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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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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 JULY 1, 2006.



| ̈ | 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



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Pericom Semiconductor
Corporation

(Exact Name of Registrant as Specified in Its Charter)



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



|                                                   |  |           
|-------------------------------------------------- |  | ----------
|3545 North First Street San Jose, California 95134 |  | 95134     
|(Address of Principal Executive Offices)           |  | (Zip Code)

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



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



|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Title of Each Class             |  | Name of Exchange on which
Registered
|Common Stock                    |  | The NASDAQ Stock Market LLC         
|Preferred 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.  x

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

Large Accelerated Filer ̈Accelerated Filer  x                Non-Accelerated Filer ̈

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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 September 11, 2006 as reported by the NASDAQ National Market was approximately $244,904,310. 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 11, 2006 the Registrant had outstanding 26,053,650 shares of Common Stock.



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##### Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrants Proxy Statement for the Annual Meeting of Shareholders to be held December 14, 2006, which will be filed subsequently, are incorporated by reference in Part III of this report on
Form10-K.



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PERICOM SEMICONDUCTOR CORPORATION

Form 10-K for the Year Ended July 1, 2006

INDEX



|                                                                                                                     |  |     
|-------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                     |  | PAGE
|PART I                                                                                                               |  |     
|                                                                                                                     | 
|Item 1: Business                                                                                                     |  | 4   
|                                                                                                                     | 
|Item 1A: Risk Factors                                                                                                |  | 16  
|                                                                                                                     | 
|Item 1B: Unresolved Staff Comments                                                                                   |  | 25  
|                                                                                                                     | 
|Item 2: Properties                                                                                                   |  | 25  
|                                                                                                                     | 
|Item 3: Legal Proceedings                                                                                            |  | 25  
|                                                                                                                     | 
|Item 4: Submission of Matters to a Vote of Security Holders                                                          |  | 25  
|                                                                                                                     | 
|PART II                                                                                                              |  |     
|                                                                                                                     | 
|Item 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 26  
|                                                                                                                     | 
|Item 6: Selected Financial Data                                                                                      |  | 28  
|                                                                                                                     | 
|Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 29  
|                                                                                                                     | 
|Item 7A: Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 41  
|                                                                                                                     | 
|Item 8: Financial Statements and Supplementary Data                                                                  |  | 42  
|                                                                                                                     | 
|Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 43  
|                                                                                                                     | 
|Item 9A: Controls and Procedures                                                                                     |  | 43  
|                                                                                                                     | 
|Item 9B: Other Information                                                                                           |  | 45  
|                                                                                                                     | 
|PART III                                                                                                             |  |     
|                                                                                                                     | 
|Item 10: Directors and Executive Officers of the Registrant                                                          |  | 47  
|                                                                                                                     | 
|Item 11: Executive Compensation                                                                                      |  | 47  
|                                                                                                                     | 
|Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters              |  | 47  
|                                                                                                                     | 
|Item 13: Certain Relationships and Related Transactions                                                              |  | 48  
|                                                                                                                     | 
|Item 14: Principal Accountant Fees and Services                                                                      |  | 48  
|                                                                                                                     | 
|PART IV                                                                                                              |  |     
|                                                                                                                     | 
|Item 15: Exhibits and Financial Statement Schedules                                                                  |  | 49  
|                                                                                                                     | 
|Signatures                                                                                                           |  | 81  



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PART I

ITEM 1. BUSINESS

We design, develop and market high-performance interface integrated circuits, or ICs, and frequency control
products, or FCPs, used in many of todays advanced electronic systems. Interface ICs, such as interface logic, switches and timing management products, transfer, route and time electrical signals among a systems microprocessor, memory
and various peripherals and between interconnected systems. Frequency control products are electronic components used as time and frequency clocks in electronic products ranging from computers and telecommunications switching equipment to cell
phones and televisions. Our interface products increase system bandwidth in applications such as notebook computers, servers, network switches and routers, storage area networks, multi-media video networks, mobile phones and wireless base stations.
We offer products that increase bandwidth by widening the data path, or bus (enlarging the pipe), increasing the data rate (increasing the flow rate through the pipe), or allowing multiple, simultaneous transactions on the bus. We offer analog video
switch products that provide high resolution and are capable of multiplexing multiple video components with excellent cross-talk and off-isolation features for todays multi-media video network systems. Our analog audio switch products with
optimum combination of low voltage, small package and low resistances, are addressing todays need for high fidelity sound systems in cell phones and PDA applications.

We have combined our extensive design technology and applications knowledge with our responsiveness to the specific needs of electronic systems developers to become a leading supplier of high-performance interface
ICs. We have evolved from one product line in fiscal 1992 to five developed and growing product linesSiliconSwitch, SiliconInterface, SiliconClock, SiliconConnect and SaRonix Frequency Control Productsaimed
at providing an increasing breadth of interface and timing IC and FCP solutions to our current and target customers. We have a comprehensive portfolio of products and our worldwide customers include leading OEMs, contract manufacturers and
distributors.

Our website address is http://www.pericom.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports, and the proxy statement for our annual meeting of shareholders are all available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange
Commission.

INDUSTRY BACKGROUND

OVERVIEW

The presence of electronic systems and subsystems permeates our everyday life, as evidenced by the growth of the personal computer, mobile
communications, networking and consumer electronics markets. The growth of these markets has been driven by systems characterized by ever-improving performance, flexibility, reliability and multi-functionality, as well as decreasing size, weight and
power consumption. Advances in ICs through improvements in semiconductor technology have contributed significantly to the increased performance of, and demand for, electronic systems and to the increasing representation of ICs as a proportion of
overall system cost. This technological progress has occurred at an accelerating pace, while the cost of electronic systems has remained steady or declined.

Our Frequency Control Products 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, generates a signal at a precise and consistent frequency. All types of crystal oscillators are clocks in the sense that they keep time, or provide a frequency reference for
various digital or analog electronic devices.

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, higher stability relative
to temperature, smaller surface mountable packaging, and lower unit cost.

The development of high-performance personal computers, the requirement for
higher network performance and the increased level of connectivity among different types of electronic devices have driven the demand for high-



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speed, high-performance interface circuits to handle the transfer, routing and timing of digital and analog signals at high speeds with minimal loss of
signal quality. High-speed signal transfer is essential to fully utilize the speed and bandwidth of the microprocessor, the memory and the LAN or WAN. High signal quality is equally essential to achieve optimal balance between high data transmission
rates and reliable system operation. Without high signal quality, transmission errors occur as bandwidth increases. The same market pressures imposed on microprocessors drive the market requirements for interface circuits: this includes higher
speed, reduced power consumption, lower voltage operation, smaller size and higher levels of integration.

Our interface and timing products are used to
increase system bandwidth in applications such as servers, network switches and routers, storage area networks, wireless base-stations, and notebook computers. By widening the data path (widening the pipe) and increasing the clock rate (increase the
flow rate through the pipe), bandwidth is increased. We are pioneering technology in each of these areas. An excellent example is our development and implementation of PCI Express technology, which has been utilized across both our interface and
timing product areas. PCI Express is a new industry standard serial protocol which was developed to offer higher bandwidth to and from the Microprocessor (CPU) and peripheral devices, such as Ethernet, USB, video, and other types of connectivity.
Almost every market segment and end product application is adopting PCI Express as the new high speed signal path. PCI Express, as a serial signal, offers many times the bandwidth of PCI and allows new cost effective means to send high speed signals
longer distances for applications, such as External PCI Express. However, this expanded bandwidth comes at a price. Signal quality and integrity becomes difficult to maintain as signal frequencies routinely exceed 1, 2, and even 3 Gigabits per
second.

The problems associated with signal quality that must be addressed by the interface ICs are magnified by increases in the speeds at which
interface ICs must transfer, route and time electrical signals, the number of interconnected devices that send or receive signals, and the variety of types of signals processed by the interface ICs. The most significant performance challenges faced
by designers of interface ICs are the requirements to transfer signals at high speed with low propagation delay, minimize signal degradation such as noise, jitter, and skew and reduce electromagnetic interference
(EMI). Minimizing propagation delay, sources of signal degradation and interference is needed to enable todays state-of-the-art electronic systems to function reliably.

We believe that several major market trends make reliable operations of systems at high frequency and high data transfer rates critical. 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. Increasing system-wide EMI emissions resulting from higher-frequency
ICs compels system designers to develop and implement new ways to further reduce these emissions. These factors all increase the need for very high-speed, high performance, interface circuits.

With processing power continuing to double every 18 months (Moores law), the speed at which microprocessors can access memory becomes the system bandwidth
constraint in high-speed computing. We have developed solutions with market leaders to support higher speed processor-memory interfacing to support the Double Data Rate (DDR and DDR II) SDRAM, both on the system motherboard
and memory modules.

In server applications, we support higher system bandwidth through the use of bus switches to isolate the systems memory modules
from the bus when they are not being addressed. Our interface products are also used to enable live-insertion of PCI boards (hot-swapping). This prevents system downtime when boards need to be replaced. We have similar products for
hot-docking notebook computers and our products are used in the majority of the notebook computers on the market today.

In high-bandwidth systems data
transfer needs to be synchronized, creating a high demand for timing products. Our timing and frequency control products 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.

Electronic systems designers and OEMs have increasingly required solutions to the technical challenges described above in order to take advantage
of continuing speed and performance enhancements in microprocessor and memory ICs. These customers have also continued to migrate from single-part vendors to suppliers who can provide multiple parts for their systems, both to reduce the number of
vendors they must deal



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with and to address interoperability requirements among the interface ICs within the system. Due to the short design times and product life cycles these
customers face for their own products, they are requiring rapid response time and part availability from interface IC vendors. Interface IC vendors are further required to accomplish these tasks in a cost-effective manner that flexibly responds to
specific customer needs.

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 (TQFN), low resistance (0.4

LOGO), low voltage (1.8V), and very low power consumption for extended battery life.

Todays mobile phones feature
more functions beyond simple voice communication, including PDAs, digital still cameras, FM radios and MP3 players. The additional features increase the interface needs in terms of connection pins. To provide more functions in a limited space,
handsets increasingly use a shared-pin design through adoption of analog switches. Pericoms Low Resistance, single-pole, double-throw (SPDT) analog switches are well suited to address the needs of these shared-pin links.

Digital voice communications over the Internet provide cost efficient long distance voice transport. Voice Over Internet Protocol (VOIP) telephones enable users to gain
access to voice communication from anywhere they have access to an IP data network. Further advances on this concept have led to the development of wireless gateways to VOIP. Many major wireless carriers are involved in wireless VOIP gateway
projects. Pericoms sub 1-Ohm family of single Analog Mux & 2-Port switches are used in wireless VOIP phones to route signals. The wide voltage range and low standby current is suitable for current and next generation power efficient
phone designs.

There is an increasing need to add multiple video components, such as DVD, PVR, VCR, STB/DVB, PCs, and camcorders to a single video display
unit, in order to provide true multi media entertainment video networks. Multiple PC connections to the same network require multiplexing capability of the horizontal and vertical synchronous signals to the single display unit. Pericoms 4:1
video muxes enables systems designers to add up to four video components with one PC in the network. With the increased 4:1 muxing capability and two additional ports, multiple components, such as VCR, DVD, PVR, PC and etc. can be put on video
networks and vertical and horizontal synchronous signals can be switched.

Pericoms video switch products addresses the need for higher video
resolution, enable the integration of horizontal and vertical synchronous signals and accommodate switching of up to 4 video input streams with improved cross-talk and off-isolation features. We are well positioned to address the DVI/HDMI, TMDS
signal processing for PC Graphics and consumer video applications in the future.

THE PERICOM STRATEGY

We are a leading supplier of high-performance interface integrated circuits and frequency control and timing products. While our products address a wide spectrum of
applications, we have focused our resources on solving bandwidth, interoperability bottlenecks and timing requirements in customers systems using our high performance interface and timing technology. With processing power doubling every 18
months historically, the speed at which microprocessors can access memory becomes the bandwidth constraint in high speed computing. We have developed solutions with Intel, IBM and other market leaders to support higher-speed processor-memory
interfacing, which support the latest memory standards, on both the system motherboard and the memory modules. In server applications, we support higher system bandwidth through the use of high frequency clock products, which provide timing signals
to synchronize data transfer, and bus switches that isolate a systems memory modules from the bus when they are not being addressed.

Products are
defined in collaboration with the industry-leading OEMs and industry enablers such as Intel and IBM, 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:Our market strategy is to focus on certain high-growth, high-performance segments of the computing, communications and
consumer markets. Currently, we design and sell products for specific high-volume applications within these target markets, including notebook computers, PC servers, storage, networking equipment, wireless and wireline telecommunications
infrastructure, cellular telephones and other mobile



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terminal devices, and digital television, set-top box and other related consumer devices. Our customers and end-users of our products include a number of
leading OEMs in each market:



| |  |  | Notebook market: Apple, HP, Dell, Fujitsu, IBM/Lenovo, Sony and Toshiba
| | - |  | -----------------------------------------------------------------------



| |  |  | Telecommunications equipment market: Avaya, Huawei, Lucent, Motorola, Samsung and ZTE
| | - |  | -------------------------------------------------------------------------------------



| |  |  | PC Server market: HP, Dell, Intel and IBM
| | - |  | -----------------------------------------



| |  |  | Network equipment market: 3Com, Cisco, HP, Lucent and Nortel
| | - |  | ------------------------------------------------------------



| |  |  | Cellular telephone market: Samsung and LGE
| | - |  | ------------------------------------------



| |  |  | Printer and copier market: Canon, HP, Lexmark, Sharp and Xerox
| | - |  | --------------------------------------------------------------



| |  |  | PC Graphics Applications: Dell, HP, IBM, Fujitsu, Toshiba and Sony
| | - |  | ------------------------------------------------------------------



| |  |  | Consumer multi-media video applications: Changhong, Haier, TCL, and Skyworth
| | - |  | ----------------------------------------------------------------------------

We intend to pursue new opportunities in markets where our rapid-cycle IC design and development expertise and understanding of the product evolution of our customers gives us the opportunity to become a leading solution supplier.

Customer Focus:Our customer strategy is to use a superior level of responsiveness to customer needs to continually expand our customer base
as well as sell a wider range of products to our existing and 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 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 substantially
increase our overall volume of business with those customers. 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Responding to our customer requirements is one of the highest priorities of Pericom. In order to accomplish this, several years ago we implemented an automated quoting system from
Azerity, a leader in e-business solutions. Pericom can respond very quickly to our customer needs and offer them superior service. With the implementation of Azeritys ProChannel, Pericom has 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:Our technology strategy is to maintain a leading position in the development of new, higher-performance interface and timing IC products by continuing to design additional core cells
that address the more challenging problems of signal interface as electronic systems become faster and require lower power and voltages. Our primary efforts are in the creation of additional proprietary digital, analog and mixed-signal
functionality. We are working closely with our wafer suppliers to incorporate their advanced CMOS process technologies to improve our ability to introduce next generation products expeditiously. We are continuing to expand our patent portfolio with
the goal of providing increasingly proprietary product lines.

Our technology strategy for frequency control products is to further our leadership in
high-frequency, superior-performance, low jitter crystal, oscillator and timing module devices by continuing to develop new designs and solutions incorporating mainly bulk acoustic wave quartz resonators. Additionally, we will leverage internal
proprietary IC designs in digital, analog and mixed-signal functionality to add specialized features and optimize



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costs. Working closely with historical manufacturing partners, and developing new ones, we will continue to contribute toward advancements in proprietary
process techniques and capabilities required to complement new technology products.

Manufacturing Focus: Our manufacturing strategy is
closely integrated with our focus on customer needs. Central to this strategy is our intent 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 wafer bank, from which wafers can be completed to produce a variety of specific ICs in as little as two to four 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 two weeks or less. We have established
relationships with three leading foundries, Chartered Semiconductor Manufacturing Pte, Ltd. (Chartered), Taiwan Semiconductor Manufacturing Corporation (TSMC), and Magnachip Semiconductor, Inc. (Magnachip). We are
maintaining our relationship with New Japan Radio Corporation (NJRC) for some of our products that are manufactured in high-voltage CMOS processes. Also, in fiscal 2004, we qualified Semiconductor Manufacturing International Corporation
(SMIC) to produce our products.

For frequency control products, our Asian supplier relationships provide a significant competitive advantage
through a highly efficient design transfer process, in combination with strict quality standards and low-cost labor. High quality standards are maintained and all subcontractor plants are ISO 9000 certified. A major supplier relationship has existed
since 1978 with Elcom, a Korean-owned supplier of crystals and oscillators and its Yantai, China manufacturing facility. In addition, on September 7, 2005, the Company purchased a 99.93% ownership position in eCERA Comtek Corporation
(eCERA) of Taiwan. eCERA and its subsidiary, Azer Crystal Technology Co, Ltd. (Azer) have been key suppliers of quartz crystal blanks and crystal oscillator products. With this acquisition, the Company secured access to a top
caliber FCP factory to accelerate the development of advanced FCP products and availability of high volume, cost competitive surface mount capability to support our top OEM customers.

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 believe that these relationships have enabled us to access additional design and application expertise, accelerate product introductions, reduce costs and obtain additional needed
capacity. In product design, we have engaged Pericom Technology, Inc., an affiliated company, and other design houses to develop interface ICs as a means of rapidly expanding our product portfolio. We have established collaborative relationships
with leading wafer manufacturers that have high performance digital core libraries that we can use in our future products. We have also made strategic investments in several companies with whom we have obtained rights to certain technologies and are
engaged in collaborative research and development.

PRODUCTS

We have used 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 lines, the product portfolio has evolved from a standard building block into both standard products of increasing performance and application-specific standard products, or ASSPs, 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.

SiliconConnect Family

Pericoms SiliconConnect family offers the highest level of complexity and integration among our
products. It consists of our PCI and PCI-X Bridges, our recently introduced PCI Express Bridges and Packet Switches, as well as our LVDS family of high-speed differential drivers, receivers, and transceivers.

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. PCIe is being adopted across all market segment applications, and Pericom PCIe products actively target all major PCIe based applications. In fiscal 2006, there continued to be overall growth of over 70% of the Connect product line,
mainly from PCI bridge products.



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In fiscal 2006, Pericom began introducing its PCI Express (PCIe) products to key customers in 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 same applications used by PCI will also transition to PCIe over time,
including industrial PCs and other computers, 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.

We offer a comprehensive 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 low-voltage differential signaling (LVDS) standard offers a number of improvements over the older emitter-coupled logic, or ECL, and pseudo emitter-coupled logic, or PECL, in
applications requiring lower power consumption and noise.

SiliconSwitch Family

Through our SiliconSwitch product line, we offer 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 as 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:We offer a line of application specific standard products, or ASSP, switches for LAN, Video, PCI Express, USB, and DVI/HDMI 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. The
latest video switches the Company launched address the HDMI (High-Definition Multimedia Interface) Rev. 1.2 standard. We are also marketing our PCI Express signal switches for Desktop PC, Gaming stations, Servers and Storage applications. We
continue to expand our innovations in this area to address next generation Networking 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 .2 microamps) 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.

SiliconInterface 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
Re-Driver family 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.



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Re-Driver / Signal Conditioners:With the adaptation of high-speed PCI Express 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. Pericoms industry unique Re-Driver 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, the Company offers a broad range of
Re-Drivers to manage PCI Express, SATA, SAS, XAUI, and Fibre Channel signal protocols, for such applications as Servers, Storage, and Notebook/Docking stations. Another benefit to systems designers is that they can now use Pericom Re-Drivers 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. Pericom has over ten revenue generating customers designing with our Re-Driver product line
including.

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, Pericoms ULS (Universal Level Shifter) products
addresses 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 equipments, servers, telecom applications.

1.8-Volt/2.5-Volt Logic: Our 1.8-volt and 2.5-volt product families offer a family of products with high output current offering sub-2.5 nanosecond
propagation delays low power consumption. We also have a lower balanced drive family with a propagation delay of less than 2 nanoseconds to support high-speed processor-memory interfacing and a balanced drive family optimized for low-noise operation
at very low voltages. We also offer application specific logic functions that support next generation memory module applications associated with the Server markets such as DDR II.

3.3-Volt Logic: To support the trend toward lower system voltages for higher silicon integration, from 8-Bit to 32-Bits, system performance and power savings, we offer 3.3-volt interface logic to address
a range of performance and cost requirements with very low power consumption. Our ASIC design methodology and existing cell based designs contribute to our rapid product development in this area.

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 associated in many applications. We continue to tap into new product markets in the areas of communication, PC peripherals, and consumer
digital systems.

SiliconClock Family

In
high bandwidth systems data transfer needs to be synchronized, creating 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 notebook
computers to network switches to televisions. As systems continue to grow in processing power and complexity, the demand for these products is expected to accelerate. The requirement for precision will also increase as timing margins shrink in
higher bandwidth systems.

Through our SiliconClock IC product line, we offer a broad range of general-purpose solutions including voltage control crystal
oscillators (VCXO), clock buffers, zero-delay clock drivers, frequency synthesizers and programmable clock products for a wide range of microprocessor systems, as well as a number of ASSP markets like laser printers, registered memory modules,
storage area networks, servers, networking, and set-top boxes.



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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 1.5-volt, 1.8-volt, 2.5-volt, 3.3-volt and 5-volt clock buffers for high-speed, low-skew applications in computers and networking equipment. We also
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 5-volt, 3.3-volt, 2.5-volt and 1.8-volt zero-delay clock drivers offer frequencies of up to 400MHz for applications in networking switches, routers and
hubs, computer servers, and memory modules. Timing products to support the 2ndgeneration double date rate (DDR II)
memory technologies are available today.

Voltage Controlled Crystal Oscillators (VCXO):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 which include on-board PLLs and I2C interfaces for rapid
prototyping. Our VCXO products use our own SaRonix crystals to guarantee optimum performance.

Clock Frequency Synthesizers: Clock frequency
synthesizers generate various output frequencies using a single input frequency source and are used to 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 PCI Express 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 PCI Express interface, we provide PCI Express reference clock generators.
For consumer applications like 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. We also offer an ASSP clock synthesizer developed specifically for laser printer products.

Programmable
Clocks: In large computing and communications systems, customers need to provide precise timing across large printed circuit boards, or PCBs. 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.

Frequency Control Products (SaRonix)

Frequency control
products include crystals, a passive device that resonates at a precise frequency, and crystal oscillators, a circuit assembly comprising a crystal and accompanying electronic circuitry providing very stable output frequency. Crystals and crystal
oscillators are essential components used in a wide variety of electronic devices. A unique characteristic of quartz crystals is their ability to resonate at stable and precise frequencies. There are three general categories of oscillator products.
Uncompensated oscillators are crystal-controlled oscillators in their simplest form, sometimes referred to as a clock oscillator. Crystal oscillators are used primarily in networking, telecommunication, wireless, and computer/peripheral
applications. Voltage controlled crystal oscillators (VCXOs) are frequency tunable crystal stabilized oscillators that are voltage controlled and generally operates below 1 GHz. These oscillators are primarily used for synchronization in data
networking and communications applications. Temperature compensated crystal oscillators (TCXOs) are temperature compensated oscillators that incorporate a temperature sensor and use circuitry to maintain the desired frequency under changing
temperature conditions. TCXOs are used in wireless products such as cell phones, GPS and base stations.

The ultra-miniature ceramic package crystal and
clock oscillator are tailored for densely populated applications such as the mobile phone, portable multimedia player, PDA, GPS module, networking equipment, and hard disk drive. 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 (XO) features the very latest in oscillator circuit design techniques. Based on a proprietary patented technology that combines Pericom silicon with SaRonix quartz, the xP



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oscillators are designed for improved reliability and lower jitter for high-frequency 2.5V & 3.3V, LVCMOS &LVPECL clock applications. The
product is drop-in compatible with existing Overtone, SAW, and PLL-based oscillator solutions in 5x7mm packages, yet is designed for competitive advantages against legacy technologies in primary application-critical categories with exceptional
reliability, tighter stability and lower jitter. These high frequency clock oscillators are used in various networking standards platforms such as 1/10 Gigabit Ethernet, Fibre Channel, SONET/SDH, SATA, SAS and PON.

CUSTOMERS

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



|                     |  |                    |  |                       
|-------------------- |  | ------------------ |  | ----------------------
|Computer             |  | Telecommunications |  | Digital Media         
|Asustek              |  | Avaya              |  | ChangHong             
|Brocade              |  | Huawei             |  | Haier                 
|Dell                 |  | Lucent             |  | Hitachi               
|Fujitsu              |  | Motorola           |  | Sharp                 
|Hewlett Packard      |  | Nortel             |  | Skyworth              
|IBM                  |  | UT Starcom         |  | Sony                  
|Intel                |  | ZTE                |  | TCL                   
|Inventec             |  |                    |  | Toshiba               
|LG                   |  | Mobile Terminal    |  |                       
|NEC                  |  | Garmin             |  | Contract Manufacturing
|Quanta               |  | LG                 |  | Celestica             
|Sony                 |  | Samsung            |  | Flextronics           
|Sun                  |  | UTStarcom          |  | Foxconn               
|Toshiba              |  | ZTE                |  | Jabil                 
|Wistron              |  |                    |  | SCI-Sanmina           
|                     |  |                    |  | Solectron             
|                     |  |                   
|Networking Equipment |  | OEMs & Peripherals |  | Other FCP Customers   
|3 Com                |  | Echostar           |  | Primary               
|Accton               |  | Hewlett Packard    |  | Wistron NeWeb Corp.   
|Delta                |  | Lexmark            |  | Banner Span Co. Ltd.  
|D-Link               |  | Seagate            |  | Cameo                 
|Cisco                |  | Xerox              |  | Alpha Networks, Inc.  
|Huawei-3Com          |  |                    |  |                       

Our customers include a broad range of end-user customers and OEMs 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 2006, our direct sales to one international distributor accounted for approximately 11% of net revenues and direct sales to our top five customers accounted for approximately 36%
of net revenues. In addition there was no single end-user customer who accounted for greater than 10% of net revenues for fiscal year ended July 1, 2006. In fiscal 2005, our direct sales to two international distributors accounted for
approximately 14% of net revenues each and direct sales to our top five customers accounted for approximately 45.8% of net revenues. In addition there was one end-user customer who accounted for greater than 10% of net revenues for fiscal year ended
July 2, 2005. In fiscal 2004, our direct sales to an international distributor accounted for approximately 11% of net revenues and direct sales to our top five customers accounted for approximately 41% of net revenues. In fiscal 2004, no
end-user customers individually accounted for more than 10% of 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-user customer
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.

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



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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. This family of core cells has been developed over several years and 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 phase-locked loops, or PLLs, charge pumps
and data communication transceiver circuits using low voltage differential signaling. We have been granted 103 U.S. patents and have at least 20 U.S. patent applications pending. Another advantage of this 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-, 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 techniques. The majority of designs for oscillators and higher-functionality parts are also implemented with CMOS process technologies. However designs
incorporating Bipolar, BiCMOS and SiGe technologies are also pursued, as well as utilization of CPLD and 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 process, 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 39% of our net revenues in fiscal 2006, 51% of our net revenues in fiscal 2005, and 58% of our net revenues in fiscal 2004. Our major distributors in the United States
include All American Semiconductor, Arrow Electronics, Inc., Future Electronics and Nu Horizons Electronics. Our major international distributors include AIT (Hong Kong), Avnet (Asia), Chinatronics (Hong Kong), Desner Electronics (Singapore),
Internix (Japan), MCM (Japan), Maxmega (Singapore), and Techmosa (Taiwan).

We have four regional sales offices in the United States and international
sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan, and the United Kingdom. International sales comprised approximately 80.6% our net revenues in fiscal 2006, approximately 78% of our net revenues in fiscal 2005, and approximately 71% of
our net revenues in fiscal 2004. 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 2006; 2005; and 2004  Net Revenue in Item 7 of this Annual Report on 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 also in Taiwan.

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. Pericom product information is
available on our web site, 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.



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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
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 Semiconductor Manufacturing Pte,
Ltd., Taiwan Semiconductor Manufacturing Corporation, MagnaChip, Inc and CSMC. We have also used New Japan Radio Corporation as a foundry. In fiscal 2004, we qualified Semiconductor Manufacturing International Corporation as a foundry. 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 and packaging of our finished products in our
in-house manufacturing facility.

For the manufacture of 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. We have established an operations department based in Asia to pursue lower cost packaging techniques and to monitor and modify manufacturing processes to maximize yields and improve quality. Further, through
our acquisition of eCERA on September 7, 2005, we have acquired a frequency control products and crystal blank manufacturing facility. This acquisition has enabled the Company to accelerate the development of advanced FCP products and should
make available to us the high volume, cost competitive surface mount capability to support our top OEM customers.

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.,
Philips, Tundra Semiconductor Corp., 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.



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Our FCP competitors include Vectron, Connor Winfield, Raltron, Fox, Ecliptek, Mtron, Epson, KED, KDS and NDK. There is a
second group of competitors in China that primarily pursue the lower end of the FCP market with limited technical content products. However, they have limited 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 FCP development is done in San Jose, California and in Taiwan. Research and development expenses were $ 15.5 million in fiscal 2006,
$15.8 million in fiscal 2005, and $14.2 million in fiscal 2004. Additionally, we actively seek cooperative product development relationships.

INTELLECTUAL PROPERTY

In the United States, we hold 103 patents covering certain aspects of our product designs, with various expiration
dates through August 2023, and we have at least 20 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 July 1, 2006, we had 544 full-time employees, including 81 in sales, marketing and customer support, 274 in manufacturing, assembly and testing, 118 in
engineering and 71 in finance and administration, including information systems and quality assurance. We have never had a work stoppage and no employee is represented by a labor organization. We consider our employee relations to be good.

AVAILABLE INFORMATION

We file electronically with the
Securities and Exchange Commission 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
Securities and Exchange Commission 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 Securities Exchange Commission.



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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, expenses, gross profit, gross margin, or other financial items; the plans and objectives of management for future operations; the Companys 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; the Companys exposure to interest rate risk; future economic conditions or
performance; plans to focus on cost control; plans to seek intellectual property protection for the Companys technologies; expectations regarding export sales and net revenues; the expansion of sales efforts; acquisition prospects; the results
of our acquisition of SaRonix or eCERA and our other 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 the Company believes 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. The Companys 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 else ware 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 the Company assumes no obligation to update any such
forward-looking statement or reason why actual results may differ.

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

A wide variety 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 decline in the gross margins of our products;
|- |  | -----------------------------------------------



| |  | the operating results of SaRonix product line, which we acquired on October 1, 2003;
|- |  | ------------------------------------------------------------------------------------



| |  | the operating results of eCERA, which we acquired on September 7, 2005;
|- |  | -----------------------------------------------------------------------



| |  | 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;
|- |  | -----------------------------------------------------



| |  | delay or decline in orders received from distributors;
|- |  | ------------------------------------------------------



| |  | growth or reduction in the size of the market 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;
|- |  | -----------------------------------



| |  | increased research and development expenses associated with new product introductions or process changes; and
|- |  | -------------------------------------------------------------------------------------------------------------



| |  | currency fluctuations.
|- |  | ----------------------

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.



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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 frequency control products 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:



| |  | 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., Philips, Tundra Semiconductor Corp., 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



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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 the 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.

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 acquisition of eCERA, and other potential future
acquisitions may not be successful.

On September 7, 2005, we acquired from Aker Technology of Taiwan its eCERA frequency control products
subsidiary (eCERA). eCERA has been a key supplier of our frequency control products business unit for several years. In general, we have not previously manufactured our products but have instead depended upon third party manufacturers,
such as eCERA, to manufacture them. Thus, since we have not previously operated a manufacturing operation, there can be no assurance that we will be able to operate it successfully.

The eCERA acquisition and other 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;
|- |  | ----------------------------------------------------



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| |  | 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 other acquisition prospects, in addition to eCERA, 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 the new FASB rules for the accounting of equity 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.

The recently issued Statement
of Accounting Standards (SFAS) No. 123(R) Share-Based Payments 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 future 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.

We determined that we had a material weakness in our internal control over financial reporting as of July 2, 2005, October 1, 2005, and at December 31, 2005, all of which we have implemented
procedures to remediate. As a result, we had to implement supplemental compensating procedures to determine that our financial statements are fairly stated in all material respects. The existence of one or more material weaknesses could result in a
loss of investor confidence in our financial reports and have an adverse impact on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, beginning with our Annual Report on Form 10-K for the fiscal year ended July 2, 2005, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain, among other
matters, a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Such
report must also contain a statement that our auditors have issued an attestation report on managements assessment of such internal controls.

We
have performed the system and process documentation and evaluation needed to comply with section 404 of the Sarbanes-Oxley Act of 2002, which is both costly and challenging. Through such evaluation the Company has previously identified material
weaknesses in its internal control over financial reporting. On July 2, 2005, it



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identified a material weakness relating to the accounting for certain research and development costs. On October 1, 2005, it identified a material
weakness relating to procedures for inventory review. On December 31, 2005, it identified material weaknesses relating to the controls over the process of consolidating the results of its subsidiaries.

The Company believes that it has implemented measures that remediate all of the material weaknesses but there can be no assurance, however, that other material
weaknesses will not be identified in the future.

If further material weaknesses in our internal control are identified, this could cause investors to lose
confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

Customer demand for the
Companys 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 the Companys products. The volatility of customer demand limits the Companys 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 of the Companys products relative to demand. In this event, the Companys operating results might be adversely affected as a result of charges to reduce the carrying value of the Companys
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, such as lead free initiatives, 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. For example, a recent directive in the European Union bans the use of lead and other heavy metals in electrical and electronic equipment after July 1, 2006. As a result, in
advance of this deadline, some of our customers selling products in Europe have begun demanding product from component manufacturers that do not contain these banned substances. Because most of our existing assembly processes (as well as those of
most other manufacturers) utilize a tin-lead alloy as a soldering material in the manufacturing process, we must redesign many of our products if we are to meet customer demand. This redesign may result in increased research and development and
manufacturing and quality control costs. In addition, the products that we manufacture that comply with the 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 the 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.

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. in particular, to meet our manufacturing requirements would delay our production and product shipments and harm our business.

In fiscal 2006, 2005 and 2004 we purchased approximately 43%, 43% and 75%, respectively, of our wafers from Chartered Semiconductor Manufacturing Ltd. Also in fiscal
2006, 2005 and 2004 we purchased approximately 41%, 43% and 16% respectively, of our wafers from MagnaChip. In fiscal 2006, three other suppliers manufactured the remainder of our wafers. In fiscal 2005, five other suppliers manufactured the
remainder of our wafers. In fiscal 2004, only four other suppliers manufactured the remainder of our wafers. 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.
|- |  | --------------------------------------



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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 are 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.

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.



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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 103 patents covering certain aspects of our product designs and have at least 20 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.

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 have deferred tax assets that we may not be able to use under certain circumstances.

If the company is unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the actual effective tax rates or the time period within which the underlying
temporary differences become taxable or deductible, the Company could be required to increase its valuation allowances against its deferred tax assets resulting in an increase in its effective tax rate and an adverse impact on future operating
results.



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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 are 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. As we have not previously operated a manufacturing facility, we may not be
successful in operating the FCP facility, and as a consequence, there may be manufacturing related problems that affect our FCP products. See ITEM 1A Risk Factors; Factors That May Affect Operating Results  Our Acquisition of eCERA
And Other Potential Future Acquisitions May Not Be Successful.

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 foreseeable future. With the addition of eCERA Comtek Corporation, the concentration of our largest customers has been reduced, as the largest customers of eCERA Comtek
Corporation are somewhat different than those of our core integrated circuit business and existing FCP business. There was one direct customer, an Asian distributor that individually accounted for more than 10% of net revenues during the fiscal year
ended July 1, 2006. There were two direct customers, both Asian distributors, that individually accounted for more than 10% of net revenues during the fiscal year ended July 2, 2005. For the fiscal year ended June 26, 2004, there was
one direct customer that individually accounted for more than 10% of net revenues. As a percentage of net revenues, sales to our top five direct customers for the fiscal year ended July 1, 2006 totaled 36%, the year ended July 2, 2005
totaled 46%, and was 41% for the fiscal year ended June 26, 2004.

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 July 1, 2006 sales to our distributors were approximately 39% of net revenues as compared to approximately 51% of net revenues in the fiscal year ended July 2, 2005, and 58% for the fiscal year ended June 26,
2004. The decrease in the percentage of sales to our distributors as compared with the prior periods was due in part to lower sales to domestic distributor customers. The loss of one or more significant customers, or the decision by a significant
distributor to carry the product lines of our competitors, could decrease our revenues.



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

Almost all of our wafer suppliers and assembly subcontractors are located in Southeast Asia, which
exposes us to risks associated with international business operations, including the following:



| |  | disruptions or delays in shipments;
|- |  | -----------------------------------



| |  | changes in economic conditions in the countries where these 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 2006, approximately 63% of our net revenues derived from sales in Asia and approximately
17% from net sales outside of Asia and the United States. In fiscal year 2005, approximately 68% of our net revenues derived from sales in Asia and approximately 6% from net sales in Europe. In fiscal year 2004, approximately 61% of our net revenues
derived from sales in Asia and approximately 6% from net sales in Europe. We expect that export sales will continue to represent a significant portion of net revenues. We intend to expand 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;
|- |  | ----------------------------------------------



| |  | 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 of 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.



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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 76,410 square feet of space in San Jose, California in which our headquarters,
technology and product development and testing facilities are located. This property is leased through December 2013, and has renewal options. We also own, through our eCERA subsidiary, a manufacturing facility near Taipei, Taiwan. We also have
leased North American sales offices located in Illinois as well as International sales offices in Hong Kong, Japan, Korea, Singapore, Taiwan, and the United Kingdom. We believe our current facilities are adequate to support our needs through the end
of fiscal 2007.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various routine claims and legal proceedings that arise in the ordinary
course of business. The Company is presently not subject to any legal proceedings that could have a material impact on its 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.



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##### Table of Contents

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

The Common Stock of the Company 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. The Company has not paid cash dividends and has no present plans to do so. It is the
policy of the Company to reinvest earnings of the Company to finance expansion of the Companys operations and to repurchase shares of its 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 National Market. As of July 1, 2006 there were approximately 4,470 holders of record of the Companys
Common Stock. During fiscal year 2006, the Company did not sell any unregistered securities.



|                                |  |      |       |     |   |     
|------------------------------- |  | ---- | ----- | --- | - | ----
|                                |  | High |       | Low
|Fiscal year ended July 2, 2005: |  |      |       |     |   |     
|First Quarter                   |  | $    | 10.50 |     | $ | 9.26
|Second Quarter                  |  |      | 9.99  |     |   | 8.60
|Third Quarter                   |  |      | 9.63  |     |   | 8.11
|Fourth Quarter                  |  |      | 8.58  |     |   | 7.63
|                                |  |     
|Fiscal year ended July 1, 2006: |  |      |       |     |   |     
|First Quarter                   |  |      | 9.50  |     |   | 8.29
|Second Quarter                  |  |      | 8.95  |     |   | 7.15
|Third Quarter                   |  |      | 9.90  |     |   | 7.97
|Fourth Quarter                  |  |      | 10.43 |     |   | 7.74

SHAREHOLDER RIGHTS PLAN

On March 6, 2002, the Company adopted a shareholder rights plan and, in connection with the plan, the Company has filed a Certificate of Designation designating the rights, preferences and privileges of a new
Series D Junior Participating Preferred Stock. Pursuant to the plan, the Company issued rights to its 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.



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STOCK REPURCHASE PLAN

Issuer Purchases of Equity Securities



|                               |  |                                |  |                             |      |                                                                             |           |                                                                            |        
|------------------------------ |  | ------------------------------ |  | --------------------------- | ---- | --------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------- | -------
|Period                         |  | Total Numberof SharesPurchased |  | Average PricePaid per Share |      | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs |           | Maximum Numberof Shares that mayYet be PurchasedUnder the Plans orPrograms
|April 2, 2006  April 29, 2006 |  |                               |  |                             |     |                                                                             | 1,072,087 |                                                                            | 927,913
|April 30, 2006  May 27, 2006  |  | 150,000                        |  | $                           | 8.83 |                                                                             | 1,222,087 |                                                                            | 777,913
|May 27, 2006  July 1, 2006    |  | 150,000                        |  |                             | 8.51 |                                                                             | 1,372,087 |                                                                            | 627,913
|                               |  |                                |  |                             |      |                                                                             |           |                                                                            |        
|Total                          |  | 300,000                        |  | $                           | 8.67 |                                                                             |           |                                                                            |        
|                               |  |                                |  |                             |      |                                                                             |           |                                                                            |        

In October 2001, the Companys Board of Directors approved the repurchase of up to 2,000,000 shares of the
Companys common stock. As of July 1, 2006, the Company has repurchased an aggregate of 1,372,087 shares at a cost of approximately $11.7 million. The Company repurchased 750,000 shares during the fiscal year ended July 1, 2006 at an
approximate cost of $6.5 million.



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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 Financial Statements, including the Notes thereto, and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The Statement of Operations Data for each of
the years in the three-year period ended July 1, 2006 and the Balance Sheet Data as of July 1, 2006 and July 2, 2005 are derived from, and are qualified by reference to, the Financial Statements included herein. The Statement of
Operations Data for the years ended June 28, 2003, and June 29, 2002 and the Balance Sheet Data as of June 26, 2004, June 28, 2003, and June 29, 2002 are derived from audited financial statements not included herein. The
fiscal year ending July 2, 2005 contained 53 weeks and all other years contained 52 weeks. On October 1, 2003 the Company, acting through its wholly owned subsidiary SaRonix, Inc., exercised its option to acquire substantially all the
assets and related liabilities of privately-held SaRonix, LLC (SaRonix). The results of operations of SaRonix, Inc. from the date of acquisition are included in the Companys consolidated financial statements. On September 7, 2005, the
Company purchased eCERA and on March 6, 2006 completed the acquisition of AZER. The results of operations for both eCERA and AZER from the date of acquisition are included in the Companys consolidated financial statements.



|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ----------- | - | ------- | ---------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                               |  | Fiscal Year Ended                     |        
|                                                               |  | July 1,2006 (3)                       |         |   | July 2,2005 |   |         | June 26,2004 (2) |  |   | June 28,2003 |   |  | June 29,2002 |        
|                                                               |  | (in thousands, except per share data) |        
|Statement of Operations Data:                                  |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Net revenues                                                   |  | $                                     | 105,878 |   |             | $ | 79,557  |                  |  | $ | 66,417       |   |  | $            | 44,958  |   |  | $ | 47,589  |  
|Cost of revenues                                               |  |                                       | 69,374  |   |             |   | 50,764  |                  |  |   | 45,182       |   |  |              | 31,468  |   |  |   | 33,871  |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                   |  |                                       | 36,504  |   |             |   | 28,793  |                  |  |   | 21,235       |   |  |              | 13,490  |   |  |   | 13,718  |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Operating expenses:                                            |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Research and development                                       |  |                                       | 15,492  |   |             |   | 15,767  |                  |  |   | 14,161       |   |  |              | 11,347  |   |  |   | 11,663  |  
|Selling, general and administrative                            |  |                                       | 18,490  |   |             |   | 15,538  |                  |  |   | 14,979       |   |  |              | 11,283  |   |  |   | 11,778  |  
|Restructuring charge                                           |  |                                       | 55      |   |             |   | 294     |                  |  |   | 784          |   |  |              | 1,431   |   |  |   |        |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Total operating expenses                                       |  |                                       | 34,037  |   |             |   | 31,599  |                  |  |   | 29,924       |   |  |              | 24,061  |   |  |   | 23,441  |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Income (loss) from operations                                  |  |                                       | 2,467   |   |             |   | (2,806  | )                |  |   | (8,689       | ) |  |              | (10,571 | ) |  |   | (9,723  | )
|Other income, net                                              |  |                                       | 3,533   |   |             |   | 3,761   |                  |  |   | 3,700        |   |  |              | 5,243   |   |  |   | 5,554   |  
|Other-than-temporary decline in value of investment            |  |                                       | (64     | ) |             |   | (105    | )                |  |   | (14          | ) |  |              | (1,027  | ) |  |   | (2,650  | )
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                              |  |                                       | 5,936   |   |             |   | 850     |                  |  |   | (5,003       | ) |  |              | (6,355  | ) |  |   | (6,819  | )
|Income tax provision (benefit)                                 |  |                                       | 1,852   |   |             |   | 27      |                  |  |   | (2,380       | ) |  |              | (2,767  | ) |  |   | (2,962  | )
|Minority interest in loss of consolidated subsidiary           |  |                                       | 99      |   |             |   | 58      |                  |  |   |             |   |  |              |        |   |  |   |        |  
|Equity in net income (loss) of unconsolidated affiliates       |  |                                       | 1,796   |   |             |   | 46      |                  |  |   | 513          |   |  |              | (739    | ) |  |   | (1,410  | )
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Net income (loss)                                              |  | $                                     | 5,979   |   |             | $ | 927     |                  |  | $ | (2,110       | ) |  | $            | (4,327  | ) |  | $ | (5,267  | )
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Basic earnings (loss) per share                                |  | $                                     | 0.23    |   |             | $ | 0.04    |                  |  | $ | (0.08        | ) |  | $            | (0.17   | ) |  | $ | (0.21   | )
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Diluted earnings (loss) per share                              |  | $                                     | 0.22    |   |             | $ | 0.03    |                  |  | $ | (0.08        | ) |  | $            | (0.17   | ) |  | $ | (0.21   | )
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Shares used in computing basic earnings (loss) per share (1)   |  |                                       | 26,254  |   |             |   | 26,476  |                  |  |   | 26,075       |   |  |              | 25,721  |   |  |   | 25,339  |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Shares used in computing diluted earnings (loss) per share (1) |  |                                       | 26,994  |   |             |   | 27,188  |                  |  |   | 26,075       |   |  |              | 25,721  |   |  |   | 25,339  |  
|                                                               |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|                                                               |  |                                       |         |   |            
|                                                               |  | July 1,2006                           |         |   | July 2,2005 |   |         | June 26,2004     |  |   | June 28,2003 |   |  | June 29,2002 |        
|                                                               |  | (in thousands)                        |        
|Balance Sheet Data:                                            |  |                                       |         |   |             |   |         |                  |  |   |              |   |  |              |         |   |  |   |         |  
|Working capital                                                |  | $                                     | 88,119  |   |             | $ | 159,488 |                  |  | $ | 158,718      |   |  | $            | 158,662 |   |  | $ | 167,517 |  
|Total assets                                                   |  |                                       | 213,686 |   |             |   | 193,995 |                  |  |   | 197,452      |   |  |              | 190,237 |   |  |   | 193,745 |  
|Long-term obligations                                          |  |                                       | 6,141   |   |             |   | 464     |                  |  |   | 139          |   |  |              | 619     |   |  |   | 0       |  
|Shareholders equity                                           |  |                                       | 184,111 |   |             |   | 181,162 |                  |  |   | 181,897      |   |  |              | 182,323 |   |  |   | 185,722 |  

---

|(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, LLC
|--- | ----------------------------------------------------

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



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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 eCERA, revenues, gross margins or other financial
items; plans and objectives of management for future operations; future purchases of capital equipment; future expenditures; potential acquisitions; proposed new products or services and their development schedule; 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.

We consider the following accounting policies are critical as defined by the Securities and Exchange Commission, in that they are both highly important to the portrayal of our financial condition and
results, and require us to make difficult judgments and assumptions about matters that are inherently uncertain. We also have other important policies that are discussed in Note 1 to the Consolidated Financial Statements.

REVENUE RECOGNITION. We recognize revenue from the sale of our products upon shipment, provided title and risk of loss has passed to the customer, the fee
is fixed or determinable and collection of the revenue is reasonably assured. A provision for estimated future returns and other charges against revenue is recorded at the time of shipment. For the twelve months ended July 1, 2006 the majority
of our sales were to distributors.

We sell products to both large domestic and international distributors. Sales to domestic distributors are sold at the
price listed in our price book for that distributor. We recognize revenue at the time of shipment. At the time of shipment, we book a sales reserve for the entire amount if the customer has the right to return the product. Also, at the time of sale
we book 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. These sales
reserves offset against revenues, which then leads to the net revenue amount we report.

The market price for our products can be significantly different
than the book price at which the product was sold 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, a ship from stock and debit is negotiated with the distributor. SSD history is analyzed and used to develop SSD rates that form the basis of the SSD sales reserve booked 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



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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 a sales reserve is recorded for the estimated stock rotation privilege earned by our distributors that month. This reserve is the sum of
product of each distributors net sales for the month and their stock rotation percentage.

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. These requests are
reviewed by management and when approved result in a return material authorization (RMA) being established. 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 a sales reserve is recorded 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 parts can frequently be re-sold to other customers for use in other applications. We do however monitor and assess RMA activity and overall materiality
to assess whether a general warranty reserve has become appropriate.

Price protection is granted solely at the discretion of Pericom management. The
purpose of price protection is to reduce our 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 these proposals and if a particular price protection arrangement is approved, then the dollar impact will be estimated 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. A sales reserve is then recorded 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 Pericom 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. The rebate we owe is recorded at the time of shipment.

Customers are typically granted payment terms of between 30 and 60 days and they generally pay within those terms. Relatively few customers have been
granted terms with cash discounts. Distributors are invoiced for shipments at book price. When they pay those invoices, they claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, these
debits are then processed against the approvals.

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. Our estimates are based 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.

INVENTORIES. Inventories are recorded 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 of time. The
semiconductor markets that we serve are volatile and actual results may vary from our forecast or other assumptions, potentially impacting our assessment of excess and obsolete inventory resulting in material effects on our gross margin.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS.As required by (SFAS) Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which the Company adopted in fiscal 2002, 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. The Company determined that no impairment of its goodwill and indefinite-lived intangible assets existed in fiscal 2006. The Company also tests other definite-lived intangible assets for impairment when events or changes in
circumstances indicate that the assets might be impaired. The Company determined that no impairment of these other definite-lived intangible assets existed in fiscal 2006.



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INVESTMENTS. We have also made other investments including loans, bridge loans convertible to equity or
asset purchases as well as direct equity investments. These loans and investments are made with strategic intentions and have been in privately held technology companies, which by their nature are high risk. These investments are included in other
assets in the balance sheet and are carried 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 a
decline in value is deemed to be other than temporary.

DEFERRED TAX ASSETS. The Companys 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 the Company 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, the Company experiences losses for a sustained period of time, the Company may not be able to conclude that it is more likely than not
that the Company will be able to generate sufficient future taxable income to realize our deferred tax assets. If this occurs, the Company may be required to increase the valuation allowance against the deferred tax assets resulting in additional
income tax expense.

OVERVIEW

Pericom Semiconductor
Corporation was incorporated in June 1990. 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 and frequency control products
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. Since then we have expanded our product offering by introducing the following products, among others:



| |  |  | In fiscal 1994, 3.3-volt 16-bit logic circuits and 8-bit digital switches;
| | - |  | --------------------------------------------------------------------------



| |  |  | in fiscal 1995, clock generators, 3.3-volt clock synthesizers and buffers, and high-speed interface products for the networking industry in fiscal 1995;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 1996, 32-bit logic, 16-bit digital switches and Pentium, 56K modem and laser printer clock synthesizers;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 1997, an analog switch family, mixed-voltage logic and a family of clock generators;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | in fiscal 1998, a family of advanced 3.3-volt CMOS logic; timing devices for Pentium and Pentium II mobile computers; a complete solution for the PC100 memory module standard; and a
3.3-volt bus switch family offering the fastest bus switches on the market;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 1999, three families of 2.5-volt zero-delay clock drivers for the networking and telecommunications markets; a family of application-specific bus switches and integrated
clock generators to support the latest Intel processors and a complete interface solution for the PC133 memory module standard;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 2000, a crossbar switch for backplane applications like server clusters, networking, industrial computing and Storage Area Networks; a family of drivers, receivers, and
transceivers supporting the Low Voltage Differential Signaling interface standard; the SuperClock programmable skew timing product family targeting networking, telecommunications and Storage Area Network applications; a
complete interface solution for the new double data rate (DDR) SDRAM memory standard; a family of LVDS cross-point switches to route signals in OC12 networks; and the AVC+ family of high speed interface logic;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 2001, a 2.5 volt switch products and complementary complete timing interface solution for use in Double Data Rate (DDR) synchronous DRAM modules; LVDS products for the
networking market including both dual and quad crosspoint switches for both point-to-point and bus communications; several hot-plug switches that support the growing demand for 24/7 operations; expansion of the 2.5 volt AVC family; and
low voltage bus switch products that provide 3.3 volt to 2.5 volt and 2.5 volt to 1.8 volt level translation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | in fiscal 2002, advanced AVC products that allow voltage shifting (between 3.3 volts and 1.5 Volts) and I/O translation (from HSTL to LVTTL) commonly needed between the latest state
of the art ASICs and other legacy products; enhancements to our DDR memory module solutions; Active Termination Clamp that help to clean up signaling overshoot common at fast clock rates; additional family of seven analog multiplexers and switches
with improved performance, which are used in a wide range of space constrained mobile and handheld computing applications; and a family of 25 single, dual, and triple gate logic devices in extremely small packaging that address a very broad range of
applications and systems requirements; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 2003, a family of Intel Compatible PCI-Bridge Products that offer higher margins; 5V low R-on 1 Ohm General Purpose Switches; support for DDR I at 333MHz and 400Mhz plus
our first DDR II products; Gigabit LAN Switch used in Notebook computers; VCXO for Set Top Boxes and DSL products; and we expanded our standard logic product line.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 2004, the Company expanded its bridge product line to include enhanced features, higher performance and to support the PCI-X bus. It brought to market low voltage analog
switches with R-on of 0.4 ohms. Application specific 2ndgeneration Gigibit LAN switches and USB 2.0 switches were
introduced to the customer base. Supervisory products including watchdog timers and reset circuits premiered from Pericom. During the year, SaRonix was acquired bringing high performance Frequency Control Products to our comprehensive product
portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in fiscal 2005, we introduced our product solution to support the emerging high performance PCI-Express serial link protocol for computer and communication applications. Our
PCI-Express product solutions include PCI-E signal switches, clock generators, and re-driver and re-timer products. We introduced several analog switch and voltage translation products in very small form factor packages to support cell phone
and other portable consumer products. We expanded our high performance video switch solution with the addition of differential video switches operating at greater than 1 GHz to support HDMI/DVI signal switching in digital TV and notebook
applications. We also introduced four low-voltage, high-frequency CMOS/LVPECL crystal oscillator product families targeting storage and communication applications.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In fiscal 2006, the Company released the first three products of its 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. In addition the Company released samples of five new spread spectrum clock generators and VCXOs targeting LCD projectors, LCD televisions, DLP projectors and set-top
box applications. The Company also introduced several new Frequency Control Products that incorporate both a crystal resonator and a driver IC into an ultra-minature package designed for high density and portable electronic applications.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. We seek to increase unit sales volume through increased wafer fabrication capacity allocations from our existing foundries, qualification of new foundries, increased number of die per wafer through die size reductions and improved
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. Chartered Semiconductor Manufacturing manufactured approximately 43%, 43%, and 75%, of the
wafers for our semiconductor products in fiscal years 2006, 2005 and 2004, respectively. In addition, Magnachip formerly known as Hynix manufactured approximately 41%, 43%, and 16% of the wafers for our semiconductor products in fiscal years 2006,
2005, and 2004.

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.



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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 |  
|                                                              |  | July 1,2006       |   |  | July 2,2005 |   |  | June 26,2004 |   
|Net revenues                                                  |  | 100.0             | % |  | 100.0       | % |  | 100.0        | % 
|Cost of revenues                                              |  | 65.5              |   |  | 63.8        |   |  | 68.0         |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Gross margin                                                  |  | 34.5              |   |  | 36.2        |   |  | 32.0         |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Operating expenses:                                           |  |                   |   |  |             |   |  |              |   
|Research and development                                      |  | 14.6              |   |  | 19.8        |   |  | 21.3         |   
|Selling, general and administrative                           |  | 17.5              |   |  | 19.5        |   |  | 22.6         |   
|Restructuring charge                                          |  | 0.1               |   |  | 0.4         |   |  | 1.2          |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Total operating expenses                                      |  | 32.2              |   |  | 39.7        |   |  | 45.1         |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Income (loss) from operations                                 |  | 2.3               |   |  | (3.5        | ) |  | (13.1        | ) 
|Other income, net                                             |  | 3.3               |   |  | 4.6         |   |  | 5.5          |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Income (loss) before income taxes                             |  | 5.6               |   |  | 1.1         |   |  | (7.6         | ) 
|Income tax provision (benefit)                                |  | 1.7               |   |  | 0.0         |   |  | (3.6         | ) 
|Minority interest in (income) loss of Consolidated subsidiary |  | 0.1               |   |  | 0.1         |   |  | 0.0          |   
|Equity in net income of unconsolidated affiliates             |  | 1.7               |   |  | 0.0         |   |  | 0.8          |   
|                                                              |  |                   |   |  |             |   |  |              |   
|Net income (loss)                                             |  | 5.7               | % |  | 1.2         | % |  | (3.2         | )%
|                                                              |  |                   |   |  |             |   |  |              |   



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COMPARISON OF FISCAL 2006, 2005 AND 2004

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 |         |   | % Change    |   |        | Fiscal Year Ended |             |      | % Change |             
|                                                                                |  | July 1,2006       |         |   | July 2,2005 |   |        |                   | July 2,2005 |      |          | June 26,2004 |   |       
|Net revenues (In thousands)                                                     |  | $                 | 105,878 |   |             | $ | 79,557 |                   |             | 33.1 | %        |              | $ | 79,557 |   |  | $ | 66,417 |   |  | 19.8 | %
|Percentage of net revenues accounted for by top 5 direct customers (1)          |  |                   | 35.8    | % |             |   | 45.8   | %                 |             |      |          |              |   | 45.8   | % |  |   | 41.0   | % |  |      |  
|                                                                                |  |                   |         |   |             |   |        |                   |             |      |          |              |   |        |   |  |   |        |   |  |      |  
|Number of direct customers that each account for more than 10% of net revenues. |  |                   | 1       |   |             |   | 2      |                   |             |      |          |              |   | 2      |   |  |   | 1      |   |  |      |  
|                                                                                |  |                   |         |   |             |   |        |                   |             |      |          |              |   |        |   |  |   |        |   |  |      |  
|Percentage of gross revenues accounted for by top 5 end customers (2)           |  |                   | 25.0    | % |             |   | 36.3   | %                 |             |      |          |              |   | 36.3   | % |  |   | 30.5   | % |  |      |  
|                                                                                |  |                   |         |   |             |   |        |                   |             |      |          |              |   |        |   |  |   |        |   |  |      |  
|Number of end customers that each account for more than 10% of gross revenues   |  |                   | 0       |   |             |   | 1      |                   |             |      |          |              |   | 1      |   |  |   | 0      |   |  |      |  

---

|(1) | Direct customers purchase products directly from the Company. These 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. We
rely on the end customer data provided by our direct distribution and contract-manufacturing customers.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On October 1, 2003, the Company
exercised its option to acquire the assets and related liabilities of SaRonix, LLC of Menlo Park, California. Beginning with the quarter ended December 31, 2003, the Companys revenues included revenues from SaRonix. For the fiscal year
ended June 28, 2004, revenues of $15.1 million were generated from the sales of SaRonix products. For the year ended July 2, 2005, revenues of $19.0 million were generated from sales of SaRonix products. For the year ended July 1,
2006, revenues of $18.6 million were generated from sales of SaRonix products.

On September 7, 2005, the Company purchased a 99.9% share of eCERA
Comtek Corporation. Beginning with the quarter ended October 1, 2005 the Companys revenues included revenues from eCERA. For the year ended July 1, 2006, there was eCERA revenue totaling $22.8 million. There was no revenue generated
from eCERA in the fiscal years ended July 2, 2005 and June 28, 2004.

The rapid semiconductor industry downturn that began in fiscal 2001 caused
an over-supply of inventories in the global distribution and contract manufacturing channels. This inventory imbalance pushed order rates down, caused a corresponding drop in backlog, and caused the percentage of net revenues represented by orders
placed and shipped in the same quarter to grow. These orders are called turns orders. During much of fiscal 2005 business conditions in the semiconductor industry improved and the percentage of the Companys revenue represented by
turns orders declined. In late fiscal 2005 order rates again slowed in response to an imbalance of inventory as compared with end-demand, and the percentage of turns orders again increased although not to the levels of 2000-2003. Integrated circuit
order rates in fiscal 2006 have subsequently improved, but the Company remains heavily reliant on turns orders. This 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.

Net revenues consist of product sales, which are recognized upon shipment, less an estimate for returns and
allowances. Net revenue increased in fiscal 2006 versus 2005 due to: revenue derived from the eCERA acquisition that was completed in fiscal 2006; relative improvement in end-market demand; and increased acceptance and shipments of the
Companys new integrated circuit product offerings, particularly in end-markets such as cell phones and digital media. Also, the pricing environment for the Companys Digital Switches and Interface Logic products improved during fiscal
2005. However, the pricing environment could again become more difficult as other companies compete more aggressively for business. Pricing for the Companys higher



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margin Analog Switch, Clock and Connect products, many of which are proprietary, is more stable and price declines are generally offset by new product
introductions and cost reductions. For the year ended July 1, 2006, and July 2, 2005, respectively, net revenue included sales reserves for price protection in the amount of $416,000 and $942,000.

Net revenue increased in fiscal 2005 versus 2004 due to: One additional quarter of SaRonix revenues in fiscal 2005 versus fiscal 2004; 53 weeks in fiscal 2005 vs. 52
weeks in fiscal 2004; relative improvement in end-market demand; and increased acceptance and shipments of the Companys new integrated circuit product offerings, particularly in end-markets such as cell phones and digital media. Also, the
pricing environment for the Companys Digital Switches and Interface Logic products improved during fiscal 2005. However, the pricing environment could again become more difficult as other companies compete more aggressively for business.
Pricing for the Companys higher margin Analog Switch, Clock and Connect products, many of which are proprietary, is more stable and price declines are generally offset by new product introductions and cost reductions. For the year ended
July 2, 2005, and June 26, 2004, respectively, net revenue included sales reserves for price protection in the amount of $942,000 and $749,000.

The following table sets forth net revenues by country as a percentage of total net revenues for the fiscal years ended July 1, 2006, July 2, 2005, and June 26, 2004.



|                            |  |                   |   |  |             |   |  |              |  
|--------------------------- |  | ----------------- | - |  | ----------- | - |  | ------------ | -
|                            |  | Fiscal Year Ended |  
|                            |  | July 1,2006       |   |  | July 2,2005 |   |  | June 26,2004 |  
|China (including Hong Kong) |  | 28.3              | % |  | 22.9        | % |  | 20.7         | %
|Taiwan                      |  | 26.0              | % |  | 19.8        | % |  | 18.9         | %
|United States               |  | 19.4              | % |  | 21.4        | % |  | 28.5         | %
|Singapore                   |  | 8.9               | % |  | 12.5        | % |  | 11.2         | %
|Other (less than 10% each)  |  | 17.4              | % |  | 23.4        | % |  | 20.7         | %
|                            |  |                   |   |  |             |   |  |              |  
|Total                       |  | 100.0             | % |  | 100.0       | % |  | 100.0        | %
|                            |  |                   |   |  |             |   |  |              |  

For the fiscal year ended July 1, 2006, as compared with fiscal years 2005 and 2004, the percentage of our
net revenues derived from sales to China, Taiwan, and the United States changed from prior periods principally because of revenue from eCERA. We acquired eCERA in September 2005 and eCERAs revenue is principally from customers in Taiwan and
China. In addition, an increasing number of shipments are going to Asia where an increasing volume of contract manufacturing work is done.

GROSS
PROFIT



|                                                            |  |                   |         |   |             |   |        |                   |             |      |          |              |   |        |   |  |   |        |   |  |      |  
|----------------------------------------------------------- |  | ----------------- | ------- | - | ----------- | - | ------ | ----------------- | ----------- | ---- | -------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                                            |  | Fiscal Year Ended |         |   | % Change    |   |        | Fiscal Year Ended |             |      | % Change |             
|(In thousands)                                              |  | July 1,2006       |         |   | July 2,2005 |   |        |                   | July 2,2005 |      |          | June 26,2004 |   |       
|Net revenues                                                |  | $                 | 105,878 |   |             | $ | 79,557 |                   |             | 33.1 | %        |              | $ | 79,557 |   |  | $ | 66,417 |   |  | 19.8 | %
|Gross profit                                                |  |                   | 36,504  |   |             |   | 28,793 |                   |             | 26.8 | %        |              |   | 28,793 |   |  |   | 21,235 |   |  | 35.6 | %
|Gross profit as a percentage of net revenues (gross margin) |  |                   | 34.5    | % |             |   | 36.2   | %                 |             |      |          |              |   | 36.2   | % |  |   | 31.9   | % |  |      |  

The increase in gross profit in fiscal 2006 versus fiscal 2005 was primarily due to: fiscal 2006 having revenues
and gross profit from eCERA beginning September 7, 2005; unit sales volume of our core integrated circuit products improved as a result of end-market demand and customer acceptance of the Companys new integrated circuit product offerings.
Lower gross margin on sales resulted primarily due to lower margins associated with eCERA revenue partially offset by a favorable product mix change in our IC product line resulting from a higher percentage of sales of our newer, higher margin
integrated circuit products which include Analog Switch, Clock, and Connect Products. Gross profit in fiscal 2006 and fiscal 2005 benefited from the sale of inventory that had been previously identified as excess and written down to zero of
$1,027,831 and $491,000 respectively.

The increase in gross profit in fiscal 2005 versus fiscal 2004 was primarily due to: fiscal 2005 had a full year of
revenues and gross profit for SaRonix products whereas fiscal 2004 only had nine months; unit sales volume of our core integrated circuit products improved as a result of end-market demand and customer acceptance of the Companys new integrated
circuit product offerings; higher gross margin on sales because of a favorable product



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mix change resulting from a higher percentage of sales of our newer, higher margin integrated circuit products; reduced cost of sales due to reductions in
force in November 2003 and February 2005; and gross profit in fiscal 2004 included SaRonix acquisition-related inventory and reduction in force costs of $680,000 whereas there were no comparable costs in fiscal 2005. Gross profit in fiscal 2005 and
fiscal 2004 benefited from the sale of previously written off inventory of $491,000 and $487,000 respectively. A more favorable mix of the Companys higher-margin Analog Switch, Clock, and Connect products, as well as product-cost reductions
and a more stable pricing environment drove the improvement in gross-margin percentage. The above improvements were partially offset by an approximately $1 million charge taken in the December 2004 quarter to write off inventory obsoleted by a
product end-of-life program, and the inclusion of SaRonix product sales for one full year in fiscal 2005 versus nine months in fiscal 2004 since SaRonix margins are less than the Companys total average margins.

Future gross profit and gross margin are highly dependent on the level and product mix of net revenues. This includes the mix of sales between lower margin SaRonix
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 |         |   | % Change    |   |        | Fiscal Year Ended |             |      | % Change |             
|(In thousands)                      |  | July 1,2006       |         |   | July 2,2005 |   |        |                   | July 2,2005 |      |          | June 26,2004 |   |       
|Net revenues                        |  | $                 | 105,878 |   |             | $ | 79,557 |                   |             | 33.1 | %        |              | $ | 79,557 |   |  | $ | 66,417 |   |  | 19.8 | %
|Research and development            |  |                   | 15,492  |   |             |   | 15,767 |                   |             | (1.7 | )%       |              |   | 15,767 |   |  |   | 14,161 |   |  | 11.3 | %
|R&D as a percentage of net revenues |  |                   | 14.6    | % |             |   | 19.8   | %                 |             |      |          |              |   | 19.8   | % |  |   | 21.3   | % |  |      |  

Research and development expenses consist primarily of costs related to personnel and overhead, non-recurring
engineering charges, and other costs associated with the design, prototyping, testing, manufacturing process support and customer applications support of our products. The expense decrease in fiscal 2006 versus 2005 was primarily due to: decreased
R&D wafer fabrication and assembly charges compared to fiscal 2005 due to a significant number of our products being re-designed and re-qualified as a result of Chartered Semiconductors closure of one of its fabrication facilities and the
required migration of the Companys products to another of its fabrication facilities. These expense decreases were partially offset by, FAS 123R expense in fiscal 2006 that was not included in fiscal 2005; and the inclusion of eCERA
engineering expense resulting from the acquisition and subsequent consolidation of eCERA financial results from September 7, 2005 through July 1, 2006, and the continuing ramp up of engineering costs in our Pericom Taiwan Ltd subsidiary.

The expense increase in fiscal 2005 versus 2004 was primarily due to: Increased R&D wafer fabrication and assembly charges due to a significant number
of our products being re-designed and re-qualified as a result of Chartered Semiconductors closure of one of its fabrication facilities and the required migration of the Companys products to another of its fabrication facilities;
increased mask costs from research and development projects , continuing ramp up of engineering costs in our Pericom Taiwan Ltd subsidiary; and the inclusion of 12 months of SaRonix engineering expense in fiscal 2005 versus nine months in fiscal
2004. There was also 53 weeks of expense in fiscal 2005 versus 52 weeks in fiscal 2004

The Company believes that continued spending on research and
development to develop new products and improve manufacturing processes is critical to the Companys success and, consequently, expects to increase research and development expenses in future periods over the long term. In the short term, the
Company intends to continue to focus on cost control until business conditions improve. If business conditions deteriorate or the rate of improvement does not meet our expectations, the Company may implement further cost-cutting actions.



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SELLING, GENERAL AND ADMINISTRATIVE



|                                    |  |                   |         |   |             |   |        |                   |             |      |          |              |   |        |   |  |   |        |   |  |      |  
|----------------------------------- |  | ----------------- | ------- | - | ----------- | - | ------ | ----------------- | ----------- | ---- | -------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                    |  | Fiscal Year Ended |         |   | % Change    |   |        | Fiscal Year Ended |             |      | % Change |             
|(In thousands)                      |  | July 1,2006       |         |   | July 2,2005 |   |        |                   | July 2,2005 |      |          | June 26,2004 |   |       
|Net revenues                        |  | $                 | 105,878 |   |             | $ | 79,557 |                   |             | 33.1 | %        |              | $ | 79,557 |   |  | $ | 66,417 |   |  | 19.8 | %
|Selling, general and administrative |  |                   | 18,490  |   |             |   | 15,538 |                   |             | 19.0 | %        |              |   | 15,538 |   |  |   | 14,979 |   |  | 3.7  | %
|SG&A percentage of net revenues     |  |                   | 17.5    | % |             |   | 19.5   | %                 |             |      |          |              |   | 19.5   | % |  |   | 22.6   | % |  |      |  

Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales,
marketing, finance, administration, human resources and general management. The expense increase in fiscal 2006 versus fiscal 2005 is due to: the inclusion of eCERA SG&A expense resulting from the acquisition and subsequent consolidation of
eCERA financial results from September 7, 2005 through July 1, 2006; and FAS 123R expense which was incurred in fiscal 2006 and not in fiscal 2005. The above increases were partially offset by decreased distributor representative
commissions due to a change in the Companys focus product commission structure; decreased professional services primarily resulting from the reversal of accrued audit fees that were not required based upon the termination and final billing for
audit related services from the Companys former auditor.

The expense increase in fiscal 2005 versus fiscal 2004 is due to: Higher sales commission
expense due to increased revenues; increased costs associated with Sarbanes-Oxley Section 404 compliance; inclusion of 12 months of SaRonix SG&A expense in fiscal 2005 versus nine months in fiscal 2004; and fiscal 2005 had 53 weeks of
expense versus 52 weeks in fiscal 2004. The above increases were partially offset by a $413,000 gain from the sale of a building in Ireland in fiscal 2005 and the impact of the reductions in force in November 2003 and February 2005.

The Company anticipates that selling, general and administrative expenses will increase in future periods over the long term due to increased staffing levels;
particularly in sales and marketing, as well as increased commission expense to the extent the Company achieves higher sales levels. In the short term, costs associated with Sarbanes-Oxley section 404 compliance will increase selling, general and
administrative expenses. The Company intends to continue to focus on controlling costs until business conditions improve. If business conditions deteriorate or the rate of improvement does not meet our expectations, the Company may implement further
cost-cutting actions.

RESTRUCTURING CHARGE

In
the year ended July 1, 2006 restructuring charges totaled $55,000 and was related to a final settlement of an outstanding claim from the February 2005 reduction in force described below.

In the year ended July 2, 2005 restructuring charges of $294,000 were recorded in connection with a reduction of 26 employee positions. The eliminated positions
were mostly production related, but sales and administrative positions were impacted as well. The intended effect of this restructuring is to continue the Companys outsourcing program, realign the Companys sales force to reflect
geographic sales changes and revised selling strategy, and to reduce costs.

In the year ended June 26, 2004 there was a restructuring charge of
$784,000 related to an unused leased facility resulting from our move to our new corporate headquarters. This restructuring accrual became fully depleted in the first quarter of fiscal 2005, when the lease terminated.

MINORITY INTEREST

For the years ended July 1, 2006 and
July 2, 2005 net minority interest in loss of our consolidated subsidiaries, Pericom Taiwan Ltd. and eCERA Comtek Corporation, was $99,000 and $58,000, respectively. There was no minority interest in the year ended June 26, 2004.



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##### Table of Contents

INTEREST INCOME



|                                        |  |                   |       |             |   |       |                   |      |              |  |   |       |  |   |       |  |     |  
|--------------------------------------- |  | ----------------- | ----- | ----------- | - | ----- | ----------------- | ---- | ------------ |  | - | ----- |  | - | ----- |  | --- | -
|                                        |  | Fiscal Year Ended |       | % Change    |   |       | Fiscal Year Ended |      | % Change     | 
|(In thousands)                          |  | July 1,2006       |       | July 2,2005 |   |       | July 2,2005       |      | June 26,2004 | 
|Interest income net of interest expense |  | $                 | 3,533 |             | $ | 3,761 |                   | (6.1 | )%           |  | $ | 3,761 |  | $ | 3,700 |  | 1.7 | %

Interest income decreased from fiscal 2005 to fiscal 2006 as a result of increased interest expense on debt
assumed from the eCERA acquisition as well as a decline in overall invested capital partially offset by increased returns on investment.

Interest income
was relatively unchanged between fiscal 2005 and fiscal 2004 with somewhat increased interest rates being offset by planned capital losses as the portfolio was restructured to achieve better future returns.

PROVISION FOR INCOME TAXES



|                               |  |                   |       |   |                   |   |     |             |  |   |              |   |  |   |        |  
|------------------------------ |  | ----------------- | ----- | - | ----------------- | - | --- | ----------- |  | - | ------------ | - |  | - | ------ | -
|                               |  | Fiscal Year Ended |       |   | Fiscal Year Ended |  
|(In thousands)                 |  | July 1,2006       |       |   | July 2,2005       |   |     | July 2,2005 |  |   | June 26,2004 |  
|Pre-tax income (loss)          |  | $                 | 5,936 |   |                   | $ | 850 |             |  | $ | 850          |   |  | $ | (5,003 | )
|Income tax provision (benefit) |  |                   | 1,852 |   |                   |   | 27  |             |  |   | 27           |   |  |   | (2,380 | )
|Effective tax rate             |  |                   | 31.3  | % |                   |   | 2.9 | %           |  |   | 2.9          | % |  |   | 47.6   | %

Our effective tax rate differs from the federal statutory rate primarily due to state income taxes, the effect of
foreign income tax and foreign loss, the utilization of research and development tax credits and changes in the deferred tax asset valuation allowance. For fiscal 2006 the rate was significantly higher than the prior year primarily due to increased
profitability. A reconciliation of our tax rates for fiscal years 2006, 2005 and 2004 is detailed in Note 17 to the Consolidated Financial Statements contained in this report on Form 10-K.

For fiscal 2005 the rate was very low compared to statutory rates and prior year because relatively small pre-tax income of $850,000 was almost completely offset by
various tax credits. The income tax benefit in fiscal 2004 was $2.4 million as compared with a benefit of $2.8 million in fiscal 2003. The decrease was due to lower net operating losses in fiscal 2004 partially offset by an increase in the deferred
tax asset valuation allowance in fiscal 2004. The provision for income taxes differed from the federal statutory rate primarily due to state income taxes, the utilization of research and development tax credits and a change in the deferred asset
valuation allowance.

EQUITY IN NET INCOME OF INVESTEES



|                                        |  |                   |       |             |   |                   |             |        |              |  |   |    |  |   |     |  |   |      |  
|--------------------------------------- |  | ----------------- | ----- | ----------- | - | ----------------- | ----------- | ------ | ------------ |  | - | -- |  | - | --- |  | - | ---- | -
|                                        |  | Fiscal Year Ended |       | Change      |   | Fiscal Year Ended |             | Change |             
|(In thousands)                          |  | July 1,2006       |       | July 2,2005 |   |                   | July 2,2005 |        | June 26,2004 | 
|Equity in net income (loss) of investee |  | $                 | 1,796 |             | $ | 46                |             | $      | 1,750        |  | $ | 46 |  | $ | 513 |  | $ | (467 | )

Equity in net income of investee is predominantly the Companys allocated portion of the net income or losses
of Pericom Technology, Inc. (PTI), a British Virgin Islands corporation based in Shanghai, Peoples Republic of China. Pericom and certain Pericom shareholders formed PTI in 1994 to develop and market semiconductors in China and
certain other Asian countries. In addition there are other losses realized from other insignificant investments. The Company adopted EITF 02-14 in the quarter ended December 31, 2004. This adoption did not cause the Company to cease recognizing
its allocated portion of the net income or losses of PTI. The Companys allocated portion of PTIs results increased to a profit of $1.8 million for fiscal 2006 from a profit of $46,000 for fiscal 2005. The increased income in fiscal 2006
when compared to fiscal 2005 can be primarily be attributed to an improvement in the markets for which it serves. In addition the Company realized net losses from other investments of approximately $26,000 in fiscal 2006.



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The Companys allocated portion of PTIs results declined to a profit of $46,000 for fiscal 2005 from a profit
of $513,000 for fiscal 2004 due to telecommunications revenue declines as a result of the slowdown in China telecommunications markets that PTI serves.

LIQUIDITY AND CAPITAL RESOURCES

As of July 1, 2006, the Companys principal sources of liquidity included cash, restricted cash,
cash equivalents, short-term and long-term investments of approximately $122.6 million as compared with $143.3 million as of July 1, 2005 and $144.4 million as of June 26, 2004. On September 7, 2005 the Company purchased 99.9% of
eCERA Comtek Corporation (eCERA). The purchase price, including cash consideration of $14.5 million and assumed debt of approximately $14.9 million totaled approximately $29.4 million including transaction costs. The Company also had the
right through March 7, 2006 to purchase the remaining 50% of eCERAs 50% owned crystal blank manufacturing subsidiary, AZER Crystal Technology Co, Ltd. (Azer). The Company exercised this right to purchase the remaining 50% of
Azer for cash consideration of approximately $1.6 million and assumed debt of approximately $1.8 million on February 6, 2006. In total, approximately $16.1 million of the Companys cash, cash equivalents and short-term investments was used
to complete these acquisitions. As of July 1, 2006. $12.6 million is liquid and classified as cash and cash equivalents compared with $20.9 million as of July 1, 2005 and $13.9 million as of June 26, 2004. The maturities of the
Companys short-term investments are staggered throughout the year so that cash requirements are met. Since the Company is a fabless semiconductor manufacturer, it has lower capital equipment requirements than other semiconductor manufacturers
that own fabs. For fiscal year 2006, the Company spent $7.2 million on property and equipment compared to $2.8 million and $3.2 million for fiscal 2005 and 2004 respectively. This significant increase in spending on property and equipment is
primarily attributable to additional investment in eCERA to increase production capacity within our manufacturing operations. Interest rates have continued to trend upwards as a result of actions taken by the Federal Reserve Board. The Company
generated approximately $3.5 million of interest income for the fiscal year ended July 1, 2006 compared to $3.8 million and $3.7 million in fiscal years ended July 1, 2005 and June 26, 2004, respectively. In the longer term the
Company may generate less interest income if its total invested balance decreases and these decreases are not offset by rising interest rates or increased cash generated from operations or other sources.

The Companys net cash provided by operating activities of approximately $11.3 million in fiscal 2006 was primarily a result of net income of $6.0 million, a $1.7
million decrease in inventories, $1.5 million increase in deferred income taxes, $1.3 million of stock based compensation, and depreciation and amortization of $5.0 million, which were partially off-set by $1.8 million of non-cash equity in net
income of the Companys unconsolidated subsidiaries, and an increase in accounts receivable of $3.5 million. The increase in inventories, and accounts receivable is primarily attributed to the acquisition of eCERAs operations. The
increase in stock based compensation is the result of the Company implementing FAS 123R. In fiscal 2005, the Companys net cash provided by operating activities of $3.0 million was primarily the result of net income of $927,000, a $2.6 million
decrease in inventories, depreciation and amortization of $3.6 million, which were partially off-set by a decrease in accounts payable of $1.3 million, and an increase in accounts receivable of $1.9 million. The decrease in accounts receivable is
the result of a decrease in the accounts receivable allowance of approximately $1.5 million. This decrease is primarily due to a reduction in the reserves for returned product at July 2, 2005 as compared with June 26, 2004. At
June 28, 2004, the accounts receivable allowance included reserves for the return of product from terminated distributors as well as for the return of product associated with the product end of life program then underway. On July 2, 2005,
there were no terminated distributors in the process of returning product and there was no product end-of-life program underway. The reduction in net inventories during the fiscal year ended July 2, 2005 was largely due to inventory written off
as well as a result of a concerted effort to reduce inventory levels to a lower level in fiscal year 2005. The decrease in accounts payable during this period was the result of routine period to period fluctuations. In fiscal year 2004, the
Companys net cash provided by operating activities of $20,000 was primarily due to net losses of $2.1 million, a $3.3 million increase in deferred income taxes and a $3.0 million increase in inventories which were partially offset by
depreciation and amortization of $4.2 million and an increase in accounts payable of $2.0 million. These are net of the fair value of the assets acquired and liabilities assumed of SaRonix LLC. The increase in inventories and accounts payable are
primarily due to the growth in our operation.

Generally, as sales levels rise, the Company expects inventories, 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.



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The Companys net cash used in investing activities of $8.7 million in fiscal 2006 was primarily due to net cash
paid for the eCERA and AZER acquisition totaling $14.6 million, and additions to property and equipment totaling $7.2 million. This was partially offset by maturities of short-term investments exceeding purchases by $13.2 million. The Companys
net cash provided by investing activities of $6.8 million in fiscal 2005 was primarily due to maturities of short-term investments exceeding purchases by $7.5 million, proceeds from the sale of a building held for sale (a building in Ireland that we
owned as a result of the SaRonix acquisition) of $2.0 million and the sale of a minority interest in a subsidiary of $315,000 which were partially offset by purchases of property and equipment of $2.8 million. The Companys cash provided by
investing activities of $1.8 million in fiscal 2004 was primarily due to maturities of short-term investments exceeding purchases by $6.0 million partially offset by loans to SaRonix of $1.2 million and purchases of property and equipment of $3.2
million.

The Companys cash used in financing activities in fiscal 2006 of $10.9 million was primarily due to the principal payments on long-term
debt and capital leases from the eCERA acquisition, the repurchase of $6.5 million in common stock, which were partially offset by proceeds from short and long term debts of eCERA of $10.5 million, and the sale of common stock from the
Companys employee stock plans of $2.2 million. The Companys cash used in financing activities in fiscal 2005 of $3.0 million was primarily due to the repurchase of $3.0 million in common stock and payment of a bank loan of $1.3 million,
which were partially offset by the sale of common stock from the Companys employee stock plans of $1.3 million. The Companys cash provided by financing activities in fiscal 2004 of $2.3 million was primarily due to the sale of common
stock from the Companys employee stock plans.

The Companys Board of Directors has approved the repurchase of up to 2,000,000 shares of the
Companys common stock. As of July 1, 2006, the Company has repurchased 1,372,087 shares at a cost of approximately $11.7 million. In fiscal year 2006, there were 750,000 shares repurchased at an approximate cost of approximately $6.5
million. In fiscal year 2005, there were 347,587 shares repurchased at an approximate cost of $3.0 million. No shares were repurchased during fiscal year 2004. From July 2, 2006 through September 11, 2006, there were 1,562,649 shares
repurchased at an approximate cost of $13.4 million. The Company intends to continue repurchasing shares under this program over time depending upon price and share availability. Current cash balances and the proceeds from stock option exercises and
employee stock purchase plan purchases have funded stock repurchases. The Company expects to fund future stock repurchases from these same sources.

A
portion of our cash may be used 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.

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.

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.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table depicts our contractual obligations as of July 1, 2006 (in thousands):



|                                  |  |                        |        |                 |   |          |  |          |       |            |   |       |  |   |      
|--------------------------------- |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------- | - | ----- |  | - | -----
|                                  |  | Payments Due by Period
|Contractual obligation            |  | Total                  |        | Less than1 Year |   | 1-3Years |  | 3-5Years |       | Thereafter
|Operating leases                  |  | $                      | 8,362  |                 | $ | 1,282    |  | $        | 2,241 |            | $ | 2,073 |  | $ | 2,766
|Loans                             |  |                        | 9,238  |                 |   | 5,756    |  |          | 3,482 |            |   |      |  |   |     
|                                  |  |                        |        |                 |   |          |  |          |       |            |   |       |  |   |      
|Total contractual cash obligation |  | $                      | 17,600 |                 | $ | 7,038    |  | $        | 5,723 |            | $ | 2,073 |  | $ | 2,766
|                                  |  |                        |        |                 |   |          |  |          |       |            |   |       |  |   |      

The Company has no purchase obligations other than routine purchase orders as of July 1, 2006.



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RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB interpretation (FIN) No. 48, Accounting for uncertainty in Income Taxes (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 interpretation
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 is effective as of the beginning of the first fiscal year beginning after December 15, 2006. The Company is currently evaluating
the effect that the adoption of FIN 48 will have on its consolidated results of operations and financial condition.

In May 2005, the FASB issued SFAS
No. 154, Accounting Changes and Error Corrections. This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. APB No. 20
previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective
application to prior periods financial statements of voluntary changes in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The
Company adopted SFAS No. 154 on July 2, 2006 and will apply its provisions on a prospective basis when applicable.

In March 2005, the FASB
issued FASB Interpretation No. 47 (FIN 47), Accounting for Conditional Asset Retirement Obligations. FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about the timing and (or) method of settlement of a
conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an
asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 as of July 1, 2006 did not have a material impact on our financial position, results of
operations or cash flows.

ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK DISCLOSURE

At July 1, 2006, our investment portfolio consisted primarily of fixed income securities, excluding those classified as cash equivalents, of $109.1 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. Due to the short duration and conservative nature of these instruments, we do not believe that we
have a material exposure to interest rate risk. For example, if market interest rates were to increase immediately and uniformly by 10% from levels as of July 1, 2006, the decline in the fair value of the portfolio would not have a material
effect on our results of operations over the next fiscal year.



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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.
|Reports of Independent Registered Public Accounting Firms                                                                                                                                                                                                                  |  | 51      
|                                                                                                                                                                                                                                                                           | 
|Consolidated Balance Sheets as of July 1, 2006 and July 2, 2005                                                                                                                                                                                                            |  | 53      
|                                                                                                                                                                                                                                                                           | 
|Consolidated Statements of Operations for each of the three fiscal years ended July 1, 2006                                                                                                                                                                                |  | 54      
|                                                                                                                                                                                                                                                                           | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for each of the three fiscal years in the period ended July 1, 2006                                                                                                                        |  | 55      
|                                                                                                                                                                                                                                                                           | 
|Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended July 1, 2006                                                                                                                                                                  |  | 56      
|                                                                                                                                                                                                                                                                           | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                                 |  | 57      
|                                                                                                                                                                                                                                                                           | 
|2.      INDEX TO FINANCIAL STATEMENT SCHEDULE                                                                                                                                                                                                                              |  |         
|                                                                                                                                                                                                                                                                           | 
|The following financial statement schedule of Pericom Semiconductor Corp. for the years ended July 1, 2006, July 2, 2005, and June 26, 2004 is
filed as part of this report and should be read in conjunction with the Financial Statements of Pericom Semiconductor Corp. |  |         
|                                                                                                                                                                                                                                                                           | 
|Schedule II  Valuation and Qualifying Accounts for each of the three fiscal years in the period ended July 1, 2006                                                                                                                                                        |  | 82      

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



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

On February 16, 2006,
Deloitte & Touche LLP (Deloitte) informed management and the Audit Committee of Pericom Semiconductor Corporation (the Company) that it had resigned as the independent registered public accounting firm for the
Company effective immediately.

The report of Deloitte & Touche LLP on the Companys financial statements for the fiscal years ended
July 2, 2005 and June 26, 2004 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audit of the effectiveness of the
Companys internal control over financial reporting as of July 2, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,
Deloitte & Touche LLP expressed an adverse opinion in its report dated September 15, 2005 on the effectiveness of the Companys internal control over financial reporting due to a material weakness in the Companys controls
relating to the accounting consequences arising from significant changes in the Companys business operations.

In connection with the audits of the
Companys financial statements for each of the two most recently completed fiscal years and through February 23, 2006, there have been no disagreements with Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused it to make reference to the subject matter of such disagreements
in connection with its audit report. There were no reportable events as defined in Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K, except as follows: (i) in connection with its review of the Companys
interim financial information for the quarter ended December 25, 2004, Deloitte & Touche LLP advised the Companys Audit Committee of a material weakness in internal control over financial reporting related to controls over the
determination of obsolescence inventory charges for a product end-of-life program; (ii) in connection with its audit of the effectiveness of the Companys internal control over financial reporting for the year ended July 2, 2005,
Deloitte & Touche LLP advised the Companys Audit Committee of a material weakness in internal control over financial reporting as described above; (iii) in connection with its review of the Companys interim financial
information for the quarter ended October 1, 2005, Deloitte & Touche LLP advised the Companys Audit Committee of a material weakness in internal control over financial reporting related to the process for timely evaluation and
potential write-down of MRB inventory; and (iv) in connection with its review of the Companys interim financial information for the quarter ended December 31, 2005, Deloitte & Touche LLP advised the Companys Audit
Committee of a material weakness in internal control over financial reporting related to the Companys controls over the consolidation process, including the proper accounting for the foreign currency translation of subsidiary financial
statements and the review of the consolidation of subsidiary financial statements for proper classifications in the consolidated financial statements.

On
April 18, 2006 the Companys Audit Committee approved the decision to engage Burr, Pilger & Mayer LLP as its independent registered public accounting firm to audit the Companys financial statements and internal control over
financial reporting for the fiscal year ended July 1, 2006.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of Alex C. Hui, our Chief Executive Officer and, Angela Chen, our Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the Exchange Act)) as of July 1, 2006. Based on their evaluation, our management has concluded
that the Companys disclosure controls and procedures are effective as of July 1, 2006 for the purpose set forth in Rule 13a-15.

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 such term is defined in Exchange Act Rule 13a-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 GAAP. 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;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



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| | (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with Generally Accepted Accounting
Principles, 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. 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.

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 July 1, 2006. 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).

A material weakness in internal control over financial reporting is a
control deficiency (within the meaning of the Public Company Accounting Oversight Boards (PCAOB) Auditing Standard No. 2), or a combination of control deficiencies, that results in there being a more than remote likelihood
that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that, because of their likely significant negative
effect on internal control over financial reporting, are to be regarded as at least significant deficiencies, as well as strong indicators of a material weakness, including the restatement of previously issued consolidated financial statements to
reflect the correction of a misstatement. We have concluded that, as of July 1, 2006, 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 accounting firm, has issued an attestation report on managements assessment of the Companys
internal control over financial reporting, which is included in their report on page 46.

Changes in Internal Controls over Financial Reporting

At July 2, 2005, managements assessment of the effectiveness of the Companys internal control over financial reporting identified a
material weakness relating to the Companys process for the establishment of appropriate accounting procedures arising from significant changes in its business operation. During the quarter ended October 1, 2005, and in connection
with the preparation of our financial statements for the year ended July 1, 2006, we implemented compensating controls and procedures relating to the process for the establishment of appropriate accounting procedures arising from significant
changes in its business operation to address the material weakness that had been identified in fiscal 2005. The compensating controls and procedures implemented during the first quarter ended October 1, 2006 consisted of the following:



| |  |  | Monitoring of changes of the business as they occur by the CFO, Corporate Controller, Director of Financial Reporting, and Accounting Manager. These individuals are responsible for
assessing the accounting impact of such changes according to GAAP and current accounting pronouncements, and then implementing adequate accounting policy and procedures to properly account for the change in business. Weekly executive staff meetings
are the initial forum where potential significant changes in the business are discussed, and these changes are communicated by the CFO to the Corporate Controller, Director of Financial Reporting and Accounting Manager and potential accounting or
reporting ramifications are investigated and plans implemented to address the issues.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of July 1, 2006, the Company had remediated
the controls that led to prior years material weakness, pertaining to the Companys process for the establishment of appropriate accounting procedures arising from significant changes in its business operation.

At October 1, 2005, managements assessment of the effectiveness of the Companys internal control over financial reporting identified a material weakness
relating to the Companys process for the timely evaluation and potential write-down of MRB inventory. During the quarter ended December 31, 2005, and in connection with the preparation of our financial statements for the year ended
July 1, 2006, we implemented compensating



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controls and procedures relating to the process for the timely evaluation and potential write-down of MRB inventory to address the material weakness that had
been identified in fiscal 2006. The compensating controls and procedures implemented during the second quarter ended December 31, 2005 consisted of the following:



| |  |  | As part of the Companys monthly closing procedures, controls were implemented to ensure the analysis of pending MRB inventory is performed timely to assess whether this
inventory should be valued. If not, and the amount is material to results, an entry will be booked to record the expected scrap expense.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A review of MRB scrap transactions that occur after the end of the reporting period and prior to the issuance of the financial statements will be performed and, if material in
inventory at the end of the reporting period is subsequently scrapped this will be recorded as a charge to cost of revenues and reduction of inventory in the period prior to the transaction.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of July 1, 2006, the Company had remediated the controls that led to the weakness in the first quarter, pertaining to the Companys process for the timely
evaluation and potential write-down of MRB inventory.

At December 31, 2005, managements assessment of the effectiveness of the Companys
internal control over financial reporting identified a material weakness relating to the Companys controls over the consolidation process including the proper accounting for the foreign currency translation of subsidiary financial statements
and the review of the consolidation of subsidiary financial statements for proper classifications in the consolidated financial statements. During the quarter ended April 1, 2006, and in connection with the preparation of our financial
statements for the year ended July 1, 2006, we implemented compensating controls and procedures relating to the Companys controls over the consolidation process including the proper accounting for the foreign currency translation of
subsidiary financial statements and the review of the consolidation of subsidiary financial statements for proper classifications in the consolidated financial statements. The compensating controls and procedures implemented during the third
quarter ended April 1, 2006 consisted of the following:



| |  |  | As part of the Companys monthly and quarterly closing procedures, controls were implemented to ensure that proper reviews of subsidiary financial statements, trial balance and
disclosures are carried out each month and quarter.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | One chart of accounts is maintained with requests for new accounts authorized and maintained at the Corporate level.
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated results have multiple-level reviews with subsidiary financial statements.
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Regular communication with subsidiaries has been maintained to discuss U.S. GAAP and close related issues. These meetings highlight any potential accounting or business items that
should be discussed prior to the month-end or quarter-end close.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of July 1, 2006, the Company had remediated the controls that led
to the weakness in the second quarter, pertaining to the Companys controls over the consolidation process including the proper accounting for the foreign currency translation of subsidiary financial statements and the review of the
consolidation of subsidiary financial statements for proper classifications in the consolidated financial statements.

There were no changes in our
internal control over financial reporting that occurred during the fourth quarter of fiscal 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None



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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 managements assessment, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting included in Item 9A, that Pericom Semiconductor Corporation (the
Company) maintained effective internal control over financial reporting as of July 1, 2006, 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. Our
responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.

We conducted our audit 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, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, 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, managements assessment that Pericom Semiconductor Corporation maintained effective internal control over financial
reporting as of July 1, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Pericom Semiconductor Corporation maintained, in all material respects, effective internal control over financial
reporting as of July 1, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheet of Pericom Semiconductor Corporation as of July 1, 2006, and the related statements of operations, shareholders equity and comprehensive income (loss), and cash flows for the year then
ended, and the related financial statement schedule, as of and for the year ended July 1, 2006, and our report dated September 13, 2006 expressed an unqualified opinion on those financial statements and the related financial statement
schedule.



|                                        
|----------------------------------------
|/s/ Burr, Pilger & Mayer LLP            
|                                        
|Palo Alto, California September 13,
2006



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##### Table of Contents

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by
reference to the section captioned Election of Directors to be contained in the Companys Definitive Proxy Statement related to the Annual Meeting of Shareholders to be held December 14, 2006, to be filed by the Company with
the Securities and Exchange Commission (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 SHAREHOLDER 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 July 1, 2006.



|                                                                                      |  |                                                                                           |  |                                                                         |       |                                                                       |          
|------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ----- | --------------------------------------------------------------------- | ---------
|Plan Category                                                                         |  | Number of Securitiesto be Issued Upon
Exercise of Outstanding Options,Warrants and Rights |  | Weighted AverageExercise Price ofOutstandingOptions, Warrantsand Rights |       | Number of SecuritiesRemaining AvailableFor Future IssuanceUnder Plans
|Equity Compensation Plans Approved by Shareholders Option Plans                       |  | 5,095,879                                                                                 |  | $                                                                       | 11.48 |                                                                       | 1,942,139
|Employee Stock Purchase Plan                                                          |  |                                                                                          |  |                                                                         |      |                                                                       | 809,563  
|Equity Compensation Plans not Approved by Shareholders SaRonix Inducement Options (1) |  | 180,754                                                                                   |  |                                                                         | 10.00 |                                                                       |         
|                                                                                      |  |                                                                                           |  |                                                                         |       |                                                                       |          
|Total                                                                                 |  | 5,276,633                                                                                 |  | $                                                                       | 11.43 |                                                                       | 2,751,702

---

|(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.



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##### Table of Contents

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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.



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##### Table of Contents

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 on Page 42 of this report.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|      |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1   |   |  | Share Purchase Agreement, dated August 30, 2005, by and between Pericom Semiconductor Corporation, AKER Technology Company, Ltd. and Shi-Hsiung Stone Liu for the sale by AKER and purchase by
Pericom of 39,773,792 shares of common stock representing 99.93% of the outstanding common stock of eCERA Comtek Corporation, filed as Exhibit 2.1 to the Companys form 8-K, filed September 6, 2005 and incorporated herein by
reference.
|      |  
|2.2   |   |  | Share Purchase Agreement, dated August 30, 2005, by and between AKER Technology Company, Ltd., eCERA Comtek Corporation, and Shi-Hsiung Stone Liu for the sale by AKER and purchase by eCERA of
5,500,000 shares of common stock, representing 50% of the outstanding common stock of Azer Crystal Technology Co., Ltd. filed as Exhibit 2.1.1 to the Companys Form 8-K, filed September 6, 2005, and incorporated herein by
reference.  
|      |  
|3.1   |   |  | Restated Articles of Incorporation of the Registrant (1)                                                                                                                                                                                                                                                                                                                                                                                  
|      |  
|3.2   |   |  | Amended and Restated Bylaws of the Registrant (2)                                                                                                                                                                                                                                                                                                                                                                                         
|      |  
|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, 2002                                                                                                                                                                                                                       
|      |  
|4.1   |   |  | 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, 2002                                                                                                                       
|      |  
|10.1  | * |  | Registrants 1990 Stock Option Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                                         
|      |  
|10.2  | * |  | Registrants 1995 Stock Option Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                                         
|      |  
|10.3  | * |  | Registrants 1997 Employee Stock Purchase Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                              
|      |  
|10.4  |   |  | Lease, dated November 29, 1993, by and between Orchard Investment Company Number 510 as Landlord and Registrant as Tenant, as amended (3)                                                                                                                                                                                                                                                                                                 
|      |  
|10.5  |   |  | Third Amendment to Lease, dated April 23, 1999, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (2)                                                                                                                                                                                                                                                                                                    
|      |  
|10.6  |   |  | Fourth Amendment to Lease, dated January 21, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (4)                                                                                                                                                                                                                                                                                                 
|      |  
|10.7  |   |  | Fifth Amendment to Lease, dated May 1, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (4)                                                                                                                                                                                                                                                                                                       
|      |  
|10.8  |   |  | Sixth Amendment to Lease, dated October 31, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (6)                                                                                                                                                                                                                                                                                                  
|      |  
|10.11 |   |  | Form of Indemnification Agreement (3)                                                                                                                                                                                                                                                                                                                                                                                                     
|      |  
|10.12 |   |  | Pericom Technology Agreement, dated March 17, 1995 by and between the Registrant and Pericom Technology, Inc. (3)                                                                                                                                                                                                                                                                                                                         
|      |  
|10.13 | * |  | Registrants 2000 Employee Stock Purchase Plan, including forms of Agreement thereunder (5)                                                                                                                                                                                                                                                                                                                                               
|      |  
|10.14 | * |  | Registrants 2001 Stock Incentive Plan, including forms of Agreement thereunder (5)                                                                                                                                                                                                                                                                                                                                                       
|      |  
|10.15 |   |  | Change of Control Agreement (7)                                                                                                                                                                                                                                                                                                                                                                                                           
|      |  
|10.16 | * |  | 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.                                                                                                                                                                                                                       



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|       |  |                                                                                                                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18  |  | 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.
|       | 
|10.19* |  | 2004 Stock Incentive Plan, filed as Appendix B to the Companys proxy statement for its 2004 annual meeting, filed on October 22, 2004 and incorporated herein by
reference.                                                                                     
|       | 
|10.20* |  | 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.                                                              
|       | 
|10.21* |  | 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.                                                               
|       | 
|10.22* |  | Letter Agreement, dated as of October 26, 2005, by and between the Company and Michael D. Craighead, attached as Exhibit 10.1 to the Companys Form 8-K, filed November 1, 2005, and
incorporated herein by reference.                                           
|       | 
|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 Corporation                                                                                                                                                                                                                
|       | 
|23.1   |  | Consent of Burr, Pilger and Mayer LLP Independent Registered Public Accounting Firm                                                                                                                                                                              
|       | 
|23.2   |  | Consent of Deloitte and Touche LLP Independent Registered Public Accounting Firm.                                                                                                                                                                                
|       | 
|24.1*  |  | Power of Attorney (see signature page of this report)                                                                                                                                                                                                            
|       | 
|31.1   |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|       | 
|31.2   |  | Certification of Angela Chen, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|       | 
|32.1   |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|       | 
|32.2   |  | Certification of Angela Chen, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|       | 
|99.1   |  | Pericom Technology, Inc. audited financial statements for the fiscal year ended July 1, 2006                                                                                                                                                                     

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|(1) | Incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 in which the exhibit bears the same number.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated herein by reference to the Companys fiscal 1999 Annual Report on Form 10-K in which the exhibit bears the same number.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated herein by reference to the Companys Registration Statement on Form S-1 in which the exhibit bears the same number.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated herein by reference to the Companys fiscal 2000 Annual Report on Form 10-K in which the exhibit bears the same number.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended December 30, 2000 in which the exhibit bears the same number.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated herein by reference to the Companys fiscal 2001 Annual Report on Form 10-K in which the exhibit bears the same number.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated herein by reference to the Companys fiscal 2002 Annual Report on Form 10-K in which the exhibit bears the same number.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

(b) Exhibits: See list of exhibits under (a)(2) above.

(c) Financial Statement Schedules: See list of schedules under (a)(1) above



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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 sheet of Pericom Semiconductor Corporation and its subsidiaries as of July 1, 2006 and the related statements of operations, shareholders equity and comprehensive income
(loss), and cash flows for the year then ended. Our audit 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, as of and for the year ended July 1,
2006. These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based
on our audit.

We conducted our audit 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 audit provides
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 July 1, 2006 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial statement schedule, as of and for the year ended July 1, 2006, 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 July 1, 2006, 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 13, 2006 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial
reporting.



|                                        
|----------------------------------------
|/s/ Burr, Pilger & Mayer LLP            
|                                        
|Palo Alto, California September 13, 2006



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pericom Semiconductor Corporation:

We have
audited the accompanying consolidated balance sheets of Pericom Semiconductor Corporation and subsidiaries (the Company) as of July 2, 2005 and June 26, 2004, 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 July 2, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(1). These
financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in all material respects, the financial position of Pericom Semiconductor
Corporation and subsidiaries at July 2, 2005 and June 26, 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 2, 2005, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic 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 July 2, 2005, 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 15, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an adverse opinion on the
effectiveness of the Companys internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

San Jose, California

September 15, 2005



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PERICOM SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                      |  |             |         |   |             |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | -
|                                                                                                                                      |  | July 1,2006 |         |   | July 2,2005 |  
|ASSETS                                                                                                                                |  |             |         |   |             |   |         |  
|Current assets:                                                                                                                       |  |             |         |   |             |   |         |  
|Cash and cash equivalents                                                                                                             |  | $           | 12,577  |   |             | $ | 20,902  |  
|Restricted cash                                                                                                                       |  |             | 950     |   |             |   |        |  
|Short-term investments                                                                                                                |  |             | 52,761  |   |             |   | 122,385 |  
|Accounts receivable:                                                                                                                  |  |             |         |   |             |   |         |  
|Trade (net of allowances of $2,205 and $2,239)                                                                                        |  |             | 20,741  |   |             |   | 7,629   |  
|Other receivables                                                                                                                     |  |             | 2,565   |   |             |   | 1,813   |  
|Inventories                                                                                                                           |  |             | 16,742  |   |             |   | 13,428  |  
|Prepaid expenses and other current assets                                                                                             |  |             | 508     |   |             |   | 409     |  
|Deferred income taxes                                                                                                                 |  |             | 4,709   |   |             |   | 5,291   |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total current assets                                                                                                                  |  |             | 111,553 |   |             |   | 171,857 |  
|Property, plant and equipmentnet                                                                                                     |  |             | 24,376  |   |             |   | 5,927   |  
|Investment in unconsolidated affiliates                                                                                               |  |             | 9,056   |   |             |   | 5,932   |  
|Deferred income taxesnon current                                                                                                     |  |             | 5,043   |   |             |   | 2,205   |  
|Long term investment in marketable securities                                                                                         |  |             | 56,297  |   |             |   |        |  
|Goodwill                                                                                                                              |  |             | 1,348   |   |             |   | 1,325   |  
|Intangible assets (net of accumulated amortization of $381 and $208)                                                                  |  |             | 2,976   |   |             |   | 2,839   |  
|Other assets                                                                                                                          |  |             | 3,037   |   |             |   | 3,910   |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total assets                                                                                                                          |  | $           | 213,686 |   |             | $ | 193,995 |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                  |  |             |         |   |             |   |         |  
|Current liabilities:                                                                                                                  |  |             |         |   |             |   |         |  
|Accounts payable                                                                                                                      |  | $           | 10,435  |   |             | $ | 6,899   |  
|Accrued liabilities                                                                                                                   |  |             | 7,243   |   |             |   | 5,470   |  
|Current portion of long term debt                                                                                                     |  |             | 5,756   |   |             |   |        |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total current liabilities                                                                                                             |  |             | 23,434  |   |             |   | 12,369  |  
|Long term debt                                                                                                                        |  |             | 3,482   |   |             |   |        |  
|Deferred tax liabilities                                                                                                              |  |             | 1,288   |   |             |   |        |  
|Other long term liabilities                                                                                                           |  |             | 402     |   |             |   | 207     |  
|Minority interest in consolidated subsidiary                                                                                          |  |             | 969     |   |             |   | 257     |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total liabilities                                                                                                                     |  |             | 29,575  |   |             |   | 12,833  |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Commitments (Note 12)                                                                                                                 |  |             |         |   |             |   |         |  
|Shareholders equity:                                                                                                                 |  |             |         |   |             |   |         |  
|Common stock and paid in capital  no par value, 60,000,000 shares authorized; shares outstanding: 2006, 26,061,000; 2005,
26,357,000 |  |             | 138,483 |   |             |   | 141,233 |  
|Retained earnings                                                                                                                     |  |             | 46,522  |   |             |   | 40,610  |  
|Accumulated other comprehensive income (loss) net of tax                                                                              |  |             | (894    | ) |             |   | (681    | )
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total shareholders equity                                                                                                            |  |             | 184,111 |   |             |   | 181,162 |  
|                                                                                                                                      |  |             |         |   |             |   |         |  
|Total liabilities and shareholders equity                                                                                            |  | $           | 213,686 |   |             | $ | 193,995 |  
|                                                                                                                                      |  |             |         |   |             |   |         |  

See notes to consolidated financial statements.



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PERICOM SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|-------------------------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------ | ------------ |  | - | ------ | -
|                                                         |  | Year Ended  |        
|                                                         |  | July 1,2006 |         |   | July 2,2005 |   |        | June 26,2004 | 
|Net revenues                                             |  | $           | 105,878 |   |             | $ | 79,557 |              |  | $ | 66,417 |  
|Cost of revenues                                         |  |             | 69,374  |   |             |   | 50,764 |              |  |   | 45,182 |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Gross profit                                             |  |             | 36,504  |   |             |   | 28,793 |              |  |   | 21,235 |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Operating expenses:                                      |  |             |         |   |             |   |        |              |  |   |        |  
|Research and development                                 |  |             | 15,492  |   |             |   | 15,767 |              |  |   | 14,161 |  
|Selling, general and administrative                      |  |             | 18,490  |   |             |   | 15,538 |              |  |   | 14,979 |  
|Restructuring charge                                     |  |             | 55      |   |             |   | 294    |              |  |   | 784    |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Total                                                    |  |             | 34,037  |   |             |   | 31,599 |              |  |   | 29,924 |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Income (loss) from operations                            |  |             | 2,467   |   |             |   | (2,806 | )            |  |   | (8,689 | )
|Interest income                                          |  |             | 3,875   |   |             |   | 3,783  |              |  |   | 3,737  |  
|Interest expense                                         |  |             | (342    | ) |             |   | (22    | )            |  |   | (37    | )
|Other than temporary decline in the value of investments |  |             | (64     | ) |             |   | (105   | )            |  |   | (14    | )
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Income (loss) before income taxes                        |  |             | 5,936   |   |             |   | 850    |              |  |   | (5,003 | )
|Income tax provision (benefit)                           |  |             | 1,852   |   |             |   | 27     |              |  |   | (2,380 | )
|Minority interest in loss of consolidated subsidiary     |  |             | 99      |   |             |   | 58     |              |  |   |       |  
|Equity in net income of unconsolidated affiliates        |  |             | 1,796   |   |             |   | 46     |              |  |   | 513    |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Net income (loss)                                        |  | $           | 5,979   |   |             | $ | 927    |              |  | $ | (2,110 | )
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Basic income (loss) per share                            |  | $           | 0.23    |   |             | $ | 0.04   |              |  | $ | (0.08  | )
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Diluted income (loss) per share                          |  | $           | 0.22    |   |             | $ | 0.03   |              |  | $ | (0.08  | )
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Shares used in computing basic income (loss) per share   |  |             | 26,254  |   |             |   | 26,476 |              |  |   | 26,075 |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  
|Shares used in computing diluted income (loss) per share |  |             | 26,994  |   |             |   | 27,188 |              |  |   | 26,075 |  
|                                                         |  |             |         |   |             |   |        |              |  |   |        |  

See notes to consolidated financial statements.



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PERICOM SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE

INCOME (LOSS)

(In thousands)



|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|---------------------------------------------------- |  | ------------ | - |  | ----------------- | ------- | - | --------------------------------------------- | - | ------ | -------------------------- |  | - | ------ | - |  | - | ------- | -
|                                                     |  | Common Stock |   |  | Retained Earnings |         |   | Accumulated Other Comprehensive Income (Loss) |   |        | Total Shareholders Equity | 
|                                                     |  | Shares       |   |  | Amount            |         |   |                                               |  
|BALANCES, June 28, 2003                              |  | 25,765       |   |  | $                 | 139,401 |   |                                               | $ | 41,793 |                            |  | $ | 1,129  |   |  | $ | 182,323 |  
|Net loss                                             |  |             |   |  |                   |        |   |                                               |   | (2,110 | )                          |  |   |       |   |  |   | (2,110  | )
|Unrealized loss on investments                       |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | (1,641 | ) |  |   | (1,641  | )
|Currency translation gain                            |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | 119    |   |  |   | 119     |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Total comprehensive loss                             |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   | (3,632  | )
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Issuance of common stock under employee stock plans  |  | 709          |   |  |                   | 2,428   |   |                                               |   |       |                            |  |   |       |   |  |   | 2,428   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |                   | 778     |   |                                               |   |       |                            |  |   |       |   |  |   | 778     |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|BALANCES, June 26, 2004                              |  | 26,474       |   |  |                   | 142,607 |   |                                               |   | 39,683 |                            |  |   | (393   | ) |  |   | 181,897 |  
|Net income                                           |  |             |   |  |                   |        |   |                                               |   | 927    |                            |  |   |       |   |  |   | 927     |  
|Unrealized loss on investments                       |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | (416   | ) |  |   | (416    | )
|Currency translation gain                            |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | 128    |   |  |   | 128     |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Total comprehensive income                           |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   | 639     |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Issuance of common stock under employee stock plans  |  | 231          |   |  |                   | 1,294   |   |                                               |   |       |                            |  |   |       |   |  |   | 1,294   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |                   | 320     |   |                                               |   |       |                            |  |   |       |   |  |   | 320     |  
|Repurchase and retirement of common stock            |  | (348         | ) |  |                   | (2,988  | ) |                                               |   |       |                            |  |   |       |   |  |   | (2,988  | )
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|BALANCES, July 2, 2005                               |  | 26,357       |   |  |                   | 141,233 |   |                                               |   | 40,610 |                            |  |   | (681   | ) |  |   | 181,162 |  
|Net income                                           |  |             |   |  |                   |        |   |                                               |   | 5,979  |                            |  |   |       |   |  |   | 5,979   |  
|Unrealized loss on investments                       |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | (211   | ) |  |   | (211    | )
|Currency translation gain                            |  |             |   |  |                   |        |   |                                               |   |       |                            |  |   | (2     | ) |  |   | (2      | )
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Total comprehensive income                           |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   | 5,766   |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|Stock dividend                                       |  |             |   |  |                   |        |   |                                               |   | (67    | )                          |  |   |       |   |  |   | (67     | )
|Issuance of common stock under employee stock plans  |  | 454          |   |  |                   | 2,248   |   |                                               |   |       |                            |  |   |       |   |  |   | 2,248   |  
|Stock based compensation expense                     |  |             |   |  |                   | 1,323   |   |                                               |   |       |                            |  |   |       |   |  |   | 1,323   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |                   | 184     |   |                                               |   |       |                            |  |   |       |   |  |   | 184     |  
|Repurchase and retirement of common stock            |  | (750         | ) |  |                   | (6,505  | ) |                                               |   |       |                            |  |   |       |   |  |   | (6,505  | )
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  
|BALANCES, July 1, 2006                               |  | 26,061       |   |  | $                 | 138,483 |   |                                               | $ | 46,522 |                            |  | $ | (894   | ) |  | $ | 184,111 |  
|                                                     |  |              |   |  |                   |         |   |                                               |   |        |                            |  |   |        |   |  |   |         |  

See notes to consolidated financial statements.



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PERICOM SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ------------ | - | -------- | ------------ |  | - | -------- | -
|                                                                                         |  | Year Ended   |         
|                                                                                         |  | July 1, 2006 |          |   | July 2, 2005 |   |          | June 26,2004 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Net income (loss)                                                                        |  | $            | 5,979    |   |              | $ | 927      |              |  | $ | (2,110   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |              |          |   |              |   |          |              |  |   |          |  
|Depreciation and amortization                                                            |  |              | 5,003    |   |              |   | 3,586    |              |  |   | 4,216    |  
|Stock based compensation                                                                 |  |              | 1,323    |   |              |   |          |              |  |   |          |  
|Excess tax benefit on stock based compensation plan                                      |  |              | (136     | ) |              |   |         |              |  |   |         |  
|Purchased in-process technology                                                          |  |              |         |   |              |   |         |              |  |   | 360      |  
|Other than temporary decline in the value of investments                                 |  |              | 64       |   |              |   | 105      |              |  |   | 14       |  
|(Gain) loss on short-term investments                                                    |  |              | (51      | ) |              |   | (51      | )            |  |   | 78       |  
|(Gain) loss on disposal of assets                                                        |  |              | 8        |   |              |   |         |              |  |   | 143      |  
|(Gain) loss on disposal of building held for sale                                        |  |              |         |   |              |   | (455     | )            |  |   |         |  
|Equity in net (income) of unconsolidated affiliates                                      |  |              | (1,796   | ) |              |   | (46      | )            |  |   | (513     | )
|Deferred income taxes                                                                    |  |              | 1,482    |   |              |   | (352     | )            |  |   | (3,298   | )
|Minority interest in consolidated subsidiarys net loss                                  |  |              | (99      | ) |              |   | (58      | )            |  |   |         |  
|Tax benefit resulting from stock option transactions                                     |  |              | 184      |   |              |   | 321      |              |  |   | 778      |  
|Changes in assets and liabilities net of effects of entities acquired:                   |  |              |          |   |              |   |          |              |  |   |          |  
|Accounts receivable                                                                      |  |              | (3,489   | ) |              |   | (1,893   | )            |  |   | 450      |  
|Inventories                                                                              |  |              | 1,701    |   |              |   | 2,552    |              |  |   | (2,963   | )
|Prepaid expenses and other current assets                                                |  |              | 774      |   |              |   | 54       |              |  |   | 875      |  
|Accounts payable                                                                         |  |              | (390     | ) |              |   | (1,254   | )            |  |   | 2,004    |  
|Accrued liabilities                                                                      |  |              | 625      |   |              |   | (502     | )            |  |   | (14      | )
|Restructuring liabilities                                                                |  |              |         |   |              |   |         |              |  |   |         |  
|Other assets                                                                             |  |              |         |   |              |   |         |              |  |   |         |  
|Long term investment                                                                     |  |              | 122      |   |              |   |         |              |  |   |         |  
|Other long term liabilities                                                              |  |              | 6        |   |              |   | 68       |              |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by operating activities                                                |  |              | 11,310   |   |              |   | 3,002    |              |  |   | 20       |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Additions to property and equipment                                                      |  |              | (7,187   | ) |              |   | (2,770   | )            |  |   | (3,207   | )
|Net proceeds from sale of property and equipment                                         |  |              | 97       |   |              |   |         |              |  |   | 83       |  
|Net proceeds from sale of building held for sale                                         |  |              |         |   |              |   | 2,005    |              |  |   |         |  
|Purchase of available for sale investments                                               |  |              | (729,259 | ) |              |   | (447,913 | )            |  |   | (193,218 | )
|Maturities of available for sale investments                                             |  |              | 742,429  |   |              |   | 455,413  |              |  |   | 199,173  |  
|Cash paid for eCERA acquisition, net of cash received                                    |  |              | (13,064  | ) |              |   |         |              |  |   |         |  
|Cash paid for Azer acquisition, net of cash received                                     |  |              | (1,488   | ) |              |   |         |              |  |   |         |  
|Increase in other assets                                                                 |  |              | 876      |   |              |   | (67      | )            |  |   | (371     | )
|Cash used in the investment of Pericom Electronics Hong Kong Ltd.                        |  |              | (172     | ) |              |   |         |              |  |   |         |  
|Change in restricted cash balance                                                        |  |              | (950     | ) |              |   |         |              |  |   |         |  
|Increase in investment in PTI                                                            |  |              |         |   |              |   | (192     | )            |  |   |         |  
|Cash received from SaRonix acquisition, net of transaction costs                         |  |              |         |   |              |   |         |              |  |   | 518      |  
|Loan to SaRonix                                                                          |  |              |         |   |              |   |         |              |  |   | (1,197   | )
|Sale of minority interest                                                                |  |              |         |   |              |   | 315      |              |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |              | (8,718   | ) |              |   | 6,791    |              |  |   | 1,781    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Sale of common stock                                                                     |  |              | 2,248    |   |              |   | 1,294    |              |  |   | 2,428    |  
|Proceeds generated from sale of stock to minority interest                               |  |              | 734      |   |              |   |         |              |  |   |         |  
|Excess tax benefit on stock based compensation                                           |  |              | 136      |   |              |   |         |              |  |   |         |  
|Proceeds from short-term and long-term debts                                             |  |              | 10,506   |   |              |   |         |              |  |   |         |  
|Payment of bank loan                                                                     |  |              |         |   |              |   | (1,251   | )            |  |   |         |  
|Principal payments on long-term debt and capital leases                                  |  |              | (18,006  | ) |              |   | (40      | )            |  |   | (88      | )
|Repurchase of common stock                                                               |  |              | (6,505   | ) |              |   | (2,988   | )            |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |              | (10,887  | ) |              |   | (2,985   | )            |  |   | 2,340    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             |  |              | (30      | ) |              |   | 128      |              |  |   | 119      |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |              | (8,325   | ) |              |   | 6,936    |              |  |   | 4,260    |  
|CASH AND CASH EQUIVALENTS:                                                               |  |              |          |   |              |   |          |              |  |   |          |  
|Beginning of period                                                                      |  |              | 20,902   |   |              |   | 13,965   |              |  |   | 9,705    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|End of period                                                                            |  | $            | 12,577   |   |              | $ | 20,902   |              |  | $ | 13,965   |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                        |  |              |          |   |              |   |          |              |  |   |          |  
|Cash received (paid) during the period for income taxes                                  |  | $            | (61      | ) |              | $ | (13      | )            |  | $ | 1,962    |  
|Cash (paid) during the period for interest                                               |  | $            | (370     | ) |              | $ | (1       | )            |  | $ | (40      | )
|                                                                                         | 
|                                                                                         |  | Years Ended  |         
|                                                                                         |  | July 1, 2006 |          |   | July 2, 2005 |   |          | June 26,2004 | 
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                   |  |              |          |   |              |   |          |              |  |   |          |  
|Fair value of SaRonix, LLC assets acquired                                               |  | $            |         |   |              | $ |         |              |  | $ | 14,053   |  
|Acquisition related costs                                                                |  |              |         |   |              |   |         |              |  |   | (1,731   | )
|Loans forgiven                                                                           |  |              |         |   |              |   |         |              |  |   | (7,900   | )
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Liabilities assumed                                                                      |  | $            |         |   |              | $ |         |              |  | $ | 4,422    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  

See notes to consolidated financial statements.



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PERICOM SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FISCAL YEARS ENDED JULY 1, 2006, JULY 2, 2005 AND JUNE 26, 2004

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Pericom Semiconductor Corporation (the Company) was incorporated in June 1990. The Company designs, manufactures and markets high performance digital, analog and mixed-signal integrated circuits (ICs) and
frequency control products (FCP) 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 three wholly
owned subsidiaries, eCERA Comtech Corporation, Pericom Semiconductor (HK) Limited, and SaRonix, Incorporated as well as its majority owned subsidiary Pericom Taiwan Limited Corporation. All significant intercompany balances and transactions are
eliminated in consolidation.

FISCAL PERIOD  All periods presented include 52 weeks except for fiscal
year 2005, which has 53 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.

INVESTMENTS  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 cost of securities sold is based on the specific identification method. At July 1, 2006 investments, and any difference between the fair market value and the underlying cost of such investments, consisted
of the following (in thousands):

Available for Sale Securities:



|                                   |  |               |         |                      |   |                       |   |             |  |   |        
|---------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- | - | ----------- |  | - | -------
|                                   |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |   | MarketValue
|Corporate bonds and notes          |  | $             | 40,471  |                      |  |                       | $ | 643         |  | $ | 39,828 
|Government securities              |  |               | 32,774  |                      | 1 |                       |   | 639         |  |   | 32,136 
|Asset / mortgage backed securities |  |               | 33,430  |                      | 1 |                       |   | 525         |  |   | 32,906 
|Time Deposit/CD                    |  |               | 72      |                      |  |                       |   |            |  |   | 72     
|                                   |  |               |         |                      |   |                       |   |             |  |   |        
|                                   |  | $             | 106,747 |                      | 2 |                       | $ | 1,807       |  | $ | 104,942
|                                   |  |               |         |                      |   |                       |   |             |  |   |        



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The following table shows the gross unrealized losses and market value of the Companys investments with unrealized
losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at July 1, 2006.



|                                 |  |                     |        |                       |   |           |  |                       |        |            |   |                       |  |   |         |  |   |      
|-------------------------------- |  | ------------------- | ------ | --------------------- | - | --------- |  | --------------------- | ------ | ---------- | - | --------------------- |  | - | ------- |  | - | -----
|                                 |  | Less Than 12 Months |        | 12 Months or Greater  |   | Total    
|                                 |  | FairValue           |        | GrossUnrealizedLosses |   | FairValue |  | GrossUnrealizedLosses |        | Fair Value |   | GrossUnrealizedLosses
|Corporate bonds and notes        |  | $                   | 11,641 |                       | $ | 129       |  | $                     | 28,187 |            | $ | 514                   |  | $ | 39,828  |  | $ | 643  
|Government securities            |  |                     | 6,685  |                       |   | 150       |  |                       | 24,672 |            |   | 489                   |  |   | 31,357  |  |   | 639  
|Asset/mortgage backed securities |  |                     | 13,914 |                       |   | 152       |  |                       | 16,852 |            |   | 373                   |  |   | 30,766  |  |   | 525  
|                                 |  |                     |        |                       |   |           |  |                       |        |            |   |                       |  |   |         |  |   |      
|                                 |  | $                   | 32,240 |                       | $ | 431       |  | $                     | 69,711 |            | $ | 1,376                 |  | $ | 101,951 |  | $ | 1,807
|                                 |  |                     |        |                       |   |           |  |                       |        |            |   |                       |  |   |         |  |   |      

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 par value is realizable.

Trading Securities:



|                          |  |                                |     |                                |                     |   |                            |  |   |                     |   |  |   |      
|------------------------- |  | ------------------------------ | --- | ------------------------------ | ------------------- | - | -------------------------- |  | - | ------------------- | - |  | - | -----
|                          |  | Fiscal Year Ended July 1, 2006 |     | Fiscal Year Ended July 2, 2005
|(In thousands)            |  | Net UnrealizedGains (Loss)     |     |                                | EstimatedFair Value |   | Net UnrealizedGains (Loss) |  |   | EstimatedFair Value
|Corporate bonds and notes |  | $                              | (46 | )                              |                     | $ | 4,116                      |  | $ | (126                | ) |  | $ | 932  
|Funds                     |  |                                |    |                                |                     |   |                           |  |   |                    |   |  |   | 125  
|                          |  |                                |     |                                |                     |   |                            |  |   |                     |   |  |   |      
|Total Trading Securities  |  | $                              | (46 | )                              |                     | $ | 4,116                      |  | $ | (126                | ) |  | $ | 1,057
|                          |  |                                |     |                                |                     |   |                            |  |   |                     |   |  |   |      

At July 2, 2005 short-term investments, and any difference between the fair market value and the underlying
cost of such investments, consisted of the following (in thousands):

Available for Sale Securities:



|                                   |  |               |         |                      |   |                       |   |             |  |   |        
|---------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- | - | ----------- |  | - | -------
|                                   |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |   | MarketValue
|Corporate bonds and notes          |  | $             | 53,270  |                      |  |                       | $ | 749         |  | $ | 52,521 
|Government securities              |  |               | 33,253  |                      |  |                       |   | 454         |  |   | 32,799 
|Asset / mortgage backed securities |  |               | 36,400  |                      |  |                       |   | 391         |  |   | 36,009 
|                                   |  |               |         |                      |   |                       |   |             |  |   |        
|                                   |  | $             | 122,923 |                      |  |                       | $ | 1,594       |  | $ | 121,329
|                                   |  |               |         |                      |   |                       |   |             |  |   |        

At July 1, 2006, July 2, 2005 and June 26, 2004 these investments had the following maturities
(in thousands):



|                            |  |                          |         |                          |   |                           |  |   |        
|--------------------------- |  | ------------------------ | ------- | ------------------------ | - | ------------------------- |  | - | -------
|                            |  | Market ValueJuly 1, 2006 |         | Market ValueJuly 2, 2005 |   | Market ValueJune 26, 2004
|One year or less            |  | $                        | 51,297  |                          | $ | 47,431                    |  | $ | 23,502 
|Between one and three years |  |                          | 43,694  |                          |   | 70,982                    |  |   | 98,907 
|Greater than three years    |  |                          | 14,067  |                          |   | 3,972                     |  |   | 8,003  
|                            |  |                          |         |                          |   |                           |  |   |        
|                            |  | $                        | 109,058 |                          | $ | 122,385                   |  | $ | 130,412
|                            |  |                          |         |                          |   |                           |  |   |        

In fiscal 2006, 2005 and 2004 realized gains (losses) on short-term investments were ($16,000), $125,000 and
$338,000, respectively.



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BAD DEBT RESERVESare evaluated based upon 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, and thereby reduce the net recognized receivable to the
amount the Company reasonably believes will be collected. 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 our historical
experience.

INVENTORIES are recorded at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis)
or market value. Charges for excess and obsolete inventory are recorded based on inventory age, shipment history and forecasted demand over a specific future period of time. The semiconductor markets that the Company serves are volatile and actual
results may vary from the Companys forecast or other assumptions, potentially impacting the Companys inventory valuation and resulting in material effects on our gross margin.

PROPERTY, PLANT AND EQUIPMENT is stated at cost. Depreciation and amortization are computed using the straight-line method over estimated useful lives of
three to five years, except for buildings which are being depreciated using the straight-line method over 30 years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life.

INVESTMENT IN PERICOM TECHNOLOGY, INC. is accounted for using the equity method. The difference between the carrying value and the underlying equity in net
assets of the investment is tested for impairment at least annually (see Note 6).

OTHER ASSETS include investments in privately held
companies, assets held for sale and deposits. Investments in privately held companies are carried at the lower of cost or market if the investment has experienced an other than temporary decline in value. Assets held for sale are carried 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, an impairment loss would be measured as the difference between carrying value and fair value as determined by discounted cash flows.

INCOME TAXES  The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to recording deferred taxes. A valuation allowance is recorded 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, assets and
liabilities are translated at exchange rates in effect at the balance sheet date and revenue and expense accounts at average exchange rates during the period. Gains and losses from foreign currency translation of assets and liabilities of $3,000 in
fiscal 2006 are in included in the cumulative translation adjustment component of accumulated other comprehensive income (loss). Gains and losses arising from transactions denominated in currencies other than the functional currency were $147,000,
$57,000 and $107,000 in fiscal 2006, 2005, and 2004 respectively, and are included in other income, net.

STOCK-BASED COMPENSATION
Effective July 3, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) establishes accounting for
stock-based awards exchanged for employee services. Accordingly, stock-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. The Company previously applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations and provided the required pro forma disclosures of SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123). The Company elected to adopt the modified prospective application method as provided by SFAS 123(R), and, accordingly, the Company recorded compensation costs
as the requisite service was rendered for the unvested portion of previously issued awards that remain outstanding at the initial date of adoption and any awards issued, modified, repurchased, or cancelled after the effective date of SFAS 123(R).
Periods prior to adoption have not been restated.

In the Companys pro forma disclosure prior to the adoption of SFAS No. 123(R), the Company
accounted for forfeitures upon occurrence. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates.



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At July 1, 2006 the Company had five stock option plans and one employee stock purchase plan, including the 1990
Stock Option Plan, 1995 Stock Option Plan, 2001 Stock Option Plan (2001 Plan), SaRonix acquisition stock option plan, 2004 Stock Incentive Plan, and the 2000 Employee Stock Purchase Plan (ESP Plan). The Companys aggregate
compensation cost for the twelve months ended July 1, 2006 totaled $1,323,000. Total income tax benefit recognized in the statement of operations for the twelve months ended July 1, 2006 was $26,000 for the Companys share-based
compensation arrangements. The impact from the adoption of SFAS 123(R) for the twelve months ended July 1, 2006 was a reduction in net income of $1,297,000 or $0.05 per basic and diluted shares.

Stock Incentive Plans

Under the
Companys 2004, 2001, 1995, 1990, (Stock Option Plans) and the SaRonix acquisition stock option plans, incentive and nonqualified stock options to purchase up to 5,276,633 shares of common stock have been reserved at July 1, 2006 for
issuance to employees, officers, directors, independent contractors, and consultants of the Company.

Generally, the options may be granted at not less
than the fair market value and not less than 85% of the fair market 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
and generally options have a 48- month vesting schedule. Options granted under Plans expire 10 years from grant date.

The fair value of each employee
option is estimated on the date of grant using the Black-Scholes option valuation model and expensed using straight-line method over its vesting period. The Company estimates expected stock price volatility based on actual historical volatility for
periods that the Company believes are representative predictors of future volatility. The Company uses historical data to estimate option exercises, expected option holding period and option forfeitures. The risk-free interest rate for periods
within the contractual life of the option is based upon the U.S. Treasury yield.

2000 Employee Stock Purchase Plan

The Companys Employee Stock Purchase Plan (the ESP Plan), which was previously approved by the Companys stockholders, permits the
grant of up to 1,500,000 shares. Under the ESP Plan, the Company offers stock purchase rights to purchase the Companys stock at three month intervals at a price not less than the lesser of 85% of the fair market value of the stock on the date
the purchase right is granted or the date the right is exercised. 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.

The fair value of stock purchase rights granted under the Companys ESP Plan is estimated on the date of grant using the Black-Scholes option valuation model.
Volatility is based on the volatility of the Companys stock during the accrual period. The Company uses historical data to estimate expected holding period and forfeitures, and the U.S. Treasury yield for the risk-free interest rate for the
contractual period.

The value of the Companys stock options granted under its stock option plans during the twelve months ended July 1, 2006
and July 2, 2005 was estimated at the date of grant using the following weighted average assumptions:



|                            |  |                |  |            |  |           
|--------------------------- |  | -------------- |  | ---------- |  | ----------
|                            |  | 2006           |  | 2005       |  | 2004      
|Expected life               |  | 1.5-5.75 years |  | 5.9 years  |  | 5 years   
|Risk-free interest rate     |  | 4.03-4.99%     |  | 3.49-3.88% |  | 2.99-3.72%
|Volatility range (low/high) |  | 38%-40%        |  | 33%-37%    |  | 41%-52%   
|Dividend yield              |  | 0.00%          |  | 0.00%      |  | 0.00%     

The value of the Companys stock purchase rights granted under its ESP Plan during the twelve months ended
July 1, 2006 and July 2, 2005 was estimated at the date of grant using the following weighted average assumptions:



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|                            |  |              |  |          |  |         
|--------------------------- |  | ------------ |  | -------- |  | --------
|                            |  | 2006         |  | 2005     |  | 2004    
|Expected life               |  | 3 -24 months |  | 3 months |  | 3 months
|Risk-free interest rate     |  | 3.6-5.02%    |  | 1.5-2.9% |  | 0.9-1.1%
|Volatility range (low/high) |  | 37%-41%      |  | 30%-37%  |  | 46%-51% 
|Dividend yield              |  | 0.00%        |  | 0.00%    |  | 0.00%   

The following table summarizes the Companys stock option plans as of July 1, 2006, and changes during
the twelve months ended July 1, 2006.



|                                                                  |  |                     |   |  |                                |         |                           |   |       |  
|----------------------------------------------------------------- |  | ------------------- | - |  | ------------------------------ | ------- | ------------------------- | - | ----- | -
|                                                                  |  | Outstanding Options |   |  |                               
|Options                                                           |  | Shares              |   |  | Weighted AverageExercise Price |         | Aggregate Intrinsic Value |  
|Options Outstanding at July 2, 2005                               |  | 5,543,478           |   |  | $                              | 11.5050 |                           | $ | (18.7 | )
|Options Granted (weighted average grant date fair value of $2.96) |  | 701,520             |   |  | $                              | 8.4780  |                           |   |      |  
|Options Exercised                                                 |  | (313,143            | ) |  | $                              | 4.1372  |                           |   |      |  
|Options Forfeited or Expired                                      |  | (655,222            | ) |  | $                              | 12.3368 |                           |   |      |  
|                                                                  |  |                     |   |  |                                |         |                           |   |       |  
|Options Outstanding at July 1, 2006                               |  | 5,276,633           |   |  | $                              | 11.4346 |                           | $ | (16.5 | )
|                                                                  |  |                     |   |  |                                |         |                           |   |       |  

At July 1, 2006, 4.2 million shares of options are exercisable with weighted-average exercise price of
$12.16. The weighted-average remaining contractual term for outstanding and exercisable options at July 1, 2006 was 5.60 years, and 4.71 years respectively. The aggregate intrinsic value for outstanding and exercisable options at July 1,
2006 was $16.5 million and $16.2 million respectively. The aggregate intrinsic value of options exercised during the twelve-months ended July 1, 2006 was $1.6 million . The aggregate grant date fair value of shares vested during the
twelve-months ended July 1, 2006 was $5.60 million. Total fair value of options vested is $6.8 million for the fiscal year ended July 1, 2006.

Summarized information about future amortization of stock based compensation expense as of July 1, 2006 is as follows:



|                                                 |  |           |       |      |   |      |  |      |     |  |   |    
|------------------------------------------------ |  | --------- | ----- | ---- | - | ---- |  | ---- | --- |  | - | ---
|                                                 |  | Estimated
|(in thousands)                                   |  | FY 2007   |       | 2008 |   | 2009 |  | 2010
|Amortization of stock based compensation expense |  | $         | 1,128 |      | $ | 963  |  | $    | 837 |  | $ | 334



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Summarized information about stock options outstanding as of July 1, 2006 is as
follows:

STOCK OPTIONS



|                         |  |                                    |           |                                           |           |                                |      |                                    |   |                                |  |           |  |   |          
|------------------------ |  | ---------------------------------- | --------- | ----------------------------------------- | --------- | ------------------------------ | ---- | ---------------------------------- | - | ------------------------------ |  | --------- |  | - | ---------
|Range of Exercise Prices |  | Number Outstandingas of 07/01/2006 |           | Weighted AverageRemainingContractual Term |           | Weighted AverageExercise Price |      | Number Exercisableas of 07/01/2006 |   | Weighted AverageExercise Price
|$1.200000                |  | $                                  | 7.562500  |                                           | 1,105,382 |                                | 2.04 |                                    | $ | 3.583777                       |  | 1,105,382 |  | $ | 3.583777 
|$7.670000                |  | $                                  | 8.700000  |                                           | 1,185,703 |                                | 8.42 |                                    | $ | 8.207479                       |  | 473,725   |  | $ | 8.377895 
|$8.710000                |  | $                                  | 11.500000 |                                           | 1,207,298 |                                | 7.39 |                                    | $ | 10.503423                      |  | 848,147   |  | $ | 10.949447
|$11.562500               |  | $                                  | 17.468750 |                                           | 1,087,050 |                                | 5.12 |                                    | $ | 14.516828                      |  | 1,087,050 |  | $ | 14.516828
|$17.500000               |  | $                                  | 37.218750 |                                           | 691,200   |                                | 4.05 |                                    | $ | 26.241249                      |  | 691,200   |  | $ | 26.241249
|                         |  |                                    |           |                                           |           |                                |      |                                    |   |                                |  |           |  |   |          
|$1.200000                |  | $                                  | 37.218750 |                                           | 5,276,633 |                                | 5.60 |                                    | $ | 11.426287                      |  | 4,205,504 |  | $ | 12.159178

The following table summarizes the Companys employee stock purchase plan as of July 1, 2006:



|                          |  |                              |   |  |                                |        
|------------------------- |  | ---------------------------- | - |  | ------------------------------ | -------
|                          |  | Employee Stock Purchase Plan
|Purchase Rights           |  | Shares                       |   |  | Weighted AverageExercise Price
|Beginning Outstanding     |  | 154,825                      |   |  | $                              | 10.2550
|Rights Granted            |  | 103,208                      |   |  | $                              | 6.7780 
|Purchase Rights Exercised |  | (102,601                     | ) |  | $                              | 6.8872 
|                          |  |                              |   |  |                                |        
|                          |  | 155,432                      |   |  | $                              | 10.1646
|                          |  |                              |   |  |                                |        

The following table shows total stock-based compensation expense described for the twelve months ended
July 1, 2006 from the plans mentioned above, included in the Consolidated Statement of Operations:



|                                         |  |                                |      
|---------------------------------------- |  | ------------------------------ | -----
|(Amounts in thousands)                   |  | Twelve MonthsEnded July 1,2006
|Cost of revenues                         |  | $                              | 92   
|Research and development                 |  |                                | 501  
|Selling, general and administrative      |  |                                | 730  
|                                         |  |                                |      
|Pre-tax stock-based compensation expense |  |                                | 1,323
|Income tax                               |  |                                | 26   
|                                         |  |                                |      
|Net stock-based compensation expense     |  | $                              | 1,297
|                                         |  |                                |      



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As required under SFAS 123(R), the reported net income (loss) and earnings per share for the twelve months ended
July 2, 2005 and June 26, 2004 has been presented below to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The pro forma amounts are as follows (in thousands
except per share amounts):



|                                                                                                              |  |      |        |   |      |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | ------- | -
|(Amounts in thousands, except per share data)                                                                 |  | 2005 |        |   | 2004 |        
|Net income (loss) as reported                                                                                 |  | $    | 927    |   |      | (2,110  | )
|Deduction: total stock-based employee compensation expense determined under the fair value method, net of tax |  |      | (7,432 | ) |      | (8,009  | )
|                                                                                                              |  |      |        |   |      |         |  
|Net income (loss) - pro forma                                                                                 |  | $    | (6,505 | ) |      | (10,119 | )
|                                                                                                              |  |      |        |   |      |         |  
|Basic earnings (loss) per share  as reported                                                                 |  | $    | 0.04   |   |      | (0.08   | )
|                                                                                                              |  |      |        |   |      |         |  
|Basic earnings (loss) per share - pro forma                                                                   |  | $    | (0.25  | ) |      | (0.39   | )
|                                                                                                              |  |      |        |   |      |         |  
|Diluted earnings (loss) per share  as reported                                                               |  | $    | 0.03   |   |      | (0.08   | )
|                                                                                                              |  |      |        |   |      |         |  
|Diluted earnings (loss) per share - pro forma                                                                 |  | $    | (0.25  | ) |      | (0.39   | )



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REVENUE RECOGNITION The Company recognizes revenue from the sale of its products upon shipment,
provided title and risk of loss has passed to the customer, the fee is fixed or determinable and collection of the revenue is reasonably assured. A provision for estimated future returns and other charges against revenue is recorded at the time of
shipment. For the fiscal year ended July 1, 2006 the majority of the Companys revenues were to distributors.

The Company sells products to
large, domestic distributors at the price listed in its price book for that distributor. The Company recognizes revenue at the time of shipment. 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 sales reserve is offset against revenues, which then leads to the net revenue amount
reported.

The market price for the Companys products can be significantly different than the book price at which the product was sold to the
distributor. When the market price, as compared with the book price, of a particular sales opportunity from the distributor to their customer would result in low or negative margins to our distributor, a ship from stock and debit is negotiated with
the distributor. SSD history is analyzed and used to develop SSD rates that form the basis of the SSD sales reserve booked each period. The Company captures these historical SSD rates from its historical records to estimate the ultimate net sales
price to the distributor.

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 book price. Asian distributors typically buy the Companys 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 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 a sales reserve is recorded for the estimated stock rotation privilege earned by the distributors that month. This reserve is the sum of product of each distributors net sales for the month and their stock
rotation percentage.

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. These requests are reviewed by management and when approved result in a return material
authorization (RMA) being established. The Company is only obligated to accept returns of defective parts. For customer convenience, the Company may approve a particular return request, even though it is not obligated to do so. Each
month a sales reserve is recorded for the approved RMAs that have not yet been returned. The Company does not keep 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 parts can frequently be re-sold to other customers for use in other applications.

Price protection is
granted 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 these proposals and if a particular price protection arrangement is approved, then the dollar impact will be estimated 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. A sales reserve is then recorded 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 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 rebate is recorded at the time of shipment.

Customers are typically granted payment terms of between 30 and 60 days and they
generally pay within those terms. Relatively few customers have been granted terms with cash discounts. Distributors are invoiced for shipments at book price. When they pay those invoices, they claim debits for SSDs, stock rotations, cash discounts,
RMAs and price protection when appropriate. Once claimed, these debits are then processed against the approvals.



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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s estimates are based 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. Our financial condition and operating results depend on its ability to make
reliable estimates and believe that such estimates are reasonable.

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 the decision to accept the return is
made. As a consequence 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  Shipping costs are charged to cost of revenues as incurred.

CONCENTRATION OF CREDIT RISK AND CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES - The Company sells its products primarily 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 company maintains cash, cash equivalents, and short-term investments with various high credit quality financials institutions. The Companys investment policy is designed to limit exposure to any one institution. The Company
performs periodic evaluations of the relative credit standing of those financial institutions that are considered in its investment strategy. The Company is exposed to credit risk in the event of default by the financial institutions or issuers of
investments to the extent of the amount recorded on the balance sheet. To date, the Company has not incurred losses related to these investments.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
interpretation (FIN) No. 48, Accounting for uncertainty in Income Taxes (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 interpretation 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 is effective
as of the beginning of the first fiscal year beginning after December 15, 2006. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its consolidated results of operations and financial condition.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement replaces APB No. 20 and SFAS No. 3 and
changes the requirements for the accounting for and reporting of a change in accounting principle. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the
change the cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective application to prior periods financial statements of voluntary changes in accounting principle. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 on July 1, 2006 and will apply its provisions on a prospective basis when applicable.



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In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), Accounting for Conditional Asset
Retirement Obligations. FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and (or) method of settlement. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient
information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after
December 15, 2005. The adoption of FIN 47 as of July 1, 2006 did not have a material impact on our financial position, results of operations or cash flows.

RECLASSIFICATIONS  Certain reclassifications have been made to conform prior year amounts to the current years presentation. On the consolidated statements of operations, equity in net income
or loss of investee has been reclassified from other income and expense to their own separate line items.

EARNINGS PER SHARE  Basic
earnings per share is based upon the weighted average number of common shares outstanding. 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 (loss) per share for each of the three years in the period ended July 1, 2006 is as follows (in
thousands):



|                                                                              |  |             |        |             |   |              |  |   |        |  
|----------------------------------------------------------------------------- |  | ----------- | ------ | ----------- | - | ------------ |  | - | ------ | -
|                                                                              |  | Year Ended  |       
|                                                                              |  | July 1,2006 |        | July 2,2005 |   | June 26,2004 | 
|Net income (loss)                                                             |  | $           | 5,979  |             | $ | 927          |  | $ | (2,110 | )
|                                                                              |  |             |        |             |   |              |  |   |        |  
|Computation of common shares outstanding  basic loss per share:              |  |             |        |             |   |              |  |   |        |  
|Weighted average common stock                                                 |  |             | 26,254 |             |   | 26,476       |  |   | 26,075 |  
|                                                                              |  |             |        |             |   |              |  |   |        |  
|Basic earnings (loss) per share                                               |  | $           | 0.23   |             | $ | 0.04         |  | $ | (0.08  | )
|                                                                              |  |             |        |             |   |              |  |   |        |  
|Computation of common shares outstanding  diluted earnings (loss) per share: |  |             |        |             |   |              |  |   |        |  
|Weighted average common stock                                                 |  |             | 26,254 |             |   | 26,476       |  |   | 26,075 |  
|Dilutive options using the treasury stock method                              |  |             | 740    |             |   | 712          |  |   |       |  
|                                                                              |  |             |        |             |   |              |  |   |        |  
|Shares used in computing diluted loss per share                               |  |             | 26,994 |             |   | 27,188       |  |   | 26,075 |  
|                                                                              |  |             |        |             |   |              |  |   |        |  
|Diluted earnings (loss) per share                                             |  | $           | 0.22   |             | $ | 0.03         |  | $ | (0.08  | )

Options to purchase 3,789,874, 3,877,288, and 5,550,513 shares of Common Stock were outstanding as of July 1,
2006, July 2, 2005, and June 26, 2004, respectively, and were excluded from the computation of diluted net earnings (loss) per share because such options were anti-dilutive.



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2. OTHER ACCOUNTS RECEIVABLE

Other accounts receivable consist of (in thousands):



|                          |  |             |       |             |   |      
|------------------------- |  | ----------- | ----- | ----------- | - | -----
|                          |  | As of      
|                          |  | July 1,2006 |       | July 2,2005
|Interest receivable       |  | $           | 972   |             | $ | 1,317
|Other accounts receivable |  |             | 1,593 |             |   | 496  
|                          |  |             |       |             |   |      
|                          |  | $           | 2,565 |             | $ | 1,813
|                          |  |             |       |             |   |      

3. INVENTORIES

Inventories consist of (in thousands):



|                |  |             |        |             |   |       
|--------------- |  | ----------- | ------ | ----------- | - | ------
|                |  | As of      
|                |  | July 1,2006 |        | July 2,2005
|Finished goods  |  | $           | 5,062  |             | $ | 6,130 
|Work-in-process |  |             | 4,220  |             |   | 3,562 
|Raw materials   |  |             | 7,460  |             |   | 3,736 
|                |  |             |        |             |   |       
|                |  | $           | 16,742 |             | $ | 13,428
|                |  |             |        |             |   |       

Raw material inventory is considered obsolete and written off if it has not moved in 270 days. By part number, the
quantity of assembled devices in inventory that is in excess of the greater of the quantity shipped in the previous twelve months or the quantity in backlog are considered obsolete and written off. In certain circumstances, management will
determine, based on expected usage or other factors, that inventory considered obsolete by these guidelines should not be written off. To date as of July 1, 2006 $8,543,000 of inventory on hand had been reserved as compared with $9,186,000 at
July 2, 2005. This overall reduction of approximately $643,000 to inventory reserved for the twelve month period ended July 1, 2006 can primarily be attributed to products that were previously reserved being written off or scrapped.

4. PROPERTY, PLANT AND EQUIPMENT  NET

Property,
plant and equipment net consists of (in thousands):



|                                          |  |             |         |   |             |   |         |  
|----------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | -
|                                          |  | As of       |        
|                                          |  | July 1,2006 |         |   | July 2,2005 |  
|Machinery and equipment                   |  | $           | 27,492  |   |             | $ | 12,492  |  
|Computer equipment and software           |  |             | 12,020  |   |             |   | 10,348  |  
|Building                                  |  |             | 3,345   |   |             |   |        |  
|Land                                      |  |             | 2,548   |   |             |   |        |  
|Furniture and fixtures                    |  |             | 869     |   |             |   | 708     |  
|Leasehold improvements                    |  |             | 736     |   |             |   | 721     |  
|Vehicles                                  |  |             | 52      |   |             |   |        |  
|                                          |  |             |         |   |             |   |         |  
|Total                                     |  |             | 47,062  |   |             |   | 24,269  |  
|Accumulated depreciation and amortization |  |             | (23,092 | ) |             |   | (18,794 | )
|Construction-in-progress                  |  |             | 406     |   |             |   | 452     |  
|                                          |  |             |         |   |             |   |         |  
|Property and equipment  net              |  | $           | 24,376  |   |             | $ | 5,927   |  
|                                          |  |             |         |   |             |   |         |  

Depreciation expense for the years ended July 1, 2006 and July 2, 2005 was $4.8 million and $3.5
million, respectively.



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5. OTHER ASSETS

Other assets consist of (in thousands):



|                                        |  |             |       |             |   |      
|--------------------------------------- |  | ----------- | ----- | ----------- | - | -----
|                                        |  | As of      
|                                        |  | July 1,2006 |       | July 2,2005
|Investments in privately held companies |  | $           | 2,716 |             | $ | 2,819
|Assets held for sale                    |  |             | 5     |             |   | 550  
|Deposits                                |  |             | 223   |             |   | 218  
|Other                                   |  |             | 93    |             |   | 323  
|                                        |  |             |       |             |   |      
|Total                                   |  | $           | 3,037 |             | $ | 3,910
|                                        |  |             |       |             |   |      

The Company has investments in certain privately held companies, which it accounts for under the cost method. The
carrying amount of other such investments was approximately $2.7 million and $2.8 million at July 1, 2006 and July 2, 2005, respectively, and these amounts are recorded in other assets. There were no significant investment write offs in
2005 or 2006.

6. INVESTMENT IN PERICOM TECHNOLOGY, INC. AND OTHER INVESTMENTS

The Company has an approximate 45% ownership interest in Pericom Technology, Inc. (PTI). The investment in PTI is accounted for using the equity method due to the Companys significant influence over
its operations. In addition, certain of the directors of the Company are also directors of PTI, and certain shareholders of the Company are also shareholders of PTI. At July 1, 2006 and July 2, 2005, the difference between the carrying
value and the underlying equity in the net assets of PTI was approximately ($1,341,000) and ($672,000), 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 China. During the years ended June 26, 2004 and June 28, 2003, the Company sold $142,000 and $66,000 respectively, in services to PTI. The Company sold no services to PTI during the years ended July 1, 2006 or
July 2, 2005. During the years ended July 1, 2006, July 2, 2005, June 26, 2004, the Company purchased $125,000, $383,000, and $763,000 in goods and services from PTI, respectively. At July 1,
2006, July 2, 2005, and June 26, 2004, $349,000, $57,000, and $354,000 respectively, was owed to the Company by PTI 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 July 1, 2006 and July 2, 2005 is as follows (in thousands):



|                          |  |      |        |      |   |        |  
|------------------------- |  | ---- | ------ | ---- | - | ------ | -
|                          |  | 2006 |        | 2005 |  
|Total assets              |  | $    | 15,616 |      | $ | 12,961 |  
|Total liabilities         |  |      | 1,275  |      |   | 1,271  |  
|Total equity              |  |      | 14,341 |      |   | 11,690 |  
|                          |  |     
|Revenue                   |  |      | 12,513 |      |   | 6,166  |  
|Cost of revenues          |  |      | 5,557  |      |   | 3,035  |  
|                          |  |      |        |      |   |        |  
|Gross profit              |  |      | 6,956  |      |   | 3,131  |  
|                          |  |     
|Expenses                  |  |      | 4,842  |      |   | 3,665  |  
|                          |  |      |        |      |   |        |  
|Operating income (loss)   |  |      | 2,114  |      |   | (534   | )
|Interest and other income |  |      | 485    |      |   | 596    |  
|Net income (loss)         |  | $    | 2,599  |      | $ | 62     |  
|                          |  |      |        |      |   |        |  



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7. BUSINESS COMBINATIONS

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 subsidiary AZER Crystal Technology Co, Ltd. (Azer) to ensure supply availability of its frequency control products to meet customer demand as well as to drive cost efficiencies.
The purchase price, including cash consideration of $14.5 million and assumed debt of approximately $14.9 million totaled approximately $29.4 million including transaction costs. The Company also had the right through March 7, 2006 to purchase
the remaining 50% of eCERAs 50% owned crystal blank manufacturing subsidiary Azer. The Company exercised this right to purchase the remaining 50% of Azer for cash consideration of approximately $1.6 million and assumed debt of approximately
$1.8 million on February 6, 2006. eCERA and its subsidiary Azer, have been key suppliers of quartz crystal blanks and crystal oscillator products for the Companys frequency control product line.

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



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

Subsequent to the purchase date the Company determined that certain of eCERAs previously reserved deferred
tax asset could be utilized. This resulted in a reduction of goodwill of $566,000 and intangible assets of $1,840,000 to offset the deferred tax asset.

In
connection with the Companys acquisition of Azer the Company recorded $22,000 of goodwill.

Amortization of intangible assets for the twelve-month
period ended July 1, 2006 was $54,000. The following table sets forth the amortization of intangible assets for eCERA for fiscal 2007 through 2012 and beyond and is as follows (in thousands)



|             |  |      |    |      |   |      |  |      |    |      |   |      |  |            |    |  |   |    |  |   |  
|------------ |  | ---- | -- | ---- | - | ---- |  | ---- | -- | ---- | - | ---- |  | ---------- | -- |  | - | -- |  | - | -
|             |  | 2007 |    | 2008 |   | 2009 |  | 2010 |    | 2011 |   | 2012 |  | thereafter
|Amortization |  | $    | 65 |      | $ | 65   |  | $    | 35 |      | $ | 29   |  | $          | 29 |  | $ | 29 |  | $ | 4

The fair value of intangible assets acquired excluding goodwill will be amortized over a remaining life of seven
years for trade name, seven years for core and current technology, and three years for customer relationships.

The following unaudited pro forma
information shows the results of operations for the twelve month period ended July 1, 2006 and July 2, 2005 as if the eCERA acquisition occurred on the first day of each twelve month period, with the exception that the purchase accounting
adjustments were estimated based on the closing date of the eCERA acquisition.

The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results.



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Unaudited pro-forma information (in thousands except per share amounts):



|                         |  |                     |         |              |   |        
|------------------------ |  | ------------------- | ------- | ------------ | - | -------
|                         |  | Twelve Months Ended
|                         |  | July 1, 2006        |         | July 2, 2005
|Net revenue              |  | $                   | 110,555 |              | $ | 102,668
|Net income               |  |                     | 6,216   |              |   | 1,082  
|                         |  |                     |         |              |   |        
|Basic income per share   |  | $                   | 0.24    |              | $ | 0.04   
|                         |  |                     |         |              |   |        
|Diluted income per share |  | $                   | 0.23    |              | $ | 0.04   
|                         |  |                     |         |              |   |        

8. PURCHASED INTANGIBLE ASSETS

Pericoms purchased intangible assets associated with completed acquisitions for each of the following fiscal years are composed of:



|                                              |  |              |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|--------------------------------------------- |  | ------------ | ----- | ----------------------- | - | ---- | --- |  | ----- | ----- | ----------------------- | - | ----- | --- | - | ---- | - |  | - | -----
|                                              |  | July 1, 2006 |       | July 2, 2005           
|                                              |  | Gross        |       | AccumulatedAmortization |   |      | Net |  | Gross |       | AccumulatedAmortization |   |       | Net
|                                              |  | In thousands
|Supplier relationship                         |  | $            | 110   |                         | $ | (30  | )   |  | $     | 80    |                         | $ |      |     | $ |     |   |  | $ |     
|Trade name                                    |  |              | 40    |                         |   | (5   | )   |  |       | 35    |                         |   |      |     |   |     |   |  |   |     
|Core development technology                   |  |              | 1,349 |                         |   | (346 | )   |  |       | 1,003 |                         |   | 1,189 |     |   | (208 | ) |  |   | 981  
|                                              |  |              |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|Total amortizable purchased intangible assets |  |              | 1,499 |                         |   | (381 | )   |  |       | 1,118 |                         |   | 1,189 |     |   | (208 | ) |  |   | 981  
|SaRonix supplier relationship                 |  |              | 901   |                         |   |     |     |  |       | 901   |                         |   | 901   |     |   |     |   |  |   | 901  
|SaRonix trade name                            |  |              | 957   |                         |   |     |     |  |       | 957   |                         |   | 957   |     |   |     |   |  |   | 957  
|                                              |  |              |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|Total purchased intangible assets             |  | $            | 3,357 |                         | $ | (381 | )   |  | $     | 2,976 |                         | $ | 3,047 |     | $ | (208 | ) |  | $ | 2,839
|                                              |  |              |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      

Amortization expense related to finite-lived purchased intangible assets was approximately $173,000 in fiscal
2006, $119,000 in fiscal 2005 and $119,000 in fiscal 2004.

Based on the results of its annual impairment tests, Pericom determined that no
impairment of the indefinite-lived intangible assets existed as of July 1, 2006 or July 2, 2005. However, future impairment tests could result in a charge to earnings. Pericom will continue to evaluate the purchased intangible assets with
an indefinite life on an annual basis and whenever events and changes in circumstances indicate that there may be a potential impairment.

The finite-lived
purchased intangible assets consist of supplier relationship, trade name, and core developed technology, which have weighted average useful lives of approximately nine years



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The following table sets forth the amortization of intangible assets for fiscal 2007 through 2012 and beyond and is as
follows (in thousands)



|             |  |      |     |      |   |      |  |      |     |      |   |      |  |            |     |  |   |     |  |   |    
|------------ |  | ---- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---- |  | ---------- | --- |  | - | --- |  | - | ---
|             |  | 2007 |     | 2008 |   | 2009 |  | 2010 |     | 2011 |   | 2012 |  | thereafter
|Amortization |  | $    | 184 |      | $ | 184  |  | $    | 154 |      | $ | 148  |  | $          | 148 |  | $ | 148 |  | $ | 153

9. ACCRUED LIABILITIES

Accrued liabilities consist of (in thousands):



|                                          |  |              |       |             |   |      
|----------------------------------------- |  | ------------ | ----- | ----------- | - | -----
|                                          |  | As of       
|                                          |  | July 1, 2006 |       | July 2,2005
|Accrued compensation                      |  | $            | 3,953 |             | $ | 2,449
|Accrued income tax                        |  |              | 1,269 |             |   | 1,163
|External sales representative commissions |  |              | 686   |             |   | 833  
|Other accrued expenses                    |  |              | 1,335 |             |   | 1,025
|                                          |  |              |       |             |   |      
|                                          |  | $            | 7,243 |             | $ | 5,470
|                                          |  |              |       |             |   |      

10. DEBT

As
of July 1, 2006, there was $5.8 million classified as current portion of long term debt, and $3.5 million classified as long-term debt on the consolidated balance sheet (in thousands):



|                      |  |               |  |           |  |                    |  |                                        |  |                                       
|--------------------- |  | ------------- |  | --------- |  | ------------------ |  | -------------------------------------- |  | --------------------------------------
|Debt Description      |  | Interest Rate |  | Total due |  | Due in Fiscal 2006 |  | Due in Fiscal 2007 through fiscal 2008 |  | Due in Fiscal 2009 through fiscal 2010
|Line of CreditTaiwan |  | 1.75%         |  | 997       |  | 997                |  |                                       |  |                                      
|Line of CreditTaiwan |  | 1.50%         |  | 204       |  | 204                |  |                                       |  |                                      
|Line of CreditTaiwan |  | 1.75%         |  | 82        |  | 82                 |  |                                       |  |                                      
|Line of CreditTaiwan |  | 2.00%         |  | 1,272     |  | 1,272              |  |                                       |  |                                      
|Line of CreditTaiwan |  | 1.50%         |  | 594       |  | 594                |  |                                       |  |                                      
|Bank NoteTaiwan      |  | 3.75%         |  | 3,496     |  | 1,507              |  | 1,982                                  |  |                                      
|Bank NoteTaiwan      |  | 3.46%         |  | 1,406     |  | 703                |  | 703                                    |  |                                      
|Bank NoteTaiwan      |  | 3.28%         |  | 1,187     |  | 397                |  | 793                                    |  | 3                                     
|                      |  |               |  |           |  |                    |  |                                        |  |                                       
|Total                 |  |               |  | 9,238     |  | 5,756              |  | 3,479                                  |  | 3                                     
|                      |  |               |  |           |  |                    |  |                                        |  |                                       

At July 2, 2005, the Company had no debt outstanding. As part of the acquisition of eCERA the remaining debt
obligations assumed by the Company totaled $14.9 million at the time of the acquisition consisting of both long term and other short term line of credit accounts. The short-term debt obligations are principally made up of lines of credits with
variable interest rate terms ranging from the Bank Board Listing rate minus 1.05% to the Bank Board Listing rate minus 2% and the six month sibor plus 1.2% to the six Month sibor plus 1.5%. The first long-term debt obligation is with Farmers Bank of
China which is secured by land the Company owns in Taiwan and has a variable interest rate of 0.25% over the Bank Board Listing Rate and is payable in monthly installments of principal and interest in New Taiwanese Dollars. The second long-term debt
obligation is with China Development Industrial bank which is secured by machinery and equipment the Company owns in Taiwan and has a variable interest rate of 2.3% over the benchmark 90 days from the Secondary Markets Telerate fixing rate and is
payable in monthly installments of principal and interest in New Taiwanese Dollars. The Companys effective weighted average annual interest rate for the twelve month period ended July 1, 2006 was 3.38%.

11. RESTRICTED CASH

As part of the acquisition of eCERA, the Company
assumed debt obligations that carried with it debt covenants that required the Company to carry a minimum cash balance in support of repayment of the Companys debt obligations. For the year ended July 1, 2006 there was $950,000 of cash
designated as restricted cash. For the fiscal year ended July 2, 2005 there were no debt obligations requiring the Company to restrict cash.

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 commitment at July 1, 2006 are as follows
(in thousands):





|                         |  |                    |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |      
|------------------------ |  | ------------------ | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | - | ----- |  | - | -----
|                         |  | Fiscal Year Ending |       |     
|                         |  | 2007               |       | 2008 |   | 2009  |  | 2010 |       | 2011 |   | Thereafter
|Operating lease payments |  | $                  | 1,282 |      | $ | 1,131 |  | $    | 1,110 |      | $ | 1,021      |  | $ | 1,052 |  | $ | 2,766
|                         |  |                    |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |      

Rent expense for the years ended July 1, 2006, July 2, 2005, and June 26, 2004 was $1,700,000,
$1,624,000, and $1,718,000, respectively.



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13. COMPREHENSIVE INCOME (LOSS)

Comprehensive income consists of net income (loss) and net unrealized gains (losses) on available-for-sale investments and changes in translation gains on a consolidated subsidiary. The components of other
comprehensive income (loss) and related tax effects were as follows:



|                                                                                                     |  |             |       |   |             |   |      |              |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | - | ---- | ------------ |  | - | ------ | -
|                                                                                                     |  | Years Ended |      
|                                                                                                     |  | July 1,2006 |       |   | July 2,2005 |   |      | June 26,2004 | 
|Net income (loss)                                                                                    |  | $           | 5,979 |   |             | $ | 927  |              |  | $ | (2,110 | )
|Change in unrealized (loss) gains on securities available for sale                                   |  |             | (327  | ) |             |   | (642 | )            |  |   | (3,178 | )
|Income tax effect                                                                                    |  |             | 124   |   |             |   | 187  |              |  |   | 1,361  |  
|Reclassification adjustment for gains on available for sale securities included in net income (loss) |  |             | (16   | ) |             |   | 65   |              |  |   | 337    |  
|Income tax effect                                                                                    |  |             | 6     |   |             |   | (26  | )            |  |   | (161   | )
|Translation gain                                                                                     |  |             | (2    | ) |             |   | 128  |              |  |   | 119    |  
|                                                                                                     |  |             |       |   |             |   |      |              |  |   |        |  
|Other comprehensive income (loss)                                                                    |  | $           | 5,764 |   |             | $ | 639  |              |  | $ | (3,632 | )
|                                                                                                     |  |             |       |   |             |   |      |              |  |   |        |  

14. SHAREHOLDERS EQUITY

PREFERRED STOCK

The number of shares of preferred stock authorized to be issued is 5,000,000. The Board of
Directors is authorized to issue the preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of the shares of such series. As of July 1, 2006, no shares of preferred stock were outstanding.

STOCK OPTION PLANS

Under the Companys
2004, 2001, 1995, 1990 stock option plans, and the SaRonix acquisition stock option plans, incentive and nonqualified stock options to purchase up to 5,713,488 shares of common stock have been reserved at July 2, 2005 for issuance to employees,
officers, directors, independent contractors and consultants of the Company.

The options may be granted at not less than 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
grant date.



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Activity in the Companys option plans is summarized below:



|                                                                                     |  |           |   |  |                              |      
|------------------------------------------------------------------------------------ |  | --------- | - |  | ---------------------------- | -----
|                                                                                     |  | Shares    |   |  | WeightedAverageExercisePrice
|Balance, June 28, 2003 (3,843,461 exercisable at a weighted average price of $10.45) |  | 5,552,412 |   |  | $                            | 11.36
|Granted (weighted average fair value of $5.57 per share)                             |  | 955,350   |   |  |                              | 10.70
|Exercised                                                                            |  | (570,451  | ) |  |                              | 2.48 
|Canceled                                                                             |  | (386,798  | ) |  |                              | 14.91
|                                                                                     |  |           |   |  |                              |      
|Balance, June 26, 2004 (3,857,138 exercisable at a weighted average price of $12.24) |  | 5,550,513 |   |  |                              | 11.92
|Granted (weighted average fair value of $3.49 per share)                             |  | 653,820   |   |  |                              | 8.44 
|Exercised                                                                            |  | (85,938   | ) |  |                              | 2.88 
|Canceled                                                                             |  | (574,917  | ) |  |                              | 13.36
|                                                                                     |  |           |   |  |                              |      
|Balance, July 2, 2005 (4,682,364 exercisable at a weighted average price of $12.01)  |  | 5,543,478 |   |  |                              | 11.50
|Granted (weighted average fair value of $2.96 per share)                             |  | 701,520   |   |  |                              | 8.46 
|Exercised                                                                            |  | (313,143  | ) |  |                              | 4.13 
|Canceled                                                                             |  | (655,222  | ) |  |                              | 12.33
|                                                                                     |  |           |   |  |                              |      
|Balance, July 1, 2006                                                                |  | 5,276,633 |   |  | $                            | 11.43
|                                                                                     |  |           |   |  |                              |      

At July 1, 2006, 1,942,139 shares were available for future issuance under
the option plans.

Additional information regarding options outstanding as of July 1, 2006 is as follows:

STOCK OPTIONS



|                         |  |                                   |  |                                           |  |                                |  |                                   |  |                                |           |  |           |  |   |          
|------------------------ |  | --------------------------------- |  | ----------------------------------------- |  | ------------------------------ |  | --------------------------------- |  | ------------------------------ | --------- |  | --------- |  | - | ---------
|Range of Exercise Prices |  | NumberOutstanding asof 07/01/2006 |  | Weighted AverageRemainingContractual Term |  | Weighted AverageExercise Price |  | NumberExercisable asof 07/01/2006 |  | Weighted AverageExercise Price
|$1.200000                |  | $7.562500                         |  |                                           |  | 1,105,382                      |  | 2.04                              |  | $                              | 3.583777  |  | 1,105,382 |  | $ | 3.583777 
|$7.670000                |  | $8.700000                         |  |                                           |  | 1,185,703                      |  | 8.42                              |  | $                              | 8.207479  |  | 473,725   |  | $ | 8.377895 
|$8.710000                |  | $11.500000                        |  |                                           |  | 1,207,298                      |  | 7.39                              |  | $                              | 10.503423 |  | 848,147   |  | $ | 10.949447
|$11.562500               |  | $17.468750                        |  |                                           |  | 1,087,050                      |  | 5.12                              |  | $                              | 14.516828 |  | 1,087,050 |  | $ | 14.516828
|$17.500000               |  | $37.218750                        |  |                                           |  | 691,200                        |  | 4.05                              |  | $                              | 26.241249 |  | 691,200   |  | $ | 26.241249
|                         |  |                                   |  |                                           |  |                                |  |                                   |  |                                |           |  |           |  |   |          
|$1.200000                |  | $37.218750                        |  |                                           |  | 5,276,633                      |  | 5.60                              |  | $                              | 11.426287 |  | 4,205,504 |  | $ | 12.159178

2000 EMPLOYEE STOCK PURCHASE PLAN

In 2000, the Company approved the 2000 Employee Stock Purchase Plan (the Stock Purchase Plan), which allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions.
A total of 2,100,000 shares of the Companys Common Stock have been reserved for issuance under the Stock Purchase Plan under managements discretion. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a
discount through payroll deductions, during 24-month purchase periods. Each purchase period will be divided into eight consecutive three-month accrual periods. The price at which stock is purchased under the Stock Purchase Plan is equal to 85% of
the fair market value of the Common Stock on the first day of the purchase period or the last day of the accrual period, whichever is lower. 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 2006, 2005, and 2004, the Company issued 140,520, 145,368, and 138,753, shares of common stock under the Stock Purchase Plan at weighted average prices of $6.79, $7.20, and $7.32,
respectively. The weighted average fair value of the fiscal 2006, 2005, and 2004 awards for each year were $2.11, $3.49, and $5.57 per share respectively.

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 began repurchasing shares on July 23,



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2002. In fiscal year 2003, 274,500 shares were repurchased at an approximate cost of $2.2 million. There were no shares repurchased during fiscal 2004. The
approximate number of shares repurchased during Fiscal year 2005 was 348,000. There were 750,000 shares repurchased during Fiscal 2006. As of July 1, 2006, the Company had repurchased approximately 1,372,087 shares at an approximate cost of
$11.7 million.

15. SHAREHOLDER RIGHTS PLAN

The
Company has adopted a Shareholder Rights 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 plan is designed to
protect the long-term value of the Company for its shareholders during any future unsolicited acquisition attempt. Adoption of the plan was not made 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. After
a person or group acquires 15% or more of the outstanding common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the outstanding common stock, the rights will become
exercisable by persons other than the acquiring person, unless the Board of Directors has approved the transaction in advance. Each right entitles the holder, other than an acquiring person, to acquire 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 rights are redeemable for $0.001 per right at the option of the Board of Directors. The rights will expire on March 6, 2012. As of July 1, 2006, there
were 26,061,000 rights outstanding.

16. RESTRUCTURING CHARGE

In fiscal 2005, there was a reduction in force of 24 employees. Of the employees terminated, 11 were in operations, 1 in research and development, 4 in sales and marketing, and 8 in general and administration. On April 1, 2006, there
was no remaining balance of this restructuring charge after incurring restructuring charges of $294,000 in fiscal 2005 and additional reserves related to the fiscal 2005 reduction in force of $55,000 in the first quarter of fiscal 2006.

The following table summarizes this restructuring activity through April 1, 2006 (in thousands):



|                                   |  |                   |      |  
|---------------------------------- |  | ----------------- | ---- | -
|                                   |  | ReductionIn Force |     
|Beginning balance at June 27, 2004 |  | $                 |     |  
|Reserves in fiscal 2005            |  |                   | 294  |  
|Cash payments in fiscal 2005       |  |                   | (272 | )
|                                   |  |                   |      |  
|Balance at July 2, 2005            |  |                   | 22   |  
|Additional reserves in fiscal 2006 |  |                   | 55   |  
|Cash payments in fiscal 2006       |  |                   | (77  | )
|                                   |  |                   |      |  
|Balance at July 1, 2006            |  | $                 |     |  
|                                   |  |                   |      |  



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17. INCOME TAXES

The income tax provision (benefit) consists of (in thousands):



|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  
|------------------------------------------------------------ |  | ----------------- | ----- | - | ----------- | - | ---- | ------------ |  | - | ------ | -
|                                                             |  | Fiscal Year Ended |      
|                                                             |  | July 1,2006       |       |   | July 2,2005 |   |      | June 26,2004 | 
|Federal:                                                     |  |                   |       |   |             |   |      |              |  |   |        |  
|Current                                                      |  | $                 | 141   |   |             | $ | (288 | )            |  | $ | 85     |  
|Deferred                                                     |  |                   | 1,370 |   |             |   | 815  |              |  |   | (2,072 | )
|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  
|                                                             |  |                   | 1,511 |   |             |   | 527  |              |  |   | (1,987 | )
|State:                                                       |  |                   |       |   |             |   |      |              |  |   |        |  
|Current                                                      |  |                   | 104   |   |             |   | (3   | )            |  |   | 46     |  
|Deferred                                                     |  |                   | (271  | ) |             |   | (493 | )            |  |   | (937   | )
|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  
|                                                             |  |                   | (167  | ) |             |   | (496 | )            |  |   | (891   | )
|Foreign:                                                     |  |                   |       |   |             |   |      |              |  |   |        |  
|Current                                                      |  |                   | 322   |   |             |   | 22   |              |  |   | 8      |  
|Deferred                                                     |  |                   | 24    |   |             |   | (346 | )            |  |   | (288   | )
|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  
|                                                             |  |                   | 346   |   |             |   | (324 | )            |  |   | (280   | )
|                                                             |  |                   |      
|Charge in lieu of taxes attributable to employee stock plans |  |                   | 162   |   |             |   | 321  |              |  |   | 778    |  
|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  
|Income tax provision (benefit)                               |  | $                 | 1,852 |   |             | $ | 27   |              |  | $ | (2,380 | )
|                                                             |  |                   |       |   |             |   |      |              |  |   |        |  

Reconciliation between the Companys effective tax rate and the U.S. statutory rate is as follows:



|                                           |  |                   |   |  |             |   |  |              |   
|------------------------------------------ |  | ----------------- | - |  | ----------- | - |  | ------------ | --
|                                           |  | Fiscal Year Ended |  
|                                           |  | July 1,2006       |   |  | July 2,2005 |   |  | June 26,2004 |   
|Tax at federal statutory rate              |  | 35.0              | % |  | 35.0        | % |  | (35.0        | )%
|State income taxes, net of federal benefit |  | (1.8              | ) |  | (43.2       | ) |  | (11.2        | ) 
|Foreign income tax                         |  | (9.5              | ) |  | (35.6       | ) |  |             |   
|Foreign loss                               |  | 8.1               |   |  | 51.2        |   |  |             |   
|Tax exempt investment income               |  |                  |   |  | (1.0        | ) |  | (1.1         | ) 
|Research and development tax credits       |  | (2.2              | ) |  | (41.7       | ) |  | (5.4         | ) 
|Change in valuation allowance              |  |                  |   |  | 38.1        |   |  | (0.7         | ) 
|Change in FAS 5 contingency                |  |                  |   |  | 1.2         |   |  |             |   
|Other                                      |  | 1.5               |   |  | (1.1        | ) |  | 0.4          |   
|                                           |  |                   |   |  |             |   |  |              |   
|Provision (Benefit) for income taxes       |  | 31.3              | % |  | 2.9         | % |  | (53.0        | )%
|                                           |  |                   |   |  |             |   |  |              |   



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



|                                                |  |             |        |   |             |   |        |  
|----------------------------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | -
|                                                |  | As of       |       
|                                                |  | July 1,2006 |        |   | July 2,2005 |  
|Deferred tax assets:                            |  |             |        |   |             |   |        |  
|Credit carryforwards                            |  | $           | 3,574  |   |             | $ | 3,300  |  
|Inventory Reserve                               |  |             | 1,694  |   |             |   | 2,162  |  
|Net operating loss carryforwards                |  |             | 1,414  |   |             |   | 1,527  |  
|Cumulative loss on investment in joint ventures |  |             | 901    |   |             |   | 846    |  
|Unrealized loss on short-term investments       |  |             | 684    |   |             |   | 650    |  
|Accrued compensation and other benefits         |  |             | 537    |   |             |   | 587    |  
|Capitalized research and development            |  |             | 472    |   |             |   | 547    |  
|Capital loss carry forward                      |  |             | 527    |   |             |   | 536    |  
|Basis difference in fixed assets                |  |             | 1,127  |   |             |   | 264    |  
|Accounts receivable reserve                     |  |             | 785    |   |             |   |       |  
|Inventory capitalization                        |  |             |       |   |             |   | 248    |  
|Lease structure reserve                         |  |             | 212    |   |             |   | 192    |  
|Non deductible stock compensation               |  |             | 310    |   |             |   |       |  
|Others                                          |  |             | 87     |   |             |   | 24     |  
|                                                |  |             |        |   |             |   |        |  
|Total deferred tax assets                       |  |             | 12,324 |   |             |   | 10,883 |  
|                                                |  |            
|Deferred tax liabilities:                       |  |             |        |   |             |   |        |  
|Deferred state taxes                            |  |             | (1,316 | ) |             |   | (1,202 | )
|Other prepaid and accruals                      |  |             | (131   | ) |             |   | (104   | )
|                                                |  |             |        |   |             |   |        |  
|Total deferred tax liabilities                  |  |             | (1,447 | ) |             |   | (1,306 | )
|Valuation allowance                             |  |             | (2,411 | ) |             |   | (2,082 | )
|                                                |  |             |        |   |             |   |        |  
|Net Deferred tax assets                         |  | $           | 8,466  |   |             | $ | 7,496  |  
|                                                |  |             |        |   |             |   |        |  

As of July 1, 2006, the Company has tax credit carryforwards of approximately $2,700,000 and $665,000
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 in the amount of $2.4 million against the tax effect of these losses as of July 1, 2006. The
valuation allowance, which increased by $329,000 in 2006, is reduced by the tax effect of any realized capital gains that are available to offset such losses.

The Company has foreign net operating loss carryforwards of approximately $9,600,000. Consolidated income before income taxes includes non-U.S. income (loss) of approximately $1,028,454 for the year ended July 1, 2006. U.S. income taxes
were not provided on a cumulative total of approximately $2,460,000 of undistributed earnings for 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.

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. Employer matching contributions are determined by the
Board of Directors and are discretionary. There were no employer-matching contributions in fiscal 2006, 2005, or 2004.

19. INDUSTRY AND SEGMENT
INFORMATION

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, established annual and interim
reporting standards for an enterprises business segments and related disclosures about its products, services, geographical areas and major customers. The Company operates in one reportable segment. Revenues from the sale of IC
Integrated Circuit product for the fiscal year ended July 1, 2006 were approximately $64.5 million. Revenues



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from the sale of Saronix FCP Frequency Control Product product for the fiscal year ended July 1, 2006 were approximately $18.6 million.
Revenues from the sale of eCERA FCP product for the fiscal year ended July 1, 2006 were approximately $22.8 million. Revenues from the sale of IC product for fiscal 2005 were approximately $60.6 million. Revenues from the sale of FCP product
for the fiscal year ended July 2, 2005 were approximately $19.0 million. There were no FCP revenues from eCERA in fiscal 2005. Revenues from the sale of FCP product for the nine months from the SaRonix acquisition to June 26, 2004 were
approximately $15.1 million. Revenues from the sale of IC product for fiscal 2004 were approximately $51.3 million. There were no FCP revenues from either Saronix or eCERA in fiscal 2004.

At July 1, 2006, there were no customers that individually represented more than 10% of accounts receivable. In addition, in fiscal 2006 there was one customer that
represented over 10% of net revenue, at approximately 11% of net revenue. At July 2, 2005, there were three customers that individually represented more than 10% of accounts receivable one at 15% and the other two customers at 11% each. In
addition, in fiscal 2005 there were 2 customers that represented over 10% of net revenue, one at 14.2% and the other at 13.8% of net revenue. In fiscal 2004, there were no direct customers that represented more than 10% of accounts receivable. In
fiscal 2004, there was one direct customer, an international distributor that represented 11% of net revenues.

For geographical reporting, net sales are
attributed to the country where customers are located (the bill to location). Long-lived assets consist of property and equipment as well as assets held for sale and are attributed to the country where they are located. The following
presents net sales for the years ended July 1, 2006, July 2, 2005, and June 26, 2004; and the net book value of long-lived assets as of July 1, 2006, July 2, 2005, and June 26, 2004 (in thousands):



|                            |  |      |         |      |   |        |  |   |       
|--------------------------- |  | ---- | ------- | ---- | - | ------ |  | - | ------
|                            |  | 2006 |         | 2005 |   | 2004  
|Net sales to countries:     |  |      |         |      |   |        |  |   |       
|China (including Hong Kong) |  | $    | 30,013  |      | $ | 18,247 |  | $ | 13,734
|United States               |  |      | 20,522  |      |   | 17,018 |  |   | 18,910
|Taiwan                      |  |      | 27,519  |      |   | 15,766 |  |   | 12,525
|Singapore                   |  |      | 9,392   |      |   | 9,901  |  |   | 7,463 
|Others (less than 10% each) |  |      | 18,432  |      |   | 18,625 |  |   | 13,785
|                            |  |      |         |      |   |        |  |   |       
|Total net sales             |  | $    | 105,878 |      | $ | 79,557 |  | $ | 66,417
|                            |  |      |         |      |   |        |  |   |       
|Long-lived assets:          |  |      |         |      |   |        |  |   |       
|United States               |  | $    | 7,144   |      | $ | 7,169  |  | $ | 3,664 
|Singapore                   |  |      | 1,266   |      |   | 1,624  |  |   | 1,545 
|Taiwan                      |  |      | 20,214  |      |   | 823    |  |   | 291   
|Thailand                    |  |      | 55      |      |   | 701    |  |   | 215   
|Ireland                     |  |      |        |      |   |       |  |   | 1,532 
|China (including Hong Kong) |  |      | 227     |      |   | 366    |  |   | 566   
|India                       |  |      | 102     |      |   | 166    |  |   | 995   
|Others (less than 10% each) |  |      | 12      |      |   | 10     |  |   | 14    
|                            |  |      |         |      |   |        |  |   |       
|Total long-lived assets     |  | $    | 29,020  |      | $ | 10,859 |  | $ | 8,822 
|                            |  |      |         |      |   |        |  |   |       

20. QUARTERLY FINANCIAL DATA (Un-audited)

Following is a summary of quarterly operating results and share data for the years ended July 1, 2006 and July 2, 2005. Subsequent to the issuance of the Companys interim financial statements for the
quarters ended October 1, 2005, December 31, 2005, and April 1, 2006, the Company determined that certain errors occurred in the accounting for research and development costs as we amortize certain mask costs
associated with producing product. Initially, these costs were expensed to research and development. Subsequently, these costs were incorrectly removed from research and development expense and reclassified as cost of sales. As a result, the
operating results presented below for the quarters ended October 1, 2005, December 31, 2005, and April 1, 2006 have been restated.



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Subsequent to the issuance of the Companys interim financial statements for the quarters ended September 25,
2004, December 25, 2004, and March 26, 2005, the Company determined that certain errors occurred in the accounting for research and development costs as we redesigned many of our products to be manufactured by a different
manufacturing facility. Initially these costs were expensed to research and development. Subsequently, these costs were incorrectly removed from research and development expense and capitalized into inventory. As a result, the operating results
presented below for the quarters ended September 25, 2004, December 25, 2004, and March 26, 2005 have been restated.



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PERICOM SEMICONDUCTOR CORPORATION

QUARTERLY FINANCIAL DATA

(Amounts in
thousands, except per share data)

(Un-audited)



|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|---------------------------------------------------------- |  | --------------------- | ------ | ---------- | - | ------ | ----------- |  | - | ---------- | - |  | - | ------ | -
|                                                           |  | For the Quarter Ended |       
|                                                           |  | July 1,2006           |        | Apr 1,2006 |   |        | Dec 31,2005 |  |   | Oct 1,2005 |  
|                                                           |  |                       |        | Restated   |   |        | Restated    |  |   | Restated   |  
|Net revenues                                               |  | $                     | 29,288 |            | $ | 27,847 |             |  | $ | 26,270     |   |  | $ | 22,473 |  
|Cost of revenues                                           |  |                       | 19,047 |            |   | 18,402 |             |  |   | 16,958     |   |  |   | 14,967 |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Gross profit                                               |  |                       | 10,241 |            |   | 9,445  |             |  |   | 9,312      |   |  |   | 7,506  |  
|Operating expenses:                                        |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Research and development                                   |  |                       | 4,174  |            |   | 3,925  |             |  |   | 3,640      |   |  |   | 3,753  |  
|Selling, general and administrative                        |  |                       | 4,921  |            |   | 4,394  |             |  |   | 4,993      |   |  |   | 4,182  |  
|Restructuring charge                                       |  |                       |       |            |   |       |             |  |   |           |   |  |   | 55     |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Total operating expenses                                   |  |                       | 9,095  |            |   | 8,319  |             |  |   | 8,633      |   |  |   | 7,990  |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Income (loss) from operations                              |  |                       | 1,146  |            |   | 1,126  |             |  |   | 679        |   |  |   | (484   | )
|Other income, net                                          |  |                       | 835    |            |   | 888    |             |  |   | 912        |   |  |   | 898    |  
|Other than temporary decline in the value of investments   |  |                       |       |            |   | (31    | )           |  |   | (33        | ) |  |   |       |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Income before income taxes                                 |  |                       | 1,981  |            |   | 1,983  |             |  |   | 1,558      |   |  |   | 414    |  
|Income tax provision                                       |  |                       | 607    |            |   | 641    |             |  |   | 467        |   |  |   | 137    |  
|Minority income in the loss of consolidated subsidiary     |  |                       | 6      |            |   | 32     |             |  |   | 38         |   |  |   | 23     |  
|Equity in net income of unconsolidated affiliates          |  |                       | 724    |            |   | 464    |             |  |   | 283        |   |  |   | 325    |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Net income                                                 |  | $                     | 2,104  |            | $ | 1,838  |             |  | $ | 1,412      |   |  | $ | 625    |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Basic earnings (loss) per share                            |  | $                     | 0.08   |            | $ | 0.07   |             |  | $ | 0.05       |   |  | $ | 0.02   |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Diluted earnings per share                                 |  | $                     | 0.08   |            | $ | 0.07   |             |  | $ | 0.05       |   |  | $ | 0.02   |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |  |                       | 26,206 |            |   | 26,207 |             |  |   | 26,253     |   |  |   | 26,352 |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |  |                       | 27,879 |            |   | 26,984 |             |  |   | 26,972     |   |  |   | 27,143 |  
|                                                           |  |                       |        |            |   |        |             |  |   |            |   |  |   |        |  



|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|---------------------------------------------------------- |  | --------------------- | ------ | -------- | ----------- | - | -------- | ----------- |  | -------- | ----------- | - |  | - | ------ | -
|                                                           |  | For the Quarter Ended |       
|                                                           |  | July 2,2005           |        |          | Mar 26,2005 |   |          | Dec 25,2004 |  |          | Sep 25,2004 |  
|                                                           |  |                       |        | Restated |             |   | Restated |             |  | Restated |            
|Net revenues                                               |  | $                     | 21,121 |          |             | $ | 19,433   |             |  | $        | 19,217      |   |  | $ | 19,786 |  
|Cost of revenues                                           |  |                       | 12,940 |          |             |   | 11,982   |             |  |          | 13,071      |   |  |   | 12,771 |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Gross profit                                               |  |                       | 8,181  |          |             |   | 7,451    |             |  |          | 6,146       |   |  |   | 7,015  |  
|Operating expenses:                                        |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Research and development                                   |  |                       | 3,992  |          |             |   | 4,022    |             |  |          | 3,806       |   |  |   | 3,947  |  
|Selling, general and administrative                        |  |                       | 4,150  |          |             |   | 3,849    |             |  |          | 3,707       |   |  |   | 3,832  |  
|Restructuring charge                                       |  |                       | 51     |          |             |   | 243      |             |  |          |            |   |  |   |       |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Total operating expenses                                   |  |                       | 8,193  |          |             |   | 8,114    |             |  |          | 7,513       |   |  |   | 7,779  |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Loss from operations                                       |  |                       | (12    | )        |             |   | (663     | )           |  |          | (1,367      | ) |  |   | (764   | )
|Other income, net                                          |  |                       | 1,042  |          |             |   | 913      |             |  |          | 875         |   |  |   | 931    |  
|Other than temporary decline in the value of investments   |  |                       | (5     | )        |             |   | (4       | )           |  |          | (96         | ) |  |   |       |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Income (loss) before income taxes                          |  |                       | 1,025  |          |             |   | 246      |             |  |          | (588        | ) |  |   | 167    |  
|Income tax provision (benefit)                             |  |                       | 120    |          |             |   | 95       |             |  |          | (203        | ) |  |   | 15     |  
|Minority income in the loss of consolidated subsidiary     |  |                       | 26     |          |             |   | 22       |             |  |          | 10          |   |  |   |       |  
|Equity in net income (loss) of unconsolidated affiliates   |  |                       | 242    |          |             |   | (73      | )           |  |          |            |   |  |   | (123   | )
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Net income (loss)                                          |  | $                     | 1,173  |          |             | $ | 100      |             |  | $        | (375        | ) |  | $ | 29     |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Basic earnings (loss) per share                            |  | $                     | 0.04   |          |             | $ | 0.00     |             |  | $        | (0.01       | ) |  | $ | 0.00   |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Diluted earnings (loss) per share                          |  | $                     | 0.04   |          |             | $ | 0.00     |             |  | $        | (0.01       | ) |  | $ | 0.00   |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |  |                       | 26,371 |          |             |   | 26,531   |             |  |          | 26,554      |   |  |   | 26,515 |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |  |                       | 27,076 |          |             |   | 27,112   |             |  |          | 26,554      |   |  |   | 27,268 |  
|                                                           |  |                       |        |          |             |   |          |             |  |          |             |   |  |   |        |  



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A summary of the significant effects of the restatement is as follows (in thousands):



|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | - | --------------------- | - | ------ | -------------------------------- |  | - | ---------------------- | - |  | ------------------------------- | ------ | - | --------------------- | - | ------ | - |  | - | ------ | -
|                                                           |  | For the Quarters Ended          |       
|                                                           |  | Apr 1,2006 AsPreviouslyReported |        |   | Apr 1,2006 AsRestated |   |        | Dec 31,2005 AsPreviouslyReported |  |   | Dec 31,2005 AsRestated |   |  | Oct 1,2005 AsPreviouslyReported |        |   | Oct 1,2005 AsRestated |  
|Net revenues                                               |  | $                               | 27,847 |   |                       | $ | 27,847 |                                  |  | $ | 26,270                 |   |  | $                               | 26,270 |   |                       | $ | 22,473 |   |  | $ | 22,473 |  
|Cost of revenues                                           |  |                                 | 18,157 |   |                       |   | 18,402 |                                  |  |   | 16,719                 |   |  |                                 | 16,958 |   |                       |   | 14,729 |   |  |   | 14,967 |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Gross profit                                               |  |                                 | 9,690  |   |                       |   | 9,445  |                                  |  |   | 9,551                  |   |  |                                 | 9,312  |   |                       |   | 7,744  |   |  |   | 7,506  |  
|Operating expenses:                                        |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Research and development                                   |  |                                 | 4,170  |   |                       |   | 3,925  |                                  |  |   | 3,879                  |   |  |                                 | 3,640  |   |                       |   | 3,991  |   |  |   | 3,753  |  
|Selling, general and administrative                        |  |                                 | 4,394  |   |                       |   | 4,394  |                                  |  |   | 4,993                  |   |  |                                 | 4,993  |   |                       |   | 4,182  |   |  |   | 4,182  |  
|Restructuring charge                                       |  |                                 | 0      |   |                       |   | 0      |                                  |  |   |                       |   |  |                                 |       |   |                       |   | 55     |   |  |   | 55     |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Total operating expenses                                   |  |                                 | 8,564  |   |                       |   | 8,319  |                                  |  |   | 8,872                  |   |  |                                 | 8,633  |   |                       |   | 8,228  |   |  |   | 7,990  |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Income (loss) from operations                              |  |                                 | 1,126  |   |                       |   | 1,126  |                                  |  |   | 679                    |   |  |                                 | 679    |   |                       |   | (484   | ) |  |   | (484   | )
|Other income, net                                          |  |                                 | 888    |   |                       |   | 888    |                                  |  |   | 912                    |   |  |                                 | 912    |   |                       |   | 898    |   |  |   | 898    |  
|Other than temporary decline in the value of investments   |  |                                 | (31    | ) |                       |   | (31    | )                                |  |   | (33                    | ) |  |                                 | (33    | ) |                       |   |       |   |  |   |       |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Income before income taxes                                 |  |                                 | 1,983  |   |                       |   | 1,983  |                                  |  |   | 1,558                  |   |  |                                 | 1,558  |   |                       |   | 414    |   |  |   | 414    |  
|Income tax provision                                       |  |                                 | 641    |   |                       |   | 641    |                                  |  |   | 467                    |   |  |                                 | 467    |   |                       |   | 137    |   |  |   | 137    |  
|Minority income in the loss of consolidated subsidiary     |  |                                 | 32     |   |                       |   | 32     |                                  |  |   | 38                     |   |  |                                 | 38     |   |                       |   | 23     |   |  |   | 23     |  
|Equity in net income of unconsolidated affiliates          |  |                                 | 464    |   |                       |   | 464    |                                  |  |   | 283                    |   |  |                                 | 283    |   |                       |   | 325    |   |  |   | 325    |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Net income                                                 |  | $                               | 1,838  |   |                       | $ | 1,838  |                                  |  | $ | 1,412                  |   |  | $                               | 1,412  |   |                       | $ | 625    |   |  | $ | 625    |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Basic earnings per share                                   |  | $                               | 0.07   |   |                       | $ | 0.07   |                                  |  | $ | 0.05                   |   |  | $                               | 0.05   |   |                       | $ | 0.02   |   |  | $ | 0.02   |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Diluted earnings per share                                 |  | $                               | 0.07   |   |                       | $ | 0.07   |                                  |  | $ | 0.05                   |   |  | $                               | 0.05   |   |                       | $ | 0.02   |   |  | $ | 0.02   |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |  |                                 | 26,207 |   |                       |   | 26,207 |                                  |  |   | 26,253                 |   |  |                                 | 26,253 |   |                       |   | 26,352 |   |  |   | 26,352 |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |  |                                 | 26,984 |   |                       |   | 26,984 |                                  |  |   | 26,972                 |   |  |                                 | 26,972 |   |                       |   | 27,143 |   |  |   | 27,143 |  
|                                                           |  |                                 |        |   |                       |   |        |                                  |  |   |                        |   |  |                                 |        |   |                       |   |        |   |  |   |        |  



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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. HuiChief Executive Officer, President and Chairman of the Board of DirectorsDate:

September 14, 2006


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 to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, 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 Alex C. Hui             |  | Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ ANGELA CHEN Angela Chen             |  | Chief Financial Officer (Principal Financial
Officer and Accounting Officer)                            |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ JOHN CHI-HUNG HUI John Chi-Hung Hui |  | Senior Vice President, R&D and Director                                                                 |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ GARY L. FISCHER Gary L. Fischer     |  | Director                                                                                                |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ MILLARD PHELPS Millard Phelps       |  | Director                                                                                                |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ HAU L. LEE Hau L. Lee               |  | Director                                                                                                |  | September 14, 2006
|                                        |  |                                                                                                        
|/s/ MURRAY GOLDMAN Murray Goldman       |  | Director                                                                                                |  | September 14, 2006
|                                        |  |                                                                                                        
|/S/ SIMON WONG Simon Wong               |  | Director                                                                                                |  | September 14, 2006
|                                        |  |                                                                                                        
|* BY: /s/ ALEX C. HUI Alex C. Hui       |  | Attorney-in-Fact and Agent                                                                              |  | September 14, 2006



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Schedule II

PERICOM SEMICONDUCTOR CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)



|                                             |  |                              |       |                  |   |                    |  |            |       |                        |   |       |  |   |      
|-------------------------------------------- |  | ---------------------------- | ----- | ---------------- | - | ------------------ |  | ---------- | ----- | ---------------------- | - | ----- |  | - | -----
|                                             |  | Balance atBeginningOf Period |       | ReservesAcquired |   | Charged toRevenues |  | Deductions |       | Balance atEnd ofPeriod
|                                             |  |                              |       | (a)              |   | (b)                |  | (c)        |       |                       
|Reserves for returns and pricing adjustments |  |                              |       |                  |   |                    |  |            |       |                        |   |       |  |   |      
|July 1, 2006                                 |  | $                            | 2,220 |                  |   |                   |  | $          | 5,702 |                        | $ | 6,009 |  | $ | 1,913
|July 2, 2005                                 |  |                              | 3,744 |                  |   |                   |  |            | 5,970 |                        |   | 7,494 |  |   | 2,220
|June 26, 2004                                |  |                              | 3,446 |                  | $ | 165                |  |            | 8,904 |                        |   | 8,771 |  |   | 3,744

---

|(a) | Reserve balance acquired as part of the October 1, 2003 SaRonix acquisition
|--- | ---------------------------------------------------------------------------

|(b) | Primarily related to sales reserves
|--- | -----------------------------------

|(c) | Charges for which allowances were created
|--- | -----------------------------------------



|                                |  |                              |     |                  |   |                             |  |   |            |   |  |                        |      |   |  |   |    
|------------------------------- |  | ---------------------------- | --- | ---------------- | - | --------------------------- |  | - | ---------- | - |  | ---------------------- | ---- | - |  | - | ---
|                                |  | Balance atBeginningOf Period |     | ReservesAcquired |   | Charged toCosts andExpenses |  |   | Deductions |   |  | Balance atEnd ofPeriod
|                                |  |                              |     | (d)              |   | (e)                         |  |   | (f)        |   |  |                       
|Allowance for doubtful accounts |  |                              |     |                  |   |                             |  |   |            |   |  |                        |      |   |  |   |    
|July 1, 2006                    |  | $                            | 19  |                  | $ | 424                         |  | $ | (141       | ) |  | $                      | 10   |   |  | $ | 292
|July 2, 2005                    |  |                              | 384 |                  |   |                            |  |   | (277       | ) |  |                        | (88  | ) |  |   | 19 
|June 26, 2004                   |  |                              | 100 |                  |   | 437                         |  |   |           |   |  |                        | (153 | ) |  |   | 384

---

|(d) | Reserve balance acquired as part of the October 1, 2003 SaRonix acquisition or the September 7, 2005 Ecera and Azer acquisition.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(e) | Related to identified uncollectible accounts
|--- | --------------------------------------------

|(f) | Charges for which allowances were created
|--- | -----------------------------------------



82