**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-K**





**FOR
      ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.**


**(Mark
      One)**


x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934 FOR THE FISCAL YEAR ENDED JUNE 28,
                2008**** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934 FOR THE TRANSITION PERIOD FROM ________ to
                ________**


**Commission
      File Number 0-27026**


Pericom
      Semiconductor Corporation


(Exact
      Name of Registrant as Specified in Its Charter)





California
            77-0254621(State
                or Other Jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or Organization)
            Identification
                No.)





3545
                North First StreetSan
                Jose, California 95134
            95134(Address
                of Principal Executive Offices)
            (Zip
                Code)





Registrant’s
      Telephone Number, Including Area Code: (408) 435-0800





Securities
      registered pursuant to Section 12(b) of the Act:


Title
                of Each Class
            Name
                of Exchange on Which RegisteredCommon
                Stock
            The
                NASDAQ Stock Market LLCPreferred
                Share Purchase Rights
            The
                NASDAQ Stock Market LLC





Securities
      registered pursuant to Section 12(g) of the Act: None





Indicate
      by check mark if the registrant is a well known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes   ̈ No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section B or Section 15(d) of the Act.


Yes  ̈ No x





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  ̈





Indicate
      by check mark if disclosures of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this Form
      10-K  ̈





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      definitions of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (check one):





Large
      Accelerated Filer  ̈ Accelerated
      Filer  x Non
      Accelerated Filer  ̈ Smaller
      Reporting Company  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No x




The
      aggregate market value of voting stock held by non-affiliates of the Registrant,
      based on the closing price of the Common Stock on December 28, 2007 as reported
      by the NASDAQ National Market was approximately $449,344,000. Shares of common
      stock held by each officer and director have been excluded in that such persons
      may be deemed to be affiliates. This determination of affiliate status is not
      necessarily a conclusive determination for other purposes.





As
      of
      September 9, 2008 the Registrant had outstanding 25,561,159 shares of Common
      Stock.









**DOCUMENTS
      INCORPORATED BY REFERENCE**





Parts
      of
      the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be
      held December 11, 2008, which will be filed subsequently, are incorporated
      by
      reference in Part III of this report on Form10-K.




2


**PERICOM
      SEMICONDUCTOR CORPORATION**





Form
      10-K
      for the Year Ended June 28, 2008





INDEX




PAGE**PART
                I**Item
                1:
            Business
            4Item
                1A:
            Risk
                Factors
            17Item
                1B:
            Unresolved
                Staff Comments
            26Item
                2:
            Properties
            26Item
                3:
            Legal
                Proceedings
            27Item
                4:
            Submission
                of Matters to a Vote of Security Holders
            27**PART
                II**Item
                5:
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Purchases
                of Equity Securities
            28Item
                6:
            Selected
                Financial Data
            31Item
                7:
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            32Item
                7A:
            Quantitative
                and Qualitative Disclosures about Market Risk
            46Item
                8:
            Financial
                Statements and Supplementary Data
            47Item
                9:
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            48Item
                9A:
            Controls
                and Procedures
            48Item
                9B:
            Other
                Information
            49**PART
                III**Item
                10:
            Directors,
                Executive Officers and Corporate Governance
            51Item
                11:
            Executive
                Compensation
            51Item
                12:
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Shareholder Matters
            51Item
                13:
            Certain
                Relationships and Related Transactions, and Director Independence
            52Item
                14:
            Principal
                Accountant Fees and Services
            52**PART
                IV**Item
                15:
            Exhibits
                and Financial Statement Schedules
            53Signatures
            83




3




**PART
      I**




**EXPLANATORY
      NOTE**





As
      used
      in this Form 10K, the term “fiscal 2008” refers to our fiscal year ended June
      28, 2008, the term “fiscal 2007” refers to our fiscal year ended June 30, 2007
      and the term “fiscal 2006” refers to our fiscal year ended July 1,
      2006.




**ITEM
      1. BUSINESS**





Pericom
      Semiconductor Corporation (the “Company” or “Pericom”) designs, develops and
      markets high-performance integrated circuits (“ICs”) and frequency control
      products (“FCPs”) used in many of today's advanced electronic systems. Our IC
      products include functions that support the connectivity, timing and signal
      conditioning of high-speed parallel and serial protocols that transfer data
      among a system's microprocessor, memory and various peripherals, such as
      displays and monitors, and between interconnected systems. Our FCPs are
      electronic components that provide frequency references such as crystals,
      oscillators, and hybrid timing generation products for computer, communication
      and consumer electronic products. Our analog, digital and mixed-signal ICs,
      together with our FCP products enable higher system bandwidth and signal
      quality, resulting in better operating reliability, signal integrity, and lower
      overall system cost in applications such as notebook computers, servers, network
      switches and routers, storage area networks, digital TVs, cell phone, GPS and
      digital media players.




**INDUSTRY
      BACKGROUND - OVERVIEW**





Electronic
      systems and subsystems create the fabric that increasingly supports our everyday
      modern life as evidenced by the continued growth of the personal computer,
      mobile communications, networking and consumer electronics markets. Systems
      characterized by ever-improving performance, flexibility, reliability and
      multi-functionality, as well as decreasing size, weight and power consumption
      have driven the growth of these markets. IC advancements through improvements
      in
      semiconductor technology have contributed significantly to the increased
      performance of, and demand for, electronic systems and to the increasing
      proportion of IC cost as a portion of overall system cost. This technological
      progress occurs at an accelerated pace, while at the same time, the cost of
      electronic systems continues to decline.





Development
      of high-performance personal computer requirements for higher network
      performance and increased levels of connectivity among different types of
      electronic devices drive the demand for new and varying types of high-speed,
      high-performance signal conditioning, connectivity and timing products to handle
      the conditioning, routing, bridging and timing of digital and analog signals
      at
      high speeds with minimal loss of signal quality. High-speed signal transfer
      is
      essential to maximize the speed and bandwidth of the microprocessor, the memory
      and the LAN or WAN. High signal quality is equally essential for optimal balance
      between high data transmission rates and reliable system operation. Without
      high
      signal quality, transmission errors occur, resulting in retransmissions and
      hence lower throughput and system reliability, as bandwidth increases. The
      same
      market pressures imposed on microprocessors also drive the market requirements
      for connectivity and timing products, and include higher speed, reduced power
      consumption, lower voltage operation, smaller size and higher levels of
      integration.





Our
      FCPs
      are devices incorporating quartz crystal resonators. Quartz crystals have the
      physical property such that, when stimulated electrically, they resonate at
      a
      precise and consistent frequency. A crystal oscillator, combining a quartz
      crystal and a simple electronic circuit, also generates a signal at a precise
      and consistent frequency. All types of crystal oscillators are clocks in the
      sense that they provide a frequency reference for various electronic
      systems.





The
      continuing increase in electronic sophistication, as well as the penetration
      and
      proliferation of electronic products into new consumer and commercial
      applications, puts new demands on frequency control devices. This creates both
      technological challenges and new business opportunities for products offering
      faster speeds, tighter frequency tolerance, higher stability relative to
      temperature, smaller surface-mountable packaging and lower unit
      cost.


4




Connectivity,
      switching, and timing products are used to enable higher system bandwidth in
      applications such as notebook computers, servers, network switches and routers,
      storage area networks, wireless base-stations, cell phones, digital cameras
      and
      digital TVs. We pioneer technology in each of these areas as demonstrated in
      the
      development and implementation of our wide variety of serial protocol product
      families. An example is our PCI Express technology across our interface,
      switching, bridging and timing product areas. PCI Express is a relatively new
      industry-standard serial protocol developed to offer higher bandwidth to and
      from the CPU chipset and peripherals like Ethernet, USB, video, and other types
      of connectivity devices. Almost every market segment and end product application
      is adopting PCI Express as the new serial high-speed signal path. As a serial
      protocol, PCI Express can offer many times the bandwidth of PCI, the
      industry-standard parallel protocol that preceded PCI Express. PCI Express
      allows new cost-effective means to send high-speed signals longer
      distances.





However,
      this expanded bandwidth comes at a price: signal quality and integrity becomes
      difficult to maintain as data rates routinely exceed multi-gigabits per second.
      The problems associated with signal quality that must be addressed by the
      connectivity IC’s are magnified by increased speed at which these products must
      transfer, route and time electrical signals. The performance challenges
      presented to today’s designers are significant: signals must transfer at high
      speed with low propagation delay, while signal degradation - such as ‘noise,’
‘jitter,’ ‘skew,’ and electromagnetic interference or ‘EMI’ - must be minimal.
      In short, high-speed signal integrity is essential for state-of-the-art
      electronic systems to function reliably and cost effectively. Our signal
      conditioning technology and resulting products address these critical issues,
      and support the major serial high-speed protocols including Gigabit Ethernet,
      PCI Express, high definition multimedia interface (HDMI), universal serial
      bus
      (USB), serial advanced technology architecture (SATA), statistical analysis
      software (SAS) and DisplayPort. Pericom refers to its signal conditioning
      products as ‘ReDriversTM’.





High
      frequency and high data transfer rates are critical in the reliability of
      systems prevalent in the major market trends of today. Internet and
      high-performance network applications continue to push for more data bandwidth
      on system buses and across system boundaries. Computer and networking system
      clock frequencies continue to increase at a very rapid rate, shortening the
      time
      available to perform data transfers. While the data transfer rate has typically
      increased every few years, the continuing desire for higher system reliability
      with minimal system downtime creates increasing pressure to achieve lower data
      error rates. These factors all increase the need for very high-speed, high
      performance, connectivity and switching products.




In
      server
      applications, we support higher system bandwidth with our PCI Express to
      PCI-X/PCI bridges, and PCI Express packet switches as well as PCI Express signal
      switching and re-driver products enabling optimum system partitioning and design
      flexibility. All major server OEM’s have adopted PCI Express. PCI Express
      bridges and packet switches allow the transfer and switching of high speed
      data
      in and out of the CPU chipset to serial I/O ports such as Fiber Channel, Gb
      Ethernet and SAS.





In
      high-bandwidth systems data transfer needs to be synchronized, creating a high
      demand for timing products. Our timing and FCPs provide the precise timing
      signals needed to ensure reliable data transfer at high speeds in applications
      ranging from notebook computers to network switches. As systems continue to
      grow
      in processing power and complexity, the demand for these products will
      accelerate. The demand for higher precision will also continue to increase
      as
      timing margins shrink in higher bandwidth systems.





Our
      SATA
      switch and ReDriver products
      enable external SATA (eSATA) disk drive expansion and standard compliance.
      They
      are applicable to desktop and notebook PCs, set top boxes, portable media
      players and game consoles.





Our
      video
      switch products address the need for higher video resolution, enable the
      integration of horizontal and vertical synchronous signals as well as control
      signals, and accommodate switching of up to four video input streams with
      improved cross-talk, off-isolation and ESD protection features. These products
      address the high definition multimedia interface and digital video interface
      (HDMI/DVI) and Display Port (DP) switching, signal conditioning and voltage
      shifting requirements for PC video/graphics and LCD monitors, as well as digital
      television (DTV) and other digital video applications.


5





New
      high-end cell phone applications require low voltage, small packages and very
      low resistance to provide the highest fidelity sound. We address this market
      with our analog audio switch products that offer one of the smallest packages,
      low resistance (0.4 W ),
      low
      voltage (1.8V) and very low power consumption for extended battery life.




**OUR
      STRATEGY**





As
      a
      leading supplier of high-performance IC and FCP products, we enable serial
      connectivity with solutions for the computing, communications and consumer
      market segments. To enhance our offerings, we acquired SaRonix, LLC (“SaRonix”)
      in 2003 and eCERA Comtek Corporation (“eCERA”) in fiscal year 2006, two of the
      leading FCP manufacturers in the world. SaRonix and eCERA were subsequently
      consolidated as Saronix-eCERA Corporation (“SRe”). With our analog, digital and
      mixed-signal integrated circuits, along with SRe FCPs, our complete solutions
      support the timing, switching, bridging and conditioning of high-speed signals
      in today’s ever-increasing speed-and-bandwidth-demanding applications.





We
      define
      our products in collaboration with industry-leading OEMs and industry enablers
      and our modular design methodology shortens our time to market and time to
      volume relative to our competitors. The key elements of our strategy are:





***Market
      Focus:***




Within
      the computer, communications and consumer markets, we are focused on high growth
      segments that allow multi-product penetration opportunities that align well
      with
      our technology focus. These high growth applications include notebook, PC,
      digital video and TV, servers, enterprise networks, and mobile devices such
      as
      cell phones.





Using
      our
      development expertise, our understanding of our customer’s product evolution,
      and our rapid-cycle IC development, we continue to pursue new opportunities
      in
      existing and emerging markets to expand our market share as a leading-solution
      supplier.





***Customer
      Focus:***





Our
      customer strategy is to use a superior level of responsiveness and proprietary
      solutions to support customer needs and sell a wider range of products to our
      existing customers, as well as targeted new customers. Key elements of our
      customer strategy are:




·
            Penetrate
                target accounts through joint product development. We approach prospective
                customers primarily by working with their system design engineers
                at the
                product specification stage with the goal that one or more Pericom
                ICs or
                FCPs will be incorporated into a new system design. Our understanding
                of
                our customers’ requirements combined with our ability to develop and
                deliver reliable, high-performance products within our customers’ product
                introduction schedules has enabled us to establish strong relationships
                with many leading OEMs.




·
            Solidify
                customer relationships through superior responsiveness. We believe
                that
                our customer service orientation is a significant competitive advantage.
                We seek to maintain short product lead times and provide our customers
                with excellent on-schedule delivery, in part by having available
                adequate
                finished goods inventory for anticipated customer demands. We emphasize
                product quality for our products and we have been ISO-9001 certified
                since
                March 1995. We also endeavor to be a good corporate citizen, required
                by
                many customers, with solid environmental and other processes and
                we
                received our ISO 14001 Environmental Management System certification
                in
                2004.




·
            Expand
                customer relationships through broad-based solutions. We aim to grow
                our
                business with existing customers by offering product lines that provide
                increasingly extensive solutions for our customers’ high-speed interfacing
                needs. By providing our customers with superior support in existing
                programs and anticipating our customers’ needs in next- generation
                products, we have often been able to increase our overall volume
                of
                business with those customers substantially. With larger customers,
                we
                have also initiated electronic data interchange, or EDI, and remote
                warehousing programs, annual purchase and supply programs, joint
                development projects and other services intended to enhance our position
                as a key vendor.




6




·
            Responding
                to our customer requirements is one of our highest priorities. In
                order to
                accomplish this, several years ago we implemented an automated quoting
                system from Model N, a leader in e-business solutions. We can respond
                very
                quickly to our customer needs and offer them superior service. With
                the
                implementation of Model N’s ProChannel, we have also been able to
                streamline a number of internal
                procedures.




·
            Maintain
                a comprehensive and intuitive web site with all required documentation
                needed by our customers.




***Technology
      Focus:***





High
      bandwidth, high-speed serial protocols inherently present challenges in system
      design, such as error-free signal routing, end-point integrity and timing
      sensitivities. We focus on three main technology areas: serial high-speed
      protocol switching, advanced silicon and quartz based timing and unique signal
      conditioning solutions. These focus areas combine at the product level to
      provide a complimentary and complete system level solution for high-speed serial
      protocol implementation.





As
      a
      result of this focus, we lead the market in high-speed analog switching
      technology. We possess a solid history of ‘industry first’ product
      introductions, such as our dual HDMI and PCI Express signal switching solutions
      and our unique serial signal integrity technology. Focus product families
      include high-frequency Signal Switches, Packet Switches, Bridges, ReDrivers,
      Clock Generators/Buffers, Crystals and Oscillators.





Today,
      our technology encompasses all major serial high-speed protocols including
      PCI
      Express, USB, HDMI/DVI, Display Port, SAS/SATA, 10-gigabit attachment unit
      interface (XAUI) and Ethernet.





Our
      primary efforts are in the creation of additional proprietary digital, analog
      and mixed-signal functionality. We work closely with our wafer suppliers to
      incorporate their advanced complementary metal oxide semiconductor (CMOS)
      process technologies to improve our ability to introduce next generation
      products expeditiously. We continue to expand our patent portfolio with the
      goal
      of providing increasingly proprietary product lines.





For
      FCPs,
      our strategy is to further our leadership in high-frequency,
      superior-performance, low-jitter timing products by combining our
      industry-unique crystal-and-silicon design capabilities. With our vertical
      integration of SaRonix and eCERA to the combined SRe, coupled with our silicon
      based timing design capability, we have created an integrated FCP design
      capability that provides advanced timing solutions for our target market
      segments. By leveraging internal proprietary IC designs in digital, analog
      and
      mixed-signal functionality, we add specialized features and optimize costs.
      Working closely with historical manufacturing partners while developing new
      ones, we will continue to advance proprietary process techniques and
      capabilities required to complement new technology products.





***Manufacturing
      Focus:***





We
      closely integrate our manufacturing strategy with our focus on customer needs.
      Central to this strategy is our ability to support high-volume shipment
      requirements on short notice from customers. We design products so that we
      may
      manufacture many different ICs from a single partially processed wafer.
      Accordingly, we keep inventory in the form of a wafer bank, from which wafers
      can be completed to produce a variety of specific ICs in as little as five
      weeks. This approach has enabled us to reduce our overall work-in-process
      inventory while providing increased availability to produce a variety of
      finished products. In addition, we keep some inventory in the form of die bank,
      which can become finished product in three weeks or less. We have established
      relationships with four leading foundries, Chartered Semiconductor Manufacturing
      Pte, Ltd. (“Chartered”), Taiwan Semiconductor Manufacturing Corporation
      (“TSMC”), Magnachip Semiconductor, Inc. (“Magnachip”) and United
      Microelectronics Corporation (“UMC”).





For
      FCPs,
      our vertically integrated Asian design and manufacturing subsidiary, SRe,
      provides a significant competitive advantage through a highly efficient design
      and volume crystal manufacturing process, in combination with strict quality
      standards and low-cost labor. We maintain high quality standards and all our
      subcontractors’ plants are ISO 9000 certified. Since our beginning, we have
      maintained major supplier relationships with Elcom, a Korean-owned supplier
      of
      crystals and oscillators and its Yantai, China manufacturing
      facility.


7




***Strategic
      and Collaborative Relationships Focus:***





We
      pursue
      a strategy of entering into new relationships and expanding existing
      relationships with companies that engage in the product design, manufacturing
      and marketing of ICs and frequency control products. We have an active internal
      program focused on reference designs with key IC suppliers in the Pericom target
      market segments and partner programs, which can strengthen and leverage our
      marketing and sales presence worldwide. We believe that these relationships
      enable us to access additional design and application expertise, accelerate
      product introductions, reduce costs and obtain additional needed capacity.
      Our
      established collaborative relationships with leading wafer manufacturers allow
      us to access high performance digital and analog core libraries for use in
      our
      future products.




**OUR
      PRODUCTS**





We
      use
      our expertise in high-performance digital, analog, mixed-signal IC and FCP
      design, our reusable core cell library and our modular design methodology to
      achieve a rapid rate of new product introductions. Within each of our four
      IC
      product families, the product portfolio has evolved from a standard building
      block into both standard products of increasing performance and
      application-specific standard products, or ASS Ps,
      which
      are tailored to meet a specific high volume application. Within each product
      family, we continue
      to address the common trends of decreasing supply voltage, higher integration
      and faster speeds.





In
      fiscal
      2008, IC product revenues were $96.6 million or 59.0% of the $163.7 million
      in
      total revenues, with the balance of $67.1 million the result of FCP product
      revenues. In fiscal 2007, IC product revenues were $72.7 million or 59.0% of
      the
      $123.4 million in total revenues, with the balance of $50.7 million attributable
      to FCP product revenues. In fiscal 2006, IC product revenues were $64.5 million
      or 60.9% of the $105.9 million in total revenues, with the balance of $41.4
      million from FCP product revenues.




***SiliconConnectTM
      Family***





Our
      SiliconConnect family offers the highest level of complexity and integration
      among our products. It consists of our PCI and PCI-X Bridges and our PCI Express
      Bridges and Packet Switches, as well as our legacy family of LVDS high-speed
      differential drivers, receivers and transceivers. In
      fiscal
      2008, we had overall growth of over 19% in the revenues attributable to the
      SiliconConnect family, mainly from PCI/PCI-X bridge products, and our new PCIe
      product family.





***PCI/PCI-X:***





With
      a
      comprehensive product portfolio based on performance and value, this legacy
      product family continues to gain market share within both existing and new
      applications across multiple market segments. Manufacturers continue to use
      PCI
      for legacy designs, especially in long-term higher-end platforms, such as
      networking, storage, high-end server and embedded systems used in military,
      industrial and computing applications.





***PCI
      Express:***





PCI
      Express (“PCIe”) is the next generation replacement for PCI. PCIe is a serial,
      high-speed technology, which offers many advantages over the parallel bus based
      PCI technology. All market segment applications are adopting PCIe and our PCIe
      products actively target all major PCIe based applications. In fiscal 2006,
      we
      began introducing the PCIe products to key customers in the computing,
      communications and consumer markets. By the end of fiscal 2006, the Connect
      Product Group had introduced both PCIe Bridge and PCIe Packet Switch functions
      for customer evaluation. Many of the applications used by PCI will transition
      to
      PCIe over time, including mainstream and industrial PCs, PC peripherals,
      embedded systems, high-end multifunction printers, video security monitoring,
      RAID and Fibre Channel cards in the Storage Area Network space, Multi-channel
      Ethernet NICs, and routers and switches. In fiscal 2007 we added a family of
      small packet switches and since then we brought out additional ultra-low-power,
      small package versions to target wireless applications. **** In
      fiscal
      2008, Pericom began introduction of our 3 rd generation of PCIe bridge and packet switch products aimed at volume platform
      applications. This unique product family includes some of the lowest power,
      smallest footprint PCIe switching and bridging products in the
      industry.


8




Following
      a competitive product roadmap, we are actively developing additional PCIe bridge
      and packet switch products that target specific market segment needs including
      enablement of certain market segments, and a next generation PCIe.





***LVDS:***





We
      offer
      a comprehensive low-voltage differential signaling (“LVDS”) product portfolio
      that includes drivers, receivers and transceivers with data rates of 660
      megabits per second, or Mbps, and allowing point-to-point connections over
      distances up to 10 meters. This legacy LVDS standard offers a number of
      improvements over the older emitter-coupled logic (“ECL”) and pseudo
      emitter-coupled logic (“PECL”) in applications requiring lower power consumption
      and noise.





***SiliconSwitchTM
      Family***





Our
      SiliconSwitch product family offers a broad range of high-performance ICs for
      switching digital and analog signals. The ability to switch or route high-speed
      digital or analog signals with minimal delay and signal distortion is a critical
      requirement in many high-speed computers, networking and multi-media
      applications. Historically, systems designers have used mechanical relays and
      solid-state relays, which have significant disadvantages compared to IC
      switches. Mechanical relays are bulky, dissipate significant power and have
      very
      low response times, while solid-state relays are expensive.





***ASSP
      Switch:***





In
      this
      high-growth product segment, we offer a line of application specific standard
      product, or ASSP, switches for LAN, Analog Video, Digital Video, such as
      DVI/HDMI, PCI Express and USB, applications. The LAN switches address the
      high-performance demands of 10/100/1000 Ethernet LANs. The video switches
      address the high bandwidth that enables the switching between different video
      sources associated with video graphic cards and flat panel displays. Some of
      our
      newest video switches address the HDMITM (High-Definition Multimedia Interface)
      Rev. 1.3 standard. We are also marketing our PCI Express signal switches with
      Gen-I (2.5Gbps) and Gen-II (5.0Gbps) speeds for desktop PC, gaming stations,
      servers and storage applications. We continue to expand our innovations in
      this
      area to address next generation networking, computing and media platforms.





***Analog
      Switches:***





We
      offer
      a family of analog switches for low-voltage (1.8-volt to 7-volt) applications
      such as multimedia audio and video signal switching with enhanced
      characteristics such as low power, high bandwidth, low crosstalk and low
      distortion to maintain analog signal integrity. Our analog switches have
      significantly lower distortion than traditional analog switches due to our
      advanced CMOS switch design. To support space-constrained applications, such
      as
      wireless handsets and global positioning system receivers, we offer 3-volt
      low
      R-on 0.4-ohm switches. To complement this low-voltage family we also offer
      higher voltage (17-volt) analog switches for applications requiring higher
      signal range, such as instrumentation, telecommunications and industrial
      controls.





***Digital
      Switches:***





We
      offer
      a family of digital switches in 8-, 16- and 32-bit widths that address the
      switching needs of high-performance systems. These digital switches offer
      performance and cost advantages over traditional switch functions, offering
      both
      low on-resistance and capacitance, low propagation delay (less than 250
      picoseconds), low standby current (as low as 0.2 micro amps) and series resistor
      options that support low electromagnetic interference, or EMI, emission
      requirements. Applications for our digital switches include 5-volt to 3.3-volt
      signal translation, high-speed data transfer and switching between
      microprocessors, PCI slots and multiple memories and hot-plug interfaces in
      notebook and desktop computers, servers and switching hubs and routers. We
      also
      have products at 2.5-volt and 3.3-volt offering industry-leading performance
      in
      switching times, and low capacitance for bus isolation applications.


9




***SiliconInterfaceTM
      Family***





Through
      our SiliconInterface product line, we offer a family of products that address
      both next generation designs as well as legacy interface. We have launched
      a
      ReDriver TM family
      including SATA and PCIe protocols that conditions signals and ensures signal
      integrity in today’s very high-speed protocols. SiliconInterface also focuses on
      managing different voltage levels by use of voltage level translator devices.
      Our legacy high-performance 5-volt, 3.3-volt, 2.5-volt, and 1.8-volt CMOS logic
      interface circuits provide logic functions to handle data transfer between
      microprocessors and memory, bus exchange, backplane interface and other logic
      interface functions where high-speed, low-power, low-noise and high-output
      drive
      characteristics are essential.





***ReDrivers/Signal
      Conditioners:***





With
      the
      adaptation of high-speed PCIe serial bus architecture at 2.5Gbps rates, systems
      designers are confronted with challenges associated with maintaining clean
      eye-pattern signal integrity at the receiver end points. The signal attenuation
      loss increases in almost an exponential form as trace lengths increase in a
      signal path using high-speed differential signaling. Our industry unique
      ReDriver family of products boost signals by combining programmable equalization
      and de-emphasis techniques at the transmit and receive points, respectively,
      on
      a signal path to ensure good signal integrity at the end points.





Through
      this line of products, we offer a broad range of ReDrivers to manage standard
      protocols such as PCIe, SATA, SAS and XAUI for applications including servers,
      storage and notebook/docking stations. Systems designers benefit from our
      ReDriver products in another way: they can now use our ReDrivers with
      inexpensive cables, such as CAT6 or flexible ribbon cables instead of using
      very
      expensive cables to achieve good signal integrity at the end of the trace.
      In
      fiscal 2008, Pericom was the first company to introduce ReDriver families
      specifically meeting the specification requirements of PCIe Gen2 (5Gb/s) and
      SATA2 (3Gb/s). These next generation products are rapidly being adopted into
      many customer platforms for both internal and external signal routing
      applications.




***1.8-Volt/3.3-Volt
      ULS:***





Bi-directional
      signal translation requirements have become more prevalent because of new
      technology needing to function with legacy designs. As such, level-shifting
      solutions have evolved into more advanced devices. While the traditional voltage
      translators require direction control signals, our ULS Universal Level Shifter
      (“ULS”) products address the need for voltage translation between 1.8-volts and
      3.3-volts without any direction control signals. These voltage translators
      are
      ideal for mobile, test equipment, servers and telecom applications.





***1.8-Volt/2.5-Volt
      Logic:***





Our
      1.8-volt and 2.5-volt product families offer high output current with sub-2.5
      nanosecond propagation delay and low power consumption. In addition, our Lower
      Balanced Drive (“LBD”) family has a propagation delay of less than two
      nanoseconds to support high-speed processor-memory interfacing and we have
      optimized our Balanced Drive (“BD”) family for low-noise operation at very low
      voltages. We also offer application specific logic functions that support next
      generation memory module applications associated with server markets such as
      DDR
      II.





***3.3-Volt
      Logic:***





We
      offer
      3.3-volt interface logic, supporting the trend toward lower system voltages
      for
      higher silicon integration from 8-Bit to 32-Bits, system performance and power
      savings. These products address a range of performance and cost requirements
      with very low power consumption. Our application specific integrated circuit
      (“ASIC”) design methodology and existing cell-based designs contribute to our
      ability to achieve rapid product development in this area.


10





***5-Volt
      Logic:***





Our
      high-speed 5-volt interface logic products in 8- and 16-bit configurations
      address specific system applications, including a “Quiet Series” family for
      high-speed, low-noise, point-to-point data transfer in computing and networking
      systems and a Balanced Drive family with series resistors at output drivers
      to
      reduce switching noise in high-performance computers. We continue to provide
      a
      complete portfolio of 5-volt FCT logic products that supports many legacy data
      communications and telecommunications switch platforms.





***Gates:***





These
      products operate from 1.65-volt to 5-volt to address the interface needs in
      many
      applications. We continue to tap into new product markets in the areas of
      communication, PC peripherals and consumer digital systems.





***SiliconClockTM
      Family***





In
      high-bandwidth systems, data transfer must be synchronized and this creates
      a
      demand for timing products. Our timing products provide the precise timing
      signals needed to ensure reliable data transfer at high speeds in applications
      ranging from servers to network switches to televisions. As systems continue
      to
      grow in processing power and complexity, we expect the demand for these products
      to accelerate. The requirement for precision will also increase as timing
      margins shrink in higher-bandwidth systems.





Our
      SiliconClock IC product line provides a broad range of general-purpose solutions
      including voltage controlled crystal oscillators (“VCXO”) with integrated Phase
      Locked Loop (“PLL”) clock generators, clock buffers, zero-delay clock drivers,
      frequency synthesizers, spread-spectrum clock generators and programmable clock
      products for a wide range of microprocessor systems, as well as a number of
      ASSP
      markets like multi-function printers, registered memory modules, storage area
      networks, servers, networking, set-top boxes and digital television.





***Clock
      Buffers and Zero-Delay Clock Drivers:***





Clock
      buffers receive a clock signal from a frequency source and create multiple
      copies of the same frequency for distribution across system boards. We offer
      1.2-volt (1.2V), 1.5V, 1.8V, 2.5V, 3.3V and 5V clock buffers for high-speed,
      low-skew applications in computers and networking equipment. We offer options
      for integrated crystal oscillators and provide a flexible selection of output
      levels for interfacing to various system components. For systems that require
      higher performance, we have differential clock buffers with frequencies up
      to
      800MHz. Zero-delay clocks virtually eliminate propagation delays by
      synchronizing the clock outputs with the incoming frequency source. Our 5V,
      3.3V, 2.5V and 1.8V zero-delay clock drivers offer frequencies of up to 400MHz
      for applications in networking switches, routers and hubs, computer servers,
      and
      memory modules. Differential zero-delay clock buffers support Generation II
      PCIe
      as well as fully buffered dual in-line memory modules (“DIMM”). Zero-delay
      buffers support the 2nd generation double date rate (“DDR II”) memory
      technologies are available today.





***Voltage
      Controlled Crystal Oscillators*** **:**





**** We
      offer
      a family of VCXO IC products targeted at the set-top box, digital video recorder
      (“DVR”), digital TV (“DTV”) and surveillance equipment markets. Our VCXO
      products feature low phase noise, high-frequency capabilities, wide pull range,
      and different output standard levels. These products also leverage customizable
      bases that include on-board PLLs and inter-integrated circuit (“I 2 C”)
      interfaces for rapid prototyping. Our VCXO products use our own SaRonix-eCERA
      crystals to guarantee optimum performance.


11





***Clock
      Frequency Synthesizers:***





Clock
      frequency synthesizers generate various output frequencies using a single input
      frequency source and provide critical timing signals to microprocessors, memory
      and peripheral functions. Our clock synthesizers support a wide range of
      microprocessor systems and their associated integrated chipsets for computing,
      communication and consumer applications. For computing applications, we provide
      PCIe clock synthesizers for server, notebook and desktop PC applications. For
      high-performance networking and storage applications, we have high-frequency
      clock synthesizers targeted up to 300MHz with very low jitter. For emerging
      networking and consumer platforms with PCIe interface, we provide PCIe reference
      clock generators. For consumer applications such as digital TV and digital
      set-top boxes, we have developed a line of high-performance audio and video
      clocks. We have also developed spread-spectrum clock generators used for
      reducing Electro Magnetic Interference (“EMI”) in graphics and video
      applications.





***Programmable
      Clocks:***





In
      large
      computing and communications systems, customers need to provide precise timing
      across large printed circuit boards (“PCB”s). At the very high frequencies used
      today, these large PCB traces can result in significant timing delays and
      matching these delays (or timing skew) can be a significant challenge for the
      system designer. We have responded to this challenge with a family of
      programmable skew clock products.





***FCPs***





FCPs
      include crystals that resonate at a precise frequency, and crystal oscillators
      (“XO”), a circuit assembly comprising a crystal and accompanying electronic
      circuitry providing very stable output frequency. Crystals and XOs are essential
      components used in a wide variety of electronic devices. There are three general
      categories of oscillator products. Clock Oscillators are oscillators without
      temperature compensation and voltage tuning options used primarily in
      networking, telecommunication, wireless and computer/peripheral applications.
      VCXOs are frequency tunable crystal stabilized oscillators that are voltage
      controlled and generally operate below 1 GHz. Manufacturers use these
      oscillators primarily for synchronization in data networking and communications
      applications. Temperature compensated crystal oscillators (“TCXO”s) are
      temperature compensated oscillators that incorporate a temperature sensor and
      use circuitry to maintain the desired frequency under changing temperature
      conditions. Designers use TCXOs in wireless products such as cell phones, global
      positioning satellite systems (“GPS”) and base stations.





The
      ultra-miniature ceramic packaged crystal and clock oscillators are tailored
      for
      densely populated applications such as Wireless Local Area Networking (“WLAN”),
      mobile phones, portable multimedia players, personal data assistants (“PDA”s),
      GPS modules, networking equipment, and hard disk drives. The ultra-miniature
      package allows system designers to overcome the physical space constraint of
      integrating more features into portable applications. The set of available
      frequencies supports various industry standard protocols and applications.





The
      XP
      series of crystal clock oscillators is a proprietary technology that combines
      our ICs with SRe quartz to improve reliability and performance for high
      frequency 2.5V and 3.3V, low voltage complimentary metal
      oxide semiconductor (“LVCMOS”) and low voltage positive emitter coupled logic (“LVPECL”) clock
      applications. The product family is drop-in compatible with existing Overtone
      XO, surface acoustic wave (“SAW”) and PLL-based oscillator solutions in 5x7mm
      packages, yet aims to provide better cost performance benefits. These high
      frequency clock oscillators are used in various networking and storage platforms
      such as 1/10 Gigabit Ethernet, Fiber Channel, synchronous optical
      networking/synchronous digital hierarchy (“SONET/SDH”), serial advanced
      technology attachment (“SATA”), statistical analysis system (“SAS”) and passive
      optical network (“PON”).


12




**OUR
      CUSTOMERS**




The
      following is a list of some of our customers and end-users:





**Notebook,
                Desktop and Servers**
            **Telecommunications**
            **Digital
                Media**Dell
            Cisco
            EchostarIntel
            Tellabs
            Primary
                TechnologyLenovo
            Polycom
            PaceHewlett
                Packard
            Huawei-3Com
            AmtranWistron
            Dell
            LGEAsustek
            Avaya
            ProviewGigabyte
            Alcatel-Lucent
            HikvisionMicro
                StarSamsungAcer**Networking
                Equipment**
            **Mobile
                Terminal**
            **Contract
                Manufacturing**Cisco
            Garmin
            FoxconnAzureWave
                Technologies
            LG
                Electronics
            SolectronNettech
                Technology
            Samsung
            CelesticaAlpha
                Networks
            Even
            SCI-Sanmina2
                Wire
            Panasonic
            FlextronicsCameo
                Communications
            Inventec
                Appliance
            JabilTP-LINKAskey**Peripherals**
            **Storage**Hewlett
                Packard
            JMSH
                International Corp.Konica-Minolta
            BrocadeLexmark
            M&J
                TechnologiesXerox
            USIEFI





Our
      customers include a broad range of end-user customers and original equipment
      manufacturers (“OEM”s) in the computer, peripherals, networking and
      telecommunications markets as well as the contract manufacturers that service
      these markets. Our direct sales are billings directly to a customer who may
      in
      turn sell through to an end-user customer. Our end-user customers may buy
      directly or through our distribution or contract manufacturing channels.





In
      fiscal
      2008, our direct sales to Avnet accounted for 14% of net revenues and direct
      sales to our top five customers accounted for approximately 40% of net revenues.
      No single end-user customer accounted for greater than 10% of net revenues
      in
      the fiscal year ended June 28, 2008.





In
      fiscal
      2007, our direct sales to Asian Information Technology, Inc. (“AIT”) accounted
      for approximately 13% of net revenues and direct sales to our top five customers
      accounted for approximately 35% of net revenues. No single end-user customer
      accounted for greater than 10% of net revenues in the fiscal year ended June
      30,
      2007.





In
      fiscal
      2006, our direct sales to Techmosa International Inc. (“Techmosa”) accounted for
      11% of net revenues and direct sales to our top five customers accounted for
      approximately 36% of net revenues. No single end-user customer accounted for
      greater than 10% of net revenues in the fiscal year ended July 1, 2006.





We
      continue to expect a small number of customers to account for a large portion
      of
      our net revenues. See Item 1A “Risk Factors; Factors That May Affect Operating
      Results - The demand for our products depends on the growth of our end
      users’
      markets” and “Risk Factors; Factors That May Affect Operating Results - A large
      portion of our revenues is derived from sales to a few customers, who may cease
      purchasing from us at any time” of this Annual Report on Form 10-K.





Contract
      manufacturers are important customers for us as systems designers in our target
      markets continue to outsource portions of their manufacturing. In addition,
      these contract manufacturers continue to play a vital role in determining which
      vendors' products are incorporated into new designs.


13




**DESIGN
      AND PROCESS TECHNOLOGY**





Our
      design efforts focus on the development of high-performance digital, analog
      and
      mixed-signal ICs. To minimize design cycle times of high-performance products,
      we use a modular design methodology that has enabled us to produce many new
      products each year and to meet our customers' need for fast time-to-market
      response. This methodology uses state-of-the-art computer-aided design software
      tools such as high-level description language, or HDL, logic synthesis,
      full-chip mixed-signal simulation, and automated design layout and verification
      and uses our library of high-performance digital and analog core cells. We
      have
      developed this family of core cells over several years and it contains
      high-performance, specialized digital and analog functions not available in
      commercial ASIC libraries. Among these cells are our proprietary mixed-voltage
      input/output, or I/O, cells, high-speed, low-noise I/O cells, analog and digital
      PLLs, charge pumps and data communication transceiver circuits using low voltage
      differential signaling. The United States Patent and Trademark Office has
      granted us 110 U.S. patents and we have 10 U.S. patent applications pending.
      Another advantage of our modular design methodology is that it allows the
      application of final design options late in the wafer manufacturing process
      to
      determine a product's specific function. This option gives us the ability to
      use
      pre-staged wafers, which significantly reduces the design and manufacturing
      cycle time and enables us to respond rapidly to a customer's prototype needs
      and
      volume requirements.





We
      use
      advanced CMOS processes to achieve higher performance and lower die cost. Our
      process and device engineers work closely with our independent wafer foundry
      partners to develop and evaluate new process technologies. Our process engineers
      also work closely with circuit design engineers to improve the performance
      and
      reliability of our cell library. We currently manufacture a majority of our
      products using 0.8-, 0.6-, 0.5-, 0.35-, 0.25- and 0.18-micron CMOS process
      technologies and are currently developing new products using 0.13-micron
      technology. We are also using a high-voltage CMOS process developed by one
      of
      our wafer suppliers in the design of higher voltage switch products.





For
      FCPs,
      we have a well-established design focus, methodology and execution technique.
      We
      implement the majority of designs for oscillators and higher-functionality
      parts
      with CMOS process technologies. However, we also pursue designs incorporating
      Bipolar, BiCMOS and Silicon-Germanium (SiGe) technologies, as well as
      utilization of complex programmable logic device (CPLD) and field-programmable
      gate array (FPGA) components. Crystal components developed and marketed by
      all
      suppliers are similar. However, the operating behavior of the resonator and
      the
      specific techniques employed in their design, modeling, manufacturing &
testing processes are highly specialized and unique. As such, manufacturing
      processes, equipment and test procedures can form a distinct part of the design
      activity. The outcome of the development becomes a permanent and proprietary
      part of the design specification.




**SALES
      AND MARKETING**





We
      market
      and distribute our products through a worldwide network of independent sales
      representatives and distributors supported by our internal and field sales
      organization. Sales to domestic and international distributors represented
      49%
      of our net revenues in fiscal 2008, 40% of our net revenues in fiscal 2007,
      and
      39% of our net revenues in fiscal 2006. Our major distributors in North America
      and Europe include Avnet, Arrow Electronics, Future Electronics and Nu Horizons
      Electronics. Our major Asian distributors include AIT (Hong Kong), Avnet (Asia),
      Chinatronics (Hong Kong), Desner Electronics (Singapore), Internix (Japan),
      MCM
      (Japan), Maxmega (Singapore) and Techmosa (Taiwan).





We
      have
      three regional sales offices in the United States, as well as international
      sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan and the United
      Kingdom. International sales comprised approximately 91% of our net revenues
      in
      fiscal 2008, 87% of our net revenues in fiscal 2007, and 81% of our net revenues
      in fiscal 2006. For further information regarding our international and domestic
      revenues, see the discussion under the caption “Management’s Discussion and
      Analysis of Financial Condition and Results of Operation - Comparison of Fiscal
      2008, 2007 and 2006 - Net Revenues” in Item 7 of this Annual Report on this Form
      10-K. We also support field sales design-in and training activities with
      application engineers. Marketing and product management personnel are located
      at
      our corporate headquarters in San Jose, California and in Taiwan.


14





We
      focus
      our marketing efforts on market knowledge, product definition, new product
      introduction, product marketing and advertising. We use advertising both
      domestically and internationally to market our products independently and in
      cooperation with our distributors. Our product information is available on
      our
      website, which contains overview presentations, technical information on our
      products, and offers design modeling/applications support plus sample-request
      capabilities online. We also publish and circulate technical briefs relating
      to
      our products and their applications.





We
      believe that contract manufacturing customers are strategically important and
      we
      employ sales and marketing personnel who focus on servicing these customers
      and
      on expanding our product sales to OEMs via these customers. In addition, we
      use
      programs such as EDI, bonded inventories and remote warehousing to enhance
      our
      service and attractiveness to contract manufacturers.




**MANUFACTURING**





We
      have
      adopted a fabrication foundry non-ownership (“fabless”) IC manufacturing
      strategy by subcontracting our wafer production to independent wafer foundries.
      We have established collaborative relationships with selected independent
      foundries with which we can develop a strategic relationship to the benefit
      of
      both parties. We believe that our fabless strategy enables us to introduce
      high
      performance products quickly at competitive cost. To date, our principal
      manufacturing relationships have been with Chartered, TSMC, MagnaChip, and
      UMC.
      We have an ongoing effort to qualify new foundry vendors that offer cost or
      other advantages.





We
      primarily rely on foreign subcontractors for the assembly of our products and,
      to a lesser extent, for the testing and packaging of our finished products.
      Some
      of these subcontractors are our single source supplier for certain new packages.
      We perform some testing of our finished products in our in-house
      facility.





To
      manufacture FCPs we have established relationships with selected Asian
      factories, the primary of which are Chungho Elcom in Inchon, South Korea and
      Yantai Chungho in Yantai, China as well as factories in Taiwan and Japan. We
      have an ongoing effort to establish relationships and qualify additional
      factories to continue cost reduction and maintain our competitive position
      in
      the FCP market.





To
      enhance our manufacturing capability of FCPs, which are composed of crystals
      and
      oscillators housed in multiple sizes of surface mount ceramic packages, we
      acquired eCERA on September 7, 2005 and combined it with the previously acquired
      SaRonix to form SRe. SRe has “state of the art” high volume production lines
      capable of manufacturing FCPs with the tightest specifications to support in
      a
      competitive manner the most popular high volume target industries in the
      telecommunications, medical, computing, security and other commercial sectors.
      SRe is ISO9000 certified and in December of 2005 received TS16949 certification,
      which allows us access into the Automotive FCP market. To supplement our
      manufacturing capacity we are maintaining established relationships with our
      manufacturing partners and we have a plan already implemented for qualifying
      additional factories and creating new partners. New relationships and the
      expansion of our capacity are necessary to continue cost reduction, grow our
      revenue and maintain our competitive position in the FCP market. We have an
      operations department based in Asia that pursues lower cost packaging techniques
      and both monitors and modifies manufacturing processes to maximize yields and
      improve quality. After a manufacturing partner has been qualified through a
      stringent process, we maintain design and process controls that include using
      recurring factory audits and in some cases using onsite inspectors.





In
      January 2008, we initiated a project to build a factory in China for the
      development and manufacture of FCPs. The factory will be located in the Jinan
      Development Zone in Shandong Province. It is expected that our total investment
      will be approximately $35 million over the next two years. We have land use
      rights for 75 acres, and the factory is being designed for 13 surface mount
      device (SMD) production lines. Phase I consists of an administration building,
      workers dormitory and fabrication plant, and is scheduled for completion late
      in
      fiscal 2009.


15




**COMPETITION**





The
      semiconductor and FCP industry is intensely competitive. Significant competitive
      factors in the market for high-performance ICs and FCPs include the
      following:





·
            product
                features and performance;


·
            price;


·
            product
                quality;


·
            success
                in developing new products;


·
            timing
                of new product introductions;


·
            general
                market and economic conditions;


·
            adequate
                wafer fabrication, assembly and test capacity and sources of raw
                materials;


·
            efficiency
                of production; and


·
            ability
                to protect intellectual property rights and proprietary
                information.





Our
      IC
      competitors include Analog Devices, Cypress Semiconductor Corporation, Fairchild
      Semiconductor Int’l., Hitachi, Integrated Device Technology, Inc., Intel Corp.,
      Maxim Integrated Products, Inc., Motorola, On Semiconductor Corp., NXP, Tundra
      Semiconductor Corp., Parade Technologies, PLX Technology, STMicroelectronics,
      Texas Instruments, Inc., and Toshiba. Most of those competitors have
      substantially greater financial, technical, marketing, distribution and other
      resources, broader product lines and longer-standing customer relationships
      than
      we do. We also compete with other major or emerging companies that sell products
      to certain segments of our markets. Competitors with greater financial resources
      or broader product lines may have a greater ability to sustain price reductions
      in our primary markets in order to gain or maintain market share. We also face
      competition from the makers of ASICs and other system devices. These devices
      may
      include interface logic functions, which may eliminate the need or sharply
      reduce the demand for our products in particular applications.





Our
      FCP
      competitors include Vectron, Connor Winfield, Fox, Ecliptek, Mtron, Epson,
      KED,
      KDS and NDK. A second group of competitors in China primarily pursues the lower
      end of the FCP market with limited technical content products. However, they
      do
      have some sales to our target customer base.




**RESEARCH
      AND DEVELOPMENT**





We
      believe that the continued timely development of new interface ICs and FCPs
      is
      essential to maintaining our competitive position. Accordingly, we have
      assembled a team of highly skilled engineers whose activities are focused on
      the
      development of signal transfer, routing and timing technologies and products.
      We
      have IC design centers located in San Jose, California, Hong Kong and Taiwan
      and
      we develop FCP products in San Jose, California and in Taiwan. Research and
      development expenses were $17.2 million in fiscal 2008, $16.0 million in fiscal
      2007, and $15.5 million in fiscal 2006. Additionally, we actively seek
      cooperative product development relationships.




**INTELLECTUAL
      PROPERTY**





In
      the
      United States, we hold 110 patents covering certain aspects of our product
      designs, with various expiration dates through September 2025, and we have
      10
      additional patent applications pending. We expect to continue to file patent
      applications where appropriate to protect our proprietary technologies; however,
      we believe that our continued success depends primarily on factors such as
      the
      technological skills and innovation of our personnel, rather than on our
      patents.




**EMPLOYEES**





As
      of
      June 28, 2008, we had 689 full-time employees, including 104 in sales, marketing
      and customer support, 320 in manufacturing, assembly and testing, 144 in
      engineering and 121 in finance and administration, including information systems
      and quality assurance. We have never had a work stoppage and no labor
      organization represents any of our employees. We consider our employee relations
      to be good.


16




**AVAILABLE
      INFORMATION**





We
      file
      electronically with the Securities and Exchange Commission (“SEC”) our annual
      reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
      8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of
      the
      Securities Exchange Act of 1934. The SEC maintains an Internet site at
      http://www.sec.gov that contains these reports, proxy and information
      statements. We make available on our website at http://www.pericom.com, free
      of
      charge, copies of these reports as soon as reasonably practicable after filing
      or furnishing the information to the SEC. Any reports or financial information
      presented at our website are not to be considered part of this annual report
      filed on Form 10-K.




**ITEM
      1A.** **RISK FACTORS**





In
      addition to other information contained in this Form 10-K, investors should
      carefully consider the following factors that could adversely affect our
      business, financial condition and operating results as well as adversely affect
      the value of an investment in our common stock. This Annual Report on Form
      10-K
      includes “forward-looking statements” within the meaning of Section 27A of the
      Securities Act and Section 21E of the Exchange Act. All statements other than
      statements of historical fact are “forward-looking statements” for purposes of
      these provisions, including any statements regarding: projections of revenues,
      future research and development expenses, future selling, general and
      administrative expenses, other expenses, gross profit, gross margin, or other
      financial items; the plans and objectives of management for future operations;
      the implementation of advanced process technologies; our tax rate; the adequacy
      of allowances for returns, price protection and other concessions; proposed
      new
      products or services; the sufficiency of cash generated from operations and
      cash
      balances; our future investment in the Jinan Hi-Tech Industries Development
      Zone; our exposure to interest rate risk; future economic conditions or
      performance; plans to focus on cost control; plans to seek intellectual property
      protection for our technologies; expectations regarding export sales and net
      revenues; the expansion of sales efforts; acquisition prospects; the results
      of
      our possible future acquisitions and assumptions underlying any of the
      foregoing. In some cases, forward-looking statements can be identified by the
      use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“estimates,” “potential,” or “continue,” or the negative thereof or other
      comparable terminology. Although we believe that the expectations reflected
      in
      the forward-looking statements contained herein are reasonable, there can be
      no
      assurance that such expectations or any of the forward-looking statements will
      prove to be correct, and actual results could differ materially from those
      projected or assumed in the forward-looking statements. Our future financial
      condition and results of operations, as well as any forward-looking statements,
      are subject to risks and uncertainties, including but not limited to the factors
      set forth below and elsewhere in this report. All forward-looking statements
      and
      reasons why results may differ included in this Annual Report are made as of
      the
      date hereof, and we assume no obligation to update any such forward-looking
      statement or reason why actual results may differ.




**FACTORS
      THAT MAY AFFECT OPERATING RESULTS**




**In
      the past, our operating results have varied significantly and are likely to
      fluctuate in the future.**


Wide
      varieties of factors affect our operating results. These factors might include
      the following:





·
            changes
                in the quantity of our products
                sold;


·
            changes
                in the average selling price of our
                products;


·
            general
                conditions in the semiconductor
                industry;


·
            changes
                in our product mix;


·
            a
                change in the gross margins of our
                products;


·
            the
                operating results of the FCP product line, which normally has a lower
                profit margin than IC products;


·
            expenses
                incurred in obtaining, enforcing, and defending intellectual property
                rights;


·
            the
                timing of new product introductions and announcements by us and by
                our
                competitors;


·
            customer
                acceptance of new products introduced by
                us;


17





·
            delay
                or decline in orders received from
                distributors;


·
            growth
                or reduction in the size of the markets for interface
                ICs;


·
            the
                availability of manufacturing capacity with our wafer
                suppliers;


·
            changes
                in manufacturing costs;


·
            fluctuations
                in manufacturing yields;


·
            disqualification
                by our customers for quality or performance related
                issues;


·
            the
                ability of customers to pay us; and


·
            increased
                research and development expenses associated with new product
                introductions or process changes.





All
      of
      these factors are difficult to forecast and could seriously harm our operating
      results. Our expense levels are based in part on our expectations regarding
      future sales and are largely fixed in the short term. Therefore, we may be
      unable to reduce our expenses fast enough to compensate for any unexpected
      shortfall in sales. Any significant decline in demand relative to our
      expectations or any material delay of customer orders could harm our operating
      results. In addition, if our operating results in future quarters fall below
      public market analysts' and investors' expectations, the market price of our
      common stock would likely decrease.


.


**The
      demand for our products depends on the growth of our end users' markets.**




Our
      continued success depends in large part on the continued growth of markets
      for
      the products into which our semiconductor and FCPs are incorporated. These
      markets include the following:





·
            computers
                and computer related peripherals;


·
            data
                communications and telecommunications
                equipment;


·
            electronic
                commerce and the Internet; and


·
            consumer
                electronics equipment.





Any
      decline in the demand for products in these markets could seriously harm our
      business, financial condition and operating results. These markets have also
      historically experienced significant fluctuations in demand. We may also be
      seriously harmed by slower growth in the other markets in which we sell our
      products.




**If
      we do not develop products that our customers and end-users design into their
      products, or if their products do not sell successfully, our business and
      operating results would be harmed.**





We
      have
      relied in the past and continue to rely upon our relationships with our
      customers and end-users for insights into product development strategies for
      emerging system requirements. We generally incorporate new products into a
      customer's or end-user's product or system at the design stage. However, these
      design efforts, which can often require significant expenditures by us, may
      precede product sales, if any, by a year or more. Moreover, the value to us
      of
      any design win will depend in large part on the ultimate success of the customer
      or end-user's product and on the extent to which the system's design
      accommodates components manufactured by our competitors. If we fail to achieve
      design wins or if the design wins fail to result in significant future revenues,
      our operating results would be harmed. If we have problems developing or
      maintaining our relationships with our customers and end-users, our ability
      to
      develop well-accepted new products may be impaired.




**The
      markets for our products are characterized by rapidly changing technology,
      and
      our financial results could be harmed if we do not successfully develop and
      implement new manufacturing technologies or develop, introduce and sell new
      products.**





The
      markets for our products are characterized by rapidly changing technology,
      frequent new product introductions and declining selling prices over product
      life cycles. We currently offer a comprehensive portfolio of silicon and quartz
      based products. Our future success depends upon the timely completion and
      introduction of new products, across all our product lines, at competitive
      price
      and performance levels. The success of new products depends on a variety of
      factors, including the following:


18




·
            product
                performance and functionality;


·
            customer
                acceptance;


·
            competitive
                cost structure and pricing;


·
            successful
                and timely completion of product
                development;


·
            sufficient
                wafer fabrication capacity; and


·
            achievement
                of acceptable manufacturing yields by our wafer suppliers.





We
      may
      also experience delays, difficulty in procuring adequate fabrication capacity
      for the development and manufacture of new products, or other difficulties
      in
      achieving volume production of these products. Even relatively minor errors
      may
      significantly affect the development and manufacture of new products. If we
      fail
      to complete and introduce new products in a timely manner at competitive price
      and performance levels, our business would be significantly harmed.





**Intense
      competition in the semiconductor industry may reduce the demand for our products
      or the prices of our products, which could reduce our revenues and gross
      profits.**





The
      semiconductor industry is intensely competitive. Our competitors include Analog
      Devices, Cypress Semiconductor Corporation, Fairchild Semiconductor, Int'l.,
      Hitachi, Integrated Device Technology, Inc., Intel Corp., Maxim Integrated
      Products, Inc., Motorola, On Semiconductor Corp., NXP, Tundra Semiconductor
      Corp., Parade Technologies, PLX Technology, STMicroelectronics, Texas
      Instruments, Inc., and Toshiba. Most of those competitors have substantially
      greater financial, technical, marketing, distribution and other resources,
      broader product lines and longer-standing customer relationships than we do.
      We
      also compete with other major or emerging companies that sell products to
      certain segments of our markets. Competitors with greater financial resources
      or
      broader product lines may have a greater ability to sustain price reductions
      in
      our primary markets in order to gain or maintain market share.





We
      believe that our future success will depend on our ability to continue to
      improve and develop our products and processes. Unlike us, many of our
      competitors maintain internal manufacturing capacity for the fabrication and
      assembly of semiconductor products. This ability may provide them with more
      reliable manufacturing capability, shorter development and manufacturing cycles
      and time-to-market advantages. In addition, competitors with their own wafer
      fabrication facilities that are capable of producing products with the same
      design geometries as ours may be able to manufacture and sell competitive
      products at lower prices. Any introduction of products by our competitors that
      are manufactured with improved process technology could seriously harm our
      business. As is typical in the semiconductor industry, our competitors have
      developed and marketed products that function similarly or identically to ours.
      If our products do not achieve performance, price, size or other advantages
      over
      products offered by our competitors, our products may lose market share.
      Competitive pressures could also reduce market acceptance of our products,
      reduce our prices and increase our expenses.





We
      also
      face competition from the makers of ASICs and other system devices. These
      devices may include interface logic functions which may eliminate the need
      or
      sharply reduce the demand for our products in particular applications.





**Our
      results of operations have been adversely affected by global economic slowdowns
      in the past.**





In
      the
      past, the global economy has experienced economic slowdowns that were due to
      many factors, including decreased consumer confidence, unemployment, the threat
      of terrorism, and reduced corporate profits and capital spending. These
      unfavorable conditions have resulted in significant declines in our new customer
      order rates. Any future global economic slowing may materially and adversely
      affect our business, financial condition and results of
      operations.


19





**Downturns
      in the semiconductor industry, rapidly changing technology, accelerated selling
      price erosion and evolving industry standards can harm our operating results.**





The
      semiconductor industry has historically been cyclical and periodically subject
      to significant economic downturns--characterized by diminished product demand,
      accelerated erosion of selling prices and overcapacity--as well as rapidly
      changing technology and evolving industry standards. In the future, we may
      experience substantial period-to-period fluctuations in our business and
      operating results due to general semiconductor industry conditions, overall
      economic conditions or other factors. Our business is also subject to the risks
      associated with the effects of legislation and regulations relating to the
      import or export of semiconductor products.





**Our
      potential future acquisitions may not be successful.**





Our
      potential future acquisitions could result in the following:





·
            large
                one-time write-offs;


·
            the
                difficulty in integrating newly-acquired businesses and operations
                in an
                efficient and effective manner;


·
            the
                challenges in achieving strategic objectives, cost savings, and other
                benefits from acquisitions as
                anticipated;


·
            the
                risk of diverting the attention of senior management from other business
                concerns;


·
            risks
                of entering geographic and business markets in which we have no or
                limited
                prior experience and potential loss of key employees of acquired
                organizations;


·
            the
                risk that our markets do not evolve as anticipated and that the
                technologies and capabilities acquired do not prove to be those needed
                to
                be successful in those markets;


·
            potentially
                dilutive issuances of equity
                securities;


·
            the
                incurrence of debt and contingent liabilities or amortization expenses
                related to intangible assets;


·
            difficulties
                in the assimilation of operations, personnel, technologies, products
                and
                the information systems of the acquired companies;
                and


·
            difficulties
                in expanding information technology systems and other business processes
                to accommodate the acquired
                businesses.





As
      part
      of our business strategy, we expect to seek acquisition prospects that would
      complement our existing product offerings, improve our market coverage or
      enhance our technological capabilities. Although we are evaluating acquisition
      and strategic investment opportunities on an ongoing basis, we may not be able
      to locate suitable acquisition or investment opportunities. In addition, from
      time to time, we invest in other companies, without actually acquiring them,
      and
      such investments involve many of the same risks as are involved with
      acquisitions.





**The
      trading price of our common stock and our operating results are likely to
      fluctuate substantially in the future.**





The
      trading price of our common stock has been and is likely to continue to be
      highly volatile. Our stock price could fluctuate widely in response to factors
      some of which are not within our control, including:





·
            general
                conditions in the semiconductor and electronic systems
                industries;


·
            quarter-to-quarter
                variations in operating results;


·
            announcements
                of technological innovations or new products by us or our competitors;
                and


·
            changes
                in earnings estimates by analysts; and price and volume fluctuations
                in
                the overall stock market, which have particularly affected the market
                prices of many high technology
                companies.





**Implementation
      of Financial Accounting Standards Board (“FASB”) rules for the accounting of
      equity instruments and the issuance of new laws or other accounting regulations,
      or reinterpretation of existing laws or regulations, could materially impact
      our
      business or stated results.**





Statement
      of Financial Accounting Standards (“SFAS”) No. 123(R) *Share-Based
      Payment* required
      the Company to recognize the cost of employee services received in exchange
      for
      awards of equity instruments, based on the grant date fair value of those
      awards, in the financial statements. The adoption of this statement resulted
      in
      a negative impact on the Company’s reported results of operations. In general,
      from time to time, the government, courts and the financial accounting boards
      may issue new laws or accounting regulations, or modify or reinterpret existing
      ones. There may be future changes in laws, interpretations or regulations that
      would affect our financial results or the way in which we present them.
      Additionally, changes in the laws or regulations could have adverse effects
      on
      hiring and many other aspects of our business that would affect our ability
      to
      compete, both nationally and internationally.


20





**We
      and our independent registered public accounting firm previously determined
      that
      we had material weaknesses in our internal control over financial reporting.
      There can be no assurance that a material weakness will not arise in the future.
      As a result, current and potential stockholders could lose confidence in our
      financial reporting, which would harm our business and the trading price of
      our
      stock.**





Under
      Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate
      and
      determine the effectiveness of our internal control over financial reporting.
      In
      our annual reports on Form 10-K for the years ended June 30, 2007 and July
      2,
      2005 we reported material weaknesses in our internal control over financial
      reporting. We have since remediated these deficiencies and continue to spend
      a
      significant amount of time and resources to ensure compliance with Section
      404
      of the Sarbanes-Oxley Act of 2002. As reported in Item 9A of this Form 10-K,
      our
      management does not believe we had any material weakness in our internal control
      over financial reporting as of June 28, 2008, and management has determined
      that
      as of June 28, 2008, our internal control over financial reporting was
      effective. However, considering we have and will continue to evolve our business
      in a changing marketplace, we are continuing to implement changes in our ERP
      systems and will continue to make corresponding changes in our internal control
      in financial reporting, there can be no assurance that material weaknesses
      or
      significant deficiencies will not arise in the future. Should we or our
      independent registered public accounting firm determine in future periods that
      we have a material weakness in our internal control over financial reporting,
      the reliability of our financial reports may be impacted, and investors could
      lose confidence in the accuracy and completeness of our financial reports,
      which
      could have an adverse effect on our stock price.





**Customer
      demand for our products is volatile and difficult to predict.**





The
      Company’s customers continuously adjust their inventories in response to changes
      in end market demand for their products and the availability of semiconductor
      components. This results in frequent changes in demand for our products. The
      volatility of customer demand limits our ability to predict future levels of
      sales and profitability. The supply of semiconductors can quickly and
      unexpectedly match or exceed demand because end customer demand can change
      very
      quickly. Also, semiconductor suppliers can rapidly increase production output.
      This can lead to a sudden oversupply situation and a subsequent reduction in
      order rates and revenues as customers adjust their inventories to true demand
      rates. A rapid and sudden decline in customer demand for the Company’s products
      can result in excess quantities of certain products relative to demand. In
      this
      event, our operating results might be adversely affected as a result of charges
      to reduce the carrying value of inventory to the estimated demand level or
      market price.





**Changes
      to environmental laws and regulations applicable to manufacturers of electrical
      and electronic equipment are causing us to redesign our products, and may
      increase our costs and expose us to liability.**





The
      implementation of new environmental regulatory legal requirements could impact
      our product designs and manufacturing processes. The impact of such regulations
      on our product designs and manufacturing processes could affect the timing
      of
      compliant product introductions as well as their commercial success. Redesigning
      our products to comply with new regulations may result in increased research
      and
      development and manufacturing and quality control costs. In addition, the
      products we manufacture that comply with new regulatory standards may not
      perform as well as our current products. Moreover, if we are unable to
      successfully and timely redesign existing products and introduce new products
      that meet new standards set by environmental regulation and our customers,
      sales
      of our products could decline, which could materially adversely affect our
      business, financial condition and results of operations.


21





**Our
      contracts with our wafer suppliers do not obligate them to a minimum supply
      or
      set prices. Any inability or unwillingness of our wafer suppliers generally,
      and
      Chartered Semiconductor Manufacturing Ltd. and MagnaChip Semiconductor, Inc.
      in
      particular, to meet our manufacturing requirements would delay our production
      and product shipments and harm our business.**





In
      recent
      years, we purchased approximately 80 to 90% of our wafers from MagnaChip and
      Chartered, with the balance coming from three to six other suppliers. Our
      reliance on independent wafer suppliers to fabricate our wafers at their
      production facilities subjects us to possible risks such as:





·
            lack
                of adequate capacity;


·
            lack
                of available manufactured products;


·
            lack
                of control over delivery schedules;
                and


·
            unanticipated
                changes in wafer prices.





Any
      inability or unwillingness of our wafer suppliers generally, and Chartered
      and
      MagnaChip in particular, to provide adequate quantities of finished wafers
      to
      meet our needs in a timely manner would delay our production and product
      shipments and seriously harm our business. In March 2004, Chartered shut down
      one of their production facilities that was used to manufacture our products.
      We
      have transitioned the production of these products to different facilities.
      This
      was a major project requiring significant technological coordination between
      Chartered and Pericom. The transfer of production of our products to other
      facilities subjects us to the above listed risks as well as potential yield
      or
      other production problems which could arise as a result of the
      change.





At
      present, we purchase wafers from our suppliers through the issuance of purchase
      orders based on our rolling six-month forecasts. The purchase orders are subject
      to acceptance by each wafer supplier. We do not have long-term supply contracts
      that obligate our suppliers to a minimum supply or set prices. We also depend
      upon our wafer suppliers to participate in process improvement efforts, such
      as
      the transition to finer geometries. If our suppliers are unable or unwilling
      to
      do so, our development and introduction of new products could be delayed.
      Furthermore, sudden shortages of raw materials or production capacity
      constraints can lead wafer suppliers to allocate available capacity to customers
      other than us or for the suppliers' internal uses, interrupting our ability
      to
      meet our product delivery obligations. Any significant interruption in our
      wafer
      supply would seriously harm our operating results and our customer relations.
      Our reliance on independent wafer suppliers may also lengthen the development
      cycle for our products, providing time-to-market advantages to our competitors
      that have in-house fabrication capacity.





In
      the
      event that our suppliers are unable or unwilling to manufacture our key products
      in required volumes, we will have to identify and qualify additional wafer
      foundries. The qualification process can take up to six months or longer.
      Furthermore, we are unable to predict whether additional wafer foundries will
      become available to us or will be in a position to satisfy any of our
      requirements on a timely basis.





**We
      depend on single or limited source assembly subcontractors with whom we do
      not
      have written contracts. Any inability or unwillingness of our assembly
      subcontractors to meet our assembly requirements would delay our product
      shipments and harm our business.**





We
      primarily rely on foreign subcontractors for the assembly and packaging of
      our
      products and, to a lesser extent, for the testing of finished products. Some
      of
      these subcontractors are our single source supplier for some of our new
      packages. In addition, changes in our or a subcontractor's business could cause
      us to become materially dependent on a single subcontractor. We have from time
      to time experienced difficulties in the timeliness and quality of product
      deliveries from our subcontractors and may experience similar or more severe
      difficulties in the future. We generally purchase these single or limited source
      components or services pursuant to purchase orders and have no guaranteed
      arrangements with these subcontractors. These subcontractors could cease to
      meet
      our requirements for components or services, or there could be a significant
      disruption in supplies from them, or degradation in the quality of components
      or
      services supplied by them. Any circumstance that would require us to qualify
      alternative supply sources could delay shipments, result in the loss of
      customers and limit or reduce our revenues.





22





**We
      may have difficulty accurately predicting revenues for future periods.**





Our
      expense levels are based in part on anticipated future revenue levels, which
      can
      be difficult to predict. Our business is characterized by short-term orders
      and
      shipment schedules. We do not have long-term purchase agreements with any of
      our
      customers, and customers can typically cancel or reschedule their orders without
      significant penalty. We typically plan production and inventory levels based
      on
      forecasts of customer demand generated with input from customers and sales
      representatives. Customer demand is highly unpredictable and can fluctuate
      substantially. If customer demand falls significantly below anticipated levels,
      our gross profit would be reduced.




**We
      compete with others to attract and retain key personnel, and any loss of or
      inability to attract key personnel would harm us.**





To
      a
      greater degree than non-technology companies, our future success will depend
      on
      the continued contributions of our executive officers and other key management
      and technical personnel. None of these individuals has an employment agreement
      with us and each one would be difficult to replace. We do not maintain any
      key
      person life insurance policies on any of these individuals. The loss of the
      services of one or more of our executive officers or key personnel or the
      inability to continue to attract qualified personnel could delay product
      development cycles or otherwise harm our business, financial condition and
      results of operations.





Our
      future success also will depend on our ability to attract and retain qualified
      technical, marketing and management personnel, particularly highly skilled
      design, process and test engineers, for whom competition can be intense. During
      strong business cycles, we expect to experience difficulty in filling our needs
      for qualified engineers and other personnel.





**Our
      limited ability to protect our intellectual property and proprietary rights
      could harm our competitive position.**





Our
      success depends in part on our ability to obtain patents and licenses and
      preserve other intellectual property rights covering our products and
      development and testing tools. In the United States, we currently hold 110
      patents covering certain aspects of our product designs and have 10 additional
      patent applications pending. Copyrights, mask work protection, trade secrets
      and
      confidential technological know-how are also key to our business. Additional
      patents may not be issued to us or our patents or other intellectual property
      may not provide meaningful protection. We may be subject to, or initiate,
      interference proceedings in the U.S. Patent and Trademark Office. These
      proceedings can consume significant financial and management resources. We
      may
      become involved in litigation relating to alleged infringement by us of others'
      patents or other intellectual property rights. This type of litigation is
      frequently expensive to both the winning party and the losing party and takes
      up
      significant amounts of management's time and attention. In addition, if we
      lose
      such a lawsuit, a court could require us to pay substantial damages and/or
      royalties or prohibit us from using essential technologies. For these and other
      reasons, this type of litigation could seriously harm our business. Also,
      although we may seek to obtain a license under a third party's intellectual
      property rights in order to bring an end to certain claims or actions asserted
      against us, we may not be able to obtain such a license on reasonable terms
      or
      at all.





Because
      it is important to our success that we are able to prevent competitors from
      copying our innovations, we intend to continue to seek patent, trade secret
      and
      mask work protection for our technologies. The process of seeking patent
      protection can be long and expensive, and we cannot be certain that any
      currently pending or future applications will actually result in issued patents,
      or that, even if patents are issued, they will be of sufficient scope or
      strength to provide meaningful protection or any commercial advantage to us.
      Furthermore, others may develop technologies that are similar or superior to
      our
      technology or design around the patents we own.





We
      also
      rely on trade secret protection for our technology, in part through
      confidentiality agreements with our employees, consultants and third parties.
      However, these parties may breach these agreements. In addition, the laws of
      some territories in which we develop, manufacture or sell our products may
      not
      protect our intellectual property rights to the same extent as do the laws
      of
      the United States.


23





Our
      independent foundries use a process technology that may include technology
      we
      helped develop with them, that may generally be used by those foundries to
      produce their own products or to manufacture products for other companies,
      including our competitors. In addition, we may not have the right to implement
      key process technologies used to manufacture some of our products with foundries
      other than our present foundries.





**We
      may not provide adequate allowances for exchanges, returns and concessions.**





We
      recognize revenue from the sale of products when shipped, less an allowance
      based on future authorized and historical patterns of returns, price protection,
      exchanges and other concessions. We believe our methodology and approach are
      appropriate. However, if the actual amounts we incur exceed the allowances,
      it
      could decrease our revenue and corresponding gross profit.





**We
      are subject to risks related to taxes.**





A
      number
      of factors, including unanticipated changes in the mix of earnings in countries
      with differing statutory tax rates or by unexpected changes in existing tax
      laws
      or our interpretation of them, could unfavorably affect our future effective
      tax
      rate. In the event our management determines it is no longer more likely than
      not that we will realize a portion of our deferred tax assets we will be
      required to increase our valuation allowance which will result in an increase
      in
      our effective tax rate. Furthermore, our tax returns are subject to examination
      in all the jurisdictions in which we operate which subjects us to potential
      increases in our tax liabilities. All of these factors could have an adverse
      effect on our financial condition and results of operations.





**The
      complexity of our products makes us susceptible to manufacturing problems,
      which
      could increase our costs and delay our product shipments.**





The
      manufacture and assembly of our products is highly complex and sensitive to
      a
      wide variety of factors, including:





·
            the
                level of contaminants in the manufacturing
                environment;


·
            impurities
                in the materials used; and


·
            the
                performance of manufacturing personnel and production equipment.





In
      a
      typical semiconductor manufacturing process, silicon wafers produced by a
      foundry are cut into individual die. These die are assembled into individual
      packages and tested for performance. Our wafer fabrication suppliers have from
      time to time experienced lower than anticipated yields of suitable die. In
      the
      event of such decreased yields, we would incur additional costs to sort wafers,
      an increase in average cost per usable die and an increase in the time to market
      or availability of our products. These conditions could reduce our net revenues
      and gross margin and harm our customer relations.





We
      do not
      manufacture any of our IC products. Therefore, we are referred to in the
      semiconductor industry as a "fabless" producer. Consequently, we depend upon
      third party manufacturers to produce semiconductors that meet our
      specifications. We currently have third party manufacturers that can produce
      semiconductors that meet our needs. However, as the industry continues to
      progress to smaller manufacturing and design geometries, the complexities of
      producing semiconductors will increase. Decreasing geometries may introduce
      new
      problems and delays that may affect product development and deliveries. Due
      to
      the nature of the industry and our status as a "fabless" IC semiconductor
      company, we could encounter fabrication-related problems that may affect the
      availability of our products, delay our shipments or increase our costs. With
      the acquisition of eCERA we are directly involved in the manufacture of our
      FCP
      products. We may not be successful in operating the FCP facility as technologies
      continue to evolve, and as a consequence, there may be manufacturing related
      problems that affect our FCP products. In addition, we have committed to the
      construction of a new FCP facility located
      in the Jinan Development Zone in Shandong Province, China, which adds the
      uncertainties involved with staffing and starting up a new facility in a country
      where we have no previous operating experience.


24





**A
      large portion of our revenues is derived from sales to a few customers, who
      may
      cease purchasing from us at any time.**





A
      relatively small number of customers have accounted for a significant portion
      of
      our net revenues in each of the past several fiscal years. In general we expect
      this to continue for the forseeable future. With the addition of eCERA, the
      concentration of our largest customers has been reduced, as the largest
      customers of eCERA are somewhat different from those of our core integrated
      circuit business and previously existing FCP business. We had one Asian
      distributor that individually accounted for 14% of our net revenues during
      the
      fiscal year ended June 28, 2008. We had one Asian distributor that individually
      accounted for 13% of our net revenues during the fiscal year ended June 30,
      2007. During the fiscal year ended July 1, 2006, we had one Asian distributor
      that accounted for 11% of our net revenues. As a percentage of net revenues,
      sales to our top five direct customers totaled 40% in the fiscal year ended
      June
      28, 2008, 35% in the fiscal year ended June 30, 2007 and 36% in the fiscal
      year
      ended July 1, 2006.





We
      do not
      have long-term sales agreements with any of our customers. Our customers are
      not
      subject to minimum purchase requirements, may reduce or delay orders
      periodically due to excess inventory and may discontinue purchasing our products
      at any time. Our distributors typically offer competing products in addition
      to
      ours. For the fiscal year ended June 28, 2008, sales to our distributors were
      approximately 49% of net revenues as compared to approximately 40% of net
      revenues in the fiscal year ended June 30, 2007, and 39% for the fiscal year
      ended July 1, 2006. The increase in the percentage of sales to our distributors
      as compared with the prior periods was due to growth in sales to Asian
      distributor customers. The loss of one or more significant customers, or the
      decision by a significant distributor to carry additional product lines of
      our
      competitors could decrease our revenues.





**Almost
      all of our wafer suppliers and assembly subcontractors are located in Southeast
      Asia, which exposes us to the problems associated with international operations.**





Risks
      associated with international business operations include the
      following:





·
            disruptions
                or delays in shipments;


·
            changes
                in economic conditions in the countries where our subcontractors
                are
                located;


·
            currency
                fluctuations;


·
            changes
                in political conditions;


·
            potentially
                reduced protection for intellectual
                property;


·
            foreign
                governmental regulations;


·
            import
                and export controls; and


·
            changes
                in tax laws, tariffs and freight rates.





In
      particular, there is a potential risk of conflict and further instability in
      the
      relationship between Taiwan and the People's Republic of China. Conflict or
      instability could disrupt the operations of one of our principal wafer suppliers
      and several of our assembly subcontractors located in Taiwan.





**Because
      we sell our products to customers outside of the United States, we face foreign
      business, political and economic risks that could seriously harm
      us.**





In
      fiscal
      year 2008, we derived approximately 88% of our net revenues from sales in Asia
      and approximately 3% from sales outside of Asia and the United States. In fiscal
      year 2007, we derived approximately 82% of our net revenues from sales in Asia
      and approximately 4% from sales outside of Asia and the United States. In fiscal
      year 2006, we generated approximately 64% of our net revenues from sales in
      Asia
      and approximately 17% from sales outside of Asia and the United States. We
      expect that export sales will continue to represent a significant portion of
      net
      revenues. We intend to continue the expansion of our sales efforts outside
      the
      United States. This expansion will require significant management attention
      and
      financial resources and further subject us to international operating risks.
      These risks include:





·
            tariffs
                and other barriers and
                restrictions;


·
            unexpected
                changes in regulatory
                requirements;


25





·
            the
                burdens of complying with a variety of foreign laws;
                and


·
            delays
                resulting from difficulty in obtaining export licenses for
                technology.





We
      are
      also subject to general geopolitical risks in connection with our international
      operations, such as political and economic instability and changes in diplomatic
      and trade relationships. In addition, because our international sales are
      denominated in U.S. dollars, increases in the value of the U.S. dollar could
      increase the price in local currencies of our products in foreign markets and
      make our products relatively more expensive than competitors' products that
      are
      denominated in local currencies. Regulatory, geopolitical and other factors
      could seriously harm our business or require us to modify our current business
      practices.





**Our
      shareholder rights plan may adversely affect existing
      shareholders.**





On
      March
      6, 2002, we adopted a shareholder rights plan that may have the effect of
      deterring, delaying, or preventing a change in control that otherwise might
      be
      in the best interests of our shareholders. Under the rights plan, we issued
      a
      dividend of one preferred share purchase right for each share of our common
      stock held by shareholders of record as of March 21, 2002. Each right entitles
      shareholders to purchase one one-hundredth of our Series D Junior Participating
      Preferred Stock.





In
      general, the share purchase rights become exercisable when a person or group
      acquires 15% or more of our common stock or a tender offer for 15% or more
      of
      our common stock is announced or commenced. After such event, our other
      stockholders may purchase additional shares of our common stock at 50% off
      of
      the then-current market price. The rights will cause substantial dilution to
      a
      person or group that attempts to acquire us on terms not approved by our Board
      of Directors. The rights should not interfere with any merger or other business
      combination approved by our Board of Directors since the rights may be redeemed
      by us at $0.001 per right at any time before any person or group acquire 15%
      or
      more of our outstanding common stock. These rights expire in March
      2012.





**Our
      operations and financial results could be severely harmed by natural disasters.**





Our
      headquarters and some of our major suppliers' manufacturing facilities are
      located near major earthquake faults. One of the foundries we use is located
      in
      Taiwan, which suffered a severe earthquake during fiscal 2000. We did not
      experience significant disruption to our operations as a result of that
      earthquake. However, if a major earthquake or other natural disaster were to
      affect our suppliers, our sources of supply could be interrupted, which would
      seriously harm our business.




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None




**ITEM
      2. PROPERTIES**




We
      lease
      approximately 76,145 square feet of space in San Jose, California in which
      our
      headquarters, technology and product development and testing facilities are
      located. We have a lease agreement covering this property through December
      2013.
      The agreement contains renewal options. We also own, through our SRe subsidiary,
      a manufacturing facility near Taipei, Taiwan consisting of approximately 74,024
      square feet. Our PTL subsidiary has leased approximately 11,830 square feet
      of
      space in Taipei and Hsin Chu, Taiwan for research and development as well as
      sales and administrative functions. In addition, we
      are
      building a factory in the Jinan Development Zone in Shandong Province, China
      for
      the development and manufacture of frequency control products, and we have
      land
      use rights in that zone for 75 acres. Phase I of the project consists of an
      administrative building, a workers dormitory, and a fabrication plant. The
      three
      buildings will total approximately 346,000 square feet and are scheduled for
      completion late in fiscal 2009. We
      also
      have leased or rented a North American sales office located in Illinois as
      well
      as international sales offices in Hong Kong, Japan, Korea, Singapore and the
      United Kingdom. We believe our current facilities are adequate to support our
      needs through the end of fiscal 2009.


26




**ITEM
      3. LEGAL PROCEEDINGS**




We
      are
      subject to various routine claims and legal proceedings that arise in the
      ordinary course of business. We are presently not subject to any legal
      proceedings that could have a material impact on our business or financial
      condition.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year covered by this report.


27




**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**





The
      information required by this item regarding equity compensation plans is
      incorporated by reference to the information set forth in Item 12 of this Annual
      Report on Form 10-K. ****




**COMMON
      STOCK PRICE RANGE**




Our
      common stock began trading publicly on the NASDAQ National Market on October
      31,
      1997 under the symbol PSEM. Prior to that date, there was no public market
      for
      the common stock. We have not paid cash dividends and have no present plans
      to
      do so. It is our policy to reinvest our earnings to finance expansion of our
      operations and to repurchase shares of our common stock to help counter dilution
      from the Company’s Stock Incentive and Employee Stock Purchase Plans. The
      following table sets forth, for the periods indicated, the high and low closing
      prices of the common stock on the NASDAQ Stock Market. As of June 28, 2008,
      we
      had 46 holders of record of our common stock. Holders of record does not include
      shareholders whose shares are held in trust by other entities, therefore the
      number of actual shareholders is greater than the number shown here. During
      fiscal year 2008, we did not sell any unregistered securities.





**Close****High**
            
            **Low****Fiscal
                year ended June 30, 2007**First
                Quarter
            
            $
            9.84
            
            $
            7.21Second
                Quarter
            
            
            12.82
            
            
            9.49Third
                Quarter
            
            
            11.47
            
            
            9.56Fourth
                Quarter
            
            
            11.69
            
            
            9.70**Fiscal
                year ended June 28, 2008**First
                Quarter
            
            $
            12.01
            
            $
            9.85Second
                Quarter
            
            
            19.05
            
            
            11.29Third
                Quarter
            
            
            18.70
            
            
            11.80Fourth
                Quarter
            
            
            19.31
            
            
            14.48


28




**PERFORMANCE
      GRAPH**











The
      graph
      and other information furnished under the above caption “Performance Graph” in
      this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting
      material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or
      to the liabilities of the Exchange Act, as amended.




**SHAREHOLDER
      RIGHTS PLAN**




On
      March
      6, 2002, we adopted a shareholder rights plan and, in connection with the plan,
      we have filed a Certificate of Designation designating the rights, preferences
      and privileges of a new Series D Junior Participating Preferred Stock. Pursuant
      to the plan, we issued rights to our stockholders of record as of March 21,
      2002, entitling each stockholder to the right to purchase one one-hundredth
      of a
      Series D Junior Participating Preferred Stock for each share of Common Stock
      held by the stockholder. Such rights are exercisable only under certain
      circumstances in connection with a proposed acquisition or merger of the
      Company.




**STOCK
      REPURCHASE PLAN**




In
      October 2001, our Board of Directors approved the repurchase of up to 2,000,000
      shares of our common stock. As of March 30, 2007, we had completed the
      repurchase of 2,000,000 shares at a cost of approximately $17.8 million,
      pursuant to the 2001 Board of Directors’ authorization.





On
      April
      26, 2007, our Board of Directors approved the repurchase of an additional
      2,000,000 shares. Current cash balances and the proceeds from stock option
      exercises and employee stock purchase plan purchases have funded stock
      repurchases in the past, and we expect to fund future stock repurchases from
      these same sources. Pursuant to the 2007 Board of Directors’ authorization, we
      repurchased 1,558,978 shares in the year ended June 28, 2008, at an approximate
      cost of $20.1 million. We have purchased a total of 1,860,810 shares under
      the
      current authority.


29




Fiscal
      2008 repurchases of our common stock under the latest Board of Directors’
authorization is represented in the following table:





**Period**
            
            **Total**
              **Number**
              **of Shares**
              **Purchased**
            
            **Average**
              **Price Paid**
              **per Share**
            
            **Cumulative**
              **Number of Shares**
              **Purchased as**
              **Part of Publicly**
              **Announced Plan**
              **or Program**
            
            **Maximum Number**
              **of Shares that May**
              **Yet be Purchased**
              **Under the Plan or**
              **Program**August 10
                to August 16, 2007
            
            
            174,000
            
            $
            10.52
            
            
            475,832
            
            
            1,524,168August
                29 to September 14, 2007
            
            
            280,000
            
            
            11.18
            
            
            755,832
            
            
            1,244,168November
                27 to December 7, 2007
            
            
            17,334
            
            
            16.14
            
            
            773,166
            
            
            1,226,834February
                5 to March 10, 2008
            
            
            1,087,644
            
            
            13.68
            
            
            1,860,810
            
            
            139,190Total
            
            
            1,558,978
            
            $
            12.91
            
            
            1,860,810
            
            
            139,190




We
      did
      not repurchase any shares during the quarter ended June 28, 2008.





On
      April
      29, 2008 the Company’s Board of Directors authorized the repurchase of an
      additional $30 million of its common stock. The repurchases may be made from
      time to time in the open market or through private transactions at the
      discretion of Company management.


30




**ITEM
      6. SELECTED FINANCIAL DATA**





The
      following selected financial data of the Company is qualified by reference
      to
      and should be read in conjunction with the consolidated financial statements,
      including the Notes thereto, and Management's Discussion and Analysis of
      Financial Condition and Results of Operations included elsewhere herein. The
      consolidated statements of operations data for each of the years in the
      three-year period ended June 28, 2008 and the consolidated balance sheets data
      as of June 28, 2008, and June 30, 2007 are derived from, and are qualified
      by
      reference to, the consolidated financial statements included herein. We derived
      the consolidated statements of operations data for the years ended July 2,
      2005
      and June 26, 2004 and the consolidated balance sheets data as of July 1, 2006,
      July 2, 2005 and June 26, 2004 from audited financial statements not included
      herein. The fiscal year ending July 2, 2005 contained 53 weeks and all other
      years contained 52 weeks. We
      exercised our option to acquire substantially all the assets and related
      liabilities of privately held SaRonix on October 1, 2003. The results of
      operations of SaRonix from the date of acquisition are included in the Company’s
      consolidated financial statements. On
      September 7, 2005, we purchased eCERA and on March 6, 2006 completed the
      acquisition of AZER Crystal Technology Co. (“AZER”). The results of operations
      for both eCERA and AZER from the date of acquisition are included in our
      consolidated financial statements.





**Fiscal
                Year Ended****June 28,**
            
            **June 30,**
            
            **July 1,**
            
            **July 2,**
            
            **June 26,****2008**
            
            **2007**
            
            **2006****(3)**
            
            **2005**
            
            **2004****(2)****(in
                thousands, except per share data)****Consolidated
                Statements of Operations Data:**Net
                revenues
            
            $
            163,744
            
            $
            123,370
            
            $
            105,878
            
            $
            79,557
            
            $
            66,417Cost
                of revenues
            
            
            103,638
            
            
            80,557
            
            
            69,374
            
            
            50,764
            
            
            45,182Gross
                profit
            
            
            60,106
            
            
            42,813
            
            
            36,504
            
            
            28,793
            
            
            21,235Operating
                expenses:Research
                and development
            
            
            17,159
            
            
            16,021
            
            
            15,492
            
            
            15,767
            
            
            14,161Selling,
                general and administrative
            
            
            23,624
            
            
            21,878
            
            
            18,490
            
            
            15,538
            
            
            14,979Restructuring
                charge
            
            
            —
            
            
            —
            
            
            55
            
            
            294
            
            
            784Total
                operating expenses
            
            
            40,783
            
            
            37,899
            
            
            34,037
            
            
            31,599
            
            
            29,924Income
                (loss) from operations
            
            
            19,323
            
            
            4,914
            
            
            2,467
            
            
            (2,806
            )
            
            (8,689
            )Interest
                and other income, net
            
            
            5,513
            
            
            6,460
            
            
            3,875
            
            
            3,783
            
            
            3,700Interest
                expense
            
            
            (12
            )
            
            (130
            )
            
            (342
            )
            
            (22
            )
            
            —Other-than-temporary
                decline in value of investments
            
            
            (76
            )
            
            (6
            )
            
            (64
            )
            
            (105
            )
            
            (14
            )Income
                (loss) before income taxes
            
            
            24,748
            
            
            11,238
            
            
            5,936
            
            
            850
            
            
            (5,003
            )Income
                tax provision (benefit)
            
            
            8,221
            
            
            2,985
            
            
            1,852
            
            
            27
            
            
            (2,380
            )Minority
                interest in (income) loss of consolidated subsidiaries
            
            
            (116
            )
            
            (33
            )
            
            99
            
            
            58
            
            
            —Equity
                in net income (loss) of unconsolidated affiliates
            
            
            602
            
            
            407
            
            
            1,796
            
            
            46
            
            
            513Net
                income (loss)
            
            $
            17,013
            
            $
            8,627
            
            $
            5,979
            
            $
            927
            
            $
            (2,110
            )Basic
                earnings (loss) per share
            
            $
            0.66
            
            $
            0.33
            
            $
            0.23
            
            $
            0.04
            
            
            ($0.08
            )Diluted
                earnings (loss) per share
            
            $
            0.64
            
            $
            0.32
            
            $
            0.22
            
            $
            0.03
            
            
            ($0.08
            )Shares
                used in computing basic earnings (loss) per share(1)
            
            
            25,737
            
            
            26,058
            
            
            26,254
            
            
            26,476
            
            
            26,075Shares
                used in computing diluted earnings (loss) per share(1)
            
            
            26,611
            
            
            26,669
            
            
            26,994
            
            
            27,188
            
            
            26,075





**June 28,**
            
            **June 30,**
            
            **July 1,**
            
            **July 2,**
            
            **June 26,****2008**
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004****(in
                thousands)****Consolidated
                Balance Sheets Data:**Working
                capital
            
            $
            149,438
            
            $
            89,135
            
            $
            88,119
            
            $
            159,488
            
            $
            158,718Total
                assets
            
            
            231,583
            
            
            214,235
            
            
            213,686
            
            
            193,995
            
            
            197,452Long-term
                obligations
            
            
            1,918
            
            
            2,094
            
            
            6,141
            
            
            464
            
            
            139Shareholders’
                equity
            
            
            207,455
            
            
            190,478
            
            
            184,111
            
            
            181,162
            
            
            181,897





(1)
            See
                Note 1 of Notes to Consolidated Financial Statements for an explanation
                of
                the method used to determine the number of shares used in computing
                basic
                and diluted earnings per share.


(2)
            On
                October 1, 2003, the Company acquired
                SaRonix.


(3)
            On
                September 7, 2005, the Company acquired eCERA and on March 6, 2006
                completed the acquisition of AZER.




31




**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





This
      Annual Report includes “forward-looking statements” within the meaning of
      Section 27A of the Securities Act if 1933, as amended and Section 21E of the
      Securities Exchange Act of 1934, as amended. All statements other than
      statements of historical fact are “forward-looking statements” for purposes of
      these provisions, including any statements regarding projections of earnings,
      statements regarding the future results of SRe, revenues, future research and
      development expenses, future selling, general and administrative expenses,
      other
      expenses, gross margins or other financial items; plans and objectives of
      management for future operations; the implementation of advanced process
      technologies; future purchases of capital equipment; future expenditures;
      potential acquisitions; proposed new products or services and their development
      schedule; our future investment in the Jinan Hi-Tech Industries Development
      Zone; industry, technological or market trends, our ability to address the
      need
      for application specific logic products; our ability to respond rapidly to
      customer needs; expanding product sales; future economic conditions or
      performance, and any statement of assumptions underlying any of the foregoing.
      In some cases, forward-looking statements can be identified by the use of
      terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“estimates,” “potential,” or “continue,” or the negative thereof or other
      comparable terminology. Although we believe that the expectations reflected
      in
      the forward-looking statements contained herein are reasonable, there can be
      no
      assurance that such expectations or any of the forward-looking statements will
      prove to be correct, and actual results could differ materially from those
      projected or assumed in the forward-looking statements. Some of the factors
      that
      could cause our actual results to differ materially are set forth herein in
      Item
      1A, Risk Factors, of this report and elsewhere in this report. All
      forward-looking statements and reasons why results may differ included in this
      Annual Report are made as of the date hereof, and we assume no obligation to
      update any such forward-looking statement or reason why actual results may
      differ.




**CRITICAL
      ACCOUNTING POLICIES**





Our
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      preparation of such statements requires us to make estimates and assumptions
      that affect the reported amounts of revenues and expenses during the reporting
      period and the reported amounts of assets and liabilities as of the date of
      the
      financial statements. Our estimates are based on historical experience and
      other
      assumptions that we consider to be reasonable given the circumstances. Actual
      results may vary from our estimates.





The
      methods, estimates and judgments we use in applying our most critical accounting
      policies have a significant impact on the results we report in our financial
      statements. The Securities and Exchange Commission has defined the most critical
      accounting policies as the ones that are most important to the portrayal of
      a
      company’s financial condition and results of operations, and require the company
      to make its most difficult and subjective accounting judgments, often as a
      result of the need to make estimates of matters that are inherently uncertain.
      Based on this definition, our most critical accounting policies include revenue
      recognition and accounts receivable allowances, which impact the recording
      of
      revenues; valuation of inventories, which impacts costs of goods sold and gross
      margins; accounting for income taxes, which impacts the income tax provision
      and
      net income; impairment of goodwill, other intangible assets and investments,
      which impacts the goodwill, intangible asset and investment accounts; and
      share-based compensation, which impacts costs of goods sold and operating
      expenses. These policies and the estimates and judgments involved are discussed
      further below. We also have other important policies that we discuss in Note
      1
      to the Consolidated Financial Statements.





***REVENUE
      RECOGNITION*** **.**  We
      recognize revenue from the sale of our products in conformity with the SEC
      Staff
      Accounting Bulletin (“SAB”) No. 104, *Revenue
      Recognition* ,
      (“SAB
      No. 104”). Accordingly, the Company recognizes revenue when:





·
            Persuasive
                evidence of an arrangement exists;


·
            Delivery
                has occurred;


·
            The
                sales price is fixed or determinable;
                and


·
            Collectibility
                is reasonably assured.




32




Generally,
      the Company meets these conditions upon shipment because, in most cases, title
      and risk of loss passes to the customer at that time. In addition, the Company
      estimates and records provisions for future returns and other charges against
      revenue at the time of shipment in accordance with SFAS No. 48, *Revenue
      Recognition when Right of Return Exists* (“SFAS
      No. 48”).





For
      some
      of our products, notably our FCPs that we manufacture in Taiwan, we recognize
      revenue upon delivery for Taiwan sales and for foreign sales, 3 days after
      shipment. Our sales terms for FCP are usually FOB shipping point and we use
      Federal Express (“FedEx”) for all of our deliveries. FedEx delivers shipments
      within one day to Taiwanese customers and within 3 days for foreign
      customers.





We
      sell
      products to both large domestic and international distributors. We sell our
      products to domestic distributors at the price listed in our price book for
      that
      distributor. At the time of shipment, we book a sales reserve for the entire
      amount if the customer has the right to return the product. In addition, at
      the
      time of sale we book a sales reserve for ship from stock and debits (“SSD”s),
      stock rotation amounts expected to be returned, return material authorizations
      (“RMA”s), authorized price protection programs, and any special programs
      approved by management. These sales reserves offset revenues, which produces
      the
      net revenues amount we report in our consolidated financial
      statements.





The
      market price for our products can be significantly different from the book
      price
      at which we sold the product to the distributor. When the market price, as
      compared with the book price, of a particular sales opportunity from our
      distributor to their customer would result in low or negative margins to our
      distributor, we negotiate a ship from stock and debit with the distributor.
      We
      analyze our SSD history and use the history to develop SSD rates that form
      the
      basis of the SSD sales reserve we record each period. We use historical SSD
      rates to estimate the ultimate net sales price to the distributor.





Our
      distribution agreements provide for semi-annual stock rotation privileges of
      typically 10% of net sales for the previous six-month period. The contractual
      stock rotation applies only to shipments at book price. Asian distributors
      typically buy our product at less than book price and therefore are not entitled
      to the 10% stock rotation privilege. In order to provide for routine inventory
      refreshing, for our benefit as well as theirs, we typically grant Asian
      distributors stock rotation privileges between 1% and 5% even though we are
      not
      contractually obligated to do so. Each month we record a sales reserve for
      the
      estimated stock rotation privilege anticipated to be utilized by our
      distributors that month.





From
      time
      to time, customers may request to return parts for various reasons including
      the
      customers’ belief that the parts are not performing to specification. Many such
      return requests are the result of customers incorrectly using the parts, not
      because the parts are defective. Our management reviews these requests and,
      if
      approved, we establish a RMA. We are only obligated to accept returns of
      defective parts. For customer convenience, we may approve a particular return
      request, even though we are not obligated to do so. Each month, we record a
      sales reserve for the approved RMAs that have not yet been returned. In the
      past, we have not kept a general warranty reserve because historically valid
      warranty returns, which are the result of a part not meeting specifications
      or
      being non-functional, have been immaterial and frequently we can resell parts
      to
      other customers for use in other applications. We monitor and assess RMA
      activity and overall materiality to assess whether a general warranty reserve
      has become appropriate.





We
      grant
      price protection solely at the discretion of our management. The purpose of
      price protection is to reduce our distributors’ cost of inventory as market
      prices fall, which reduces our SSD rates. Our sales management team prepares
      price protection proposals for individual products located at individual
      distributors. Our general management reviews these proposals and if a particular
      price protection arrangement is approved, we estimate the dollar impact based
      on
      the book price reduction per unit for the products approved and the number
      of
      units of those products in that distributor’s inventory. We record a sales
      reserve in that period for the estimated amount in accordance with Issue 4
      of
      Emerging Issues Task Force Issue No. 01-09, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products)* .





At
      the
      discretion of our management, we may offer rebates on specific products sold
      to
      specific end customers. The purpose of the rebates is to allow for pricing
      adjustments for large programs without affecting the pricing we charge our
      distributor customers. We record the customer’s rebate at the time of
      shipment.




33




Customers
      are typically granted payment terms of between 30 and 60 days and they generally
      pay within those terms. We grant relatively few customers any sales terms that
      include cash discounts. We invoice our distributors for shipments at our listed
      book price. When our distributors pay those invoices, they may claim debits
      for
      SSDs, stock rotations, cash discounts, RMAs and price protection when
      appropriate. Once claimed, we confirm these debits are in line with our
      management’s prior authorizations and reduce the reserve we previously
      established for that customer.





The
      revenue we record for sales to our distributors is net of estimated provisions
      for these programs. When determining this net revenue, we must make significant
      judgments and estimates. We base our estimates on historical experience rates,
      inventory levels in the distribution channel, current trends and other related
      factors. However, because of the inherent nature of estimates, there is a risk
      that there could be significant differences between actual amounts and our
      estimates. Our financial condition and operating results depend on our ability
      to make reliable estimates and we believe that our estimates are reasonable.





***CASH
      AND CASH EQUIVALENTS.*** **** Cash
      and
      cash equivalents consist of cash on hand and in banks and all highly liquid
      debt
      investments with a time to maturity of three months or less at the time of
      purchase. ******





***SHORT-
      AND LONG-TERM INVESTMENTS.*** Our
      policy is to invest excess funds in instruments with investment grade credit
      ratings. We classify our investments as “available-for-sale”, “trading” or
“held-to-maturity” in conformity with SFAS No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* (“SFAS
      No. 115”). Further, we classify our trading securities as current assets and our
      available-for-sale securities as either current or non-current based on the
      specific attributes of each security. We recognize unrealized gains and losses
      in our trading securities in current earnings, and unrealized gains and losses
      in our available-for sale securities as an increase or reduction in
      shareholders’ equity. We report our trading and available-for-sale securities at
      their fair values. We evaluate our available-for-sale securities for impairment
      quarterly. SFAS No. 115 defines impairment as a loss in value that is other
      than
      temporary. We recognize impairment losses in our consolidated statement of
      operations in the period in which we discover the impairment.





We
      have
      also made other investments including loans, bridge loans convertible to equity
      or asset purchases as well as direct equity investments. We make these loans
      and
      investments with strategic intentions and, historically, are in privately held
      technology companies, which by their nature are high risk. These investments
      are
      included in other assets in the balance sheet and we carry them at the lower
      of
      cost, or market if the investment has experienced an “other than temporary”
decline in value. We monitor these investments quarterly and make appropriate
      reductions in carrying value if we deem a decline in value is other than
      temporary.





***ALLOWANCE
      FOR DOUBTFUL ACCOUNTS.***  We
      evaluate our allowance for doubtful accounts using a combination of factors.
      We
      record a specific allowance in cases where we become aware of circumstances
      that
      may impair a specific customer’s ability to pay fully their financial obligation
      to us. For all other customers, we recognize an allowance based on the length
      of
      time the receivable balances are past due, based on the current economic
      environment and our historical experience.





***INVENTORIES.*** For our
      IC and certain FCP families of products we record inventories at the lower
      of
      standard cost (which generally approximates actual cost on a first-in, first-out
      basis) or market value. We adjust the carrying value of inventory for excess
      and
      obsolete inventory based on inventory age, shipment history and our forecast
      of
      demand over a specific future period. The semiconductor markets that we serve
      are volatile and actual results may vary from our forecast or other assumptions,
      potentially affecting our assessment of excess and obsolete inventory resulting
      in material effects on our gross margin.





We
      record
      the inventories of the remainder of our FCP products at the lower of
      weighted-average cost (which approximates actual cost) or market value. Weighted
      average cost is comprised of average manufacturing costs weighted by the volume
      produced in each production run. We define market value as the net realizable
      value for our finished goods and replacement cost for raw materials and work
      in
      process.





We
      consider raw material inventory slow moving and we write it down to zero if
      it
      has not moved in 365 days. For assembled devices, we disaggregate the inventory
      by part number. We compare the quantities on hand in each part number category
      to the quantity we shipped in the previous twelve months, the quantity in
      backlog and to the quantity we expect to ship in the next twelve months. We
      write down to zero the value of each quantity on hand that is in excess of
      the
      lesser of the three comparisons. We believe our method of evaluating our
      inventory fairly represents market conditions.




34




We
      consider the material written-off to be available for sale. We do not revalue
      the written off inventory should market conditions change or if a market
      develops for the obsolete inventory. In the past, we have sold obsolete
      inventory that we have previously written off as worthless. Refer to the Gross
      Profit discussion in this Item 7 of our annual report on Form 10K for further
      discussion of sales of our obsolete inventory.





***PROPERTY,
      PLANT AND EQUIPMENT.***  We
      record
      our property, plant and equipment at cost and depreciate the cost over the
      estimated useful lives of each asset classification, ranging between 3 and
      35
      years. Cost includes purchase cost, applicable taxes, freight, installation
      costs and interest incurred in the acquisition of any asset that requires a
      period of time to make it ready for use. In addition, we capitalize the cost
      of
      major replacements, improvements and betterments, while we expense normal
      maintenance and repair.





***INVESTMENTS
      IN UNCONSOLIDATED AFFILIATES*** **.** We hold
      ownership interests in various investees. Our ownership in these affiliates
      varies from 20% to approximately 49%, which we classify as investments in
      unconsolidated affiliates in our consolidated balance sheets. We account for
      long-term investments in companies in which we have an ownership share larger
      than 20% and in which we have significant influence over the activities of
      the
      investee using the equity method. We recognize our proportionate share of each
      investee’s income or loss in the period in which the investee reports the income
      or loss. We eliminate all intercompany transactions in accounting for our equity
      method investments.





***IMPAIRMENT
      OF GOODWILL AND OTHER INTANGIBLE ASSETS.*** **** As
      required by SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No.
      142”), goodwill and indefinite-lived intangible assets are tested for impairment
      annually or more frequently if events or changes in circumstances indicate
      that
      the asset might be impaired. SRe wrote off Azer-related goodwill of $23,000
      in
      the quarter ended December 29, 2007. We determined that no impairment of our
      indefinite-lived intangible assets existed at June 28, 2008. We also test other
      definite-lived intangible assets for impairment when events or changes in
      circumstances indicate that the assets might be impaired. We determined that
      no
      impairment of these other definite-lived intangible assets existed at June
      28,
      2008.





***INCOME
      TAXES.*** We
      account for income taxes using SFAS No. 109, “Accounting for Income Taxes”,
      which requires an asset and liability approach to recording deferred taxes.
      Our
      deferred income tax assets represent temporary differences between the financial
      statement carrying amount and the tax basis of existing assets and liabilities
      that will result in deductible amounts in future years, including net operating
      loss carry forwards. Based on estimates, the carrying value of our net deferred
      tax assets assumes that it is more likely than not that we will be able to
      generate sufficient future taxable income in certain tax jurisdictions. Our
      judgments regarding future profitability may change due to future market
      conditions, changes in U.S. or international tax laws and other factors. If,
      in
      the future, we experiences losses for a sustained period of time, we may not
      be
      able to conclude that it is more likely than not that we will be able to
      generate sufficient future taxable income to realize our deferred tax assets.
      If
      this occurs, we may be required to increase the valuation allowance against
      the
      deferred tax assets resulting in additional income tax expense.




**OVERVIEW**




We
      incorporated Pericom Semiconductor Corporation in June 1990 in California.
      We
      completed our first profitable fiscal year on June 30, 1993. We design,
      manufacture and market high performance digital, analog and mixed-signal
      integrated circuits (ICs) and frequency control products (FCPs) used for the
      transfer, routing and timing of digital and analog signals within and between
      computer, networking, data communications and telecommunications systems. Our
      first volume sales occurred in fiscal 1993 and consisted exclusively of 5-volt
      8-bit interface logic circuits. We have introduced new products to the market
      every year since we produced our first shipments. In recent years, we have
      expanded our product offering by introducing the following products, among
      others:




35




·
            in
                fiscal 2006, the first three products of our new PCI express Bridge
                and
                Packet Switch families for general customer sampling, including one
                4-port
                PCI express Packet Switch and two PCI Express to PCI and PCI-X Bridge
                products; samples of five new spread spectrum clock generators and
                VCXO’s
                targeting LCD projectors, LCD televisions, DLP projectors and set-top
                box
                applications; several new FCPs that incorporate both a crystal resonator
                and a driver IC into an ultra-miniature package designed for high
                density
                and portable electronic applications by using the synergy of the
                acquisition of eCERA and AZER and the existing SaRonix product development
                pipeline;





·
            in
                fiscal 2007, the production availability of GEN2 PCI ExpressTM
                signal-switches and a high-performance, zero-delay GEN2 clock buffer
                family, the first in the industry, enabling the design of ultra high-speed
                5.0 Gbps GEN2 PCI Express serial connectivity systems; the PCIe-to-PCI-X
                Bridge for target applications including server, HBA, storage, NIC
                cards,
                video and gaming, networking and telecommunications; one clock
                synthesizer, two LVPECL differential clocks, three spread-spectrum
                clock
                generators, three clock buffers, five low phase noise VCXO's, eight
                new
                HDMI, four analog video and two high speed USB switches to penetrate
                target applications including Gigabit Ethernet networking switch,
                digital
                TV, set top box, cell phone, MP3/MP4 player and PDA;
                and





·
            in
                fiscal 2008, a total of 25 new products across our Timing, Signal
                Conditioning, and Connectivity product areas, including industry
                first
                Signal Conditioning products specifically designed to meet the stringent
                specifications of the new, high speed PCI Express Gen2 (5Gb/s), and
                SATA2/SAS (3Gb/s) protocols, products which have become ‘enabling’
                technology by allowing system designers to maintain critical signal
                integrity within next generation platforms; industry first Display
                Port
                switches and level shifters, which help enable adoption of the new
                protocol; in the area of PCI Express, the industry’s first PCIe bridge and
                packet switch products in low cost, small size BGA and QFP packages,
                which
                help enable the use of PCI Express in volume platforms such as notebook,
                docking station, digital TV, and multi-function SOHO printers (MFP);
                and
                new Timing products including industry first extremely low jitter
                clock
                oscillators specifically designed for the new PCI Express Gen2
                specification.





As
      is
      typical in the semiconductor industry, we expect selling prices for our products
      to decline over the life of each product. Our ability to increase net revenues
      is highly dependent upon our ability to increase unit sales volumes of existing
      products and to introduce and sell new products in quantities sufficient to
      compensate for the anticipated declines in selling prices of existing products.
      In order to have sufficient supply for increased unit sales, we seek to increase
      the wafer fabrication capacity allocations from our existing foundries, qualify
      new foundries, increase the number of die per wafer through die size reductions
      and improve the yields of good die through the implementation of advanced
      process technologies, but there can be no assurance that we will be successful
      in these efforts. **** Magnachip,
      formerly known as Hynix, and Chartered manufactured approximately 80 to 90%
      of
      the wafers for our semiconductor products in fiscal years 2008, 2007 and 2006,
      with the balance coming from between three and six other suppliers.





Declining
      selling prices will adversely affect gross margins unless we are able to offset
      such declines with the sale of new, higher margin products or achieve
      commensurate reductions in unit costs. We seek to improve our overall gross
      margin through the development and introduction of selected new products that
      we
      believe will ultimately achieve higher gross margins. A higher gross margin
      for
      a new product is typically not achieved until some period after the initial
      introduction of the product — after
      start-up expenses for that product have been incurred and once volume production
      begins. In general, costs are higher at the introduction of a new product due
      to
      the use of a more generalized design schematic, lower economy of scale in the
      assembly phase and lower die yield. Our ability to reduce unit cost depends
      on
      our ability to shrink the die sizes of our products, improve yields, obtain
      favorable subcontractor pricing and make in-house manufacturing operations
      more
      productive and efficient. There can be no assurance that these efforts, even
      if
      successful, will be sufficient to offset declining selling prices.




36




**RESULTS
      OF OPERATIONS**





The
      following table sets forth certain statement of operations data as a percentage
      of net revenues for the periods indicated:





**Fiscal Year Ended****June 28,**
            
            **June 30,**
            
            **July 1,****2008**
            
            **2007**
            
            **2006**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            63.3
            
            
            65.3
            
            
            65.5Gross
                margin
            
            
            36.7
            
            
            34.7
            
            
            34.5Operating
                expenses:Research
                and development
            
            
            10.5
            
            
            13.0
            
            
            14.6Selling,
                general and administrative
            
            
            14.4
            
            
            17.7
            
            
            17.5Restructuring
                charge
            
            
            -
            
            
            -
            
            
            0.1Total
                operating expenses
            
            
            24.9
            
            
            30.7
            
            
            32.2Income
                from operations
            
            
            11.8
            
            
            4.0
            
            
            2.3Interest
                and other income, net
            
            
            3.3
            
            
            5.2
            
            
            3.7Interese
                expense
            
            
            -
            
            
            (0.1
            )
            
            (0.3
            )Other
                than temporary decline in value of investment
            
            
            -
            
            
            -
            
            
            (0.1
            )Income
                before income taxes
            
            
            15.1
            
            
            9.1
            
            
            5.6Income
                tax provision
            
            
            5.0
            
            
            2.4
            
            
            1.7Minority
                interest in (income) loss of consolidated subsidiaries
            
            
            (0.1
            )
            
            -
            
            
            0.1Equity
                in net income of unconsolidated affiliates
            
            
            0.4
            
            
            0.3
            
            
            1.7Net
                income
            
            
            10.4
            %
            
            7.0
            %
            
            5.7
            %




**COMPARISON
      OF FISCAL 2008, 2007 AND 2006**




***NET
      REVENUES***





The
      following table sets forth our revenues and the customer concentrations with
      respect to such revenues for the periods indicated:





**Fiscal Year Ended**
            
            **Fiscal Year Ended****June 28,**
            ****
            **June 30,**
            ****
            **%**
            ****
            **June 30,**
            ****
            **July 1,**
            ****
            **%**
            ******(In
                thousands)**
            ****
            **2008**
            ****
            **2007**
            
            **Change**
            
            **2007**
            
            **2006**
            
            **Change**Net
                revenues
            
            $
            163,744
            
            $
            123,370
            
            
            32.7
            %
            $
            123,370
            
            $
            105,878
            
            
            16.5
            %Percentage
                of net revenues accounted for by top 5 direct customers
                (1)
            
            
            40.1
            %
            
            34.9
            %
            
            
            
            
            34.9
            %
            
            35.8
            %Number
                of direct customers that each account for more than 10% of net
                revenues.
            
            
            1
            
            
            1
            
            
            
            
            
            1
            
            
            1Percentage
                of net revenues accounted for by top 5 end customers (2)
            
            
            21.3
            %
            
            22.9
            %
            
            
            
            
            22.9
            %
            
            25.0
            %




(1)
            Direct
                customers purchase products directly from the Company. These customers
                include distributors and contract manufacturers that in turn sell
                to many
                end customers as well as OEMs that also purchase directly from the
                Company.





(2)
            End
                customers are OEMs whose products include the Company’s products. End
                customers may purchase directly from the Company or from distributors
                or
                contract manufacturers. For end customer sales data, we rely on the
                end
                customer data provided by our direct distribution and
                contract-manufacturing customers.





No
      single
      end customer accounted for more than 10% of net revenues for the fiscal years
      ended June 28, 2008, June 30, 2007 and July 1, 2006.





On
      September 7, 2005, we purchased a 99.9% share of eCERA. Beginning with the
      second quarter of fiscal 2006, our revenues included revenues from eCERA, later
      combined with SaRonix to form SRe. For the fiscal years ended June 28, 2008,
      June 30, 2007 and July 1, 2006, we recorded SRe revenue totaling $41.7 million,
      $32.4 million and $22.8 million, respectively.




37




In
      fiscal
      2006, IC order rates continued to improve from depressed business conditions
      that had begun in 2001, marked by a decline in the percentage of our sales
      represented by orders that book and ship in the same quarter (“turns” orders).
      This improvement continued in 2007 and 2008, but we remain heavily reliant
      on
      turns orders. Our reliance on turns orders, the uncertain strength of our
      end-markets and the uncertain growth rate of the world economy make it difficult
      to predict near-term demand.





Our
      order
      backlog stood at $25.9 million as of June 28, 2008 and $20.9 million as of
      June
      30, 2007. We expect to fulfill most of our backlogged orders as of June 28,
      2008
      within the first quarter of fiscal 2009.




Net
      revenues consist of product sales, which we generally recognize upon shipment,
      less an estimate for returns and allowances.





Net
      revenue increased $40.4 million or 32.7% in fiscal 2008 versus 2007 primarily
      as
      the result of:


·
            A
                66% increase in the sales of analog switch products to $43.7 million,
                an
                increase of $17.4 million;


·
            an
                increase of $16.5 million or 32.6% in sales of our FCP product family
                to
                $67.1 million; and


·
            continued
                sales growth in digital switch, interface, clock, and connect IC
                products,
                which combined for a $6.4 million sales
                increase.


These
      sales increases are the result of increased unit sales volumes of existing
      products as well as the introduction and sale of new products.





For
      the
      years ended June 28, 2008 and June 30, 2007, net revenue included sales reserves
      for price protection and rebates in the amount of $223,000 and $564,000,
      respectively.





Net
      revenue increased $17.5 million in fiscal 2007 versus 2006 primarily due to:


·
            The
                inclusion of fifty-two weeks of eCERA’s financial results in 2007 compared
                with only forty-three weeks of eCERA’s results being included in fiscal
                2006, which added $4.8 million;


·
            organic
                growth in SRe’s business, which contributed $4.8 million; and


·
            an
                increase in the number of units shipped in our core legacy product
                lines,
                which increased by $7.9 million.





For
      the
      years ended June 30, 2007 and July 1, 2006, net revenue included sales reserves
      for price protection and rebates in the amount of $564,000 and $416,000,
      respectively.





In
      the
      future, market conditions could become more difficult as other companies compete
      more aggressively for business. Pricing for our higher margin Analog Switch,
      Clock and Connect products, many of which are proprietary, is more stable and
      new product introductions and cost reductions generally offset price declines.





The
      following table sets forth net revenues by country as a percentage of total
      net
      revenues for the fiscal years ended June 28, 2008, June 30, 2007 and July 1,
      2006:





**Fiscal
                Year Ended****June
                28,**
            
            **June
                30,**
            
            **July
                1,****2008**
            
            **2007**
            
            **2006**China
                (including Hong Kong)
            
            
            38.5
            %
            
            39.1
            %
            
            28.3
            %Taiwan
            
            
            31.8
            %
            
            23.7
            %
            
            26.0
            %United
                States
            
            
            8.9
            %
            
            13.0
            %
            
            19.4
            %Singapore
            
            
            4.9
            %
            
            6.5
            %
            
            8.9
            %Other
                (less than 10% each)
            
            
            15.9
            %
            
            17.7
            %
            
            17.4
            %Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %





For
      the
      fiscal years ended June 28, 2008 and June 30, 2007, as compared with fiscal
      year
      2006, the percentage of our net revenues derived from sales to China, Taiwan
      and
      the United States shifted, reflecting both SRe’s operations and manufacturing
      migration to Asia. SRe derives its revenue primarily from customers in Taiwan
      and China. In addition, we are shipping an increasing number of products to
      Asia
      where an increasing volume of contract manufacturing work occurs. We expect
      our
      future sales to continue to grow, as a percentage of net revenues, in Taiwan
      and
      China in future periods. As the migration of assembly operations to Asia
      continues, we expect our net revenues from sales in North America to decline,
      as
      they have during fiscal 2008 and 2007.




38




***GROSS
      PROFIT***




**Fiscal Year Ended**
              ****
              **Fiscal Year Ended**
              ********
              ****
              **June 28,**
              ****
              **June
                  30,**
              ****
              **%**
              ****
              **June 30,**
              ****
              **July
                  1,**
              
              **%****(In thousands)**
              
              **2008**
              
              **2007**
              
              **Change**
              
              **2007**
              
              **2006**
              
              **Change**Net
                  revenues
              
              $
              163,744
              
              $
              123,370
              
              
              32.7
              %
              $
              123,370
              
              $
              105,878
              
              
              16.5
              %Gross
                  profit
              
              
              60,106
              
              
              42,813
              
              
              40.4
              %
              
              42,813
              
              
              36,504
              
              
              17.3
              %Gross
                  profit percentage
              
              
              36.7
              %
              
              34.7
              %
              
              
              
              
              34.7
              %
              
              34.5
              %




With
      respect to the increase in gross profit in fiscal 2008 as compared to fiscal
      2007 of $17.3 million, the increase is the result of:


·
            Sales
                growth in analog switches, which generated $8.5 million increased
                gross
                profit;


·
            increased
                sales of the FCP product family, which contributed $4.7 million of
                additional gross profit; and


·
            improved
                margins in IC products, which added $3.9 million gross
                profit.





The
      $6.3
      million increase in gross profit in fiscal 2007 versus fiscal 2006 was primarily
      due to:


·
            The
                inclusion of fifty-two weeks of eCERA’s operations in fiscal 2007 versus
                forty-three weeks included in fiscal 2006 which contributed $1.2
                million;


·
            SRe’s
                organic sales growth, which generated $1.4 million increased gross
                profit;


·
            improved
                margins in SRe’s sales which added $1.6 million in gross profit;
                and


·
            organic
                sales growth in our sales of core legacy products, which added $3.3
                million to gross profit, partially offset by a small decline in our
                gross
                profit percentage that reduced gross profit by $745,000 and an inventory
                return reserve in fiscal 2007 of $464,000 relating to a distributor
                termination.





During
      fiscal years 2008, 2007 and 2006, gross profits and gross margins benefited
      from
      the sale of inventory, previously valued at $354,000, $497,000 and $505,000,
      respectively, that we had previously identified as excess and written off.





Future
      gross profit and gross margin are highly dependent on the level and product
      mix
      included in net revenues. This includes the mix of sales between lower margin
      FCP products and our higher margin integrated circuit products. Although we
      have
      been successful at favorably improving our integrated circuit product mix and
      penetrating new end markets, there can be no assurance that this will continue.
      Accordingly, we are not able to predict future gross profit levels or gross
      margins with certainty.




***RESEARCH
      AND DEVELOPMENT***




****
                **Fiscal Year Ended**
                ****
                **Fiscal Year Ended**
                ********
                ****
                **June 28,**
                ****
                **June
                    30,**
                ****
                **%**
                ****
                **June 30,**
                ****
                **July
                    1,**
                ****
                **%**
                ******(In thousands)**
                ****
                **2008**
                ****
                **2007**
                ****
                **Change**
                ****
                **2007**
                ****
                **2006**
                ****
                **Change**
                ****Net
                    revenues
                
                $
                163,744
                
                $
                123,370
                
                
                32.7
                %
                $
                123,370
                
                $
                105,878
                
                
                16.5
                %Research
                    and development
                
                
                17,159
                
                
                16,021
                
                
                7.1
                %
                
                16,021
                
                
                15,492
                
                
                3.4
                %R&D
                    as a percentage of net revenues
                
                
                10.5
                %
                
                13.0
                %
                
                
                
                
                13.0
                %
                
                14.6
                %




Research
      and development (“R&D”) expenses consist primarily of costs related to
      personnel and overhead, non-recurring engineering charges and other costs
      associated with the design, prototyping and testing of new product concepts,
      manufacturing process support and customer applications support. The $1.1
      million expense increase for fiscal 2008 as compared with fiscal 2007 is
      attributable primarily to increases of $726,000 in compensation, reflecting
      merit increases, bonus, and staff additions (from 118 to 144 employees); and
      $192,000 in design and other consultant expenditures. As a result of cost
      control in R&D expenses coupled with strong revenue growth, R&D expenses
      have declined to 10.5% of revenues for fiscal 2008 as compared with 13% for
      fiscal 2007.





The
      increase of $529,000 in fiscal 2007 as compared to fiscal 2006 was primarily
      the
      result of additional share-based compensation expense of $364,000 and increased
      personnel expenses of approximately $259,000.




39




We
      believe that continued investment in research and development to develop new
      products and improve manufacturing processes is critical to our success and,
      consequently, we expect to increase research and development expenses in future
      periods over the long term.





***SELLING,
      GENERAL AND ADMINISTRATIVE***


**Fiscal Year Ended**
              
              **Fiscal Year Ended******
              
              **June 28,**
              
              **June
                  30,**
              
              **%**
              
              **June 30,**
              
              **July
                  1,**
              
              **%****(In
                  thousands)**
              
              **2008**
              
              **2007**
              
              **Change**
              
              **2007**
              
              **2006**
              
              **Change**Net
                  revenues
              
              $
              163,744
              
              $
              123,370
              
              
              32.7
              %
              $
              123,370
              
              $
              105,878
              
              
              16.5
              %Selling,
                  general and administrative
              
              
              23,624
              
              
              21,878
              
              
              8.0
              %
              
              21,878
              
              
              18,490
              
              
              18.3
              %SG&A
                  as a percentage of net revenues
              
              
              14.4
              %
              
              17.7
              %
              
              
              
              
              17.7
              %
              
              17.5
              %




Selling,
      general and administrative (“SG&A”) expenses consist primarily of personnel
      and related overhead costs for sales, marketing, finance, administration, human
      resources and general management.





The
      $1.7
      million expense increase for fiscal 2008 as compared to fiscal 2007 is primarily
      attributable to increased personnel expense of $842,000, increased share-based
      compensation expense of $290,000, increased product sample and mailing expenses
      of $318,000, and an increase of $152,000 in recruiting
      expenditures.





The
      expense increase of $3.4 million in fiscal 2007, as compared to fiscal 2006,
      is
      partially due to the inclusion of a full fifty-two weeks of eCERA SG&A
      expenses in the current year as compared to only forty-three weeks in the prior
      fiscal year, which added $439,000 to our costs. The increase was also the result
      of increases of $1.3 million in personnel expense, $1.1 million of audit, tax
      and consulting fees, primarily related to Sarbanes-Oxley 404 compliance, and
      $378,000 in share-based compensation expense.





We
      anticipate that selling, general and administrative expenses will increase
      in
      future periods as we add to our support and administrative staff, particularly
      in sales and marketing, and as we face increasing commission expense to the
      extent we achieve higher sales levels. Although we recognized the majority
      of
      costs associated with compliance with Sarbanes-Oxley section 404 in fiscal
      2007,
      we believe continuing compliance will be a significant expense. We intend to
      continue to focus on controlling selling, general and administrative expenses.




***RESTRUCTURING
      CHARGE***





In
      the
      year ended July 1, 2006, restructuring charges totaled $55,000, and were related
      to a final settlement of an outstanding claim from a fiscal 2005 reduction
      in
      force designed to continue our outsourcing program, realign our sales force
      to
      reflect geographic sales changes, our revised selling strategy and to reduce
      costs.





If
      business conditions deteriorate or our rate of growth does not meet our
      expectations, we may implement cost-cutting actions in the future.





***INTEREST
      AND OTHER INCOME, NET***


**Fiscal Year Ended**
              ****
              **Fiscal Year Ended**
              ********
              ****
              **June 28,**
              ****
              **June
                  30,**
              ****
              **%**
              ****
              **June 30,**
              ****
              **July
                  1,**
              ****
              **%**
              ******(In thousands)**
              ****
              **2008**
              ****
              **2007**
              ****
              **Change**
              ****
              **2007**
              ****
              **2006**
              ****
              **Change**
              ******Net revenues**
              ****
              $
              163,744
              
              $
              123,370
              
              
              32.7
              %
              $
              123,370
              
              $
              105,878
              
              
              16.5
              %Interest income
              
              
              5,940
              
              
              5,371
              
              
              10.6
              %
              
              5,371
              
              
              3,832
              
              
              40.2
              %Other income (expense)
              
              
              (427
              )
              
              1,089
              
              
              n/m
              (1)
              
              1,089
              
              
              43
              
              
              n/m
              (1)Total interest and other income, net
              
              $
              5,513
              
              $
              6,460
              
              
              
              
              $
              6,460
              
              $
              3,875Interest and other income, net as a percentage of net revenues
              
              
              3.4
              %
              
              5.2
              %
              
              
              
              
              5.2
              %
              
              3.7
              %




_______________________


(1)
“n/m”
      means not meaningful.




40




The
      increase in interest income for fiscal 2008, as compared to fiscal 2007, was
      primarily the result of $0.5 million in realized gains from the sale of
      investment securities, also included herein. Other income (expense) for fiscal
      2008 primarily results from an exchange rate loss as the U.S. dollar weakened
      approximately 7% against the New Taiwan Dollar, while in fiscal 2007 other
      income benefited from the gain of $1.0 million resulting from the sale of 50%
      of
      an investment in a privately held semiconductor company.




The
      increase in interest income for fiscal 2007, as compared to fiscal 2006, was
      primarily due to increased interest rates received on investments.





***INTEREST
      EXPENSE***





Interest
      expense was reduced to $12,000 in fiscal 2008 from $130,000 in fiscal 2007
      as
      outstanding debt was retired in the first half of the 2008 fiscal year. Interest
      expense declined $212,000 or 62% in fiscal 2007 from interest expense of
      $342,000 in fiscal 2006 due to the repayment of a portion of outstanding debt
      during the 2007 fiscal year.





***PROVISION
      FOR INCOME TAXES***


****
                **Fiscal Year Ended**
                ****
                **Fiscal Year Ended**
                ********
                ****
                **June 28,**
                ****
                **June
                    30,**
                ****
                **%**
                ****
                **June 30,**
                ****
                **July
                    1,**
                ****
                **%**
                ******(In thousands)**
                ****
                **2008**
                ****
                **2007**
                ****
                **Change**
                ****
                **2007**
                ****
                **2006**
                ****
                **Change**Pre-tax income
                
                $
                24,748
                
                $
                11,238
                
                
                120.2
                %
                $
                11,238
                
                $
                5,936
                
                
                89.3
                %Income tax provision
                
                
                8,221
                
                
                2,985
                
                
                175.4
                %
                
                2,985
                
                
                1,852
                
                
                61.2
                %Effective tax rate
                
                
                33.2
                %
                
                26.6
                %
                
                
                
                
                26.6
                %
                
                31.2
                %




Our
      effective tax rate differs from the federal statutory rate primarily due to
      state income taxes, the effect of foreign income tax and foreign losses, the
      utilization of research and development tax credits and changes in the deferred
      tax asset valuation allowance.





The
      effective tax rate for fiscal 2008 increased from fiscal 2007 primarily due
      to
      increased state income taxes, net of federal benefit, reduced research and
      development tax credits and reduced tax benefit from stock compensation expense.
      A reconciliation of our tax rates for fiscal years 2008, 2007 and 2006 is
      detailed in Note 17 to the Consolidated Financial Statements contained in this
      report on Form 10-K.





In
      October 2003, we purchased SaRonix, LLC. Included in the purchase were certain
      deferred tax assets. In the initial evaluation of these assets, we concluded
      the
      assets could not be utilized and so we assigned no value to them. During fiscal
      2007, we determined that certain deferred tax assets acquired in the SaRonix
      transaction could be utilized. We calculated the value of the assets by
      determining the present value of certain tax savings we could realize in the
      future. The amount we assigned to the deferred tax assets was $1.5 million.
      We
      reduced the value of certain previously reported intangible assets by an equal
      and offsetting amount. Please refer to Note 7 to the Consolidated Financial
      Statements of this report on Form 10-K for further discussion.





We
      purchased eCERA on September 7, 2005. Subsequent to the purchase date we
      determined that certain of eCERA’s deferred tax assets that had been considered
      worthless could be utilized. This resulted in a reduction of purchased goodwill
      of $566,000 and intangible assets of $1.8 million to offset the increased value
      of the deferred tax assets. Please refer to Note 7 to the Consolidated Financial
      Statements of this report on Form 10K for further discussion.




***MINORITY
      INTEREST***





For
      the
      years ended June 28, 2008 and June 30, 2007, net minority interest in income
      of
      our consolidated subsidiaries, PTL and SRe, was $116,000 and $33,000,
      respectively. For the year ended July 1, 2006 net minority interest in the
      losses of our consolidated subsidiaries, PTL and SRe, was $99,000. We have
      been
      actively engaged in improving the operating efficiencies of our subsidiaries,
      resulting in the positive trend over the past three years.




41




***EQUITY
      IN NET INCOME OF UNCONSOLIDATED AFFILIATES***


**Fiscal Year Ended**
              
              **Fiscal Year Ended****June 28,**
              ****
              **June
                  30,**
              ****
              **%**
              ****
              **June 30,**
              ****
              **July
                  1,**
              ****
              **%**
              ******(In thousands)**
              ****
              **2008**
              ****
              **2007**
              ****
              **Change**
              ****
              **2007**
              ****
              **2006**
              ****
              **Change**Equity in net income of PTI
              
              $
              274
              
              $
              477
              
              
              (42.6
              )%
              $
              477
              
              $
              1,822
              
              
              (73.8
              )%Equity in net income of JCP
              
              
              360
              
              
              33
              
              
              990.9
              %
              
              33
              
              
              5
              
              
              560.0
              %Equity in net losses of other investees
              
              
              (32
              )
              
              (103
              )
              
              68.9
              %
              
              (103
              )
              
              (31
              )
              
              (232.3
              )%Total
              
              $
              602
              
              $
              407
              
              
              47.9
              %
              $
              407
              
              $
              1,796
              
              
              (77.3
              )%




Equity
      in
      net income of unconsolidated affiliates includes our allocated portion of the
      net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
      corporation based in Shanghai, People’s Republic of China and Hong Kong. Pericom
      and certain Pericom shareholders formed PTI in 1994 to develop and market
      semiconductors in China and certain other Asian countries. We adopted Emerging
      Issues Task Force Issue No. 02-14, “ *Whether
      an Investor Should Apply the Equity Method of Accounting to Investments Other
      Than Common Stock* ”
(“EITF
      02-14”) in the quarter ended December 31, 2004. EITF 02-14 requires us to
      account for our investment in securities, other than common stock, of PTI using
      the equity method of accounting. We have invested in PTI using several different
      transactions over a period of years. Initially, PTI generated losses which
      were
      attributable to each of the various rounds of financing and we accounted for
      those losses using our percentage of each round of financing until our
      investment was exhausted. When PTI began showing gains, we recouped our losses
      against each of the rounds. We are now accounting for our equity in PTI
      following our 25% ownership of PTI’s Series A Preferred Stock. Our allocated
      portion of PTI’s results decreased to a profit of $274,000 and $477,000 in
      fiscal years 2008 and 2007, respectively, from a profit of $1.8 million in
      fiscal 2006.





The
      reduced equity in net income of PTI in fiscal 2008 and 2007, as compared to
      fiscal 2006, is primarily due to the lower percentage at which we recouped
      PTI’s
      net income during 2008 and 2007. In 2006, the Company recouped PTI’s net income
      at 75%, as compared to 25% in 2008 and 2007. We will continue to use the 25%
      allocation percentage until we have recouped all the losses we recognized in
      prior years in accordance with EITF 02-14. Once we have accomplished that,
      we
      will revert to recognizing our share of PTI’s net income at our percentage
      ownership level, which is currently 44.1%.





Equity
      in
      net income of unconsolidated affiliates also includes the Company’s allocated
      portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology
      Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan
      City, Henan Province, China. JCP is a key manufacturing partner of SRe, and
      SRe
      has acquired a 49% equity interest in JCP. For fiscal 2008, the Company’s
      allocated portion of JCP’s results was income of $360,000, as compared with
      income of $33,000 and $5,000 for fiscal 2007 and 2006, respectively. SRe’s
      interest in JCP was acquired in February 2006, and so the fiscal 2006 income
      represented five months of operations.




**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      June 28, 2008, our principal sources of liquidity included continuing operations
      as well as cash, cash equivalents, and short-term and long-term investments
      of
      approximately $123.9 million, as compared with $131.0 million as of June 30,
      2007 and $122.6 million as of July 1, 2006. In fiscal 2008 and 2007, we made
      no
      acquisitions of other companies; instead, we continued to assimilate
      acquisitions made in fiscal 2006. In fiscal 2006, we purchased 99.93% of eCERA
      Comtek Corporation for $14.7 million in cash. Subsequent to our purchase of
      eCERA, we exercised an option to acquire the remaining 50% of AZER, which we
      did
      not own, for $1.6 million in cash and $1.8 million in assumed debt.





As
      of
      June 28, 2008, we owned assets classified as cash and cash equivalents of $41.6
      million as compared to $29.2 million as of June 30, 2007 and $12.6 million
      as of
      July 1, 2006. The maturities of our short-term investments are staggered
      throughout the year to ensure we meet our cash requirements. Because we are
      primarily a fabless semiconductor manufacturer, we have lower capital equipment
      requirements than other semiconductor manufacturers that own fabrication
      foundries (“fabs”). During the 2008 fiscal year, we purchased $10.0 million of
      property and equipment as compared to $6.0 million and $7.2 million in fiscal
      2007 and 2006, respectively. The increase in capital expenditures for property
      and equipment in fiscal 2008 compared with fiscal 2007 reflected an increase
      to
      $6.4 million from $1.5 million at SRe to expand capacity through the addition
      of
      four surface mount device (SMD) production lines, offset in part by a slight
      reduction to $3.6 million from $4.2 million in the U.S. The decrease in capital
      spending on property and equipment in fiscal 2007 compared with fiscal 2006
      was
      primarily due to reduced purchases by SRe offset in part by an increase in
      spending by other Pericom entities.




42




We
      generated approximately $5.5 million of interest and other income, net during
      the fiscal year ended June 28, 2008 compared to $6.5 million and $3.9 million
      in
      the fiscal years ended June 30, 2007 and July 1, 2006, respectively. The
      decrease in interest and other income in fiscal 2008 as compared with fiscal
      2007 was primarily the result of a $310,000 exchange rate loss in fiscal 2008
      and a $1.0 million gain from the sale of 50% of an investment in a privately
      held semiconductor company in fiscal 2007, partly offset by a $569,000 increase
      in interest income. The increase in interest and other income in fiscal 2007
      as
      compared with fiscal 2006 was primarily attributable to a $1.3 million increase
      in interest income and to the $1.0 million gain from the sale of 50% of an
      investment as mentioned above. In the longer term, we may generate less interest
      income if our total invested balance decreases and the decrease is not offset
      by
      rising interest rates or increased cash generated from operations or other
      sources.





In
      fiscal
      2008, our net cash provided by operating activities of $7.6 million was the
      result of net income of $17.0 million plus $10.4 million in favorable non-cash
      adjustments to net income, partially offset by unfavorable changes in assets
      and
      liabilities of $19.8 million. The favorable non-cash adjustments to net income
      were primarily comprised of depreciation and amortization of $6.5 million,
      stock
      based compensation of $2.4 million, deferred taxes of $2.1 million and stock
      compensation tax benefit of $434,000, partially offset by $644,000 of realized
      gain on investments and $602,000 of non-cash equity in net income of our
      unconsolidated affiliates. The unfavorable changes in assets and liabilities
      primarily included a $10.0 million increase in accounts receivable, a $2.7
      million increase in net inventory, and a $5.3 million increase in prepaids
      and
      other current assets.





In
      fiscal
      2007, our net cash provided by operating activities of approximately $24.1
      million was a result of net income of $8.6 million, favorable changes in assets
      and liabilities of $8.4 million and non-cash adjustments to net income of $7.1
      million. The changes in assets and liabilities primarily included a $1.9 million
      decrease in net inventory, a $3.5 million decrease in accounts receivable,
      a
      $2.2 million increase in accounts payable and a $1.4 million increase in other
      liabilities, partially offset by a $393,000 decrease in other long-term
      liabilities. The non-cash adjustments to net income were primarily comprised
      of
      depreciation and amortization of $6.1 million and stock based compensation
      of
      $2.1 million, partially offset by a $1.0 million gain on sales of investments
      in
      privately held companies, which is not an operating cash flow.





In
      fiscal
      2006, our net cash provided by operating activities of approximately $12.1
      million was a result of net income of $6.0 million, non-cash adjustments to
      net
      income of $6.0 million and a favorable net change in assets and liabilities
      of
      $122,000. The change in assets and liabilities was primarily the result of
      a
      $1.7 million decrease in inventory, a $774,000 decrease in prepaid expenses
      and
      other current assets, a decrease in other assets of $773,000 and an increase
      in
      accrued liabilities of $625,000 partially offset by an increase in accounts
      receivable of $3.5 million. The non-cash adjustments to net income were
      primarily comprised of depreciation and amortization of $5.0 million, deferred
      taxes of $1.5 million and $1.3 million of stock based compensation, partially
      offset by $1.8 million of non-cash equity in net income of our unconsolidated
      affiliates. We attribute the increase in accounts receivable to the acquisition
      of eCERA’s operations. The increase in stock based compensation is the result of
      our implementation of SFAS 123(R).





Generally,
      as sales levels rise, we expect accounts receivable and accounts payable to
      increase. However, there will be routine fluctuations in these accounts from
      period to period that may be significant in amount. We actively manage our
      inventory to prevent excess and the risk of obsolescence. While inventory
      increased as of June 28, 2008 as compared with June 30, 2007, inventory turns
      improved from 5.1 to 6.3 times a year.





In
      fiscal
      2008, we generated cash from our investing activities of $11.3 million, which
      was primarily the result of maturities of short-term investments exceeding
      purchases by $21.3 million, partially offset by purchases of property and
      equipment of $10.0 million.





In
      fiscal
      2007, we generated cash from our investing activities in the amount of $5.8
      million, which was primarily comprised of maturities of short-term investments
      exceeding purchases by $8.6 million and net proceeds from sales of investments
      of $2.0 million partially offset by purchases of property and equipment of
      $6.0
      million.




43




In
      fiscal
      2006, our net cash used in investing activities of $9.5 million was primarily
      due to net cash paid for the eCERA and AZER acquisitions totaling $14.6 million,
      net of cash received and additions to property and equipment totaling $7.2
      million partially offset by maturities of short-term investments exceeding
      purchases by $13.2 million.





In
      fiscal
      2008, we used cash in financing activities of $7.0 million to repurchase common
      stock for $20.1 million and to make principal payments on short-term and
      long-term debt and capital leases of $792,000. These uses were partially offset
      by $10.9 million of proceeds from employee stock option exercises and purchases
      under the Employee Stock Purchase Plan and $3.0 million of excess tax benefit
      on
      share-based compensation.





In
      fiscal
      2007, we used cash in financing activities of $13.2 million primarily to make
      principal payments on short-term and long-term debt and capital leases of $11.2
      million and to repurchase common stock for $9.2 million. We partially offset
      these uses by selling our common stock to our employee stock plans for $4.1
      million and acquiring additional short-term and long-term debt of $2.8 million.





Our
      cash
      used in financing activities in fiscal 2006 of $10.9 million was primarily
      to
      pay the principal payments on long-term debt and capital leases from the eCERA
      acquisition. We repurchased $6.5 million of our common stock. Partially
      offsetting these uses, we received proceeds from increases in short- and
      long-term debt at eCERA of $10.5 million and we received $2.2 million from
      selling common stock to our employee stock plans.





We
      believe our existing cash balances, as well as cash expected to be generated
      from operating activities, will be sufficient to meet our anticipated cash
      needs
      for at least the next 12 months.





In
      2001,
      our Board of Directors approved the repurchase of up to 2.0 million shares
      of
      our common stock. As of March 30, 2007, we had repurchased 2,000,000 shares
      at a
      cost of approximately $17.8 million. In fiscal 2007, we repurchased 628,000
      shares for $6.0 million, and in fiscal 2006 we repurchased 750,000 shares for
      $6.5 million.





On
      April
      26, 2007, our Board of Directors approved the repurchase of an additional 2.0
      million shares. We have funded our stock repurchases using our current cash
      balances and the sales of common stock to our employee stock plans in the past,
      and we expect to fund future stock repurchases from these same sources. Pursuant
      to the 2007 Board of Directors’ approval, we repurchased approximately 1.6
      million shares during fiscal 2008 at an approximate cost of $20.1 million,
      and
      302,000 shares during fiscal 2007, at an approximate cost of $3.1
      million.





On
      April
      29, 2008, our Board of Directors authorized the repurchase of an additional
      $30
      million of our common stock. The repurchases may be made from time to time
      in
      the open market or through private transactions at the discretion of Company
      management.





In
      January 2008, we initiated a project to build a factory in China for the
      development and manufacture of frequency control products (FCPs). The factory
      will be located in the Jinan Development Zone in Shandong Province. It is
      expected that our total investment will be approximately $35 million over the
      next two years. We have land use rights for 75 acres, and the factory is being
      designed for 13 surface mount device (SMD) production lines, with Phase I
      expected to be completed late in fiscal 2009. We have established PSE Technology
      (Shandong) Corporation (PSE) in China to develop and operate the factory. PSE
      is
      a subsidiary of Pericom Asia Ltd. (PAL), a wholly-owned Hong Kong subsidiary
      of
      Pericom.





We
      may
      use a portion of our cash to acquire or invest in complementary businesses
      or
      products or to obtain the right to use complementary technologies. From time
      to
      time, in the ordinary course of business, we may evaluate potential acquisitions
      of such businesses, products or technologies.





Our
      long-term future capital requirements will depend on many factors, including
      our
      level of revenues, the timing and extent of spending to support our product
      development efforts, the expansion of sales and marketing activities, the timing
      of our introductions of new products, the costs to ensure access to adequate
      manufacturing capacity, and the continuing market acceptance of our products.
      We
      could be required, or could elect, to seek additional funding through public
      or
      private equity or debt financing and additional funds may not be available
      on
      terms acceptable to us or at all.





44




**CONTRACTUAL
      OBLIGATIONS AND COMMITMENTS**





The
      following table depicts our contractual obligations as of June 28, 2008:





**Payments
                Due by Period****(in
                thousands)**
            
            
            
            **Less than**
            
            **1-3**
            
            **3-5****Contractual
                obligation**
            
            **Total**
            
            **1 Year**
            
            **Years**
            
            **Years**
            
            **Thereafter**Operating
                leases
            
            $
            6,261
            
            $
            1,283
            
            $
            2,212
            
            $
            2,200
            
            $
            566Total
                contractual cash obligation
            
            $
            6,261
            
            $
            1,283
            
            $
            2,212
            
            $
            2,200
            
            $
            566




We
      have
      no purchase obligations other than routine purchase orders as of June 28, 2008. In
      January 2008, we initiated a project to build a factory in China for the
      development and manufacture of frequency control products (FCPs), and it is
      expected that our total investment will be approximately $35 million over the
      next two years.




**OFF-BALANCE
      SHEET ARRANGEMENTS**





As
      of
      June 28, 2008, the Company did not have any off-balance-sheet arrangements,
      as
      defined in Item 303(a)(4) of SEC Regulation S-K.




**RECENTLY
      ISSUED ACCOUNTING STANDARDS**




In
      May 2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles.* SFAS 162
      identifies the sources of accounting principles and provides entities with
      a
      framework for selecting the principles used in preparation of financial
      statements that are presented in conformity with GAAP. The current GAAP
      hierarchy has been criticized because it is directed to the auditor rather
      than
      the entity. The FASB believes the GAAP hierarchy should be directed to entities
      because it is the entity that is responsible for selecting accounting principles
      for financial statements that are presented in conformity with GAAP. The
      adoption of FASB 162 is not expected to have a material impact on the Company’s
      consolidated financial position and results of operations.





In
      April 2008, the FASB issued FSP FAS No. 142-3, *Determination
      of the Useful Life of Intangible Assets* ,
      (FSP
      142-3). FSP 142-3 amends the factors that should be considered in developing
      renewal or extension assumptions used to determine the useful life of a
      recognized intangible asset under SFAS No. 142, *Goodwill
      and Other Intangible Assets.* FSP
      142-3 is effective for fiscal years beginning after December 15, 2008. The
      Company is currently assessing the impact of FSP 142-3 on its consolidated
      financial position and results of operations.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), *Business
      Combinations.* This
      statement replaces SFAS 141, “Business Combinations.” This statement retains the
      fundamental requirements in Statement 141 that the acquisition method of
      accounting (which Statement 141 called the *purchase
      method* )
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. This statement also establishes principles and
      requirements for how the acquirer: a) recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed, and any
      noncontrolling interest in the acquiree; b) recognizes and measures the goodwill
      acquired in the business combination or a gain from a bargain purchase; and
      c)
      determines what information to disclose to enable users of the financial
      statements to evaluate the nature and financial effects of the business
      combination. SFAS 141 (R) will apply prospectively to business combinations
      for which the acquisition date is on or after the Company’s fiscal year
      beginning June 28, 2009. The Company has not yet evaluated this statement for
      the impact, if any, that SFAS 141 (R) will have on its consolidated
      financial statements.





In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interest in Consolidated Financial Statements* (“SFAS
      160”) *.* This
      Statement amends Accounting Research Bulletin 51 to establish accounting and
      reporting standards for the noncontrolling (minority) interest in a
      subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. The Company has not yet determined the impact that SFAS
      160 will have on its consolidated financial statements. SFAS 160 is effective
      for the Company’s fiscal year beginning June 28, 2009.




45




In
      February 2007, the FASB issued SFAS No. 159 *,
      The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“SFAS
      159”). SFAS 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value. The standard requires that
      unrealized gains and losses on items for which the Company elects the fair
      value
      option be reported in earnings. The Company is required to adopt the provision
      of SFAS 159 for the Company’s fiscal year beginning June 29, 2008. The Company’s
      management is currently evaluating the impact that SFAS 159 will have on the
      consolidated balance sheet and the consolidated statements of operations and
      cash flows.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”) which is effective for the Company’s fiscal year beginning June 29, 2008
      and for interim periods within that year. SFAS 157 defines fair value,
      establishes a framework for measuring fair value and expands the related
      disclosure requirements. SFAS No. 157 applies under other accounting standards
      that require or permit fair value measurements. Accordingly, SFAS No. 157 does
      not require any new fair value measurement. The Company is currently evaluating
      the potential impact that SFAS 157 will have on its financial position, results
      of operations and liquidity.





In
      June
      2006, the FASB issued FASB interpretation (“FIN”) No. 48, *Accounting
      for uncertainty in Income Taxes, an Interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 applies to all tax positions accounted for under SFAS No. 109, *Accounting
      for Income Taxes* and
      defines the confidence level that a tax position must meet in order to be
      recognized in the financial statements. The FIN 48 requires that the tax effects
      of a position be recognized only if it is “more-likely-than-not” to be sustained
      by the taxing authority as of the reporting date. If a tax position is not
      considered “more-likely-than-not” to be sustained then no benefits of the
      position are to be recognized. FIN 48 requires additional annual disclosures
      and
      was adopted by the Company as of the start of the current fiscal year on July
      1,
      2007. Additional discussion is included in Note 17 to the Consolidated Financial
      Statements contained in Item 8 of this report.




**ITEM
      7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




**MARKET
      RISK DISCLOSURE**





At
      June
      28, 2008, the Company’s investment portfolio consisted primarily of fixed income
      securities, excluding those classified as cash equivalents, of $82.3 million
      (see Note 1 of Notes to Financial Statements). These securities are subject
      to
      interest rate risk and will decline in value if market interest rates increase.
      We could realize a loss on these securities if we were forced to sell them
      in a
      period when interest rates are higher than current rates. We do not expect
      such
      a scenario to occur. For example, if market interest rates were to increase
      immediately and uniformly by 10% from levels as of June 28, 2008, such as from
      4.5% to 5.0%, the decline in the fair value of the portfolio would be
      approximately $7.5 million. On the other hand, if interest rates were to decline
      the effect on our portfolio would be in the opposite direction.





The
      Company transacts business in various non-U.S. currencies, primarily the New
      Taiwan Dollar and the Japanese Yen. The Company is exposed to fluctuations
      in
      foreign currency exchange rates on accounts receivable from sales in these
      foreign currencies and the net monetary assets and liabilities of the related
      foreign subsidiary. A hypothetical 10% unfavorable change in the foreign
      currency exchange rate would reduce cash by approximately $0.7 million as those
      monetary assets are converted to cash.




46




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





1.
            **INDEX
                TO CONSOLIDATED FINANCIAL
                STATEMENTS**




The
                  following Consolidated Financial Statements are filed as part of
                  this
                  report:**Page No.**Report
                  of Independent Registered Public Accounting Firm
              55Consolidated
                  Balance Sheets as of June 28, 2008 and June 30, 2007
              56Consolidated
                  Statements of Operations for each of the three fiscal
                  yearsin
                  the period ended June 28, 2008
              57Consolidated
                  Statements of Shareholders’ Equity and Comprehensive Income
                  (Loss)for
                  each of the three fiscal years in the period ended June 28, 2008
              58Consolidated
                  Statements of Cash Flows for each of the three fiscalyears
                  in the period ended June 28, 2008
              59Notes
                  to Consolidated Financial Statements
              60


2.
            **INDEX
                TO FINANCIAL STATEMENT
                SCHEDULE**




The
                  following financial statement schedule of Pericom Semiconductor
                  Corp. for
                  the years ended June 28, 2008, June 30, 2007 and July 1, 2006 is
                  filed as
                  part of this report and should be read in conjunction with the
                  Consolidated Financial Statements of Pericom Semiconductor
                  Corporation.Schedule
                  II – Valuation and Qualifying Accounts for each of the three fiscal
                  years
                  in the period ended June 28, 2008
              Sii





Schedules
      other than those listed above have been omitted since they are either not
      required, not applicable or the information is otherwise included.




47




**ITEM
      9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE**




None.




**ITEM 9A.** **** **CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**





Pericom
      maintains disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports filed pursuant to the
      Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC
      rules and forms and that such information is accumulated and communicated to
      our
      management, including our Chief Executive Officer, Mr. Alex C. Hui, and our
      Chief Financial Officer, Ms. Angela Chen, as appropriate, to allow for timely
      decisions regarding required disclosure.





Our
      management, with the participation of our Chief Executive Officer and our Chief
      Financial Officer, has evaluated the effectiveness of our disclosure controls
      and procedures (as such term is defined in Rule 13a-15(e) and Rule
      15d-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”)) as
      of June 28, 2008. Based on their evaluation, our Chief Executive Officer and
      our
      Chief Financial Officer have concluded that the Company’s disclosure controls
      and procedures were effective as of June 28, 2008 for the purposes set forth
      in
      Rule 13a-15(e) and 15d-15(e) under the Exchange Act.





**Management’s
      Annual Report on Internal Control over Financial
      Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting (as defined in the Exchange Act
      Rule 13a-15(f) and 15d-15(f)). Our internal control over financial
      reporting is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of consolidated financial
      statements for external purposes in accordance with accounting principles
      generally accepted in the United States. Our internal control over financial
      reporting includes those policies and procedures that:




(1)
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect our transactions and dispositions of
                assets;




(2)
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of consolidated financial statements in accordance with
                GAAP,
                and that our receipts and expenditures are being made only in accordance
                with authorizations of our management and Board of Directors;
                and




(3)
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on the consolidated financial
                statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. In addition, projections of any evaluation
      of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we conducted an evaluation of
      the
      effectiveness of our internal control over financial reporting as of June 28,
      2008. Our assessment was based on criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission in *Internal
      Control—Integrated Framework* (“COSO
      Framework”).




Based
      on
      this evaluation, the Company’s management concluded that, as of June 28, 2008,
      our internal control over financial reporting was effective based on the
      criteria set forth in the COSO framework.




Burr,
      Pilger & Mayer LLP, our independent registered public accounting firm that
      audited the financial statements included in this annual report on Form 10-K,
      has issued an attestation report on the effectiveness of the Company’s internal
      control over financial reporting, which is included in this annual report on
      Form 10-K.




48


**Changes
      in Internal Controls over Financial Reporting**


As
      disclosed in our annual report on Form 10-K for the year ended June 30, 2007,
      we
      previously determined that there was a material weakness in our internal control
      over financial reporting as of June 30, 2007 as the result of our not
      maintaining a sufficient complement of personnel with an appropriate level
      of
      accounting knowledge, experience and training in the application of generally
      accepted accounting principles commensurate with our financial reporting
      requirements. Because of this lack of sufficient staff, we identified a number
      of significant internal control deficiencies, the number and nature of which,
      when aggregated, led us to conclude that we had a material weakness in internal
      control over financial reporting as of June 30, 2007.





During
      the year ended June 28, 2008, we completed the implementation of corrective
      actions that we felt were necessary to remediate the internal control
      deficiencies from last fiscal year. Over the past several quarters we undertook
      a review of our processes and procedures and changed or supplemented such
      processes and procedures as appropriate to remediate the internal control
      deficiencies. We have also hired additional staff, either on a permanent or
      consulting basis, with the appropriate level of depth and skill in the
      application of generally accepted accounting principles. Based on the testing
      of
      the effectiveness of such corrective actions, Company management has determined
      that as of June 28, 2008 our internal control over financial reporting was
      effective.





Except
      for the changes described above, there have been no changes during the Company’s
      fiscal quarter ended June 28, 2008 in our internal control over financial
      reporting that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.




**ITEM
      9B.****OTHER
      INFORMATION**





None




49




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON**


**INTERNAL
      CONTROL OVER FINANCIAL REPORTING**





To
      the
      Board of Directors and Stockholders


of
      Pericom Semiconductor Corporation





We
      have
      audited the internal control over financial reporting of Pericom Semiconductor
      Corporation and its subsidiaries (the “Company”) as of June 28, 2008, based on
      criteria established in *Internal
      Control — Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).  The Company’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting, included in the
      accompanying Management’s Report on Internal Control over Financial Reporting,
      included in Item 9A. Our responsibility is to express an opinion on the
      effectiveness of the Company’s internal control over financial reporting based
      on our audit.





We
      conducted our audit of internal control over financial reporting in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States). Those standards require that we plan and perform the audit to obtain
      reasonable assurance about whether effective internal control over financial
      reporting was maintained in all material respects.  Our audit included
      obtaining an understanding of internal control over financial reporting,
      assessing the risk than a material weakness exists, testing and evaluating
      the
      design and operating effectiveness of internal control based on the assessed
      risk, and performing such other procedures as we considered necessary in the
      circumstances.  We believe that our audit provides a reasonable basis for
      our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company’s internal
      control over financial reporting includes those policies and procedures that
      (1)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, the Company maintained, in all material respects, effective internal
      control over financial reporting as of June 28, 2008, based on the COSO
      criteria.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Pericom
      Semiconductor Corporation and its subsidiaries as of June 28, 2008 and June
      30,
      2007, and the related consolidated statements of operations, shareholders’
equity and comprehensive income (loss), and cash flows for each of the three
      years in the period ended June 28, 2008, and the related financial statement
      schedule and our report dated September 10, 2008 expressed an unqualified
      opinion on those consolidated financial statements and the related financial
      statement schedule.





/s/
      Burr,
      Pilger & Mayer LLP


San
      Jose,
      California


September
      10, 2008




50




**PART
      III**




**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




The
      information required by this item is incorporated by reference to the section
      captioned “Directors and Executive Officers of the Registrant” to be contained
      in the Company’s Definitive Proxy Statement related to the Annual Meeting of
      Shareholders to be held December 11, 2008, to be filed by the Company with
      the
      SEC (the “Proxy Statement”).




**ITEM
      11. EXECUTIVE COMPENSATION**





The
      information required by this item is incorporated by reference to the section
      captioned “Executive Compensation” to be contained in the Proxy
      Statement.




**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      information required by this item is incorporated by reference to the section
      captioned “Security Ownership of Certain Beneficial Owners and Management” to be
      contained in the Proxy Statement.




**EQUITY
      COMPENSATION PLANS**





The
      following table summarizes share and exercise price information about our equity
      compensation plans as of June 28, 2008.





**Plan
                Category**
            
            **Number of securities to**
              **be issued upon exercise**
              **of outstanding options,**
              **warrants and rights**
            
            **Weighted average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
            
            **Number of securities**
              **remaining available**
              **for future issuance**
              **under plans**Equity
                compensation plans approved by shareholders:Option
                plans
            
            
            3,832,769
            
            $
            13.45
            
            
            1,203,656Employee
                stock purchase plan
            
            
            —
            
            
            
            
            
            544,323Equity
                compensation plans not approved by shareholders:SaRonix
                Inducement options (1)
            
            
            40,802
            
            $
            10.00
            
            
            —Total
            
            
            3,873,571
            
            $
            13.42
            
            
            1,747,979


_______________


(1)
            Represents
                options granted to former employees of SaRonix,
                LLC.





**Material
      Features of Equity Compensation Plans Not Approved by
      Shareholders**





In
      connection with Pericom’s October 1, 2003 acquisition of substantially all of
      the assets of SaRonix, LLC, Pericom granted options to purchase an aggregate
      of
      383,600 shares of Pericom common stock to certain former employees of SaRonix
      as
      an inducement for them to join Pericom. Under the agreements pertaining to
      such
      options, twenty percent of the options vest on October 1, 2004 and 1/48 of
      the
      remaining shares vest monthly for the following four years so that the options
      are fully vested in five years. The exercise price of the options is $10.00
      per
      share and the options expire if unexercised on October 1, 2013. In the event
      of
      a change in control transaction, the options shall become fully vested and
      exercisable if they are not assumed or replaced as part of the
      transaction.




51




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





The
      information required by this item is incorporated by reference to the section
      captioned “Certain Transactions” to be contained in the Proxy
      Statement.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      information required by this item is incorporated by reference to the sections
      captioned “The Audit Committee Report”, “Ratification of Independent Auditors”
and “Audit and Related Fee” to be contained in the Proxy
      Statements.


52


**PART
      IV**




**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





(a)
            The
                following documents are filed as part of this
                report:





(1)
            Financial
                Statements and Financial Statement Schedule - See Index to Financial
                Statements and Financial Statement Schedule at Item 8 of this annual
                report on Form 10-K.





(2)
            Exhibits.
                The following exhibits are filed as part of, or incorporated by reference
                into, this Report:




3.1
              Restated
                  Articles of Incorporation of the Registrant, filed as Exhibit 3.1
                  to the
                  Company’s Form 10-Q for the quarter ended March 31, 2001 and incorporated
                  herein by reference.3.2
              Amended
                  and Restated Bylaws of the Registrant (as amended by an amendment
                  adopted
                  on October 31, 2007), filed as Exhibit 3.3 1 to the Company’s Registrant’s
                  Quarterly Report on Form 10-K Q for the quarter ended December
                  29, 2007
                  and incorporated herein by reference.3.3
              Certificate
                  of Determination of the Series D Junior Participating Preferred
                  Shares.
                  Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly
                  Report on Form 10-Q for the quarter ended March 30,
                  20024.1
              Rights
                  Agreement between Pericom Semiconductor Corporation and Equiserve
                  Trust
                  Company, N.A. dated as of March 6, 2002 including Form of Right
                  Certificate attached thereto as Exhibit B. Incorporated by reference
                  to
                  Exhibit 4 to Registration Statement on Form 8-A filed by the Registrant
                  dated March 12, 200210.1*
              Registrant’s
                  1990 Stock Option Plan, including Form of Agreement, thereunder,
                  filed as
                  Exhibit 10.1 to the Company’s Registration Statement on Form S-1 and
                  incorporated herein by reference.10.2*
              Registrant’s
                  1995 Stock Option Plan, including Form of Agreement, thereunder,
                  filed as
                  Exhibit 10.2 to the Company’s Registration Statement on Form S-1 and
                  incorporated herein by reference.10.3
              Form
                  of Indemnification Agreement, filed as Exhibit 10.11 to the Company’s
                  Registration Statement on Form S-1 and incorporated herein by
                  reference.10.4
              Pericom
                  Technology Agreement, dated March 17, 1995 by and between the Registrant
                  and Pericom Technology, Inc., filed as Exhibit 10.12 to the Company’s
                  Registration Statement on Form S-1 and incorporated herein by
                  reference.10.5*
              Registrant’s
                  2000 Employee Stock Purchase Plan, including forms of Agreement
                  thereunder, filed as Exhibit 10.13 to the Company’s Form 10-Q for the
                  quarter ended December 30, 2000 and incorporated herein by
                  reference.10.6*
              Change
                  of Control Agreement, filed as Exhibit 10.16 to the Company’s Form 10-K
                  for the year ended June 29, 2002 and incorporated herein by
                  reference.10.7*
              Form
                  of Notice of Grant of Stock Option and Option Agreement for Inducement
                  Options filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter
                  ended September 27, 2003 and incorporated herein by
                  reference.10.8
              Lease,
                  dated October 27, 2003 by and between CarrAmerica Realty Corporation
                  as
                  Landlord and the Registrant as Tenant, as amended, filed as Exhibit
                  10.2
                  to the Company’s Form 10-Q for the quarter ended September 27, 2003 and
                  incorporated herein by reference.10.9*
              Amended
                  and Restated 2001 Stock Incentive Plan and form of agreement thereunder,
                  attached as Exhibit 10.2 to the Company’s Form 8-K, filed December 21,
                  2004, and incorporated herein by reference.10.10*
              Amended
                  and Restated 2004 Stock Incentive Plan and form of agreement thereunder,
                  attached as Exhibit 10.1 to the Company’s Form 8-K, filed January 27,
                  2005, and incorporated herein by reference.10.11**
              English
                  translation of Cooperation Agreement between Pericom Semiconductor
                  Corporation and the Jinan Hi-Tech Industries Development Zone Commission,
                  dated as of January 26, 2008, attached as Exhibit 10.1 to the Company’s
                  Form 8-K/A, filed May 5, 2008, and incorporated herein by
                  reference.10.12
              Forms
                  of restricted stock award agreements under Pericom 2001 and 2004
                  stock
                  incentive plans, attached as Exhibit 10.2 to the Registrant’s Quarterly
                  Report on Form 10-Q for the quarter ended March 29, 2008, and incorporated
                  herein by reference.
  53
  14.1
              Pericom
                  Semiconductor Corporation Code of Business Conduct and Ethics filed
                  as
                  Exhibit 14.1 to the Company’s form 10-K for the year ended June 26, 2004
                  and incorporated herein by reference.21.1
              Subsidiaries
                  of Pericom Semiconductor Corporation23.1
              Consent
                  of Burr, Pilger & Mayer LLP Independent Registered Public Accounting
                  Firm24.1
              Power
                  of Attorney (see signature page)31.1
              Certification
                  of Alex C. Hui, Chief Executive Officer, pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 200231.2
              Certification
                  of Angela Chen, Chief Financial Officer, pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 200232.1
              Certification
                  of Alex C. Hui, Chief Executive Officer, pursuant to Section 906
                  of the
                  Sarbanes-Oxley Act of 200232.2
              Certification
                  of Angela Chen, Chief Financial Officer, pursuant to Section 906
                  of the
                  Sarbanes-Oxley Act of 2002




*
            Management
                contract or compensatory plan or
                arrangement.


**
            Portions
                of this exhibit have been omitted pursuant to a confidential treatment
                request that was granted by the Securities and Exchange Commission
                pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
                amended.




(b)
              Exhibits:
                  See list of exhibits under (a)(2) above.(c)
              Financial
                  Statement Schedules: See list of schedules under (a)(1) above




54




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


Pericom
      Semiconductor Corporation





We
      have
      audited the accompanying consolidated balance sheets of Pericom Semiconductor
      Corporation and its subsidiaries (the “Company”) as of June 28, 2008 and June
      30, 2007 and the related consolidated statements of operations, shareholders’
equity and comprehensive income (loss), and cash flows for each of the three
      years in the period ended June 28, 2008.  Our audits also included the
      financial statement schedule listed in the Index to this Annual Report on Form
      10-K at Part IV Item 15(a)(1).  These consolidated financial statements and
      the financial statement schedule are the responsibility of the Company’s
      management.  Our responsibility is to express an opinion on these
      consolidated financial statements and financial statement schedule based on
      our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement.  An audit includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements.  An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation.  We believe that
      our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Pericom Semiconductor
      Corporation and its subsidiaries as of June 28, 2008 and June 30, 2007 and
      the
      results of their operations and their cash flows for each of the three years
      in
      the period ended June 28, 2008 in conformity with accounting principles
      generally accepted in the United States of America.  Also, in our opinion,
      the related financial statement schedule, when considered in relation to the
      consolidated financial statements taken as a whole, presents fairly, in all
      material respects, the information set forth therein.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company’s internal
      control over financial reporting as of June 28, 2008, based on the criteria
      established in *Internal
      Control* — *Integrated
      Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission and
      our
      report dated September 10, 2008 expressed an unqualified opinion thereon.




/s/
      Burr,
      Pilger & Mayer LLP


San
      Jose,
      California


September
      10, 2008




55







**PERICOM
      SEMICONDUCTOR CORPORATION**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands, except share data)


June 28,
              
              June 30,2008
              
              2007ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              41,646
              
              $
              29,173Short-term
                  investments in marketable securities
              
              
              72,108
              
              
              42,268Accounts
                  receivable:Trade
                  (net of allowances of $1,950 and $2,288)
              
              
              29,002
              
              
              17,880Other
                  receivables
              
              
              1,684
              
              
              1,741Inventories
              
              
              17,921
              
              
              14,787Prepaid
                  expenses and other current assets
              
              
              5,943
              
              
              669Deferred
                  income taxes
              
              
              3,344
              
              
              4,280Total
                  current assets
              
              
              171,648
              
              
              110,798Property,
                  plant and equipment – net
              
              
              29,173
              
              
              23,940Investments
                  in unconsolidated affiliates
              
              
              10,392
              
              
              9,619Deferred
                  income taxes – non current
              
              
              4,543
              
              
              5,572Long-term
                  investments in marketable securities
              
              
              10,171
              
              
              59,574Goodwill
              
              
              1,325
              
              
              1,348Intangible
                  assets (net of accumulated amortization of $772 and $579)
              
              
              1,140
              
              
              1,311Other
                  assets
              
              
              3,191
              
              
              2,073Total
                  assets
              
              $
              231,583
              
              $
              214,235LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              13,431
              
              $
              12,553Accrued
                  liabilities
              
              
              8,779
              
              
              8,718Current
                  portion of long-term debt
              
              
              -
              
              
              392Total
                  current liabilities
              
              
              22,210
              
              
              21,663Long-term
                  debt
              
              
              -
              
              
              388Deferred
                  tax liabilities
              
              
              800
              
              
              797Other
                  long term liabilities
              
              
              -
              
              
              3Minority
                  interest in consolidated subsidiaries
              
              
              1,118
              
              
              906Total
                  liabilities
              
              
              24,128
              
              
              23,757Commitments
                  (Note 12)Shareholders’
                  equity:Common
                  stock and paid in capital - no par value, 60,000,000 shares authorized;
                  shares issued and outstanding: at June 28, 2008, 25,703,000; at
                  June 30,
                  2007, 25,838,000
              
              
              132,028
              
              
              135,887Retained
                  earnings
              
              
              72,162
              
              
              55,149Accumulated
                  other comprehensive income (loss), net of tax
              
              
              3,265
              
              
              (558
              )Total
                  shareholders’ equity
              
              
              207,455
              
              
              190,478Total
                  liabilities and shareholders' equity
              
              $
              231,583
              
              $
              214,235





See
      notes
      to consolidated financial statements.


56





**PERICOM
      SEMICONDUCTOR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(In
      thousands, except per share data)




Year EndedJune 28,
            
            June 30,
            
            July 1,2008
            
            2007
            
            2006Net
                revenues
            
            $
            163,744
            
            $
            123,370
            
            $
            105,878Cost
                of revenues
            
            
            103,638
            
            
            80,557
            
            
            69,374Gross
                profit
            
            
            60,106
            
            
            42,813
            
            
            36,504Operating
                expenses:Research
                and development
            
            
            17,159
            
            
            16,021
            
            
            15,492Selling,
                general and administrative
            
            
            23,624
            
            
            21,878
            
            
            18,490Restructuring
                charge
            
            
            -
            
            
            -
            
            
            55Total
            
            
            40,783
            
            
            37,899
            
            
            34,037Income
                from operations
            
            
            19,323
            
            
            4,914
            
            
            2,467Interest
                and other income, net
            
            
            5,513
            
            
            6,460
            
            
            3,875Interest
                expense
            
            
            (12
            )
            
            (130
            )
            
            (342
            )Other
                than temporary decline in value of investment
            
            
            (76
            )
            
            (6
            )
            
            (64
            )Income
                before income tax expense
            
            
            24,748
            
            
            11,238
            
            
            5,936Income
                tax expense
            
            
            8,221
            
            
            2,985
            
            
            1,852Minority
                interest in (income) loss of consolidated subsidiaries
            
            
            (116
            )
            
            (33
            )
            
            99Equity
                in net income of unconsolidated affiliates
            
            
            602
            
            
            407
            
            
            1,796Net
                income
            
            $
            17,013
            
            $
            8,627
            
            $
            5,979Basic
                income per share
            
            $
            0.66
            
            $
            0.33
            
            $
            0.23Diluted
                income per share
            
            $
            0.64
            
            $
            0.32
            
            $
            0.22Shares
                used in computing basic income per share
            
            
            25,737
            
            
            26,058
            
            
            26,254Shares
                used in computing diluted income per share
            
            
            26,611
            
            
            26,669
            
            
            26,994





See
      notes
      to consolidated financial statements.


57


**PERICOM
      SEMICONDUCTOR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY AND**


**COMPREHENSIVE
      INCOME (LOSS)**


(In
      thousands)




**Accumulated****Other**
            
            **Total****Common Stock**
            
            **Retained**
            
            **Comprehensive**
            
            **Shareholders’****Shares**
            
            **Amount**
            
            **Earnings**
            
            **Income (Loss)**
            
            **Equity**BALANCES,
                July 2, 2005
            
            
            26,357
            
            $
            141,233
            
            $
            40,610
            
            $
            (681
            )
            $
            181,162Net
                income
            
            
            —
            
            
            —
            
            
            5,979
            
            
            —
            
            
            5,979Change
                in unrealized gain (loss) on investments, net
            
            
            —
            
            
            —
            
            
            —
            
            
            (211
            )
            
            (211
            )Cumulative
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            (2
            )
            
            (2
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,766Stock
                dividend
            
            
            —
            
            
            —
            
            
            (67
            )
            
            —
            
            
            (67
            )Issuance
                of common stock under employee stock plans
            
            
            454
            
            
            2,248
            
            
            —
            
            
            —
            
            
            2,248Stock
                based compensation expense
            
            
            —
            
            
            1,323
            
            
            —
            
            
            —
            
            
            1,323Tax
                benefit resulting from stock option transactions
            
            
            —
            
            
            184
            
            
            —
            
            
            —
            
            
            184Repurchase
                and retirement of common stock
            
            
            (750
            )
            
            (6,505
            )
            
            —
            
            
            —
            
            
            (6,505
            )BALANCES,
                July 1, 2006
            
            
            26,061
            
            
            138,483
            
            
            46,522
            
            
            (894
            )
            
            184,111Net
                income
            
            
            —
            
            
            —
            
            
            8,627
            
            
            —
            
            
            8,627Change
                in unrealized gain (loss) on investments, net
            
            
            —
            
            
            —
            
            
            —
            
            
            624
            
            
            624Cumulative
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            (288
            )
            
            (288
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,963Issuance
                of common stock under employee stock plans
            
            
            707
            
            
            4,145
            
            
            —
            
            
            —
            
            
            4,145Stock
                based compensation expense
            
            
            —
            
            
            2,119
            
            
            —
            
            
            —
            
            
            2,119Tax
                benefit resulting from stock option transactions
            
            
            —
            
            
            309
            
            
            —
            
            
            —
            
            
            309Repurchase
                and retirement of common stock
            
            
            (930
            )
            
            (9,169
            )
            
            —
            
            
            —
            
            
            (9,169
            )BALANCES,
                June 30, 2007
            
            
            25,838
            
            
            135,887
            
            
            55,149
            
            
            (558
            )
            
            190,478Net
                income
            
            
            —
            
            
            —
            
            
            17,013
            
            
            —
            
            
            17,013Change
                in unrealized gain (loss) on investments, net
            
            
            —
            
            
            —
            
            
            —
            
            
            677
            
            
            677Cumulative
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            3,146
            
            
            3,146Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,836Issuance
                of common stock under employee stock plans
            
            
            1,424
            
            
            10,929
            
            
            —
            
            
            —
            
            
            10,929Stock
                based compensation expense
            
            
            —
            
            
            2,358
            
            
            —
            
            
            —
            
            
            2,358Tax
                benefit resulting from stock option transactions
            
            
            —
            
            
            2,975
            
            
            —
            
            
            —
            
            
            2,975Repurchase
                and retirement of common stock
            
            
            (1,559
            )
            
            (20,121
            )
            
            —
            
            
            —
            
            
            (20,121
            )BALANCES,
                June 28, 2008
            
            
            25,703
            
            $
            132,028
            
            $
            72,162
            
            $
            3,265
            
            $
            207,455





See
      notes
      to consolidated financial statements.


58


**PERICOM
      SEMICONDUCTOR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)




**Year Ended****June 28,**
            
            **June 30,**
            
            **July 1,****2008**
            
            **2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            17,013
            
            $
            8,627
            
            $
            5,979Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            6,532
            
            
            6,108
            
            
            5,003Stock
                based compensation
            
            
            2,358
            
            
            2,119
            
            
            1,323Tax
                benefit resulting from stock option transactions
            
            
            3,409
            
            
            309
            
            
            184Excess
                tax benefit resulting from stock option transactions
            
            
            (2,975
            )
            
            (163
            )
            
            (136
            )Other
                than temporary decline in the value of investments
            
            
            76
            
            
            6
            
            
            64Gain
                on investments
            
            
            (644
            )
            
            (45
            )
            
            (51
            )(Gain)
                loss on disposal of assets
            
            
            5
            
            
            (72
            )
            
            8Gain
                on sales of investments in privately held companies
            
            
            -
            
            
            (1,002
            )
            
            -Loss
                on impairment of intangible assets
            
            
            23
            
            
            -
            
            
            -Equity
                in net income of unconsolidated affiliates
            
            
            (602
            )
            
            (407
            )
            
            (1,796
            )Minority
                interest in consolidated subsidiary’s net income (loss)
            
            
            117
            
            
            33
            
            
            (99
            )Deferred
                taxes
            
            
            2,059
            
            
            178
            
            
            1,482Changes
                in assets and liabilities net of effects of entities
                acquired:Accounts
                receivable
            
            
            (10,029
            )
            
            3,548
            
            
            (3,489
            )Inventories
            
            
            (2,664
            )
            
            1,878
            
            
            1,701Prepaid
                expenses and other current assets
            
            
            (5,244
            )
            
            (124
            )
            
            774Investments
                in unconsolidated affiliates
            
            
            -
            
            
            (17
            )
            
            122Other
                assets
            
            
            (1,224
            )
            
            (42
            )
            
            773Accounts
                payable
            
            
            85
            
            
            2,189
            
            
            (390
            )Accrued
                liabilities
            
            
            (691
            )
            
            1,400
            
            
            625Other
                long term liabilities
            
            
            -
            
            
            (393
            )
            
            6Net
                cash provided by operating activities
            
            
            7,604
            
            
            24,130
            
            
            12,083CASH
                FLOWS FROM INVESTING ACTIVITIES:Additions
                to property and equipment
            
            
            (10,027
            )
            
            (5,987
            )
            
            (7,187
            )Net
                proceeds from sale of property and equipment
            
            
            2
            
            
            251
            
            
            97Net
                proceeds from sale of investments in privately held
                companies
            
            
            -
            
            
            2,004
            
            
            103Purchase
                of available for sale investments
            
            
            (88,238
            )
            
            (448,605
            )
            
            (729,259
            )Maturities
                and sales of available for sale investments
            
            
            109,557
            
            
            457,218
            
            
            742,429Cash
                paid for eCERA acquisition, net of cash received
            
            
            -
            
            
            -
            
            
            (13,064
            )Cash
                paid for Azer acquisition, net of cash received
            
            
            -
            
            
            -
            
            
            (1,488
            )Cash
                used in the investment of Pericom Electronics Hong Kong
                Ltd.
            
            
            -
            
            
            -
            
            
            (172
            )Change
                in restricted cash balance
            
            
            -
            
            
            950
            
            
            (950
            )Net
                cash provided by (used in) investing activities
            
            
            11,294
            
            
            5,831
            
            
            (9,491
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Sale
                of common stock
            
            
            10,929
            
            
            4,145
            
            
            2,248Proceeds
                generated from sale of stock to minority interest
            
            
            -
            
            
            -
            
            
            734Excess
                tax benefit on stock based compensation
            
            
            2,975
            
            
            163
            
            
            136Proceeds
                from short-term and long-term debts
            
            
            -
            
            
            2,789
            
            
            10,506Principal
                payments on long-term debt and capital leases
            
            
            (792
            )
            
            (11,175
            )
            
            (18,006
            )Repurchase
                of common stock
            
            
            (20,121
            )
            
            (9,169
            )
            
            (6,505
            )Net
                cash used in financing activities
            
            
            (7,009
            )
            
            (13,247
            )
            
            (10,887
            )EFFECT
                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            584
            
            
            (118
            )
            
            (30
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            12,473
            
            
            16,596
            
            
            (8,325
            )CASH
                AND CASH EQUIVALENTS:Beginning
                of year
            
            
            29,173
            
            
            12,577
            
            
            20,902End
                of year
            
            $
            41,646
            
            $
            29,173
            
            $
            12,577SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the period for income taxes
            
            $
            4,875
            
            $
            1,251
            
            $
            61Cash
                paid during the period for interest
            
            $
            11
            
            $
            152
            
            $
            370





See
      notes
      to consolidated financial statements


59





**PERICOM
      SEMICONDUCTOR CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**FISCAL
      YEARS ENDED JUNE 28, 2008, JUNE 30, 2007 AND JULY 1, 2006**




**1.
      BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES**




Pericom
      Semiconductor Corporation (the “Company” or “Pericom”) was incorporated in June
      1990 in the state of California. The Company designs, manufactures and markets
      high performance digital, analog and mixed-signal integrated circuits (“IC’s”)
      and frequency control products (“FCP”s) used for the transfer, routing, and
      timing of digital and analog signals within and between computer, networking,
      datacom and telecom systems.




***FINANCIAL
      STATEMENT ESTIMATES*** –
      The preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses during the reporting period. Actual results
      could differ from those estimates.





***BASIS
      OF PRESENTATION*** – These
      consolidated financial statements include the accounts of Pericom Semiconductor
      Corporation and its wholly owned subsidiaries, Pericom Semiconductor (HK)
      Limited and Pericom Asia Limited (“PAL”) as well as its two majority owned
      subsidiaries, SaRonix-eCERA Corporation (“SRe”) and Pericom Taiwan Limited
      Corporation (“PTL”). The Company eliminates all significant intercompany
      balances and transactions in consolidation.




***FISCAL
      PERIOD*** –
For
      purposes of reporting the financial results, the Company’s fiscal years end on
      the Saturday closest to the end of June. All periods presented include 52 weeks.





***CASH
      EQUIVALENTS*** –
The
      Company considers all highly liquid debt instruments purchased with a remaining
      maturity of three months or less when purchased to be cash equivalents. The
      recorded carrying amounts of the Company’s cash and cash equivalents approximate
      their fair market value.





***SHORT-TERM
      AND LONG-TERM INVESTMENTS IN MARKETABLE SECURITIES*** –
      The Company’s policy is to invest in instruments with investment grade credit
      ratings. The Company classifies its short-term investments as
“available-for-sale” or “trading” securities and the Company bases the cost of
      securities sold using the specific identification method. The Company accounts
      for unrealized gains and losses on its available-for-sale securities as a
      separate component of shareholders’ equity in the consolidated balance sheets in
      the period in which the gain or loss occurs. The Company recognizes unrealized
      gains and losses in its trading securities in other income in the consolidated
      statements of operations in the period in which the gain or loss occurs. The
      Company classifies trading securities as current assets and its
      available-for-sale securities as current or noncurrent based on each security’s
      attributes. At June 28, 2008 and June 30, 2007, investments, and any difference
      between the fair market value and the underlying cost of such investments,
      consisted of the following:





**Available
      for Sale Securities:**




**As
                of June 28, 2008****Net**
            
            **Fair****Amortized**
            
            **Unrealized**
            
            **Market****(In
                thousands)**
            
            **Cost**
            
            **Gain (Loss)**
            
            **Value**Corporate
                bonds and notes
            
            $
            8,814
            
            $
            (3
            )
            $
            8,811Government
                securities
            
            
            32,132
            
            
            177
            
            
            32,309Asset
                / mortgage backed securities
            
            
            39,660
            
            
            41
            
            
            39,701$
            80,606
            
            $
            215
            
            $
            80,821




60





**As
                of June 30, 2007****Net**
            
            **Fair****Amortized**
            
            **Unrealized**
            
            **Market****(In
                thousands)**
            
            **Cost**
            
            **Losses**
            
            **Value**Corporate
                bonds and notes
            
            $
            24,892
            
            $
            (114
            )
            $
            24,778Government
                securities
            
            
            35,805
            
            
            (214
            )
            
            35,591Asset
                / mortgage backed securities
            
            
            38,450
            
            
            (200
            )
            
            38,250Time
                Deposit/CD
            
            
            304
            
            
            -
            
            
            304$
            99,451
            
            $
            (528
            )
            $
            98,923




**Trading
      Securities:**




**Fiscal Year Ended****June 28, 2008**
              
              **June 30, 2007****(In
                  thousands)**
              
              **Net**
                **Unrealized**
                **Gains
                  (Loss)**
              
              **Fair**
                **Market**
                **Value**
              
              **Net**
                **Unrealized**
                **Gains
                  (Loss)**
              
              **Fair**
                **Market**
                **Value**Corporate
                  bonds and note funds
              
              $
              -
              
              $
              -
              
              $
              (37
              )
              $
              474Other
                  funds
              
              
              39
              
              
              1,458
              
              
              37
              
              
              2,445Total
                  Trading Securities
              
              $
              39
              
              $
              1,458
              
              $
              -
              
              $
              2,919





The
      following tables show the gross unrealized losses and fair market values of
      the
      Company’s investments that have unrealized losses, aggregated by investment
      category and length of time that individual securities have been in a continuous
      unrealized loss position, at June 28, 2008 and June 30, 2007:




**Securities in Portfolio with Unrealized Losses at June 28, 2008****Less Than 12 Months**
              
              **12 Months or Longer**
              
              **Total****(In
                  thousands)**
              
              **Fair
                  Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**Corporate
                  bonds and notes
              
              $
              1,857
              
              $
              7
              
              $
              1,969
              
              $
              22
              
              $
              3,826
              
              $
              29Government
                  securities
              
              
              698
              
              
              1
              
              
              -
              
              
              -
              
              
              698
              
              
              1Asset/mortgage
                  backed securities
              
              
              5,082
              
              
              145
              
              
              1,557
              
              
              15
              
              
              6,639
              
              
              160$
              7,637
              
              $
              153
              
              $
              3,526
              
              $
              37
              
              $
              11,163
              
              $
              190


**Securities in Portfolio with Unrealized Losses at June 30, 2007****Less Than 12 Months**
              
              **12 Months or Longer**
              
              **Total****(In thousands)**
              
              **Fair**
                **Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Market**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**Corporate
                  bonds and notes
              
              $
              6,166
              
              $
              45
              
              $
              9,896
              
              $
              90
              
              $
              16,062
              
              $
              135Government
                  securities
              
              
              13,017
              
              
              43
              
              
              17,118
              
              
              187
              
              
              30,135
              
              
              230Asset/mortgage
                  backed securities
              
              
              21,609
              
              
              106
              
              
              9,577
              
              
              105
              
              
              31,186
              
              
              211$
              40,792
              
              $
              194
              
              $
              36,591
              
              $
              382
              
              $
              77,383
              
              $
              576




The
      unrealized losses are of a temporary nature due to the Company’s intent and
      ability to hold the investments until maturity or until the cost is recoverable.
      The Company reports unrealized gains and losses on its “available-for-sale”
securities in other comprehensive income in shareholders’ equity, while it
      records unrealized gains and losses on trading securities in its consolidated
      statement of operations.


61





The
      following table lists the fair market value of the Company’s short- and
      long-term investments by length of time to maturity as of June 28, 2008 and
      June
      30, 2007:




**(in
                thousands)**
            
            **June 28,**
              **2008**
            
            **June 30,**
              **2007**One
                year or less
            
            $
            9,414
            
            $
            19,760Between
                one and three years
            
            
            33,538
            
            
            32,878Greater
                than three years
            
            
            39,327
            
            
            49,204$
            82,279
            
            $
            101,842




In
      fiscal
      2008, 2007 and 2006 realized gains (losses) on available-for-sale securities
      were $644,000, $21,000 and ($16,000), respectively.




***ALLOWANCE
      FOR DOUBTFUL ACCOUNTS –*** ****** The
      Company computes its allowance for doubtful accounts using a combination of
      factors. In cases where the Company is aware of circumstances that may impair
      a
      specific customer’s ability to meet its financial obligations to the Company,
      the Company records a specific allowance against amounts due to the Company,
      reducing the net recognized receivable to the amount the Company reasonably
      believes it will collect. For all other customers, the Company recognizes
      allowances for doubtful accounts based on the length of time the receivables
      are
      past due, the current business environment and its historical experience.





***INVENTORIES*** ***–*** For our
      IC and certain FCP families of products we record inventories at the lower
      of
      standard cost (which generally approximates actual cost on a first-in, first-out
      basis) or market value. We adjust the carrying value of inventory for excess
      and
      obsolete inventory based on inventory age, shipment history and our forecast
      of
      demand over a specific future period. The semiconductor markets that we serve
      are volatile and actual results may vary from our forecast or other assumptions,
      potentially affecting our assessment of excess and obsolete inventory resulting
      in material effects on our gross margin.





We
      record
      the inventories of the remainder of our FCP products at the lower of
      weighted-average cost, which approximates actual cost, or market value. Weighted
      average cost is comprised of average manufacturing costs weighted by the volume
      produced in each production run. We define market value as the net realizable
      value for our finished goods and replacement cost for raw materials and work
      in
      process.





We
      consider raw material inventory slow moving and we write it down to zero if
      it
      has not moved in 365 days. For assembled devices, we disaggregate the inventory
      by part number. We compare the quantities on hand in each part number category
      to the quantity we shipped in the previous twelve months, the quantity in
      backlog and to the quantity we expect to ship in the next twelve months. We
      write down to zero the value of each quantity on hand that is in excess of
      the
      lesser of the three comparisons. We believe our method of evaluating our
      inventory fairly represents market conditions.





We
      consider the material written-off to be available for sale. We do not revalue
      the written off inventory should market conditions change or if a market
      develops for the obsolete inventory. In the past, we have sold obsolete
      inventory that we have previously written off as worthless. Refer to the Gross
      Profit discussion in Item 7 of our annual report on Form 10K for further
      discussion of sales of our obsolete inventory.





***PROPERTY,
      PLANT AND EQUIPMENT***  ***–***  The
      Company states its property, plant and equipment at cost. Cost includes purchase
      cost, applicable taxes, freight, installation costs and interest incurred in
      the
      acquisition of any asset that requires a period of time to make it ready for
      use. We compute depreciation and amortization using the straight-line method
      over estimated useful lives of three to eight years except for buildings, which
      we depreciate using the straight-line method over 35 years. We depreciate
      leasehold improvements over the shorter of the lease term or the improvement’s
      estimated useful life. In addition, we capitalize the cost of major
      replacements, improvements and betterments, while we expense normal maintenance
      and repair.




***INVESTMENTS
      IN UNCONSOLIDATED AFFILIATES***  ***–*** The
      Company holds ownership interests in various investees. Our ownership in these
      affiliates varies from 20% to approximately 49%. We classify these investments
      as investments in unconsolidated affiliates in our consolidated balance sheets.
      The Company accounts for long-term investments in companies in which it has
      an
      ownership share larger than 20% and in which it has significant influence over
      the activities of the investee using the equity method. We recognize our
      proportionate share of each investee’s income or loss in the period in which the
      investee reports the income or loss. We eliminate all intercompany transactions
      in accounting for our equity method investments.


62





***OTHER
      ASSETS –*** The
      Company’s other assets classification ****** includes
      investments in privately held companies in which we have less than a 20%
      interest, assets held for sale and deposits. The Company reports its investments
      in privately held companies at the lower of cost or market. The Company’s
      management reviews the investment in these companies for losses that may be
      other than temporary on a quarterly basis. Should management determine that
      such
      an impairment exists, the Company will reduce the value of the Company’s
      investment in the period in which management discovers the impairment and charge
      the impairment to the consolidated statement of operations. The Company’s
      management performed such an evaluation as of June 28, 2008 and determined
      that
      no impairment existed. The Company carries assets held for sale and deposits
      at
      the lower of the assets’ carrying amount or fair value less costs to sell.




***LONG-LIVED
      ASSETS*** ***–***
      The Company evaluates long-lived assets for impairment whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. When the sum of the undiscounted future net cash flows expected
      to result from the use of the asset and its eventual disposition is less than
      its carrying amount, the Company will recognize an impairment loss as the amount
      of the difference between carrying value and fair value as determined by
      discounted cash flows.





***INCOME
      TAXES*** ***–***
      The Company accounts fo r
      income
      taxes following the Financial Accounting Standards Board’s (“FASB”s) Statement
      of Financial Accounting Standards (“SFAS”) No. 109, *Accounting
      for Income Taxes* ,
      (“SFAS
      No. 109”) which requires an asset and liability approach to recording deferred
      taxes. We record a valuation allowance to reduce deferred tax assets when it
      is
      more likely than not that a tax benefit will not be realized.





***FOREIGN
      CURRENCY TRANSLATION*** ***–***The
      functional currency of the Company’s foreign subsidiaries is the local currency.
      In consolidation, the Company translates assets and liabilities at exchange
      rates in effect at the balance sheet date. The Company translates revenue and
      expense accounts at average exchange rates during the period in which the
      transaction takes place. Net gains or (losses) from foreign currency translation
      of assets and liabilities of $3.2 million and $(288,000) in fiscal 2008 and
      2007, respectively, are included in the cumulative translation adjustment
      component of accumulated other comprehensive income (loss), net of tax, a
      component of shareholders’ equity. Net gains or (losses) arising from
      transactions denominated in currencies other than the functional currency were
      $(309,000), $281,000 and $147,000 in fiscal 2008, 2007 and 2006 respectively,
      and are included in interest and other income, net.




*SHARE-BASED
      COMPENSATION* ***–***
      Effective July 3, 2005, the Company adopted the provisions of SFAS No. 123
      (revised 2004), *Share-Based
      Payment* (“SFAS
      123(R)”). SFAS 123(R) establishes accounting for share-based awards exchanged
      for employee services.  Accordingly, share-based compensation cost is
      measured at grant date, based on the fair value of the award, and is recognized
      as an expense over the employee’s requisite service period.  See Note 14
      for further discussion of share-based compensation.





***REVENUE
      RECOGNITION*** ***–***
      The Company recognizes revenue from the sale of its products in conformity
      with
      the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin
      (“SAB”) No. 104, *Revenue
      Recognition* ,
      (“SAB
      No. 104”). Accordingly, the Company recognizes revenue when:





·
                Persuasive
                    evidence of an arrangement exists;
 ·
                Delivery
                    has occurred;
 ·
                The
                    sales price is fixed or determinable;
                    and
 ·
                Collectibility
                    is reasonably assured.





Generally,
      the Company meets these conditions upon shipment because, in most cases, title
      and risk of loss passes to the customer at that time. In addition, the Company
      estimates and records provisions for future returns and other charges against
      revenue at the time of shipment in accordance with SFAS No. 48, *Revenue
      Recognition when Right of Return Exists* (“SFAS
      No. 48”).


63





The
      Company sells products to large, domestic distributors at the price listed
      in
      its price book for that distributor. At the time of sale the Company books
      a
      sales reserve for ship from stock and debits (“SSD”s), stock rotations, return
      material authorizations (“RMA”s), authorized price protection programs, and any
      special programs approved by management. The Company offsets the sales reserve
      against revenues producing the net revenue amount reported in the consolidated
      statements of operations.





The
      market price for the Company’s products can be significantly different from the
      book price at which the Company sold the product to the distributor. When the
      market price, as compared to the Company’s original sales price, of a particular
      distributor’s sales opportunity to their own customer would result in low or
      negative margins for our distributor, the Company negotiates a ship from stock
      and debit with the distributor. Management analyzes the Company’s SSD history to
      develop current SSD rates that form the basis of the SSD sales reserve recorded
      each period. The Company obtains the historical SSD rates from its internal
      records.





The
      Company’s distribution agreements provide for semi-annual stock rotation
      privileges of typically 10% of net sales for the previous six-month period.
      The
      contractual stock rotation applies only to shipments at the Company’s listed
      book price. Asian distributors typically buy the Company’s product at less than
      standard price and therefore are not entitled to the 10% stock rotation
      privilege. In order to provide for routine inventory refreshing, for the
      Company’s benefit as well as theirs, the Company grants Asian distributors stock
      rotation privileges between 1% and 5% even though the Company is not
      contractually obligated to do so. Each month the Company records a sales reserve
      for the estimated stock rotation privilege anticipated to be utilized by the
      distributors that month.





From
      time
      to time, customers may request to return parts for various reasons including
      the
      customers’ belief that the parts are not performing to specification. Many such
      return requests are the result of customers incorrectly using the parts, not
      because the parts are defective. Management reviews these requests and, if
      approved, the Company prepares a RMA. The Company is only obligated to accept
      defective parts returns. To accommodate the Company’s customers, the Company may
      approve particular return requests, even though it is not obligated to do so.
      Each month the Company records a sales reserve for approved RMAs covering
      products that have not yet been returned. The Company does not maintain a
      general warranty reserve because, historically, valid warranty returns, which
      are the result of a part not meeting specifications or being non-functional,
      have been immaterial and the Company can frequently resell returned parts to
      other customers for use in other applications.





The
      Company grants price protection solely at the discretion of Pericom management.
      The purpose of price protection is to reduce the distributor’s cost of inventory
      as market prices fall thus reducing SSD rates. Pericom sales management prepares
      price protection proposals for individual products located at individual
      distributors. Pericom general management reviews and approves or disapproves
      these proposals. If a particular price protection arrangement is approved,
      the
      Company estimates the dollar impact based on the sales price reduction per
      unit
      for the products approved and the number of units of those products in that
      distributor’s inventory. The Company records a sales reserve in that period for
      the estimated amount in accordance with Issue 4 of Emerging Issues Task Force
      Issue No. 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products).*





At
      the
      discretion of Pericom management, the Company may offer rebates on specific
      products sold to specific end customers. The purpose of the rebates is to allow
      for pricing adjustments for large programs without affecting the pricing the
      Company charges its distributor customers. The Company records the rebate at
      the
      time of shipment.





Pericom
      typically grants payment terms of between 30 and 60 days to its customers.
      The
      Company’s customers generally pay within those terms. The Company grants
      relatively few customers sales terms that include cash discounts. When customers
      pay the Company’s invoices, they may claim debits for SSDs, stock rotations,
      cash discounts, RMAs and price protection when appropriate. Once claimed, the
      Company processes the requests against the prior approvals, as described in
      the
      paragraphs above.





The
      revenue the Company records for sales to its distributors is net of estimated
      provisions for these programs. When determining this net revenue, the Company
      must make significant judgments and estimates. The Company bases its estimates
      on historical experience rates, inventory levels in the distribution channel,
      current trends and other related factors. However, because of the inherent
      nature of estimates, there is a risk that there could be significant differences
      between actual amounts and the Company’s estimates. The Company’s financial
      condition and operating results depend on its ability to make reliable estimates
      and Pericom believes that such estimates are reasonable.


64





*PRODUCT
      WARRANTY–* The
      Company offers a standard one-year product replacement warranty. In the past,
      the company has not had to accrue for a general warranty reserve, but assesses
      the level and materiality of RMAs and determines whether it is appropriate
      to
      accrue for estimated returns of defective products at the time revenue is
      recognized. On occasion, management may determine to accept product returns
      beyond the standard one-year warranty period. In those instances, the Company
      accrues for the estimated cost at the time management decides to accept the
      return. Because of the Company’s standardized manufacturing processes and
      product testing procedures, returns of defective product are infrequent and
      the
      quantities have not been significant. Accordingly, historical warranty costs
      have not been material.





***SHIPPING
      COSTS*** ***–*** We
      charge shipping costs to cost of revenues as incurred.





***CONCENTRATION
      OF CREDIT RISK AND CERTAIN SIGNIFICANT RISKS AND
      UNCERTAINTIES***  ***–*** The
      Company primarily sells its products to a relatively small number of companies
      and generally does not require its customers to provide collateral or other
      security to support accounts receivable. The Company maintains allowances for
      estimated bad debt losses. The Company also purchases substantially all of
      its
      wafers from three suppliers and purchases other manufacturing services from
      a
      relatively small number of suppliers.




The
      Company participates in a dynamic high technology industry and believes that
      changes in any of the following areas could have a material adverse effect
      on
      the Company’s future financial position or results of operations:


·
            advances
                and trends in new technologies;


·
            competitive
                pressures in the form of new products or price reductions on current
                products;


·
            changes
                in product mix;


·
            changes
                in the overall demand for products and services offered by the Company;


·
            changes
                in customer relationships; litigation or claims against the Company
                based
                on intellectual property, patent, product, regulatory or other factors;
                risks associated with having a concentration of a few suppliers;


·
            risks
                associated with changes in domestic and international economic and/or
                political conditions or regulations;


·
            availability
                of necessary components; and


·
            the
                Company’s ability to attract and retain employees necessary to support its
                growth.





The
      following table indicates the percentage of our net revenues and accounts
      receivable in excess of 10% with any single customer:




**Percentage of****Trade****Net**
            
            **Accounts****Fiscal
                Year Ended:**
            
            
            
            **Revenues**
            
            **Receivable**June
                28, 2008
            
            
            Customer
                A
            
            
            14
            %
            
            16
            %All
                  others
            
            
            86
            
            
            84100
            %
            
            100
            %June
                30, 2007
            
            
            Customer
                B
            
            
            13
            %
            
            9
            %All
                  others
            
            
            87
            
            
            91100
            %
            
            100
            %July
                1, 2006
            
            
            Customer
                C
            
            
            11
            %
            
            9
            %All
                  others
            
            
            89
            
            
            91100
            %
            
            100
            %





The
      Company maintains cash, cash equivalents and short- and long-term investments
      with various high credit quality financial institutions. The Company has
      designed its investment policy to limit exposure to any one institution. The
      Company performs periodic evaluations of the relative credit standing of those
      financial institutions that manage its investments. The Company is exposed
      to
      credit risk in the event of default by the financial institutions or issuers
      of
      securities to the extent of the amounts reported in the consolidated balance
      sheets. To date, the Company has not incurred material losses related to these
      investments.


65




***RECENTLY
      ISSUED ACCOUNTING STANDARDS*** –
      In May 2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles.* SFAS 162
      identifies the sources of accounting principles and provides entities with
      a
      framework for selecting the principles used in preparation of financial
      statements that are presented in conformity with GAAP. The current GAAP
      hierarchy has been criticized because it is directed to the auditor rather
      than
      the entity. The Board believes the GAAP hierarchy should be directed to entities
      because it is the entity that is responsible for selecting accounting principles
      for financial statements that are presented in conformity with GAAP. The
      adoption of FASB 162 is not expected to have a material impact on the Company’s
      consolidated financial position and results of operations.





In
      April 2008, the FASB issued FSP FAS No. 142-3, *Determination
      of the Useful Life of Intangible Assets* ,
      (FSP
      142-3). FSP 142-3 amends the factors that should be considered in developing
      renewal or extension assumptions used to determine the useful life of a
      recognized intangible asset under SFAS No. 142, *Goodwill
      and Other Intangible Assets.* FSP
      142-3 is effective for fiscal years beginning after December 15, 2008. The
      Company is currently assessing the impact of FSP 142-3 on its consolidated
      financial position and results of operations.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), *Business
      Combinations.* This
      statement replaces SFAS 141, “Business Combinations.” This statement retains the
      fundamental requirements in Statement 141 that the acquisition method of
      accounting (which Statement 141 called the *purchase
      method* )
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. This statement also establishes principles and
      requirements for how the acquirer: a) recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed, and any
      noncontrolling interest in the acquiree; b) recognizes and measures the goodwill
      acquired in the business combination or a gain from a bargain purchase; and
      c)
      determines what information to disclose to enable users of the financial
      statements to evaluate the nature and financial effects of the business
      combination. SFAS 141 (R) will apply prospectively to business combinations
      for which the acquisition date is on or after the Company’s fiscal year
      beginning June 28, 2009. The Company has not yet evaluated this statement for
      the impact, if any, that SFAS 141 (R) will have on its consolidated
      financial statements.





In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interest in Consolidated Financial Statements* (“SFAS
      160”) *.* This
      Statement amends Accounting Research Bulletin 51 to establish accounting and
      reporting standards for the noncontrolling (minority) interest in a
      subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. The Company has not yet determined the impact that SFAS
      160 will have on its consolidated financial statements. SFAS 160 is effective
      for the Company’s fiscal year beginning June 28, 2009.





In
      February 2007, the FASB issued SFAS No. 159 *,
      The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“SFAS
      159”). SFAS 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value. The standard requires that
      unrealized gains and losses on items for which the Company elects the fair
      value
      option be reported in earnings. The Company is required to adopt the provision
      of SFAS 159 for the Company’s fiscal year beginning June 29, 2008. The Company’s
      management is currently evaluating the impact that SFAS 159 will have on the
      consolidated balance sheet and the consolidated statements of operations and
      cash flows.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”) which is effective for the Company’s fiscal year beginning June 29, 2008
      and for interim periods within that year. SFAS 157 defines fair value,
      establishes a framework for measuring fair value and expands the related
      disclosure requirements. SFAS No. 157 applies under other accounting standards
      that require or permit fair value measurements. Accordingly, SFAS No. 157 does
      not require any new fair value measurement. The Company is currently evaluating
      the potential impact that SFAS 157 will have on its financial position, results
      of operations and liquidity.


66


In
      June
      2006, the FASB issued FASB interpretation (“FIN”) No. 48, *Accounting
      for uncertainty in Income Taxes, an Interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 applies to all tax positions accounted for under SFAS No. 109, *Accounting
      for Income Taxes* and
      defines the confidence level that a tax position must meet in order to be
      recognized in the financial statements. The FIN 48 requires that the tax effects
      of a position be recognized only if it is “more-likely-than-not” to be sustained
      by the taxing authority as of the reporting date. If a tax position is not
      considered “more-likely-than-not” to be sustained then no benefits of the
      position are to be recognized. FIN 48 requires additional annual disclosures
      and
      was adopted by the Company as of the start of the current fiscal year on July
      1,
      2007. Additional discussion is included in Note 17 to the Consolidated Financial
      Statements.





***RECLASSIFICATIONS*** –
The
      Company has made certain reclassifications to conform prior year amounts to
      the
      current year’s presentation. The reclassifications had no impact on previously
      reported total assets, total shareholders’ equity or net income.





***EARNINGS
      PER SHARE*** –
The
      Company bases its basic earnings per share upon the weighted average number
      of
      common shares outstanding during the period in accordance with SFAS No. 128, *Earnings
      per Share* (“SFAS
      No. 128”). Diluted earnings per share reflect the potential dilution that could
      occur if securities or other contracts to issue common stock were exercised
      or
      converted into common stock.





Basic
      and
      diluted earnings per share for each of the three years in the period ended
      June
      28, 2008 is as follows:




**Fiscal
                Year Ended****(In
                thousands, except for per share data)**
            
            **June
                28, 2008**
            
            **June
                30, 2007**
            
            **July
                1, 2006**Net
                income
            
            $
            17,013
            
            $
            8,627
            
            $
            5,979Computation
                of common shares outstanding – basic earnings per share:Weighted
                average common stock
            
            
            25,737
            
            
            26,058
            
            
            26,254Basic
                earnings per share
            
            $
            0.66
            
            $
            0.33
            
            $
            0.23Computation
                of common shares outstanding – diluted earnings per share:Weighted
                average common stock
            
            
            25,737
            
            
            26,058
            
            
            26,254Dilutive
                options using the treasury stock method
            
            
            874
            
            
            611
            
            
            740Shares
                used in computing diluted earnings per share
            
            
            26,611
            
            
            26,669
            
            
            26,994Diluted
                earnings per share
            
            $
            0.64
            
            $
            0.32
            
            $
            0.22




Options
      to purchase 1.6 million, 2.8 million and 3.8 million shares of common stock
      were
      outstanding as of June 28, 2008, June 30, 2007 and July 1, 2006, respectively,
      and were excluded from the computation of diluted net earnings per share because
      such options were anti-dilutive.




**2.
      OTHER RECEIVABLES**





Other
      receivables consist of:




**As
                of****June 28,**
            
            **June 30,****(in
                thousands)**
            
            **2008**
            
            **2007**Interest
                receivable
            
            $
            690
            
            $
            770Other
                accounts receivable
            
            
            994
            
            
            971$
            1,684
            
            $
            1,741


67




**3.
      INVENTORIES**




Inventories
      consist of:





**As of****June 28,**
            
            **June 30,****(in
                thousands)**
            
            **2008**
            
            **2007**Finished
                goods
            
            $
            7,123
            
            $
            4,570Work-in-process
            
            
            4,472
            
            
            4,057Raw
                materials
            
            
            6,326
            
            
            6,160$
            17,921
            
            $
            14,787




The
      Company considers raw material inventory obsolete and it writes it off if the
      raw material has not moved in 365 days. The Company considers assembled devices
      excessive and writes them off if the quantity of assembled devices in inventory
      is in excess of the greater of the quantity shipped in the previous twelve
      months, the quantity in backlog or the quantity forecasted to be shipped in
      the
      following twelve months. In certain circumstances, management will determine,
      based on expected usage or other factors, that inventory considered excess
      by
      these guidelines should not be written off. As of June 28, 2008, the Company
      had
      $5.0 million of written-off inventory as compared to $8.3 million at June 30,
      2007. The Company attributes this overall reduction of approximately $3.3
      million in obsolete inventory between the fiscal year ended June 28, 2008 and
      the fiscal year ended June 30, 2007 to physically scrapping products that were
      previously written-off, partially offset by additional write-offs.




**4.
      PROPERTY, PLANT AND EQUIPMENT**–**NET**





**As of****June 28,**
            
            **June 30,****(in
                thousands)**
            
            **2008**
            
            **2007**Machinery
                and equipment
            
            $
            36,688
            
            $
            28,648Computer
                equipment and software
            
            
            13,942
            
            
            13,678Building
            
            
            3,840
            
            
            3,374Land
            
            
            2,729
            
            
            2,528Furniture
                and fixtures
            
            
            925
            
            
            897Leasehold
                improvements
            
            
            781
            
            
            755Vehicles
            
            
            56
            
            
            52Total
            
            
            58,961
            
            
            49,932Accumulated
                depreciation and amortization
            
            
            (33,724
            )
            
            (27,764
            )Construction-in-progress
            
            
            3,936
            
            
            1,772Property,
                plant and equipment – net
            
            $
            29,173
            
            $
            23,940




Depreciation
      expense for the years ended June 28, 2008, June 30, 2007 and July 1, 2006 was
      $6.3 million, $6.0 million and $4.8 million, respectively.




**5.
      OTHER ASSETS**




**As of****June 28,**
            
            **June 30,****(in
                thousands)**
            
            **2008**
            
            **2007**Investments
                in privately held companies
            
            $
            1,597
            
            $
            1,649Deposits
            
            
            893
            
            
            306Other
            
            
            701
            
            
            118Total
            
            $
            3,191
            
            $
            2,073





The
      Company has investments in certain privately held companies, which it accounts
      for under the cost method. During the fiscal year ended June 30, 2007, the
      Company sold 50% of an investment in a privately held semiconductor company,
      realizing approximately $1.0 million gain. The Company reviews these investments
      for impairment on a periodic basis. The Company did not write off any material
      investments during 2008, 2007 or 2006.


68




**6.
      INVESTMENTS IN UNCONSOLIDATED AFFILIATES**





Our
      investment in unconsolidated affiliates is comprised of the
      following:





**As
                of the Year Ended****June
                28,**
            
            **June
                30,****(in
                thousands)**
            
            **2008**
            
            **2007**Pericom
                Technology, Inc.
            
            $
            8,505
            
            $
            8,230Others
            
            
            1,887
            
            
            1,389Total
            
            $
            10,392
            
            $
            9,619





The
      Company has an approximate 44% ownership interest in Pericom Technology, Inc.
      (“PTI”). Pericom accounts for its investment in PTI using the equity method due
      to the Company’s significant influence over its operations. In addition, certain
      of the directors of the Company are directors of PTI, and certain shareholders
      of the Company are shareholders of PTI. At June 28, 2008 and June 30, 2007,
      the
      Company's carrying value of the investment in PTI exceeded the Company’s
      underlying equity in the net assets of PTI by $550,000 and $859,000,
      respectively. PTI was incorporated in 1994, and in 1995 established a design
      center and sales office to pursue opportunities and participate in joint
      ventures in the People’s Republic of China (“China”). The Company purchased
      $150,000, $116,000 and $125,000 in goods and services from PTI during the years
      ended June 28, 2008, June 30, 2007 and July 1, 2006, respectively. PTI owed
      the
      Company $123,000, $121,000 and $349,000 at June 28, 2008, June 30, 2007 and
      July
      1, 2006, respectively for reimbursement of certain administrative expenses
      incurred by the Company on behalf of PTI and for advances made to PTI by the
      Company. Condensed financial information of PTI at June 28, 2008 and June 30,
      2007 is as follows:





**As
                of the Year Ended****June
                28,**
            
            **June
                30,****2008**
            
            **2007****(in
                thousands)**
            
            
            
            **(restated)**Total
                assets
            
            $
            19,599
            
            $
            17,439Total
                liabilities
            
            $
            1,568
            
            $
            1,136Total
                equity
            
            $
            18,031
            
            $
            16,303Revenue
            
            $
            11,675
            
            $
            11,333Cost
                of revenues
            
            
            5,839
            
            
            5,143Gross
                profit
            
            
            5,836
            
            
            6,190Expenses
            
            
            4,555
            
            
            4,603Operating
                income
            
            
            1,281
            
            
            1,587Interest
                and other income
            
            
            191
            
            
            210Tax
                provision
            
            
            172
            
            
            97Net
                income
            
            $
            1,300
            
            $
            1,700





The
      results for fiscal 2007 were restated as a consequence of the audit of fiscal
      2008 results, with adjustments to asset lives and resulting depreciation
      charges, and to income from invested cash balances. The impact of these
      adjustments on the Company’s financial statements was immaterial.




In
      2006,
      the Company recouped PTI’s net income at 75%, but this declined to 25% in 2007
      and 2008. The change in percentages at which the Company recognizes its
      proportionate share of the income of PTI is due to the percentages of ownership
      held in successive rounds of financing of PTI in which the Company participated.
      As the earlier losses attributable to each round are fully recovered through
      subsequent profitability, the Company’s participation percentage related to the
      next round of financing is applied to any additional profits. The Company will
      continue to use the 25% allocation percentage until all the losses recognized
      in
      prior years have been recouped, in accordance with EITF 02-14. Once this has
      been completed, the Company will revert to recognizing its share of PTI’s net
      income at its percentage ownership level, which is currently
      44.1%.


69





The
      Company holds ownership interests in various other privately held companies.
      The
      ownership in these affiliates varies from 20% to approximately 49%. For those
      companies in which the ownership interest is more than 20% and in which the
      Company has the ability to exercise significant influence on the affiliate’s
      operations, the investment is valued using the equity method of accounting.
      As
      of June 28, 2008, the amount of consolidated retained earnings of the Company
      represented by undistributed earnings of 50% or less entities accounted for
      by
      the equity method was a debit of $27,000.




**7.
      BUSINESS COMBINATIONS**





***Acquisition
      of SaRonix, LLC***





On
      October 1, 2003, the Company purchased SaRonix, LLC. Included in the purchase
      were certain deferred tax assets. In the initial evaluation of these assets,
      management concluded the assets could not be utilized so the Company assigned
      no
      value to them. During fiscal 2007, the Company determined that certain deferred
      tax assets acquired in the SaRonix transaction could be utilized. The Company
      calculated the value of the assets by determining the present value of certain
      tax savings the Company could realize in the future. The amount the Company
      assigned to the deferred tax assets was $1.5 million. In accordance with SFAS
      No. 109, *Accounting
      for Income Taxes,* the fair
      value of the deferred tax assets are reported on the consolidated balance sheets
      at June 30, 2007, with a corresponding offset to intangible assets. ** The
      following table illustrates the Company’s initial allocation of the purchase
      price and changes the Company made during fiscal 2007:





**Purchase Allocation****(in
                thousands)**
            
            **Revised 2007**
            
            **Deferred Tax**
              **Adjustment**
            
            **Original 2003**Current
                assets (includes deferred tax assets)
            
            $
            8,471
            
            $
            1,466
            
            $
            7,005Property
                and equipment
            
            
            1,173
            
            
            -
            
            
            1,173Building
                held for sale
            
            
            1,532
            
            
            -
            
            
            1,532Other
                assets (includes deferred tax assets)
            
            
            616
            
            
            -
            
            
            616Other
                intangible assets subject to amortization:Customer
                backlog
            
            
            320
            
            
            -
            
            
            320Core
                developed technology
            
            
            767
            
            
            (422
            )
            
            1,189In-process
                research and development
            
            
            360
            
            
            -
            
            
            360Supplier
                relationship
            
            
            399
            
            
            (502
            )
            
            901Trade
                name
            
            
            415
            
            
            (542
            )
            
            957Total
                assets acquired
            
            
            14,053
            
            
            -
            
            
            14,053Current
                liabilities
            
            
            (4,422
            )
            
            -
            
            
            (4,422
            )Total
                liabilities assumed
            
            
            (4,422
            )
            
            -
            
            
            (4,422
            )Net
                assets acquired
            
            $
            9,631
            
            $
            -
            
            $
            9,631





***Acquisition
      of eCERA Comtek Corporation***





On
      September 7, 2005 the Company purchased a 99.9% share of eCERA Comtek
      Corporation (“eCERA”). The Company purchased eCERA and its fifty percent-owned
      subsidiary, AZER Crystal Technology Co, Ltd. (“Azer”), to ensure availability of
      FCPs to meet customer demand as well as to drive cost efficiencies. The purchase
      price for eCERA, including net cash consideration of $14.7 million and assumed
      liabilities of approximately $19.7 million, totaled approximately $34.4 million
      including transaction costs. The Company also had the right through March 7,
      2006 to purchase the remaining fifty percent of eCERA’s crystal blank
      manufacturing subsidiary, Azer. The Company exercised this right for cash
      consideration of approximately $1.6 million and assumed debt of approximately
      $1.8 million on February 6, 2006. eCERA and Azer subsequently merged and eCERA
      was the surviving entity. eCERA wrote off Azer-related goodwill of $23,000
      in
      the quarter ended December 29, 2007. eCERA changed its name to SaRonix-eCERA
      (”SRe”) after the Company combined the operations of eCERA and SaRonix. SRe has
      been a key supplier of quartz crystal blanks and crystal oscillator products
      for
      the Company’s frequency control product line.


70





The
      Company has included the results of operations of SRe from the dates of
      acquisition in the Company’s consolidated financial statements. The Company
      recorded the assets acquired and liabilities assumed at the date of the
      acquisition at estimated fair values as determined by management. The Company
      based the fair values of intangible assets acquired using appropriate
      application of the income, market, and cost approaches and the determined the
      fair value of tangible assets acquired and liabilities assumed using estimates
      of current replacement cost, present value of amounts to be collected in the
      future and other techniques. The Company allocated the purchase price of eCERA
      as follows:




**(in
                thousands)**
            
            **Purchase Price**
              **Allocation**Current
                assets
            
            $
            16,846Property
                and equipment
            
            
            14,646Other
                assets
            
            
            2,594Other
                intangible assets subject to amortization :Trade
                name
            
            
            40Core
                developed technology
            
            
            160Customer
                relationships
            
            
            111Total
                assets acquired
            
            
            34,397Current
                liabilities
            
            
            (12,269
            )Long-term
                liabilities
            
            
            (7,414
            )Total
                liabilities assumed
            
            
            (19,683
            )Minority
                interest
            
            
            (10
            )Net
                assets acquired
            
            $
            14,704





The
      following unaudited pro forma information shows the results of operations for
      the fiscal year ended July 1, 2006 as if the eCERA acquisition occurred on
      the
      first day of the fiscal year, July 3, 2005, with the exception that the purchase
      accounting adjustments were estimated based on the closing date of the eCERA
      acquisition.





The
      pro
      forma information is illustrative and is not necessarily indicative of the
      operating results that would have occurred if the acquisition had been
      consummated at the beginning of fiscal 2006, nor is it necessarily indicative
      of
      future operating results.





**Unaudited
      pro forma information**




**Fiscal Year**
              **Ended****(in
                thousands except per share amounts)**
            
            **July
                1, 2006**Net
                revenue
            
            $
            110,555Net
                income
            
            
            6,216Basic
                income per share
            
            $
            0.24Diluted
                income per share
            
            $
            0.23




71




**8.
      PURCHASED INTANGIBLE ASSETS**




The
      Company’s purchased intangible assets associated with completed acquisitions for
      each of the following fiscal years are composed of:




**June 28, 2008**
            
            **June 30, 2007****(in
                thousands)**
            
            **Gross**
            
            **Accumulated**
              **Amortization**
            
            **Net**
            
            **Gross**
            
            **Accumulated**
              **Amortization**
            
            **Net**eCERA
                customer relationships
            
            $
            117
            
            $
            (111
            )
            $
            6
            
            $
            111
            
            $
            (67
            )
            $
            44eCERA
                trade name
            
            
            43
            
            
            (17
            )
            
            26
            
            
            40
            
            
            (10
            )
            
            30Core
                developed technology
            
            
            939
            
            
            (566
            )
            
            373
            
            
            925
            
            
            (489
            )
            
            436SaRonix
                supplier relationship
            
            
            398
            
            
            (78
            )
            
            320
            
            
            399
            
            
            (13
            )
            
            386Total
                amortizable purchased intangible assets
            
            
            1,497
            
            
            (772
            )
            
            725
            
            
            1,475
            
            
            (579
            )
            
            896SaRonix
                trade name
            
            
            415
            
            
            -
            
            
            415
            
            
            415
            
            
            -
            
            
            415Total
                purchased intangible assets
            
            $
            1,912
            
            $
            (772
            )
            $
            1,140
            
            $
            1,890
            
            $
            (579
            )
            $
            1,311





Amortization
      expense related to finite-lived purchased intangible assets is charged to cost
      of revenues and was approximately $186,000 in fiscal 2008, $198,000 in fiscal
      2007 and $173,000 in fiscal 2006.





The
      Company performs an annual impairment review of its long-lived assets, including
      its intangible assets, in conformity with SFAS No. 144,*Accounting
      for the Impairment or Disposal of Long-Lived Assets*(“SFAS
      No. 144”). Based on the results of its most recent annual impairment tests, the
      Company determined that no impairment of the intangible assets existed as of
      June 28, 2008 or June 30, 2007. However, future impairment tests could result
      in
      a charge to earnings.




The
      finite-lived purchased intangible assets consist of supplier relationships,
      trade name, and core developed technology, which have remaining weighted average
      useful lives of approximately five years. In fiscal 2007, the Company reviewed
      the SaRonix supplier relationship, determining that it had a finite life of
      six
      years and should be amortized over that expected useful life. We expect our
      future amortization expense over the next five years associated with these
      assets to be:




**(in
                thousands)**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **2013 and**
              **beyond**Expected
                amortization-eCERA
            
            $
            37
            
            $
            31
            
            $
            31
            
            $
            31
            
            $
            5Expected
                amortization-SaRonix
            
            
            117
            
            
            117
            
            
            117
            
            
            117
            
            
            122$
            154
            
            $
            148
            
            $
            148
            
            $
            148
            
            $
            127




**9.
      ACCRUED LIABILITIES**





Accrued
      liabilities consist of:




**June
                28,**
            
            **June
                30,****(in
                thousands)**
            
            **2008**
            
            **2007**Accrued
                compensation
            
            $
            6,089
            
            $
            4,515Accrued
                income tax
            
            
            434
            
            
            2,159External
                sales representative commissions
            
            
            615
            
            
            832Other
                accrued expenses
            
            
            1,641
            
            
            1,212$
            8,779
            
            $
            8,718




**10.
      DEBT**





As
      part
      of the acquisition of eCERA discussed in Note 7, the debt obligation assumed
      by
      the Company in the transaction totaled $14.9 million and consisted of long-term
      debt and short-term lines of credit. The Company repaid the lines of credit
      during fiscal 2007. The remaining debt of $780,000 as of June 30, 2007 was
      repaid during the first half of fiscal 2008.


72




**11.
      RESTRICTED ASSETS**





As
      part
      of the acquisition of eCERA in fiscal year 2006, the Company assumed debt
      obligations that contained covenants requiring the Company to maintain a minimum
      cash balance to support repayment of the debt. At July 1, 2006, the Company
      maintained $950,000 in compensating cash balances with the lender. The Company
      designated this balance as restricted cash in the consolidated balance sheet.
      The lender removed this restriction in 2007.





As
      of
      June 28, 2008, the Company had pledged and restricted assets of $5.2 million
      that consist of land and buildings SRe has pledged for loan and credit
      facilities.




**12.
      COMMITMENTS**




***BUILDING
      LEASE***





In
      October 2003, the Company entered into a lease for a new corporate headquarters
      for a period of ten years with two consecutive options to extend for an
      additional five years each. The future minimum operating lease commitments
      at
      June 28, 2008 are as follows:





**Fiscal Year Ending****2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **2013**
            
            **Thereafter**
            
            **Total**Operating
                lease payments
            
            $
            1,283
            
            $
            1,160
            
            $
            1,052
            
            $
            1,084
            
            $
            1,116
            
            $
            566
            
            $
            6,261




Rent
      expense during the fiscal years ended June 28, 2008, June 30, 2007 and July
      1,
      2006 was $1.8 million, $1.7 million and $1.7 million, respectively.





In
      January 2008, we initiated a project to build a factory in China for the
      development and manufacture of frequency control products (FCPs), and it is
      expected that our total investment will be approximately $35 million over the
      next two years.




**13.
      COMPREHENSIVE INCOME (LOSS)**





Comprehensive
      income consists of net income, net unrealized gains (losses) on
      available-for-sale investments and cumulative currency translation adjustments
      at consolidated subsidiaries.





As
      of
      June 28, 2008, accumulated other comprehensive income, net of tax consisted
      of
      $144,000 of unrealized gains on investments net of tax, and $3.1 million of
      currency translation gains. As of June 30, 2007, accumulated other comprehensive
      loss, net of tax consisted of $533,000 of unrealized losses on investments
      net
      of tax, and $25,000 of currency translation losses.




**14.
      SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION**




***PREFERRED
      STOCK***





The
      Company’s shareholders have authorized the Board of Directors to issue 5,000,000
      shares of preferred stock from time to time in one or more series and to fix
      the
      rights, privileges and restrictions of each series. As of June 28, 2008, the
      Company has issued no shares of preferred stock.




***STOCK
      OPTION PLANS***




At
      June
      28, 2008 the Company had four stock option plans and one employee stock purchase
      plan, including the 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix
      Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the 2000 Employee
      Stock Purchase Plan (“ESPP”). The Company’s aggregate compensation cost due to
      option grants and the ESPP for the twelve months ended June 28, 2008 totaled
      $2.4 million, as compared with $2.1 million and $1.3 million for fiscal 2007
      and
      2006, respectively. The Company recognized $684,000, $513,000 and $26,000 in
      income tax benefit in the consolidated statements of operations for fiscal
      2008,
      2007 and 2006, respectively, related to the Company’s share-based compensation
      arrangements. The net impact of share-based compensation for the fiscal years
      ended June 28, 2008, June 30, 2007 and July 1, 2006 was a reduction in net
      income of $1.7 million, $1.6 million and $1.3 million, respectively, or a
      reduction of $0.06, $0.06 and $0.05 per diluted share,
      respectively.


73





Under
      the
      Company’s 2004, 2001, and 1995 stock option plans and the SaRonix Acquisition
      Stock Option plan, the Company has reserved 5.1 million shares of common stock
      as of June 28, 2008 for issuance to employees, officers, directors, independent
      contractors and consultants of the Company in the form of incentive and
      nonqualified stock options.




The
      Company may grant options at the fair value and not less than 85% of the fair
      value on grant date for incentive stock options and nonqualified stock options,
      respectively. Options vest over periods of up to 72 months as determined by
      the
      Board of Directors. Options granted under the Plans expire 10 years from the
      grant date.





The
      Company estimates the fair value of each employee option on the date of grant
      using the Black-Scholes option valuation model and expenses that value as
      compensation using a straight-line method over the option’s vesting period,
      which corresponds to the requisite employee service period. The Company
      estimates expected stock price volatility based on actual historical volatility
      for periods that the Company believes represent predictors of future volatility.
      The Company uses historical data to estimate option exercises, expected option
      holding periods and option forfeitures. The Company bases the risk-free interest
      rate on the U.S. Treasury note yield for periods equal to the expected term
      of
      the option.





The
      following table lists the assumptions the Company used to value stock
      options:





**Fiscal
                Year Ended****June
                28, 2008**
            
            **June
                30, 2007**
            
            **July
                1, 2006**Expected
                life
            
            
            4.98-5.17 years
            
            
            4.88-4.93 years
            
            
            1.5-5.75 yearsRisk-free
                interest rate
            
            
            2.92-4.70%
            
            
            4.56-4.79%
            
            
            4.03-4.99%Volatility
                range (low/high)
            
            
            44%-47%
            
            
            46%-48%
            
            
            38%-40%Dividend
                yield
            
            
            0.00%
            
            
            0.00%
            
            
            0.00%




The
      following table summarizes the Company’s stock option plans as of July 2, 2005
      and changes during the three fiscal periods ended June 28, 2008:




**Outstanding Options****Options**
            
            **Shares**
            
            **Weighted Average
                Exercise Price**
            
            **Aggregate**
              **Intrinsic Value****(in thousands)**
            
            
            
            **(in
                millions)**Options
                outstanding at July 2, 2005
            
            
            5,543
            
            $
            11.50
            
            $
            18.7Options
                granted (weighted average grant date fair value of $2.96)
            
            
            702
            
            
            8.46Options
                exercised
            
            
            (313
            )
            
            4.13Options
                forfeited or expired
            
            
            (655
            )
            
            12.33Options
                outstanding at July 1, 2006
            
            
            5,277
            
            
            11.43
            
            
            16.5Options
                granted (weighted average grant date fair value of $4.40)
            
            
            516
            
            
            9.43Options
                exercised
            
            
            (561
            )
            
            5.62Options
                forfeited or expired
            
            
            (414
            )
            
            11.97Options
                outstanding at June 30, 2007
            
            
            4,818
            
            
            11.84
            
            
            10.2Options
                granted (weighted average grant date fair value of $6.01)
            
            
            664
            
            
            13.54Options
                exercised
            
            
            (1,304
            )
            
            7.59Options
                forfeited or expired
            
            
            (304
            )
            
            13.68Options
                outstanding at June 28, 2008
            
            
            3,874
            
            $
            13.42
            
            $
            16.7





At
      June
      28, 2008, 1,204,000 shares were available for future issuance under the option
      plans. The aggregate intrinsic value of options exercised during the year ended
      June 28, 2008 was $11.0 million. The status of options vested and expected
      to
      vest and options that are currently exercisable as of June 28, 2008 is as
      follows:


74




**Options**
              **Vested
                and**
              **Expected**
              **to
                Vest**
            
            **Options**
              **Currently**
              **Exercisable**Shares
                (millions)
            
            3.6
            
            2.8Aggregate
                Intrinsic Value (million $)
            
            $
            15.1
            
            $
            11.7Wtd.
                Avg. Contractual Term (years)
            
            
            4.9
            
            
            4.0Wtd.
                Avg. Exercise Price
            
            $
            13.63
            
            $
            14.21





The
      Company has unamortized share-based compensation expense related to options
      of
      $4.2 million, which will be amortized to expense over a weighted average period
      of 2.6 years.





Additional
      information regarding options outstanding as of June 28, 2008 is as
      follows:





**Options Outstanding**
            
            **Options Exercisable****Range of Exercise Prices**
            
            **Number**
              **Outstanding as**
              **of 6/28/08**
            
            **Weighted Average**
              **Remaining**
              **Contractual Term**
              **(Years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **Exercisable as of**
              **6/28/08**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
            2.40
            
            $
            5.25
            
            
            235,334
            
            
            0.92
            
            $
            4.96
            
            
            235,334
            
            $
            4.96$
            6.53
            
            $
            7.87
            
            
            219,662
            
            
            7.21
            
            $
            7.75
            
            
            106,894
            
            $
            7.64$
            7.88
            
            $
            11.50
            
            
            1,751,878
            
            
            6.70
            
            $
            9.72
            
            
            1,134,927
            
            $
            9.72$
            11.59
            
            $
            15.98
            
            
            704,600
            
            
            4.25
            
            $
            14.20
            
            
            569,517
            
            $
            14.11$
            16.03
            
            $
            23.50
            
            
            513,047
            
            
            5.29
            
            $
            17.40
            
            
            340,466
            
            $
            17.97$
            24.56
            
            $
            37.22
            
            
            449,050
            
            
            1.95
            
            $
            29.26
            
            
            449,050
            
            $
            29.26$
            2.40
            
            $
            37.22
            
            
            3,873,571
            
            
            5.20
            
            $
            13.42
            
            
            2,836,188
            
            $
            14.21




***2000
      EMPLOYEE STOCK PURCHASE PLAN***





The
      Company’s 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows
      eligible employees of the Company to purchase shares of Common Stock through
      payroll deductions. The Company reserved 2.1 million shares of the Company’s
      Common Stock for issuance under the Stock Purchase Plan, of which 544,000 remain
      available at June 28, 2008. The Stock Purchase Plan permits eligible employees
      to purchase Common Stock at a discount through payroll deductions, during
      24-month purchase periods. The Company divides each purchase period into eight
      consecutive three-month accrual periods. Participants in the Stock Purchase
      Plan
      may purchase stock at 85% of the lower of the stock’s fair market value on the
      first day of the purchase period or the last day of the accrual period. The
      maximum number of shares of Common Stock that any employee may purchase under
      the Stock Purchase Plan during any accrual period is 1,000 shares. During fiscal
      year 2008, 2007 and 2006, the Company issued 120,000, 146,000 and 141,000 shares
      of common stock under the Stock Purchase Plan at weighted average prices of
      $8.55, $6.83 and $6.79, respectively. The weighted average grant date fair
      value
      of the fiscal 2008, 2007 and 2006 awards were $3.15, $2.49 and $2.11 per share,
      respectively.





The
      Company estimates the fair value of stock purchase rights granted under the
      Company’s Stock Purchase Plan on the date of grant using the Black-Scholes
      option valuation model. The Company bases volatility on the volatility of the
      Company’s stock during the expected term. The Company uses historical data to
      estimate the expected holding period and expected forfeitures and the U.S.
      Treasury yield for the risk-free interest rate for the expected
      term.





The
      following table lists the values of the assumptions the Company used to value
      stock compensation in the Stock Purchase Plan:


75







**Fiscal Year Ended****June 28, 2008**
            
            **June 30, 2007**
            
            **July 1, 2006**Expected
                life
            13.5
                months
            
            13.5
                months
            
            13.5
                monthsRisk-free
                interest rate
            1.97-4.95%
            
            4.98-5.08%
            
            3.83-4.94%Volatility
                range (low/high)
            40%-60%
            
            41%-42%
            
            35%-39%Dividend
                yield
            0.00%
            
            0.00%
            
            0.00%





The
      following table summarizes activity in the Company’s employee stock purchase
      plan during the fiscal year ended June 28, 2008:




**Shares**
            
            **Weighted Average**
              **Purchase Price**Beginning
                Available
            
            
            663,910Purchases
            
            
            (119,587
            )
            $
            8.55Ending
                Available
            
            
            544,323





At
      June
      28, 2008, the Company has $544,000 in unamortized share-based compensation
      related to its employee stock purchase plan. We estimate this expense will
      be
      amortized and recognized in the consolidated statement of operations over the
      next 1.04 years.




***REPORTING
      S*** ***HARE-BASED
      COMPENSATION***





The
      following table shows total share-based compensation expense classified by
      consolidated statement of operations reporting caption generated from the plans
      mentioned above:




**Fiscal Year Ended****(in thousands)**
            
            **June 28, 2008**
            
            **June 30, 2007**
            
            **July 1, 2006**Cost
                of revenues
            
            $
            155
            
            $
            141
            
            $
            92Research
                and development
            
            
            811
            
            
            865
            
            
            501Selling,
                general and administrative
            
            
            1,392
            
            
            1,113
            
            
            730Pre-tax
                stock-based compensation expense
            
            
            2,358
            
            
            2,119
            
            
            1,323Income
                tax effect
            
            
            684
            
            
            513
            
            
            26Net
                stock-based compensation expense
            
            $
            1,674
            
            $
            1,606
            
            $
            1,297





The
      amount of share-based compensation expense in inventory at June 28, 2008 and
      June 30, 2007 is immaterial.





Share-based
      compensation expense categorized by the type of award from which it arose is
      as
      follows for fiscal year ended June 28, 2008:




**Fiscal Year Ended**(in thousands)
            
            **June 28, 2008**
            
            **June 30, 2007**
            
            **July 1, 2006**Stock
                option plans
            
            $
            2,054
            
            $
            1,597
            
            $
            1,075Less
                income tax effect
            
            
            684
            
            
            513
            
            
            26Net
                stock option plan expense
            
            
            1,370
            
            
            1,084
            
            
            1,049Employee
                stock purchase plan
            
            
            304
            
            
            522
            
            
            248Less
                income tax effect
            
            
            -
            
            
            -
            
            
            -Net
                employee stock purchase plan expense
            
            
            304
            
            
            522
            
            
            248$
            1,674
            
            $
            1,606
            
            $
            1,297




76




***STOCK
      REPURCHASE PLAN***




On
      October 22, 2001, the Board of Directors authorized the repurchase of up to
      2,000,000 shares of the Company’s common stock. The Company may repurchase the
      shares from time to time in open market or private transactions, at the
      discretion of the Company’s management. The Company repurchased 750,000 shares
      during fiscal 2006 and 628,000 shares during fiscal 2007, and by June 30, 2007
      the Company had repurchased an aggregate of 2,000,000 shares at a cost of
      approximately $17.8 million, fulfilling the Board of Directors’ October 22, 2001
      authorization.





On
      April
      26, 2007, the Company’s Board of Directors authorized the repurchase of an
      additional 2.0 million shares. Pursuant to the 2007 Board of Directors’
approval, the Company repurchased approximately 1.6 million shares during fiscal
      2008 at an approximate cost of $20.1 million, and 302,000 shares during fiscal
      2007, at an approximate cost of $3.1 million.





On
      April
      29, 2008, our Board of Directors authorized the repurchase of an additional
      $30
      million of our common stock. The repurchases may be made from time to time
      in
      the open market or through private transactions at the discretion of Company
      management. Current cash balances and the proceeds from stock option exercises
      and purchases in the stock purchase plan have funded stock repurchases in the
      past, and the Company expects to fund future stock repurchases from these same
      sources.




**15.
      SHAREHOLDER RIGHTS PLAN**





The
      Company has adopted a Shareholder Rights Plan (“the Plan”) and declared a
      dividend distribution of one right for each outstanding share of the Company’s
      common stock. The record date for the distribution was March 21, 2002. The
      Company designed the plan to protect the long-term value of the Company for
      its
      shareholders during any future unsolicited acquisition attempt. The Company
      did
      not adopt the Plan in response to any specific attempt to acquire the Company
      or
      its shares and the Company is not aware of any current efforts to do so. These
      rights will become exercisable only upon the occurrence of certain events
      specified in the plan, including the acquisition of 15% of the Company’s
      outstanding common stock by a person or group. Should a person or group acquire
      15% or more of the outstanding common stock or announce an unsolicited tender
      offer, the consummation of which would result in a person or acquiring 15%
      or
      more of the outstanding common stock, shareholders other than the acquiring
      person may exercise the rights, unless the Board of Directors has approved
      the
      transaction in advance. Each right entitles the holder, other than an acquiring
      person, to purchase shares of the Company’s common stock (or, in the event that
      there are insufficient authorized common stock shares, substitute consideration
      such as cash, property, or other securities of the Company, such as Preferred
      Stock) at a 50% discount to the then prevailing market price. Prior to the
      acquisition by a person or group of 15% or more of the outstanding common stock,
      the Company may redeem the rights for $0.001 per right at the option of the
      Board of Directors. All shares issued since March 21, 2002 contain one right.
      The rights will expire on March 21, 2012. As of June 28, 2008, there were
      25,703,000 rights outstanding.




**16.
      RESTRUCTURING CHARGE**





In
      fiscal
      2005, the Company instituted a restructuring plan to align its costs with
      prevailing market conditions. The Company incurred additional accruals related
      to the restructuring plan of $55,000 in the first quarter of fiscal 2006. The
      Company experienced no restructuring charges in fiscal years 2007 or
      2008.





The
      following table summarizes the restructuring activity in fiscal
      2006:




**Restructuring****(in
                thousands)**
            
            **Charge**Balance
                at July 2, 2005
            
            $
            22Additional
                reserves in fiscal 2006
            
            
            55Cash
                payments in fiscal 2006
            
            
            (77
            )Balance
                at July 1, 2006
            
            $
            -





77




**17.
      INCOME TAXES**





Income
      tax expense consists of (in thousands):




**Fiscal Year Ended****June 28,**
            
            **June 30,**
            
            **July 1,****2008**
            
            **2007**
            
            **2006**Federal:Current
            
            $
            2,279
            
            $
            1,543
            
            $
            290Deferred
            
            
            4,454
            
            
            (587
            )
            
            1,3706,733
            
            
            956
            
            
            1,660State:Current
            
            
            4
            
            
            49
            
            
            117Deferred
            
            
            445
            
            
            25
            
            
            (271
            )449
            
            
            74
            
            
            (154
            )Foreign:Current
            
            
            963
            
            
            957
            
            
            322Deferred
            
            
            76
            
            
            998
            
            
            241,039
            
            
            1,955
            
            
            346Total
                income tax expense
            
            $
            8,221
            
            $
            2,985
            
            $
            1,852





The
      reconciliation between the Company’s effective tax rate and the U.S. statutory
      rate is as follows:





**Fiscal Year Ended****June 28,**
            
            **June 30,**
            
            **July 1,****2008**
            
            **2007**
            
            **2006**Tax
                provision at federal statutory rate
            
            
            34.0
            %
            
            35.0
            %
            
            35.0
            %State
                income taxes, net of federal benefit
            
            
            0.8
            
            
            0.5
            
            
            (1.7
            )Foreign
                income tax
            
            
            (2.9
            )
            
            (2.3
            )
            
            (9.4
            )Foreign
                loss
            
            
            -
            
            
            -
            
            
            8.1Benefits
                from resolution of certain tax audits andexpiration
                of statute of limitations
            
            
            (0.6
            )
            
            -
            
            
            -Stock
                compensation
            
            
            0.6
            
            
            1.9
            
            
            -Tax
                exempt investment income
            
            
            -
            
            
            -
            
            
            -Research
                and development tax credits
            
            
            0.1
            
            
            (4.3
            )
            
            (2.2
            )Change
                in valuation allowance
            
            
            (0.4
            )
            
            (1.0
            )
            
            -Other
            
            
            1.6
            
            
            (3.2
            )
            
            1.5Income
                tax expense
            
            
            33.2
            %
            
            26.6
            %
            
            31.3
            %




The
      components of the net deferred tax assets were as follows (in
      thousands):




78




**As of****June 28,**
            
            **June 30,****2008**
            
            **2007****Deferred
                tax assets**:Credit
                carryforwards
            
            $
            3,704
            
            $
            3,709Inventory
                reserves
            
            
            1,740
            
            
            2,941Cumulative
                loss on investment in unconsolidated affiliates
            
            
            26
            
            
            762Unrealized
                loss on short-term investments
            
            
            425
            
            
            199Accrued
                compensation and other benefits
            
            
            478
            
            
            555Capitalized
                research and development
            
            
            139
            
            
            202Capital
                loss carry forward
            
            
            205
            
            
            498Accounts
                receivable reserve
            
            
            655
            
            
            815Inventory
                capitalization
            
            
            121
            
            
            68Stock
                compensation
            
            
            940
            
            
            703Others
            
            
            88
            
            
            333Total
                deferred tax asset
            
            
            8,521
            
            
            10,785**Deferred
                tax liabilities:**Basis
                difference in fixed assets
            
            
            (704
            )
            
            (696
            )Deferred
                state taxes
            
            
            -
            
            
            -Other
                prepaid accruals
            
            
            (96
            )
            
            (101
            )Total
                deferred tax liabilities
            
            
            (800
            )
            
            (797
            )Valuation
                allowance
            
            
            (634
            )
            
            (933
            )Net
                Deferred tax assets
            
            $
            7,087
            
            $
            9,055





As
      of
      June 28, 2008, the Company has tax credit carryforwards of approximately $3.1
      million and $0.6 million available to offset future state taxable income and
      federal taxable income, respectively. The state tax credit carryforwards do
      not
      have an expiration date and may be carried forward indefinitely. The federal
      tax
      credit carryforward expires in twenty years; any remainder will then be
      deductible in the twenty-first year.





The
      Company provides a valuation allowance for deferred tax assets when it is more
      likely than not, based upon currently available evidence and other factors,
      that
      some portion or all of the deferred tax asset will not be realized. Due to
      the
      uncertainty surrounding the Company’s ability to offset the cumulative equity
      losses in Pericom Technology, Inc. (“PTI”) and write-downs in investments, the
      Company has provided for a partial valuation allowance of $634,000 against
      the
      tax effect of the losses and write-downs as of June 28, 2008. The Company
      reduces the valuation allowance by the tax effect of any realized capital gains
      that are available to offset capital losses.





Consolidated
      income before income taxes includes non-U.S. income of approximately $5.0
      million, $4.3 million and $1.0 million for the fiscal years ended June 28,
      2008,
      June 30, 2007 and July 1, 2006, respectively. Pericom has not provided U.S.
      income taxes on a cumulative total of approximately $11.8 million of
      undistributed earnings reported by certain foreign subsidiaries. The Company
      intends to reinvest these earnings indefinitely in its foreign subsidiaries.
      If
      these earnings were distributed to the United States in the form of dividends
      or
      otherwise, or if the shares of the relevant foreign subsidiaries were sold
      or
      otherwise transferred, the Company would be subject to additional U.S. income
      taxes (subject to an adjustment for foreign tax credits) and foreign withholding
      taxes.




Effective
      July 1, 2007, the Company adopted Financial Accounting Standards Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes – an interpretation of FASB Statement
      No. 109* (“FIN
      No.
      48”). FIN No. 48 prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of uncertain tax
      positions taken or expected to be taken in a company’s income tax return, and
      also provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. FIN No. 48 utilizes a
      two-step approach for evaluating uncertain tax positions accounted for in
      accordance with SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      No. 109”). Step one, Recognition, requires a company to determine if the weight
      of available evidence indicates that a tax position is more likely than not
      to
      be sustained upon audit, including resolution of related appeals or litigation
      processes, if any. Step two, Measurement, is based on the largest amount of
      benefit which is more likely than not to be realized on ultimate settlement.
      The
      cumulative effect of adopting FIN No. 48 on July 1, 2007 is recognized as a
      change in accounting principle, recorded as an adjustment to the opening balance
      of retained earnings on the adoption date.




79




The
      Company recognized $974,000 for unrecognized tax benefits related to tax
      positions taken in prior periods. A reconciliation of the beginning and ending
      amount of unrecognized tax benefit is as follows:




Balance
                as of July 1, 2007
            
            $
            (974,000
            )Gross
                increases - tax positions in prior period
            
            
            -Gross
                decreases - tax positions in prior period
            
            
            -Gross
                increases - current-period tax positions
            
            
            (72,000
            )Decreases
                relating to settlements
            
            
            -Reductions
                as a result of a lapse of statute of limitations
            
            
            148,000Balance
                as of June 28, 2008
            
            $
            (898,000
            )





All
      of
      this amount would affect the corporation’s tax rate if recognized. The tax years
      2004 to 2007 remain open in the United States.





Upon
      adoption of FIN No. 48, the Company’s policy to include interest and penalties
      related to unrecognized tax benefits within the Company’s provision for income
      taxes did not change. As of June 28, 2008, the Company has accrued $120,000
      for
      interest related to the unrecognized tax benefits.




**18.
      EMPLOYEE BENEFIT PLAN**




The
      Company has a 401(k) tax-deferred savings plan under which eligible employees
      may elect to have a portion of their salary deferred and contributed to the
      plan. The Board of Directors determines the employer matching contributions
      at
      their discretion. There were no employer-matching contributions in fiscal 2008,
      2007 or 2006.




**19.
      INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION**





The
      Company operates in one segment, the interconnectivity device supply market.
      The
      Company offers two broad and complementary product families within this segment,
      high performance integrated circuits and frequency control
      sub-systems.




The
      Chief
      Operating Decision Maker (CODM), as defined by SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* (“SFAS
      No. 131”), is the company’s President and Chief Executive Officer (CEO). Because
      the Company’s products are complementary and share common customers and
      suppliers, the CODM reviews
      and assesses financial information, operating results and performance of the
      Company’s business in the aggregate and allocates resources to develop new products and drive sales using information
      about the market in which the Company operates, as a whole.





The
      Company has research and development and selling, general and administrative
      groups. The Company does not allocate expenses of these groups. The CODM has
      determined that an attempt to allocate the expenses of these groups to product
      families would not be informative or cost effective.





The
      Company does not identify or allocate assets by product family, nor does the
      CODM evaluate the Company’s operations using discrete asset information.




80




Operating
      net revenues for the three years is shown below:




**Years Ended****June 28,**
            
            **June 30,**
            
            **July 1,****(in
                thousands)**
            
            **2008**
            
            **2007**
            
            **2006**Net
                revenuesIC
                product family
            
            $
            96,612
            
            $
            72,728
            
            $
            64,479FCP
                product family
            
            
            67,132
            
            
            50,642
            
            
            41,399Total
            
            $
            163,744
            
            $
            123,370
            
            $
            105,878




For
      geographical reporting, we attribute net sales to the country where customers
      are located (the “bill to” location). We neither conduct business in nor sell to
      persons in Iran, Syria, Sudan, or North Korea, countries located in the
      referenced regions that are identified as state sponsors of terrorism by the
      U.S. Department of State, and are subject to U.S. economic sanctions and export
      controls. Long-lived assets consist of all non-monetary assets, excluding
      non-current deferred tax assets, goodwill and intangible assets. The Company
      attributes long-lived assets to the country where they are located. The
      following presents net sales for the years ended June 28, 2008, June 30, 2007
      and July 1, 2006; and the net book value of long-lived assets as of June 28,
      2008, June 30, 2007 and July 1, 2006 by geographical segment:




**Years Ended****June 28,**
            
            **June 30,**
            
            **July 1,****(in
                thousands)**
            
            **2008**
            
            **2007**
            
            **2006**Net
                sales to countries:China
                (including Hong Kong)
            
            $
            63,071
            
            $
            48,282
            
            $
            30,013United
                States
            
            
            14,466
            
            
            15,988
            
            
            20,522Taiwan
            
            
            52,103
            
            
            29,253
            
            
            27,519Singapore
            
            
            8,073
            
            
            8,004
            
            
            9,392Others
                (less than 10% each)
            
            
            26,031
            
            
            21,843
            
            
            18,432Total
                net sales
            
            $
            163,744
            
            $
            123,370
            
            $
            105,878**(in
                thousands)**Long-lived
                assets:United
                States
            
            $
            6,622
            
            $
            6,441
            
            $
            7,144Taiwan
            
            
            23,402
            
            
            18,169
            
            
            20,214Korea
            
            
            856Singapore
            
            
            353
            
            
            1,627
            
            
            1,266China
                (including Hong Kong)
            
            
            345
            
            
            400
            
            
            227Others
                (less than 10% each)
            
            
            60
            
            
            78
            
            
            169Total
                long-lived assets
            
            $
            31,638
            
            $
            26,715
            
            $
            29,020




**20.
      QUARTERLY FINANCIAL DATA (Unaudited)**




Following
      is a summary of quarterly operating results and share data for the years ended
      June 28, 2008 and June 30, 2007.




81




**PERICOM
      SEMICONDUCTOR CORPORATION**


**QUARTERLY
      FINANCIAL DATA**


**(Amounts
      in thousands, except per share data)**


**(Unaudited)**




**For the Quarter Ended****June 28,**
            
            **Mar 29,**
            
            **Dec 29,**
            
            **Sep 29,****2008**
            
            **2008**
            
            **2007**
            
            **2007**Net
                revenues
            
            $
            43,373
            
            $
            41,177
            
            $
            40,726
            
            $
            38,468Cost
                of revenues
            
            
            27,768
            
            
            25,709
            
            
            25,694
            
            
            24,467Gross
                profit
            
            
            15,605
            
            
            15,468
            
            
            15,032
            
            
            14,001Operating
                expenses:Research
                and development
            
            
            4,296
            
            
            4,503
            
            
            4,278
            
            
            4,082Selling,
                general and administrative
            
            
            6,294
            
            
            5,705
            
            
            5,786
            
            
            5,839Total
                operating expenses
            
            
            10,590
            
            
            10,208
            
            
            10,064
            
            
            9,921Income
                from operations
            
            
            5,015
            
            
            5,260
            
            
            4,968
            
            
            4,080Interest
                and other income, net
            
            
            1,606
            
            
            903
            
            
            1,622
            
            
            1,370Other
                than temporary decline in the value of investments
            
            
            (24
            )
            
            (52
            )
            
            -
            
            
            -Income
                before income tax expense
            
            
            6,597
            
            
            6,111
            
            
            6,590
            
            
            5,450Income
                tax expense
            
            
            2,132
            
            
            2,054
            
            
            2,344
            
            
            1,691Minority
                interest in the loss (income) of consolidated subsidiaries
            
            
            (53
            )
            
            (47
            )
            
            (19
            )
            
            3Equity
                in net income of unconsolidated affiliates
            
            
            181
            
            
            131
            
            
            169
            
            
            121Net
                income
            
            $
            4,593
            
            $
            4,141
            
            $
            4,396
            
            $
            3,883Basic
                earnings per share
            
            $
            0.18
            
            $
            0.16
            
            $
            0.17
            
            $
            0.15Diluted
                earnings per share
            
            $
            0.17
            
            $
            0.16
            
            $
            0.16
            
            $
            0.15Shares
                used in computing basic earnings per share
            
            
            25,480
            
            
            25,835
            
            
            25,888
            
            
            25,745Shares
                used in computing diluted earnings per share
            
            
            26,472
            
            
            26,633
            
            
            26,959
            
            
            26,379





**For the Quarter Ended****June 30,**
            
            **Mar 31,**
            
            **Dec 30,**
            
            **Sep 30,****2007**
            
            **2007**
            
            **2006**
            
            **2006**Net
                revenues
            
            $
            31,520
            
            $
            30,182
            
            $
            30,842
            
            $
            30,826Cost
                of revenues
            
            
            20,027
            
            
            19,960
            
            
            20,176
            
            
            20,394Gross
                profit
            
            
            11,493
            
            
            10,222
            
            
            10,666
            
            
            10,432Operating
                expenses:Research
                and development
            
            
            3,991
            
            
            4,048
            
            
            4,040
            
            
            3,942Selling,
                general and administrative
            
            
            5,822
            
            
            5,342
            
            
            4,919
            
            
            5,795Total
                operating expenses
            
            
            9,813
            
            
            9,390
            
            
            8,959
            
            
            9,737Income
                from operations
            
            
            1,680
            
            
            832
            
            
            1,707
            
            
            695Interest
                and other income, net
            
            
            1,410
            
            
            2,519
            
            
            1,193
            
            
            1,338Interest
                expense
            
            
            7
            
            
            23
            
            
            42
            
            
            58Other
                than temporary decline in the value of investments
            
            
            -
            
            
            (5
            )
            
            -
            
            
            (1
            )Income
                before income tax expense
            
            
            3,083
            
            
            3,323
            
            
            2,858
            
            
            1,974Income
                tax expense
            
            
            886
            
            
            788
            
            
            691
            
            
            620Minority
                interest in the loss (income) of consolidated subsidiaries
            
            
            4
            
            
            (7
            )
            
            (21
            )
            
            (9
            )Equity
                in net income (loss) of unconsolidated affiliates
            
            
            (69
            )
            
            86
            
            
            110
            
            
            280Net
                income
            
            $
            2,132
            
            $
            2,614
            
            $
            2,256
            
            $
            1,625Basic
                earnings per share
            
            $
            0.08
            
            $
            0.10
            
            $
            0.09
            
            $
            0.06Diluted
                earnings per share
            
            $
            0.08
            
            $
            0.10
            
            $
            0.08
            
            $
            0.06Shares
                used in computing basic earnings per share
            
            
            25,880
            
            
            26,109
            
            
            26,113
            
            
            26,131Shares
                used in computing diluted earnings per share
            
            
            26,500
            
            
            26,702
            
            
            26,783
            
            
            26,692


82


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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.





PERICOM
              SEMICONDUCTOR CORPORATIONBy:
            /s/
                ALEX C. HUIAlex
                C. Hui*Chief
                Executive Officer, President and*
              *Chairman
                of the Board of Directors*Date:
            September
                10, 2008





KNOWN
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Alex C. Hui and Angela Chen and each of them, his
      attorney-in-fact, each with the power of substitution, for him in any and all
      capacities, to sign any amendments to this Report on Form 10-K and file the
      same, with exhibits thereto and other documents in connection therewith, with
      the Securities and Exchange Commission, and hereby ratifying and confirming
      all
      that each of said attorney-in-fact, or his substitute or substitutes, may do
      or
      cause to be done by virtue hereof.





**Signature**
            
            **Title**
            **Date**/s/
                ALEX C. HUI
            
            Chief
                Executive Officer, President and
            September
                10, 2008Alex
                C. Hui
            
            Chairman
                of the Board of Directors*(Principal
                Executive Officer)*/s/
                ANGELA CHEN
            
            Chief
                Financial Officer
            September
                10, 2008Angela
                Chen
            
            *(Principal
                Financial Officer and Accounting**Officer)*/s/
                JOHN CHI-HUNG HUI
            
            Senior
                Vice President, R&D and Director
            September
                10, 2008John
                Chi-Hung Hui/s/
                MILLARD PHELPS
            
            Director
            September
                10, 2008Millard
                Phelps/s/
                HAU L LEE
            
            Director
            September
                10, 2008Hau
                L. Lee





/s/
                SIMON WONG
            
            Director
            September
                10, 2008Simon
                Wong/s/
                MICHAEL SOPHIE
            
            Director
            September
                10, 2008Michael
                Sophie


83




**Schedule
      II**





**PERICOM
      SEMICONDUCTOR CORPORATION**





**VALUATION
      AND QUALIFYING ACCOUNTS**


**(In
      Thousands)**




**Balance at**
              **Beginning**
            
            **Reserves**
            
            **Charged to**
            
            
            
            **Balance at**
              **End of****of Period**
            
            **Acquired**
            
            **Revenues**
            
            **Deductions**
            
            **Period****Reserves
                for returns and pricing adjustments**Fiscal
                year ending June 28, 2008
            
            $
            2,185
            
            
            -
            
            $
            3,460
            
            $
            3,950
            
            $
            1,695Fiscal
                year ending June 30, 2007
            
            
            1,913
            
            
            -
            
            
            5,340
            
            
            5,068
            
            
            2,185Fiscal
                year ending July 1, 2006
            
            
            2,220
            
            
            -
            
            
            5,702
            
            
            6,009
            
            
            1,913





**Balance at**
            
            
            
            **Charged to**
            
            
            
            **Balance at****Beginning**
            
            **Reserves**
            
            **Costs and**
            
            **Deductions/**
            
            **End of****of Period**
            
            **Acquired (a)**
            
            **Expenses**
            
            **Write-offs**
            
            **Period****Allowance
                for doubtful accounts**Fiscal
                year ending June 28, 2008
            
            $
            103
            
            $
            -
            
            $
            165
            
            $
            13
            
            $
            255Fiscal
                year ending June 30, 2007
            
            
            292
            
            
            -
            
            
            37
            
            
            226
            
            
            103Fiscal
                year ending July 1, 2006
            
            
            19
            
            
            424
            
            
            (141
            )
            
            10
            
            
            292


**_____________**


(a)
            Reserve
                balance acquired as part of the September 7, 2005 eCERA and Azer
                acquisition.




Sii