##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    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: 000-23193
 
 APPLIED MICRO CIRCUITS CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction 
of incorporation or organization)
    
    94-2586591
(I.R.S. Employer
Identification No.)215 Moffett Park Drive, Sunnyvale, CA
(Address of principal executive offices)
    
    94089
(Zip code)
 Registrants telephone number, including area code: (408) 542-8600
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



APPLIED MICRO CIRCUITS CORPORATION
 INDEX
 PagePart I.
    
    FINANCIAL INFORMATION (unaudited)Item 1.
    
    Condensed Consolidated Balance Sheets at June 30, 2008 and March 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three month periods ended
June 30, 2008 and June 30, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the three month periods ended
June 30, 2008 and June 30, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    33Part II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    34Item 1A.
    
    Risk Factors
    
    
    34Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 3.
    
    Defaults Upon Senior Securities
    
    
    51Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    51Item 5.
    
    Other Information
    
    
    51Item 6.
    
    Exhibits
    
    
    51Signatures
    
    
    52EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 APPLIED MICRO CIRCUITS CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except par value)
 (unaudited)
 June 30,
    
    
    March 31,2008
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    53,322
    
    
    $
    42,689Short-term investments-available-for-sale
    
    
    141,086
    
    
    
    100,200Accounts receivable, net
    
    
    29,433
    
    
    
    28,800Inventories
    
    
    33,928
    
    
    
    37,966Other current assets
    
    
    10,646
    
    
    
    11,340Total current assets
    
    
    268,415
    
    
    
    220,995Marketable securities
    
    
    5,186
    
    
    
    51,919Property and equipment, net
    
    
    27,726
    
    
    
    25,995Goodwill
    
    
    264,130
    
    
    
    264,130Purchased intangibles, net
    
    
    50,124
    
    
    
    56,025Other assets
    
    
    13,843
    
    
    
    13,783Total assets
    
    $
    629,424
    
    
    $
    632,847LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    24,366
    
    
    
    25,518Accrued payroll and related expenses
    
    
    7,365
    
    
    
    6,087Other accrued liabilities
    
    
    11,902
    
    
    
    14,655Deferred revenue
    
    
    2,266
    
    
    
    1,917Total current liabilities
    
    
    45,899
    
    
    
    48,177Deferred tax liability
    
    
    4,178
    
    
    
    3,958Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value:Authorized shares2,000, none issued and outstandingCommon stock, $0.01 par value:Authorized shares375,000 at June 30, 2008 and March 31, 2008Issued and outstanding shares64,949 at June 30, 2008 and 64,779 at March 31, 2008
    
    
    649
    
    
    
    648Additional paid-in capital
    
    
    5,899,793
    
    
    
    5,896,616Accumulated other comprehensive loss
    
    
    (4,345
    )
    
    
    (4,976
    )Accumulated deficit
    
    
    (5,316,750
    )
    
    
    (5,311,576
    )Total stockholders equity
    
    
    579,347
    
    
    
    580,712Total liabilities and stockholders equity
    
    
    629,424
    
    
    
    632,847
 See Accompanying Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



APPLIED MICRO CIRCUITS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months EndedJune 30,2008
    
    
    2007Net revenues
    
    $
    74,060
    
    
    $
    50,135Cost of revenues
    
    
    35,850
    
    
    
    26,498Gross profit
    
    
    38,210
    
    
    
    23,637Operating expenses:Research and development
    
    
    23,481
    
    
    
    25,482Selling, general and administrative
    
    
    16,613
    
    
    
    16,063Amortization of purchased intangible assets
    
    
    1,320
    
    
    
    1,345Restructuring charges (reversal)
    
    
    (258
    )
    
    
    (32
    )Option investigation, net
    
    
    347
    
    
    
    292Total operating expenses
    
    
    41,503
    
    
    
    43,150Operating loss
    
    
    (3,293
    )
    
    
    (19,513
    )Interest
income (expense), net
    
    
    (1,402
    )
    
    
    3,048Other income, net
    
    
    75
    
    
    
    28Loss before income taxes
    
    
    (4,620
    )
    
    
    (16,437
    )Income tax expense (benefit)
    
    
    554
    
    
    
    (17
    )Net loss
    
    $
    (5,174
    )
    
    $
    (16,420
    )Basic and diluted net loss per share:Net loss per share
    
    $
    (0.08
    )
    
    $
    (0.23
    )Shares used in calculating basic and diluted net loss per share
    
    
    64,864
    
    
    
    70,414
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




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APPLIED MICRO CIRCUITS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months EndedJune 30,2008
    
    
    2007Operating activities:Net loss
    
    
    (5,174
    )
    
    $
    (16,420
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    1,742
    
    
    
    1,633Amortization of purchased intangibles
    
    
    5,901
    
    
    
    6,036Stock-based compensation expense:Stock options
    
    
    2,110
    
    
    
    2,339Restricted stock units
    
    
    1,098
    
    
    
    281Impairment of marketable securities
    
    
    3,393
    
    
    
    Net loss
(gain) on disposal of property and equipment
    
    
    29
    
    
    
    (6
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (633
    )
    
    
    10,848Inventories
    
    
    4,038
    
    
    
    (3,548
    )Other assets
    
    
    634
    
    
    
    573Accounts payable
    
    
    (1,152
    )
    
    
    (8,783
    )Accrued payroll and other accrued liabilities
    
    
    (1,475
    )
    
    
    (1,802
    )Deferred taxes
    
    
    220
    
    
    
    Deferred revenue
    
    
    349
    
    
    
    53Net cash provided by (used for) operating activities
    
    
    11,080
    
    
    
    (8,796
    )Investing activities:Proceeds from sales and maturities of short-term investments and marketable securities
    
    
    138,248
    
    
    
    118,105Purchases of short-term investments and marketable securities
    
    
    (135,162
    )
    
    
    (112,237
    )Purchase of property, equipment and other assets
    
    
    (3,502
    )
    
    
    (1,097
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    7Net cash
provided by (used for) investing activities
    
    
    (416
    )
    
    
    4,778Financing activities:Proceeds from issuance of common stock
    
    
    78
    
    
    
    599Repurchase of company stock
    
    
    
    
    
    
    (9,138
    )Funding of structured stock repurchase agreements
    
    
    
    
    
    
    (10,000
    )Other
    
    
    (109
    )
    
    
    (172
    )Net cash
used for financing activities
    
    
    (31
    )
    
    
    (18,711
    )Net increase (decrease) in cash and cash equivalents
    
    
    10,633
    
    
    
    (22,729
    )Cash and cash equivalents at the beginning of the period
    
    
    42,689
    
    
    
    51,595Cash and cash equivalents at the end of the period
    
    
    53,322
    
    
    $
    28,866Supplementary cash flow disclosure:Cash paid for:Interest
    
    $
    2
    
    
    $
    3Income taxes
    
    $
    59
    
    
    $
    171
 See Accompanying Notes to Condensed Consolidated Financial Statements
 5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Use of Estimates
  1-for-4 Reverse Stock Split
  Recent Accounting Pronouncements
  6




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
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
   2. CERTAIN FINANCIAL STATEMENT INFORMATION
 Accounts receivable (in thousands):
 June 30,
    
    
    March 31,2008
    
    
    2008Accounts receivable
    
    $
    30,860
    
    
    $
    30,113Less: allowance for doubtful accounts
    
    
    (1,427
    )
    
    
    (1,313
    )$
    29,433
    
    
    $
    28,800
 7




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##### Table of Contents



Inventories (in thousands):
 June 30,
    
    
    March 31,2008
    
    
    2008Finished goods
    
    $
    25,509
    
    
    $
    28,753Work in process
    
    
    5,884
    
    
    
    5,338Raw materials
    
    
    2,535
    
    
    
    3,875$
    33,928
    
    
    $
    37,966
 Other current assets (in thousands):
 June 30,
    
    
    March 31,2008
    
    
    2008Deposits
    
    $
    428
    
    
    $
    469Prepaid expenses
    
    
    8,935
    
    
    
    9,819Interest receivable
    
    
    353
    
    
    
    410Other
    
    
    930
    
    
    
    642$
    10,646
    
    
    $
    11,340
 Property and equipment (in thousands):
 Useful
    
    June 30,
    
    
    March 31,Life
    
    2008
    
    
    2008(in years)Machinery and equipment
    
    57
    
    $
    35,861
    
    
    $
    35,142Leasehold improvements
    
    115
    
    
    8,404
    
    
    
    8,364Computers, office furniture and equipment
    
    37
    
    
    66,951
    
    
    
    64,386Buildings
    
    31.5
    
    
    2,756
    
    
    
    2,756Land
    
    N/A
    
    
    9,800
    
    
    
    9,800123,772
    
    
    
    120,448Less: accumulated depreciation and amortization
    
    
    
    
    (96,046
    )
    
    
    (94,453
    )$
    27,726
    
    
    $
    25,995
 Purchased intangibles (in thousands):
 June 30, 2008
    
    
    March 31, 2008Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedAmortization
    
    
    
    
    
    
    
    
    
    
    AmortizationGross
    
    
    and Impairments
    
    
    Net
    
    
    Gross
    
    
    and Impairments
    
    
    NetDeveloped technology
    
    $
    425,000
    
    
    $
    (388,328
    )
    
    $
    36,672
    
    
    $
    425,000
    
    
    $
    (383,745
    )
    
    $
    41,255Backlog/customer relationships
    
    
    6,330
    
    
    
    (4,758
    )
    
    
    1,572
    
    
    
    6,330
    
    
    
    (4,687
    )
    
    
    1,643Patents/core technology rights/tradenames
    
    
    62,305
    
    
    
    (50,425
    )
    
    
    11,880
    
    
    
    62,305
    
    
    
    (49,178
    )
    
    
    13,127$
    493,635
    
    
    $
    (443,511
    )
    
    $
    50,124
    
    
    $
    493,635
    
    
    $
    (437,610
    )
    
    $
    56,025
  Cost of
    
    
    OperatingRevenue
    
    
    Expenses
    
    
    TotalFiscal year 2009 (remaining)
    
    $
    13,200
    
    
    $
    3,959
    
    
    $
    17,159Fiscal year 2010
    
    
    12,097
    
    
    
    4,018
    
    
    
    16,115Fiscal year 2011
    
    
    10,500
    
    
    
    4,018
    
    
    
    14,518Fiscal year 2012
    
    
    875
    
    
    
    852
    
    
    
    1,727Fiscal year 2013
    
    
    
    
    
    
    250
    
    
    
    250Thereafter
    
    
    
    
    
    
    355
    
    
    
    355Total
    
    $
    36,672
    
    
    $
    13,452
    
    
    $
    50,124
 8




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Other assets (in thousands):
 June 30,
    
    
    March 31,2008
    
    
    2008Non-current portion of prepaid expenses
    
    $
    4,238
    
    
    $
    4,251Strategic investments
    
    
    7,000
    
    
    
    7,000Other
    
    
    2,605
    
    
    
    2,532$
    13,843
    
    
    $
    13,783
 Short-term investments and marketable securities:
  June 30,
    
    
    March 31,2008
    
    
    2008U.S. Treasury securities and agency bonds
    
    $
    11,086
    
    
    $
    8,838Corporate bonds
    
    
    11,946
    
    
    
    13,431Mortgage-backed and asset-backed securities
    
    
    49,178
    
    
    
    52,837Closed-end bond funds
    
    
    55,865
    
    
    
    55,621Preferred stock and options
    
    
    18,197
    
    
    
    21,392$
    146,272
    
    
    $
    152,119
 June 30,
    
    
    March 31,2008
    
    
    2008Reported as:Short-term investments available-for-sale
    
    $
    141,086
    
    
    $
    100,200Marketable securities
    
    
    5,186
    
    
    
    51,919$
    146,272
    
    
    $
    152,119
  Less than 12 months of
    
    
    12 months or more ofunrealized losses
    
    
    unrealized losses
    
    
    TotalEstimated
    
    
    Gross
    
    
    Estimated
    
    
    Gross
    
    
    Estimated
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury securities and agency bonds
    
    $
    5,561
    
    
    $
    (111
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,561
    
    
    $
    (111
    )Corporate bonds
    
    
    5,326
    
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    5,326
    
    
    
    (139
    )Mortgage-backed and asset-backed securities
    
    
    21,597
    
    
    
    (522
    )
    
    
    89
    
    
    
    (16
    )
    
    
    21,686
    
    
    
    (538
    )Closed-end bond funds
    
    
    29,543
    
    
    
    (1,928
    )
    
    
    5,097
    
    
    
    (844
    )
    
    
    34,640
    
    
    
    (2,772
    )Preferred stock and options
    
    
    15,936
    
    
    
    (1,775
    )
    
    
    
    
    
    
    
    
    
    
    15,936
    
    
    
    (1,775
    )$
    77,963
    
    
    $
    (4,475
    )
    
    $
    5,186
    
    
    $
    (860
    )
    
    $
    83,149
    
    
    $
    (5,335
    )
  Short-term
investments and marketable securities, measured at fair value:
  Fair Value Measurement as of June 30,(In thousands)Description
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalUS Treasury securities and agency bonds
    
    $
    11,086
    
    
    $
    
    
    
    $
    
    
    
    $
    11,086Corporate bonds
    
    
    
    
    
    
    11,946
    
    
    
    
    
    
    
    11,946Asset backed and mortgage backed securities
    
    
    
    
    
    
    49,178
    
    
    
    
    
    
    
    49,178Closed-end bond funds
    
    
    55,865
    
    
    
    
    
    
    
    
    
    
    
    55,865Preferred stock and options
    
    
    
    
    
    
    18,197
    
    
    
    
    
    
    
    18,197$
    66,951
    
    
    $
    79,321
    
    
    $
    
    
    
    $
    146,272
  Fair Value Measurement as of June 30,(In thousands)Assets
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalShort-term investments available-for-sale
    
    $
    61,854
    
    
    $
    79,232
    
    
    $
    
    
    
    $
    141,086Marketable securities
    
    
    5,097
    
    
    
    89
    
    
    
    
    
    
    
    5,186$
    66,951
    
    
    $
    79,321
    
    
    $
    
    
    
    $
    146,272
 9




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Other accrued liabilities (in thousands):
 June 30,
    
    
    March 31,2008
    
    
    2008Executive deferred compensation
    
    $
    3,652
    
    
    $
    3,558Employee related liabilities
    
    
    2,345
    
    
    
    2,475Warranty
    
    
    1,507
    
    
    
    1,475Professional fees
    
    
    815
    
    
    
    785Restructuring liabilities
    
    
    948
    
    
    
    1,578Current income taxes
    
    
    598
    
    
    
    322Other taxes
    
    
    296
    
    
    
    317Other
    
    
    1,741
    
    
    
    4,145$
    11,902
    
    
    $
    14,655
 Warranty reserves:
   Three Months EndedJune 30,2008
    
    
    2007Beginning accrual balance
    
    $
    1,475
    
    
    $
    2,692Charged to costs and expenses
    
    
    32
    
    
    
    208Reduction to estimated liability
    
    
    
    
    
    
    (393
    )Ending accrual balance
    
    $
    1,507
    
    
    $
    2,507
 Interest income (expense), net (in thousands):
 Three Months EndedJune 30,2008
    
    
    2007Interest income
    
    $
    2,455
    
    
    $
    3,162Net realized loss on short-term
investments and other-than-temporary
impairment on investment securities
    
    
    (3,855
    )
    
    
    (111
    )Interest expense
    
    
    (2
    )
    
    
    (3
    )$
    (1,402
    )
    
    $
    3,048
  Other income, net (in thousands):
 Three Months EndedJune 30,2008
    
    
    2007Net (loss) gain on disposals of property and equipment
    
    $
    (29
    )
    
    $
    6Foreign currency loss
    
    
    (1
    )
    
    
    (38
    )Other
    
    
    105
    
    
    
    60$
    75
    
    
    $
    28
 10




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Net loss per share:
  Three Months EndedJune 30,2008
    
    
    2007Net loss
    
    $
    (5,174
    )
    
    $
    (16,420
    )Shares used in basic and diluted net loss per share computation (denominator):Weighted average common shares outstanding
    
    
    64,864
    
    
    
    70,414Dilutive effect of stock options and restricted stock units
    
    
    
    
    
    
    Shares used in basic and diluted net loss per share computation
    
    
    64,864
    
    
    
    70,414Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (0.23
    )
  3. RESTRUCTURING CHARGES
  Facilities
    
    
    PropertyConsolidation and
    
    
    andWorkforce
    
    
    Operating Lease
    
    
    EquipmentReduction
    
    
    Commitments
    
    
    Impairments
    
    
    TotalLiability, March 31, 2007
    
    $
    350
    
    
    $
    
    
    
    $
    
    
    
    $
    350Charged to expense
    
    
    1,993
    
    
    
    853
    
    
    
    316
    
    
    
    3,162Cash payments
    
    
    (1,441
    )
    
    
    
    
    
    
    
    
    
    
    (1,441
    )Noncash charges
    
    
    
    
    
    
    
    
    
    
    (316
    )
    
    
    (316
    )Reductions to estimated liability
    
    
    (177
    )
    
    
    
    
    
    
    
    
    
    
    (177
    )Liability, March 31, 2008
    
    
    725
    
    
    
    853
    
    
    
    
    
    
    
    1,578Cash payments
    
    
    (259
    )
    
    
    (113
    )
    
    
    
    
    
    
    (372
    )Noncash charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reductions to estimated liability
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (258
    )Liability, June 30, 2008
    
    $
    208
    
    
    $
    740
    
    
    $
    
    
    
    $
    948
  Facilities
    
    
    PropertyConsolidation and
    
    
    andWorkforce
    
    
    Operating Lease
    
    
    EquipmentReduction
    
    
    Commitments
    
    
    Impairments
    
    
    TotalMarch 2006 Restructuring ProgramLiability, March 31, 2007
    
    $
    300
    
    
    $
    
    
    
    $
    
    
    
    $
    300Cash payments
    
    
    (155
    )
    
    
    
    
    
    
    
    
    
    
    (155
    )Reductions to estimated liability
    
    
    (145
    )
    
    
    
    
    
    
    
    
    
    
    (145
    )Liability, March 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    June 2006 Restructuring ProgramLiability, March 31, 2007
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50Cash payments
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Reductions to estimated liability
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (32
    )Liability, June 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    July 2007 Restructuring ProgramCharged to expense
    
    $
    733
    
    
    $
    
    
    
    $
    
    
    
    $
    733Cash payments
    
    
    (709
    )
    
    
    
    
    
    
    
    
    
    
    (709
    )Liability, March 31, 2008
    
    $
    24
    
    
    $
    
    
    
    $
    
    
    
    $
    24
 11




---



##### Table of Contents



Facilities
    
    
    PropertyConsolidation and
    
    
    andWorkforce
    
    
    Operating Lease
    
    
    EquipmentReduction
    
    
    Commitments
    
    
    Impairments
    
    
    TotalReductions to estimated liability
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Liability, June 30, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    September 2007 Restructuring ProgramCharged to expense
    
    $
    812
    
    
    $
    
    
    
    $
    
    
    
    $
    812Cash payments
    
    
    (459
    )
    
    
    
    
    
    
    
    
    
    
    (459
    )Liability, March 31, 2008
    
    $
    353
    
    
    $
    
    
    
    $
    
    
    
    $
    353Reductions to estimated liability
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    (196
    )Liability, June 30, 2008
    
    $
    157
    
    
    $
    
    
    
    $
    
    
    
    $
    157March 2008 Restructuring ProgramCharged to expense
    
    $
    448
    
    
    $
    853
    
    
    $
    316
    
    
    $
    1,617Cash payments
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )Noncash charge
    
    
    
    
    
    
    
    
    
    
    (316
    )
    
    
    (316
    )Liability, March 31, 2008
    
    $
    348
    
    
    $
    853
    
    
    $
    
    
    
    $
    1,201Cash payments
    
    
    (259
    )
    
    
    (113
    )
    
    
    
    
    
    
    (372
    )Reductions to estimated liability
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )Liability, June 30, 2008
    
    $
    51
    
    
    $
    740
    
    
    $
    
    
    
    $
    791
      12




---



##### Table of Contents



4. COMPREHENSIVE LOSS
  Three Months EndedJune 30,2008
    
    
    2007Net loss
    
    $
    (5,174
    )
    
    $
    (16,420
    )Change in net unrealized gain (loss) on short-term investments and marketable securities
    
    
    632
    
    
    
    (119
    )Foreign currency translation adjustment loss
    
    
    (1
    )
    
    
    (196
    )Comprehensive loss
    
    $
    (4,543
    )
    
    $
    (16,735
    )
 5. STOCKHOLDERS EQUITY
 Preferred Stock
  Common Stock
   Employee Stock Purchase Plan
  Stock Repurchase Program
  Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
 13




---



##### Table of Contents



Aggregate
    
    
    Repurchased
    
    
    Average PricePrice
    
    
    Shares
    
    
    Per ShareStock repurchase programAuthorized amount
    
    $
    200,000
    
    
    
    
    
    
    $
    Open market repurchases
    
    
    103,966
    
    
    
    8,856
    
    
    
    11.74Structured stock repurchase agreements*
    
    
    90,517
    
    
    
    7,797
    
    
    
    11.61Total repurchases
    
    $
    194,483
    
    
    
    16,653
    
    
    $
    11.68Available for repurchase
    
    $
    5,517
 
 *
    
    The amounts above do not include gains of $11.3 million from structured stock repurchase agreements
which settled in cash. The average price per share for structured stock repurchase agreements
adjusted for gains from settlements in cash would have been $10.16 share and for total repurchases
would have been $11.00 per share. Stock Options
  Share-Based
Payment
   14




---



##### Table of Contents



Number of Shares
    
    Weighted Average(in thousands)
    
    Exercise Price Per ShareOutstanding at the beginning of the period
    
    
    9,214
    
    
    $
    17.57Granted
    
    
    192
    
    
    
    8.31Exercised
    
    
    (28
    )
    
    
    2.77Cancelled
    
    
    (360
    )
    
    
    24.05Outstanding at the end of the period
    
    
    9,018
    
    
    $
    17.16Vested at the end of the period
    
    
    6,908
    
    
    $
    18.85
    Options Outstanding
    
    
    Options ExercisableWeightedAverageRemainingRange of
    
    
    
    
    
    Weighted
    
    
    Contractual
    
    
    
    
    
    
    WeightedExercise
    
    Number of
    
    
    Average
    
    
    Term
    
    
    Number of
    
    
    AveragePrices
    
    Shares
    
    
    Exercise Price
    
    
    (in years)
    
    
    Shares
    
    
    Exercise Price$ 0.19   $   11.92
    
    
    2,298
    
    
    $
    9.55
    
    
    
    5.74
    
    
    
    1,420
    
    
    $
    9.9311.93        13.16
    
    
    1,865
    
    
    
    12.61
    
    
    
    6.70
    
    
    
    1,224
    
    
    
    12.6713.17        15.76
    
    
    1,852
    
    
    
    14.50
    
    
    
    5.53
    
    
    
    1,339
    
    
    
    14.4915.77        26.16
    
    
    2,788
    
    
    
    23.17
    
    
    
    1.53
    
    
    
    2,711
    
    
    
    23.3726.17      300.13
    
    
    215
    
    
    
    83.35
    
    
    
    2.62
    
    
    
    215
    
    
    
    83.35$ 0.19   $ 300.13
    
    
    9,018
    
    
    $
    17.16
    
    
    
    4.52
    
    
    
    6,909
    
    
    $
    18.85
  15




---



##### Table of Contents



Restricted Stock Units
   Restricted Stock UnitsOutstandingNumber of Shares(in thousands)Balance at beginning of period
    
    
    1,200Awarded during the period
    
    
    746Vested during the period
    
    
    (153
    )Cancelled during the period
    
    
    (48
    )Balance at end of period
    
    
    1,745
   6. STOCK-BASED COMPENSATION
 Share-Based Payment
  Three Months EndedJune 30,2008
    
    
    2007Stock-based compensation expense by type of awardsStock options
    
    $
    2,110
    
    
    $
    2,339Restricted stock units
    
    
    1,098
    
    
    
    281Total stock-based compensation expense
    
    
    3,208
    
    
    
    2,620Stock-based compensation capitalized to inventory
    
    
    
    
    
    
    143Total stock-based compensation
    
    $
    3,208
    
    
    $
    2,763
 16




---



##### Table of Contents



Three Months Ended June 30,Employee StockEmployee Stock Options
    
    Purchase Plans2008
    
    2007
    
    2008
    
    2007Expected life (years)
    
    
    3.9
    
    
    
    3.9
    
    
    
    0.5
    
    
    
    0.5Risk-free interest rate
    
    
    2.8
    %
    
    
    4.6
    %
    
    
    3.6
    %
    
    
    5.2
    %Volatility
    
    
    43
    %
    
    
    50
    %
    
    
    54
    %
    
    
    43
    %Dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Weighted average fair value per share
    
    $
    3.04
    
    
    $
    5.88
    
    
    $
    2.98
    
    
    $
    3.92
    Three Months EndedJune 30,2008
    
    
    2007Stock-based compensation included in expenses:Cost of revenues
    
    $
    214
    
    
    $
    72Research and development
    
    
    1,337
    
    
    
    1,055Selling, general and administrative
    
    
    1,657
    
    
    
    1,493Total stock-based compensation expense
    
    $
    3,208
    
    
    $
    2,620Stock-based compensation capitalized to inventory
    
    
    
    
    
    
    143Total stock-based compensation
    
    $
    3,208
    
    
    $
    2,763
  7. CONTINGENCIES
 Legal Proceedings
  17




---



##### Table of Contents



In re Applied Micro Circuits Derivative Litigation In re Applied Micro Circuits Corporation Shareholder Derivative Litigation
 18




---



##### Table of Contents



Segen v. Rickey, et al
 8. INCOME TAXES
    9. SUBSEQUENT EVENT
    19




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    Caution concerning forward-looking statements.This section discusses how forward-looking
statements made by us in the MD&A and elsewhere in this report are based on managements
present expectations about future events and are inherently susceptible to uncertainty and
changes in circumstances.
    
    Overview.This section provides an introductory overview and context for the discussion
and analysis that follows in the MD&A.
    
    Critical accounting policies.This section discusses those accounting policies that are
both considered important to our financial condition and operating results and require
significant judgment and estimates on the part of management in their application.
    
    Results of operations.This section provides an analysis of our results of operations for
the three months ended June 30, 2008 and 2007. A brief description is provided of
transactions and events that impact the comparability of the results being analyzed.
    
    Financial condition and liquidity.This section provides an analysis of our cash position
and cash flows, as well as a discussion of our financing arrangements and financial
commitments.
 CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
  OVERVIEW
  20




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##### Table of Contents



Three Months Ended June 30,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of Net
    
    
    IncreaseAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    (Decrease)
    
    
    % ChangeNet revenues
    
    $
    74,060
    
    
    
    100
    %
    
    $
    50,135
    
    
    
    100.0
    %
    
    $
    23,925
    
    
    
    47.7
    %Cost of revenues
    
    
    35,850
    
    
    
    48.4
    
    
    
    26,498
    
    
    
    52.9
    
    
    
    9,352
    
    
    
    35.3Gross profit
    
    
    38,210
    
    
    
    51.6
    
    
    
    23,637
    
    
    
    47.1
    
    
    
    14,573
    
    
    
    61.7Total operating expenses
    
    
    41,503
    
    
    
    56.0
    
    
    
    43,150
    
    
    
    86.0
    
    
    
    (1,647
    )
    
    
    (3.8
    )Operating loss
    
    
    (3,293
    )
    
    
    (4.4
    )
    
    
    (19,513
    )
    
    
    (38.9
    )
    
    
    16,220
    
    
    
    83.1Interest and other income (expense), net
    
    
    (1,327
    )
    
    
    (1.8
    )
    
    
    3,076
    
    
    
    6.1
    
    
    
    (4,403
    )
    
    
    (143.1
    )Loss before income taxes
    
    
    (4,620
    )
    
    
    (6.2
    )
    
    
    (16,437
    )
    
    
    (32.8
    )
    
    
    11,817
    
    
    
    71.9Income tax expense (benefit)
    
    
    554
    
    
    
    (0.8
    )
    
    
    (17
    )
    
    
    (0.0
    )
    
    
    571
    
    
    
    3,358.8Net loss
    
    $
    (5,174
    )
    
    
    (7.0
    )%
    
    $
    (16,420
    )
    
    
    (32.8
    )%
    
    $
    11,246
    
    
    
    68.5
    %
 Net Revenues.
   
    
    the timing, rescheduling or cancellation of significant customer orders and our ability,
as well as the ability of our customers, to manage inventory corrections;
    
    the qualification, availability and pricing of competing products and technologies and
the resulting effects on sales and pricing of our products.
    
    our ability to specify, develop or acquire, complete, introduce, and market new products
and technologies in a cost effective and timely manner;
    
    the rate at which our present and future customers and end-users adopt our products and
technologies in our target markets;
    
    general economic and market conditions in the semiconductor industry and communications
markets; and
    
    combinations of companies in our customer base, resulting in the combined company
choosing our competitors IC standardization other than our supported product platforms.
 21




---



##### Table of Contents



Three Months EndedJune 30,2008
    
    2007Avnet Inc. (distributor)
    
    
    23
    %
    
    
    22
    %
   Three Months Ended June 30,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of NetAmount
    
    
    Revenue
    
    
    Amount
    
    
    RevenueUnited States of America
    
    $
    24,931
    
    
    
    33.7
    %
    
    $
    18,564
    
    
    
    37.0
    %Other North America
    
    
    5,369
    
    
    
    7.2
    
    
    
    4,138
    
    
    
    8.3Europe
    
    
    13,950
    
    
    
    18.8
    
    
    
    10,237
    
    
    
    20.4Asia
    
    
    29,591
    
    
    
    40.0
    
    
    
    16,974
    
    
    
    33.9Other
    
    
    219
    
    
    
    0.3
    
    
    
    222
    
    
    
    0.4$
    74,060
    
    
    
    100.0
    %
    
    $
    50,135
    
    
    
    100.0
    %
  Net Loss.
 
    
    stock-based compensation expense;
    
    amortization of purchased intangibles;
    
    acquired in-process research and development (IPR&D);
    
    litigation settlement costs;
    
    restructuring charges;
    
    goodwill impairment charges;
    
    combinations of companies within our customer base;
    
    purchased intangible asset impairment charges;
    
    other-than-temporary impairment of short-term investments and marketable securities; and
    
    income tax expense (benefit).
  22




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Inventory Valuation and Warranty Liabilities
   Goodwill and Intangible Asset Valuation
  23




---



##### Table of Contents



Goodwill and Other Intangible
Assets.
  Investments
 Accounting for Certain Investments in Debt and Equity Securities
 24




---



##### Table of Contents



Restructuring Charges
  Valuation of Deferred Income Taxes
  25




---



##### Table of Contents



Stock-Based Compensation Expense
  Revenue Recognition
 Revenue Recognition
 Allowance for Bad Debts
  26




---



##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three Months Ended June 30, 2008 to the Three Months Ended June 30, 2007
 Net Revenues.
 Three Months Ended June 30,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of Net
    
    
    IncreaseAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    (Decrease)
    
    
    % ChangeProcess
    
    $
    33,897
    
    
    
    45.8
    %
    
    $
    19,301
    
    
    
    38.5
    %
    
    $
    14,596
    
    
    
    75.6
    %Transport
    
    
    27,302
    
    
    
    36.8
    
    
    
    17,590
    
    
    
    35.1
    
    
    
    9,712
    
    
    
    55.2Store
    
    
    12,861
    
    
    
    17.4
    
    
    
    13,244
    
    
    
    26.4
    
    
    
    (383
    )
    
    
    (2.9
    )$
    74,060
    
    
    
    100.0
    %
    
    $
    50,135
    
    
    
    100.0
    %
    
    $
    23,925
    
    
    
    47.7
    %
  Gross Profit
 Three Months Ended June 30,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of NetAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Increase
    
    
    % ChangeNet revenues
    
    $
    74,060
    
    
    
    100.0
    %
    
    $
    50,135
    
    
    
    100.0
    %
    
    $
    23,925
    
    
    
    47.7
    %Cost of revenues
    
    
    35,850
    
    
    
    48.4
    
    
    
    26,498
    
    
    
    52.9
    
    
    
    9,352
    
    
    
    35.3Gross profit
    
    $
    38,210
    
    
    
    51.6
    %
    
    $
    23,637
    
    
    
    47.1
    %
    
    $
    14,573
    
    
    
    61.7
    %
   Research and Development and Selling, General and Administrative Expenses
 Three Months Ended June 30,2008
    
    2007% of Net
    
    
    
    
    
    % of Net
    
    IncreaseAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    (Decrease)
    
    % ChangeResearch and development
    
    $
    23,481
    
    
    
    31.7
    %
    
    $
    25,482
    
    
    
    50.8
    %
    
    $
    (2,001
    )
    
    
    (7.9
    )%Selling, general and administrative
    
    $
    16,613
    
    
    
    22.4
    %
    
    $
    16,063
    
    
    
    32.0
    %
    
    $
    550
    
    
    
    3.4
    %
 27




---



##### Table of Contents



Research and Development.
 Selling, General and Administrative.
 Stock-Based Compensation
 Three Months Ended June 30,2008
    
    
    2007% of Net
    
    
    
    
    
    
    % of NetAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Increase
    
    
    % ChangeCosts of revenues
    
    $
    214
    
    
    
    0.3
    %
    
    $
    72
    
    
    
    0.1
    %
    
    $
    142
    
    
    
    197.2
    %Research and development
    
    
    1,337
    
    
    
    1.8
    
    
    
    1,055
    
    
    
    2.1
    
    
    
    282
    
    
    
    26.7Selling, general and administrative
    
    
    1,657
    
    
    
    2.2
    
    
    
    1,493
    
    
    
    3.0
    
    
    
    164
    
    
    
    11.0$
    3,208
    
    
    
    4.3
    %
    
    $
    2,620
    
    
    
    5.2
    %
    
    $
    588
    
    
    
    22.4
    %
  Restructuring Charges
 Three Months Ended June 30,2008
    
    2007% of Net
    
    
    
    
    
    % of NetAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    Decrease
    
    % ChangeRestructuring charges (reversal)
    
    $
    (258
    )
    
    
    (0.3
    )%
    
    $
    (32
    )
    
    
    (0.1
    )%
    
    $
    (226
    )
    
    
    (706.25
    )%
  Option investigation and related expenses
 Three Months Ended June 30.2008
    
    2007% of Net
    
    
    
    
    
    % of NetAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    Increase
    
    % ChangeOption investigation, net
    
    $
    347
    
    
    
    0.5
    %
    
    $
    292
    
    
    
    0.1
    %
    
    $
    55
    
    
    
    18.8
    %
 28




---



##### Table of Contents



Interest and Other Income (Expense), net
 Three Months Ended June 30,2008
    
    2007% of Net
    
    
    
    
    
    % of Net
    
    IncreaseAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    (Decrease)
    
    % ChangeInterest income (expense), net
    
    $
    (1,402
    )
    
    
    1.9
    %
    
    $
    3,048
    
    
    
    6.1
    %
    
    $
    (4,450
    )
    
    
    (146.0
    )%Other income, net
    
    $
    75
    
    
    
    0.1
    %
    
    $
    28
    
    
    
    0.1
    %
    
    $
    47
    
    
    
    167.9
    %
 Interest
and Other Income (Expense) net
 Income Taxes.
 Three Months Ended June 30,2008
    
    2007% of Net
    
    
    
    
    
    % of NetAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    Increase
    
    % ChangeIncome tax expense (benefit)
    
    $
    554
    
    
    
    0.8
    %
    
    $
    (17
    )
    
    
    0.0
    %
    
    $
    571
    
    
    
    3,358.8
    %
  FINANCIAL CONDITION AND LIQUIDITY
    29




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##### Table of Contents



Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock
    Aggregate
    
    
    Repurchased
    
    
    Average PricePrice
    
    
    Shares
    
    
    Per ShareStock repurchase programAuthorized amount
    
    $
    200,000
    
    
    
    
    
    
    $
    Open market repurchases
    
    
    103,966
    
    
    
    8,856
    
    
    
    11.74Structured stock repurchase agreements*
    
    
    90,517
    
    
    
    7,797
    
    
    
    11.61Total repurchases
    
    $
    194,483
    
    
    
    16,653
    
    
    $
    11.68Available for repurchase
    
    $
    5,517
 
 *
    
    The amounts above do not include gains of $11.3 million from structured stock repurchase agreements
which settled in cash. The average price per share for structured stock repurchase agreements
adjusted for gains from settlements in cash would have been $10.16 share and for total repurchases
would have been $11.00 per share. 30




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##### Table of Contents



OtherOperating
    
    
    PurchaseLeases
    
    
    Commitments
    
    
    TotalFiscal Years Ending March 31,2009
    
    $
    11,867
    
    
    $
    25,709
    
    
    $
    37,5762010
    
    
    4,300
    
    
    
    
    
    
    
    4,3002011
    
    
    1,040
    
    
    
    
    
    
    
    1,0402012
    
    
    
    
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    
    
    
    
    Total minimum payments
    
    $
    17,207
    
    
    $
    25,709
    
    
    $
    42,916
   31




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     FairValuation of Securities Given an
    
    
    Value as
    
    
    Valuation of Securities Given anInterest Rate Decrease of
    
    
    of
    
    
    Interest Rate Increase ofX Basis Points (BPS)
    
    
    June 30, 2008
    
    
    X Basis Points (BPS)(150 BPS)
    
    
    (100 BPS)
    
    
    (50 BPS)
    
    
    
    
    
    
    50 BPS
    
    
    100 BPS
    
    
    150 BPSAvailable-for-sale investments
    
    $
    154,347
    
    
    $
    151,532
    
    
    $
    148,911
    
    
    $
    146,272
    
    
    $
    143,733
    
    
    $
    141,291
    
    
    $
    138,864
    32




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   Changes in Internal Control Over Financial Reporting
  33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Before deciding to invest in us or to maintain or increase your investment, you should
carefully consider the risks described below, in addition to the other information contained in
this report and in our other filings with the SEC. We update our descriptions of the risks and
uncertainties facing us in our periodic reports filed with the SEC. The risks and uncertainties
described below and in our other filings are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also affect our
business. If any of these known or unknown risks or uncertainties actually occurs, our business,
financial condition and results of operations could be seriously harmed. In that event, the market
price for our common stock could decline and you may lose your investment. The risks and
uncertainties set forth below with an asterisk (*) next to the title contain changes to the
description of the risks and uncertainties associated with our business as previously disclosed in
Item 1A to our Annual Report on Form 10-K for the fiscal year ended March 31, 2008.
 *Our business strategy may contemplate the acquisition of other companies, products and
technologies. Merger and acquisition activities involve numerous risks and we may not be able to
address these risks successfully without substantial expense, delay or other operational or
financial problems.
  
    
    potential dilution to our stockholders;
    
    use of a significant portion of our cash reserves;
    
    diversion of managements attention;
    
    failure to retain or integrate key personnel;
    
    difficulty in completing an acquired companys in-process research or development projects;
    
    amortization of acquired intangible assets and deferred compensation;
    
    customer dissatisfaction or performance problems with an acquired companys products or services;
    
    costs associated with acquisitions or mergers;
    
    difficulties associated with the integration of acquired companies, products or technologies;
    
    difficulties competing in markets that are unfamiliar to us;
    
    ability of the acquired companies to meet their financial projections; and
    
    assumption of unknown liabilities, or other unanticipated events or circumstances.
   34




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Our operating results may fluctuate because of a number of factors, many of which are beyond our
control.
  
    
    communications, information technology and semiconductor industry conditions;
    
    fluctuations in the timing and amount of customer requests for product shipments;
    
    the reduction, rescheduling or cancellation of orders by customers, including as a result of slowing
demand for our products or our customers products or over-ordering of our products or our customers
products;
    
    changes in the mix of products that our customers buy;
    
    the gain or loss of one or more key customers or their key customers, or significant changes in the
financial condition of one or more of our key customers or their key customers;
    
    our ability to introduce, certify and deliver new products and technologies on a timely basis;
    
    the announcement or introduction of products and technologies by our competitors;
    
    competitive pressures on selling prices;
    
    the ability of our customers to obtain components from their other suppliers;
    
    market acceptance of our products and our customers products;
    
    fluctuations in manufacturing output, yields or other problems or delays in the fabrication, assembly,
testing or delivery of our products or our customers products;
    
    increases in the costs of products or discontinuance of products by suppliers;
    
    the availability of external foundry capacity, contract manufacturing services, purchased parts and raw
materials including packaging substrates;
    
    problems or delays that we and our foundries may face in shifting the design and manufacture of our
future generations of IC products to smaller geometry process technologies and in achieving higher
levels of design and device integration;
    
    the amounts and timing of costs associated with warranties and product returns;
    
    the amounts and timing of investments in research and development;
    
    the amounts and timing of the costs associated with payroll taxes related to stock option exercises or
settlement of restricted stock units;
    
    costs associated with acquisitions and the integration of acquired companies, products and technologies;
 35




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
    
    the impact of potential one-time charges related to purchased intangibles;
    
    our ability to successfully integrate acquired companies, products and technologies;
    
    the impact on interest income of a significant use of our cash for an acquisition, stock repurchase or
other purpose;
    
    the effects of changes in interest rates or credit worthiness on the value and yield of our short-term
investment portfolio;
    
    costs associated with compliance with applicable environmental, other governmental or industry
regulations including costs to redesign products to comply with those regulations or lost revenue due
to failure to comply in a timely manner;
    
    the effects of changes in accounting standards;
    
    costs associated with litigation, including without limitation, attorney fees, litigation judgments or
settlements, relating to the use or ownership of intellectual property or our internal option review or
other claims arising out of our operations;
    
    our ability to identify, hire and retain senior management and other key personnel;
    
    the effects of war, acts of terrorism or global threats, such as disruptions in general economic
activity and changes in logistics and security arrangements; and
    
    general economic and industry conditions.
 Our business, financial condition and operating results would be harmed if we do not
achieve anticipated revenues.
  
    
    the reduction, rescheduling or cancellation of customer orders;
    
    declines in the average selling prices of our products;
    
    delays when our customers are transitioning from old products to new products;
    
    a decrease in demand for our products or our customers products;
    
    a decline in the financial condition or liquidity of our customers or their customers;
    
    delays in the availability of our products or our customers products;
    
    the failure of our products to be qualified in our customers systems or certified by our customers;
    
    excess inventory of our products held by our customers, resulting in a reduction in their order
patterns as they work through the excess inventory of our products;
    
    fabrication, test, product yield, or assembly constraints for our products that adversely affect
our ability to meet our production obligations;
    
    the failure of one of our subcontract manufacturers to perform its obligations to us;
    
    our failure to successfully integrate acquired companies, products and technologies; and
 36




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
    
    shortages of raw materials or production capacity constraints that lead our suppliers to allocate
available supplies or capacity to other customers, which may disrupt our ability to meet our
production obligations.
    Our business substantially depends upon the continued growth of the technology sector and the
Internet.
  The loss of one or more key customers, the diminished demand for our products from a key
customer, or the failure to obtain certifications from a key customer or its distribution
channel could significantly reduce our revenues and profits.
   
    
    customers may stop incorporating our products into their own products with limited notice to us and may suffer
little or no penalty as a result of such action;
    
    customers or prospective customers may not incorporate our products into their future product designs;
    
    design wins (as explained below) with customers or prospective customers may not result in sales to such
customers;
    
    the introduction of new products by customers may occur later or be less successful in the market than planned;
    
    we may successfully design a product to customer specifications but the customer may not be successful in the
market;
 37




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##### Table of Contents




    
    sales of customer product lines incorporating our products may rapidly decline or such product lines may be
phased out;
    
    our agreements with customers typically are non-exclusive and do not require them to purchase a minimum
quantity of our products;
    
    many of our customers have pre-existing relationships with our current or potential competitors that may cause
our customers to switch from using our products to using competing products;
    
    some of our OEM customers may develop products internally that would replace our products;
    
    we may not be able to successfully develop relationships with additional network equipment vendors;
    
    our relationships with some of our larger customers may deter other potential customers (who compete with
these customers) from buying our products;
    
    the impact of terminating certain sales representatives or sales personnel as a result of a Company workforce
reduction or otherwise; and
    
    some of our customers and prospective customers may become less viable.
   There is no guarantee that design wins will become actual orders and sales.
  Any significant order cancellations or order deferrals could cause unplanned inventory
growth resulting in excess inventory which may adversely affect our operating results.
   38




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Our customers products typically have lengthy design cycles. A customer may decide to
cancel or change its product plans, which could cause us to lose anticipated sales.
  *An important part of our strategy is to continue our focus on the markets for
communications and storage equipment. If we change strategy or are unable to further expand
our share of these markets or react timely or properly to emerging trends, our revenues may
not grow and could decline.
      39




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Our industry and markets are subject to consolidation, which may result in stronger
competitors, fewer customers and reduced demand.
  Our operating results are subject to fluctuations because we rely heavily on international
sales.
  
    
    foreign currency exchange fluctuations;
    
    changes in regulatory requirements;
    
    tariffs and other barriers;
    
    timing and availability of export licenses;
    
    political and economic instability;
    
    difficulties in accounts receivable collections;
    
    difficulties in staffing and managing foreign operations;
    
    difficulties in managing distributors;
    
    difficulties in obtaining governmental approvals for communications and other products;
    
    reduced or uncertain protection for intellectual property rights in some countries;
    
    longer payment cycles to collect accounts receivable in some countries;
    
    burdens of complying with a wide variety of complex foreign laws and treaties; and
    
    potentially adverse tax consequences.
   40




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*Our cash and cash equivalents and portfolio of short-term investments and long-term
marketable securities are exposed to certain market risks.
  Our restructuring activities could result in management distractions, operational
disruptions and other difficulties.
  Our markets are subject to rapid technological change, so our success depends heavily on
our ability to develop and introduce new products.
  
    
    rapidly changing technologies;
    
    evolving and competing industry standards;
    
    changing customer needs;
    
    frequent introductions of new products and enhancements;
    
    increased integration with other functions;
    
    long design and sales cycles;
    
    short product life cycles; and
 41




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
    
    intense competition.
   The markets in which we compete are highly competitive, and we expect competition to
increase in these markets in the future.
  
    
    our ability to partner with OEM and channel partners who are successful in the market;
    
    success in designing and subcontracting the manufacture of new products that implement new technologies;
    
    product quality, interoperability, reliability, performance and certification;
    
    customer support;
    
    time-to-market;
    
    price;
    
    production efficiency;
    
    design wins;
    
    expansion of production of our products for particular systems manufacturers;
    
    end-user acceptance of the systems manufacturers products;
    
    market acceptance of competitors products; and
    
    general economic conditions.
  42




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*Our dependence on third-party manufacturing and supply relationships increases the risk
that we will not have an adequate supply of products to meet demand or that our cost of
materials will be higher than expected.
  
    
    reduced control over delivery schedules and quality;
    
    inadequate manufacturing yields and excessive costs;
    
    difficulties selecting and integrating new subcontractors;
    
    potential lack of adequate capacity during periods of excess demand;
    
    limited warranties on products supplied to us;
    
    potential increases in prices;
    
    potential instability in countries where third-party manufacturers are located; and
    
    potential misappropriation of our intellectual property.
   43




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Our operating results depend on manufacturing output and yields of our ICs and printed
circuit board assemblies, which may not meet expectations.
   We may experience difficulties in transitioning to smaller geometry process technologies or
in achieving higher levels of design integration and that may result in reduced
manufacturing yields, delays in product deliveries and increased expenses.
  44




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We must develop or otherwise gain access to improved IC process technologies.
  The complexity of our products may lead to errors, defects and bugs, which could negatively
impact our reputation with customers and result in liability.
   
    
    additional development costs;
    
    loss of, or delays in, market acceptance;
    
    diversion of technical and other resources from our other development efforts;
    
    claims by our customers or others against us; and
    
    loss of credibility with our current and prospective customers.
  If our internal control over financial reporting is not considered effective, our business
and stock price could be adversely affected.
  45




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Our future success depends in part on the continued service of our key senior management,
design engineering, sales, marketing, and manufacturing personnel and our ability to
identify, hire and retain additional, qualified personnel.
   Our ability to supply a sufficient number of products to meet demand could be severely
hampered by a shortage of water, electricity or other supplies, or by natural disasters or
other catastrophes.
   46




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We could incur substantial fines or litigation costs associated with our storage, use and
disposal of hazardous materials.
  Environmental laws and regulations could cause a disruption in our business and operations.
  *Any acquisitions we make could disrupt our business and harm our results of operations and
financial condition.
  
    
    problems combining or integrating the purchased operations, technologies or products;
    
    unanticipated costs;
 47




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##### Table of Contents




    
    diversion of managements attention from our core business;
    
    adverse effects on existing business relationships with suppliers and customers;
    
    risks associated with entering markets in which we have limited or no prior experience; and
    
    potential loss of key employees, particularly those of the acquired organizations.
  
    
    issue stock that would dilute our current stockholders percentage ownership;
    
    incur debt;
    
    assume liabilities;
    
    incur amortization or impairment expenses related to goodwill and other intangible assets; or
    
    incur large and immediate write-offs.
  We may not be able to protect our intellectual property adequately.
    48




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We could be harmed by litigation involving patents, proprietary rights or other claims.
    Our stock price is volatile.
  
    
    our anticipated or actual operating results;
    
    announcements or introductions of new products by us or our competitors;
    
    anticipated or actual operating results of our customers, peers or competitors;
    
    technological innovations or setbacks by us or our competitors;
    
    conditions in the semiconductor, communications or information technology markets;
    
    the commencement or outcome of litigation or governmental investigations;
    
    changes in ratings and estimates of our performance by securities analysts;
    
    announcements of merger or acquisition transactions;
    
    management changes;
    
    our inclusion in certain stock indices; and
    
    other events or factors.
  49




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The anti-takeover provisions of our certificate of incorporation and of the Delaware
general corporation law may delay, defer or prevent a change of control.
  If we issue additional shares of stock in the future, it may have a dilutive effect on our
stockholders.
  50




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number ofShares Purchased as
    
    
    Maximum AmountPart of Publicly
    
    
    that May Yet BeTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    Plans or ProgramsApril 1  April 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    5,517May 1  May 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    5,517June 1 June 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    5,517Total shares repurchased
    
    
    
    
    
    
    
    
    
    
    
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Company, as amended.3.2(2)
    
    Amended and Restated Bylaws of the Company.4.1(3)
    
    Specimen Stock Certificate.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to Exhibit 3.2 filed with the Companys Registration Statement (No.
333-37609) filed October 10, 1997, and as amended by Exhibit 3.3 filed with the Companys
Registration Statement (No. 333-45660) filed September 12, 2000 and Exhibit 3.1 filed with the
Companys Current Report on Form 8-K on December 11, 2007.(2)
    
    Incorporated by reference to identically numbered exhibit filed with the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 2001.(3)
    
    Incorporated by reference to identically numbered exhibit filed with the Companys
Registration Statement (No. 333-37609) filed October 10, 1997, or with any amendments thereto,
which registration statement became effective November 24, 1997. 
 51




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SIGNATURES
   Applied Micro Circuits CorporationBy:
    /s/ Robert G. GargusRobert G. GargusSenior Vice President and Chief Financial Officer
(Duly Authorized Signatory and Principal Financial and Accounting Officer) 52




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Exhibit Index
 3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Company, as amended.3.2(2)
    
    Amended and Restated Bylaws of the Company.4.1(3)
    
    Specimen Stock Certificate.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to Exhibit 3.2 filed with the Companys Registration Statement (No.
333-37609) filed October 10, 1997, and as amended by Exhibit 3.3 filed with the Companys
Registration Statement (No. 333-45660) filed September 12, 2000 and Exhibit 3.1 filed with the
Companys Current Report on Form 8-K filed on December 11, 2007.(2)
    
    Incorporated by reference to identically numbered exhibit filed with the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 2001.(3)
    
    Incorporated by reference to identically numbered exhibit filed with the Companys
Registration Statement (No. 333-37609) filed October 10, 1997, or with any amendments thereto,
which registration statement became effective November 24, 1997.