<PAGE>

______________________________________________________________________________


                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D. C. 20549
                                          
                                     FORM 10-Q
                                          
(Mark One)
 
X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the quarter ended April 30, 1998 OR

_    TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________ to __________

                          Commission file number 333-20031


                                NEOMAGIC CORPORATION
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                             77-0344424
     [ State or other jurisdiction        [I.R.S. Employer Identification No.]
    of incorporation or organization]

             3260 Jay Street
         Santa Clara, California                         95054
  [Address of principal executive offices]             [Zip Code]

                                  (408) 988-7020
                 Registrant's telephone number, including area code



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.      
                                        Yes     X        No


The number of shares of the Registrant's Common Stock, $.001 par value, 
               outstanding at April 26, 1998 was 24,421,000

______________________________________________________________________________


                                  Page 1 of 23
<PAGE>
                                          
                                NEOMAGIC CORPORATION
                                     FORM 10-Q
                                          
                                       INDEX

<TABLE>
<CAPTION>                                          
 
<S>                                                                 <C>
                                                                    PAGE
PART I.  CONSOLIDATED CONDENSED FINANCIAL INFORMATION

Item 1.  Unaudited Consolidated Condensed Financial Statements:


     Consolidated Condensed Statements of Income
          Three months ended April 30, 1998 and 1997                  3

     Consolidated Condensed Balance Sheets
          April 30, 1998 and January 31, 1998                         4

     Consolidated Condensed Statements of Cash Flows
          Three months ended April 30, 1998 and 1997                  5
     
     Notes to Unaudited Consolidated Condensed Financial Statements   6-7
     
Item 2.  Management's Discussion and Analysis of
     Financial Condition and Results of Operations                    8-21


PART II.  OTHER INFORMATION
          
Item 1.  Legal Proceedings                                            22

Item 2.  Changes in Securities                                        22

Item 3.  Defaults Upon Senior Securities                              22

Item 4.  Submission of Matters to a Vote of Security Holders          22

Item 5.  Other Information                                            22

Item 6.  Exhibits and Reports on Form 8-K                             22

Signatures                                                            23
</TABLE>

                                  Page 2 of 23
<PAGE>

Part I.  Financial Information
Item I.  Financial Statements

                                NEOMAGIC CORPORATION
                    CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                       (In thousands, except per share data)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                            April 30,         April 30,
                                                              1998              1997
                                                             -------           -------
<S>                                                        <C>               <C>
   Net sales                                               $  47,738         $  18,281
                                                        
   Cost of sales                                              27,510            11,171
                                                             -------           -------
   Gross margin                                               20,228             7,110
                                                        
   Operating expenses:                                  
     Research and development                                  6,252             2,467
     Sales, general and administrative                         4,356             2,277
                                                             -------           -------
           Total operating expenses                           10,608             4,744
                                                             -------           -------
   Income from operations                                      9,620             2,366
                                                        
   Other income (expense), net:                         
     Interest income and other                                   975               316
     Interest expense                                           (324)             (224)
                                                             -------           -------
   Income before income taxes                                 10,271             2,458
                                                        
   Provision for income taxes                                  3,595               369
                                                             -------           -------
   Net income                                               $  6,676          $  2,089
                                                             -------           -------
                                                             -------           -------
   Basic earnings per share                                 $    .29          $    .11
   Diluted earnings per share                               $    .26          $    .09
                                                        
   Weighted common shares outstanding                         23,295            19,845
   Weighted common shares outstanding, assuming dilution      26,098            23,398

</TABLE>

       See accompanying notes to consolidated condensed financial statements.


                                  Page 3 of 23
<PAGE>

                                NEOMAGIC CORPORATION
                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (In thousands)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                          April 30,        January 31,
                                                            1998              1998
                                                           -------           -------
<S>                                                      <C>               <C>
                        ASSETS

   Current assets: 
     Cash and cash equivalents                           $  20,884         $  35,004
     Short-term investments                                 45,042            36,016
     Accounts receivable, net                               10,284            11,236
     Inventory                                              11,880             9,342
     Other current assets                                    4,237             3,730
                                                           -------           -------
               Total current assets                         92,327            95,328

   Property, plant and equipment, net                        7,336             6,232
   Deferred tax asset                                        5,669             5,669
   Other assets                                                354               354
                                                           -------           -------
                Total assets                             $ 105,686         $ 107,583
                                                           -------           -------
                                                           -------           -------
   LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
     Working capital line of credit                      $       -         $  21,041
     Accounts payable                                       20,801             9,490
     Accrued expenses                                       11,052            10,652
     Current obligations under capital leases                  582               627
                                                           -------           -------
                Total current liabilities                   32,435            41,810

   Noncurrent obligations under capital leases                 542               646
                                                           -------           -------
                Total liabilities                           32,977            42,456

   Commitments and contingencies

   Stockholders' equity:
     Common stock                                               24                24
     Additional paid-in-capital                             61,798            61,263
     Notes receivable from stockholders                       (559)             (559)
     Deferred compensation                                  (2,430)           (2,801)
     Retained earnings                                      13,876             7,200
                                                           -------           -------
                Total stockholders' equity                  72,709            65,127
                                                           -------           -------
                Total liabilities and stockholders'      $ 105,686         $ 107,583
                 equity                                    -------           -------
                                                           -------           -------
</TABLE>

       See accompanying notes to consolidated condensed financial statements.


                                  Page 4 of 23
<PAGE>

                               NEOMAGIC CORPORATION 
                  CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (In thousands)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                         ---------------------------
                                                          April 30,         April 30,
                                                            1998              1997
                                                         ---------         ---------
<S>                                                      <C>               <C>
   OPERATING ACTIVITIES:
   Net income                                            $   6,676         $   2,089
   Adjustments to reconcile net income to net cash
    provided by (used for) operating activities:
        Depreciation and amortization                          662               338
        Amortization of deferred compensation                  224               130
        Changes in operating assets and liabilities:
              Accounts receivable                              952            (3,970)
              Inventory                                     (2,538)               80
              Other current assets                            (507)             (377)
              Other assets                                       -               395
              Accounts payable                              11,311              (508)
              Accrued expenses                                 400               730
                                                         ---------         ---------
   Net cash provided by (used for) operating activities     17,180            (1,093)
                                                         ---------         ---------
                                                         ---------         ---------
   INVESTING ACTIVITIES:
        Purchases of property, plant and equipment          (1,766)             (657)
        Purchases of short term investments                (16,997)          (17,831)
        Maturities of short-term investments                 7,971                 -
                                                         ---------         ---------
   Net cash used for investing activities                  (10,792)          (18,488)
                                                         ---------         ---------
                                                         ---------         ---------
   FINANCING ACTIVITIES:
        Payments on lease obligation                          (149)             (279)
        Proceeds from working capital line of credit             -             9,877
        Payments on working capital line of credit         (21,041)          (13,908)
        Net proceeds from issuance of common stock             682            37,854
        Amounts held as restricted cash                          -             2,224
                                                         ---------         ---------
   Net cash provided by (used for) financing activities    (20,508)           35,768
                                                         ---------         ---------
                                                         ---------         ---------

   Net increase (decrease) in cash and cash equivalents    (14,120)           16,187
   Cash and cash equivalents at beginning of period         35,004            13,458
                                                         ---------         ---------
   Cash and cash equivalents at end of period            $  20,884         $  29,645
                                                         ---------         ---------
                                                         ---------         ---------
   Supplemental schedules of cash flow information
   Cash paid during the year for:
        Interest                                         $     324         $     224
        Taxes                                            $   6,000         $       -

</TABLE>
       See accompanying notes to consolidated condensed financial statements.


                                  Page 5 of 23
<PAGE>
                                          
                                NEOMAGIC CORPORATION
           NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


1.   Basis of Presentation:

     The unaudited consolidated condensed financial statements have been 
prepared pursuant to the rules and regulations of the Securities and Exchange 
Commission and include the accounts of NeoMagic Corporation and its wholly 
owned subsidiaries collectively ("NeoMagic" or the "Company").  Certain 
information and footnote disclosures, normally included in financial 
statements prepared in accordance with generally accepted accounting 
principles, have been condensed or omitted pursuant to such rules and 
regulations.  In the opinion of the Company, the financial statements reflect 
all adjustments, consisting only of normal recurring adjustments, necessary 
for a fair presentation of the financial position at April 30, 1998 and 
January 31, 1998, and the operating results and cash flows for the three 
months ended April 30, 1998 and 1997.  These financial statements and notes 
should be read in conjunction with the Company's audited financial statements 
and notes thereto for the year ended January 31, 1998, included in the 
Company's Form 10-K filed with the Securities and Exchange Commission.

     The results of operations for the three months ended April 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 1999.

     The first fiscal quarters of 1999 and 1998 ended on April 26, 1998 and
April 27, 1997, respectively.  For ease of presentation, the accompanying
financial statements have been shown as ending on the last day of the calendar
month.

2.   Inventory:

     Inventory is stated at the lower of cost or market value.  Cost is
determined by the first-in, first-out method.

<TABLE>
<CAPTION>
                                        April 30,       January 31,
    Inventory consists of:                 1998             1998
                                        ---------------------------
                                               (in thousands)
<S>                                     <C>              <C>
    Raw materials                        $  2,037         $    989
    Work in process                         1,352            1,904
    Finished goods                          8,491            6,449
                                        ---------------------------
        Total                            $ 11,880         $  9,342
                                        ---------------------------
                                        ---------------------------
</TABLE>

3.   Earnings Per Share:
     
     The consolidated condensed financial statements are presented in 
accordance with Statement of Financial Accounting Standards No. 128 ("SFAS 
No. 128"), "Earnings per Share." Basic earnings per common share are computed 
using the weighted average number of common shares outstanding during the 
period. Diluted earnings per common share incorporate the common equivalent 
shares from convertible preferred stock (using the if-converted method) and 
the incremental shares issuable upon the assumed exercise of stock options 
and warrants (using the treasury stock method).


                                  Page 6 of 23
<PAGE>

Per share information calculated on this basis is as follows:

<TABLE>
<CAPTION>
   Three months ended April 30,                               1998        1997
   -----------------------------------------------------------------------------
   (in thousands, except per share amount)
<S>                                                        <C>         <C>
    Numerator:
 
         Net income                                        $   6,676   $   2,089
                                                            --------    --------
    Denominator:
         Denominator for basic earnings per share -           23,295      19,845
          weighted average shares

         Effect of dilutive securities:
             Employee stock options                            2,713       3,279
             Warrants                                             90         274
                                                            --------    --------
         Dilutive potential common shares                      2,803       3,553
                                                            --------    --------
             Denominator for diluted earnings per share -     
              adjusted weighted - average shares              26,098      23,398
    Basic earnings per share                               $     .29         .11
    Diluted earnings per share                             $     .26         .09
</TABLE>

4.   Recently Issued Accounting Pronouncements

     The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130") during the quarter ended April
30, 1998.  SFAS 130 establishes new rules for the reporting and displaying of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity.  SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments to be included in
comprehensive income.  Gross unrealized gains and losses on available-for-sales
securities and foreign currency translation adjustments at April 30, 1998 and
1997 were immaterial.


                                  Page 7 of 23
<PAGE>

PART I.  FINANCIAL INFORMATION

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

     When used in this discussion, the words "expects", "anticipates" and
similar expressions are intended to identify forward-looking statements.  Such
statements, which include statements concerning the timing of availability and
functionality of products under development, product mix, trends in average
selling prices, the growth rate of the market for PCs, the percentage of export
sales and sales to strategic customers, the adoption or retention of industry
standards, and the availability and cost of products from the Company's
suppliers, are subject to risks and uncertainties, including those set forth
below under "Factors that May Effects Results," that could cause actual results
to differ materially from those projected.  These forward-looking statements
speak only as of the date hereof.  The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any changes in the
Company's expectations with regard thereto or any changes in events, conditions
or circumstances on which any such statement is based.

OVERVIEW

     The Company designs, develops and markets multimedia accelerators for sale
to notebook computer manufacturers.  The Company has developed the first
commercially available high performance silicon technology that integrates large
DRAM memory with analog and logic circuitry to provide a high performance
multimedia solution on a single chip.  The Company's MagicGraph128 family of
pin-compatible multimedia accelerators incorporates a 128-bit memory bus.  The
Company believes these products enable notebook PC manufactures to deliver
state-of-the-art multimedia capabilities while decreasing power consumption,
size, system design complexity and cost.

     The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 8-20 of the Company's Fiscal 1998 Annual Report.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain financial data
as a percentage of net sales:

<TABLE>
<CAPTION>
                                            Three Months Ended
                                        April 30,         April 30,
                                           1998              1997
                                        --------          --------
<S>                                     <C>               <C>
 Net sales                                100.0%            100.0%
 Cost of sales                             57.6              61.1
                                        --------          --------
 Gross margin                              42.4              38.9
 Operating expenses:   
   Research and development                13.1              13.5
   Selling, general and administrative      9.1              12.5
                                        --------          --------
       Total operating expenses            22.2              26.0
                                        --------          --------
 Income from operations                    20.2              12.9
 Other income (expense), net:
       Interest income and other            2.0               1.7
       Interest expense                     (.7)             (1.2)
                                        --------          --------
 Income before income taxes                21.5              13.4
 Provision for income taxes                 7.5               2.0
                                        --------          --------
 Net income                                14.0%             11.4%
                                        --------          --------
                                        --------          --------
</TABLE>

                                  Page 8 of 23
<PAGE>

NET SALES

     The Company's net sales to date have been generated from the sale of its 
multimedia accelerators.  The Company's products are used in, and its 
business is dependent on, the personal computer industry with sales primarily 
in Asia, Japan, and the United States.  Net sales were $47.7 million for the 
three months ended April 30, 1998, compared to $18.3 million for the three 
months ended April 30, 1997.  Net sales increased primarily as a result of 
increased market acceptance of the Company's products, introduction by the 
Company of additional products in its MagicGraph128 product family which 
expanded the portion of the market addressed by NeoMagic products, and the 
Company's investment in sales and marketing activities.  The Company expects 
that the percentage of its net sales represented by any one product or type 
of product may change significantly from period to period as new products are 
introduced and existing products reach the end of their product life cycles.  
Due to competitive price pressures, the Company's products experience 
declining unit average selling prices over time, which at times can be 
substantial.

     Export sales accounted for 86.3% and 80% of net sales in the three months
ended April 30, 1998 and 1997, respectively.  The Company expects that export
sales will continue to represent a significant portion of net sales, although
there can be no assurance that export sales as a percentage of net sales will
remain at current levels.  All sale transactions were denominated in U.S.
dollars.

     Four customers accounted for 20%, 15%, 10% and 10% of net sales for the
three months ended April 30, 1998.  Five customers accounted for 21%, 20%, 13%,
11% and 10% of net sales for the three months ended April 30, 1997.  The Company
expects a significant portion of its future sales to remain concentrated within
a limited number of strategic customers.  There can be no assurance that the
Company will be able to retain its strategic customers or that such customers
will not cancel or reschedule orders or, in the event orders are canceled, that
such orders will be replaced by other sales.  In addition, sales to any
particular customer may fluctuate significantly from quarter to quarter.  The
occurrence of any such events or the loss of a strategic customer could have a
material adverse effect on the Company's operating results.

GROSS MARGIN

     Gross margin was $20.2 million and $7.1 million for the three months ended
April 30, 1998 and 1997, respectively.  Gross margin percentages increased to
42.4% for the three months ended April 30, 1998 from 38.9% in the three months
ended April 30, 1997.  The increase in gross margin percentage was due primarily
to lower wafer pricing and improved yields on higher production volumes,
partially offset by declining average selling prices.

     In the future, the Company's gross margin percentages may be adversely
effected by increased competition and related decreases in unit average selling
prices (particularly with respect to older generation products), timing of
volume shipments of new products, the availability and cost of products from the
Company's suppliers and changes in the mix of products sold.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses were $6.3 million and $2.5 for the three
months ended April 30, 1998 and 1997, respectively.  The Company has made and
intends to continue to make significant investments in research and development
to remain competitive by developing new and enhanced products to serve its
identified markets. Research and development expenses increased primarily as a
result of increased employee related expenses largely related to additional
personnel and to a lesser extent consulting, engineering and equipment related
expenses.  Research and development spending is expected to increase in absolute
dollars in fiscal 1999.


                                  Page 9 of 23
<PAGE>

SALES, GENERAL AND ADMINISTRATIVE EXPENSES

     Sales, general and administrative expenses were $4.4 million and 
$2.3 million in the three months ending April 30, 1998 and 1997, respectively. 
Sales, general and administrative expenses increased primarily as a result of 
increased commissions associated with higher sales and increased employee 
related expenses largely related to additional personnel.  The Company 
anticipates that sales, general and administrative expenses will increase in 
absolute dollars in fiscal 1999.

OTHER INCOME (EXPENSE), NET.

     Other income (expense), net increased to $651,000 in the three months ended
April 30, 1998 from $92,000 in the three months ended April 30, 1997.  The
$559,000 increase in other income (expense), net is due primarily to additional
interest income resulting from higher average amounts of cash and short-term
investments in the three months ended April 30, 1998 compared to the same period
in 1997, offset partially by higher interest expense from the working capital
line of credit with Mitsubishi International Corporation related to increases in
wafer purchases over the previous period. 

INCOME TAXES

     The Company's effective tax rate for the three months ended April 30, 1998
was 35% compared to an effective tax rate for the three months ended April 30,
1997 of 15%.  The lower effective tax rate for the three months ended April 30,
1997 is primarily due to the utilization of the Company's net operating loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash, cash equivalents and short-term investments decreased
$5.1 million in the three months ended April 30, 1998 to $65.9 million from
$71.0 million at January 31, 1998.  The decrease is primarily due to increased
repayments against the working capital line. In January 1998, the working
capital line of credit was revised such that for wafer shipments subsequent to
January 31, 1998 payment for wafers must be made within 30 days of wafer
shipment.  Working capital increased $6.4 million to $59.9 million at April 30,
1998 from $53.5 million at January 31, 1998.

     Net cash provided by operating activities for the three months ended April
30, 1998 was $17.2 million compared to $1.1 million of net cash used in
operating activities for the three months ended April 30, 1997. The increase in
cash generated from operations is primarily attributable to an $11.3 million
increase in accounts payable during the three months ended April 30, 1998 and 
$6.7 million in net income in the three month period ended April 30, 1998
compared to net income of $2.1 million for the three month period ended April
30, 1997.  The increase in cash generated from operating activities for the
three months ended April 30, 1998 compared to the three months ended April 30,
1997 was also related to changes in accounts receivable offset by increases in
inventory.

     Net cash used for investing activities for the three months ended April 30,
1998 and 1997 was $10.8 million, $18.5 million, respectively.  The decrease in
cash used in investing for the three month period ended April 30, 1998 compared
to the three month period ended April 30, 1997 was primarily due to a reduction
in the net purchases of short-term investments of $8.8 million offset partially
by an increase of $1.1 million of investments in property, plant and equipment. 
Continued expansion of the Company's business may require higher levels of
capital equipment purchases, technology investments, foundry investments and
other payments to secure manufacturing capacity.  The timing and amount of
future investments will depend primarily on the growth of the Company's future
revenues.

     Net cash used in financing activities for the three months ended April 30,
1998 was $20.5 million compared to net cash provided by financing activities of
$35.8 for the three months ended April 


                                  Page 10 of 23
<PAGE>

30, 1997.  Net cash used in financing activities for the three months ended 
April 30, 1998 relates primarily to repayments against the working capital 
line of $21.0 million.  Net cash provided by financing activities for the 
three months ended April 30, 1997 related primarily to net proceeds from the 
initial public offering of $37.8 million and the release of amounts 
previously held as restricted cash, offset in part by net repayments of 
$4.0 million related to the working capital line of credit.

     At April 30, 1998 the Company's principal sources of liquidity included
cash and cash equivalents and short-term investments of $65.9 million.  In
January 1998, the working capital line of credit was revised such that for wafer
shipments subsequent to January 31, 1998 payment for wafers must be made within
30 days of wafer shipment.  The Company believes these available funds and
anticipated funds from operations will satisfy the Company's projected working
capital and capital expenditure requirements through the next 12 months. 
Investments will continue in product development in new and existing areas of
technology.  Cash may also be used to acquire technology through purchases and
strategic acquisitions. The Company's future capital requirements will depend on
many factors including the rate of net sales growth, the timing and extent of
spending to support research and development programs, expansion of sales and
marketing, the timing of introductions of new products and enhancements to
existing products, and market acceptance of the Company's products.  The Company
expects that it may need to raise additional equity or debt financing in the
future.  There can be no assurance that additional equity or debt financing, if
required, will be available on acceptable terms or at all.  

IMPACT OF CURRENCY EXCHANGE RATES

     Because the Company currently purchases wafers under purchase contracts
denominated in yen, significant appreciation in the value of yen relative to the
value of the U.S. dollar would make the wafers relatively more expensive to the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations.  The Company from time to time
enters into foreign currency forward contracts and foreign currency options to
minimize foreign currency fluctuation exposures related to these firm purchase
commitments.  The Company does not use derivative financial instruments for
speculative or trading purposes.  The Company's accounting policies for these
instruments are based on the Company's designation of such instruments as
hedging transactions.  The criteria the Company uses for designating an
instrument as a hedge include its effectiveness in risk reduction and one-to-one
matching of derivative instruments to underlying transactions.  Notwithstanding
the measures the Company has adopted, due to the unpredictability and volatility
of currency exchange rates and currency controls, there can be no assurance that
the Company will not experience currency losses in the future, nor can the
Company predict the effect of exchange rate fluctuations upon future operating
results.

IMPACT OF YEAR 2000 

     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year.  Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.  If the Company's internal systems do
not correctly recognize date information when the year changes to 2000, there
could be an adverse impact on the Company's operations.  The Company has
completed an assessment and does not believe that it will be required to modify
or replace significant portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The Company has also assessed the capability of its products sold to customers
and believes that it has no exposure to contingencies related to the Year 2000
Issues for the products it has sold.  Management believes that the likelihood of
a material adverse impact due to problems with internal systems or products sold
to customers is remote and expects that any costs to be incurred to assure year
2000 capability will not have a material adverse effect on the Company's
financial position or results of operations.  The Company is contacting critical
suppliers of products and services to determine that the suppliers' operations
and the products and services they provide are year 2000 capable.  There can be
no assurance that another company's failure to ensure year 2000 capability would
not have an adverse effect on the Company.


                                  Page 11 of 23
<PAGE>

FACTORS THAT MAY EFFECT RESULTS

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     NeoMagic's quarterly and annual results of operations are effected by a
variety of factors that could materially adversely effect net sales, gross
margin and income from operations.  These factors include, among others, demand
for the Company's products; changes in product or customer mix, (i.e. the
portion of the Company's revenues represented by the Company's various products
and customers); fluctuations in manufacturing yields; incorrect forecasting of
future revenues; availability and cost of manufacturing capacity; unanticipated
delays or problems in the introduction or performance of the Company's next
generation of products; the Company's ability to introduce new products in
accordance with OEM design requirements and design cycles; market acceptance of
the products of the Company's customers; changes in the timing of product orders
due to unexpected delays in the introduction of products of the Company's
customers or due to the life cycles of such customers' products ending earlier
than anticipated; new product announcements or product introductions by
NeoMagic's competitors; competitive pressures resulting in lower selling prices;
the volume of orders that are received and can be fulfilled in a quarter; the
rescheduling or cancellation of orders by customers which cannot be replaced
with orders from other customers; supply constraints for the other components
incorporated into its customers' notebook PC products; foreign exchange rate
fluctuations; the unanticipated loss of any strategic relationship; seasonality
associated with the tendency of PC sales to increase in the second half of each
calendar year; the level of expenditures for research and development and sales,
general and administrative functions of the Company; costs associated with
future litigation; and costs associated with protecting the Company's
intellectual property.  Any one or more of these factors could result in the
Company failing to achieve its expectations as to future revenues.  The Company
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall, which could materially adversely effect
quarterly operating results.  Accordingly, the Company believes that period-to-
period comparisons of its operating results should not be relied upon as an
indication of future performance.  In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.  In
future quarters, the Company's operating results may be below the expectations
of public market analysts or investors.  In such event, the market price of the
Common Stock would be materially adversely effected.

RISKS ASSOCIATED WITH DEPENDENCE ON THE NOTEBOOK PC MARKET

      The Company's products are used only in notebook PCs.  The notebook PC
market is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions and significant price competition,
resulting in short product life cycles and regular reductions of average selling
prices over the life of a specific product.  Although the notebook PC market has
grown substantially in recent years, there is no assurance that such growth will
continue.  A reduction in sales of notebook PCs, or a reduction in the growth
rate of such sales, would likely reduce demand for the Company's products. 
Moreover, such changes in demand could be large and sudden.  Since PC
manufacturers often build inventories during periods of anticipated growth, they
may be left with excess inventories if growth slows or if they have incorrectly
forecast product transitions.  In such cases, the PC manufacturers may abruptly
suspend substantially all purchases of additional inventory from suppliers such
as the Company until the excess inventory has been absorbed.  Any reduction in
the demand for notebook PCs in general, or for a particular product that
incorporates the Company's multimedia accelerators, could have a material
adverse impact on the Company's business, financial condition and results of
operations.

     The Company's ability to compete in the future will depend on its ability
to identify and ensure compliance with evolving industry standards. 
Unanticipated changes in industry standards could render the Company's products
incompatible with products developed by major hardware manufacturers and
software developers, including Intel Corporation and Microsoft Corporation.  The
Company could be required, as a result, to invest significant time and effort to
redesign its products to ensure compliance 


                                  Page 12 of 23
<PAGE>

with relevant standards.  If the Company's products are not in compliance 
with prevailing industry standards for a significant period of time, the 
Company could miss opportunities to achieve crucial design wins, which could 
result in a material adverse effect in the Company's business, financial 
condition and results of operations.  In addition, the Company's products are 
designed to afford the notebook PC manufacturer significant advantages with 
respect to product performance, power consumption and size.  To the extent 
that future developments in other notebook PC components or subassemblies 
incorporate one or more of the advantages offered by the Company's products, 
the market demand for the Company's products may be negatively impacted, 
which could result in a material adverse effect in the Company's business, 
financial condition and results of operations.

PRODUCT CONCENTRATION; RISKS ASSOCIATED WITH MULTIMEDIA PRODUCTS

      The Company's revenues are entirely dependent on the market for multimedia
accelerators for notebook PCs, and on the Company's ability to compete in that
market.  Since the Company has no other product line, the Company's revenues and
results of operations would be materially adversely effected if for any reason
it were unsuccessful in selling multimedia accelerators.  The notebook PC market
frequently undergoes transitions in which products rapidly incorporate new
features and performance standards on an industry-wide basis.  If the Company's
products are unable at the beginning of each such transition to support the new
feature sets or performance levels being required by notebook PC manufacturers,
the Company would likely lose design wins and moreover, not have the opportunity
to compete for new design wins until it was able to incorporate changes
resulting from market transitions or to take advantage of future product
transitions.  Thus, a failure to develop products with required feature sets or
performance standards or a delay as short as a few months in bringing a new
product to market could significantly reduce the Company's net sales for a
substantial period, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

     The notebook PC multimedia market is characterized by extreme price
competition.  Leading-edge products may command higher average selling prices,
but prices decline throughout the product life cycle as comparable and more
advanced products are introduced into the market.  As a result, the Company's
ability to maintain average selling prices and gross margins depends
substantially on its ability to continue introducing new products.  Its ability
to maintain gross margins is also dependent upon its ability to reduce product
costs throughout a product life cycle by instituting cost reduction design
changes and yield improvements, persuading customers to adopt cost-reduced
versions of its products and successfully managing its manufacturing and
subcontractor relationships. The failure of the Company to continue designing
and introducing advanced products in a timely manner or to continue reducing
product costs would have a material adverse effect on the Company's net sales,
gross margins and results of operations.

CUSTOMER CONCENTRATION

     The Company's sales are concentrated within a limited customer base.  The
Company expects that a small number of customers will continue to account for a
substantial portion of its net sales for the foreseeable future.  Furthermore,
the majority of the Company's sales are made on the basis of purchase orders
rather than pursuant to long-term agreements.  As a result, the Company's
business, financial condition and results of operations could be materially
adversely effected by the decision of a single customer to cease using the
Company's products or by a decline in the number of notebook PCs sold by a
single customer.

EFFECTS OF CHANGES IN DRAM PRICING

      The Company's MagicGraph128 products feature large DRAM memory integrated
with analog and logic circuitry on a single chip, while its competitors often
provide only the graphics/video analog and logic circuitry on a separate chip to
be used in conjunction with DRAMs supplied by others.  The prices of the
Company's products reflect many factors, including the prices of DRAM chips.  As
a result, the Company's business, financial condition and results of operations
may be materially and adversely 


                                  Page 13 of 23
<PAGE>

effected by unanticipated changes in the price of DRAMs.  These changes are 
typically sudden and dramatic and can extend over a significant period of 
time.  Such changes are currently occurring in the market. A significant 
reduction in the price of DRAMs could cause the Company's products to be less 
competitively priced, potentially effecting ongoing product pricing as well 
as resulting in the loss of design wins for new notebook PCs.  In this 
circumstance, competitors without embedded DRAM potentially could be 
benefited by DRAM price reductions, and the Company could be forced to 
respond to pricing pressures precipitated by changes in the DRAM market by 
reducing the average selling prices of its products to current and 
prospective system manufacturer customers.  Because the Company's product 
costs cannot be adjusted as rapidly as changes in average selling prices to 
system manufacturers, the Company's net sales and gross margin would be 
materially and adversely impacted.

COMPETITION

      The market for multimedia accelerators for notebook PCs in which the
Company competes is intensely competitive and is characterized by rapid
technological change, evolving industry standards and declining average selling
prices.  NeoMagic believes that the principal factors of competition in this
market are performance, price, features, power consumption, size and software
support.  The ability of the Company to compete successfully in the rapidly
evolving notebook PC market depends on a number of factors, including success in
designing and subcontracting the manufacture of new products that implement new
technologies, product quality, reliability, price, the efficiency of production,
design wins for NeoMagic's integrated circuits, ramp up of production of the
Company's products for particular system manufacturers, end-user acceptance of
the system manufacturers' products, market acceptance of competitors' products
and general economic conditions.  There can be no assurance that the Company
will be able to compete successfully in the future.

     NeoMagic competes with major domestic and international companies, some of
which have substantially greater financial and other resources than the Company
with which to pursue engineering, manufacturing, marketing and distribution of
their products.  The Company's principal competitors include ATI, Chips
& Technologies, Inc. ("Chips & Technologies"- in January 1998, Intel Corporation
acquired Chips and Technologies), S3 Incorporated ("S3") and Trident
Microsystems, Inc. ("Trident").  NeoMagic may also face increased competition
from new entrants into the notebook PC multimedia accelerator market including
companies currently selling products designed for desktop PCs.  Furthermore, the
Company expects that many of its competitors will seek to develop and introduce
products that integrate large DRAM with analog and logic circuitry on a single
chip.  For example, Chips & Technologies, Trident and S3 have publicly disclosed
that they have or will begin sampling an integrated multimedia accelerator
solution for the notebook PC market that would directly compete with the
Company's products.  Certain of the Company's competitors offer more
functionality and/or higher processor speeds at the expense of battery life
and power consumption than the Company's product offerings.  These feature sets
may be more competitive for certain applications than the Company's products. 
Potential competition also could come from manufacturers that integrate a
microprocessor or other component with a multimedia controller.  Cyrix (acquired
by National Semiconductor in July 1997) is in production of such a product.
The successful commercial introduction of such a product by competitors that
integrates large DRAM with analog and logic circuitry on a single chip or a
product that eliminates the need for a separate multimedia accelerator in
notebook PCs could have a material adverse effect on the Company's business,
financial condition and results of operations.
     
     Some of the Company's current and potential competitors operate their own
manufacturing facilities.  Since the Company does not operate its own
manufacturing facility and must make binding commitments to purchase products,
it may not be able to reduce its costs and cycle time or adjust its production
to meet demand as rapidly as companies that operate their own facilities, which
could have a material adverse effect on its business, financial condition and
results of operations. In addition, the prices of the Company's products reflect
many factors, including the prices of DRAM chips and non-integrated graphics
chips.  Therefore, in some cases, the Company's products may be more expensive
than competitive multiple chip solutions.  The Company in the past has lost and
in the future may lose design 


                                  Page 14 of 23
<PAGE>

wins due to this price difference.  Furthermore, a significant reduction in 
the price of DRAMs could cause the Company's products to be less 
competitively priced, potentially effecting ongoing product pricing as well 
as resulting in the loss of design wins for new notebook PCs. Uncompetitive 
pricing and loss of design wins could have a material and adverse effect on 
the Company's business, financial condition, and results of operations.

DEPENDENCE ON MANUFACTURING RELATIONSHIPS
     
     The Company's products require wafers manufactured with state-of-the-art
fabrication equipment and techniques.  The Company's products are primarily
manufactured by Mitsubishi Electric Corporation ("Mitsubishi Electric") in
Japan.  In fiscal 1998, the Company began manufacturing wafers with Toshiba
Corporation ("Toshiba") in Japan.  Each of these manufacturing relationships are
covered under the terms of a five-year wafer supply agreement.  The Company
expects that, for the foreseeable future, some of its products will be single
source manufactured.  Because the lead time needed to establish a strategic
relationship with a new DRAM partner is at least 12 months and the estimated
time for a foundry to switch to a new product line is four to nine months, there
is no readily available alternative source of supply for any specific product. 
A manufacturing disruption experienced by either of the Company's manufacturing
partners would impact the production of the Company's product for a substantial
period of time, which would have a material adverse effect on the Company's
business, financial condition and results of operations.  Furthermore, in the
event that the transition to the next generation of manufacturing technologies
at Mitsubishi Electric or Toshiba is unsuccessful, the Company's business,
financial condition and results of operations would be materially and adversely
effected.

     There are many other risks associated with the Company's dependence upon
third party manufacturers, including: reduced control over delivery schedules,
quality assurance, manufacturing yields and cost; the potential lack of adequate
capacity during periods of excess demand; limited warranties on wafers supplied
to the Company; and potential misappropriation of NeoMagic intellectual
property.  The Company is dependent on Mitsubishi Electric and Toshiba to
produce wafers of acceptable quality and with acceptable manufacturing yields,
to deliver those wafers to the Company and its independent assembly and testing
subcontractors on a timely basis and to allocate to the Company a portion of
their manufacturing capacity sufficient to meet the Company's needs.  On
occasion, the Company has experienced some of these difficulties.  Although the
Company's products are designed using the process design rules of the particular
manufacturer, there can be no assurance that either Mitsubishi Electric or
Toshiba will be able to achieve or maintain acceptable yields or deliver
sufficient quantities of wafers on a timely basis or at an acceptable cost. 
Additionally, there can be no assurance that either Mitsubishi Electric or
Toshiba will continue to devote resources to the production of the Company's
products or continue to advance the process design technologies on which the
manufacturing of the Company's products are based.  Any such difficulties would
have a material adverse effect on the Company's business, financial condition
and results of operations.

     The Company's products are assembled and tested by third party
subcontractors.  The Company does not have long term agreements with any of
these subcontractors.  Such assembly and testing is conducted on a purchase
order basis.  As a result of its reliance on third party subcontractors to
assemble and test its products, the Company cannot directly control product
delivery schedules, which could lead to product shortages or quality assurance
problems that could increase the costs of manufacturing or assembly of the
Company's products.  Due to the amount of time normally required to qualify
assembly and test subcontractors, product shipments could be delayed
significantly if the Company is required to find alternative subcontractors. 
Any problems associated with the delivery, quality or cost of the assembly and
test of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations.


                                  Page 15 of 23
<PAGE>

INVENTORY RISK

     Under its wafer supply agreements with Mitsubishi Electric and Toshiba,
the Company is obligated to provide rolling 12-month forecasts of anticipated
purchases and to place binding purchase orders four months prior to shipment
from the suppliers.  If the Company cancels a purchase order, it must pay
cancellation penalties based on the status of work in process or the proximity
of the cancellation to the delivery date.  Forecasts of monthly purchases may
not increase or decrease by more than a certain percentage from the previous
month's forecast without the manufacturer's consent.  Thus, the Company must
make forecasts and place purchase orders for wafers long before it receives
purchase orders from its own customers.  This limits the Company's ability to
react to fluctuations in demand for its products, which can be unexpected and
dramatic, and from time-to-time will cause the Company to have an excess or a
shortage of wafers for a particular product.  As a result of the long lead time
for manufacturing wafers, semiconductor companies such as the Company from time-
to-time must take charges for excess inventory.  For example, the Company booked
charges totaling $1.5 million for excess inventory in fiscal 1997.  Significant
write-offs of excess inventory could materially adversely effect the Company's
financial condition and results of operations.  Conversely, failure to order
sufficient wafers would cause the Company to miss revenue opportunities and, if
significant, could impact sales by the Company's customers, which could
adversely effect the Company's customer relationships and thereby materially
adversely effect the Company's business, financial condition and results of
operations.

MANUFACTURING YIELDS

     The fabrication of semiconductors is a complex and precise process. 
Because NeoMagic's products feature the integration of large DRAM memory with
analog and logic circuitry on a single chip, a manufacturer must obtain
acceptable yields of both the memory and logic portions of such products,
compounding the complexity of the manufacturing process.  As a result, the
Company may face greater manufacturing challenges than its competitors.  Minute
levels of contaminants in the manufacturing environment, defects in masks used
to print circuits on a wafer, difficulties in the fabrication process or other
factors can cause a substantial percentage of wafers to be rejected or a
significant number of die on each wafer to be nonfunctional.  Many of these
problems are difficult to diagnose and time consuming or expensive to remedy. 
As a result, semiconductor companies often experience problems in achieving
acceptable wafer manufacturing yields, which are represented by the number of
good die as a proportion of the total number of die on any particular wafer. 
The Company purchases wafers, not die, and pays an agreed price for wafers
meeting certain acceptance criteria.  Accordingly, the Company bears the risk of
final yield of good die.  Poor yields would materially adversely effect the
Company's net sales, gross margins and results of operations.

     Semiconductor manufacturing yields are a function both of product design,
which is developed largely by the Company, and process technology, which is
typically proprietary to the manufacturer.  Historically the Company has
experienced lower yields on new products.  Since low yields may result from
either design or process technology failures, yield problems may not be
effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used.  As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems would require
cooperation by and communication between the Company and the manufacturer.  For
example, a design error that resulted in lower than expected yields of finished
products caused the Company to take a $1.2 million charge in fiscal 1997.  This
risk is compounded by the offshore location of the Company's manufacturers,
increasing the effort and time required to identify, communicate and resolve
manufacturing yield problems.  As the Company's relationships with additional
manufacturing partners develop, yields could be adversely effected due to
difficulties associated with adopting the Company's technology and product
design to the proprietary process technology and design rules of each
manufacturer.  Because of the Company's limited access to wafer fabrication
capacity from its manufacturers, any decrease in manufacturing yields could
result in an increase in the Company's per unit costs and force the Company to
allocate its available product supply among its customers, thus potentially
adversely impacting customer relationships as well as revenues and 


                                  Page 16 of 23
<PAGE>

gross margins.  There can be no assurance that the Company's manufacturers 
will achieve or maintain acceptable manufacturing yields in the future.  The 
inability of the Company to achieve planned yields from its manufacturers 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.  Furthermore, the Company also faces the 
risk of product recalls resulting from design or manufacturing defects which 
are not discovered during the manufacturing and testing process.  In the 
event of a significant number of product returns, the Company's net sales and 
gross margin could be materially adversely effected.

DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE

     The Company's business, financial condition and results of operations
will depend to a significant extent on its ability to maintain its position in
the market for multimedia accelerator products that integrate large DRAM with
analog and logic circuitry on a single chip.  As a result, the Company believes
that significant expenditures for research and development will continue to be
required in the future.  The notebook PC market for which the Company's
products are designed is intensely competitive and is characterized by rapidly
changing technology, evolving industry standards and declining average selling
prices.  Notebook PC manufacturers demand products incorporating rich features
and functionality in order to achieve product differentiation.  The Company must
anticipate the features and functionality that the consumer of notebook PCs will
demand, incorporate those features and functionality into products that meet the
exacting design requirements of the notebook PC manufacturers, price its
products competitively, and introduce the products to the market within the
limited window of market demand.  For example, both 3-D and DVD functionality
are becoming increasingly important for notebook PCs.  The Company's ability to
compete may depend on its ability to incorporate these features in its products.
The success of new product introductions is dependent on several factors,
including proper new product definition, timely completion and introduction of
new product designs, the ability of Mitsubishi Electric, Toshiba and any
additional strategic manufacturing partners to effectively design and implement
the manufacture of new products, quality of new products, differentiation of new
products from those of the Company's competitors and market acceptance of
NeoMagic's and its customers' products.  There can be no assurance that the
products the Company expects to introduce will incorporate the features and
functionality demanded by system manufacturers and consumers of notebook PCs,
will be successfully developed, or will be introduced within the appropriate
window of market demand.  The failure of the Company to successfully introduce
new products and achieve market acceptance for such products would have a
material adverse effect on the Company's business, financial condition and
results of operations.

     The integration of large DRAM memory with analog and logic circuitry on a
single chip is highly complex and is critical to the Company's success.  Because
of the complexity of its products, however, NeoMagic has experienced delays from
time to time in completing development and introduction of new products.  In the
event that there are delays in the completion of development of future products,
including the products currently expected to be announced over the next year,
the Company's business, financial condition and results of operations would be
materially adversely effected.  Although the development cycles for the memory
and logic portions of the Company's products have been relatively synchronized
to date, there can be no assurance that this synchronization will continue in
the future.  In addition, there can be no assurance that fundamental advances in
either the memory or logic components of the Company's products will not
significantly increase the complexity inherent in the design and manufacture of
the Company's products, rendering the Company's product technologically
infeasible or uncompetitive.  The multiple chip solutions offered by some of the
Company's competitors are less complex to design and manufacture than the
Company's integrated MagicGraph128 products.  As a result, these competitive
solutions may be less expensive, particularly during periods of depressed DRAM
prices.  The time required for competitors to develop and introduce competing
products may be shorter and manufacturing yields may be better than those
experienced by the Company.

     As the markets for the Company's products continue to develop and
competition increases, NeoMagic anticipates that product life cycles will
shorten and average selling prices will decline.  In particular, average selling
prices and, in some cases, gross margin for each of the Company's products 


                                  Page 17 of 23
<PAGE>

will decline as such products mature.  Thus, the Company will need to 
introduce new products which are compelling enough in order to maintain 
average selling prices.  There can be no assurance that the Company will 
successfully identify new product opportunities and develop and bring new 
products to market in a timely manner, that products or technologies 
developed by others will not render NeoMagic's products or technologies 
obsolete or uncompetitive, or that the Company's products will be selected 
for design into the products of its targeted customers.  The failure of the 
Company's new product development efforts would have a material adverse 
effect on NeoMagic's business, financial condition and results of operations.

UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY RIGHTS

     The Company relies in part on patents to protect its intellectual 
property. In the United States, the Company has been issued seven patents, 
each covering certain aspects of the design and architecture of the Company's 
multimedia accelerators.  In addition, the Company has patent applications 
pending in the United States Patent and Trademark Office.  There can be no 
assurance that the Company's pending patent applications, or any future 
applications will be approved, or that any issued patents will provide the 
Company with competitive advantages or will not be challenged by third 
parties, or that the patents of others will not have an adverse effect on the 
Company's ability to do business.  Furthermore, there can be no assurance 
that others will not independently develop similar products, duplicate the 
Company's products or design around any patents that may be issued to the 
Company.

     The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its intellectual
property.  Despite these efforts, there can be no assurance that others will not
independently develop substantially equivalent intellectual property or
otherwise gain access to the Company's trade secrets or intellectual property,
or disclose such intellectual property or trade secrets, or that the Company can
meaningfully protect its intellectual property.  A failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, financial condition and results of operations.

     As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property rights. 
The Company in the past has been, and in the future may be, notified that it may
be infringing the intellectual property rights of third parties.  In November
1994, Cirrus Logic Inc. ("Cirrus Logic") filed suit against the Company and
certain of its employees claiming, among other things, breach of fiduciary duty,
breach of and interference with contract and misappropriation of trade secrets. 
The Company and Cirrus Logic settled the lawsuit in June 1996, but the Company
incurred an aggregate of $703,000 in expenses in connection with such litigation
during fiscal 1995 and fiscal 1996.  This settlement did not involve cash
payments, but did include a non-solicitation provision and certain contingent
cross-licensing provisions.  In February 1997, Cirrus Logic sent the Company
written notice asserting that the Company's MagicGraph128, MagicGraph128V and
MagicGraph128ZV products infringe three United States patents held by Cirrus
Logic.  Since receiving the notice of alleged infringement, the Company has
advised Cirrus Logic that the Company does not believe that any of its products
infringe any claims of the patents.  The Company also has undergone a
confidential external infringement review and has conducted its own internal
infringement review, and the Company continues to believe that the Cirrus Logic
infringement allegations are unfounded.  However, there can be no assurances
that Cirrus Logic will not file a lawsuit against the Company or that the
Company would prevail in any such litigation.  Any protracted litigation by
Cirrus Logic or the success of Cirrus Logic in any such litigation could have a
material and adverse effect on the Company's financial position or results of
operations.

     Further, the Company was notified by certain of its customers that a law
suit had been filed and served by a holder of a United States patent asserting
that the video/graphics subsystem in such customers' notebook PCs, which use the
Company's MagicGraph128 and MagicGraph128V products, infringe certain claims of
the patent.  The Company may have certain indemnification obligations to
customers 


                                  Page 18 of 23
<PAGE>

with respect to the infringement of third-party intellectual property rights 
by its products.  There can be no assurance that the Company's potential 
obligations to indemnify such customers will not have a material adverse 
effect on the Company's business, financial condition and results of 
operations.  The Company believes that the Company's MagicGraph128 and 
MagicGraph128V products do not infringe any of the claims of such patent.  
The Company's belief is based upon a legal opinion from its patent counsel, 
Townsend and Townsend and Crew LLP.  There can be no assurances that the 
Company or such customers would prevail in any patent litigation, or that 
such customers will continue to purchase the Company's products while the 
Company is under the threat of litigation.

     Any patent litigation, whether or not determined in the Company's favor or
settled by the Company, would at a minimum be costly and could divert the
efforts and attention of the Company's management and technical personnel from
productive tasks, which could have a material adverse effect on the Company's
business, financial condition and results of operations.  There can be no
assurance that current or future infringement claims by third parties or claims
for indemnification by other customers or end users of the Company's products
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not materially adversely effect the
Company's business, financial condition and results of operations.  In the event
of any adverse ruling in any such matter, the Company could be required to pay
substantial damages, which could include treble damages, cease the
manufacturing, use and sale of infringing products, discontinue the use of
certain processes or to obtain a license under the intellectual property rights
of the third party claiming infringement.  There can be no assurance, however,
that a license would be available on reasonable terms or at all.  Any
limitations on the Company's ability to market its products, or delays and costs
associated with redesigning its products or payments of license fees to third
parties, or any failure by the Company to develop or license a substitute
technology on commercially reasonable terms could have a material adverse effect
on the Company's business, financial condition and results of operations.

DEPENDENCE ON INTERNATIONAL SALES AND SUPPLIERS

     Export sales are a critical part of the Company's business.  Sales to 
customers located outside the United States (including sales to foreign 
operations of customers headquartered in the United States and foreign system 
manufacturers that sell to United States-based OEMs) accounted for 83.2%, 
96.2% and 90.0% of the Company's net sales for fiscal 1998, 1997 and 1996, 
respectively, and 86.3% for the first quarter of fiscal 1999 ended April 30, 
1998.  The Company expects that net sales derived from international sales 
will continue to represent a significant portion of its total net sales.  
Some of the Company's international sales are supported by letters of credit 
issued by its customers.  Because the Company's international sales have to 
date been denominated in United States dollars, increases in the value of the 
United States dollar could increase the price in local currencies of the 
Company's products in foreign markets and make the Company's products 
relatively more expensive than competitors' products that are denominated in 
local currencies. All of the Company's wafers are, and for the foreseeable 
future, will be produced by foreign manufacturers.  In addition, the majority 
of the assembly and test services used by the Company are procured from 
international sources.  Under the Company's wafer supply agreements with 
Mitsubishi Electric and Toshiba, products are priced in Japanese yen.  As a 
result, the Company's cost of goods sold are subject to fluctuations in the 
yen-dollar exchange rates.  The Company has in the past hedged its exposure 
to fluctuations in such foreign currency exchange rate by purchasing foreign 
exchange contracts and will continue to do so in the future.  However, there 
can be no assurance that such hedging will be adequate. Significant wafer or 
assembly and test service price increases, fluctuations in currency exchange 
rates or the Company's hedging against currency exchange rate fluctuations 
could have a material adverse effect on the Company's business, financial 
condition and results of operations. 

     International sales and manufacturing operations are subject to a variety
of risks, including fluctuations in currency exchange rates, tariffs, import
restrictions and other trade barriers, unexpected changes in regulatory
requirements, longer accounts receivable payment cycles, potentially adverse tax
consequences and export license requirements.  In addition, the Company is
subject to the risks inherent 


                                  Page 19 of 23
<PAGE>

in conducting business internationally including foreign government 
regulation, political and economic instability, and unexpected changes in 
diplomatic and trade relationships.  Moreover, the laws of certain foreign 
countries in which the Company's products may be developed, manufactured or 
sold, including various countries in Asia, may not protect the Company's 
intellectual property rights to the same extent as do the laws of the United 
States, thus increasing the possibility of piracy of the Company's products.  
There can be no assurance that one or more of these risks will not have a 
material adverse effect on the Company's business, financial condition and 
results of operations.

NEED FOR ADDITIONAL CAPITAL

     The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures.  The Company believes that its existing capital resources, will be
sufficient to meet the Company's capital requirements through the next 12
months, although the Company could be required, or could elect, to seek to raise
additional capital during such period.  The Company's future capital
requirements will depend on many factors, including the rate of net sales
growth, the timing and extent of spending to support research and development
programs and expansion of sales and marketing, the timing of introductions of
new products and enhancements to existing products and market acceptance of the
Company's products.  The Company may raise additional equity or debt financing
in the future.  There can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all.

MANAGEMENT OF EXPANDED OPERATIONS
     
     The Company has experienced, and may continue to experience, periods of
rapid growth and expansion both domestically and internationally, which have
placed, and could continue to place a significant strain on the Company's
limited personnel and other resources.  To manage these expanded operations
effectively, the Company will be required to continue to improve its
operational, financial and management systems.  The Company is dependent upon
its ability to successfully hire, train, motivate and manage its employees,
especially its management and development personnel.  If the Company's
management is unable to manage its expanded operations effectively, the
Company's business, financial condition and results of operations could be
materially adversely effected.

DEPENDENCE ON QUALIFIED PERSONNEL

     The Company's future success depends in part on the continued service of
its key engineering, sales, marketing, manufacturing, finance and executive
personnel, and its ability to identify, hire and retain additional personnel. 
There is intense competition for qualified personnel in the semiconductor
industry, and there can be no assurance that the Company will be able to
continue to attract and train qualified personnel necessary for the development
of its business.  The Company's anticipated growth is expected to place
increased demands on the Company's resources and will likely require the
addition of new management personnel and the development of additional expertise
by existing management personnel.  Loss of the services of, or failure to
recruit in a timely manner, key technical and management personnel could be
significantly detrimental to the Company's product development programs or
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations.

VOLATILITY OF STOCK PRICE

     The market price of the shares of Common Stock, like that of the common
stock of many other semiconductor companies, has been and is likely to be highly
volatile, and the market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies.  The market price of the Common Stock could be subject to
significant fluctuations in response to quarter-to-quarter variations in the
Company's anticipated or actual operating results, announcements of new
products, technological innovations or setbacks by the Company or its


                                  Page 20 of 23
<PAGE>

competitors, conditions in the semiconductor and PC industries, unanticipated
shifts in the notebook PC market or industry standards, loss of customers,
changes in DRAM pricing, the commencement of, developments in or outcome of
litigation, changes in or the failure by the Company to meet estimates of the
Company's performance by securities analysts, market conditions for high
technology stocks in general, and other events or factors.


                                  Page 21 of 23
<PAGE>

     PART II.  OTHER INFORMATION
     
ITEM 1. Legal Proceedings
        None.

ITEM 2. Changes in Securities 
             The Company completed its initial public offering pursuant to a
        Registration Statement on Form S-1 in March 1997 and issued 3,000,000 
        shares of its Common Stock to the public at a price of $12.00 per 
        share. The managing underwriters for the initial public offering were 
        Morgan Stanley & Co., Montgomery Securities and Robertson, Stephens & 
        Company. The offering has been terminated and all the shares were 
        sold.  The Company received approximately $32.4 million of cash from 
        the initial public offering, net of underwriting discounts, 
        commissions, and other offering costs (approximately $1.1 million).  
        The Company also received $1.5 million in proceeds from Direct Sales 
        of 125,000 shares of the Company's stock at a price of $12 per share. 
        In April 1997 the underwriters exercised their over-allotment option 
        and purchased an additional 450,000 shares (of which 100,000 shares 
        were sold by selling shareholders) at $12.00 per share with net 
        proceeds to the Company of approximately $ 3.9 million (net proceeds 
        to the selling shareholders was approximately $1.2 million).  The 
        principal purpose of this offering was to obtain additional capital, 
        create a public market for the Company's Common Stock and facilitate 
        future access by the Company to public equity markets. Pending the 
        use of proceeds from this offering the Company invested such proceeds 
        in short-term, interest bearing, investment grade obligations.  
        During the three months ended April 30, 1998, the Company continued 
        to invest the net proceeds from the Company's initial public offering 
        in short-term, interest bearing, investment grade obligations.
             
             None of the expenses incurred in connection with the offering
        constituted direct or indirect payments to directors, officers, general
        partners of the issuer or their associates, or to persons owning ten
        percent or more of any class of equity securities or the issuer or to
        affiliates of the issuer.

ITEM 3. Defaults Upon Senior Securities
        None.

ITEM 4. Submission of Matters to a Vote of Security Holders
        None.

ITEM 5. Other Information
        Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K
        (a) Exhibits
     
        EXHIBIT 
        NUMBER         DESCRIPTION
        ------         -----------
        27.1           Financial Data Schedule

        (b)  Reports on Form 8-K

        The Company did not file any reports on Form 8-K during the three 
months ended April 30, 1998.


                                  Page 22 of 23
<PAGE>

                                     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 thereunto duly authorized.
                                          
                                          
                                          
                              NEOMAGIC CORPORATION
                                  (Registrant)
                                        
                                        
                                        
                                                               
                              /S/ MERLE MC CLENDON
                                MERLE MC CLENDON
                            Vice President, Finance
                          and Chief Financial Officer
                  (Principal Financial and Accounting Officer)
                                        
                                  May 22, 1998


                                  Page 23 of 23