquisition-related intangible assets:
    Patents, core and existing technologies$   43,545  $  (39,911) $    3,634  $   43,545  $  (38,539) $    5,006
    Customer relationships                      1,047      (1,047)         --       1,047      (1,034)         13
    Trade name                                 10,774     (10,541)        233      10,774     (10,474)        300
                                            ----------  ----------  ----------  ----------  ----------  ----------
        Subtotal                               55,366     (51,499)      3,867      55,366     (50,047)      5,319
Intellectual property assets and warrants      40,242     (40,242)         --      40,242     (38,550)      1,692
                                            ----------  ----------  ----------  ----------  ----------  ----------
Total                                      $   95,608  $  (91,741) $    3,867  $   95,608  $  (88,597) $    7,011
                                            ==========  ==========  ==========  ==========  ==========  ==========`

Amortization of other intangible assets was $1.0 million and $3.0 million in the second quarters of
fiscal 2008 and 2007, respectively.  Amortization of other intangible assets was $3.2 million and $6.2 million in the first halves of fiscal
2008 and 2007, respectively.



The Company regularly performs reviews to determine if facts or circumstances are present, either internal or
external, which would indicate that the carrying values of its long-lived assets are impaired. If an asset is determined to be impaired, the
loss is measured based on the difference between the asset's fair value and its carrying value. The estimate of fair value of the assets
is based on discounting estimated future cash flows using a discount rate commensurate with the risks inherent in the Company's
current business model. The estimation of the impairment involves numerous assumptions that require judgment by the Company,
including, but not limited to, future use of the assets for the Company's operations versus sale or disposal of the assets and future
selling prices for the Company's products.



At the end of the first quarter of fiscal 2007, with the decision to retain and operate the Snap Server portion of
the systems business, the Company performed an impairment analysis of this business that indicated that the carrying amount of the
long-lived assets exceeded their estimated fair value. This was due in part to the limited cash flows of the business and a number of
uncertainties, which included the significant research and development expenditures necessary to grow the revenue of the Snap Server
portion of the systems business and the significant uncertainties associated with achieving such growth in revenue. This resulted in an
impairment charge of $13.2 million, which was recorded in "Other charges (gains)" in the Condensed Consolidated
Statements of Operations in the first half of fiscal 2007, of which $5.6 million, $3.1 million and $4.5 million related to the Company's
acquisition-related intangible assets for existing technology, core technology, and trade name, respectively.



The annual amortization expense of the other intangible assets that existed as of September 30, 2007 is
expected to be as follows:

`Estimated
                                                                                Amortization
                                                                                  Expense
                                                                             ------------------
                                                                               (in thousands)  
Fiscal Years:
2008 (remaining six months)                                                 $            1,440
2009                                                                                     2,394
2010 and thereafter                                                                         33
                                                                             ------------------
Total                                                                       $            3,867
                                                                             ==================`

7. Interest and Other Income, Net



The components of interest and other income, net for the second quarters and first halves of fiscal
2008 and 2007 were as follows:

`Three-Month Period Ended    Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                                    (in thousands)                   
Interest income                                                   $     7,042  $     5,813  $    13,717  $    11,506
Realized currency transaction gains (losses)                              668          (45)         678          134
Other                                                                      87           57          123           88
                                                                   -----------  -----------  -----------  -----------
Total                                                             $     7,797  $     5,825  $    14,518  $    11,728
                                                                   ===========  ===========  ===========  ===========`

8. Restructuring Charges



In the first quarter of fiscal 2008, management approved and initiated a plan to restructure the Company's
operations to reduce its operating expenses due to a declining revenue base by eliminating duplicative resources in all functions of the
organization worldwide, resulting in a restructuring charge of $1.5 million. In addition, in the second quarter of fiscal 2008, the Company
initiated additional actions in an effort to better align its cost structure with its anticipated OEM revenue stream and to improve its results
of operations and cash flows. The total cost the Company expects to incur for this restructuring plan is approximately $5.0 million,
of which the Company recorded approximately $3.5 million in the second quarter of fiscal 2008. Of the $3.5 million recorded in
the second quarter of fiscal 2008, $3.4 million related to severance and benefits for employee reductions primarily related to its
OEM engineering resources and related support and service organizations worldwide and $0.1 million related to vacating
redundant facilities, and contract termination costs.  The Company also recorded minimal accrual adjustments in the second quarter
and first half of fiscal 2008 primarily related to severance and benefits as actual costs were lower than anticipated. These accrual
adjustments related to the restructuring plans that the Company implemented in the first and second quarters of fiscal 2007 and the first
quarter of fiscal 2008.  All expenses, including adjustments, associated with the Company's restructuring plans are included in
"Restructuring charges" in the Condensed Consolidated Statements of Operations and are not allocated to segments but
rather managed at the corporate level. For a complete discussion of all restructuring actions that were implemented prior to fiscal 2008,
please refer to the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year
ended March 31, 2007.

The activity in the accrued restructuring reserves, excluding acquisition-related restructuring, was as
follows for the first half of fiscal 2008:

`Severance        Other
                                                              and Benefits      Charges         Total
                                                              -------------  -------------  -------------
                                                                             (in thousands)                
Accrual balance at March 31, 2007                            $         260  $         510  $         770
Q1'08 Restructuring Plan                                             1,526             --          1,526
Q2'08 Restructuring Plan                                             3,395            149          3,544
Accrual adjustments                                                   (116)            --           (116)
Non-cash charges                                                        --            (35)           (35)
Cash paid                                                           (4,042)          (328)        (4,370)
                                                              -------------  -------------  -------------
Accrual balance at September 30, 2007                        $       1,023  $         296  $       1,319
                                                              =============  =============  =============`

The activity in the accrued restructuring reserves, excluding acquisition-related restructuring, was as
follows for the first half of fiscal 2007:

`Severance        Other
                                                              and Benefits      Charges         Total
                                                              -------------  -------------  -------------
                                                                             (in thousands)                
Accrual balance at March 31, 2006                            $       1,185  $       1,586  $       2,771
Q1'07 Restructuring Plan                                             2,927            101          3,028
Q2'07 Restructuring Plan                                               881             --            881
Provision adjustments                                                 (101)           288            187
Non-cash charges                                                        --           (225)          (225)
Cash paid                                                           (4,334)          (540)        (4,874)
                                                              -------------  -------------  -------------
Accrual balance at September 30, 2006                        $         558  $       1,210  $       1,768
                                                              =============  =============  =============`

The Company anticipates that the remaining restructuring severance and benefits accrual balance of $1.0
million at September 30, 2007 will be substantially paid out by the fourth quarter of fiscal 2008 while the remaining restructuring other
charges accrual balance of $0.3 million, relating primarily to long-term leases, will be paid out through the first quarter of fiscal 2011.
The remaining restructuring accrual balance is reflected in "Accrued and other liabilities" and "Other long-term
liabilities" in the Condensed Consolidated Balance Sheets.



Acquisition-Related Restructuring: During the first quarter of fiscal 2006, the Company finalized
its Snap Appliance integration plan to eliminate certain duplicative resources, including severance and benefits in connection with the
involuntary termination of approximately 24 employees, exiting duplicative facilities and disposing of duplicative assets. The acquisition-
related restructuring liabilities of $6.7 million were accounted for under EITF No. 95-3 and therefore were included in the
purchase price allocation. Any further changes to the Company's finalized plan will be accounted for under SFAS No. 146 and will be
recorded in "Restructuring charges" in the Condensed Consolidated Statements of Operations. In the third quarter of fiscal
2006, the Company recorded additional adjustments of $0.2 million due to additional estimated loss related to the facilities that the
Company subleased. As of September 30, 2007, the Company had utilized $4.9 million of these charges. The Company
anticipates that the remaining restructuring accrual balance of $2.0 million will be paid out by the third quarter of fiscal 2012,
related to long-term lease obligations



9.  Other Charges (Gains)



In fiscal 2007, the Company decided to consolidate its properties in Milpitas, California to better align its
business needs with existing operations and to provide more efficient use of its facilities. As a result, three owned buildings, including
associated building improvements and property, plant and equipment, were classified as assets held for sale and were included in
"Assets held for sale" in the Consolidated Balance Sheets at March 31, 2007 at the Company's carrying value of
$12.5 million. In May 2007, the Company completed the sale of the three buildings with proceeds aggregating to $19.9 million,
which exceeded the Company's carrying value of $12.5 million. Net of selling costs, the Company recorded a gain on the sale of the
properties of $6.7 million in the first half of fiscal 2008 to "Other charges (gains)" in the Condensed Consolidated Statements
of Operations.



In the first half of fiscal 2007, the Company recorded asset impairment charges of $13.2 million related to
certain acquisition-related intangible assets (Note 6), which was recorded in "Other charges (gains)" in the Condensed
Consolidated Statements of Operations.



10.  Net Income (Loss) Per Share



Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive
common shares outstanding during the period, which include certain stock-based awards and warrants, calculated using the treasury
stock method, and convertible notes which are potentially dilutive at certain earnings levels, and are computed using the if-converted
method.



A reconciliation of the numerator and denominator of the Company's basic and diluted income (loss) per
share computations was as follows:

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                      (in thousands, except per share amounts)
Numerators:                                                                                                          
    Income (loss) from continuing operations - basic              $    (7,488) $    48,757  $   (11,123) $    23,933
    Income (loss) from discontinued operations - basic                   (144)       2,308         (144)       3,862
                                                                   -----------  -----------  -----------  -----------
    Net income (loss) - basic                                     $    (7,632) $    51,065  $   (11,267) $    27,795
                                                                   ===========  ===========  ===========  ===========
Adjustments:
    Adjustment for interest expense on 3/4% Notes, net of taxes   $        --  $       762  $        --  $     1,524
    Adjustment for interest expense on 3% Notes, net of taxes              --          100           --           --
                                                                   -----------  -----------  -----------  -----------
    Total adjustments for interest expense on convertible
       notes, net of taxes                                        $        --  $       862  $        --  $     1,524
                                                                   ===========  ===========  ===========  ===========

    Adjusted income (loss) from continuing operations  - diluted  $    (7,488) $    49,619  $   (11,123) $    25,457
    Adjusted income (loss) from discontinued operations -  diluted       (144)       2,308         (144)       3,862
                                                                   -----------  -----------  -----------  -----------
    Adjusted net income (loss) - diluted                          $    (7,632) $    51,927  $   (11,267) $    29,319
                                                                   ===========  ===========  ===========  ===========

Denominators:                                                                                                        
    Weighted average shares outstanding - basic                       118,405      116,325      118,151      115,967
    Effect of dilutive securities:
        Stock options                                                      --          491           --          800
        3/4% Notes                                                         --       19,224           --       19,224
        3% Notes                                                           --          695           --           --
                                                                   -----------  -----------  -----------  -----------
        Weighted average shares and potentially dilutive
            common shares outstanding - diluted                       118,405      136,735      118,151      135,991
                                                                   ===========  ===========  ===========  ===========
Income (loss) per share:
    Basic
        Continuing operations                                     $     (0.06) $      0.42  $     (0.09) $      0.21
        Discontinued operations                                   $     (0.00) $      0.02  $     (0.00) $      0.03
        Net income (loss)                                         $     (0.06) $      0.44  $     (0.10) $      0.24
    Diluted
        Continuing operations                                     $     (0.06) $      0.36  $     (0.09) $      0.19
        Discontinued operations                                   $     (0.00) $      0.02  $     (0.00) $      0.03
        Net income (loss)                                         $     (0.06) $      0.38  $     (0.10) $      0.22`

Diluted loss per share from continuing operations, discontinued operations and net
loss for the second quarter and first half of fiscal 2008 was based only on the weighted-average number of shares outstanding during
these periods, as the inclusion of any common stock equivalents would have been anti-dilutive. In addition, certain potentially issuable
common shares were excluded from the diluted computation from continuing operations, discontinued operations and net income for
the second quarter and first half of fiscal 2007 because their inclusion would have been anti-dilutive. The items excluded for the second
quarters and first halves of fiscal 2008 and 2007 were as follows:

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                                   (in thousands)                    
Outstanding employee stock options                                     12,108       12,552       12,474       12,825
Outstanding restricted stock awards and units                           1,556            8        1,338            4
Warrants(1)                                                            19,724       19,874       19,724       19,874
3/4% Notes                                                             19,224           --       19,224           --
3% Notes                                                                   --           --           --          695`

____________

(1)



11. Comprehensive Income (Loss), Net of Taxes



The Company's comprehensive income (loss), net of taxes, which consisted of net income (loss) and
the changes in net unrealized gains on marketable securities and foreign currency translation adjustments, was as follows:

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                                   (in thousands)                    
Net income (loss)                                                 $    (7,632) $    51,065  $   (11,267) $    27,795
Net unrealized gains on marketable securities, net of taxes             1,649        3,222          406        2,569
Foreign currency translation adjustment, net of taxes                   1,318          182        1,546        1,055
                                                                   -----------  -----------  -----------  -----------
Comprehensive income (loss), net of taxes                         $    (4,665) $    54,469  $    (9,315) $    31,419
                                                                   ===========  ===========  ===========  ===========`

The components of accumulated other comprehensive income, net of taxes, were as follows:

`September 30, 2007    March 31, 2007
                                                                             ------------------  ------------------
                                                                                       (in thousands)              
Unrealized losses on marketable securities                                  $              965  $              559
Foreign currency translation                                                             4,165               2,619
                                                                             ------------------  ------------------
    Total                                                                   $            5,130  $            3,178
                                                                             ==================  ==================`

12. Income Taxes



Income tax provisions for interim periods are based on the Company's estimated annual income tax rate for
entities that were profitable. Entities that had operating losses with no tax benefit were excluded. The estimated annual tax for fiscal
2008 includes foreign taxes related to the Company's foreign subsidiaries, certain state minimum taxes and interest accrued on prior
years' tax disputes. This resulted in a tax provision of $0.3 million for the second quarter of fiscal 2008. The estimated annual tax for
fiscal 2007 consisted of a discrete tax benefit attributable to settling certain tax disputes, foreign taxes related to the Company's foreign
subsidiaries, certain state minimum taxes and interest accrued on prior years' tax disputes. This resulted in a tax benefit of $49.1 million
for the second quarter of fiscal 2007, of which $46.0 million was attributable to the discrete tax benefit. The Company is in ongoing
negotiations with the IRS taxing authorities with regard to its tax disputes, as discussed below in Note 13. The Company's tax rate for
the period in which a settlement is reached will be  impacted if the settlement materially differs from the amounts previously accrued.



On April 1, 2007, the Company adopted FIN 48, which clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. FIN 48 requires a two-step
process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood
that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be sustained, the
tax position is then assessed to determine the amount of benefit to recognize in the Company's financial statements. The amount of the
benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate
settlement. Prior to the adoption of FIN 48, the Company's policy was to classify accruals for uncertain positions as a current liability
unless it was highly probable that there would not be a payment or settlement for such identified risks for a period of at least a
year.



As a result of implementing FIN 48 on April 1, 2007, the Company recognized a cumulative effect
adjustment of $1.3 million as a reduction to "Retained earnings" on its Condensed Consolidated Balance Sheets at that
date. Following the adoption of FIN 48, the Company elected to recognize interest and/or penalties related to uncertain tax positions as
income tax expense in its Condensed Consolidated Statements of Operations. To the extent that accrued interest and penalties do not
ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the
period that such determination is made. The amount of interest and penalties accrued at April 1, 2007, upon the adoption of FIN 48,
was immaterial. In addition, no material amount was accrued during the first half of fiscal 2008.



As of September 30, 2007, the Company's total gross unrecognized tax benefits were $20.3 million, of
which $6.2 million if recognized, would affect the effective tax rate.



The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and
foreign jurisdictions. As of the date of adoption of FIN 48, tax years 1994 through 2007 remained open to examination by the U.S.
taxing authorities, tax years 1998 through 2007 remained open to examination in Singapore and tax years 2001 through 2007 remained
open to examination in various foreign jurisdictions. There was no material change to the Company's unrecognized tax benefits during
the first half of fiscal 2008. Management believes that events that could occur in the next 12 months and cause a material change in
unrecognized tax benefits include, but are not limited to, the following:



- completion of examinations of the Company's tax returns by the U.S. or foreign tax authorities;
and
- expiration of statue of limitations on the Company's tax returns



Management believes that it is reasonably possible that the Company's U.S. income tax audit for fiscal
2004 will conclude during the next twelve months due to the expectation that the Statute of Limitations will expire in September 2008.
The Company does not anticipate the recognition of any material previously unrecognized tax benefits as the result of the conclusion of
this audit.



The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of
complex global tax regulations. Management regularly assesses the Company's tax positions in light of legislative, bilateral tax treaty,
regulatory and judicial developments in the countries in which the Company does business. Other than the matter discussed above,
management determined that an estimate of the range of reasonably possible material changes in the unrecognized tax benefits within
the next 12 months cannot be made.



13. Commitments and Contingencies



The Company was subject to IRS audits for its fiscal years 1994 through 2003. During the third quarter
of fiscal 2007, the Company reached resolution with the United States taxing authorities on all outstanding audit issues relating to those
fiscal years. However, the Company's tax provision continues to reflect judgment and estimation regarding components of the
settlement such as interest calculations and the application of the settlements to state and local taxing jurisdictions.  Although the
Company believes its tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in its
condensed consolidated financial statements and may cause a higher effective tax rate that could materially affect its income tax
provision, results of operations or cash flows in the period or periods for which such determination is made. The IRS is currently
auditing the Company's Federal income tax returns for the fiscal 2004 through 2006 audit cycle. The Company believes that it has
provided sufficient tax provisions for these years and the ultimate outcome of the IRS audits will not have a material adverse impact on
its financial position or results of operations in future periods. However, the Company cannot predict with certainty how these matters
will be resolved and whether it will be required to make additional tax payments.



The Company is a party to other litigation matters and claims, including those related to intellectual property,
which are normal in the course of its operations, and while the results of such litigation matters and claims cannot be predicted with
certainty, the Company believes that the final outcome of such matters will not have a material adverse impact on its financial position
or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be
unfavorable, the Company's business, financial condition, results of operations and cash flows could be materially and adversely
affected.



In connection with the Company's acquisition of Eurologic, a portion of the purchase price totaling $3.8 million
was held back (the "Eurologic Holdback") for unknown liabilities that may have existed as of the acquisition date.  As of
September 30, 2007, the Company asserted claims against the Eurologic Holdback totaling $1.5 million.



14. Guarantees



Intellectual Property and Other Indemnification Obligations



The Company has entered into agreements with customers and suppliers that include intellectual
property indemnification obligations. These indemnification obligations generally require the Company to compensate the other party for
certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. In each of
these circumstances, payment by the Company is conditional on the other party making a claim pursuant to the procedures specified in
the particular contract, which procedures typically allow the Company to challenge the other party's claims. Further, the Company's
obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have
recourse against third parties for certain payments made by it under these agreements. In addition, the Company has agreements
whereby it indemnifies its directors and certain of its officers for certain events or occurrences while the officer or director is, or was,
serving at the Company's request in such capacity. These indemnification agreements are not subject to a maximum loss clause;
however, the Company maintains a director and officer insurance policy which may cover all or a portion of the liabilities arising from its
obligation to indemnify its directors and officers.



Product Warranty



The Company provides an accrual for estimated future warranty costs based upon the historical relationship
of warranty costs to sales. The estimated future warranty obligations related to product sales are recorded in the period in which the
related revenue is recognized. The estimated future warranty obligations are affected by product failure rates, material usage and
replacement costs incurred in correcting a product failure. If actual product failure rates, material usage or replacement costs differ from
the Company's estimates, revisions to the estimated warranty obligations would be required; however, the Company made no
adjustments to pre-existing warranty accruals in the first halves of fiscal 2008 and 2007.



A reconciliation of the changes to the Company's warranty accrual for the first halves of fiscal 2008 and 2007
was as follows:

`Six-Month Period Ended
                                                                                          September 30,
                                                                             --------------------------------------
                                                                                    2007                2006
                                                                             ------------------  ------------------
                                                                                        (in thousands)             
Balance at beginning of period                                              $              950  $            2,051
Warranties provided                                                                      1,782               2,086
Actual costs incurred                                                                   (1,660)             (2,561)
                                                                             ------------------  ------------------
Balance at end of period                                                    $            1,072  $            1,576
                                                                             ==================  ==================`

15. Segment Reporting



With OEMs incorporating other connectivity technologies directly into their products, the increased level of
competition entering the market, and the complexities of the retail channel, the Company decided in fiscal 2007 not to invest further in
its DSG segment. The Company's DSG segment provided high-performance I/O connectivity and digital media products for personal
computing platforms, including notebook and desktop PCs, which were sold to retailers, OEMs and distributors. The Company wound
down the DSG business throughout fiscal 2007 and exited it at March 31, 2007. As a result, in the first quarter of fiscal 2008, the
Company revised its internal reporting structure by including the remaining SCSI products from its previous DSG segment into its DPS
segment. The remainder of the DSG segment is included in the "Other" category, as it represents a reconciling item to its
consolidated results of operations. Following the revision to its internal reporting structure, the Company operates in two segments,
DPS and SSG. A description of the types of customers or products and services provided by each segment is as follows:



- DPS provides data protection storage products and its associated storage technologies, including ASICs,
board-level products, RAID controllers, internal enclosures and stand-alone software. The Company sells these products directly to
OEMs, ODMs that supply OEMs, system integrators, VARs and end users through its network of distribution and reseller
channels.



- SSG provides storage systems for the protection of both file and block data, which are known as
"Snap Server by Adaptec" products, including NAS hardware and related backup, replication, and management software.
The Company sells these products to VARs and end users through its network of distribution partners, solution providers and VARs.



Summarized financial information on the Company's reportable segments, under the revised internal reporting
structure, is shown in the following table.  The segment financial data for historical periods has been restated to reflect this change.
There were no inter-segment revenues for the periods shown below. The Company does not separately track all tangible assets or
depreciation by operating segments nor are the segments evaluated under these criteria. Segment financial information is summarized
as follows for the second quarters and first halves of fiscal 2008 and 2007:

`DPS          SSG         Other        Total
                                                                   -----------  -----------  -----------  -----------
                                                                                    (in thousands)                     
Three-Month Period Ended September 30, 2007:
    Net revenues                                                  $    37,587  $     6,387  $        --  $    43,974
    Segment income (loss)                                               6,250         (802)          --        5,448
Three-Month Period Ended September 30, 2006:
    Net revenues                                                  $    64,219  $     6,074  $     3,260  $    73,553
    Segment income (loss)                                              17,573       (3,604)         (15)      13,954
Six-Month Period Ended September 30, 2007:
    Net revenues                                                  $    73,689  $    12,672  $        --  $    86,361
    Segment income (loss)                                               8,891       (1,106)          --        7,785
Six-Month Period Ended September 30, 2006:
    Net revenues                                                  $   121,463  $    13,834  $     7,327  $   142,624
    Segment income (loss)                                              25,558       (4,698)         189       21,049`

A reconciliation of the Company's "Loss from continuing operations before income taxes" on the
Condensed Consolidated Statements of Operations, which consisted of its segment income (loss) and the details of unallocated
corporate income and expenses for the second quarters and first halves of fiscal 2008 and 2007, was as follows:

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
                                                                                   (in thousands)                    
Total segment income                                              $     5,448  $    13,954  $     7,785  $    21,049
Unallocated corporate expenses, net                                   (15,945)     (18,134)     (31,797)     (37,233)
Restructuring charges                                                  (3,428)      (1,085)      (4,954)      (4,096)
Other gains (charges)                                                    (115)          --        5,799      (13,942)
Interest and other income, net                                          7,797        5,825       14,518       11,728
Interest expense                                                         (955)        (883)      (1,969)      (1,759)
                                                                   -----------  -----------  -----------  -----------
    Total                                                         $    (7,198) $      (323) $   (10,618) $   (24,253)
                                                                   ===========  ===========  ===========  ===========`

____________

(1)



16. Supplemental Disclosure of Cash Flows

`Six-Month Period Ended
                                                                                        September 30,
                                                                             --------------------------------------
                                                                                    2007                2006
                                                                             ------------------  ------------------
                                                                                       (in thousands)              
Noncash investing and financing activities:
Net unrealized gains on marketable securities, net of taxes                                406               2,569`

17. Glossary



The following is a list of business related acronyms that are contained within this Quarterly Report on
Form 10-Q. They are listed in alphabetical order.



- AFP:
- ASIC:
- ATA:
- CIFS:
- DPS:
- DSG:
- ESPP:
- FTP:
- HTTP:
- I/O:
- IPsec:
- IRS:
- iSCSI:
- NAS:
- NFS:
- ODM:
- OEM:
- PC:
- PCI:
- PCIe:
- PCI-X:
- RAID:
- SAS:
- SATA:
- SCSI:
- SMI-S:
- SSG:
- Ultra DMA:
- USB:
- VAR:



The following is a list of accounting rules and regulations and related regulatory bodies referred to within this
Quarterly Report on Form 10-Q. They are listed in alphabetical order.



- APB:
- APB Opinion No. 25:
- EITF:
- EITF No. 95-3:
- EITF No. 07-3:
- FASB:
- FIN:
- FIN 48:
- SEC:
- SFAS:
- SFAS No. 109:
- SFAS No. 123(R):
- SFAS No.
- SFAS No.
- SFAS No. 146:
- SFAS No. 155:
- SFAS No
- SFAS No. 159:

---



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



This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and
uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding our business, including, but not
limited to, the anticipated impact of the restructuring plans that were implemented in the first and second quarters of fiscal 2008, our
anticipated declines in revenues from our parallel SCSI products and our SATA products sold to our OEM customers, the expected
impact on our future revenues, and the timing of such impact, of our failure to receive design wins for the next generation serial
products from a significant customer, and our liquidity in future periods. We may identify these statements by the use of words such as
"anticipate," "believe," "continue," "could," "estimate," "expect,"
"intend," "may," "might," "plan," "potential," "predict,"
"project," "should," "will," "would" and other similar expressions. All forward-looking
statements included in this document are based on information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements, except as may otherwise be required by law.



Our actual results could differ materially from those anticipated in these forward-looking statements as a result
of certain factors, including those set forth in the "Risk Factors" section and elsewhere in this document. In evaluating our
business, current and prospective investors should consider carefully these factors in addition to the other information set forth in this
report.



While management believes that the discussion and analysis in this report is adequate for a fair presentation of
the information presented, we recommend that you read this discussion and analysis in conjunction with our Annual Report on
Form 10-K for the year ended March 31, 2007.  Unless otherwise indicated, the following discussion pertains only to our
continuing operations.



For your convenience, we have included, in Note 17 to the Notes to the Unaudited Condensed Consolidated
Financial Statements, a Glossary that contains a list of (1) key acronyms commonly used in our industry that are used in this
Quarterly Report and (2) accounting rules and regulations that are also referred to in this report. These key acronyms and
accounting rules and regulations are listed in alphabetical order.



Results of Operations

Overview



In the second quarter of fiscal 2008, our revenues decreased by $29.6 million compared to the second quarter
of fiscal 2007 due primarily to the declining revenue base of our parallel products and slower adoption of our newer generation of serial
products. Our revenues were further impacted from our inability to obtain design wins from our OEM customers, primarily for our next
generation serial products. The slight decline in gross margin in the second quarter of fiscal 2008 compared to the second quarter of
fiscal 2007 was primarily due to certain manufacturing-related costs that are relatively fixed being spread over a smaller revenue base,
which was offset by our improved standard product contributions due to our continued focus on improving product component costs.
Operating expenses also decreased in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 primarily as a
result of cost reductions and restructuring efforts that were initiated in previous quarters.



Our future revenue growth in our DPS segment remains largely dependent on the success of our new products
addressing serial technologies (for example, SAS and SATA), channel growth and our ability to develop new products in other markets,
which includes both strengthening our partnerships in silicon-based technology  and
broadening our silicon-based intellectual property to improve our business opportunities, primarily for OEM
customers. Our future revenue growth in our SSG segment remains largely dependent on the successful development and marketing of
new products and our ability to expand our presence in the reseller channel.

The growth of our new generation of serial products is not keeping pace with the decline in revenues from our
parallel products and from our OEM customers.  In light of this situation, we believe we may seek growth opportunities beyond those
presented by our existing product lines by entering into strategic alliances, partnerships or acquisitions in order to scale our business.
This includes both strengthening our partnerships in silicon-based technology  and
broadening our silicon-based intellectual property to improve our business opportunities, primarily for OEM
customers. We also continue to review and evaluate our existing product portfolio, operating structure and markets to determine the
future viability of our existing products and market positions.

In the first quarter of fiscal 2008, we revised our internal reporting structure by including the remaining
SCSI products from our previous DSG segment into our DPS segment as we wound down the DSG business throughout fiscal 2007
and exited it at March 31, 2007.  The remainder of the DSG segment is included in the "Other" category, as it represents a
reconciling item to our consolidated results of operations.  We decided not to invest further in our DSG segment due to OEMs
incorporating other connectivity technologies directly into their products, the increased level of competition entering the market and the
complexities of the retail channel. Our DSG segment provided high-performance I/O connectivity and digital media products for
personal computing platforms, including notebook and desktop PCs, which were sold to retailers, OEMs and distributors. We also
implemented two restructuring plans: (1) in the first quarter of fiscal 2008 by eliminating duplicative resources to reduce our operating
expenses due to a declining revenue base and (2) beginning in the second quarter of fiscal 2008 by reducing our workforce by
approximately 20% in an effort to better align our cost structure with our anticipated revenue stream and to improve our results of
operations and cash flows.



The following table sets forth the items in the Unaudited Condensed Consolidated Statements of Operations as
a percentage of net revenues (references to notes in the footnotes to this table are to the Notes to Unaudited Condensed Consolidated
Financial Statements appearing in this report):

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                    2007 (1)     2006 (2)     2007 (3)     2006 (4)
                                                                   -----------  -----------  -----------  -----------
Net revenues                                                              100 %        100 %        100 %        100 %
Cost of revenues                                                           65           64           66           66
                                                                   -----------  -----------  -----------  -----------
    Gross margin                                                           35           36           34           34
                                                                   -----------  -----------  -----------  -----------
Operating expenses:
    Research and development                                               25           18           26           21
    Selling, marketing and administrative                                  33           21           34           22
    Amortization of acquisition-related intangible assets                   1            2            2            2
    Restructuring charges                                                   8            2            6            3
    Other charges (gains)                                                   0           --           (7)          10
                                                                   -----------  -----------  -----------  -----------
        Total operating expenses                                           67           43           61           58
                                                                   -----------  -----------  -----------  -----------
Loss from continuing operations                                           (32)          (7)         (27)         (24)
Interest and other income, net                                             18            8           17            8
Interest expense                                                           (2)          (1)          (2)          (1)
                                                                   -----------  -----------  -----------  -----------
Loss from continuing operations before income taxes                       (16)          (0)         (12)         (17)
Provision for (benefit from) income taxes                                   1          (67)           1          (34)
                                                                   -----------  -----------  -----------  -----------
Income (loss) from continuing operations, net of taxes                    (17)          67          (13)          17
                                                                   -----------  -----------  -----------  -----------
Discontinued operations, net of taxes
    Income (loss) from discontinued operations, net of taxes               --           (0)          --            0
    Income (loss) from disposal of discontinued operations,
        net of taxes                                                       (0)           3           (0)           3
                                                                   -----------  -----------  -----------  -----------
        Income (loss) from discontinued operations, net of taxes           (0)           3           (0)           3
                                                                   -----------  -----------  -----------  -----------
Net income (loss)                                                         (17)%         70 %        (13)%         20 %
                                                                   ===========  ===========  ===========  ===========`

____________

(1) In the second quarter of fiscal 2008, we implemented a restructuring plan.  This action
affects the comparability of this data.



(2) In the second quarter of fiscal 2007, we implemented a restructuring plan and received a discrete tax benefit
of $46.0 million from the settlement of certain tax disputes with the U.S. and Singapore taxing authorities. These actions affect the
comparability of this data.



(3) In the first half of fiscal 2008, we recorded a gain of $6.7 million on the sale of certain properties and
implemented restructuring plans. These actions affect the comparability of this data.



(4) In the first half of fiscal 2007, we recorded an impairment charge of $13.2 million related to the Snap server
portion of our systems business, implemented restructuring plans and received a discrete tax benefit of $46.0 million from the
settlement of certain tax disputes with the U.S. and Singapore taxing authorities. These actions affect the comparability of this
data.



Net Revenues.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)
Segment Net Revenues:                                                                                              
DPS                                                     $  37.6  $  64.2         (41)% $  73.7  $ 121.5        (39)%
SSG                                                         6.4      6.1           5 %    12.7     13.8         (8)%
Other                                                        --      3.3        (100)%      --      7.3       (100)%
                                                         -------  -------               -------  -------
    Total Net Revenues                                     44.0     73.6         (40)%    86.4    142.6        (39)%
                                                         =======  =======               =======  =======`

Revenues from our DPS segment decreased by $26.6 million and $47.8 million in the second
quarter and first half of fiscal 2008, respectively compared to the corresponding periods of fiscal 2007, primarily due to a decline in unit
sales of our parallel SCSI products of $26.1 million and $50.6 million, respectively, which was partially offset by an increase in sales of
our serial products of $0.2 million and $3.8 million, respectively. The decline in sales volumes of our parallel SCSI products was
primarily attributable to the industry transition from parallel to serial products, in which we have a lower market share. We expect
revenues for our parallel SCSI products to continue to decline. The DPS segment was also negatively impacted by a decline in sales of
our legacy SATA products sold primarily to OEM customers, which are a part of our serial products. We expect revenues for our SATA
products sold to our OEM customers to continue to decline, as certain of our customers have moved to other suppliers to obtain next
generation SATA technologies. For example, in the second quarter of fiscal 2008, a significant customer notified us that we did not
receive design wins for our next generation serial products, which will have a significant negative impact on our revenues beginning in
approximately six months.



Revenues from our SSG segment increased by $0.3 million in the second quarter of fiscal 2008 compared
to the second quarter of fiscal 2007 primarily due to increased sales of our storage server products, which included new products that
launched in the second quarter of fiscal 2008. Revenues from our SSG segment decreased by $1.1 million in the first half of fiscal 2008
compared to the first half of fiscal 2007 primarily as a result of a decline in unit sales of our legacy server products. We have invested in
additional sales and marketing resources in our SSG segment in an effort to grow this business.



Revenues from our other category decreased by $3.3 million and $7.3 million in the second quarter
and first half of fiscal 2008, respectively, compared to the corresponding periods of fiscal 2007 due to our decision to wind down our
DSG business at March 31, 2007.

`Three-Month Period Ended  Six-Month Period Ended
                                                                         September 30,             September 30,
                                                                   ------------------------  ------------------------
                                                                      2007         2006         2007         2006
                                                                   -----------  -----------  -----------  -----------
Geographical Revenues:                                                                                               
North America                                                              43 %         44 %         45 %         45 %
Europe                                                                     26 %         24 %         26 %         24 %
Pacific Rim                                                                31 %         32 %         29 %         31 %
                                                                   -----------  -----------  -----------  -----------
    Total Geographical Revenues                                           100 %        100 %        100 %        100 %
                                                                   ===========  ===========  ===========  ===========`

Our overall international revenues remained relatively flat as a percentage of our total revenues in the
second quarter and first half of fiscal 2008 as compared to the corresponding periods of fiscal 2007.



A small number of our customers account for a substantial portion of our net revenues, and we expect that
a limited number of customers will continue to represent a substantial portion of our net revenues for the foreseeable future. In the
second quarter of fiscal 2008, IBM, Tech Data and Ingram Micro accounted for 33%, 14% and 10% of our total net revenues,
respectively. In the second quarter of fiscal 2007, IBM and Dell accounted for 29% and 15% of our total net revenues, respectively. In
the first half of fiscal 2008, IBM, Tech Data and Ingram Micro accounted for 35%, 12% and 11%of our total net revenues, respectively.
In the first half of fiscal 2007, IBM and Dell accounted for 32% and 16% of our total net revenues, respectively.



Gross Margin.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Gross Profit                                            $  15.4  $  26.5         (42)% $  29.4  $  48.8        (40)%
Gross Margin                                                 35 %     36 %                  34 %     34 %`

The slight decline in gross margin in the second quarter of fiscal 2008 compared to the second quarter of
fiscal 2007 and the lack of change in our gross margins in the first half of fiscal 2008 compared to the first half of fiscal 2007 was
primarily due to certain manufacturing-related costs that are relatively fixed being
spread over a smaller revenue base.  This was offset by our improved standard product contributions due to our continued focus on
improving product component costs, which impacted the second quarter of fiscal 2008, and to a lesser extent, the first half of fiscal
2008, compared to the corresponding periods of fiscal 2007.Our gross margins will be impacted in the future by the mix of
OEM and channel revenue as well as product mix.



Research and Development Expense.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Research and development                                $  10.9  $  13.6         (20)% $  22.6  $  30.9        (27)%`

The decrease in research and development expense in the second quarter and first half of fiscal 2008
compared to the corresponding periods of fiscal 2007 was primarily due to reduced headcount and related expenses as a result of
restructuring programs implemented in the first halves of fiscal 2007 and 2008, which resulted in an 18% decrease in headcount for
employees engaged in research and development. We also decreased our infrastructure spending, had fewer engineering projects
outstanding and had lower stock-based compensation expense of $0.6 million and $1.2 million in the second quarter and first half of
fiscal 2008, respectively, compared to the corresponding periods of fiscal 2007
primarily due to the reduction in headcount.



Selling, Marketing and Administrative Expense.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Selling, marketing and administrative                   $  14.3  $  15.7          (9)% $  29.3  $  31.1         (6)%`

The decrease in selling, marketing and administrative expense in the second quarter and first half of fiscal
2008 compared to the corresponding periods of fiscal 2007 was primarily a result of reductions of our workforce and infrastructure
spending as a result of the restructuring plans we implemented in the first halves of fiscal 2007 and 2008, which resulted in a 14%
decrease in headcount for employees engaged in the selling, marketing and administrative functions. In addition, we had lower stock-
based compensation expense of $0.3 million and $0.6 million, respectively, compared to the corresponding periods of fiscal 2007
primarily due to the reduction in headcount. This was partially offset by $0.2 million and $0.4 million of increased spending on marketing
activities related to increased investments for our SSG segment in the second quarter and first half of fiscal 2008, respectively,
compared to the corresponding periods of fiscal 2007.



Amortization of Acquisition-Related Intangible Assets.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Amortization of acquisition-related
    intangible assets                                   $   0.7  $   1.5         (51)% $   1.5  $   3.1        (52)%`

Acquisition-related intangible assets include patents, core and existing technologies, customer
relationships and trade names. We amortize the acquisition-related intangible assets over periods which reflect the pattern in which the
economic benefits of the assets are expected to be realized, which is primarily using the straight-line method over their estimated useful
lives, ranging from three months to five years.



The decrease in amortization of acquisition-related intangible assets in the second quarter of fiscal 2008
compared to the second quarter of fiscal 2007 was primarily due to intangible assets that became fully amortized in fiscal 2007
associated with our acquisitions of the IBM i/p Series RAID component business and Eurologic Systems Group Limited of $0.4 million
and $0.3 million, respectively.  The decrease in amortization of acquisition-related intangible assets in the first half of fiscal 2008
compared to the first half of fiscal 2007 was primarily due to intangible assets that became fully amortized in fiscal 2007 associated with
our acquisitions of the IBM i/p Series RAID component business and Eurologic Systems Group Limited of $0.9 million and $0.6 million,
respectively.



Restructuring Charges.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Restructuring charges                                   $   3.4  $   1.1         216 % $   5.0  $   4.1         21 %`

All expenses, including adjustments, associated with our restructuring plans are included in
"Restructuring charges" in the Condensed Consolidated Statements of Operations and are not allocated to segments but
rather managed at the corporate level. For a complete discussion of all restructuring actions that were implemented prior to fiscal 2008,
please refer to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended March
31, 2007.



In the first quarter of fiscal 2008, management approved and initiated a plan to restructure our operations to
reduce our operating expenses due to a declining revenue base by eliminating duplicative resources in all functions of the organization
worldwide, resulting in a restructuring charge of $1.5 million. In addition, in the second quarter of fiscal 2008, we initiated additional
actions in an effort to better align our cost structure with our anticipated OEM revenue stream and to improve our results of operations
and cash flows. The total cost we expect to incur for this restructuring plan is approximately $5.0 million, of which we recorded
approximately $3.5 million in the second quarter of fiscal 2008. Of the $3.5 million recorded in the second quarter of fiscal
2008, $3.4 million related to severance and benefits for employee reductions primarily related to our OEM engineering resources
and related support and service organizations worldwide and $0.1 million related to vacating redundant facilities, and contract
termination costs.



As a result of our first quarter of fiscal 2008 restructuring plan, we began to reduce our annual operating
expenses by approximately $4.7 million, beginning in the first quarter of fiscal 2008, of which 30%, 6% and 64% has been reflected as a
reduction in cost of revenues, research and development expense, and selling, marketing and administrative expense, respectively.
These savings have been fully realized by the end of the second quarter of fiscal 2008. As a result of our second quarter of fiscal 2008
restructuring plan, we expect to reduce our annual operating expenses by approximately $10.0 million, beginning in the second quarter
of fiscal 2008, of which 2%, 61% and 37% has been reflected as a reduction in cost of revenues, research and development expense,
and selling, marketing and administrative expense, respectively. We expect these savings to be fully realized by the end of fiscal
2008.



We also recorded minimal accrual adjustments in the second quarter and first half of fiscal 2008 primarily
related to severance and benefits as actual costs were lower than anticipated. These accrual adjustments related to the restructuring
plans that we implemented in the first and second quarters of fiscal 2007 and the first quarter of fiscal 2008.



Other Charges (Gains).

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Other charges (gains)                                   $   0.1  $    --         100 % $  (5.8) $  13.9         n/a`

Other charges (gains) consisted of asset impairment charges related to certain assets and gain on sale of
certain properties.



In fiscal 2007, we decided to consolidate our properties in Milpitas, California to better align our business
needs with existing operations and to provide more efficient use of our facilities. In May 2007, we completed the sale of certain of these
properties with proceeds aggregating $19.9 million, which exceeded our carrying value of $12.5 million. Net of selling costs, we
recorded a gain on the sale of the properties of $6.7 million in the first half of fiscal 2008 to "Other charges (gains)" in the
Condensed Consolidated Statements of Operations.



We regularly perform reviews to determine if facts or circumstances are present, either internal or external,
which would indicate that the carrying values of our long-lived assets are impaired. If an asset is determined to be impaired, the loss is
measured based on the difference between the asset's fair value and its carrying value. The estimate of fair value of the assets is
based on discounting estimated future cash flows using a discount rate commensurate with the risks inherent in our current business
model. The estimation of the impairment involves numerous assumptions that require judgment by us, including, but not limited to,
future use of the assets for our operations versus sale or disposal of the assets and future selling prices for our products.



At the end of the first quarter of fiscal 2007, with the decision to retain and operate the Snap Server portion
of the systems business, we performed an impairment analysis of this business that indicated that the carrying amount of the long-lived
assets exceeded their estimated fair value. This was due in part to the limited cash flows of the business and a number of uncertainties,
which included the significant research and development expenditures necessary to grow the revenue of the Snap Server portion of the
systems business and the significant uncertainties associated with achieving such growth in revenue. This resulted in an impairment
charge of $13.2 million, which was recorded in "Other charges (gains)" in the Condensed Consolidated Statements of
Operations in the first half of fiscal 2007.



Interest and Other Income, Net.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Interest and other income, net:
Interest income                                         $   7.0  $   5.8          21 % $  13.7  $  11.5         19 %
Realized currency transaction gains (losses)                0.7     (0.1)         n/a      0.7      0.1        406 %
Other                                                       0.1      0.1          53 %     0.1      0.1         40 %
                                                         -------  -------               -------  -------
    Total interest and other income, net                    7.8      5.8          34 %    14.5     11.7         24 %
                                                         =======  =======               =======  =======`

Interest and other income, net is primarily attributable to interest income earned on our cash, cash
equivalents and marketable securities, fluctuations in foreign currency gains or losses and realized gains and losses on marketable
securities. The increase in interest and other income, net in the second quarter and first half of fiscal 2008 compared to the
corresponding periods of fiscal 2007 was primarily due to higher interest rates, which resulted in additional income earned on our cash,
cash equivalents and marketable securities, combined with maintaining higher average cash, cash equivalents and marketable
securities balances. This was partially offset by foreign currency fluctuations, primarily related to a stronger Euro compared to the
United States dollar combined with increased balances in our European foreign entities whose functional currency is the United States
Dollar.



Interest Expense.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Interest expense                                        $  (1.0) $  (0.9)          8 % $  (2.0) $  (1.8)        12 %`

Interest expense is primarily associated with our 3/4% Convertible Senior Notes due 2023, or the 3/4%
Notes, and 3% Convertible Subordinated Notes due 2007, or the 3% Notes, issued in December 2003 and March 2002,
respectively. Interest expense remained relatively flat for the second quarter and first half of fiscal 2008 compared to the corresponding
periods of fiscal 2007.



Income Taxes.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Provision for (benefit from) income taxes               $   0.3  $ (49.1)         n/a  $   0.5  $ (48.2)        n/a`

Income tax provisions for interim periods are based on our estimated annual income tax rate for entities
that were profitable. Entities that had operating losses with no tax benefit were excluded. The estimated annual tax for fiscal 2008
includes foreign taxes related to our foreign subsidiaries, certain state minimum taxes and interest accrued on prior years' tax disputes.
The estimated annual tax for fiscal 2007 consisted of a discrete tax benefit attributable to settling certain tax disputes, foreign taxes
related to our foreign subsidiaries, certain state minimum tax, and interest accrued on prior years' tax disputes. This resulted in a tax
benefit of $49.1 million for the second quarter of fiscal 2007, of which $46.0 million was attributable to the discrete tax benefit. We are in
ongoing negotiations with the IRS taxing authorities with regard to our tax disputes as discussed in further detail in Note 13 to Part I of
the Notes to Unaudited Condensed Consolidated Financial Statements, "Commitments and Contingencies." Our tax rate for
the period in which a settlement is reached will be impacted if the settlement materially differs from the amounts previously accrued.



On April 1, 2007, we adopted FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS No. 109. As a result of implementing FIN 48 on April
1, 2007, we recognized a cumulative effect adjustment of $1.3 million as a reduction to the beginning balance of "Retained
earnings" on our Condensed Consolidated Balance Sheets. Following the adoption of FIN 48, we elected to recognize interest
and/or penalties related to uncertain tax positions as income tax expense in our Condensed Consolidated Statements of Operations. To
the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a
reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties
accrued at April 1, 2007, upon the adoption of FIN 48, was immaterial. In addition, no material amount was accrued during the first half
of fiscal 2008.



As of September 30, 2007, our total gross unrecognized tax benefits were $20.3 million, of which $6.2
million if recognized, would affect the effective tax rate.



We are subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign
jurisdictions. As of the date of adoption of FIN 48, tax years 1994 through 2007 remained open to examination by the U.S. taxing
authorities, tax years 1998 through 2007 remained open to examination in Singapore and tax years 2001 through 2007 remained open
to examination in various foreign jurisdictions. There was no material change to our unrecognized tax benefits during the first half of
fiscal 2008 and we do not anticipate that our total unrecognized tax benefits will significantly change during the next twelve months.



Discontinued Operations.

`Three-Month Period Ended       Six-Month Period Ended
                                                                September 30,                  September 30,
                                                         ----------------------------   ---------------------------
                                                                           Percentage                     Percentage
                                                          2007     2006      Change       2007     2006    Change
                                                         -------  -------  ----------   -------  -------  ---------
                                                                     (in millions, except percentages)             
Income (loss) from
    discontinued operations                             $  (0.1) $   2.3          n/a  $  (0.1) $   3.9         n/a`

The decrease in discontinued operations in the second quarter and first half of fiscal 2008 compared to the
corresponding periods of fiscal 2007 was primarily driven by the receipt of royalty revenue under the terms of the nonexclusive license
agreement from the disposal of the IBM i/p Series RAID Business, which ceased in March 2007.



Liquidity and Capital Resources



Key Components of Cash Flows



Operating cash activities consist of income (loss) from continuing operations, net of taxes, adjusted for
certain non-cash items and changes in assets and liabilities. Non-cash items primarily consist of non-cash effect of tax settlement,
impairment charges, sale of long-lived assets, depreciation and amortization of intangible assets, property and equipment, marketable
securities and stock-based compensation expense in accordance with SFAS No. 123(R). Cash used in operating activities from
continuing operations decreased to $3.4 million in the first half of fiscal 2008 compared to $9.7 million in the first half of fiscal 2007
primarily due to the fact that we recorded income from continuing operations, net of taxes, of $23.9 million in the first half of fiscal 2007,
which decreased by $35.1 million to a loss from continuing operations, net of taxes, of $11.1 million in the first half of fiscal 2008, as
well as due to a non-cash charge associated with the impairment of $13.2 million related to the Snap Server intangible assets that was
recorded in the first half of fiscal 2007 and a gain on the sale of long-lived assets of $6.7 million, which was recorded in the first half of
fiscal 2008. This was partially offset by a non-cash effect of $46.0 million from the release of tax reserves due to the settlement of
certain tax disputes with the U.S. and Singapore taxing authorities that was recorded in the first half of fiscal 2007 and changes to
working capital assets and liabilities from the first half of fiscal 2008 to the first half of fiscal 2007 that improved cash used in operations
by $20.0 million, primarily related to reducing our inventory levels.



Investing cash activities primarily consist of purchases, sales and maturities of restricted marketable
securities and marketable securities, net proceeds from the sale of long-lived assets and purchases of property and equipment. Cash
provided by investing activities increased to $80.2 million in the first half of fiscal 2008 compared to cash used in investing activities of
$43.0 million in the first half of fiscal 2007 primarily due to proceeds received from the sale of long-lived assets of $19.9 million and a
decrease in purchases of marketable securities of $143.2 million. This was partially offset by a decrease in the sales and maturities of
marketable securities of $42.8 million.



Financing cash activities primarily consist of employee stock option exercises. Cash provided by financing
activities decreased to $2.6 million in the first half of fiscal 2008 compared to $4.3 million in the first half of fiscal 2007 primarily due to a
decline in stock option exercises and a decline in purchases made under our employee stock purchase plan as the 1986 Employee
Stock Purchase Plan expired in April 2006.







At September 30, 2007, we had $225.2 million of aggregate principal amount plus a premium related
to our 3/4% Notes that is due in December 2023. Each holder of the 3/4% Notes may require us to purchase all or a portion of
our 3/4% Notes on December 22, 2008 at a price equal to 100.25% of the par value of the 3/4% Notes to be purchased plus
accrued and unpaid interest. In addition, each holder of the 3/4% Notes may require us to purchase all or a portion of our 3/4% Notes
on December 22, 2013, on December 22, 2018 or upon the occurrence of a change of control (as defined in the indenture
governing the 3/4% Notes) at a price equal to the principal amount of 3/4% Notes being purchased plus any accrued and unpaid
interest. We expect holders of the 3/4% Notes to exercise their put option in December 2008.



We are required to maintain restricted investments to serve as collateral for the first ten scheduled interest
payments on our 3/4% Notes. As of September 30, 2007, we had $2.5 million of restricted marketable securities, consisting of United
States government securities, of which $1.7 million was classified as short-term and $0.8 million was classified as long-
term.



We were subject to IRS audits for our fiscal years 1994 through 2003. During the third quarter of fiscal
2007, we reached resolution with the United States taxing authorities on all outstanding audit issues relating to those fiscal years.
However, our tax provision continues to reflect judgment and estimation regarding components of the settlement such as interest
calculations and the application of the settlements to state and local taxing jurisdictions. Although we believe our tax estimates are
reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our condensed consolidated financial
statements and may cause a higher effective tax rate that could materially affect our income tax provision, results of operations or cash
flows in the period or periods for which such determination is made. The IRS is currently auditing our Federal income tax returns for the
fiscal 2004 through 2006 audit cycle. We believe that we have provided sufficient tax provisions for these years and the ultimate
outcome of the IRS audits will not have a material adverse impact on our financial position or results of operations in future periods.
However, we cannot predict with certainty how these matters will be resolved and whether we will be required to make additional tax
payments.



We may enter into strategic alliances, partnerships or acquisitions that will enable us to better scale our
operations relative to our cost basis. If we are successful in identifying strategic alliances, partnerships or acquisitions, we may be
required to use a significant portion of our available cash balances.



As of September 30, 2007, we did not have any material changes to our contractual obligations that were
disclosed in the Liquidity section of our Form 10-K for the fiscal year ended March 31, 2007, other than the impact of the adoption of
FIN 48. Total liabilities associated with FIN 48 uncertain tax positions were $5.9 million, of which $0.7 million was included in "Accrued
and other liabilities" on the Condensed Consolidated Balance Sheet at September 30, 2007, as it is expected to be paid within the next
twelve months. The remainder of our liabilities associated with uncertain tax positions of $5.2 million was included in "Other long-term
liabilities" on our Condensed Consolidated Balance Sheet at September 30, 2007. Due to the complexity and uncertainty associated
with our tax controversies, we can not make a reasonably reliable estimate of the period in which cash settlement will be made for our
liabilities associated with uncertain tax positions in "Other Long-term liabilities."



We believe that liquidity provided by our existing working capital, together with expected cash flows from
operations and available sources of equity and equipment financing, will be sufficient to support our operations through at least the next
twelve months. However, should prevailing economic conditions and/or financial, business and other factors beyond our control
adversely affect our estimates of our future cash requirements; we would be required to fund our cash requirements by alternative
financing. There can be no assurance that additional financing, if needed, would be available on terms acceptable to us or at all.



Recent Accounting Pronouncements



In February 2006, the FASB issued SFAS No. 155, which permits fair value remeasurement for
any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation.  SFAS No. 155 also
clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all hybrid financial
instruments held, obtained or issued by us for fiscal years beginning with our fiscal 2008. The adoption of SFAS No. 155 did not have a
material impact on our results of operations and financial position.



In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework
and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements.
SFAS No. 157 is effective beginning with our fiscal 2009, and interim periods within that fiscal year. We are currently evaluating
the impact that SFAS No. 157 will have on our results of operations and financial position.



In February 2007, FASB issued SFAS No. 159, which permits companies to choose to measure certain
financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard
requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.
SFAS No. 159 is effective beginning with our fiscal 2009. We are currently evaluating the impact that SFAS No. 159 will have on
our results of operations and financial position.



In June 2007, the FASB ratified EITF No. 07-3, which requires nonrefundable advance research and
development payments for goods and services to be deferred and capitalized and subsequently expensed when the research and
development activities are performed, subject to an assessment of recoverability.  EITF No. 07-03 is effective for new contractual
arrangements entered into beginning with our fiscal 2009, and interim periods within that fiscal year. We do not believe EITF No. 07-03
will have a material effect on our results of operations and financial position.



Critical Accounting Policies

Our critical accounting policies have not changed from our fiscal year ended March 31, 2007, except for the
following critical accounting policy:



Income Taxes: On April 1, 2007, we adopted FIN 48, which clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. FIN 48 requires a
two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be
sustained, the tax position is then assessed to determine the amount of benefit to recognize in our financial statements. The amount of
the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate
settlement. Prior to the adoption of FIN 48, our policy was to classify accruals for uncertain positions as a current liability unless it was
highly probable that there would not be a payment or settlement for such identified risks for a period of at least a year. In addition, upon
the adoption of FIN 48, we elected to recognize interest and/or penalties related to uncertain tax positions as income tax expense in our
Condensed Consolidated Statements of Operations.



For a complete description of what we believe to be the other critical accounting policies that affect our more
significant judgments and estimates used in the preparation of our condensed consolidated financial statements, please refer to our
Annual Report on Form 10-K for the fiscal year ended March 31, 2007.



Dispositions



On September 30, 2005, we entered into a series of arrangements with IBM pursuant to which we
sold our IBM i/p Series RAID business to IBM.  Under the terms of the agreements, we granted IBM a nonexclusive license to certain
intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers
and connectivity products for the IBM i/p Series RAID business. Under the terms of the nonexclusive license, IBM paid royalties to us
for the sale of our board-level products on a quarterly basis through March 31, 2007, which were recognized as contingent
consideration in discontinued operations when earned. In the second quarter and first half of fiscal 2007, we recorded royalties, net of
taxes, of $2.4 million and $3.7 million, respectively, which we recorded in "Income from disposal of discontinued operations, net of
taxes," in the Condensed Consolidated Statements of Operations.



On January 31, 2006, we signed a definitive agreement with Sanmina-SCI Corporation and its wholly
owned subsidiary, Sanmina-SCI USA, Inc., for the sale of our OEM block-based portion of our systems business for
$14.5 million, of which $2.5 million will be received by March 2008. In addition, Sanmina-SCI USA agreed to pay us
contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three-year period. As of
September 30, 2007, we believe that it is unlikely that revenue levels to earn this contingent consideration will be achieved.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



For financial market risks related to changes in interest rates, equity price and foreign currency exchange
rates, reference is made to Item 7A :"Quantitative and Qualitative Disclosures About Market Risk" contained in Part II
of our Annual Report on Form 10-K for the year ended March 31, 2007.  Our exposure to market risk has not changed
materially since March 31, 2007.



Item 4. Controls and Procedures



Evaluation of Disclosure Controls and Procedures



Under the supervision and with the participation of our management, including our Chief Executive Officer
(CEO) and our Chief Financial Officer (CFO), we conducted an evaluation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)), as of the end of the period covered
by this Quarterly Report on Form 10-Q. Based upon that evaluation, our CEO and our CFO have concluded that the design and
operation of our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.



Changes in Internal Control Over Financial Reporting



There has been no change in our internal control over financial reporting that occurred during the
period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.



Inherent Limitations on Effectiveness of Controls



Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or
our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can
occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies
or procedures.



PART II. OTHER INFORMATION



Item 1A. Risk Factors



Our business faces significant risks. The risks described below may not be the only risks we face.
Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of
the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations
could suffer, and the trading price of our common stock could decline.



Actions that we have taken and the actions that we are considering could adversely affect our business
and financial results in the short-term, and may not have the long-term beneficial results that we intend. Our management team
continuously reviews and evaluates all aspects of our business, including our product portfolio, our relationships with strategic partners
and our research and development focus and sales and marketing efforts to better scale our operations relative to our cost basis.



The actions that we have taken and the actions that we are considering could adversely affect our business
and financial results in the short-term, may not have the long-term beneficial results that we intend and could result in the following:



- Loss of customers;
- Loss of employees;
- Increased dependency on suppliers;
- Supply issues;
- Reduced revenue base;
- Impairment of our assets;
- Increased operating costs;
- Material restructuring charges; and
- Liquidity.



As our revenue base continues to decline from our current operations, we may choose to exit or divest some or
a substantial portion of our current operations to focus on new opportunities. Our management team continuously reviews and
evaluates our product portfolio, operating structure and markets to determine the future viability of our existing products and market
positions.  We may determine that the infrastructure and expenses necessary to sustain an existing business or product offering is
greater than the potential contribution margin that will be obtainable in the future. As a result, we may determine that it is in our interest
to exit or divest such existing business or product offering.  For example, in fiscal 2007, we decided not to invest further in our DSG
business due to OEMs incorporating other connectivity technologies directly into their products, the increased level of competition
entering the market and the complexities of the retail channel. As a result, we wound down the DSG business throughout fiscal 2007
and exited it at March 31, 2007. However, we believe we may seek growth opportunities beyond those presented by our existing
product lines by entering into strategic alliances, partnerships or acquisitions in order to scale our business, and we may not succeed in
these efforts.



The impact of contract negotiations with our large OEM customers, industry technology transitions and market
acceptance of our new products could cause our quarterly revenues to continue to decline. We depend on a small number of
large OEM customers for a significant portion of our revenues, and we are engaged in contract negotiations concerning product
specifications and price.  These negotiations may prove to be unfavorable. We are also experiencing a significant impact on our
revenues as the industry transitions from parallel to serial connectivity, as the revenue we generate from sales of our serial products
has not grown at a fast enough rate to offset declines in sales of our parallel products; we expect this trend to continue in future periods.
For example, in the second quarter of fiscal 2008, a significant customer notified us that we did not receive design wins for our next
generation serial products, which will have a significant negative impact on our revenues beginning in approximately six months.  In
addition, the development of new products may not gain sufficient market acceptance or contribute significantly to revenue.  These
factors, individually or in the aggregate, could cause our quarterly revenues to continue to decline.



We depend on a few key customers and the loss of any of them could significantly reduce our net
revenues.     Historically, a small number of our customers have accounted for a significant portion of
our net revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our net revenues
for the foreseeable future. In addition, our largest customers have begun accounting for an increasingly greater percentage of our net
revenues, which could magnify the effects if one of these customers elected to reduce or eliminate their purchases from us.  For
example, in the first half of fiscal 2008, IBM, Tech Data and Ingram Micro accounted for 35%, 12 % and 11% of our total net revenues,
respectively, whereas in the first half of fiscal 2007, IBM and Dell accounted for 32% and 16% of our total net revenues, respectively.
We believe that our major customers continually evaluate whether or not to purchase products from alternate or additional sources.
Additionally, customers' economic and market conditions frequently change. Accordingly, we cannot assure you that a major customer
will not reduce, delay or eliminate its purchases from us, which would likely cause our revenues to decline. For example, in the second
quarter of fiscal 2008, a significant customer notified us that we did not receive design wins for our next generation serial products,
which will have a significant negative impact on our revenues beginning in approximately six months.  In addition, in the third quarter of
fiscal 2007, we experienced a significant decrease in revenue compared to forecasts from IBM, which adversely affected our operating
results.  We do not carry credit insurance on our accounts receivables and any difficulty in collecting outstanding amounts due from our
customers, particularly customers that place larger orders or experience financial difficulties, could adversely affect our revenues and
our net income. Because our sales are made by means of standard purchase orders rather than long-term contracts, we cannot assure
you that these customers will continue to purchase quantities of our products at current levels, or at all.



Our operations depend on key personnel, the loss of whom could affect the growth and success of our
business.    In order to be successful, we must retain and motivate our executives, our principal
engineers and other key employees, including those in managerial, technical, marketing and information technology support positions.
In particular, our product generation efforts depend on hiring and retaining qualified engineers. Competition for experienced
management, technical, marketing and support personnel such as these remains intense. Each of these personnel is an "at-
will" employee, and, as a result, these employees could terminate their employment with us at any time without penalty and may
seek employment with one or more of our competitors. Due to the general uncertainty regarding the outlook of our company, we have
implemented a retention plan in efforts to retain key employees. We must also continue to motivate all other employees and keep them
focused on our strategies and goals, which may be particularly difficult due to morale challenges posed by continued workforce
reductions. The loss of any of our key employees could have a significant impact on our operations.



If we do not meet our restructuring objectives, we may have to continue to implement additional plans in order
to reduce our operating costs.  This may cause us to incur additional material restructuring charges and result in adverse effects on our
employee capacities.    We have implemented several restructuring plans to reduce our operating
costs and recorded related restructuring charges of $5.0 million, $3.7 million, $10.4 million and $5.9 million, in the first half of
fiscal 2008, and fiscal years 2007, 2006 and 2005, respectively. The restructuring plans primarily involved the reduction of our
workforce and the closure of certain facilities, which included our manufacturing operations in Singapore. The goals of our older plans
were to support future growth opportunities, focus on investments that grow revenues and increase operating margins.  Our recent
goals involve better alignment of our cost structure with our anticipated revenue stream and improving our results of operation and cash
flow. We may not realize the anticipated benefits of the restructuring plans we initiated and may be required to implement further
restructuring plans, which may lead us to incur material restructuring charges.  Further, our restructuring plans may not achieve the
original goals we had in implementing them, which could result in a potential adverse effect on employee capabilities that could harm
our efficiency and our ability to act quickly and effectively in the rapidly changing technology markets in which we sell our products.



Our dependence on new products may cause our net revenues to fluctuate or
decline.    Our future success significantly depends upon our completing and introducing enhanced
and new products at competitive prices and performance levels in a timely manner. The success of new product introductions depends
on several factors, including the following:

- Designing products to meet customer needs;
- Product costs;
- Timely completion and introduction of new product designs;
- Quality of new products;
- Differentiation of new products from those of our competitors; and
- Market acceptance of our products.



Our product life cycles in each of our segments may be as brief as 12 months. As a result, we believe
that we will continue to incur significant expenditures for research and development in the future. We may fail to identify new product
opportunities and may not develop and bring new products to market in a timely manner. In addition, products or technologies
developed by others may render our products or technologies obsolete or noncompetitive, or our targeted customers may not select our
products for design or integration into their products. The failure of any of our new product development efforts could have an adverse
effect on our business and financial results.



We have introduced RAID-enabled products based on the next generation SATA technology and delivered our
products based on SAS technology to certain major customers for testing and integration. We will not succeed in generating
significant revenues from our new SATA and SAS technology products if the market does not adapt to these new technologies, which
would, over time, adversely affect our net revenues and operating results.



If we are unable to compete effectively, our net revenues and gross margins could be adversely
affected.    The markets for all of our products are intensely competitive and are characterized by the
following:

- Rapid technological advances;
- Frequent new product introductions;
- Evolving industry standards; and
- Price erosion.



Consequently, we must continue to enhance our products on a timely basis to keep pace with market demands.
If we do not do so, or if our competition is more effective in developing products that meet the needs of our existing and potential
customers, we may lose market share and not participate in the future growth of our target markets. For example, intense competition
in the transition from products employing Ultra 160 technology to products employing Ultra 320 technology has adversely affected
revenues from our SCSI products. In addition, revenues for our SATA products sold to our OEM customers has declined and we expect
these revenues to continue to decline, as our products are at the end of their life cycles and certain of our customers have moved to
other suppliers to obtain next generation SATA technologies.



Our future revenue growth in our DPS segment remains largely dependent on the success of our new products
addressing serial technologies (for example, SAS and SATA), new OEM design wins, channel growth and our ability to develop new
products in other markets. Our future revenue growth in our SSG segment remains largely dependent on the successful development
and marketing of new products and our ability to expand our presence in the reseller channel.  Our future operating results will also be
influenced by our ability to participate in the development of the network storage market in which we face intense competition from
other companies that are also focusing on networked storage products. If we experience an incremental decline in our revenues
beyond the declines anticipated, and we are unable to effectively manage our inventory levels, we may be required to record additional
inventory-related charges, which would adversely impact our gross margins.



We cannot assure you that we will have sufficient resources to accomplish all of the following:

- Satisfy any growth in demand for our products;
- Make timely introductions of new products;
- Compete successfully in the future against existing or potential competitors;
- Provide OEMs with design specifications in a timely manner; or
- Prevent price competition from eroding margins.



In order to execute our strategies, we may enter into strategic alliances with, partner with, invest in or
acquire companies with complementary or strategic products or technologies. Costs associated with these strategic alliances,
investments or acquisitions may adversely affect our results of operations. This impact could be exacerbated if we are unable to
integrate the acquired companies, products or technologies.     We may pursue strategic
transactions, partnerships, investments and acquisitions in order to scale our business as sales of our core parallel products continue to
decline. This includes both strengthening our partnerships in silicon-based technology  and
broadening our silicon-based intellectual property to improve our business opportunities, primarily for

OEM customers. In order to be successful in the strategic alliances, partnerships, investments or acquisitions that we may make, we
must:

- Conduct strategic alliances, partnerships, investments or acquisitions that enhance our time to market with new products;
- Successfully prevail over competing bidders for target strategic alliances, partnerships, investments or acquisitions at an
acceptable price;
- Invest in companies and technologies that contribute to the profitable growth of our business;
- Integrate acquired operations into our business and maintain uniform standards, controls and procedures;
- Retain the key employees of the acquired operations; and
- Develop the capabilities necessary to exploit newly acquired technologies.



The benefits of any strategic alliances, partnerships, investments or acquisitions may prove to be less than
anticipated and may not outweigh the costs reported in our financial statements, and we may not obtain the operational leverage or
realize the improvements we intend or desire with the actions we take.

Completing any potential future strategic alliances, partnerships, investments or acquisitions could cause
significant diversions of management time and resources and divert focus from the activities of our current operations. We may
encounter difficulty in integrating and assimilating the operations and personnel of the acquired companies into our operations or the
acquired technology and rights into our services. We may also lack the experience or expertise in the new products and markets, which
may impair the relationships with customers or suppliers of the acquired business. The acquisition of new operations may require us to
develop additional internal controls to support these new operations. We may experience material deficiencies or weaknesses in our
internal control over financial reporting as a result of the addition of new operations or due to changes to our internal controls, which
could have a material impact on our results of operations when corrected. Additionally, we may not be successful in overcoming these
risks or any other problems encountered in connection with these or other acquisitions, strategic alliances or investments, which could
result in an adverse impact on our ability to develop or sustain the acquired business.

If we acquire new businesses, products or technologies in the future, we may be required to assume
warranty claims or other contingent liabilities, including liabilities unknown at the time of acquisition, and amortize significant amounts of
other intangible assets and, over time, recognize significant charges for impairment of goodwill, other intangible assets or other losses.

If we consummate any potential future acquisitions in which the consideration consists of stock or other
securities, our existing stockholders' ownership may be significantly diluted. If we proceed with any potential future acquisitions in which
the consideration is cash, we may be required to use a substantial portion of our available cash. If we were to use a substantial portion
of our available cash, we might need to repatriate cash from our subsidiaries, which may cause us to incur additional income taxes at
up to the United States Federal statutory rate of 40%. In addition, we may be required to invest significant resources in order to perform
under a strategic alliance or partnership, or to complete an acquisition or investment, which could adversely affect our results of
operations, at least in the short-term, even if we believe the acquisition, strategic alliance or investment will benefit us in the long-term.

If we are not successful in completing a strategic alliance or partnerships with or acquisition of
companies with complementary or strategic products or technologies, our future growth may be hindered. In order to scale our
operations relative to our cost basis, we may need to identify attractive strategic alliance, partnership or acquisition candidates and
complete a transaction with them. If we fail to identify and complete a successful strategic alliance, partnership or acquisition, we expect
that our revenues will continue to decline and we may be at a competitive disadvantage or we may be adversely affected by negative
market perceptions, any of which may have a material adverse effect on our financial results.



We depend on the efforts of our
distributors, which if reduced, could result in a loss of sales of our products in favor of competitive
offerings.    We derived approximately 51% of our revenues for the first half of fiscal 2008 from
independent distributor and reseller channels. Our financial results could be adversely affected if our relationships with these
distributors or resellers were to deteriorate or if the financial condition of these distributors or resellers were to decline. In addition, in the
first quarter of fiscal 2008, we terminated our relationship with some of our distributors, in order to improve the focus on our products
and strengthen our relationship with the remaining distributors. This action may not have the intended results that we are anticipating,
which could adversely affect our financial results in the short-term.



Our distributors generally offer a diverse array of products from several different manufacturers. Accordingly, we
are at risk that these distributors may give higher priority to selling products from other suppliers. A reduction in sales efforts by our
current distributors could adversely affect our business and financial results. For example, some of our distributors threatened to stop
selling our products or make pricing of our products non-competitive if we did not agree to absorb their costs to comply with the Waste
Electrical and Electronic Equipment Directive with respect to our products.  Our distributors build inventories in anticipation of future
sales, and if such sales do not occur as rapidly as they anticipate, our distributors will decrease the size of their product orders. If we
decrease our price protection or distributor-incentive programs, our distributors may also decrease their orders from us. In addition, we
have from time to time taken actions to reduce levels of products at distributors and may do so in the future. These actions may affect
our net revenues and negatively affect our financial results.



We depend on contract manufacturers and subcontractors, and if they fail to meet our manufacturing needs, it
could delay shipments of our products and result in the loss of customers or revenue and increased manufacturing costs, which would
have an adverse effect on our results.    We rely on contract manufacturers for manufacturing our
products and subcontractors for the assembly and packaging of the integrated circuits included in our products. On December 23,
2005, we entered into a three-year contract manufacturing agreement with Sanmina-SCI, whereby Sanmina-SCI upon the closing of the
transaction on January 9, 2006, assumed manufacturing operations for a majority of our products.  The transition of the manufacturing
facilities did not go as well as expected, as Sanmina-SCI experienced material shortages that impacted its ability to meet delivery
commitments on a consistent basis, which negatively impacted our revenues and operating results in the first quarter of fiscal 2007. We
continued to see an impact in our channel penetration in the second and third quarters of fiscal 2007 as a result of not meeting the
demands in the first quarter of fiscal 2007. We must work closely with Sanmina-SCI to ensure that products are delivered on a timely
basis. In addition, we must ensure that Sanmina-SCI continues to provide quality products. If Sanmina-SCI is unwilling or unable to
meet our supply needs including timely delivery and adherence to standard quality, we could lose customers or revenue and incur
increased manufacturing costs, which would have an adverse effect on our results.  Due to the nature of this relationship, and the
continuous changes in the prices of components and parts, we are in ongoing negotiations with Sanmina-SCI concerning product
pricing. Any adverse outcome of future disputes concerning product pricing could adversely impact our gross margins. We have no
long-term agreements with our assembly and packaging subcontractors. We also employ SMTC to manufacture certain ServeRAID
products, SuperMicro and USI to manufacture certain systems products, and Amkor Technology and Advanced Semiconductor
Engineering to final assemble and test operations related to our ASIC products. We cannot assure you that these subcontractors will
continue to be able and willing to meet our requirements for these components or services. Any significant disruption in supplies from or
degradation in the quality of components or services supplied by these contract manufacturers and subcontractors could delay
shipments and result in the loss of customers or revenues, which could have an adverse effect on our financial results.

We currently purchase all of the finished production silicon wafers and other key components used in
our products from suppliers, and if they fail to meet our manufacturing needs, it would delay our production and our product shipments
to customers and negatively affect our operations.    Independent foundries manufacture to our
specifications all of the finished silicon wafers used for our products. We currently purchase finished production silicon wafers used in
our products from Taiwan Semiconductor Manufacturing Company, or TSMC. In addition, we purchase some of our key components
used in our products from sole-source suppliers. The manufacture of semiconductor devices and other components are sensitive to a
wide variety of factors, including the following:

- The availability of raw materials;
- The availability of manufacturing capacity;
- Transition to smaller geometries of semiconductor devices;
- The level of contaminants in the manufacturing environment;
- Impurities in the materials used; and
- The performance of personnel and equipment.



We cannot assure you that manufacturing problems may not occur in the future. A shortage of raw materials or
production capacity could lead our suppliers to allocate available capacity to other customers. Any prolonged inability to obtain wafers
and other key components with competitive performance and cost attributes, adequate yields or timely deliveries would delay our
production and our product shipments, and could have an adverse effect on our business and financial results. We expect that our
suppliers will continually seek to convert their processes for manufacturing wafers and key components to more advanced process
technologies. Such conversions entail inherent technological risks that can affect yields and delivery times. If for any reason the
suppliers we use are unable or unwilling to satisfy our wafer and other key component needs, we will be required to identify and qualify
additional suppliers. Additional suppliers for wafers and other key components may be unavailable, may take significant amounts of
time to qualify or may be unable to satisfy our requirements on a timely basis.

Because our sales are made by means of standard purchase orders rather than long-term contracts, if
demand for our customers' products declines or if our customers do not control their inventories effectively, they may cancel or
reschedule shipments previously ordered from us or reduce their levels of purchases from us.    The
volume and timing of orders received during a quarter are difficult to forecast. Our customers generally order based on their forecasts
and they frequently encounter uncertain and changing demand for their products. If demand falls below such forecasts or if our
customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from us. Our
customers have from time to time in the past canceled or rescheduled shipments previously ordered from us, and we cannot assure
you that they will not do so in the future. For example, in the third quarter of fiscal 2007, the demand for our products from certain OEM
customers substantially declined from their initial forecasts, which adversely affected our operating results. As our sales are made by
means of standard purchase orders rather than long-term contracts, we cannot assure you that these customers will continue to
purchase quantities of our products at current levels, or at all. Historically, we have set our operating budget based on forecasts of
future revenues because we do not have significant backlog. Because much of our operating budget is relatively fixed in the short-term,
if revenues do not meet our expectations, then our financial results will be adversely affected.



If we fail to adequately forecast demand for our products, we may incur excess product inventory costs and our
financial results will be adversely affected. We have a three-year contract manufacturing agreement with Sanmina-SCI to
manufacture a majority of our products. As the sales of our products are completed through standard purchase orders rather than long-
term contracts, we provide our contract manufacturer forecasts based on anticipated future demand from our customers. To the extent
that our customers' demands fall below their initial forecast and we are unable to sell the product to another customer, and because our
purchase commitment lead time to manufacture products with the contract manufacturer is longer than the lead time for a customer to
cancel or reschedule an order, we may be exposed to excess product inventory costs and our financial results will be adversely
affected.  For example, in the third quarter of fiscal 2007, we incurred significant inventory-related charges of $7.8 million due to a
significant decline in our revenue stream.



Our operating results have fluctuated in the past, and are likely to continue to fluctuate, and if our future results
are below the expectations of investors or securities analysts, the market price of our common stock would likely decline
significantly.    Our quarterly operating results have fluctuated in the past, and are likely to vary
significantly in the future, based on a number of factors related to our industry and the markets for our products. Factors that are likely
to cause our operating results to fluctuate include those discussed in this Risk Factors section.



Our operating expenses are largely based on anticipated revenues, and a large portion of our expenses,
including facility costs and salaries, are fixed in the short term. As a result, lower than anticipated revenues for any reason could cause
significant variations in our operating results from quarter to quarter.



Due to the factors summarized above, and the other risks described in this section, we believe that you should
not rely on period-to-period comparisons of our financial results as an indication of our future performance. In the event that our
operating results fall below the expectations of securities analysts or investors, the market price of our common stock could decline
substantially.



Our operating results may be adversely affected by unfavorable economic and market conditions and
the uncertain geopolitical environment.    Adverse economic conditions in some markets may impact
our business, which could result in:

- Reduced demand for our products;
- Increased price competition for our products;
- Increased risk of excess and obsolete inventories; and
- Higher operating costs as a percentage of revenues.



Demand for our products would likely be negatively affected if demand in the server and network storage
markets declines. It is difficult to predict future server sales growth, if any. In addition, other technologies may replace the technologies
used in our existing products and the acceptance of our products using new technologies in the market may not be widespread, which
could adversely affect our revenues.



We may be subject to a higher effective tax rate that could negatively affect our results of operations and
financial position.    We are subject to income and other taxes in the United States and in the foreign
taxing jurisdictions in which we operate.  The determination of our worldwide provision for income taxes and current and deferred tax
assets and liabilities requires judgment and estimation and is subject to audit and redetermination by the taxing authorities.  Although
we believe our tax estimates are reasonable, the following factors could cause our effective tax rate to be materially different than tax
amounts recorded in our consolidated financial statements:

- The jurisdiction in which profits are determined to be earned and taxed;
- Adjustments to estimated taxes upon finalization of various tax returns;
- Changes in available tax credits;
- Changes in share-based compensation expense;
- Changes in tax laws, the interpretation of tax laws either in the United States or abroad or the issuance of new interpretative
accounting guidance related to uncertain transactions and calculations where the tax treatment was previously uncertain; and
- The resolution of issues arising from tax audits with various tax authorities.



The factors noted above may cause a higher effective tax rate that could materially affect our income tax
provision, results of operations or cash flows in the period or periods for which such determination is made.



We held approximately $92.2 million of cash, cash equivalents and marketable securities at our
subsidiaries in Singapore and Cayman Islands at September 30, 2007. During the fourth quarter of fiscal 2005, we repatriated
$360.6 million of cash from Singapore to the United States in connection with the American Jobs Creation Act of 2004 which
provided a one-time deduction of 85% for certain dividends from controlled foreign corporations. If the amount repatriated does not
qualify for the one-time deduction, we could incur additional income taxes at up to the United States Federal statutory rate of 35%,
which would negatively affect our results of operations and financial condition.



Our reliance on industry standards and technological changes in the marketplace may cause our net revenues
to fluctuate or decline.    The computer industry is characterized by various, evolving standards and
protocols. We design our products to conform to certain industry standards and protocols such as the following:

Technologies:

- AFP
- ATA
- CIFS
- Fibre channel
- FTP
- HTTP
- IPsec
- iSCSI
- NFS
- PCI
- PCIe
- PCI-X
- RAID
- SAS
- SATA
- SCSI
- SMI-S
- Ultra DMA
- USB

Operating Systems:

- Linux
- Macintosh
- Netware
- OS/2
- UNIX
- Windows



If user acceptance of these standards declines, or if new standards emerge, and if we do not anticipate these
changes and develop new products, these changes could adversely affect our business and financial results.



If we lose the cooperation of other hardware and software producers whose products are integral to ours, our
ability to sustain or grow our revenues could be adversely affected.    We must design our products to
operate effectively with a variety of hardware and software products supplied by other manufacturers, including the following:

- I/O and RAID ASICs;
- Microprocessors;
- Peripherals;
- Operating system software;
- Server motherboards; and
- Enclosures.



We depend on significant cooperation from these manufacturers to achieve our design objectives and develop
products that operate successfully with their products. These companies could, from time to time, elect to make it more difficult for us to
design our products for successful operability with their products. For example, if one or more of these companies were to determine
that as a result of competition or other factors, our products would not be broadly accepted by the markets we target, these companies
may no longer work with us to plan for new products and new generations of our products, which would make it more difficult to
introduce products on a timely basis or at all. Further, some of these companies might decide not to continue to offer products that are
compatible with our technology and our markets could contract. If any of these events were to occur, our revenue and financial results
could be adversely affected.

We are subject to various environmental laws and regulations that could impose substantial costs upon
us and may adversely affect our business.     We may from time to time be subject to various state,
federal, and international laws and regulations governing the environment, including laws regulating the manufacture and distribution of
chemical substances and laws restricting the presence of certain substances in electronics products. For example, the European
Parliament enacted the RoHS directive, which restricts the sale of new electrical and electronic equipment containing certain hazardous
substances, including lead. We recorded an excess inventory expense of $1.9 million in fiscal 2006 related to the transition of our
products to comply with the RoHS directive.  If any of our products that are designated to be RoHS compliant are deemed to be non-
compliant, we may suffer a loss of revenue, be unable to sell affected products in certain markets or countries and be at a competitive
disadvantage.



Similar legislation has been or may be enacted in other jurisdictions and countries.  If our products become non-
compliant with the various environmental laws and regulations, we could incur substantial costs which could negatively affect our
results of operations and financial position.

If we do not provide adequate support during our customers' design and development stage, or if we are
unable to provide such support in a timely manner, we may lose revenues to our
competitors.    Certain of our products are designed to meet our customers' specifications and, to the
extent we are not able to meet these expectations in a timely manner or provide adequate support during our customers' design and
development stage, our customers may choose to buy similar products from another company. If this were to occur, we may lose
revenues and market share to our competitors.



If there is a shortage of components used in our customers' products, our sales may decline, which could
adversely affect our results of operations and financial position.    If our customers are unable to
purchase certain components which are embedded into their products, their demand for our products may decline. In addition, we or
our customers may be impacted by component shortages if components that comply with the RoHS Directive are not available. Similar
shortages of components used in our products or our customers' products could adversely affect our net revenues and financial results
in future periods.



Product quality problems could lead to reduced revenues and gross
margins.    We produce highly complex products that incorporate leading-edge technologies,
including both hardware and software. Software often contains "bugs" which can interfere with expected operations. We
cannot assure you that our pre-shipment testing programs will be adequate to detect all defects which might interfere with customer
satisfaction, reduce sales opportunities, or affect our gross margins if the costs of remedying the problems exceed reserves established
for that purpose. An inability to cure a product defect could result in the failure of a product line, and withdrawal, at least temporarily,
from a product or market segment, damage to our reputation, inventory costs, product reengineering expenses, and a material impact
on revenues and gross margins.



Our charter documents and Delaware law contain anti-takeover provisions that could prevent, discourage or
delay a change in control or management, which may affect the price of our common stock. Some provisions of our certificate
of incorporation and bylaws could have the effect of making it more difficult for a potential acquirer to acquire a majority of our
outstanding voting stock. These include completing procedural requirements for stockholders holding 5% of voting shares to take action
by written consent and restricting the ability of stockholders to call special meetings. In addition, the indenture relating to the 3/4%
Notes provides that in the event of certain changes in control, each holder of the 3/4% Notes will have the right to require us to
repurchase such holder's 3/4% Notes at a price equal to the principal amount of the 3/4% Notes being purchased, plus any accrued
and unpaid interest. We are also subject to provisions of Section 203 of the Delaware General Corporation Law which prohibits
us from engaging in any business combination with an interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. These restrictions could have the effect of delaying or preventing
a change of control or management.



Some of our products contain "open source" software, and any failure to comply with the terms of
one or more of these open source licenses could negatively affect our business.    Some of our
products are distributed with software licensed by its authors or other third parties under so-called "open source" licenses,
including, for example, the GNU General Public License, or GPL, GNU Lesser General Public License, or LGPL, the Mozilla Public
License, the BSD License, and the Apache License. Some of those licenses may require as a condition of the license that we make
available source code for modifications or derivative works we create based upon, incorporating, or using the open source software,
that we provide notices with our products, and/or that we license such modifications or derivative works under the terms of a particular
open source license or other license granting third parties certain rights of further use. If an author or other third party that distributes
such open source software were to allege that we had not complied with the conditions of one or more of those open source licenses,
we could be required to incur legal expenses in defending against such allegations, and if our defenses were not successful we could
be enjoined from distribution of the products that contained the open source software and required to either make the source code for
the open source software available, to grant third parties certain rights of further use of our software, or to remove the open source
software from our products, which could disrupt our distribution and sale of some of our products. In addition, if we combine our
proprietary software with open source software in a certain manner, we could under some of the open source licenses, be required to
release the source code of our proprietary software. If an author or other third party that distributes open source software were to obtain
a judgment against us based on allegations that we had not complied with the terms of any such open source licenses, we could also
be subject to liability for copyright infringement damages and breach of contract for our past distribution of such open source software.



Our international operations involve a number of political, economic and other risks that could adversely affect
our ability to sell our products in certain countries, create local economic conditions that reduce demand for our products among our
target markets and expose us to potential disruption in the supply of necessary components.   Our international operations and
sales are subject to political and economic risks, including political instability, currency controls, and changes in import/export
regulations, tariffs and freight rates. We maintain a research and development center in Bangalore, India, which we expanded in fiscal
2007. Many of our subcontractors are primarily located in Asia and we have sales offices and customers located throughout Europe,
Japan and other countries.  In addition, because our primary wafer supplier, TSMC, is located in Taiwan, we may be subject to
certain risks resulting from political instability in Taiwan, including conflicts between Taiwan and the People's Republic of China. These
and other international risks could result in the creation of political or other non-economic barriers to our being able to sell our products
in certain countries, create local economic conditions that reduce demand for our products among our target markets, expose us to
potential disruption in the supply of necessary components or otherwise adversely affect our ability to generate revenue and operate
effectively.  In addition, the operations of our remote locations are subject to management oversight and control. If our business
practices and corporate controls are not adhered to worldwide, our business and financial results could be adversely affected.



We depend on third parties to transport our products.    We rely on
independent freight forwarders to move our products between manufacturing plants and our customers. Any transport or delivery
problems because of their errors, or because of unforeseen interruptions in their activities due to factors such as strikes, political
instability, terrorism, natural disasters and accidents, could adversely affect our business, financial condition and results of operations
and ultimately impact our relationship with our customers.



If the carrying value of our long-lived assets is not recoverable, an impairment loss must be
recognized which would adversely affect our financial results.    Certain events or changes in
circumstances would require us to assess the recoverability of the carrying amount of our long-lived assets. For example, in fiscal 2007,
we recorded an impairment charge of $13.2 million on intangible assets related to our decision to retain and operate the Snap
Systems portion of the systems business. In fiscal 2006, we recorded a goodwill impairment charge of $90.6 million related to our DPS
segment and an impairment charge of $10.0 million to write-down the Snap Systems portion of the systems business' long-lived assets
to fair value. In fiscal 2005, we recorded a goodwill impairment charge of $52.3 million related to our former Channel segment.
We will continue to evaluate the recoverability of the carrying amount of our long-lived assets, and we may incur substantial impairment
charges in the future which could adversely affect our financial results.



If actual results or events differ materially from those contemplated by us in making estimates and assumptions,
our reported financial condition and results of operations for future periods could be materially
affected.    The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. For example, we have identified key accounting estimates in our
Critical Accounting Policies in our  Annual Report on Form 10-K for the fiscal year ended March 31, 2007, which include revenue
recognition, inventory, goodwill, stock-based compensation and income taxes. In addition, we have updated our Critical Accounting
Policy in the first quarter of fiscal 2008 related to income taxes, as discussed in further detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical Accounting Policies." Furthermore, Note 1 of the Notes
to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007 describes the
significant accounting policies essential to preparing our consolidated financial statements. The preparation of these financial
statements requires estimates and assumptions that affect the reported amounts and disclosures. Although we believe that our
judgments and estimates are appropriate and correct, actual future results may differ materially from our estimates.



If we are unable to protect and enforce our intellectual property rights, we may be unable to compete
effectively.    Although we actively maintain and defend our intellectual property rights, we may be
unable to adequately protect our proprietary rights. In addition, the laws of certain territories in which our products are or may be
developed, manufactured or sold, including Asia and Europe, may not protect our products and intellectual property rights to the same
extent as the laws of the United States. Because we conduct a substantial portion of our operations outside of the United States and
sell to a worldwide customer base, we are more dependent on our ability to protect our intellectual property in international
environments than would be the case if a larger portion of our operations were domestic.



Despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our
intellectual property, which could harm our business and ability to compete effectively. We have from time to time discovered counterfeit
copies of our products being manufactured or sold by others. Although we have programs to detect and deter the counterfeiting of our
products, significant availability of counterfeit products could reduce our revenues and damage our reputation and goodwill with
customers.



Third parties may assert infringement claims against us, which may be expensive to defend and could
divert our resources.    From time to time, third parties assert exclusive patent, copyright and other
intellectual property rights to our key technologies, and we expect to continue to receive such claims in the future. For example, in fiscal
2005, we, Nevada SCSI Enterprises, Inc. and Thomas A. Gafford (jointly, "NSE") entered into a license and release
agreement, pursuant to which we paid NSE $1.7 million as a one-time, fully paid-up license fee to settle NSE's claims that some
of our products infringed certain patents.  In addition, we entered into a patent cross-license agreement with IBM in May 2000.
Under this agreement, which was amended in March 2002, we received a release from infringement claims prior to
January 1, 2000 and received the right to use certain of IBM's patents through June 30, 2007. In consideration, we paid, in
annual installments, an aggregate patent fee of $13.3 million. A number of the licensed patents have either expired or are no
longer significant to our product portfolio. If we should determine that it is necessary to extend the term of the patent license, we
believe that we will be able to reach agreement with IBM for such an extension, without interruption to our business operations. The
risks of our receiving additional claims from third parties may be increased in periods such as the one that we are currently entering
where we are beginning to offer product lines employing new technologies relative to our existing products.



We cannot assure you that third parties will not assert other infringement claims against us, directly or indirectly,
in the future, that assertions by third parties will not result in costly litigation or that we would prevail in such litigation or be able to
license any valid and infringed intellectual property from third parties on commercially reasonable terms. These claims may be asserted
in respect of intellectual property that we own or that we license from others. In addition to claims brought against us by third parties, we
may also bring litigation against others to protect our rights. Intellectual property litigation, regardless of the outcome, could result in
substantial costs to us and diversion of our resources and management time and attention, and could adversely affect our business and
financial results.



We may be required to pay additional federal income taxes which could negatively affect our results of
operations and financial position.     We were subject to IRS audits for our fiscal years 1994 through
2003. During the third quarter of fiscal 2007, we reached resolution with the United States taxing authorities relating to those fiscal
years. However, our tax provision continues to reflect judgment and estimation regarding components of the settlement such as interest
calculations and the application of the settlements to state and local taxing jurisdictions.  Although we believe our tax estimates are
reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our condensed consolidated financial
statements and may cause a higher effective tax rate that could materially affect our income tax provision, results of operations or cash
flows in the period or periods for which such determination is made. The IRS is currently auditing our Federal income tax returns for the
fiscal 2004 through 2006 audit cycle. We believe that we have provided sufficient tax provisions for these years and the ultimate
outcome of the IRS audits will not have a material adverse impact on our financial position or results of operations in future periods.
However, we cannot predict with certainty how these matters will be resolved and whether we will be required to make additional tax
payments.



We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy
a significant amount of our management's time and attention.    From time to time we are subject to
litigation or claims that could negatively affect our business operations and financial position. Such disputes could cause us to incur
unforeseen expenses, could occupy a significant amount of our management's time and attention, and could negatively affect our
business operations and financial position.



We are exposed to fluctuations in foreign currency exchange
rates.    Because a significant portion of our business is conducted outside the United States, we face
exposure to adverse movements in non-United States currency exchange rates. These exposures may change over time as business
practices evolve and could have an adverse impact on our financial results and cash flows. Historically, our exposures have related to
non-dollar-denominated operating expenses in Europe and Asia. We began Euro-denominated sales to our distribution customers in
the European Union in the fourth quarter of fiscal 2003. An increase in the value of the dollar could increase the real cost to our
customers of our products in markets outside the United States where we sell in dollars, and a weakened dollar could increase the cost
of local operating expenses and procurement.



We hold minority interests in privately held venture funds, and if these venture funds face financial
difficulties in their operations, our investments could be impaired.    We continue to hold minority
interests in privately held venture funds. At September 30, 2007, the carrying value of such investments aggregated $1.7 million.
These investments are inherently risky because these venture funds invest in companies that may still be in the development stage or
depend on third parties for financing to support their ongoing operations. In addition, the markets for the technologies or products of
these companies are typically in the early stages and may never develop. If these companies do not have adequate cash funding to
support their operations, or if they encounter difficulties developing their technologies or products, the venture funds' investments in
these companies may be impaired, which in turn, could result in impairment of our investment in these venture funds. For example, in
fiscal 2007, we recorded a charge of $0.9 million relating to an other-than-temporary decline in value of a minority investment.



Changes in securities laws and regulations have increased and may continue to increase our
costs.    Changes in the laws and regulations affecting public companies, including the provisions of
the Sarbanes-Oxley Act of 2002 and rules promulgated by the Securities and Exchange Commission, have increased and may
continue to increase our expenses as we devote resources to respond to their requirements. In particular, we incurred additional
administrative expense to implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our
independent registered public accounting firm to attest to, our internal control over financial reporting.



In addition, the NASDAQ Global Market, on which our common stock is listed, has also adopted comprehensive
rules and regulations relating to corporate governance. These laws, rules and regulations have increased and will continue to increase
the scope, complexity and cost of our corporate governance, reporting and disclosure practices. We also expect these developments to
make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and we may be required to
accept reduced coverage or incur substantially higher costs to obtain coverage. Further, our board members, Chief Executive Officer
and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a
result, we may have difficultly attracting and retaining qualified board members and executive officers, which would adversely affect our
business.



Internal control deficiencies or weaknesses that are not yet identified could
emerge.    Over time we may identify and correct deficiencies or weaknesses in our internal control
over financial reporting and, where and when appropriate, report on the identification and correction of these deficiencies or
weaknesses. However, the internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or
weaknesses are identified. Deficiencies or weaknesses that are not yet identified could emerge, and the identification and corrections of
these deficiencies or weaknesses could have a material impact on our results of operations.



Internal control issues that appear minor now may later become material
weaknesses.    We are required to publicly report on deficiencies or weaknesses in our internal
control over financial reporting that meet a materiality standard as required by law and related regulations and interpretations.
Management may, at a point in time, accurately categorize a deficiency or weakness as immaterial or minor and therefore not be
required to publicly report such deficiency or weakness. Such determination, however, does not preclude a change in circumstances
such that the deficiency or weakness could, at a later time, become a material weakness that could have a material impact on our
results of operations.



We may encounter natural disasters, which could cause disruption to our employees or interrupt the
manufacturing process for our products.    Our operations could be subject to natural disasters and
other business disruptions, which could seriously harm our revenues and financial condition and increase our costs and expenses. Our
corporate headquarters are located in California, near major earthquake faults. Additionally, our primary wafer supplier, TSMC, is
located in Taiwan, which has experienced significant earthquakes in the past. A severe earthquake could cause disruption to our
employees or interrupt the manufacturing process, which could affect TSMC's ability to supply wafers to us, which would negatively
affect our business and financial results. The ultimate impact on us and our general infrastructure of being located near major
earthquake faults is unknown, but our net revenues and financial condition and our costs and expenses could be significantly impacted
in the event of a major earthquake.



Manmade problems such as computer viruses or terrorism may disrupt our operations and harm our operating
results.    Despite our implementation of network security measures, our servers are vulnerable to
computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could
have an adverse effect on our business, operating results, and financial condition. In addition, the effects of war or acts of terrorism
could have an adverse effect on our business, operating results, and financial condition. In addition, as a company with headquarters
and significant operations located in the United States, we may be impacted by actions against the United States. We are
predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.



We may experience significant fluctuations in our stock price, which may, in turn, significantly affect the trading
price of our convertible notes.    Our stock has experienced substantial price volatility, particularly as
a result of quarterly variations in our operating results, the published expectations of securities analysts and as a result of
announcements by our competitors and us. In addition, the stock market has experienced price and volume fluctuations that have
affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance
of such companies. In addition, the price of our securities may also be affected by general global, economic and market conditions and
the cost of operations in one or more of our product markets. While we cannot predict the individual effect that these factors may have
on the price or our securities, these factors, either individually or in the aggregate, could result in significant variations in the price of our
common stock during any given period of time. These fluctuations in our stock price also impact the price of our outstanding 3/4%
Convertible Senior Subordinated Notes due in 2023, or the 3/4% Notes, and the likelihood of the 3/4% Notes being converted into our
common stock.

---





Item 6. Exhibits





|Exhibit
No. | Exhibit | Filed with
This 10-Q                                                                        | Form | File No. | Filing Date | Exhibit
No. as
Filed
|----------- | ------- | ------------------------------------------------------------------------------------------- | ---- | -------- | ----------- | --------------------
|10.1        |         | Executive Employment Agreement of Subramanian "Sundi" Sundaresh, effective August 23,
2007. | X    |          |             |                     
|10.2        |         | Executive Employment Agreement of Christopher O'Meara, effective August 21, 2007.           | X    |          |             |                     
|10.3        |         | Executive Employment Agreement of Manoj Goyal, effective August 23, 2007.                   | X    |          |             |                     
|10.4        |         | Executive Employment Agreement of Marcus Lowe, effective August 21, 2007.                   | X    |          |             |                     
|10.5        |         | Executive Employment Agreement of Stephen Terlizzi, effective August 24, 2007.              | X    |          |             |                     
|10.6        | *       | Incentive Bonus Agreement of Subramanian "Sundi" Sundaresh, effective September 4,
2007.    | X    |          |             |                     
|10.7        |         | Retention Bonus Agreement of Christopher O'Meara, effective August 14, 2007.                | X    |          |             |                     
|10.8        |         | Retention Bonus Agreement of Manoj Goyal, effective August 14, 2007.                        | X    |          |             |                     
|10.9        |         | Retention Bonus Agreement of Marcus Lowe, effective August 14, 2007.                        | X    |          |             |                     
|10.10       |         | Retention Bonus Agreement of Stephen Terlizzi, effective August 14, 2007.                   | X    |          |             |                     
|10.11       |         | Separation Agreement of Russell Johnson, effective September 22,2007                        | X    |          |             |                     
|31.1        |         | Certification of pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                 | X    |          |             |                     
|31.2        |         | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                    | X    |          |             |                     
|32.1        |         | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    | X    |          |             |                     
|            |         |                                                                                             |      |          |             |                     



____________

*   Confidential treatment has been granted for portions of this agreement.



---



SIGNATURES

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

|ADAPTEC, INC. |                                                                         
|------------- | ------------------------------------------------------------------------
|By:           | /s/ CHRISTOPHER G. O'MEARA                                              
|              | Christopher G. O'Meara                                                  
|              | Vice President and Chief Financial Officer
(principal financial officer)
|By:           | /s/ JOHN M. WESTFIELD                                                   
|              | John M. Westfield                                                       
|              | Vice President and Corporate Controller
(principal accounting officer)  

---

EXHIBIT INDEX

|Exhibit
No. | Exhibit | Filed with
This 10-Q                                                                        | Form | File No. | Filing Date | Exhibit
No. as
Filed
|----------- | ------- | ------------------------------------------------------------------------------------------- | ---- | -------- | ----------- | --------------------
|10.1        |         | Executive Employment Agreement of Subramanian "Sundi" Sundaresh, effective August 23, 2007. | X    |          |             |                     
|10.2        |         | Executive Employment Agreement of Christopher O'Meara, effective August 21, 2007.           | X    |          |             |                     
|10.3        |         | Executive Employment Agreement of Manoj Goyal, effective August 23, 2007.                   | X    |          |             |                     
|10.4        |         | Executive Employment Agreement of Marcus Lowe, effective August 21, 2007.                   | X    |          |             |                     
|10.5        |         | Executive Employment Agreement of Stephen Terlizzi, effective August 24, 2007.              | X    |          |             |                     
|10.6        | *       | Incentive Bonus Agreement of Subramanian "Sundi" Sundaresh, effective September 4, 2007.    | X    |          |             |                     
|10.7        |         | Retention Bonus Agreement of Christopher O'Meara, effective August 14, 2007.                | X    |          |             |                     
|10.8        |         | Retention Bonus Agreement of Manoj Goyal, effective August 14, 2007.                        | X    |          |             |                     
|10.9        |         | Retention Bonus Agreement of Marcus Lowe, effective August 14, 2007.                        | X    |          |             |                     
|10.10       |         | Retention Bonus Agreement of Stephen Terlizzi, effective August 14, 2007.                   | X    |          |             |                     
|10.11       |         | Separation Agreement of Russell Johnson, effective September 22, 2007.                      | X    |          |             |                     
|31.1        |         | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                    | X    |          |             |                     
|31.2        |         | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                    | X    |          |             |                     
|32.1        |         | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    | X    |          |             |                     



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*   Confidential treatment has been granted for portions of this agreement.



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