UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 FORM
10-K
 
 FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 (Mark
One)
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934 FOR THE FISCAL YEAR ENDED JULY 3, 2010 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934 FOR THE TRANSITION PERIOD FROM ________ to
  ________
 Commission
File Number 0-27026
 Pericom
Semiconductor Corporation
 (Exact
Name of Registrant as Specified in Its Charter)
 
 California
                    
                    77-0254621(State
      or Other Jurisdiction of
                    
                    (I.R.S.
      EmployerIncorporation
      or Organization)
                    
                    Identification
      No.)
 
 3545
      North First StreetSan
      Jose, California 95134
                  
                  95134(Address
      of Principal Executive Offices)
                  
                  (Zip
      Code)
 
 Registrant’s
Telephone Number, Including Area Code:   (408)
435-0800
 
 Securities
registered pursuant to Section 12(b) of the Act:
 Title of Each Class
                    Name of Exchange on Which
      RegisteredCommon
      Stock
                    The
      NASDAQ Stock Market LLCPreferred
      Share Purchase Rights
                    The
      NASDAQ Stock Market LLC
 
 Securities
registered pursuant to Section 12(g) of the Act:  None
 
 Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 
 Yes            ̈       No     x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 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.
 YesxNo ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 
 YesoNoo
 
 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, a non-accelerated filer or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check
one):
 
 Large Accelerated
      Filer ̈
              Accelerated
      Filerx
              Non Accelerated
      Filer ̈
              Smaller Reporting Company ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes         ̈           No       x
 The
aggregate market value of voting stock held by non-affiliates of the Registrant,
based on the closing price of the Common Stock on December 24, 2009 as reported
by the NASDAQ Stock Market was approximately $265,477,000. Shares of common
stock held by each officer and director have been excluded in that such persons
may be deemed to be affiliates.  This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
 
 As of
August 30, 2010 the Registrant had outstanding 24,945,652 shares of Common
Stock.
  DOCUMENTS
INCORPORATED BY REFERENCE
 
 Parts of
the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be
held December 9, 2010, which will be filed subsequently, are incorporated by
reference in Part III of this report on Form10-K.
  
  PERICOM
SEMICONDUCTOR CORPORATION
 
 Form 10-K
for the Year Ended July 3, 2010
 
 INDEX
 
 PAGEPART
      IItem
      1:
                          Business
                          3Item
      1A:
                          Risk
      Factors
                          16Item
      1B:
                          Unresolved
      Staff Comments
                          26Item
      2:
                          Properties
                          26Item
      3:
                          Legal
      Proceedings
                          27Item
      4:
                          Removed
      and Reserved
                          27PART
      IIItem
      5:
                          Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                          28Item
      6:
                          Selected
      Financial Data
                          30Item
      7:
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          31Item
      7A:
                          Quantitative
      and Qualitative Disclosures about Market Risk
                          45Item
      8:
                          Financial
      Statements and Supplementary Data
                          46Item
      9:
                          Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                          47Item
      9A:
                          Controls
      and Procedures
                          47Item
      9B:
                          Other
      Information
                          50PART
      IIIItem
      10:
                          Directors,
      Executive Officers and Corporate Governance
                          53Item
      11:
                          Executive
      Compensation
                          53Item
      12:
                          Security Ownership
      of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                          53Item
      13:
                          Certain
      Relationships and Related Transactions, and Director
      Independence
                          53Item
      14:
                          Principal
      Accountant Fees and Services
                          54PART
      IVItem
      15:
                          Exhibits
      and Financial Statement Schedules
                          55Signatures
                          87
  2
  PART
I
  EXPLANATORY
NOTE
 
 As used
in this Form 10K, the term “fiscal 2010” refers to our fiscal year ended July 3,
2010, the term “fiscal 2009” refers to our fiscal year ended June 27, 2009 and
the term “fiscal 2008” refers to our fiscal year ended June 28,
2008.
  ITEM
1.  BUSINESS
 
 Pericom
Semiconductor Corporation (the “Company” or “Pericom” or “we”) designs, develops
and markets high-performance integrated circuits (“ICs”) and frequency control
products (“FCPs”) used in many of today's advanced electronic
systems.  Our IC products include functions that support the
connectivity, timing and signal conditioning of high-speed parallel and serial
protocols that transfer data among a system's microprocessor, memory and various
peripherals, such as displays and monitors, and between interconnected
systems.  Our FCPs are electronic components that provide frequency
references such as crystals and oscillators for computer, communication and
consumer electronic products.  Our analog, digital and mixed-signal
ICs, together with our FCP products enable higher system bandwidth and signal
quality, resulting in better operating reliability, signal integrity, and lower
overall system cost in applications such as notebook computers, servers, network
switches and routers, storage area networks, digital TVs, cell phones, GPS and
digital media players.
 
 We
operate in one segment, the interconnectivity device supply market. Additional
segment reporting information is included in Note 21 of Notes to Consolidated
Financial Statements in this report.
  INDUSTRY
BACKGROUND – OVERVIEW
 
 Electronic
systems and subsystems create the fabric that increasingly supports everyday
modern life as evidenced by the continued growth of the personal computer,
mobile communications, networking and consumer electronics
markets.  Systems characterized by ever-improving performance,
flexibility, reliability and multi-functionality, as well as decreasing size,
weight and power consumption have driven the growth of these
markets.  IC advancements through improvements in semiconductor
technology have contributed significantly to the increased performance of, and
demand for, electronic systems and to the increasing proportion of IC cost as a
portion of overall system cost.  This technological progress occurs at
an accelerated pace, while at the same time, the cost of electronic systems
continues to decline.
 
 Development
of high-performance personal computer requirements for higher network
performance and increased levels of connectivity among different types of
electronic devices drive the demand for new and varying types of high-speed,
high-performance signal conditioning, connectivity and timing products to handle
the conditioning, routing, bridging and timing of digital and analog signals at
high speeds with minimal loss of signal quality.  High-speed signal
transfer is essential to maximize the speed and bandwidth of the microprocessor,
the memory and the LAN or WAN.  High signal quality is equally
essential for optimal balance between high data transmission rates and reliable
system operation.  Without high signal quality, transmission errors
occur, resulting in retransmissions and hence lower throughput and system
reliability, as bandwidth increases.  The same market pressures
imposed on microprocessors also drive the market requirements for connectivity
and timing products, and include higher speed, reduced power consumption, lower
voltage operation, smaller size and higher levels of integration.
 
 Our FCPs
are devices incorporating quartz crystal resonators.  Quartz crystals
have the physical property such that, when stimulated electrically, they
resonate at a precise and consistent frequency.  A crystal oscillator,
combining a quartz crystal and a simple electronic circuit, also generates a
signal at a precise and consistent frequency.  All types of crystal
oscillators are clocks in the sense that they provide a frequency reference for
various electronic systems.
  3
  The
continuing increase in electronic sophistication, as well as the penetration and
proliferation of electronic products into new consumer and commercial
applications, puts new demands on frequency control devices.  This
creates both technological challenges and new business opportunities for
products offering faster speeds, tighter frequency tolerance, higher stability
relative to temperature, smaller surface-mountable packaging and lower unit
cost.
 
 Connectivity,
switching, and timing products are used to enable higher system bandwidth in
applications such as notebook computers, servers, network switches and routers,
storage area networks, wireless base-stations, cell phones, digital cameras and
digital TVs.  We pioneer technology in each of these areas as
demonstrated in the development and implementation of our wide variety of serial
protocol product families. An example is our PCI Express technology across our
interface, switching, bridging and timing product areas.  PCI Express
is a relatively new industry-standard serial protocol developed to offer higher
bandwidth to and from the CPU chipset and peripherals like Ethernet, USB, video,
and other types of connectivity devices.  Almost every market segment
and end product application is adopting PCI Express as the new serial high-speed
signal path.  As a serial protocol, PCI Express can offer many times
the bandwidth of PCI, the industry-standard parallel protocol that preceded PCI
Express.  PCI Express allows new cost-effective means to send
high-speed signals longer distances.
 
 However,
this expanded bandwidth comes at a price: signal quality and integrity becomes
difficult to maintain as data rates routinely exceed multi-gigabits per
second.  The problems associated with signal quality that must be
addressed by the connectivity IC’s are magnified by increased speed at which
these products must transfer, route and time electrical signals.  The
performance challenges presented to today’s designers are significant: signals
must transfer at high speed with low propagation delay, while signal degradation
- such as ‘noise,’ ‘jitter,’ ‘skew,’ and electromagnetic interference or ‘EMI’ -
must be minimal.  In short, high-speed signal integrity is essential
for state-of-the-art electronic systems to function reliably and cost
effectively.  Our signal conditioning technology and resulting
products address these critical issues, and support the major serial high-speed
protocols including Gigabit Ethernet, PCI Express, High Definition Multimedia
Interface (HDMI), Universal Serial Bus (USB), Serial Advanced Technology
Architecture (SATA), serial attached SCSI (SAS) and DisplayPort (DP). SCSI
stands for Small Computer System Interface, referred to and pronounced “skuzzy”.
Pericom refers to its signal conditioning products as ‘ReDriversTM’.
 
 High
frequency and high data transfer rates are critical in the reliability of
systems prevalent in the major market trends of today.  Internet and
high-performance network applications continue to push for more data bandwidth
on system buses and across system boundaries.  Computer and networking
system clock frequencies continue to increase at a very rapid rate, shortening
the time available to perform data transfers.  While the data transfer
rate has typically increased every few years, the continuing desire for higher
system reliability with minimal system downtime creates increasing pressure to
achieve lower data error rates.  These factors all increase the need
for very high-speed, high performance, connectivity and switching
products.
 
 In server
applications, we support higher system bandwidth with our PCI Express to
PCI-X/PCI bridges, and PCI Express packet switches as well as PCI Express signal
switching and re-driver products enabling optimum system partitioning and design
flexibility.  All major server OEM’s have adopted PCI
Express.  PCI Express bridges and packet switches allow the transfer
and switching of high speed data in and out of the CPU chipset to serial I/O
ports such as Fiber Channel, Gigabit Ethernet and SAS. In fiscal 2010, we saw the
adoption of our PCIe GEN2 5Gb ReDriver by the major server and storage OEM’s in
blade server and storage platforms.
 
 In
high-bandwidth systems data transfer needs to be synchronized, creating a high
demand for timing products.  Our clocks and FCPs provide the precise
timing signals needed to ensure reliable data transfer at high speeds in
applications ranging from notebook computers to network switches.  As
systems continue to grow in processing power and complexity, the demand for
these products will accelerate.  The demand for higher precision will
also continue to increase as timing margins shrink in higher bandwidth serial
connectivity systems.
 
 Our SATA
switch and ReDriver products enable external SATA (eSATA) disk drive expansion
and standard compliance. They are applicable to desktop and notebook PCs, set
top boxes, portable media players and game consoles.
  4
 
 Our video
switch products address the need for higher video resolution, enable the
integration of horizontal and vertical synchronous signals as well as control
signals, and accommodate switching of up to four video input streams with
improved cross-talk, off-isolation and ESD protection features.  These
products address the High Definition Multimedia Interface and Digital Video
Interface (HDMI/DVI) and Display Port (DP) switching, signal conditioning and
voltage shifting requirements for PC video/graphics and LCD monitors, as well as
digital television (DTV) and other digital video applications.
 
 New
high-end cell phone applications require low voltage, small packages and very
low resistance to provide the highest fidelity sound.  We address this
market with our analog audio switch products that offer one of the smallest
packages, low resistance (0.4W), low voltage (1.8V) and
very low power consumption for extended battery life.
  OUR
STRATEGY
 
 As a
leading supplier of high-performance IC and FCP products, we enable serial
connectivity with solutions for the computing, communications and consumer
market segments. With our analog, digital and mixed-signal ICs, along with FCPs,
our complete solutions support the timing, switching, bridging and conditioning
of high-speed signals in today’s ever-increasing speed-and-bandwidth-demanding
applications.
 
 We define
our products in collaboration with industry-leading OEMs and industry enablers
and our modular design methodology shortens our time to market and time to
volume relative to our competitors.  The key elements of our strategy
are:
 
 Market
Focus:
  Within
the computer, communications and consumer markets, we are focused on high growth
segments that allow multi-product penetration opportunities that align well with
our technology focus.  These high growth applications include
notebook, PC, digital video and TV, servers, enterprise networks, and mobile
devices such as cell phones.
 
 Using our
development expertise, our understanding of our customer’s product evolution,
and our rapid-cycle IC development, we continue to pursue new opportunities in
existing and emerging markets to expand our market share as a leading-solution
supplier.
 
 Customer
Focus:
 
 Our
customer strategy is to use a superior level of responsiveness and proprietary
solutions to support customer needs and sell a wider range of products to our
existing customers, as well as targeted new customers.  Key elements
of our customer strategy include:
  ·
              Penetrate
      target accounts through joint product development.  We approach
      prospective customers primarily by working with their system design
      engineers at the product specification stage with the goal that one or
      more Pericom ICs or FCPs will be incorporated into a new system
      design.  Our understanding of our customers’ requirements
      combined with our ability to develop and deliver reliable,
      high-performance products within our customers’ product introduction
      schedules has enabled us to establish strong relationships with many
      leading OEMs.
  ·
              Solidify
      customer relationships through superior responsiveness.  We
      believe that our customer service orientation is a significant competitive
      advantage.  We seek to maintain short product lead times and
      provide our customers with excellent on-schedule delivery, in part by
      having available adequate finished goods inventory for anticipated
      customer demands.  We emphasize product quality for our products
      and we have been ISO-9001 certified since 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.
  5
  ·
              Expand
      customer relationships through broad-based solutions.  We aim to
      grow our business with existing customers by offering product lines that
      provide increasingly extensive solutions for our customers’ high-speed
      interfacing needs.  By providing our customers with superior
      support in existing programs and anticipating our customers’ needs in
      next- generation products, we have often been able to increase our overall
      volume of business with those customers substantially.  With
      larger customers, we have also initiated electronic data interchange, or
      EDI, and remote warehousing programs, annual purchase and supply programs,
      joint development projects and other services intended to enhance our
      position as a key vendor.
  ·
              Responding
      to our customer requirements is one of our highest
      priorities.  In order to accomplish this, several years ago we
      implemented an automated quoting system from Model N, Inc., a leader in
      e-business solutions.  We can respond very quickly to our
      customer needs and offer them superior service.  With the
      implementation of Model N’s ProChannel, we have also been able to
      streamline a number of internal
procedures.
  ·
              Maintain
      a comprehensive and intuitive website with all required documentation
      needed by our customers.
  Technology
Focus:
 
 High
bandwidth, high-speed serial protocols inherently present challenges in system
design, such as error-free signal routing, end-point integrity and timing
sensitivities.  We focus on three main technology areas: serial
high-speed protocol switching, advanced silicon and quartz based timing and
unique signal conditioning solutions.  These focus areas combine at
the product level to provide a complimentary and complete system level solution
for high-speed serial protocol implementation.
 
 As a
result of this focus, we lead the market in high-speed analog switching
technology.  We possess a solid history of ‘industry first’ product
introductions, such as our dual HDMI and PCI Express signal switching solutions
and our unique serial signal integrity technology.  Focus product
families include high-frequency Signal Switches, Packet Switches, Bridges,
ReDrivers, Clock Generators/Buffers, Crystals and Oscillators.
 
 Today,
our technology encompasses all major serial high-speed protocols including PCI
Express, USB, HDMI/DVI, Display Port, SAS/SATA, 10-Gigabit Attachment Unit
Interface (XAUI) and Ethernet.
 
 Our
primary efforts are in the creation of additional proprietary digital, analog
and mixed-signal functionality.  We work closely with our wafer
suppliers to incorporate their advanced complementary metal oxide semiconductor
(CMOS) process technologies to improve our ability to introduce next generation
products expeditiously.  We continue to expand our patent portfolio
with the goal of providing increasingly proprietary product lines.
 
 For FCPs,
our strategy is to further our leadership in high-frequency,
superior-performance, low-jitter timing products by combining our
industry-unique crystal-and-silicon design capabilities. In addition, we address
the growing needs of very small size surface mount crystals and crystal
oscillators for the growing wireless and other portable consumer markets. Our
integrated FCP design capability provides advanced timing solutions for our
target market segments.  By leveraging internal proprietary IC designs
in digital, analog and mixed-signal functionality, we add specialized features
and optimize costs.  Working closely with historical manufacturing
partners while developing new ones, we will continue to advance proprietary
process techniques and capabilities required to complement new technology
products.
 
 Manufacturing
Focus:
 
 We
closely integrate our manufacturing strategy with our focus on customer
needs.  Central to this strategy is our ability to support high-volume
shipment requirements on short notice from customers.  We design
products so that we may manufacture many different ICs from a single partially
processed wafer.  Accordingly, we keep inventory in the form of a
wafer bank, from which wafers can be completed to produce a variety of specific
ICs in as little as five weeks.  This approach has enabled us to
reduce our overall work-in-process inventory while providing increased
availability to produce a variety of finished products.  In addition,
we keep some inventory in the form of die bank, which can become finished
product in three weeks or less.  We have established relationships
with four leading foundries, Magnachip Semiconductor, Inc. (“Magnachip”),
GlobalFoundries, Inc. (“GlobalFoundries”), Taiwan Semiconductor Manufacturing
Corporation (“TSMC”), and United Microelectronics Corporation (“UMC”), as well
as several other suppliers.
  6
  For FCPs,
our vertically integrated Asian design and manufacturing subsidiary,
Saronix-eCERA Corporation (“SRe”), provides a significant competitive advantage
through a highly efficient design and volume crystal manufacturing process, in
combination with strict quality standards and low-cost labor.  We
maintain high quality standards and all our subcontractors’ plants are ISO 9000
certified. We operate our own FCP factories, located in Chungli (Taiwan) and
Jinan, in the Shandong Province of the People’s Republic of China
(PRC).
 
 Strategic
and Collaborative Relationships Focus:
 
 We pursue
a strategy of entering into new relationships and expanding existing
relationships with companies that engage in the product design, manufacturing
and marketing of ICs and frequency control products.  We have an
active internal program focused on reference designs with key IC suppliers in
the Pericom target market segments and partner programs, which can strengthen
and leverage our marketing and sales presence worldwide.  We believe
that these relationships enable us to access additional design and application
expertise, accelerate product introductions, reduce costs and obtain additional
needed capacity.  Our established collaborative relationships with
leading wafer manufacturers allow us to access high performance digital and
analog core libraries for use in our future products.
  OUR
PRODUCTS
 
 We use
our expertise in high-performance digital, analog, mixed-signal IC and FCP
design, our reusable core cell library and our modular design methodology to
achieve a rapid rate of new product introductions.  Within each of our
four IC product families, the product portfolio has evolved from a standard
building block into both standard products of increasing performance and
application-specific standard products, or ASSPs, which are tailored to
meet a specific high volume application.  Within each product family,
wecontinue to address the common trends of decreasing supply voltage,
higher integration and faster speeds.
 
 In fiscal
2010, IC product revenues were $92.3 million or 62.8% of the $146.9 million in
total revenues, with the balance of $54.6 million attributable to FCP product
revenues. In fiscal 2009, IC product revenues were $76.0 million or 59.1% of the
$128.6 million in total revenues, with the balance of $52.6 million from FCP
product revenues. In fiscal 2008, IC product revenues were $96.6 million or
59.0% of the $163.7 million in total revenues, with the balance of $67.1 million
the result of FCP product revenues.
 
 SiliconConnectTM
Family
 
 Our
SiliconConnect family offers the highest level of complexity and integration
among our products.  It consists of our PCI and PCI-X Bridges and our
PCI Express Bridges and Packet Switches, our PCI Express and USB3 ReDrivers, as
well as our legacy family of LVDS high-speed differential drivers, receivers and
transceivers.
 
 PCI/PCI-X:
 
 With a
comprehensive product portfolio based on performance and value, this legacy
product family continues to gain market share within both existing and new
applications across multiple market segments.  Manufacturers continue
to use PCI for legacy designs, especially in long-term higher-end platforms,
such as networking, storage, high-end server and embedded systems used in
military, industrial and computing applications, and PC based video
surveillance products.  In fiscal 2010, our legacy PCI and PCI-X
products continued to sell well, especially into PC based video surveillance
applications.
  7
  PCI
Express:
 
 PCI
Express (“PCIe”) is the next generation replacement for PCI.  PCIe is
a serial, high-speed technology, which offers many advantages over the parallel
bus based PCI technology.  All market segment applications are
adopting PCIe and our PCIe products actively target all major PCIe based
applications, including mainstream and industrial PCs, PC peripherals, embedded
systems, high-end multifunction printers, video security monitoring, RAID and
Fibre Channel cards in the Storage Area Network space, Multi-channel Ethernet
NICs, and routers and switches. Building on the introduction of our 3rd
generation of PCIe bridge and packet switch products in fiscal 2008, in fiscal
2009 Pericom  introduced  our 4th
generation of PCIe bridge and packet switch products which are being adopted
into volume platform applications in networking, PC Peripherals, server, and
embedded market segments . This unique product family expands upon some of the
lowest power, smallest footprint PCIe switching and bridging products in the
industry. In fiscal
2010, Pericom developed and sampled another generation of the PCIe bridge for
volume PC applications, with special features designed to replace the PCI port
on CPU chipsets.  We also developed our PCIe GEN2 small packet switch
family, which will leverage our successful GEN1 product family to the higher
PCIe serial speed of 5 Gb/s.
 
 LVDS:
 
 We offer
a comprehensive low-voltage differential signaling (“LVDS”) product portfolio of
legacy products that includes drivers, receivers and transceivers with data
rates of 660 megabits per second, or Mbps, and allowing point-to-point
connections over distances up to 10 meters.  This legacy LVDS standard
offers a number of improvements over the older emitter-coupled logic (“ECL”) and
pseudo emitter-coupled logic (“PECL”) in applications requiring lower power
consumption and noise.
 
 SiliconSwitchTM
Family
 
 Our
SiliconSwitch product family offers a broad range of high-performance ICs for
switching digital and analog signals.  The ability to switch or route
high-speed digital or analog signals with minimal delay and signal distortion is
a critical requirement in many high-speed computers, networking and multi-media
applications.  Historically, systems designers have used mechanical
relays and solid-state relays, which have significant disadvantages compared to
IC switches.  Mechanical relays are bulky, dissipate significant power
and have very low response times, while solid-state relays are
expensive.
 
 ASSP
Switch:
 
 In this
high-growth product segment, we offer a line of application specific standard
product, or ASSP, switches for LAN, Analog Video, Digital Video, such as
DVI/HDMI, PCI Express and USB, applications.  The LAN switches address
the high-performance demands of 10/100/1000 Ethernet LANs.  The video
switches address the high bandwidth that enables the switching between different
video sources associated with video graphic cards and flat panel
displays.  Some of our newest video switches address the HDMITM
(High-Definition Multimedia Interface) Rev. 1.3 standard.  We are also
marketing our PCI Express signal switches with Gen-I (2.5Gbps) and Gen-II
(5.0Gbps) speeds for desktop PC, gaming stations, servers and storage
applications.  We continue to expand our innovations in this area to
address next generation networking, computing and media platforms.
 
 Analog
Switches:
 
 We offer
a family of analog switches for low-voltage (1.8-volt to 7-volt) applications
such as multimedia audio and video signal switching with enhanced
characteristics such as low power, high bandwidth, low crosstalk and low
distortion to maintain analog signal integrity.  Our analog switches
have significantly lower distortion than traditional analog switches due to our
advanced CMOS switch design.  To support space-constrained
applications, such as wireless handsets and global positioning system receivers,
we offer 3-volt low R-on 0.4-ohm switches.  To complement this
low-voltage family we also offer higher voltage (17-volt) analog switches for
applications requiring higher signal range, such as instrumentation,
telecommunications and industrial controls.
 
 Digital
Switches:
 
 We offer
a family of digital switches in 8-, 16- and 32-bit widths that address the
switching needs of high-performance systems.  These digital switches
offer performance and cost advantages over traditional switch functions,
offering both low on-resistance and capacitance, low propagation delay (less
than 250 picoseconds), low standby current (as low as 0.2 micro amps) and series
resistor options that support low electromagnetic interference, or EMI, emission
requirements.  Applications for our digital switches include 5-volt to
3.3-volt signal translation, high-speed data transfer and switching between
microprocessors, PCI slots and multiple memories and hot-plug interfaces in
notebook and desktop computers, servers and switching hubs and
routers.  We also have products at 2.5-volt and 3.3-volt offering
industry-leading performance in switching times, and low capacitance for bus
isolation applications.
  8
  SiliconInterfaceTM
Family
 
 Through
our SiliconInterface product line, we offer a family of products that address
both next generation designs as well as legacy interface.  We have
launched a ReDriverTM family that includes SATA and SAS protocols that conditions
signals and ensures signal integrity in today’s very high-speed
protocols.  SiliconInterface also focuses on managing different
voltage levels by use of voltage level translator devices.  Our legacy
high-performance 5-volt, 3.3-volt, 2.5-volt, and 1.8-volt CMOS logic interface
circuits provide logic functions to handle data transfer between microprocessors
and memory, bus exchange, backplane interface and other logic interface
functions where high-speed, low-power, low-noise and high-output drive
characteristics are essential.
 
 ReDrivers/Signal
Conditioners:
 
 With the
adaptation of the latest generation of high-speed PCIe serial, switched
architecture at 5.0 Gbps rates, systems designers are confronted with challenges
associated with maintaining clean eye-pattern signal integrity at the receiver
end points.  The signal attenuation loss increases in almost an
exponential form as trace lengths increase in a signal path using high-speed
differential signaling.  Our ReDriver family of products boost signals
by combining programmable equalization and de-emphasis techniques at the
transmit and receive points, respectively, on a signal path to ensure good
signal integrity at the end points.
 
 Through
this line of products, we offer a broad range of ReDrivers to manage standard
protocols such as PCIe, SATA, SAS, USB3 and XAUI for applications including
servers, storage, networking and notebook/docking stations.  Systems
designers benefit from our ReDriver products in another way:  they can
now use our ReDrivers with inexpensive cables, such as CAT6 or flexible ribbon
cables instead of using very expensive cables to achieve good signal integrity
at the end of the trace. In fiscal 2009, we received PCISIG certification for
its PCIe Gen2 (5Gb/s) ReDriver products, introduced in fiscal 2008. Pericom’s
PCIe Gen2 and SATA ReDrivers were designed into many customer platforms across
server, storage, PC, and networking market segments, as the adoption rate of
PCIe Gen2 and SATA for both internal and external signal routing applications
increased in fiscal 2009.  In fiscal
2010, Pericom introduced our new USB3 ReDriver, targeted to PC, consumer, and
embedded market segments.
 
 1.8-Volt/3.3-Volt
ULS:
 
 Bi-directional
signal translation requirements have become more prevalent because of new
technology needing to function with legacy designs.  As such,
level-shifting solutions have evolved into more advanced
devices.  While the traditional voltage translators require direction
control signals, our ULS Universal Level Shifter (“ULS”) products address the
need for voltage translation between 1.8-volts and 3.3-volts without any
direction control signals.  These voltage translators are ideal for
mobile, test equipment, servers and telecom applications.
 
 1.8-Volt/2.5-Volt
Logic:
 
 Our
1.8-volt and 2.5-volt product families offer high output current with sub-2.5
nanosecond propagation delay and low power consumption.  In addition,
our Lower Balanced Drive (“LBD”) family has a propagation delay of less than two
nanoseconds to support high-speed processor-memory interfacing and we have
optimized our Balanced Drive (“BD”) family for low-noise operation at very low
voltages.  We also offer application specific logic functions that
support next generation memory module applications associated with server
markets such as DDR II.
 
 3.3-Volt
Logic:
 
 We offer
3.3-volt interface logic, supporting the trend toward lower system voltages for
higher silicon integration from 8-Bit to 32-Bits, system performance and power
savings.  These products address a range of performance and cost
requirements with very low power consumption.  Our application
specific integrated circuit (“ASIC”) design methodology and existing cell-based
designs contribute to our ability to achieve rapid product development in this
area.
  9
  5-Volt
Logic:
 
 Our
high-speed 5-volt interface logic products in 8- and 16-bit configurations
address specific system applications, including a “Quiet Series” family for
high-speed, low-noise, point-to-point data transfer in computing and networking
systems and a Balanced Drive family with series resistors at output drivers to
reduce switching noise in high-performance computers.  We continue to
provide a complete portfolio of 5-volt FCT logic products that supports many
legacy data communications and telecommunications switch platforms.
 
 Gates:
 
 These
products operate from 1.65-volt to 5-volt to address the interface needs in many
applications.  We continue to explore new product markets in the areas
of communication, PC peripherals and consumer digital systems.
 
 SiliconClockTM
Family
 
 In
high-bandwidth systems, data transfer must be synchronized and this creates a
demand for timing products.  Our timing products provide the precise
timing signals needed to ensure reliable data transfer at high speeds in
applications ranging from servers to network switches to
televisions.  As systems continue to grow in processing power and
complexity, we expect the demand for these products to
accelerate.  The requirement for precision will also increase as
timing margins shrink in higher-bandwidth systems.
 
 Our
SiliconClock IC product line provides a broad range of general-purpose solutions
including voltage controlled crystal oscillators (“VCXO”) with integrated Phase
Locked Loop (“PLL”) clock generators, clock buffers, zero-delay clock drivers,
frequency synthesizers, spread-spectrum clock generators and programmable clock
products for a wide range of microprocessor systems, as well as a number of ASSP
markets like multi-function printers, registered memory modules, storage area
networks, servers, networking, set-top boxes and digital television. In fiscal
2009, Pericom launched a family of clock and oscillator products specifically
designed to support the rollout of PCI Express Gen2 (5.0Gb/s), SATA 3.0 (6
Gb/s), and other new high speed protocols. These new high speed protocols
require extremely low jitter clock reference sources, and Pericom has the
technology to provide such high performance timing products. In fiscal 2010, we
developed clock generators and buffers to support the new PCIe GEN3 8 Gb
specification.
 
 Clock
Buffers and Zero-Delay Clock Drivers:
 
 Clock
buffers receive a clock signal from a frequency source and create multiple
copies of the same frequency for distribution across system
boards.  We offer 1.2-volt (1.2V), 1.5V, 1.8V, 2.5V, 3.3V and 5V clock
buffers for high-speed, low-skew applications in computers and networking
equipment.  We offer options for integrated crystal oscillators and
provide a flexible selection of output levels for interfacing to various system
components.  For systems that require higher performance, we have
differential clock buffers with frequencies up to 800MHz.  Zero-delay
clocks virtually eliminate propagation delays by synchronizing the clock outputs
with the incoming frequency source.  Our 5V, 3.3V, 2.5V and 1.8V
zero-delay clock drivers offer frequencies of up to 400MHz for applications in
networking switches, routers and hubs, computer servers, and memory
modules.  Differential zero-delay clock buffers support Generation II
PCIe as well as fully buffered dual in-line memory modules
(“DIMM”).  Zero-delay buffers support the 2nd generation double date
rate (“DDR II”) memory technologies are available today.
 
 Voltage
Controlled Crystal Oscillators:
 
 We offer a family of
VCXO IC products targeted at the set-top box, digital video recorder (“DVR”),
digital TV (“DTV”), surveillance equipment and networking
markets.  Our VCXO products feature low phase noise, high-frequency
capabilities, wide pull range, and different output standard
levels.  These products also leverage customizable bases that include
on-board PLLs and inter-integrated circuit (“I2C”)
interfaces for rapid prototyping.  Our VCXO products use our own SRe
crystals to guarantee optimum performance. For the networking markets, our VCXO
jitter cleaner product is used to provide a clean recovered clock
source.
  10
  Clock
Frequency Synthesizers:
 
 Clock
frequency synthesizers generate various output frequencies using a single input
frequency source and provide critical timing signals to microprocessors, memory
and peripheral functions.  Our clock synthesizers support a wide range
of microprocessor systems and their associated integrated chipsets for
computing, communication and consumer applications.  For computing
applications, we provide PCIe clock synthesizers for server, notebook and
desktop PC applications.  For high-performance networking and storage
applications, we have high-frequency clock synthesizers targeted up to 300MHz
with very low jitter.  For emerging networking and consumer platforms
with PCIe interface, we provide PCIe 2.0 compliant clock generator/buffers. For
consumer applications such as digital TV and digital set-top boxes, we have
developed a line of high-performance audio and video clocks.  For GPS
applications, we have developed low power clock generators to supply a clock
reference for processor, real-time clock and other peripheral interface
circuits. We have also developed spread-spectrum clock generators used for
reducing Electro Magnetic Interference (“EMI”) in graphics and video
applications.
 
 Programmable
Clocks:
 
 In large
computing and communications systems, customers need to provide precise timing
across large printed circuit boards (“PCB”s).  At the very high
frequencies used today, these large PCB traces can result in significant timing
delays and matching these delays (or timing skew) can be a significant challenge
for the system designer.  We have responded to this challenge with a
family of programmable skew clock products.
 
 FCPs
 
 FCPs
include crystals that resonate at a precise frequency, and crystal oscillators
(“XO”), a circuit assembly comprising a crystal and accompanying electronic
circuitry providing very stable output frequency.  Crystals and XOs
are essential components used in a wide variety of electronic
devices.  There are three general categories of oscillator
products.  Clock Oscillators are oscillators without temperature
compensation and voltage tuning options used primarily in networking,
telecommunication, wireless and computer/peripheral
applications.  VCXOs are frequency tunable crystal stabilized
oscillators that are voltage controlled and generally operate below 1
GHz.  Manufacturers use these oscillators primarily for
synchronization in data networking and communications applications.
 
 The
ultra-miniature ceramic packaged crystal and clock oscillators are tailored for
densely populated applications such as Wireless Local Area Networking (“WLAN”),
mobile phones, portable multimedia players, personal data assistants (“PDA”s),
GPS modules, networking equipment, and hard disk drives.  The
ultra-miniature package allows system designers to overcome the physical space
constraint of integrating more features into portable
applications.  The set of available frequencies supports various
industry standard protocols and applications.
 
 The XP
series of crystal clock oscillators is a proprietary technology that combines
our ICs with SRe quartz to improve reliability and performance for high
frequency 2.5V and 3.3V, low voltage complimentary metal oxide semiconductor
(“LVCMOS”) and low voltage positive emitter coupled logic (“LVPECL”) clock
applications.  The product family is drop-in compatible with existing
Overtone XO, surface acoustic wave (“SAW”) and PLL-based oscillator solutions in
5x7mm and 3.2x5mm packages, yet aims to provide better cost performance
benefits.  These high frequency clock oscillators are used to provide
a stable timing reference in various networking and storage serial connectivity
platforms such as 1/10 Gigabit Ethernet, Fiber Channel, synchronous optical
networking/synchronous digital hierarchy (“SONET/SDH”), serial advanced
technology attachment (“SATA”), Serial Attached SCSI (“SAS”) and Passive Optical
Network (“PON”). In
fiscal 2010, we launched a family of ‘ASSP’ XO products, which support the most
popular frequencies for various storage, server and networking applications, and
are available ‘off the shelf’ for rapid design cycles.
  11
  OUR
CUSTOMERS
 
 The
following is a list of some of our customers and end-users:
 Notebook,
      Desktop and Servers
                Telecommunications
                Digital
      MediaDell
                Cisco
                EchostarIntel
                Tellabs
                Primary
      TechnologyLenovo
                Polycom
                PaceHewlett
      Packard
                Huawei
                AmtranWistron
                Dell
                LGEAsustek
                Avaya
                ProviewGigabyte
                Alcatel-Lucent
                HikvisionMicro
      Star
                Zhongxing
      Telecom (ZTE)
                ToshibaSamsung
                Huawei-3ComAcer
                MotorolaNetworking
      Equipment
                Mobile
      Terminal
                Contract
      ManufacturingCisco
                Garmin
                FoxconnAzureWave
      Technologies
                LG
      Electronics
                SolectronNettech
      Technology
                Samsung
                CelesticaAlpha
      Networks
                Even
                Sanmina-SCI2
      Wire
                Panasonic
                FlextronicsCameo
      Communications
                Inventec
      Appliance
                JabilTP-LINK
                
                InventecAskeyFreeboxPeripherals
                StorageHewlett
      Packard
                JMSH
      International Corp.Konica-Minolta
                BrocadeLexmark
                M&J
      TechnologiesXerox
                USIEFI
                HitachiWestern
      Digital
 
 Our
customers include a broad range of end-user customers and original equipment
manufacturers (“OEM”s) in the computer, peripherals, networking and
telecommunications markets as well as the contract manufacturers that service
these markets.  Our direct sales are billings directly to a customer
who may in turn sell through to an end-user customer.  Our end-user
customers may buy directly or through our distribution or contract manufacturing
channels.
 
 In fiscal
2010, our direct sales to Avnet and Techmosa, two Asian distributors, accounted
for approximately 22% and 14% of net revenues, respectively, and direct sales to
our top five customers accounted for approximately 54% of net
revenues.  One end-user customer accounted for approximately 12% of
net revenues in the fiscal year ended July 3, 2010.
 
 In fiscal
2009, our direct sales to Avnet and Techmosa accounted for approximately 18% and
14% of net revenues, respectively, and direct sales to our top five customers
accounted for approximately 51% of net revenues.  One end-user
customer accounted for approximately 11% of net revenues in the fiscal year
ended June 27, 2009.
 
 In fiscal
2008, our direct sales to Avnet accounted for 14% of net revenues and direct
sales to our top five customers accounted for approximately 40% of net
revenues.  No single end-user customer accounted for greater than 10%
of net revenues in the fiscal year ended June 28, 2008.
 
 We
continue to expect a small number of customers to account for a large portion of
our net revenues. See Item 1A “Risk Factors; Factors That May Affect Operating
Results – The demand for our products depends on the growth of our end users’
markets” and “Risk Factors; Factors That May Affect Operating Results – A large
portion of our revenues is derived from sales to a few customers, who may cease
purchasing from us at any time” of this Annual Report on Form
10-K.
  12
  Contract
manufacturers are important customers for us as systems designers in our target
markets continue to outsource portions of their manufacturing.  In
addition, these contract manufacturers continue to play a vital role in
determining which vendors' products are incorporated into new
designs.
  DESIGN
AND PROCESS TECHNOLOGY
 
 Our
design efforts focus on the development of high-performance digital, analog and
mixed-signal ICs.  To minimize design cycle times of high-performance
products, we use a modular design methodology that has enabled us to produce
many new products each year and to meet our customers' need for fast
time-to-market response.  This methodology uses state-of-the-art
computer-aided design software tools such as high-level description language, or
HDL, logic synthesis, full-chip mixed-signal simulation, and automated design
layout and verification and uses our library of high-performance digital and
analog core cells.  We have developed this family of core cells over
several years and it contains high-performance, specialized digital and analog
functions not available in commercial ASIC libraries.  Among these
cells are our proprietary mixed-voltage input/output, or I/O, cells, high-speed,
low-noise I/O cells, analog and digital PLLs, charge pumps and data
communication transceiver circuits using low voltage differential
signaling.  The United States Patent and Trademark Office has granted
us 107 U.S. patents and we have 13 U.S. patent applications pending. Another
advantage of our modular design methodology is that it allows the application of
final design options late in the wafer manufacturing process to determine a
product's specific function.  This option gives us the ability to use
pre-staged wafers, which significantly reduces the design and manufacturing
cycle time and enables us to respond rapidly to a customer's prototype needs and
volume requirements.
 
 We use
advanced CMOS processes to achieve higher performance and lower die
cost.  Our process and device engineers work closely with our
independent wafer foundry partners to develop and evaluate new process
technologies.  Our process engineers also work closely with circuit
design engineers to improve the performance and reliability of our cell
library.  We currently manufacture a majority of our products using
0.8, 0.6, 0.5, 0.35, 0.25, 0.18 and 0.13u micron CMOS process technologies and
are currently developing and beginning to ship new products using 0.09u (90
nanometer) technology.  We are also using a high-voltage CMOS process
developed by one of our wafer suppliers in the design of higher voltage switch
products.
 
 For FCPs,
we have a well-established design focus, methodology and execution
technique.  We implement the majority of designs for oscillators and
higher-functionality parts with CMOS process technologies.  However,
we also pursue designs incorporating Bipolar, BiCMOS and Silicon-Germanium
(SiGe) technologies, as well as utilization of complex programmable logic device
(CPLD) and field-programmable gate array (FPGA) components.  Crystal
components developed and marketed by all suppliers are
similar.  However, the operating behavior of the resonator and the
specific techniques employed in their design, modeling, manufacturing &
testing processes are highly specialized and unique.  As such,
manufacturing processes, equipment and test procedures can form a distinct part
of the design activity.  The outcome of the development becomes a
permanent and proprietary part of the design specification.
  SALES
AND MARKETING
 
 We market
and distribute our products through a worldwide network of independent sales
representatives and distributors supported by our internal and field sales
organization.  Sales to domestic and international distributors
represented 62% of our net revenues in fiscal 2010, 56% of our net revenues in
fiscal 2009 and 49% of our net revenues in fiscal 2008.  Our major
distributors in North America and Europe include Avnet, Arrow Electronics,
Future Electronics and Nu Horizons Electronics.  Our major Asian
distributors include AIT (Hong Kong), Avnet (Asia), Chinatronics (Hong Kong),
Desner Electronics (Singapore), Internix (Japan), MCM (Japan), Maxmega
(Singapore) and Techmosa (Taiwan).
  13
  We have
three regional sales offices in the United States, as well as international
sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan and the United
Kingdom.  International sales comprised approximately 91% of our net
revenues in fiscal 2010, 92% of our net revenues in fiscal 2009 and 91% of our
net revenues in fiscal 2008.  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 2010, 2009 and 2008 – Net Revenues” in Item 7
of this Annual Report on this Form 10-K.  We also support field sales
design-in and training activities with application
engineers.  Marketing and product management personnel are located at
our corporate headquarters in San Jose, California and in Taiwan.
 
 We focus
our marketing efforts on market knowledge, product definition, new product
introduction, product marketing and advertising.  We use advertising
both domestically and internationally to market our products independently and
in cooperation with our distributors.  Our product information is
available on our website, which contains overview presentations, technical
information on our products, and offers design modeling/applications support
plus sample-request capabilities online.  We also publish and
circulate technical briefs relating to our products and their
applications.
 
 We
believe that contract manufacturing customers are strategically important and we
employ sales and marketing personnel who focus on servicing these customers and
on expanding our product sales to OEMs via these customers.  In
addition, we use programs such as EDI, bonded inventories and remote warehousing
to enhance our service and attractiveness to contract
manufacturers.
  MANUFACTURING
 
 We have
adopted a fabrication foundry non-ownership (“fabless”) IC manufacturing
strategy by subcontracting our wafer production to independent wafer
foundries.  We have established collaborative relationships with
selected independent foundries with which we can develop a strategic
relationship to the benefit of both parties.  We believe that our
fabless strategy enables us to introduce high performance products quickly at
competitive cost.  To date, our principal manufacturing relationships
have been with Magnachip, GlobalFoundries, TSMC and UMC.  We have an
ongoing effort to qualify new foundry vendors that offer cost or other
advantages.
 
 We
primarily rely on foreign subcontractors for the assembly of our products and,
to a lesser extent, for the testing and packaging of our finished
products.  Some of these subcontractors are our single source supplier
for certain new packages.  We perform some testing of our finished
products in our in-house facility.
 
 To
manufacture FCPs SRe, our Asian subsidiary, has established relationships with
selected Asian factories, the primary ones of which are Yantai Dynamic in
Yantai, China and Zhejiang East Crystal in Zhejiang, China as well as factories
in Taiwan and Japan.  We have an ongoing effort to establish
relationships and qualify additional factories to continue cost reduction and
maintain our competitive position in the FCP market.
 
 To
enhance our manufacturing capability of FCPs, which are composed of crystals and
oscillators housed in multiple sized surface mount ceramic packages, SRe has
“state of the art” high volume production lines in its Taiwan facility capable
of manufacturing FCPs with tight specifications to competitively support the
most popular high volume target industries including telecommunications,
medical, computing and security as well as other commercial sectors. In fiscal
2010 we added to our capacity by completing a new FCP factory in the Jinan
Development Zone in Shandong Province, PRC.   SRe is ISO9000
certified and in December of 2005 received TS16949 certification, which allows
us access into the Automotive FCP market.  To supplement our
manufacturing capacity we are maintaining established relationships with our
manufacturing partners and we have a plan already implemented for qualifying
additional factories and creating new partners.  New relationships and
the fiscal 2010 expansion of our capacity are necessary to continue cost
reduction, grow our revenue and maintain our competitive position in the FCP
market.  We have an operations department based in Asia that pursues
lower cost packaging techniques and both monitors and modifies manufacturing
processes to maximize yields and improve quality.  After a
manufacturing partner has been qualified through a stringent process, we
maintain design and process controls that include using recurring factory audits
and in some cases using onsite inspectors.
  14
  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 International, Hitachi, Integrated Device Technology, Inc., Intel
Corp., Maxim Integrated Products, Inc., Motorola, On Semiconductor Corp., NXP,
Tundra Semiconductor Corp., Parade Technologies, PLX Technology,
STMicroelectronics, Texas Instruments, Inc., and Toshiba.  Most of
those competitors have substantially greater financial, technical, marketing,
distribution and other resources, broader product lines and longer-standing
customer relationships than we do.  We also compete with other major
or emerging companies that sell products to certain segments of our
markets.  Competitors with greater financial resources or broader
product lines may have a greater ability to sustain price reductions in our
primary markets in order to gain or maintain market share.  We also
face competition from the makers of ASICs and other system
devices.  These devices may include interface logic functions, which
may eliminate the need or sharply reduce the demand for our products in
particular applications.
 
 Our FCP
competitors include Vectron International, Inc., Connor Winfield Ltd., Fox
Electronics, Ecliptek Corporation, Mtron PTI, Epson Toyocom Corporation, Kyocera
Kinseki Corporation, Daishinku Corporation and Nihon Dempa Kogyo Company,
Ltd.  A second group of competitors in China primarily pursues the
lower end of the FCP market with limited technical content
products.  However, they do have some sales to our target customer
base.
  RESEARCH
AND DEVELOPMENT
 
 We
believe that the continued timely development of new interface ICs and FCPs is
essential to maintaining our competitive position.  Accordingly, we
have assembled a team of highly skilled engineers whose activities are focused
on the development of signal transfer, routing and timing technologies and
products.  We have IC design centers located in San Jose, California,
Hong Kong and Taiwan and we develop FCP products in San Jose, California and in
Taiwan.  Research and development expenses were $17.2 million in
fiscal 2010, $16.7 million in fiscal 2009 and $17.2 million in fiscal
2008.  Additionally, we actively seek cooperative product development
relationships.
  INTELLECTUAL
PROPERTY
 
 In the
United States, we hold 107 patents covering certain aspects of our product
designs, with various expiration dates through May 2027, and we have 13
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 3, 2010, we had 869 full-time employees, including 123 in sales, marketing
and customer support, 425 in manufacturing, assembly and testing, 243 in
engineering and 78 in finance and administration, including information systems
and quality assurance.  We have never had a work stoppage and no labor
organization represents any of our employees.  We consider our
employee relations to be good.
  15
  AVAILABLE
INFORMATION
 
 We file
electronically with the Securities and Exchange Commission (“SEC”) our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934.  The SEC maintains an Internet site
at http://www.sec.gov that contains these reports, proxy and information
statements.  We make available on our website at
http://www.pericom.com, free of charge, copies of these reports as soon as
reasonably practicable after filing or furnishing the information to the
SEC.  Any reports or financial information presented at our website
are not to be considered part of this annual report filed on Form
10-K.
  ITEM 1A.  RISK
FACTORS
 
 In
addition to other information contained in this Form 10-K, investors should
carefully consider the following factors that could adversely affect our
business, financial condition and operating results as well as adversely affect
the value of an investment in our common stock.  This Annual Report on
Form 10-K includes “forward-looking statements” within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act.  All
statements other than statements of historical fact are “forward-looking
statements” for purposes of these provisions, including any statements
regarding: our expectation of completing in our first quarter of fiscal year
2011 the acquisition of shares in PTI that we do not already own, projections of
revenues, future research and development expenses, the estimate of the
increases in selling, general and administrative expenses in the first quarter
of fiscal year 2011 and future selling, general and administrative expenses in
general, other expenses, gross profit, gross margin, or other financial items;
the plans and objectives of management for future operations; the implementation
of advanced process technologies; our tax rate; the adequacy of allowances for
returns, price protection and other concessions; proposed new products or
services; the sufficiency of cash generated from operations and cash balances;
our future investment in the Yangzhou facility; our exposure to interest rate
risk; future economic conditions or performance; plans to focus on cost control;
plans to seek intellectual property protection for our technologies;
expectations regarding export sales and net revenues; the expansion of sales
efforts; acquisition prospects; the results of our possible future acquisitions
and assumptions underlying any of the foregoing.  In some cases,
forward-looking statements can be identified by the use of terminology such as
“may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or
“continue,” or the negative thereof or other comparable
terminology.  Although we believe that the expectations reflected in
the forward-looking statements contained herein are reasonable, there can be no
assurance that such expectations or any of the forward-looking statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements.  Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to risks and uncertainties, including but not limited to
the factors set forth below and elsewhere in this report.  All
forward-looking statements and reasons why results may differ included in this
Annual Report are made as of the date hereof, and we assume no obligation to
update any such forward-looking statement or reason why actual results may
differ.
  FACTORS
THAT MAY AFFECT OPERATING RESULTS
 
 In
the past, our operating results have varied significantly and are likely to
fluctuate in the future.
 
 We
continue to face achallenging business
environment and limited visibility on end-market demands.
 Wide
varieties of factors affect our operating results. These factors include the
following:
 
 ·
                changes
      in the quantity of our products
sold;
 ·
                changes
      in the average selling price of our
products;
 ·
                general
      conditions in the semiconductor
industry;
 ·
                changes
      in our product mix;
 ·
                a
      change in the gross margins of our
products;
  16
  ·
                the
      operating results of the FCP product line, which normally has a lower
      profit margin than IC
products;
 ·
                expenses
      incurred in obtaining, enforcing, and defending intellectual property
      rights;
 ·
                the
      timing of new product introductions and announcements by us and by our
      competitors;
 ·
                customer
      acceptance of new products introduced by
us;
 ·
                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,
      especially to support sales growth and new
  products;
 ·
                changes
      in manufacturing costs;
 ·
                fluctuations
      in manufacturing yields;
 ·
                disqualification
      by our customers for quality or performance related
  issues;
 ·
                the
      ability of customers to pay us;
and
 ·
                increased
      research and development expenses associated with new product
      introductions or process
changes.
 
 All of
these factors are difficult to forecast and could seriously harm our operating
results.  Our expense levels are based in part on our expectations
regarding future sales and are largely fixed in the short
term.  Therefore, we may be unable to reduce our expenses fast enough
to compensate for any unexpected shortfall in sales.  Any significant
decline in demand relative to our expectations or any material delay of customer
orders could harm our operating results.  In addition, if our
operating results in future quarters fall below public market analysts' and
investors' expectations, the market price of our common stock would likely
decrease.
 
 The
demand for our products depends on the growth of our end users'
markets.
 
 Our
continued success depends in large part on the continued growth of markets for
the products into which our semiconductor and 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.
 
 Our
earnings are subject to substantial quarterly and annual fluctuations and to
adverse economic conditions and market downturns
 
 Our
revenues and earnings have fluctuated significantly in the past and may
fluctuate significantly in the future. General economic or other conditions
could cause a downturn in the market for our products or technology. The
2008-2009 financial disruption affecting the banking system, investment banks,
insurance companies and financial markets resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets and extreme
volatility in fixed income, credit and equity markets. In addition to the
potential impact of such disruptions on our marketable securities portfolio,
there could be a number of follow-on effects on our business that could also
adversely affect our operating results. Disruptions may result in the insolvency
of key suppliers resulting in product delays; the inability of our customers to
obtain credit to finance purchases of our products and/or customer insolvencies
that cause our customers to change delivery schedules, cancel or reduce orders;
a slowdown in global economies which could result in lower end-user demand for
our products; and increased impairments of our investments. Net investment
income could vary from expectations depending on the gains or losses realized on
the sale or exchange of securities, gains or losses from equity method
investments, and impairment charges related to marketable securities. Our cash
and marketable securities investments represent significant assets that may be
subject to fluctuating or even negative returns depending upon interest rate
movements and financial market conditions in fixed income securities. Volatility
in the financial markets and overall economic uncertainty increases the risk of
substantial quarterly and annual fluctuations in our earnings.
  17
  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, Hitachi,
Integrated Device Technology, Inc., Intel Corp., Maxim Integrated Products,
Inc., Motorola, On Semiconductor Corp., 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
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.
  18
  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.
 
 Downturns
in the semiconductor industry, rapidly changing technology, accelerated selling
price erosion and evolving industry standards can harm our operating
results.
 
 The
semiconductor industry has historically been cyclical and periodically subject
to significant economic downturns, characterized by diminished product demand,
accelerated erosion of selling prices and overcapacity, as well as rapidly
changing technology and evolving industry standards. In the future, we may
experience substantial period-to-period fluctuations in our business and
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors.  Our business is also subject to
the risks associated with the effects of legislation and regulations relating to
the import or export of semiconductor products.
 
 Our
potential future acquisitions may not be successful.
 
 Our
potential future acquisitions could result in the following:
 
 ·
              large
      one-time write-offs;
 ·
              the
      difficulty in integrating newly-acquired businesses and operations in an
      efficient and effective manner;
 ·
              the
      challenges  in achieving strategic objectives, cost savings, and
      other benefits from acquisitions as
anticipated;
 ·
              the
      risk of diverting the attention of senior management from other business
      concerns;
 ·
              risks
      of entering geographic and business markets in which we have no or limited
      prior experience and potential loss of key employees of acquired
      organizations;
 ·
              the
      risk that our markets do not evolve as anticipated and that the
      technologies and capabilities acquired do not prove to be those needed to
      be successful in those markets;
 ·
              potentially
      dilutive issuances of equity
securities;
 ·
              the
      incurrence of debt and contingent liabilities or amortization expenses
      related to intangible assets;
 ·
              difficulties
      in the assimilation of operations, personnel, technologies, products and
      the information systems of the acquired companies;
  and
 ·
              difficulties
      in expanding information technology systems and other business processes
      to accommodate the acquired
businesses.
 
 As part
of our business strategy, we expect to seek acquisition prospects that would
complement our existing product offerings, improve our market coverage or
enhance our technological capabilities.  Although we are evaluating
acquisition and strategic investment opportunities on an ongoing basis, we may
not be able to locate suitable acquisition or investment
opportunities.  In addition, from time to time, we invest in other
companies, without actually acquiring them, and such investments involve many of
the same risks as are involved with acquisitions.
 
 On August
9, 2010, we entered into an Agreement and Plan of Merger to acquire all
remaining outstanding shares of Pericom Technology Inc. (“PTI”) capital stock
not previously owned by Pericom for up to approximately $35 million in cash.
Pericom currently has an approximately 42.4% ownership interest in PTI (40.3% on
a fully diluted basis reflecting outstanding capital stock and PTI employee
stock options), and has accounted for its investment in PTI using the equity
method due to Pericom’s significant influence over PTI’s
operations.  We expect that the merger will be completed during the
latter part of Pericom’s first quarter of its fiscal year
2011.  Pericom cannot assure that the Merger will be consummated in
that time period.  Alex Hui, Chairman of the Pericom Board of
Directors and Pericom’s Chief Executive Officer and President, and John Hui, a
director of Pericom and Pericom’s Senior Vice President, Research and
Development, respectively own 6.6% and 4.2% of the outstanding capital stock of
PTI on a fully diluted basis (in the case of John Hui, this percentage includes
shares issuable in connection with his vested options) and are entitled to an
equivalent percentage of the consideration payable in respect of the Merger to
holders of PTI capital stock and options.  Each of these individuals
also serves as a director of PTI, and Alex Hui serves as the Chief Executive
Officer and President of PTI.
  19
  For
additional information concerning the PTI transaction, see Note 23 of Notes to
Consolidated Financial Statements in this report, and our Form 8-K filed on
August 12, 2010.
 
 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 new FASB rules 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.
 
 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
and our independent registered public accounting firm determined that we had
material weaknesses in our internal control over financial reporting as of the
end of our fiscal year ended July 3, 2010.  There can be no assurance
that a material weakness will not arise in the future. As a result, current and
potential stockholders could lose confidence in our financial reporting, which
would harm our business and the trading price of our stock.
 
 Under SEC
rules, we are required to maintain, and evaluate the effectiveness of, our
internal control over financial reporting and disclosure controls and
procedures.
 
 In our
annual reports on Form 10-K for the years ended June 27, 2009,  June
30, 2007 and July 2, 2005, we reported material weaknesses in our internal
control over financial reporting. The June 30, 2007 and July 2, 2005 material
weaknesses  were subsequently remediated.
 
 As
reported in Item 9A of this Form 10-K, Pericom had material weaknesses in
internal control over financial reporting as of July 3, 2010, and management and
our independent registered public accounting firm determined that as of July 3,
2010, our internal control over financial reporting was not
effective.  As set forth in this Form 10-K, we also determined that
our disclosure controls and procedures were not effective as of July 3, 2010 due to the fact that
management had not fully remediated the material weaknesses described in the
prior year Form 10-K, resulting in two material weaknesses described in Item 9A
as of July 3, 2010, to the effect that we did not maintain sufficient controls
over the review of period-end inventory accounting and we did not maintain
a sufficient complement of personnel with an appropriate level of accounting
knowledge, experience and training in the application of generally accepted
accounting principles commensurate with the Company’s financial reporting
requirements.
  20
  In
addition, we are expanding our overseas operations, and as we grow in these
locations, we may have difficulty in recruiting and retaining a complement of
personnel with an appropriate level of accounting knowledge, experience and
training in the application of generally accepted accounting principles
commensurate with our financial reporting requirements. Our current and future
results of operations may be adversely affected by significant costs related to
our investigation of and remedial measures relating to internal control of
financial reporting. Although we have renewed our efforts to maintain effective
internal control of financial reporting as described in Item 9A of this report
on Form 10-K, there can be no assurance that we will succeed in remediating the
material weaknesses that have been identified. There also can be no assurance
that other material weaknesses or significant deficiencies will not arise in the
future. Should we or our independent registered public accounting firm determine
in future periods that we have a material weakness in our internal control over
financial reporting, the reliability of our financial reports may be impacted,
and investors could lose confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on our stock price and we
could suffer other materially adverse consequences if our future internal
control over financial reporting and disclosure controls and procedures are not
effective.
 
 Our
finance department has undergone, and continues to undergo, significant
changes.
 
 The
Company has recently undergone significant turnover of personnel in the finance
department, including in significant positions. During the current fiscal year,
the Company has hired a new Chief Financial Officer, Corporate Controller,
Director of Internal Audit, General Accounting Manager and Cost Accounting
Manager. The Company is in the process of implementing changes in its finance
department, including but not limited to implementing improved processes and
procedures and enhancing training in certain areas. There can be no assurance
that these changes will sufficiently improve the Company's finance functions, or
that the finance personnel turnover the Company has experienced will not
continue.  In either event, the reliability of our financial reports
may be impacted, and investors may lose confidence in the accuracy or
completeness of our financial reports, which could have an adverse impact on our
stock price.
 
 Customer
demands for the Company’s products are 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, may affect our product designs and manufacturing processes.
The impact of such regulations on our product designs and manufacturing
processes could affect the timing of compliant product introductions as well as
their commercial success. Redesigning our products to comply with new
regulations may result in increased research and development and manufacturing
and quality control costs.  In addition, the products we manufacture
that comply with new regulatory standards may not perform as well as our current
products. Moreover, if we are unable to successfully and timely redesign
existing products and introduce new products that meet new standards set by
environmental regulation and our customers, sales of our products could decline,
which could materially adversely affect our business, financial condition and
results of operations.
  21
  Our
contracts with our wafer suppliers do not obligate them to a minimum supply or
set prices.  Any inability or unwillingness of our wafer suppliers
generally, and GlobalFoundries, Inc. and MagnaChip Semiconductor, Inc. in
particular, to meet our manufacturing requirements would delay our production
and product shipments and harm our business.
 
 In recent
years, we purchased over 70% of our wafers from MagnaChip and GlobalFoundries,
with the balance coming from three to five other suppliers. Our reliance on
independent wafer suppliers to fabricate our wafers at their production
facilities subjects us to possible risks such as:
 
 ·
              lack
      of adequate capacity;
 ·
              lack
      of available manufactured products;
 ·
              lack
      of control over delivery schedules;
and
 ·
              unanticipated
      changes in wafer prices.
 
 Any
inability or unwillingness of our wafer suppliers generally, and GlobalFoundries
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, GlobalFoundries shut
down one of their production facilities that was used to manufacture our
products. We transitioned the production of these products to different
facilities. 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 any change.
 
 At
present, we purchase wafers from our suppliers through the issuance of purchase
orders based on our rolling nine-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 nine months or
longer.  Furthermore, we are unable to predict whether additional
wafer foundries will become available to us or will be in a position to satisfy
any of our requirements on a timely basis.
 
 We
depend on single or limited source assembly subcontractors with whom we do not
have written contracts.  Any inability or unwillingness of our
assembly subcontractors to meet our assembly requirements would delay our
product shipments and harm our business.
 
 We
primarily rely on foreign subcontractors for the assembly and packaging of our
products and, to a lesser extent, for the testing of finished
products.  Some of these subcontractors are our single source supplier
for some of our new packages.  In addition, changes in our or a
subcontractor's business could cause us to become materially dependent on a
single subcontractor.  We have from time to time experienced
difficulties in the timeliness and quality of product deliveries from our
subcontractors and may experience similar or more severe difficulties in the
future.  We generally purchase these single or limited source
components or services pursuant to purchase orders and have no guaranteed
arrangements with these subcontractors.  These subcontractors could
cease to meet our requirements for components or services, or there could be a
significant disruption in supplies from them, or degradation in the quality of
components or services supplied by them.  Any circumstance that would
require us to qualify alternative supply sources could delay shipments, result
in the loss of customers and limit or reduce our revenues.
  22
  We
may have difficulty accurately predicting revenues for future
periods.
 
 Our
expense levels are based in part on anticipated future revenue levels, which can
be difficult to predict.  Our business is characterized by short-term
orders and shipment schedules.  We do not have long-term purchase
agreements with any of our customers. Customers can typically cancel or
reschedule their orders without significant penalty.  We typically
plan production and inventory levels based on forecasts of customer demand
generated with input from customers and sales
representatives.  Customer demand is highly unpredictable and can
fluctuate substantially.  If customer demand falls significantly below
anticipated levels, our gross profit would be reduced.
 
 We
compete with others to attract and retain key personnel, and any loss of or
inability to attract key personnel would harm us.
 
 To a
greater degree than non-technology companies, our future success will depend on
the continued contributions of our executive officers and other key management
and technical personnel.  None of these individuals has an employment
agreement with us and each one would be difficult to replace.  We do
not maintain any key person life insurance policies on any of these
individuals.  The loss of the services of one or more of our executive
officers or key personnel or the inability to continue to attract qualified
personnel could delay product development cycles or otherwise harm our business,
financial condition and results of operations.
 
 Our
future success also will depend on our ability to attract and retain qualified
technical, marketing and management personnel, particularly highly skilled
design, process and test engineers, for whom competition can be
intense.  During strong business cycles, we expect to experience
difficulty in filling our needs for qualified engineers and other
personnel.
 
 Our
limited ability to protect our intellectual property and proprietary rights
could harm our competitive position.
 
 Our
success depends in part on our ability to obtain patents and licenses and
preserve other intellectual property rights covering our products and
development and testing tools.  In the United States, we currently
hold 107 patents covering certain aspects of our product designs and have 13
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.
  23
  We
may not provide adequate allowances for exchanges, returns and
concessions.
 
 We
recognize revenue from the sale of products when shipped, less an allowance
based on future authorized and historical patterns of returns, price protection,
exchanges and other concessions.  We believe our methodology and
approach are appropriate.  However, if the actual amounts we incur
exceed the allowances, it could decrease our revenue and corresponding gross
profit.
 
 We
are subject to risks related to taxes.
 
 A number
of factors, including unanticipated changes in the mix of earnings in countries
with differing statutory tax rates or by unexpected changes in existing tax laws
or our interpretation of them, could unfavorably affect our future effective tax
rate.  In the event our management determines it is no longer more
likely than not that we will realize a portion of our deferred tax assets we
will be required to increase our valuation allowance which will result in an
increase in our effective tax rate.  Furthermore, our tax returns are
subject to examination in all the jurisdictions in which we operate which
subjects us to potential increases in our tax liabilities.  All of
these factors could have an adverse effect on our financial condition and
results of operations.
 
 The
complexity of our products makes us susceptible to manufacturing problems, which
could increase our costs and delay our product shipments.
 
 The
manufacture and assembly of our products is highly complex and sensitive to a
wide variety of factors, including:
 
 ·
              the
      level of contaminants in the manufacturing
  environment;
 ·
              impurities
      in the materials used; and
 ·
              the
      performance of manufacturing personnel and production
      equipment.
 
 In a
typical semiconductor manufacturing process, silicon wafers produced by a
foundry are cut into individual die. These die are assembled into individual
packages and tested for performance. Our wafer fabrication suppliers have from
time to time experienced lower than anticipated yields of suitable die. In the
event of such decreased yields, we would incur additional costs to sort wafers,
an increase in average cost per usable die and an increase in the time to market
or availability of our products.  These conditions could reduce our
net revenues and gross margin and harm our customer relations.
 
 We do not
manufacture any of our IC products.  Therefore, we are referred to in
the semiconductor industry as a "fabless" producer.  Consequently, we
depend upon third party manufacturers to produce semiconductors that meet our
specifications.  We currently have third party manufacturers that can
produce semiconductors that meet our needs. However, as the industry continues
to progress to smaller manufacturing and design geometries, the complexities of
producing semiconductors will increase.  Decreasing geometries may
introduce new problems and delays that may affect product development and
deliveries.  Due to the nature of the industry and our status as a
"fabless" IC semiconductor company, we could encounter fabrication-related
problems that may affect the availability of our products, delay our shipments
or increase our costs. We are directly involved in the manufacture of our FCP
products. As technologies continue to evolve there may be manufacturing related
problems that affect our FCP products. In addition, we have opened up a new FCP
facility located in the Jinan Development Zone in Shandong Province, China,
which adds the uncertainties involved with staffing and operating a new facility
in a country where we have no previous operating experience.
 
 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.  We had two Asian
distributors that individually accounted for 22% and 14% of net revenues during
the fiscal year ended July 3, 2010. We had two Asian distributors that
individually accounted for 18% and 14% of our net revenues during the fiscal
year ended June 27, 2009.  We had one Asian distributor that
individually accounted for 14% of our net revenues during the fiscal year ended
June 28, 2008.   As a percentage of net revenues, sales to our
top five direct customers during the fiscal year ended July 3, 2010 totaled 54%,
as compared with 51% in the fiscal year ended June 27, 2009 and 40% in the
fiscal year ended June 28, 2008.
  24





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 3, 2010, sales to our distributors
were approximately 62% of net revenues, as compared to approximately 56% of net
revenues in the fiscal year ended June 27, 2009 and approximately 49% of net
revenues in the fiscal year ended June 28, 2008. The increase in the percentage
of sales to our distributors as compared with the prior periods was due to
growth in sales to Asian distributor customers. The loss of one or more
significant customers, or the decision by a significant distributor to carry
additional product lines of our competitors could decrease our
revenues.





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





Risks
associated with international business operations include the
following:





·
            disruptions
      or delays in shipments;


·
            changes
      in economic conditions in the countries where 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.





Although
most of our products are sold in U.S. dollars, we incur a significant amount of
certain types of expenses, such as payroll, utilities, capital equipment
purchases and taxes in local currencies. The impact of currency exchange rate
movements could harm our results and financial condition. In addition, changes
in tariff and import regulations and in U.S. and non-U.S. monetary policies
could harm our results and financial condition by increasing our expenses and
reducing our revenue. Varying tax rates in different jurisdictions could harm
our results of operations and financial condition by increasing our overall tax
rate.





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





Because
we sell products in foreign markets and have operations outside of the United
States, we face foreign business, political and economic risks that could
seriously harm us.





In fiscal
year 2010, we generated approximately 87% of our net revenues from sales in Asia
and approximately 4% from sales outside of Asia and the United States. In fiscal
2009, we derived approximately 88% of our net revenues from sales in Asia and
approximately 4% from sales outside of Asia and the United States. In fiscal
year 2008, we derived approximately 88% of our net revenues from sales in Asia
and approximately 3% from sales outside of Asia and the United States. We expect
that export sales will continue to represent a significant portion of net
revenues. We intend to continue the expansion of our sales efforts outside the
United States. This expansion will require significant management attention and
financial resources and further subject us to international operating
risks.  These risks include:





·
            tariffs
      and other barriers and
restrictions;


·
            unexpected
      changes in regulatory requirements;


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


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


25


We have
subsidiaries located in Asia.  We manufacture certain of our frequency
control products in Taiwan as well as a recently completed factory in the
Jinan Development Zone in the Shandong Province of the People's Republic of
China. We are also in the process of developing a research and development and
manufacturing center in Yangzhou, People's Republic of China.  The
development of  these facilities  depends upon various
tax concessions, tax rebates and other support from the local
governmental bodies in the areas where the facilities are
located.  There can be no assurance that these local governmental
bodies will not change their position regarding such tax and other support and
such a change might adversely affect the successful completion and
profitability of these projects.





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
often denominated in U.S. dollars, increases in the value of the U.S. dollar
could increase the price in local currencies of our products in foreign markets
and make our products relatively more expensive than competitors' products that
are denominated in local currencies. Regulatory, geopolitical and other factors
could seriously harm our business or require us to modify our current business
practices.





Our
shareholder rights plan may adversely affect existing shareholders.





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





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





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





Our
headquarters and some of our major suppliers' manufacturing facilities are
located near major earthquake faults. One of the foundries we use is located in
Taiwan, which suffered a severe earthquake during fiscal 2000. We did not
experience significant disruption to our operations as a result of that
earthquake. Taiwan is also exposed to typhoons, which can affect not only
foundries we rely upon but also our SaRonix-eCERA subsidiary. If a major
earthquake, typhoon or other natural disaster were to affect our operations or
those of our suppliers, our product supply could be interrupted, which would
seriously harm our business.




ITEM
1B.  UNRESOLVED STAFF COMMENTS





None.




ITEM
2.  PROPERTIES





We lease
approximately 76,145 square feet of space in San Jose, California in which our
headquarters, technology and product development and testing facilities are
located.  We have a lease agreement covering this property through December
2013.  The agreement contains renewal options.  We also own, through
our SRe subsidiary, a manufacturing facility near Taipei, Taiwan consisting of
approximately 74,000 square feet.  Our SRe subsidiary also owns a facility
of approximately 8,840 square feet in Taipei and has leased approximately 3,000
square feet of space in Hsin Chu, Taiwan for research and development as well as
sales and administrative functions. In addition, our factory in the Jinan
Development Zone in Shandong Province, China for the development and manufacture
of frequency control products is approximately 344,000 square feet and consists
of an administrative building, a workers dormitory, and a fabrication plant.We also have leased or rented a North American sales office located in
Illinois as well as international sales offices in Hong Kong, Japan, Korea,
Singapore and the United Kingdom.  We believe our current facilities are
adequate to support our needs through the end of fiscal 2011.


26




ITEM
3.  LEGAL PROCEEDINGS





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




ITEM
4.  REMOVED AND RESERVED


27




PART
II




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





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




COMMON
STOCK PRICE RANGE





Our
common stock began trading publicly on the NASDAQ National Market on October 31,
1997 under the symbol PSEM.  Prior to that date, there was no public market
for the common stock.  We have not paid cash dividends and have no present
plans to do so.  It is our policy to reinvest our earnings to finance
expansion of our operations and to repurchase shares of our common stock to help
counter dilution from the Company’s Stock Incentive and Employee Stock Purchase
Plans.  The following table sets forth, for the periods indicated, the high
and low closing prices of the common stock on the NASDAQ Stock Market.  As
of June 30, 2010, we had 46 holders of record of our common stock. Holders of
record do not include share owners whose shares are in broker or other nominee
accounts.  During fiscal year 2010, we did not sell any unregistered
securities.





CloseHigh
                  
                  
                  LowFiscal
      year ended June 27, 2009First
      Quarter
                  
                  $
                  15.92
                  
                  
                  $
                  11.19Second
      Quarter
                  
                  
                  10.50
                  
                  
                  
                  4.89Third
      Quarter
                  
                  
                  8.19
                  
                  
                  
                  5.21Fourth
      Quarter
                  
                  
                  9.80
                  
                  
                  
                  7.28Fiscal
      year ended July 3, 2010First
      Quarter
                  
                  $
                  9.85
                  
                  
                  $
                  8.28Second
      Quarter
                  
                  
                  12.09
                  
                  
                  
                  9.23Third
      Quarter
                  
                  
                  11.58
                  
                  
                  
                  8.75Fourth
      Quarter
                  
                  
                  12.29
                  
                  
                  
                  7.99


28




PERFORMANCE
GRAPH





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




SHAREHOLDER
RIGHTS PLAN





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




STOCK
REPURCHASE PLAN





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of our common stock and on April 29, 2008, the Board authorized
the repurchase of an additional $30 million worth of common stock. The Company
was authorized to repurchase the shares from time to time in the open market or
private transactions, at the discretion of the Company’s management. 
During the year ended July 3, 2010, the Company repurchased approximately
908,000 shares for an aggregate cost of $8.7 million. Repurchases during the
fourth quarter of fiscal 2010 were as follows:





Period
                        
                        Total
                          Number of
                          Shares
                          Purchased
                        
                        
                        Average Price
                          Paid per Share
                        
                        
                        Total Number of
                          Shares Purchased
                          as Part of Publicly
                          Announced Plans
                          or Programs
                        
                        
                        Maximum $ Value
                          That May Yet be
                          Purchased Under the
                          Plans or ProgramsMay,
      2010
                        
                        
                        179,120
                        
                        
                        
                        10.06
                        
                        
                        
                        3,192,364
                        
                        
                        
                        20,403,261June,
      2010
                        
                        
                        227,836
                        
                        
                        
                        9.06
                        
                        
                        
                        3,420,200
                        
                        
                        
                        18,338,702July,
      2010
                        
                        
                        60,452
                        
                        
                        
                        9.31
                        
                        
                        
                        3,480,652
                        
                        
                        
                        17,776,028Total
      at July 3, 2010
                        
                        
                        467,408
                        
                        
                        $
                        9.48
                        
                        
                        
                        3,480,652
                        
                        
                        $
                        17,776,028





During
the year ended June 27, 2009, the repurchases totaled approximately 712,000
shares at an aggregate cost of $5.5 million. During the year ended June 28,
2008, the Company repurchased approximately 1,559,000 shares for an aggregate
cost of $20.1 million.





Current
cash balances and the proceeds from stock option exercises and purchases in the
stock purchase plan have funded stock repurchases in the past, and the Company
expects to fund future stock repurchases from these same
sources.


29




ITEM
6.  SELECTED FINANCIAL DATA





The
following selected financial data of the Company is qualified by reference to
and should be read in conjunction with the consolidated financial statements,
including the Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein. 
The consolidated statements of operations data for each of the years in the
three-year period ended July 3, 2010, and the consolidated balance sheets data
as of July 3, 2010 and June 27, 2009, are derived from, and are qualified by
reference to, the consolidated financial statements included herein.  We
derived the consolidated statements of operations data for the years ended June
30, 2007 and July 1, 2006 and the consolidated balance sheets data as of June
28, 2008, June 30, 2007 and July 1, 2006 from audited financial statements not
included herein.  The fiscal year ending July 3, 2010 contained 53 weeks
and all other years contained 52 weeks.  On September 7, 2005, we purchased
a 99.9% share in eCERA Comtek Corporation (“eCERA”) and on March 6, 2006
completed the acquisition of AZER Crystal Technology Co., Ltd. (“AZER”). The
results of operations for both eCERA and AZER from the date of acquisition are
included in our consolidated financial statements.





Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  June 30,
                  
                  
                  July 1,2010
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(1)(in thousands, except per share data)Consolidated
      Statements of Operations Data:Net
      revenues
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  $
                  105,878Cost
      of revenues
                  
                  
                  96,146
                  
                  
                  
                  85,514
                  
                  
                  
                  103,638
                  
                  
                  
                  80,557
                  
                  
                  
                  69,374Gross
      profit
                  
                  
                  50,767
                  
                  
                  
                  43,131
                  
                  
                  
                  60,106
                  
                  
                  
                  42,813
                  
                  
                  
                  36,504Operating
      expenses:Research
      and development
                  
                  
                  17,208
                  
                  
                  
                  16,697
                  
                  
                  
                  17,159
                  
                  
                  
                  16,021
                  
                  
                  
                  15,492Selling,
      general and administrative
                  
                  
                  26,478
                  
                  
                  
                  22,833
                  
                  
                  
                  23,624
                  
                  
                  
                  21,878
                  
                  
                  
                  18,490Restructuring
      charge
                  
                  
                  —
                  
                  
                  
                  584
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  55Total
      operating expenses
                  
                  
                  43,686
                  
                  
                  
                  40,114
                  
                  
                  
                  40,783
                  
                  
                  
                  37,899
                  
                  
                  
                  34,037Income
      from operations
                  
                  
                  7,081
                  
                  
                  
                  3,017
                  
                  
                  
                  19,323
                  
                  
                  
                  4,914
                  
                  
                  
                  2,467Interest
      and other income
                  
                  
                  5,252
                  
                  
                  
                  5,613
                  
                  
                  
                  5,513
                  
                  
                  
                  6,460
                  
                  
                  
                  3,875Interest
      expense
                  
                  
                  (30
                  )
                  
                  
                  (65
                  )
                  
                  
                  (12
                  )
                  
                  
                  (130
                  )
                  
                  
                  (342
                  )Other-than-temporary
      decline in value of investments
                  
                  
                  —
                  
                  
                  
                  (506
                  )
                  
                  
                  (76
                  )
                  
                  
                  (6
                  )
                  
                  
                  (64
                  )Income
      before income taxes
                  
                  
                  12,303
                  
                  
                  
                  8,059
                  
                  
                  
                  24,748
                  
                  
                  
                  11,238
                  
                  
                  
                  5,936Income
      tax provision
                  
                  
                  3,911
                  
                  
                  
                  2,209
                  
                  
                  
                  8,221
                  
                  
                  
                  2,985
                  
                  
                  
                  1,852Net
      income from consolidated companies
                  
                  
                  8,392
                  
                  
                  
                  5,850
                  
                  
                  
                  16,527
                  
                  
                  
                  8,253
                  
                  
                  
                  4,084Equity
      in net income of unconsolidated affiliates
                  
                  
                  2,430
                  
                  
                  
                  351
                  
                  
                  
                  602
                  
                  
                  
                  407
                  
                  
                  
                  1,796Net
      income
                  
                  
                  10,822
                  
                  
                  
                  6,201
                  
                  
                  
                  17,129
                  
                  
                  
                  8,660
                  
                  
                  
                  5,880Net
      (income) loss attributable to noncontrolling interests
                  
                  
                  (28
                  )
                  
                  
                  (114
                  )
                  
                  
                  (116
                  )
                  
                  
                  (33
                  )
                  
                  
                  99Net
      income attributable to Pericom shareholders
                  
                  $
                  10,794
                  
                  
                  $
                  6,087
                  
                  
                  $
                  17,013
                  
                  
                  $
                  8,627
                  
                  
                  $
                  5,979Basic
      income per share to Pericom shareholders
                  
                  $
                  0.42
                  
                  
                  $
                  0.24
                  
                  
                  $
                  0.66
                  
                  
                  $
                  0.33
                  
                  
                  $
                  0.23Diluted
      income per share to Pericom shareholders
                  
                  $
                  0.42
                  
                  
                  $
                  0.24
                  
                  
                  $
                  0.64
                  
                  
                  $
                  0.32
                  
                  
                  $
                  0.22Shares
      used in computing basic income per share(2)
                  
                  
                  25,412
                  
                  
                  
                  25,417
                  
                  
                  
                  25,737
                  
                  
                  
                  26,058
                  
                  
                  
                  26,254Shares
      used in computing diluted income per share(2)
                  
                  
                  25,717
                  
                  
                  
                  25,626
                  
                  
                  
                  26,611
                  
                  
                  
                  26,669
                  
                  
                  
                  26,994





July 3,
                    
                    
                    June 27,
                    
                    
                    June 28,
                    
                    
                    June 30,
                    
                    
                    July 1,2010
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006(in thousands)Consolidated
      Balance Sheets Data:Working
      capital
                    
                    $
                    138,323
                    
                    
                    $
                    135,376
                    
                    
                    $
                    149,438
                    
                    
                    $
                    89,135
                    
                    
                    $
                    88,119Total
      assets
                    
                    
                    256,048
                    
                    
                    
                    246,314
                    
                    
                    
                    231,839
                    
                    
                    
                    214,491
                    
                    
                    
                    213,942Total
      long-term obligations
                    
                    
                    7,776
                    
                    
                    
                    6,616
                    
                    
                    
                    800
                    
                    
                    
                    1,188
                    
                    
                    
                    5,172Total
      shareholders’ equity
                    
                    
                    221,906
                    
                    
                    
                    213,696
                    
                    
                    
                    208,829
                    
                    
                    
                    191,640
                    
                    
                    
                    185,336





(1)
            On
      September 7, 2005, the Company acquired eCERA and on March 6, 2006
      completed the acquisition of AZER.


(2)
            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.


30




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




CRITICAL
ACCOUNTING POLICIES





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





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





REVENUE
RECOGNITION.We recognize
revenue from the sale of our products when:





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred;


·
            The
      sales price is fixed or determinable;
and


·
            Collectibility
      is reasonably assured.





Generally,
the Company meets these conditions upon shipment because, in most cases, title
and risk of loss passes to the customer at that time.  In addition, the
Company estimates and records provisions for future returns and other charges
against revenue at the time of shipment.





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





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





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


31





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





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





We grant
price protection solely at the discretion of our management.  The purpose
of price protection is to reduce our distributors’ cost of inventory as market
prices fall, which reduces our SSD rates.  Our sales management team
prepares price protection proposals for individual products located at
individual distributors.  Our general management reviews these proposals
and if a particular price protection arrangement is approved, we estimate the
dollar impact based on the book price reduction per unit for the products
approved and the number of units of those products in that distributor’s
inventory.  We record a sales reserve in that period for the estimated
amount at the time revenue is recognized.





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





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





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





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





SHORT- AND
LONG-TERM INVESTMENTS.Our policy is to invest excess funds in
instruments with investment grade credit ratings.  We classify our
investments as “available-for-sale”.  Further, we classify our
available-for-sale securities as either current or non-current based on the
specific attributes of each security.  We recognize unrealized gains and
losses in our available-for sale securities as an increase or reduction in
shareholders’ equity.  We report our available-for-sale securities at their
fair values.  We evaluate our available-for-sale securities for impairment
quarterly.  We recognize the credit portion of an impairment loss as other
than temporary decline in the value of investment in our consolidated statement
of operations in the period in which we discover the impairment.  Any
non-credit portion of an impairment loss is recorded in other comprehensive
income in our consolidated balance sheet for the period in which we discover the
impairment.


32





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





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





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





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





We
consider raw material inventory slow moving and fully reserve for it if it has
not moved in 365 days.  For assembled devices, we disaggregate the
inventory by part number.  We compare the quantities on hand in each part
number category to the quantity we shipped in the previous twelve months, the
quantity in backlog and to the quantity we expect to ship in the next twelve
months.  We record a reserve to the extent the value of each quantity on
hand is in excess of the lesser of the three comparisons. In certain
circumstances, management will determine, based on expected usage or other
factors, that inventory considered excess by these guidelines should not be
written off.  The Company does occasionally determine that last twelve
months’ sales levels will not continue and reserves inventory in line with the
quantity forecasted. We believe our method of evaluating our inventory fairly
represents market conditions.





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





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





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


33





IMPAIRMENT OF
GOODWILL AND OTHER INTANGIBLE ASSETS.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.  We determined that no impairment of our indefinite-lived
intangible assets existed at July 3, 2010.  We also evaluate other
definite-lived intangible assets for impairment when events or changes in
circumstances indicate that the assets might be impaired.  We determined
that no impairment indicators for these other definite-lived intangible assets
existed at July 3, 2010.





INCOME
TAXES.  We account for income taxes using an asset and liability
approach to recording deferred taxes.  Our deferred income tax assets
represent temporary differences between the financial statement carrying amount
and the tax basis of existing assets and liabilities that will result in
deductible amounts in future years, including net operating loss carry
forwards.  Based on estimates, the carrying value of our net deferred tax
assets assumes that it is more likely than not that we will be able to generate
sufficient future taxable income in certain tax jurisdictions.  Our
judgments regarding future profitability may change due to future market
conditions, changes in U.S. or international tax laws and other factors. 
If, in the future, we experiences losses for a sustained period of time, we may
not be able to conclude that it is more likely than not that we will be able to
generate sufficient future taxable income to realize our deferred tax
assets.  If this occurs, we may be required to increase the valuation
allowance against the deferred tax assets resulting in additional income tax
expense.




OVERVIEW





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





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




·
            in
      fiscal 2009, we introduced a total of 40 new products across our Timing,
      Signal Conditioning, and Connectivity product
  areas:




·
            Eight
      new Timing products including one Jitter Cleaner product,  four clock
      generators/buffers for PCIe, Networking and Ultramobility applications,
      and three multi-product families of oscillators – the  M , XP, and FD
      series. The XP oscillators are an industry first hybrid technology
      providing a high performance, high frequency timing reference for SAS2.0,
      GPON, 10 Gigabit Ethernet Serial connectivity standards, while the FD
      series oscillators provide a very low jitter, low power, small size
      solution for hard disk drive and wireless
  applications.




·
            Eight
      new Signal Conditioning products including SATA, Display Port, SAS, and
      PCIe Gen2 –including  an industry first PCISIG compliant PCIe 2.0
      (5Gb/s) ReDriver, an industry first eSATA 3.0 (6Gb/s) ReDriver, and a
      first to market Display Port
ReDriver.


34





·
            Twenty-four new
      Connectivity products,  including USB, Display Port, PCIe, HDMI,
      Ethernet, and LVDS switches, and  PCIe bridges and packet
      switches  – including the industry’s smallest low power PCIe packet
      switch; and





·
            In
      fiscal 2010, we introduced a total of 47 new products across the Signal
      Integrity, Timing, and Connectivity product areas, including industry
      leading or industry first product
  introductions:





·
            Expanding
      our solutions for high-speed serial protocol signal integrity, we
      introduced 11 new ReDriverTM
      products   - addressing SATA2, SATA3/SAS, USB3, and Display Port
      protocols.  A number of these products were ‘first to market’,
      especially the USB3 and Display Port ReDrivers. These products target
      volume PC, server, storage, embedded, and networking
      applications.


·
            Adding
      to high speed connectivity solutions, we introduced 18 new switching and
      connectivity products across PCIe, USB, VGA, HDMI, and Display Port
      protocols. The PCIe to USB2.0+PCIe product is the first to combine
      bridging and switching of multiple high-speed serial protocols, while a
      unique family of USB ‘sleep and charge’ products were also first to market
      with the highest level of integration for a NB USB port charger IC. These
      products target the computing, server, networking, and embedded market
      segments.


·
            Expanding
      our timing solutions for next generation platforms, we introduced 18 new
      products across crystal, XO, clock generator, and clock buffer product
      families. Included is an industry leading ASSP XO family of most popular
      platform frequency products, and a new family of very small crystals for
      ultra-mobility products such as cell phones and smart
    cards.





As is
typical in the semiconductor industry, we expect selling prices for our products
to decline over the life of each product.  Our ability to increase net
revenues is highly dependent upon our ability to increase unit sales volumes of
existing products and to introduce and sell new products in quantities
sufficient to compensate for the anticipated declines in selling prices of
existing products.  In order to have sufficient supply for increased unit
sales, we seek to increase the wafer fabrication capacity allocations from our
existing foundries, qualify new foundries, increase the number of die per wafer
through die size reductions and improve the yields of good die through the
implementation of advanced process technologies. There can be no assurance that
we will be successful in these efforts.Magnachip and
GlobalFoundries manufactured over 70% of the wafers for our semiconductor
products in fiscal years 2010, 2009 and 2008, with the balance coming from
between three and six other suppliers.





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




35




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 EndedJuly 3,
                
                
                June 27,
                
                
                June 28,2010
                
                
                2009
                
                
                2008Net
      revenues
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of revenues
                
                
                65.5
                
                
                
                66.5
                
                
                
                63.3Gross
      margin
                
                
                34.5
                
                
                
                33.5
                
                
                
                36.7Operating
      expenses:Research
      and development
                
                
                11.7
                
                
                
                13.0
                
                
                
                10.5Selling,
      general and administrative
                
                
                18.0
                
                
                
                17.7
                
                
                
                14.4Restructuring
      charge
                
                
                -
                
                
                
                0.5
                
                
                
                -Total
      operating expenses
                
                
                29.7
                
                
                
                31.2
                
                
                
                24.9Income
      from operations
                
                
                4.8
                
                
                
                2.3
                
                
                
                11.8Interest
      and other income, net
                
                
                3.6
                
                
                
                4.4
                
                
                
                3.3Interest
      expense
                
                
                -
                
                
                
                -
                
                
                
                -Other-than-temporary
      decline in value of investment
                
                
                -
                
                
                
                (0.4
                )
                
                
                -Income
      before income taxes
                
                
                8.4
                
                
                
                6.3
                
                
                
                15.1Income
      tax expense
                
                
                2.7
                
                
                
                1.7
                
                
                
                5.0Net
      income from consolidated companies
                
                
                5.7
                
                
                
                4.5
                
                
                
                10.1Equity
      in net income of unconsolidated affiliates
                
                
                1.7
                
                
                
                0.3
                
                
                
                0.4Net
      income
                
                
                7.4
                
                
                
                4.8
                
                
                
                10.5Net
      income attributable to noncontrolling interests
                
                
                -
                
                
                
                (0.1
                )
                
                
                (0.1
                )Net
      income attributable to Pericom shareholders
                
                
                7.4
                %
                
                
                4.7
                %
                
                
                10.4
                %




COMPARISON
OF FISCAL 2010, 2009 AND 2008





NET
REVENUES





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





Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  
                  14.2
                  %
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %Percentage
      of net revenues accounted for by top 5 direct customers
(1)
                  
                  
                  54.2
                  %
                  
                  
                  50.5
                  %
                  
                  
                  
                  
                  
                  
                  50.5
                  %
                  
                  
                  40.1
                  %Number
      of direct customers that each account for more than 10% of net
      revenues
                  
                  
                  2
                  
                  
                  
                  2
                  
                  
                  
                  
                  
                  
                  
                  2
                  
                  
                  
                  1Percentage
      of net revenues accounted for by top 5 end customers (2)
                  
                  
                  29.6
                  %
                  
                  
                  27.8
                  %
                  
                  
                  
                  
                  
                  
                  27.8
                  %
                  
                  
                  21.3
                  %Number
      of end customers that each account for more than 10% of net
      revenues
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  
                  
                  
                  
                  1
                  
                  
                  
                  -





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





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





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





Our order
backlog stood at $39.4 million as of July 3, 2010 and $16.4 million as of June
27, 2009.  We expect to fulfill most of our backlogged orders as of July 3,
2010 within the first quarter of fiscal 2011.  We remain heavily reliant on
orders that book and ship in the same quarter (“turns” orders).  Our
reliance on turns orders, the uncertain strength of our end-markets and the
uncertain growth rate of the world economy make it difficult to predict
near-term demand.


36





Net
revenue increased $18.3 million or 14.2% in fiscal 2010 versus 2009 primarily as
the result of:


·
            an
      increase of $16.2 million or 21.3% in sales of our IC products to $92.3
      million, and


·
            a
      $2.1 million increase in sales of FCP products to $54.6 million, for a
      3.9% improvement.





These
sales increases are primarily the result of changes in unit sales volumes of
existing products as well as the introduction and sale of new products. In
addition, fiscal 2010 benefited from having 53 weeks, which added approximately
$3.0 million to net revenues. IC products showed good sales growth, and an
important factor in this was the successful introduction of new products during
the year.





Net
revenue decreased $35.1 million or 21.4% in fiscal 2009 versus 2008 primarily as
the result of:


·
            a
      21.3% decrease in the sales of IC products to $76.1 million, a decrease of
      $20.5 million, and


·
            a
      decrease of $14.6 million or 21.7% in sales of our FCP product family to
      $52.6 million.


These
sales decreases are primarily the result of decreases in unit sales volumes of
existing products, partially offset by the introduction and sale of new
products.





For the
years ended July 3, 2010 and June 27, 2009, net revenue was reduced by sales
reserves for price protection and rebates in the amount of $1.4 million and $1.5
million, respectively. The reserves were a consequence of the economic downturn
and customers increasingly demanding price concessions.





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





The
following table sets forth net revenues by country as a percentage of total net
revenues for the fiscal years ended July 3, 2010, June 27, 2009 and June 28,
2008:





Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  June 28,(in thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  2008Net
      sales to countries:Taiwan
                  
                  
                  51.0
                  %
                  
                  
                  43.5
                  %
                  
                  
                  31.8
                  %China
      (including Hong Kong)
                  
                  
                  27.2
                  %
                  
                  
                  33.6
                  %
                  
                  
                  38.5
                  %United
      States
                  
                  
                  8.2
                  %
                  
                  
                  7.6
                  %
                  
                  
                  8.9
                  %Singapore
                  
                  
                  1.8
                  %
                  
                  
                  3.0
                  %
                  
                  
                  4.9
                  %Others
      (less than 10% each)
                  
                  
                  11.8
                  %
                  
                  
                  12.3
                  %
                  
                  
                  15.9
                  %Total
      net sales
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %





Over the
past three years, sales to Taiwan have increased from 31.8% of total net sales
in the year ended June 28, 2008, to 43.5% in the year ended June 27, 2009, to
51.0% in the year ended July 3, 2010. This shift reflects both SRe’s operations
and  manufacturing migration to Asia.  SRe derives its revenue
primarily from customers in Taiwan and China.  In addition, we are shipping
an increasing number of products to Asia, especially Taiwan and China, where an
increasing volume of contract manufacturing work occurs.  We expect our
future sales to continue to grow, as a percentage of net revenues, in Taiwan and
China in future periods.  As the migration of assembly operations to Asia
continues, we expect our net revenues from sales in North America to decline
modestly.





GROSS
PROFIT


Fiscal Year Ended
                
                
                Fiscal Year EndedJuly 3,
                
                
                June 27,
                
                
                %
                
                
                June 27,
                
                
                June 28,
                
                
                %(In thousands)
                
                2010
                
                
                2009
                
                
                Change
                
                
                2009
                
                
                2008
                
                
                ChangeNet
      revenues
                
                $
                146,913
                
                
                $
                128,645
                
                
                
                14.2
                %
                
                $
                128,645
                
                
                $
                163,744
                
                
                
                -21.4
                %Gross
      profit
                
                
                50,767
                
                
                
                43,131
                
                
                
                17.7
                %
                
                
                43,131
                
                
                
                60,106
                
                
                
                -28.2
                %Gross
      profit percentage
                
                
                34.5
                %
                
                
                33.5
                %
                
                
                
                
                
                
                33.5
                %
                
                
                36.7
                %


37


The $7.6
million increase in gross profit in fiscal 2010 as compared to fiscal 2009 is
the result of:


·
            A
      14.2% increase in sales, which led to $6.1 million of increased gross
      profit, and


·
            improved
      margins at 34.5%, resulting in a $1.5 million increase in gross
      profit.





The $17.0
million decrease in gross profit in fiscal 2009 versus fiscal 2008 was primarily
due to:


·
            Sales
      declines in IC and FCP products, resulting in a $12.9 million reduction in
      gross profit, and


·
            reduced
      margins in all lines as a result of competitive markets and underutilized
      capacity, reducing gross profit by approximately $4.1
    million.





During
fiscal years 2010, 2009 and 2008, gross profits and gross margins benefited from
the sale of inventory, previously valued at $209,000, $108,000 and $354,000,
respectively, that we had previously identified as excess and written
off.





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





RESEARCH
AND DEVELOPMENT


Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  
                  14.2
                  %
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %Research
      and development
                  
                  
                  17,208
                  
                  
                  
                  16,697
                  
                  
                  
                  3.1
                  %
                  
                  
                  16,697
                  
                  
                  
                  17,159
                  
                  
                  
                  -2.7
                  %R&D
      as a percentage of net revenues
                  
                  
                  11.7
                  %
                  
                  
                  13.0
                  %
                  
                  
                  
                  
                  
                  
                  13.0
                  %
                  
                  
                  10.5
                  %





Research
and development (“R&D”) expenses consist primarily of costs related to
personnel and overhead, non-recurring engineering charges and other costs
associated with the design, prototyping and testing of new product concepts,
manufacturing process support and customer applications support. The $511,000
expense increase for fiscal 2010 as compared with fiscal 2009 is attributable
primarily to increases of $1.2 million in compensation-related expenses
including those for stock compensation and bonuses, partially offset by
decreased expenditures of $698,000 for engineering masks, tooling, fabrication
and assembly.





The
$462,000 expense decrease for fiscal 2009 as compared with fiscal 2008 is
attributable primarily to decreases of $587,000 in compensation-related expenses
including those for stock compensation, with the savings primarily in mandatory
shutdown days and reduced bonus accruals, and decreases of $121,000 in use of
outside design consultants, partially offset by increased expenditures of
$106,000 for engineering masks and $113,000 for software
maintenance.





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





SELLING,
GENERAL AND ADMINISTRATIVE





Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  
                  14.2
                  %
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %Selling,
      general and administrative
                  
                  
                  26,478
                  
                  
                  
                  22,833
                  
                  
                  
                  16.0
                  %
                  
                  
                  22,833
                  
                  
                  
                  23,624
                  
                  
                  
                  -3.3
                  %SG&A
      as a percentage of net revenues
                  
                  
                  18.0
                  %
                  
                  
                  17.7
                  %
                  
                  
                  
                  
                  
                  
                  17.7
                  %
                  
                  
                  14.4
                  %





Selling,
general and administrative (“SG&A”) expenses consist primarily of personnel
and related overhead costs for sales, marketing, finance, administration, human
resources and general management. The $3.6 million expense increase for fiscal
2010 as compared with fiscal 2009 is attributable primarily to increases of $1.5
million in accounting and legal expenses in connection with the fiscal 2009
year-end accounting review, quarterly restatements and delayed 10-K filing, $1.3
million in compensation-related expenses including those for stock compensation,
$449,000 in sales commissions and $256,000 in expenditures for
consultants.


38





The
$791,000 expense decrease for fiscal 2009 as compared with fiscal 2008 is
attributable primarily to decreases of $443,000 in product sample and mailing
expenses, $206,000 in outside sales rep commissions, $133,000 in travel and
entertainment expenses and $94,000 in temporary labor, partially offset by
increases of $310,000 in compensation-related expenses, primarily higher
salaries and wages and stock compensation expenses.





We
anticipate that selling, general and administrative expenses will increase in
future periods as we add to our support and administrative staff, particularly
in sales and marketing, and as we face increasing commission expense to the
extent we achieve higher sales levels. In addition, as disclosed in Form 8-K
furnished on August 9, 2010, we anticipate $0.5 million of one-time PTI
acquisition related expenses during the first quarter of fiscal year 2011. We
intend to continue to focus on controlling selling, general and administrative
expenses.





RESTRUCTURING
CHARGE





In fiscal
2009, the Company instituted a restructuring plan to align its costs with
prevailing market conditions, incurring $584,000 of restructuring charges during
the year that were primarily related to workforce reductions.





INTEREST
AND OTHER INCOME, NET





Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  
                  14.2
                  %
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %Interest
      income
                  
                  
                  5,340
                  
                  
                  
                  5,553
                  
                  
                  
                  -3.8
                  %
                  
                  
                  5,553
                  
                  
                  
                  5,940
                  
                  
                  
                  -6.5
                  %Other
      income (expense)
                  
                  
                  (88
                  )
                  
                  
                  60
                  
                  
                  
                  n/m
                  (1)
                  
                  
                  60
                  
                  
                  
                  (427
                  )
                  
                  
                  n/m
                  (1)Total
      interest and other income, net
                  
                  $
                  5,252
                  
                  
                  $
                  5,613
                  
                  
                  
                  
                  
                  
                  $
                  5,613
                  
                  
                  $
                  5,513Interest
      and other income, net as a percentage of net revenues
                  
                  
                  3.6
                  %
                  
                  
                  4.4
                  %
                  
                  
                  
                  
                  
                  
                  4.4
                  %
                  
                  
                  3.4
                  %





(1)
            “n/m”
      means not meaningful.




The
decrease in interest income including realized gains for fiscal 2010, as
compared to fiscal 2009, was primarily the result of a $770,000 reduction in
interest income due to a decline in securities income yields in 2010 as compared
with 2009, partially offset by a $557,000 increase in realized gains from the
sale of investment securities. Other income (expense) for fiscal 2010 and 2009
primarily result from exchange rate losses and gains, respectively.




The
decrease in interest income including realized gains for fiscal 2009, as
compared to fiscal 2008, was primarily the result of an approximately 19%
reduction on average in the amount of short-and long-term investments in
marketable securities in 2009 as compared with 2008, partially offset by a $1.1
million increase in realized gains from the sale of investment securities. Other
income (expense) for fiscal 2009 and 2008 primarily result from exchange rate
gains and losses, respectively.





INTEREST
EXPENSE





Interest
expense decreased to $30,000 in fiscal 2010 from $65,000 in fiscal 2009 as
previously outstanding debt was retired in the fourth quarter.  Interest
expense increased to $65,000 in fiscal 2009 from $12,000 in fiscal 2008 as a
subsidiary company acquired its headquarters building with mortgage
financing.





OTHER
THAN TEMPORARY DECLINE IN VALUE OF INVESTMENT





No other
than temporary decline in value of investment was recorded in fiscal
2010.


39





Other
than temporary decline in value of investment increased to $506,000 in fiscal
2009 from $76,000 in fiscal 2008 primarily because of a $414,000 decline in the
value of an investment security. The $414,000 charge was for an
other-than-temporary impairment of a marketable debt security held in our
short-term investment portfolio. This resulted from the issuing company filing
for Chapter 11 bankruptcy protection. The Company’s investment guidelines
require a diversified portfolio of investment grade instruments, and it is
unlikely that any future impairments would be material to the Company’s
liquidity and financial position.





PROVISION
FOR INCOME TAXES





Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangePre-tax
      income
                  
                  $
                  12,303
                  
                  
                  $
                  8,059
                  
                  
                  
                  52.7
                  %
                  
                  $
                  8,059
                  
                  
                  $
                  24,748
                  
                  
                  
                  -67.4
                  %Income
      tax provision
                  
                  
                  3,911
                  
                  
                  
                  2,209
                  
                  
                  
                  77.0
                  %
                  
                  
                  2,209
                  
                  
                  
                  8,221
                  
                  
                  
                  -73.1
                  %Effective
      tax rate
                  
                  
                  31.8
                  %
                  
                  
                  27.4
                  %
                  
                  
                  
                  
                  
                  
                  27.4
                  %
                  
                  
                  33.2
                  %





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





The
effective tax rate for fiscal 2010 increased from fiscal 2009 primarily due to a
reduced benefit from foreign income and withholding taxes, partially offset by
reductions in valuation allowances. The effective tax rate for fiscal 2009
decreased from fiscal 2008 primarily due to increased benefits from state income
taxes, foreign income and withholding taxes and research and development tax
credits. A reconciliation of our tax rates for fiscal years 2010, 2009 and 2008
is detailed in Note 19 to the Consolidated Financial Statements contained in
this report on Form 10-K.





EQUITY
IN NET INCOME OF UNCONSOLIDATED AFFILIATES





Fiscal Year Ended
                  
                  
                  Fiscal Year EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  %
                  
                  
                  June 27,
                  
                  
                  June 28,
                  
                  
                  %(In thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeEquity
      in net income of PTI
                  
                  $
                  2,071
                  
                  
                  $
                  301
                  
                  
                  
                  588.0
                  %
                  
                  $
                  301
                  
                  
                  $
                  274
                  
                  
                  
                  9.9
                  %Equity
      in net income of JCP
                  
                  
                  359
                  
                  
                  
                  50
                  
                  
                  
                  618.0
                  %
                  
                  
                  50
                  
                  
                  
                  360
                  
                  
                  
                  (86.1
                  )%Equity
      in net losses of other investees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (32
                  )
                  
                  
                  100.0
                  %Total
                  
                  $
                  2,430
                  
                  
                  $
                  351
                  
                  
                  
                  592.3
                  %
                  
                  $
                  351
                  
                  
                  $
                  602
                  
                  
                  
                  (41.7
                  )%





Equity in
net income of unconsolidated affiliates includes our allocated portion of the
net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
corporation based in Shanghai, People’s Republic of China and Hong Kong. 
Pericom and certain Pericom shareholders formed PTI in 1994 to develop and
market semiconductors in China and certain other Asian countries.  We
account for our investment in PTI using the equity method of accounting. 
We have invested in PTI using several different transactions over a period of
years.  Initially, PTI generated losses which were attributable to each of
the various rounds of financing and we accounted for those losses using our
percentage of each round of financing until our investment was exhausted. 
When PTI began showing gains, we recouped our losses against each of the rounds.
During fiscal 2008 and most of 2009 we accounted for our equity in PTI following
our 25% ownership of PTI’s Series A Preferred Stock, but late in 2009 we
reverted to using our overall ownership position as the Series A investment
recovery was completed, thus recuperating all previously recorded losses. Our
ownership position declined slightly to 42.4% as of July 3, 2010 from 43.06% at
June 27, 2009 as a result of additional shares issued by PTI. Our allocated
portion of PTI’s results increased to income of $2.1 million in fiscal 2010 as
compared with $301,000 in fiscal 2009, and $274,000 in fiscal 2008.





On August
9, 2010, we entered into an agreement to acquire all remaining outstanding
shares of PTI capital stock not previously owned by Pericom for up to
approximately $35 million in cash.  For additional information concerning
the PTI transaction, see Note 23 of Notes to Consolidated Financial Statements
in this report, and our Form 8-K filed on August 12, 2010.


40





Equity in
net income of unconsolidated affiliates also includes the Company’s allocated
portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology
Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan
City, Henan Province, China. JCP is a key manufacturing partner of SRe, and SRe
has acquired a 49% equity interest in JCP. For fiscal 2010, the Company’s
allocated portion of JCP’s results was income of $359,000, as compared with
$50,000 and $360,000 for fiscal 2009 and 2008, respectively.





NET
INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS





For the
year ended July 3, 2010, net income attributable to noncontrolling interests in
income of our consolidated subsidiary SRe was $28,000. We acquired the
noncontrolling interest of our consolidated subsidiary SRe during the year. For
the year ended June 27, 2009, net income attributable to noncontrolling
interests in income of our consolidated subsidiaries PTL and SRe was $114,000.
We acquired the noncontrolling interest in PTL during fiscal 2009. For the year
ended June 28, 2008, net income attributable to noncontrolling interests in
income of PTL and SRe was $116,000.




LIQUIDITY
AND CAPITAL RESOURCES





As of
July 3, 2010, our principal sources of liquidity included continuing operations
as well as cash, cash equivalents, and short-term and long-term investments of
approximately $118.9 million, as compared with $124.6 million at June 27, 2009
and $123.9 million as of June 28, 2008. In fiscal 2010, 2009 and 2008, we made
no acquisitions of other companies other than purchase of the noncontrolling
interests in our consolidated subsidiaries. On August 9, 2010, we entered into
an agreement to acquire all remaining outstanding shares of PTI capital stock
not previously owned by us for up to approximately $35 million in cash. We
anticipate $29 million will be paid out at the close of the transaction
scheduled during the first quarter of  fiscal 2011, with an earn-out of up
to an additional $6 million to be disbursed approximately one year
later.





The
Company’s investment in debt securities includes government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include US treasury securities, US federal
agency securities, foreign government and agency securities, and US state and
municipal bond obligations. Many of the municipal bonds are insured; those that
are not are nearly all AAA/Aaa rated. The corporate debt securities are all
investment grade and nearly all are single A-rated or better. The asset-backed
securities are AAA/Aaa rated and are backed by auto loans, student loans, credit
card balances and residential or commercial mortgages. Most of our
mortgage-backed securities are collateralized by prime residential mortgages
issued by government agencies including FNMA, FHLMC and FHLB. Those issued by
banks are AAA-rated. At July 3, 2010, unrealized gains on marketable securities
net of taxes were $803,000. When assessing marketable securities for other than
temporary declines in value, we consider a number of factors. Our analyses of
the severity and duration of price declines, portfolio manager reports, economic
forecasts and the specific circumstances of issuers indicate that it is
reasonable to expect marketable securities with unrealized losses at July 3,
2010 to recover in fair value up to our cost bases within a reasonable period of
time. We have the ability and intent to hold investments with unrealized losses
until maturity, when the obligors are required to redeem them at full face value
or par, and we believe the obligors have the financial resources to redeem the
debt securities. Accordingly, we do not consider our investments to be other
than temporarily impaired at July 3, 2010.





As of
July 3, 2010, we owned assets classified as cash and cash equivalents of $29.5
million as compared to $37.3 million at June 27, 2009 and $41.6 million as of
June 28, 2008.  The maturities of our short-term investments are staggered
throughout the year to ensure we meet our cash requirements.  Because we
are primarily a fabless semiconductor manufacturer, we have lower capital
equipment requirements than other semiconductor manufacturers that own
fabrication foundries (“fabs”).  During the 2010 fiscal year, we purchased
$10.4 million of property and equipment as compared to $26.9 million and $10.0
million in fiscal 2009 and 2008, respectively.  The decrease in capital
expenditures for property and equipment in fiscal 2010 and 2008 compared with
fiscal 2009 reflected primarily the 2009 expenditure of $21.5 million for the
construction of a new facility in Jinan, People’s Republic of China, for the
manufacture of FCP products.


41





We
generated approximately $5.3 million of interest and other income, net during
the fiscal year ended July 3, 2010 compared to $5.6 million and $5.5 million in
the fiscal years ended June 27, 2009 and June 28, 2008, respectively. In the
longer term, we may generate less interest and other income if our total
invested balance decreases and the decrease is not offset by rising interest
rates or realized gains on the sale of investment securities.





In fiscal
2010, our net cash provided by operating activities of $8.4 million was the
result of net income of $10.8 million plus $7.9 million in net favorable
non-cash adjustments to net income, less unfavorable changes in assets and
liabilities of $10.3 million. The favorable adjustments to net income were
primarily comprised of depreciation and amortization of $8.0 million, stock
based compensation of $4.0 million, $344,000 in deferred taxes and stock
compensation tax benefit of $291,000, partially offset by $2.3 million of
realized gain on investments, and $2.4 million of non-cash equity in net income
of our unconsolidated affiliates. The unfavorable changes in assets and
liabilities primarily included a $2.1 million increase in accounts receivable, a
$7.0 million increase in net inventory, a $2.2 million increase in prepaids and
other current assets, and a $5.7 million decrease in accrued liabilities,
partially offset by a $4.8 million increase in accounts payable and a $2.7
million increase in long term liabilities.





In fiscal
2009, our net cash provided by operating activities of $31.8 million was the
result of net income of $6.1 million plus $9.8 million in net favorable non-cash
adjustments to net income, plus favorable changes in assets and liabilities of
$15.9 million. The favorable non-cash adjustments to net income were primarily
comprised of depreciation and amortization of $7.8 million, stock based
compensation of $3.6 million, other-than-temporary investment impairments of
$506,000 and stock compensation tax benefit of $403,000, partially offset by
$1.8 million of realized gain on investments, $439,000 in deferred taxes and
$351,000 of non-cash equity in net income of our unconsolidated affiliates. The
favorable changes in assets and liabilities primarily included a $4.9 million
decrease in accounts receivable, a $1.1 million decrease in net inventory, a
$3.8 million decrease in prepaids and other current assets, and a $7.6 million
increase in accrued liabilities, partially offset by a $1.9 million decrease in
accounts payable.





In fiscal
2008, our net cash provided by operating activities of $7.6 million was the
result of net income of $17.1 million plus $10.4 million in favorable non-cash
adjustments to net income, partially offset by unfavorable changes in assets and
liabilities of $19.8 million. The favorable non-cash adjustments to net income
were primarily comprised of depreciation and amortization of $6.5 million, stock
based compensation of $2.4 million, deferred taxes of $2.1 million and stock
compensation net tax benefit of $434,000, partially offset by $644,000 of
realized gain on investments and $602,000 of non-cash equity in net income of
our unconsolidated affiliates. The unfavorable changes in assets and liabilities
primarily included a $10.0 million increase in accounts receivable, a $2.7
million increase in net inventory, and a $5.3 million increase in prepaids and
other current assets.





In fiscal
2010, we used cash in our investing activities of $8.7 million, which was
primarily the result of purchases of property and equipment of $10.4 million and
the acquisition of the noncontrolling interest in SRe for $1.2 million,
partially offset by a decrease in restricted cash of $3.2 million.  Of the
purchases of property and equipment, $7.1 million was incurred in the completion
of our new FCP plant in Jinan, China.





In fiscal
2009, we used cash in our investing activities of $34.6 million, which was
primarily the result of purchases of property and equipment of $26.9 million,
purchases of short-term investments exceeding maturities by $3.1 million,
increase in restricted cash of $3.2 million and the acquisition of the minority
interest in PTL for $1.3 million.  Of the purchases of property and
equipment, $21.5 million was incurred in the construction and outfitting of our
new FCP plant in Jinan, China.





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





In fiscal
2010, we used cash in financing activities of $8.3 million to repurchase common
stock for $8.7 million and $1.7 million to prepay mortgage financing at our
former PTL subsidiary, partially offset by $2.0 million of proceeds from
employee stock option exercises and purchases under the Employee Stock Purchase
Plan.


42





In fiscal
2009, we used cash in financing activities of $1.0 million to repurchase common
stock for $5.5 million, partially offset by $2.7 million of proceeds from
employee stock option exercises and purchases under the Employee Stock Purchase
Plan and $1.7 million of proceeds from mortgage financing at our PTL
subsidiary.





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





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.





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of our common stock. Pursuant to the 2007 Board of Directors’
approval, we repurchased approximately 1.6 million shares during fiscal 2008 at
an approximate cost of $20.1 million.





On April
29, 2008, the Board authorized the repurchase of an additional $30 million worth
of common stock. During the year ended June 27, 2009, under the 2007 authority
the Company repurchased approximately 139,000 shares for an aggregate cost of
$1.9 million, and this completed the repurchase of 2.0 million shares under the
2007 authority at a cost of approximately $25.2 million. Pursuant to the 2008
authority, the Company repurchased approximately 573,000 shares in the year
ended June 27, 2009 for an aggregate cost of $3.5 million. During the year ended
June 27, 2009, the repurchases totaled 712,000 shares at an aggregate cost of
$5.4 million.





During
the year ended July 3, 2010, the Company repurchased approximately 908,000
shares for an aggregate cost of $8.7 million.





On
December 1, 2009, the Company entered into an R&D Center Investment
Agreement (the “R&D Agreement”) with the Administrative Committee of the
Yangzhou Economic and Technology Development Zone (the “Zone”) for the Company’s
investment in the Zone, located in Jiangsu Province, People’s Republic of China.
Under the R&D Agreement, the Company or its majority-owned affiliate will
invest in and establish a research and development center to engage in the
research and development of the IC design technologies related to “high-speed
serial connectivity”, “XO crystal oscillator”, and the manufacture of products
based on these technologies.  It is expected that the Company’s total
investment, over a period of two to three years, will be approximately $30
million U.S. Dollars.





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





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


43




CONTRACTUAL
OBLIGATIONS AND COMMITMENTS





The
following table depicts our contractual obligations as of July 3,
2010:





Payments Due by Period(in thousands)
                                              
                                              
                                              
                                              
                                              Less than
                                              
                                              
                                              1-3
                                              
                                              
                                              3-5Contractual obligation
                                              
                                              Total
                                              
                                              
                                              1 Year
                                              
                                              
                                              Years
                                              
                                              
                                              Years
                                              
                                              
                                              ThereafterOperating
      leases and operating expense commitments
                                              
                                              $
                                              4,522
                                              
                                              
                                              $
                                              1,301
                                              
                                              
                                              $
                                              2,515
                                              
                                              
                                              $
                                              706
                                              
                                              
                                              $
                                              -Capital
      equipment purchase commitments
                                              
                                              
                                              2,458
                                              
                                              
                                              
                                              1,473
                                              
                                              
                                              
                                              985
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Yangzhou
      capital injection
                                              
                                              
                                              21,000
                                              
                                              
                                              
                                              6,000
                                              
                                              
                                              
                                              15,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Total
      contractual cash obligations
                                              
                                              $
                                              27,980
                                              
                                              
                                              $
                                              8,774
                                              
                                              
                                              $
                                              18,500
                                              
                                              
                                              $
                                              706
                                              
                                              
                                              $
                                              -





The
Company leases certain facilities under operating leases with termination dates
on or before December 2013.  Generally, these leases have multiple options
to extend for a period of years upon termination of the original lease term or
previously exercised option to extend.





As of
July 3, 2010, we have no purchase obligations other than routine purchase orders
and the capital equipment purchase commitments shown in the table. On August 9,
2010, we entered into an agreement to acquire all remaining outstanding shares
of PTI capital stock not previously owned by us for up to approximately $35
million in cash.  For additional information concerning the PTI
transaction, see Note 23 of Notes to Consolidated Financial Statements in this
report, and our Form 8-K filed on August 12, 2010.





We
completed the initial phase of our new FCP facility in Jinan, People’s Republic
of China, during fiscal 2010 and the plant commenced operations in the third
quarter. While further expansion of the plant is anticipated in the future, we
have not yet begun planning for the next phase and do not anticipate significant
outlays in the next twelve months.





On
December 1, 2009, the Company entered into an R&D Center Investment
Agreement (the “R&D Agreement”) with the Administrative Committee of the
Yangzhou Economic and Technology Development Zone (the “Zone”) for the Company’s
investment in the Zone, located in Jiangsu Province, People’s Republic of China.
Under the R&D Agreement, the Company or its majority-owned affiliate will
invest in and establish a research and development center to engage in the
research and development of the IC design technologies related to “high-speed
serial connectivity” and the “XO crystal oscillator” and the manufacture of
relevant products.  It is expected that the Company’s total investment,
over a period of two to three years, will be approximately $30 million U.S.
Dollars. As of July 3, 2010, the Company’s commitment for capital injections for
the Yangzhou project is $21 million, which is included in the table
above.




OFF-BALANCE
SHEET ARRANGEMENTS





As of
July 3, 2010, the Company did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4) of SEC Regulation S-K.




RECENTLY
ISSUED ACCOUNTING STANDARDS





In
February 2010, the Financial Accounting Standards Board
(“FASB”) issued an Accounting Standards Update (“ASU”), which eliminates
the requirement for public companies to disclose the date through which
subsequent events have been evaluated. The Company will continue to evaluate
subsequent events through the date of the issuance of the financial statements,
however, consistent with the guidance, this date will no longer be disclosed.
ASU 2010-09 does not have any impact on the Company’s results of operations,
financial condition or liquidity.





In
January 2010, the FASB issued an ASU which clarifies and provides additional
disclosure requirements on the transfers of assets and liabilities between Level
1 (quoted prices in active market for identical assets or liabilities) and Level
2 (significant other observable inputs) of the fair value measurement hierarchy,
including the reasons for and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuance,
and settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance is effective
for Pericom with the reporting period beginning December 27, 2009, except for
the disclosure on the roll forward activities for Level 3 fair value
measurements, which will become effective for Pericom with the fiscal year
beginning after December 15, 2010. Other than requiring additional disclosures,
adoption of this new guidance will not have a material impact on our financial
statements.


44




In June
2009, the FASB amended certain guidance for determining whether an entity is a
variable interest entity (VIE), requires a qualitative rather than a
quantitative analysis to determine the primary beneficiary for a VIE, requires
continuous assessments of whether an enterprise is the primary beneficiary of a
VIE and requires enhanced disclosures about an enterprise’s involvement with a
VIE. The guidance is effective for Pericom for the fiscal year beginning July 4,
2010, for interim periods within that fiscal year, and for interim and annual
reporting periods thereafter. We are currently evaluating the impact this
guidance will have on our consolidated financial position, results of operations
and cash flows.





In
December 2007, the FASB issued Accounting Standards Codification (“ASC”) No.
810-10-65, Transition Related
to Noncontrolling Interests in Consolidated Financial Statement(“ASC
810-10-65”), previously referred to as Statement of Financial Accounting
Standards (“SFAS”) No. 160. ASC 810-10-65 establishes new accounting and
reporting standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest as equity in the consolidated financial
statements separate from the parent’s equity. The amount of net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement. ASC 810-10-65 clarifies that changes
in a parent’s ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the non-controlling equity
investment on the deconsolidation date. ASC 810-10-65 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The provisions of ASC 810-10-65 are effective for the
fiscal year beginning June 28, 2009 and the presentation and disclosure
requirements must be applied retrospectively for all periods presented at that
date. The Company has adopted this standard, and prior periods have been
restated to reflect the presentation and disclosure requirements of the new
guidance.




ITEM
7A.  QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




MARKET
RISK DISCLOSURE





At July
3, 2010, the Company’s investment portfolio consisted primarily of fixed income
securities, excluding those classified as cash equivalents, with fair value of
$89.4 million (see Note 1 of Notes to Financial Statements).  These
securities are subject to interest rate risk and will decline in value if market
interest rates increase.  We could realize a loss on these securities if we
were forced to sell them in a period when interest rates are higher than current
rates.  We do not expect such a scenario to occur.  For example, if
market interest rates were to increase immediately and uniformly by 10% from
levels as of July 3, 2010, such as from 3.0% to 3.3%, the decline in the fair
value of the portfolio would be approximately $8.1 million.  On the other
hand, if interest rates were to decline the effect on our portfolio would be in
the opposite direction.





When the
general economy weakens significantly, as it did in 2008 and 2009, the credit
profile, financial strength and growth prospects of certain issuers of
interest-bearing securities held in our investment portfolios may deteriorate,
and our interest-bearing securities may lose value either temporarily or other
than temporarily. We may implement investment strategies of different types with
varying duration and risk/return trade-offs that do not perform well. At July 3,
2010, we held a significant portion of our corporate cash in diversified
portfolios of investment-grade marketable securities, mortgage- and asset-backed
securities, and other securities that had net unrealized gains of $803,000 net
of tax. Although we consider unrealized gains and losses on individual
securities to be temporary, there is a risk that we may incur
other-than-temporary impairment charges if credit and equity markets are
unstable and adversely impact securities issuers.





The
Company transacts business in various non-U.S. currencies, primarily the New
Taiwan Dollar, Hong Kong Dollar, the Chinese Renminbi and the Japanese Yen. The
Company is exposed to fluctuations in foreign currency exchange rates on
accounts receivable and accounts payable from sales and purchases in these
foreign currencies and the net monetary assets and liabilities of our foreign
subsidiaries. A hypothetical 10% unfavorable change in the foreign currency
exchange rate would reduce cash by approximately $1,000 as those monetary assets
are converted to cash. The amount is modest because the receivables and payables
are nearly equal.


45




ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





1.
                                                            
                                                            INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTSThe
      following Consolidated Financial Statements are filed as part of this
      report:Page No.Report
      of Independent Registered Public Accounting Firm
                                                            58Consolidated
      Balance Sheets as of July 3, 2010 and June 27, 2009
                                                            59Consolidated
      Statements of Operations for each of the three fiscal years in the period
      ended July 3, 2010
                                                            60Consolidated
      Statements of Shareholders’ Equity and Comprehensive Income for each of
      the three fiscal years in the period ended July 3, 2010
                                                            61Consolidated
      Statements of Cash Flows for each of the three fiscal years in the period
      ended July 3, 2010
                                                            62Notes
      to Consolidated Financial Statements
                                                            632.
                                                            
                                                            INDEX
      TO FINANCIAL STATEMENT SCHEDULEThe
      following financial statement schedule of Pericom Semiconductor
      Corporation for the years ended July 3, 2010, June 27, 2009 and June 28,
      2008 is filed as part of this report and should be read in conjunction
      with the Consolidated Financial Statements of Pericom Semiconductor
      Corporation.Schedule
      II – Valuation and Qualifying Accounts for each of the three fiscal years
      in the period ended July 3, 2010
                                                            Sii





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


46




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





None.




ITEM 9A.  CONTROLS
AND PROCEDURES





Material
Weaknesses Previously Disclosed





As
discussed in Item 9A of our Annual Report on Form 10-K for the year ended June
27, 2009 and in Part I, Item 4 of our Quarterly Report on Form 10-Q for the
quarterly periods ended September 26, 2009, December 26, 2009, and March 27,
2010, we identified two material weaknesses in the design and operation of our
internal controls.





The first
involved certain controls over period-end inventory accounting that were not
effective. As a result, our inventory valuation and inventory reserves were
misstated. In addition, our new enterprise resource planning (“ERP”) system,
which was implemented in the second quarter of fiscal 2009, contained
programming errors that caused certain inventory items to be incorrectly
valued.





The
second material weakness was that we did not maintain a sufficient complement of
personnel with an appropriate level of accounting knowledge, experience and
training in the application of generally accepted accounting principles
commensurate with the Company’s financial reporting requirements.  As
a result, we concluded that controls over the financial statement close process
related to account reconciliations and analyses, including investment accounts,
accounts receivable reserves, inventories, accounts payable and accrued
liabilities, were not effective.  As a result, a large volume of
adjustments identified as part of the audit process were necessary to completely
and accurately present the consolidated financial statements in accordance with
generally accepted accounting principles.





As noted
below in Management's Report on Internal Control Over Financial Reporting, these
material weaknesses continued to exist as of July 3, 2010.





Evaluation
of Disclosure Controls and Procedures





We
maintain “disclosure controls and procedures,” as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”), that are designed to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.





Our
management is responsible for establishing and maintaining our disclosure
controls and procedures. Our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) have evaluated the effectiveness of our disclosure controls and
procedures as of July 3, 2010. In light of the material weaknesses set forth
below, our CEO and CFO have concluded that our disclosure controls and
procedures were not effective as of that date.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. 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.





Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has assessed the effectiveness of our internal control over
financial reporting as of July 3, 2010. In making this assessment, our
management used the criteria established in Internal Control —
Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).


47


A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. Management’s
assessment identified the following material weaknesses in our internal control
over financial reporting as of July 3, 2010:





·
            We
      did not maintain sufficient controls over the review of period-end
      inventory accounting.   In addition, as a result of the
      implementation of our new enterprise resource planning (“ERP”) system in
      fiscal 2009, certain cost data was inadvertently misclassified which led
      to an error in cost of goods sold.





·
            We
      did not maintain a sufficient complement of personnel with an appropriate
      level of accounting knowledge, experience and training in the application
      of generally accepted accounting principles commensurate with the
      Company’s financial reporting requirements.  As a result, the
      Company concluded that controls over the financial statement close process
      related to account reconciliations and analyses, including investment
      accounts, accounts receivable reserves, inventories, accounts payable and
      accrued liabilities, were not
effective.





These
control deficiencies required adjustments during the interim and annual close
processes to completely and accurately present the consolidated financial
statements in accordance with generally accepted accounting principles.





Because
of the material weaknesses discussed above, we have concluded that the Company
did not maintain effective internal control over financial reporting as of July
3, 2010, based on the criteria established in Internal Control —
Integrated Frameworkissued by the COSO.





The
effectiveness of the Company’s internal control over financial reporting as of
July 3, 2010 has been audited by Burr Pilger Mayer, Inc., an independent
registered public accounting firm, as stated in their report which appears
herein.





Management’s
Planned Remediation Initiatives and Interim Measures





We have
summarized below the remediation initiatives that we have implemented or plan to
implement in response to the material weaknesses discussed above. In addition to
the following summary of remediation initiatives, we also describe below the
interim measures we undertook in an effort to mitigate the possible risks of
these material weaknesses in connection with the preparation of the financial
statements included in this Form 10-K.





Remediation
Initiatives





The
Company is committed to continuing to improve its internal control processes and
will continue to diligently and vigorously review its internal control over
financial reporting in order to ensure compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002. In response to the material
weaknesses discussed above, we plan to continue to review and make necessary
changes to improve our internal control over financial reporting, including the
roles and responsibilities of each functional group within the organization and
reporting structure, as well as the appropriate policies and procedures to
improve the overall internal control over financial reporting.





During
the year ended July 3, 2010, the Company has taken substantial efforts to
remediate the material weaknesses described above:





1.
            During
      the first quarter of 2010, we hired a new general accounting manager and a
      cost accounting manager with experience and training in the application of
      U.S. generally accepted accounting principles to strengthen our period end
      reporting and inventory accounting
processes.




48


2.
            During
      the third quarter of 2010, the Company recruited a new Chief Financial
      Officer who has since reorganized the Company’s period end close
      reconciliation process. This reorganization is intended to provide a more
      disciplined structure for finance and accounting processes and controls,
      enable clear and concise access to information and promote the consistent
      application of policies and procedures in conformity with U.S. generally
      accepted accounting principles.




3.
            During
      the fourth quarter of 2010, the Company recruited a new Corporate
      Controller at the U.S. headquarters location with experience and training
      in the application of U.S. generally accepted accounting principles
      commensurate with our accounting and financial reporting requirements.
      Additionally, the Company enlisted a new Director of Internal Audit to
      further enhance and implement internal control over financial reporting to
      ensure the Company has adequate policies and procedures in place to
      prevent and detect material
misstatements.





4.
            We
      improved the discipline throughout the organization with respect to
      achieving greater compliance with policies, procedures, and controls that
      have been previously implemented.





5.
            Certain
      finance personnel involved in the processing, recording and reporting of
      inventory transactions have been
replaced.





6.
            We
      implemented new policies and procedures focused on timely and accurate
      financial reporting and implemented training and programs to focus on
      continuous improvements regarding the application of U.S. generally
      accepted accounting principles.





Management
plans on taking the following additional remediation actions during fiscal
2011:





7.
            We
      have a plan in place to hire a qualified third party consulting firm
      before the end of the first quarter of fiscal 2011 to assist the Company
      in enhancing and re-engineering its existing enterprise-wide financial
      application to support the timeliness and accuracy of its period end
      reporting process.





8.
            We
      plan to further strengthen our controls over the monthly closing processes
      by recruiting an adequate complement of personnel with accounting
      knowledge, experience and training in the application of
      U.S. generally accepted accounting
  principles.





9.
            We plan to further improve the
      timeliness and accuracy of our period end account reconciliations by
      enhancing the policies, procedures and controls used in the monthly
      closing process.





Interim
Measures




Management
has not yet implemented all of the measures described above under the heading
"Remediation
Initiatives" and/or tested them. Nevertheless, management believes the
measures identified above to the extent they have been implemented, together
with other measures undertaken by the Company in connection with the
2010 year end consolidated financial statement reporting process and
described below, address the identified control deficiencies under "Management's
Annual Report on Internal Control over Financial Reporting." These other
measures include the following:




1.
            The
      Company significantly enhanced its controls over the period end account
      reconciliation process, including enhancements to improve the rigor of our
      review process. Additionally,  we undertook a variety of manual
      review procedures, such as a review of transactions and journal entry
      postings into the ERP system and a review of account reconciliations, to
      ensure the completeness and accuracy of the underlying financial
      information used to generate the 2010 consolidated annual financial
      statements. We plan to further strengthen our controls over the monthly
      closing processes by recruiting an adequate complement of personnel with
      accounting knowledge, experience and training in the application of
      U.S. generally accepted accounting
  principles.




49


2.
            Reviews
      of inventory valuation and reserves, including reviews of the
      work-in-progress cost accumulation and reconciliation of perpetual
      inventory records to the general
ledger.





3.
            Undertaking
      a training program for all finance personnel involved in determining,
      analyzing, or reviewing inventory valuation and reserves, and their
      changes from period to period.





4.
            Reviews
      and reconciliation of the matching of vendor invoices with purchase orders
      and receiving documents.





Changes
in Internal Control over Financial Reporting





Except as
discussed above
under "Management's Planned Remediation Initiatives and Interim Measures"there were no other changes to the Company’s internal control over
financial reporting during the fourth quarter of 2010 that materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.




ITEM
9B.  OTHER INFORMATION





None


50





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON


INTERNAL
CONTROL OVER FINANCIAL REPORTING





To the
Board of Directors and Shareholders


of
Pericom Semiconductor Corporation





We have
audited the internal control over financial reporting of Pericom Semiconductor
Corporation and its subsidiaries (the “Company”) as of July 3, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting, included in Item 9A. Our responsibility is to express an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.





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





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





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





A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management’s assessment:





·
            The
      Company did not maintain sufficient controls over the review of period-end
      inventory accounting.   In addition, as a result of the
      implementation of the Company’s enterprise resource planning (“ERP”)
      system in fiscal 2009, certain cost data was inadvertently misclassified
      which led to an error in cost of goods
sold.




51


·
            The
      Company did not maintain a sufficient complement of personnel with an
      appropriate level of accounting knowledge, experience and training in the
      application of generally accepted accounting principles commensurate with
      the Company’s financial reporting requirements.  As a result,
      the Company concluded that controls over the financial statement close
      process related to account reconciliations and analyses, including
      investment accounts, accounts receivable reserves, inventories, accounts
      payable and accrued liabilities, were not
  effective.





These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the fiscal 2010 consolidated
financial statements, and our opinion regarding the effectiveness of the
Company’s internal control over financial reporting does not affect our opinion
on those consolidated financial statements.





In our
opinion, because of the effect of the material weaknesses described above on the
achievement of the objectives of the control criteria, Pericom Semiconductor
Corporation did not maintain effective internal control over financial reporting
as of July 3, 2010, based on the COSO criteria.







We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Pericom
Semiconductor Corporation and its subsidiaries as of July 3, 2010 and June 27,
2009, and the related consolidated statements of operations, shareholders’
equity and comprehensive income, and cash flows for each of the three years in
the period ended July 3, 2010, and the related financial statement schedule and
our report dated August 31, 2010 expressed an unqualified opinion on those
consolidated financial statements and the related financial statement
schedule.




/s/
      Burr Pilger Mayer, Inc.San
      Jose, CaliforniaAugust
      31, 2010


52




PART
III




ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
information required by this item is incorporated by reference to the section
captioned “Proposal No.1 Election of Directors” and “Directors and Executive
Officers of the Registrant” to be contained in the Company’s Definitive Proxy
Statement related to the Annual Meeting of Shareholders to be held December 9,
2010, to be filed by the Company with the SEC (the “Proxy
Statement”).




ITEM
11.  EXECUTIVE COMPENSATION





The
information required by this item is incorporated by reference to the section
captioned “Compensation Discussion and Analysis,” “Compensation Committee
Report,” and “Executive Compensation” to be contained in the Proxy
Statement.




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





The
security ownership 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 3, 2010.





Plan Category
                              
                              Number of securities to
                                be issued upon exerciseof
                                outstanding options,
                                warrants and rights
                              
                              
                              Weighted average
                                exercise price of
                                outstanding options,
                                warrants and rights
                              
                              
                              Number of securities
                                remaining available
                                for future issuance
                                under plansEquity
      compensation plans approved by shareholders:Option
      plans
                              
                              
                              3,444,435
                              
                              
                              $
                              11.87
                              
                              
                              
                              2,724,153Employee
      stock purchase plan
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              1,964,173Equity
      compensation plans not approved by shareholders:SaRonix
      Inducement options (1)
                              
                              
                              32,087
                              
                              
                              $
                              10.00
                              
                              
                              
                              —Total
                              
                              
                              3,476,522
                              
                              
                              $
                              11.85
                              
                              
                              
                              4,688,326




(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.




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





The
information required by this item is incorporated by reference to the section
captioned “Certain Transactions” and “Proposal No. 1 Election of Directors” to
be contained in the Proxy Statement.


53




ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
information required by this item is incorporated by reference to the sections
captioned “Proposal No. 2 Ratification of Appointment of Independent Registered
Public Accounting Firm” to be contained in the Proxy
Statements.


54


PART
IV




ITEM
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





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





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





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





Exhibit
                  
                  Description2.1
                  
                  Agreement
      and Plan of Merger, dated as of August 9, 2010, by and among Pericom
      Semiconductor Corporation, PTI Acquisition Subsidiary Inc., Pericom
      Technology Inc., and Yuk Kin Wong in his capacity as the representative of
      the Securityholders, filed as Exhibit 2.1 to the Company’s Form 8-K filed
      August 12, 2010, and incorporated herein by reference.3.1
                  
                  Restated
      Articles of Incorporation of the Company, filed as Exhibit 3.1 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
      2001, and incorporated herein by reference.3.2
                  
                  Amended
      and Restated Bylaws of the Company (as amended by an amendment adopted on
      October 31, 2007), filed as Exhibit 3.1 to the
      Company’s  Quarterly Report on Form 10-Q for the quarter ended
      December 29, 2007, and incorporated herein by
reference.3.3
                  
                  Certificate
      of Determination of the Series D Junior Participating Preferred Shares,
      filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for
      the quarter ended March 31, 2002, and incorporated herein by
      reference.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, filed as Exhibit 4 to the
      Company’s Registration Statement on Form 8-A filed March 14, 2002, and
      incorporated herein by reference.10.1*
                  
                  Pericom’s
      1990 Stock Option Plan, including Form of Agreement thereunder, filed as
      Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed
      September 10, 1997, and incorporated herein by
  reference.10.2*
                  
                  Pericom’s
      1995 Stock Option Plan, including Form of Agreement thereunder, filed as
      Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed
      September 10, 1997, and incorporated herein by
  reference.10.3*
                  
                  Form
      of Indemnification Agreement, filed as Exhibit 10.11 to the Company’s
      Registration Statement on Form S-1 filed September 10, 1997, and
      incorporated herein by reference.10.4
                  
                  Pericom
      Technology Agreement, dated March 17, 1995 by and between the Company and
      Pericom Technology Inc., filed as Exhibit 10.12 to the Company’s
      Registration Statement on Form S-1 filed September 10, 1997, and
      incorporated herein by
reference.




55





10.5*
              
              Pericom’s
      2000 Employee Stock Purchase Plan, including Forms of Agreement
      thereunder, filed as Exhibit 10.13 to the Company’s Quarterly Report on
      Form 10-Q for the quarter ended December 30, 2000, and incorporated herein
      by reference.10.6*
              
              Form
      of Notice of Grant of Stock Option and Option Agreement for Inducement
      Options, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form
      10-Q for the quarter ended September 27, 2003, and incorporated herein by
      reference.10.7
              
              Lease,
      dated October 27, 2003 by and between CarrAmerica Realty Corporation as
      Landlord and the Company as Tenant, as amended, filed as Exhibit 10.2 to
      the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 27, 2003, and incorporated herein by
  reference.10.8*
              
              Amended
      and Restated 2001 Stock Incentive Plan including Form of Agreement
      thereunder, filed as Exhibit 10.2 to the Company’s Form 8-K filed December
      21, 2004, and incorporated herein by reference.10.9**
              
              English
      translation of Cooperation Agreement between Pericom Semiconductor
      Corporation and the Jinan Hi-Tech Industries Development Zone Commission,
      dated as of January 26, 2008, filed as Exhibit 10.1 to the Company’s Form
      8-K/A filed May 5, 2008, and incorporated herein by
    reference.10.10*
              
              Forms
      of Restricted Stock Award Grant Notice and Restricted Stock Award
      Agreement under each of the Amended and Restated Pericom 2001 Stock
      Incentive Plan and the Amended and Restated Pericom 2004 Stock Incentive
      Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended March 29, 2008, and incorporated herein by
      reference.10.11*
              
              Amended
      and Restated Change of Control Agreement, filed as Exhibit 10.1 to the
      Company’s Form 8-K filed December 17, 2008, and incorporated herein by
      reference.10.12*
              
              Amended
      and Restated 2004 Stock Incentive Plan, attached as Appendix A to the
      Company’s Definitive Proxy Statement on Schedule 14A filed on October 23,
      2008, and incorporated herein by reference.10.13*
              
              Pericom’s
      2010 Employee Stock Purchase Plan, attached as Appendix A to the Company’s
      Definitive Proxy Statement on Schedule 14A filed October 23, 2009, and
      incorporated herein by reference.10.14**
              
              English
      translation of R&D Center Investment Agreement, dated as of December
      1, 2009, between Yangzhou Economic and Technological Development Zone and
      Pericom Asia Limited, filed as Exhibit 10.1 to the Company’s Quarterly
      Report on Form 10-Q for the quarter ended December 26, 2009, and
      incorporated herein by reference.10.15*
              
              Offer
      letter, dated March 8, 2010, by and between the Company and Aaron
      Tachibana, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form
      10-Q for the quarter ended March 27, 2010, 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 Corporation23.1
              
              Consent
      of Burr Pilger Mayer, Inc. Independent Registered Public Accounting
      Firm




56





24.1
                
                Power
      of Attorney (see signature page)31.1
                
                Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                
                Certification
      of Aaron Tachibana, Chief Financial Officer, pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
                
                Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
                
                Certification
      of Aaron Tachibana, Chief Financial Officer, pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002




*
            Management
      contract or compensatory plan or
arrangement.


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





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


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


57





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 its subsidiaries (the “Company”) as of July 3, 2010 and June 27,
2009 and the related consolidated statements of operations, shareholders’ equity
and comprehensive income, and cash flows for each of the three years in the
period ended July 3, 2010.  Our audits also included the financial
statement schedule listed in the Index to this Annual Report on Form 10-K at
Part IV Item 15(a)(1).  These consolidated financial statements and the
financial statement schedule are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Pericom Semiconductor
Corporation and its subsidiaries as of July 3, 2010 and June 27, 2009 and the
results of their operations and their cash flows for each of the three years in
the period ended July 3, 2010 in conformity with accounting principles generally
accepted in the United States of America.  Also, in our opinion, the
related financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of July 3, 2010, 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 August 31, 2010 expressed an
adverse opinion on the effectiveness of the Company’s internal control over
financial reporting..





/s/
      Burr Pilger Mayer, Inc.San
      Jose, CaliforniaAugust
      31, 2010




58





PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)





July
      3,
                
                
                June
      27,2010
                
                
                2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                29,495
                
                
                $
                37,321Restricted
      cash
                
                
                -
                
                
                
                3,200Short-term
      investments in marketable securities
                
                
                76,454
                
                
                
                75,471Accounts
      receivable:Trade
      (net of allowances of $2,665 and $2,163)
                
                
                25,365
                
                
                
                22,875Other
      receivables
                
                
                3,940
                
                
                
                1,663Inventories
                
                
                23,431
                
                
                
                16,340Prepaid
      expenses and other current assets
                
                
                2,885
                
                
                
                2,075Deferred
      income taxes
                
                
                3,119
                
                
                
                2,433Total
      current assets
                
                
                164,689
                
                
                
                161,378Property,
      plant and equipment – net
                
                
                50,760
                
                
                
                47,238Investments
      in unconsolidated affiliates
                
                
                13,183
                
                
                
                10,826Deferred
      income taxes – non current
                
                
                3,868
                
                
                
                4,913Long-term
      investments in marketable securities
                
                
                12,977
                
                
                
                11,780Goodwill
                
                
                1,681
                
                
                
                1,673Intangible
      assets (net of accumulated amortization of $1,257 and
$922)
                
                
                1,452
                
                
                
                1,764Other
      assets
                
                
                7,438
                
                
                
                6,742Total
      assets
                
                $
                256,048
                
                
                $
                246,314LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                15,585
                
                
                $
                10,824Accrued
      liabilities
                
                
                10,781
                
                
                
                15,118Current
      portion of long-term debt
                
                
                -
                
                
                
                60Total
      current liabilities
                
                
                26,366
                
                
                
                26,002Long-term
      debt
                
                
                -
                
                
                
                1,610Industrial
      development subsidy
                
                
                6,577
                
                
                
                3,718Other
      long-term liabilities
                
                
                1,199
                
                
                
                1,287Total
      liabilities
                
                
                34,142
                
                
                
                32,617Commitments
      (Note 12)Shareholders’
      equity:Common
      stock and paid in capital - no par value, 60,000,000 shares authorized;
      shares issued and outstanding: at July 3, 2010, 24,898,000; at June 27,
      2009, 25,462,000
                
                
                130,536
                
                
                
                133,162Retained
      earnings
                
                
                89,299
                
                
                
                78,505Accumulated
      other comprehensive income, net of tax
                
                
                2,071
                
                
                
                797Total
      Pericom shareholders’ equity
                
                
                221,906
                
                
                
                212,464Noncontrolling
      interests in consolidated subsidiaries
                
                
                -
                
                
                
                1,233Total
      shareholders’ equity
                
                
                221,906
                
                
                
                213,697Total
      liabilities and shareholders' equity
                
                $
                256,048
                
                
                $
                246,314




See notes
to consolidated financial statements.


59





PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except per share data)





Year EndedJuly
      3,
                
                
                June
      27,
                
                
                June
      28,2010
                
                
                2009
                
                
                2008Net
      revenues
                
                $
                146,913
                
                
                $
                128,645
                
                
                $
                163,744Cost
      of revenues
                
                
                96,146
                
                
                
                85,514
                
                
                
                103,638Gross
      profit
                
                
                50,767
                
                
                
                43,131
                
                
                
                60,106Operating
      expenses:Research
      and development
                
                
                17,208
                
                
                
                16,697
                
                
                
                17,159Selling,
      general and administrative
                
                
                26,478
                
                
                
                22,833
                
                
                
                23,624Restructuring
                
                
                -
                
                
                
                584
                
                
                
                -Total
      operating expenses
                
                
                43,686
                
                
                
                40,114
                
                
                
                40,783Income
      from operations
                
                
                7,081
                
                
                
                3,017
                
                
                
                19,323Interest
      and other income, net
                
                
                5,252
                
                
                
                5,613
                
                
                
                5,513Interest
      expense
                
                
                (30
                )
                
                
                (65
                )
                
                
                (12
                )Other-than-temporary
      decline in value of investment
                
                
                -
                
                
                
                (506
                )
                
                
                (76
                )Income
      before income taxes
                
                
                12,303
                
                
                
                8,059
                
                
                
                24,748Income
      tax expense
                
                
                3,911
                
                
                
                2,209
                
                
                
                8,221Net
      income from consolidated companies
                
                
                8,392
                
                
                
                5,850
                
                
                
                16,527Equity
      in net income of unconsolidated affiliates
                
                
                2,430
                
                
                
                351
                
                
                
                602Net
      income
                
                $
                10,822
                
                
                $
                6,201
                
                
                $
                17,129Net
      income attributable to noncontrolling interests
                
                
                (28
                )
                
                
                (114
                )
                
                
                (116
                )Net
      income attributable to Pericom shareholders
                
                $
                10,794
                
                
                $
                6,087
                
                
                $
                17,013Basic
      income per share to Pericom shareholders
                
                $
                0.42
                
                
                $
                0.24
                
                
                $
                0.66Diluted
      income per share to Pericom shareholders
                
                $
                0.42
                
                
                $
                0.24
                
                
                $
                0.64Shares
      used in computing basic earnings per share
                
                
                25,412
                
                
                
                25,417
                
                
                
                25,737Shares
      used in computing diluted earnings  per share
                
                
                25,717
                
                
                
                25,626
                
                
                
                26,611





See notes
to consolidated financial statements.


60


PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND


COMPREHENSIVE
INCOME


(In
thousands)




AccumulatedOther
                                          
                                          
                                          
                                          
                                          
                                          TotalCommon
      Stock
                                          
                                          
                                          Retained
                                          
                                          
                                          Comprehensive
                                          
                                          
                                          Noncontrolling
                                          
                                          
                                          Shareholders’Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Earnings
                                          
                                          
                                          Income
      (Loss)
                                          
                                          
                                          Interest
                                          
                                          
                                          EquityBALANCES,
      June 30, 2007
                                          
                                          
                                          25,838
                                          
                                          
                                          $
                                          135,887
                                          
                                          
                                          $
                                          55,149
                                          
                                          
                                          $
                                          (558
                                          )
                                          
                                          $
                                          906
                                          
                                          
                                          $
                                          191,384Adjustment
      for subsdiary merger
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          256
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          256REVISED
      BALANCES, June 30, 2007
                                          
                                          
                                          25,838
                                          
                                          
                                          
                                          135,887
                                          
                                          
                                          
                                          55,405
                                          
                                          
                                          
                                          -558
                                          
                                          
                                          
                                          906
                                          
                                          
                                          
                                          191,640Net
      income
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          17,013
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          117
                                          
                                          
                                          
                                          17,130Change
      in unrealized gain (loss) on investments, net
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          677
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          677Currency
      translation adjustment
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,146
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,146Total
      comprehensive income
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          20,953Issuance
      of common stock under employee stock plans
                                          
                                          
                                          1,424
                                          
                                          
                                          
                                          10,929
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          10,929Stock
      based compensation expense
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,358
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,358Tax
      benefit resulting from stock option transactions
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,975
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,975Other
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          96
                                          
                                          
                                          
                                          96Repurchase
      and retirement of common stock
                                          
                                          
                                          (1,559
                                          )
                                          
                                          
                                          (20,121
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (20,121
                                          )BALANCES,
      June 28, 2008
                                          
                                          
                                          25,703
                                          
                                          
                                          
                                          132,028
                                          
                                          
                                          
                                          72,418
                                          
                                          
                                          
                                          3,265
                                          
                                          
                                          
                                          1,119
                                          
                                          
                                          
                                          208,830Net
      income
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          6,087
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          114
                                          
                                          
                                          
                                          6,201Change
      in unrealized gain (loss) on investments, net
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          545
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          545Currency
      translation adjustment
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (3,013
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (3,013
                                          )Total
      comprehensive income
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          3,733Issuance
      of common stock under employee stock plans
                                          
                                          
                                          471
                                          
                                          
                                          
                                          2,723
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,723Stock
      based compensation expense
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,586
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,586Tax
      benefit resulting from stock option transactions
                                          
                                          
                                          —
                                          
                                          
                                          
                                          277
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          277Repurchase
      and retirement of common stock
                                          
                                          
                                          (712
                                          )
                                          
                                          
                                          (5,452
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (5,452
                                          )BALANCES,
      June 27, 2009
                                          
                                          
                                          25,462
                                          
                                          
                                          
                                          133,162
                                          
                                          
                                          
                                          78,505
                                          
                                          
                                          
                                          797
                                          
                                          
                                          
                                          1,233
                                          
                                          
                                          
                                          213,697Net
      income
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          10,794
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          28
                                          
                                          
                                          
                                          10,822Change
      in unrealized gain (loss) on investments, net
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          114
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          114Currency
      translation adjustment
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,160
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,160Total
      comprehensive income
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          12,096Acquisition
      of noncontrolling interest
                                          
                                          
                                          —
                                          
                                          
                                          
                                          37
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (1,261
                                          )
                                          
                                          
                                          (1,224
                                          )Issuance
      of common stock under employee stock plans
                                          
                                          
                                          344
                                          
                                          
                                          
                                          1,978
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,978Stock
      based compensation expense
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,049
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,049Tax
      benefit resulting from stock option transactions
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (11
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (11
                                          )Repurchase
      and retirement of common stock
                                          
                                          
                                          (908
                                          )
                                          
                                          
                                          (8,679
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (8,679
                                          )BALANCES,
      July 3, 2010
                                          
                                          
                                          24,898
                                          
                                          
                                          $
                                          130,536
                                          
                                          
                                          $
                                          89,299
                                          
                                          
                                          $
                                          2,071
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          221,906


See notes
to consolidated financial statements.


61


PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


Year
      EndedJuly
      3,
                        
                        
                        June
      27,
                        
                        
                        June
      28,2010
                        
                        
                        2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                        
                        $
                        10,822
                        
                        
                        $
                        6,201
                        
                        
                        $
                        17,129Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        7,958
                        
                        
                        
                        7,787
                        
                        
                        
                        6,533Stock
      based compensation
                        
                        
                        4,049
                        
                        
                        
                        3,586
                        
                        
                        
                        2,358Tax
      benefit resulting from stock option transactions
                        
                        
                        291
                        
                        
                        
                        403
                        
                        
                        
                        3,409Excess
      tax benefit resulting from stock option transactions
                        
                        
                        (97
                        )
                        
                        
                        (79
                        )
                        
                        
                        (2,975
                        )Other-than-temporary
      decline in the value of investments
                        
                        
                        -
                        
                        
                        
                        506
                        
                        
                        
                        76Gain
      on sale of investments
                        
                        
                        (2,348
                        )
                        
                        
                        (1,791
                        )
                        
                        
                        (644
                        )Write
      off of property and equipment
                        
                        
                        152
                        
                        
                        
                        3
                        
                        
                        
                        5Write
      off of in process research and development
                        
                        
                        -
                        
                        
                        
                        34
                        
                        
                        
                        -Loss
      on impairment of intangible assets
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        23Equity
      in net income of unconsolidated affiliates
                        
                        
                        (2,430
                        )
                        
                        
                        (351
                        )
                        
                        
                        (602
                        )Deferred
      taxes
                        
                        
                        344
                        
                        
                        
                        (439
                        )
                        
                        
                        2,059Non-current
      income tax
                        
                        
                        (283
                        )
                        
                        
                        (151
                        )
                        
                        
                        -Changes
      in assets and liabilities net of effects of entities
    acquired:Accounts
      receivable
                        
                        
                        (2,108
                        )
                        
                        
                        4,934
                        
                        
                        
                        (10,029
                        )Inventories
                        
                        
                        (7,014
                        )
                        
                        
                        1,054
                        
                        
                        
                        (2,664
                        )Prepaid
      expenses and other current assets
                        
                        
                        (2,183
                        )
                        
                        
                        3,757
                        
                        
                        
                        (5,244
                        )Other
      assets
                        
                        
                        (744
                        )
                        
                        
                        225
                        
                        
                        
                        (1,224
                        )Accounts
      payable
                        
                        
                        4,757
                        
                        
                        
                        (1,921
                        )
                        
                        
                        85Accrued
      liabilities
                        
                        
                        (5,731
                        )
                        
                        
                        7,554
                        
                        
                        
                        (691
                        )Other
      long term liabilities
                        
                        
                        3,002
                        
                        
                        
                        455
                        
                        
                        
                        -Net
      cash provided by operating activities
                        
                        
                        8,437
                        
                        
                        
                        31,767
                        
                        
                        
                        7,604CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property plant and equipment
                        
                        
                        (10,353
                        )
                        
                        
                        (26,938
                        )
                        
                        
                        (10,027
                        )Net
      proceeds from sale of property and equipment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2Purchase
      of available for sale investments
                        
                        
                        (120,722
                        )
                        
                        
                        (120,623
                        )
                        
                        
                        (88,238
                        )Maturities
      and sales of available for sale investments
                        
                        
                        120,353
                        
                        
                        
                        117,489
                        
                        
                        
                        109,557Cash
      paid for noncontrolling interest acquisition
                        
                        
                        (1,223
                        )
                        
                        
                        (1,285
                        )
                        
                        
                        -Change
      in restricted cash balance
                        
                        
                        3,200
                        
                        
                        
                        (3,200
                        )
                        
                        
                        -Net
      cash provided by (used in) investing activities
                        
                        
                        (8,745
                        )
                        
                        
                        (34,557
                        )
                        
                        
                        11,294CASH
      FLOWS FROM FINANCING ACTIVITIES:Sale
      of common stock under stock plans
                        
                        
                        1,978
                        
                        
                        
                        2,724
                        
                        
                        
                        10,929Excess
      tax benefit on stock based compensation
                        
                        
                        97
                        
                        
                        
                        79
                        
                        
                        
                        2,975Proceeds
      from (paydowns on) mortgage financing
                        
                        
                        (1,725
                        )
                        
                        
                        1,669
                        
                        
                        
                        -Principal
      payments on long-term debt and capital leases
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (792
                        )Repurchase
      of common stock
                        
                        
                        (8,679
                        )
                        
                        
                        (5,451
                        )
                        
                        
                        (20,121
                        )Net
      cash used in financing activities
                        
                        
                        (8,329
                        )
                        
                        
                        (979
                        )
                        
                        
                        (7,009
                        )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                        
                        
                        811
                        
                        
                        
                        (556
                        )
                        
                        
                        584NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        (7,826
                        )
                        
                        
                        (4,325
                        )
                        
                        
                        12,473CASH
      AND CASH EQUIVALENTS:Beginning
      of year
                        
                        
                        37,321
                        
                        
                        
                        41,646
                        
                        
                        
                        29,173End
      of year
                        
                        $
                        29,495
                        
                        
                        $
                        37,321
                        
                        
                        $
                        41,646SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for income taxes
                        
                        $
                        2,166
                        
                        
                        $
                        994
                        
                        
                        $
                        4,875Cash
      paid during the period for interest
                        
                        $
                        30
                        
                        
                        $
                        15
                        
                        
                        $
                        11





See notes
to consolidated financial statements


62


PERICOM
SEMICONDUCTOR CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





FISCAL
YEARS ENDED JULY 3, 2010, JUNE 27, 2009 AND JUNE 28, 2008




1.  BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES





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





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





BASIS OF
PRESENTATION–These consolidated financial statements include the accounts of Pericom
Semiconductor Corporation and its wholly owned subsidiaries, Pericom
Semiconductor (HK) Limited (“PSC-HK”),  Pericom Asia Limited (“PAL”)
and PSE Technology Corporation (“SRe”).  In addition PAL has two
wholly-owned subsidiaries, PSE Technology (Shandong) Corporation ("PSE-SD") and
Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and
Yangzhou, China operations, respectively. The Company eliminates all significant
intercompany balances and transactions in consolidation.




Except
for the retrospective adjustments related to the adoption of authoritative
accounting guidance for noncontrolling interests and change in reporting entity
as discussed below, the amounts as of June 27, 2009, conform to the prior year
consolidated financial statements.




On June
28, 2009, the Company adopted authoritative accounting guidance that requires
the ownership interests in subsidiaries held by parties other than the parent,
and income attributable to those parties, be clearly identified and
distinguished as equity interests in the parent's consolidated financial
statements. Consequently, noncontrolling interest is now disclosed as a separate
component of the Company's consolidated equity on the balance sheet, rather than
as a long-term liability. Further, earnings and other comprehensive income are
now separately attributed to both the controlling and noncontrolling interests.
The Company continued to calculate earnings per share based on net income
attributable to Pericom shareholders. The impact on the Company's financial
position as of June 27, 2009, results of operations for fiscal 2009 and 2008,
from the adoption of this authoritative accounting guidance is presented in the
tables below (in thousands):




June 27, 2009
                                    Consolidated
                                    Balance SheetAs Reported
                                  
                                  
                                  As AdjustedMinority
      interest
                                  
                                  $
                                  1,233
                                  
                                  
                                  $
                                  —Noncontrolling
      interest
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,233




63




Year EndedJune 27, 2009
                              Consolidated Statement of
                              Operations
                            
                            
                            June 28, 2008
                              Consolidated Statement of
                              OperationsAs Reported
                            
                            
                            As Adjusted
                            
                            
                            As Reported
                            
                            
                            As AdjustedMinority
      interest
                            
                            $
                            (114
                            )
                            
                            $
                            —
                            
                            
                            $
                            (116
                            )
                            
                            $
                            —Net
      income
                            
                            
                            6,087
                            
                            
                            
                            6,201
                            
                            
                            
                            17,013
                            
                            
                            
                            17,129Net
      income attributable to noncontrolling interest
                            
                            
                            —
                            
                            
                            
                            (114
                            )
                            
                            
                            —
                            
                            
                            
                            (116
                            )Net
      income attributable to Pericom shareholders
                            
                            $
                            —
                            
                            
                            $
                            6,087
                            
                            
                            $
                            —
                            
                            
                            $
                            17,013





On March
28, 2010, we completed the merger of our two wholly owned subsidiaries, SRe and
Pericom Taiwan Limited Corporation (“PTL”), with SRe as the surviving entity. As
a result of the change in legal structure, we determined that we would be able
to utilize certain deferred tax assets and our valuation allowance was reduced
accordingly.  In accordance with the guidance for a change in reporting
entity, this change has been retrospectively applied to all prior periods
presented.  As substantially all of the deferred tax assets arose prior to
the periods being presented, the impact of the reduction in valuation allowance
was an increase to our deferred tax assets of approximately $256,000 for all
periods presented as well as an increase to our opening retained
earnings.





FISCAL
PERIOD – For purposes of reporting the financial results, the Company’s
fiscal years end on the Saturday closest to the end of June. The year ended July
3, 2010 contains 53 weeks, whereas all prior fiscal years presented herein
include 52 weeks.





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





SHORT-TERM AND
LONG-TERM INVESTMENTS IN MARKETABLE SECURITIES – The Company’s policy is
to invest in instruments with investment grade credit ratings.  The
Company classifies its short-term investments as “available-for-sale” or
“trading” securities and the Company bases the cost of securities sold using the
specific identification method.  The Company accounts for unrealized
gains and losses on its available-for-sale securities as a separate component of
shareholders’ equity in the consolidated balance sheets in the period in which
the gain or loss occurs.  The Company recognizes unrealized gains and
losses in its trading securities in other income in the consolidated statements
of operations in the period in which the gain or loss occurs.  The
Company classifies trading securities as current assets and its
available-for-sale securities as current or noncurrent based on each security’s
attributes.  At July 3, 2010 and June 27, 2009, investments, and any
difference between the fair market value and the underlying cost of such
investments, consisted of the following:





Available
for Sale Securities:





As of July 3, 2010(in
      thousands)
                  
                  Amortized Cost
                  
                  
                  Unrealized
                    Gains
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Net
                    Unrealized
                    Gains
                    (Losses)
                  
                  
                  Fair Market
                    ValueAvailable-for-Sale
      SecuritiesUS
      Treasury securities
                  
                  $
                  204
                  
                  
                  $
                  6
                  
                  
                  $
                  -
                  
                  
                  $
                  6
                  
                  
                  $
                  210National
      government and agency securities
                  
                  
                  14,832
                  
                  
                  
                  178
                  
                  
                  
                  (3
                  )
                  
                  
                  175
                  
                  
                  
                  15,007State
      and municipal bond obligations
                  
                  
                  8,029
                  
                  
                  
                  80
                  
                  
                  
                  -
                  
                  
                  
                  80
                  
                  
                  
                  8,109Corporate
      bonds and notes
                  
                  
                  44,595
                  
                  
                  
                  1,094
                  
                  
                  
                  (76
                  )
                  
                  
                  1,018
                  
                  
                  
                  45,613Asset
      backed securities
                  
                  
                  11,670
                  
                  
                  
                  35
                  
                  
                  
                  (30
                  )
                  
                  
                  5
                  
                  
                  
                  11,675Mortgage
      backed securities
                  
                  
                  8,848
                  
                  
                  
                  62
                  
                  
                  
                  (93
                  )
                  
                  
                  (31
                  )
                  
                  
                  8,818Total
                  
                  $
                  88,178
                  
                  
                  $
                  1,455
                  
                  
                  $
                  (202
                  )
                  
                  $
                  1,253
                  
                  
                  $
                  89,431




64





As of June 27, 2009(in
      thousands)
                
                Amortized Cost
                
                
                Unrealized
                  Gains
                
                
                Unrealized
                  Losses
                
                
                Net
                  Unrealized
                  Gains
                  (Losses)
                
                
                Fair
                  Market
                  ValueAvailable-for-Sale
      SecuritiesUS
      Treasury securities
                
                $
                3,008
                
                
                $
                28
                
                
                $
                -
                
                
                $
                28
                
                
                $
                3,036National
      government and agency securities
                
                
                4,856
                
                
                
                30
                
                
                
                (10
                )
                
                
                20
                
                
                
                4,876State
      and municipal bond obligations
                
                
                21,658
                
                
                
                270
                
                
                
                (23
                )
                
                
                247
                
                
                
                21,905Corporate
      bonds and notes
                
                
                45,875
                
                
                
                1,107
                
                
                
                (14
                )
                
                
                1,093
                
                
                
                46,968Asset
      backed securities
                
                
                1,954
                
                
                
                4
                
                
                
                (107
                )
                
                
                (103
                )
                
                
                1,851Mortgage
      backed securities
                
                
                8,748
                
                
                
                94
                
                
                
                (300
                )
                
                
                (206
                )
                
                
                8,542Total
                
                $
                86,099
                
                
                $
                1,533
                
                
                $
                (454
                )
                
                $
                1,079
                
                
                $
                87,178





Trading
Securities:





As of June 27, 2009Net
                        
                        
                        FairUnrealized
                        
                        
                        Market(In
      thousands)
                        
                        Gains
                        
                        
                        ValueRepurchase
      funds
                        
                        $
                        -
                        
                        
                        $
                        73Other
      funds
                        
                        
                        -
                        
                        
                        
                        -Total
      Trading Securities
                        
                        $
                        -
                        
                        
                        $
                        73





The
Company has no trading securities as of July 3, 2010.





The
following tables show the gross unrealized losses and fair market values of the
Company’s investments that have unrealized losses, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, as of July 3, 2010 and June 27, 2009:





Continuous Unrealized Losses at July 3, 2010Less Than 12 Months
                  
                  
                  12 Months or Longer
                  
                  
                  Total(In thousands)
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    LossesUS
      Treasury securities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -National
      government and agency securities
                  
                  
                  891
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  891
                  
                  
                  
                  1State
      and municipal bond obligations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      bonds and notes
                  
                  
                  9,530
                  
                  
                  
                  78
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,530
                  
                  
                  
                  78Asset
      backed securities
                  
                  
                  5,167
                  
                  
                  
                  30
                  
                  
                  
                  472
                  
                  
                  
                  1
                  
                  
                  
                  5,639
                  
                  
                  
                  31Mortgage
      backed securities
                  
                  
                  1,314
                  
                  
                  
                  1
                  
                  
                  
                  497
                  
                  
                  
                  91
                  
                  
                  
                  1,811
                  
                  
                  
                  92$
                  16,902
                  
                  
                  $
                  110
                  
                  
                  $
                  969
                  
                  
                  $
                  92
                  
                  
                  $
                  17,871
                  
                  
                  $
                  202





Continuous Unrealized Losses at June 27, 2009Less Than 12 Months
                  
                  
                  12 Months or Longer
                  
                  
                  Total(In thousands)
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Fair
                    Market
                    Value
                  
                  
                  Unrealized
                    LossesUS
      Treasury securities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -National
      government and agency securities
                  
                  
                  1,582
                  
                  
                  
                  10
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,582
                  
                  
                  
                  10State
      and municipal bond obligations
                  
                  
                  1,644
                  
                  
                  
                  23
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,644
                  
                  
                  
                  23Corporate
      bonds and notes
                  
                  
                  4,504
                  
                  
                  
                  12
                  
                  
                  
                  494
                  
                  
                  
                  2
                  
                  
                  
                  4,998
                  
                  
                  
                  14Asset
      backed securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  434
                  
                  
                  
                  107
                  
                  
                  
                  434
                  
                  
                  
                  107Mortgage
      backed securities
                  
                  
                  2,203
                  
                  
                  
                  29
                  
                  
                  
                  1,893
                  
                  
                  
                  271
                  
                  
                  
                  4,096
                  
                  
                  
                  300$
                  9,933
                  
                  
                  $
                  74
                  
                  
                  $
                  2,821
                  
                  
                  $
                  380
                  
                  
                  $
                  12,754
                  
                  
                  $
                  454





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


65





The
Company records gains or losses realized on sales of available-for-sale
securities in interest and other income on its condensed consolidated income
statement. The cost of securities sold is based on the specific identification
of the security and its amortized cost. In fiscal 2010, 2009 and 2008 realized
gains on available-for-sale securities were $2.3 million, $1.8 million and
$644,000, respectively.





In
addition, the Company recognized an other-than-temporary impairment (“OTTI”)
credit loss on available-for-sale securities of $414,000 in the fiscal year
ended June 27, 2009 which was reclassified out of other comprehensive income.
Activity for the fiscal year ended July 3, 2010 related to the pretax
available-for-sale credit loss component reflected within retained earnings for
securities still held at July 3, 2010 was unchanged at $414,000.





The
following table lists the fair market value of the Company’s short- and
long-term investments by length of time to maturity as of July 3, 2010 and June
27, 2009:





(in
      thousands)
                    
                    July 3,
                      2010
                    
                    
                    June 27,
                      2009One
      year or less
                    
                    $
                    10,425
                    
                    
                    $
                    17,535Between
      one and three years
                    
                    
                    39,627
                    
                    
                    
                    24,538Greater
      than three years
                    
                    
                    21,632
                    
                    
                    
                    41,251Multiple
      Dates
                    
                    
                    17,747
                    
                    
                    
                    3,927$
                    89,431
                    
                    
                    $
                    87,251





Securities
with maturities over multiple dates are mortgage-backed (MBS) or asset-backed
securities (ABS) featuring periodic principle paydowns through
2048.





FAIR VALUE OF
FINANCIAL INSTRUMENTS –The
Company has determined that the amounts reported for cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of their short maturities and/or variable interest
rates. Available-for-sale investments are reported at their fair market value
based on quoted market prices. A further discussion of the fair value of
financial instruments is detailed in Note 17 to the Consolidated Financial
Statements contained in this report on Form 10-K.




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





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





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





We
consider raw material inventory slow moving and we fully reserve for it if it
has not moved in 365 days.  For assembled devices, we disaggregate the
inventory by part number.  We compare the quantities on hand in each
part number category to the quantity we shipped in the previous twelve months,
the quantity in backlog and to the quantity we expect to ship in the next twelve
months.  We record a reserve to the extent the value of each quantity
on hand is in excess of the lesser of the three comparisons.  We also
periodically review inventory for obsolescence beyond the established formulaic
tests. We believe our method of evaluating our inventory fairly represents
market conditions.


66





We
consider the material written-off to be available for sale.  We do not
revalue the written off inventory should market conditions change or if a market
develops for the obsolete inventory.  In the past, we have sold
obsolete inventory that we have previously written off as
worthless.





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





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





OTHER ASSETS –The Company’s other assets classificationincludes
investments in privately held companies in which we have less than a 20%
interest, assets held for sale and deposits.  The Company reports its
investments in privately held companies at the lower of cost or
market.  The Company’s management reviews the investment in these
companies for losses that may be other than temporary on a quarterly
basis.  Should management determine that such an impairment exists,
the Company will reduce the value of the Company’s investment in the period in
which management discovers the impairment and charge the impairment to the
consolidated statement of operations.  The Company’s management
performed such an evaluation as of July 3, 2010 and determined that no
impairment existed.  The Company carries assets held for sale and
deposits at the lower of the assets’ carrying amount or fair value less costs to
sell.





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





INCOME
TAXES – The Company accounts for income taxes following the Financial
Accounting Standards Board’s statements and related interpretations, which
require an asset and liability approach to recording deferred
taxes.  We record a valuation allowance to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be
realized.





FOREIGN CURRENCY
TRANSLATION –The functional currency of the Company’s foreign
subsidiaries is the local currency.  In consolidation, the Company
translates assets and liabilities at exchange rates in effect at the balance
sheet date.  The Company translates revenue and expense accounts at
average exchange rates during the period in which the transaction takes
place.  Net gains or (losses) from foreign currency translation of
assets and liabilities of $1.2 million and $(3.0) million in fiscal 2010 and
2009, respectively, are included in the cumulative translation adjustment
component of accumulated other comprehensive income, net of tax, a component of
shareholders’ equity.  Net gains or (losses) arising from transactions
denominated in currencies other than the functional currency were $(197,000),
$103,000 and $(309,000) in fiscal 2010, 2009 and 2008 respectively, and are
included in interest and other income, net.





SHARE-BASED
COMPENSATION–
The Company recognizes employee share-based compensation through measurement at
grant date based on the fair value of the award, and the fair value is
recognized as an expense over the employee’s requisite service period.  See
Note 15 for further discussion of share-based compensation.





REVENUE
RECOGNITION – The Company recognizes revenue from the sale of its
products when:


67





·
              Persuasive
      evidence of an arrangement
exists;


·
              Delivery
      has occurred;


·
              The
      sales price is fixed or determinable;
and


·
              Collectibility
      is reasonably assured.





Generally,
the Company meets these conditions upon shipment because, in most cases, title
and risk of loss passes to the customer at that time.  In addition,
the Company estimates and records provisions for future returns and other
charges against revenue at the time of shipment consistent with the terms of
sale.





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





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





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





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





The
Company grants price protection solely at the discretion of Pericom
management.  The purpose of price protection is to reduce the
distributor’s cost of inventory as market prices fall thus reducing SSD
rates.  Pericom sales management prepares price protection proposals
for individual products located at individual distributors.  Pericom
general management reviews and approves or disapproves these
proposals.  If a particular price protection arrangement is approved,
the Company estimates the dollar impact based on the sales price reduction per
unit for the products approved and the number of units of those products in that
distributor’s inventory.  The Company records a sales reserve in that
period for the estimated amount.





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


68





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





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





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





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





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





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




Percentage ofTradeNet
                    
                    
                    AccountsFiscal Year Ended:
                    
                    
                    Revenues
                    
                    
                    ReceivableJuly
      3, 2010
                    Customer
      A
                    
                    
                    22
                    %
                    
                    
                    26
                    %Customer
      B
                    
                    
                    14
                    
                    
                    
                    9All
      others
                    
                    
                    64
                    
                    
                    
                    65100
                    %
                    
                    
                    100
                    %June
      27, 2009
                    Customer
      A
                    
                    
                    18
                    %
                    
                    
                    21
                    %Customer
      B
                    
                    
                    14
                    
                    
                    
                    9All
      others
                    
                    
                    68
                    
                    
                    
                    70100
                    %
                    
                    
                    100
                    %June
      28, 2008
                    Customer
      A
                    
                    
                    14
                    %
                    
                    
                    16
                    %All
      others
                    
                    
                    86
                    
                    
                    
                    84100
                    %
                    
                    
                    100
                    %





The
Company maintains cash, cash equivalents and short- and long-term investments
with various high credit quality financial institutions.  The Company
has designed its investment policy to limit exposure to any one
institution.  The Company performs periodic evaluations of the
relative credit standing of those financial institutions that manage its
investments.  The Company is exposed to credit risk in the event of
default by the financial institutions or issuers of securities to the extent of
the amounts reported in the consolidated balance sheets.  In fiscal
2009, the Company incurred a $414,000 impairment loss on an investment, but
otherwise has not incurred material losses related to these
investments.




69


RECENTLY ISSUED
ACCOUNTING STANDARDS – In February 2010, the Financial Accounting
Standards Board (FASB) issued an Accounting Standards Update (“ASU”) which
eliminates the requirement for public companies to disclose the date through
which subsequent events have been evaluated. The Company will continue to
evaluate subsequent events through the date of the issuance of the financial
statements, however, consistent with the guidance, this date will no longer be
disclosed. ASU 2010-09 does not have any impact on the Company’s results of
operations, financial condition or liquidity.





In
January 2010, the FASB issued an ASU which clarifies and provides additional
disclosure requirements on the transfers of assets and liabilities between Level
1 (quoted prices in active market for identical assets or liabilities) and Level
2 (significant other observable inputs) of the fair value measurement hierarchy,
including the reasons for and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuance,
and settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance is effective
for Pericom with the reporting period beginning December 27, 2009, except for
the disclosure on the roll forward activities for Level 3 fair value
measurements, which will become effective for Pericom with the fiscal year
beginning after December 15, 2010. Other than requiring additional disclosures,
adoption of this new guidance will not have a material impact on our financial
statements.




In June
2009, the FASB amended certain guidance for determining whether an entity is a
variable interest entity (VIE), requires a qualitative rather than a
quantitative analysis to determine the primary beneficiary for a VIE, requires
continuous assessments of whether an enterprise is the primary beneficiary of a
VIE and requires enhanced disclosures about an enterprise’s involvement with a
VIE. The guidance is effective for Pericom for the fiscal year beginning July 4,
2010, for interim periods within that fiscal year, and for interim and annual
reporting periods thereafter. We are currently evaluating the impact this
guidance will have on our consolidated financial position, results of operations
and cash flows.




In
December 2007, the FASB issued Accounting Standards Codification (“ASC”) No.
810-10-65, Transition Related
to Noncontrolling Interests in Consolidated Financial Statement(“ASC
810-10-65”), previously referred to as Statement of Financial Accounting
Standard (“SFAS”) No. 160. ASC 810-10-65 establishes new accounting and
reporting standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest as equity in the consolidated financial
statements separate from the parent’s equity. The amount of net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement. ASC 810-10-65 clarifies that changes
in a parent’s ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the non-controlling equity
investment on the deconsolidation date. ASC 810-10-65 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The provisions of ASC 810-10-65 are effective for the
fiscal year beginning June 28, 2009 and the presentation and disclosure
requirements must be applied retrospectively for all periods presented at that
date. The Company has adopted this standard, and prior periods have been
restated to reflect the presentation and disclosure requirements of the new
guidance.





EARNINGS PER
SHARE – The Company bases its basic earnings per share upon the weighted
average number of common shares outstanding during the
period.  Diluted earnings per share reflect the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.





Basic and
diluted earnings per share for each of the three years in the period ended July
3, 2010 is as follows:


70





Fiscal Year Ended(In thousands, except for per share data)
                  
                  July 3, 2010
                  
                  
                  June 27,2009
                  
                  
                  June 28,2008Net
      income attributable to Pericom shareholders
                  
                  $
                  10,794
                  
                  
                  $
                  6,087
                  
                  
                  $
                  17,013Computation
      of common shares outstanding – basic earnings per share:Weighted
      average shares of common stock
                  
                  
                  25,412
                  
                  
                  
                  25,417
                  
                  
                  
                  25,737Basic
      earnings per share attributable to Pericom shareholders
                  
                  $
                  0.42
                  
                  
                  $
                  0.24
                  
                  
                  $
                  0.66Computation
      of common shares outstanding – diluted earnings per share:Weighted
      average shares of common stock
                  
                  
                  25,412
                  
                  
                  
                  25,417
                  
                  
                  
                  25,737Dilutive
      shares using the treasury stock method
                  
                  
                  305
                  
                  
                  
                  209
                  
                  
                  
                  874Shares
      used in computing diluted earnings per share
                  
                  
                  25,717
                  
                  
                  
                  25,626
                  
                  
                  
                  26,611Diluted
      earnings per share attributable to Pericom shareholders
                  
                  $
                  0.42
                  
                  
                  $
                  0.24
                  
                  
                  $
                  0.64





Options
to purchase 2.8 million shares of common stock, and restricted stock units of
76,000 shares were outstanding during the year ended July 3, 2010 and were
excluded from the computation of diluted net earnings per share because such
options and units were anti-dilutive. Options to purchase 3.1 million shares of
common stock, and restricted stock units of 104,000 shares were outstanding
during the year ended June 27, 2009 and were excluded from the computation of
diluted net earnings per share because such options and units were
anti-dilutive. Options to purchase 1.6 million shares of common stock were
outstanding as of June 28, 2008 and were excluded from the computation of
diluted net earnings per share because such options were
anti-dilutive.




2.
OTHER RECEIVABLES





Other
receivables consist of:





As of the year endedJuly 3,
                  
                  
                  June 27,(in thousands)
                  
                  2010
                  
                  
                  2009Interest
      receivable
                  
                  $
                  769
                  
                  
                  $
                  859Government
      subsidy
                  
                  
                  2,035
                  
                  
                  
                  -Other
      accounts receivable
                  
                  
                  1,136
                  
                  
                  
                  804$
                  3,940
                  
                  
                  $
                  1,663




3.
INVENTORIES





Inventories
consist of:





As of the year endedJuly 3,
                    
                    
                    June 27,(in thousands)
                    
                    2010
                    
                    
                    2009Finished
      goods
                    
                    $
                    7,601
                    
                    
                    $
                    5,442Work-in-process
                    
                    
                    6,793
                    
                    
                    
                    5,369Raw
      materials
                    
                    
                    9,037
                    
                    
                    
                    5,529$
                    23,431
                    
                    
                    $
                    16,340





The
Company considers raw material inventory obsolete and it writes it off if the
raw material has not moved in 365 days.  The Company considers
assembled devices excessive and writes them off if the quantity of assembled
devices in inventory is in excess of the greater of the quantity shipped in the
previous twelve months, the quantity in backlog or the quantity forecasted to be
shipped in the following twelve months.  In certain circumstances,
management will determine, based on expected usage or other factors, that
inventory considered excess by these guidelines should not be written
off.  The Company does occasionally determine that last twelve months’
sales levels will not continue and reserves inventory in line with the quantity
forecasted. As of July 3, 2010, the Company had reserved for $3.4 million of
inventory as compared to $4.1 million at June 27, 2009.  The Company
attributes this overall reduction of approximately $1.4 million in obsolete
inventory between the fiscal year ended July 3, 2010 and the fiscal year ended
June 27, 2009 to physically scrapping products as well as sales of products that
were previously written-off, partially offset by additional
write-offs.


71




4.
PROPERTY, PLANT AND EQUIPMENT – NET





As of the year endedJuly 3,
                  
                  
                  June 27,(in thousands)
                  
                  2010
                  
                  
                  2009Machinery
      and equipment
                  
                  $
                  43,291
                  
                  
                  $
                  36,003Computer
      equipment and software
                  
                  
                  13,412
                  
                  
                  
                  16,878Building
                  
                  
                  19,010
                  
                  
                  
                  4,805Land
                  
                  
                  3,406
                  
                  
                  
                  3,335Furniture
      and fixtures
                  
                  
                  1,165
                  
                  
                  
                  991Leasehold
      improvements
                  
                  
                  683
                  
                  
                  
                  775Vehicles
                  
                  
                  108
                  
                  
                  
                  89Total
                  
                  
                  81,075
                  
                  
                  
                  62,876Accumulated
      depreciation and amortization
                  
                  
                  (37,764
                  )
                  
                  
                  (37,811
                  )Construction-in-progress
                  
                  
                  7,449
                  
                  
                  
                  22,173Property,
      plant and equipment – net
                  
                  $
                  50,760
                  
                  
                  $
                  47,238





Depreciation
expense for the years ended July 3, 2010, June 27, 2009 and June 28, 2008 was
$6.7 million, $7.2 million and $6.3 million, respectively.




5.
OTHER ASSETS





As of the year endedJuly 3,
                  
                  
                  June 27,(in thousands)
                  
                  2010
                  
                  
                  2009Land
      use rights
                  
                  $
                  4,789
                  
                  
                  $
                  4,746Investments
      in privately held companies
                  
                  
                  1,501
                  
                  
                  
                  1,501Deposits
                  
                  
                  183
                  
                  
                  
                  204Other
                  
                  
                  965
                  
                  
                  
                  291Total
                  
                  $
                  7,438
                  
                  
                  $
                  6,742





The
Company purchased land use rights from the People’s Republic of China (“China”)
in January 2008. These rights enabled the Company to construct its Jinan
facility and operate there for a period of 50 years. The Company has investments
in certain privately held companies which it accounts for under the cost
method.  The Company reviews these investments for impairment on a
periodic basis.  The Company did not write off any material cost
method investments during fiscal 2010, 2009 or 2008.




6.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES





Our
investment in unconsolidated affiliates is comprised of the
following:





As of the year endedJuly 3,
                
                
                June 27,(in thousands)
                
                2010
                
                
                2009Pericom
      Technology, Inc.
                
                $
                10,876
                
                
                $
                8,806Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                
                
                2,307
                
                
                
                2,020Total
                
                $
                13,183
                
                
                $
                10,826




72





The
Company has a 42.4% ownership interest in Pericom Technology, Inc. (“PTI”) as of
July 3, 2010. Our ownership position declined slightly from 43.06% at June 27,
2009 as a result of additional shares issued by PTI. Pericom
accounts for its investment in PTI using the equity method due to the Company’s
significant influence over its operations.  In addition, certain of
the directors of the Company are directors of PTI, and certain shareholders of
the Company are shareholders of PTI.  At July 3, 2010 and June 27,
2009, the Company's carrying value of the investment in PTI exceeded the
Company’s underlying equity in the net assets of PTI by $551,000 and $486,000,
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.  The Company purchased $71,000, $67,000 and
$150,000 in goods and services from PTI during the years ended July 3, 2010,
June 27, 2009 and June 28, 2008, respectively.  PTI owed the Company
$65,000, $83,000 and $123,000 at July 3, 2010, June 27, 2009 and June 28, 2008,
respectively for reimbursement of certain administrative expenses incurred by
the Company on behalf of PTI and for advances made to PTI by the
Company.  Condensed financial information of PTI at July 3, 2010 and
June 27, 2009 is as follows:





(Unaudited)As of and for the year endedJuly 3,
                        
                        
                        June 27,(in thousands)
                        
                        2010
                        
                        
                        2009Total
      assets
                        
                        $
                        26,875
                        
                        
                        $
                        20,721Total
      liabilities
                        
                        $
                        2,546
                        
                        
                        $
                        1,401Total
      equity
                        
                        $
                        24,329
                        
                        
                        $
                        19,320Revenue
                        
                        $
                        17,869
                        
                        
                        $
                        12,009Cost
      of revenues
                        
                        
                        8,798
                        
                        
                        
                        5,965Gross
      profit
                        
                        
                        9,071
                        
                        
                        
                        6,044Operating
      expenses
                        
                        
                        4,427
                        
                        
                        
                        4,611Income
      from operations
                        
                        
                        4,644
                        
                        
                        
                        1,433Interest
      and other income
                        
                        
                        440
                        
                        
                        
                        (216
                        )Income
      tax expense
                        
                        
                        230
                        
                        
                        
                        102Net
      income
                        
                        $
                        4,854
                        
                        
                        $
                        1,115





The
Company recouped PTI’s net income at 25% in 2008.  The percentage at
which the Company recognized its proportionate share of the income of PTI was
equal to the percentage of ownership held in successive rounds of financing of
PTI in which the Company participated.  The Company continued to use
the 25% allocation percentage in 2009 until all the losses recognized in prior
years were recouped.  This was completed in 2009, and the Company
subsequently reverted to recognizing its share of PTI’s net income at its
percentage ownership level, currently 42.4%.





SRe has a
49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd.
(“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City,
Henan Province, China. JCP is a key manufacturing partner of SRe.





The
Company holds ownership interests in various other privately held
companies.  The ownership in these affiliates varies from 20% to
approximately 49%.  For those companies in which the ownership
interest is more than 20% and in which the Company has the ability to exercise
significant influence on the affiliate’s operations, the investment is valued
using the equity method of accounting. As of July 3, 2010, the amount of
consolidated retained earnings of the Company represented by undistributed
earnings of 50% or less entities accounted for by the equity method was
approximately $2.8 million.




7.
ACQUISITION OF NONCONTROLLING INTEREST IN SUBSIDIARIES




Acquisition
of remaining minority interest in SRe





Prior to
fiscal 2010, Pericom owned approximately 97.3% of SRe with the remaining
interest owned by other parties. In fiscal 2010, the Company purchased the
remaining 2.71% of the outstanding shares of SRe for approximately $1.2 million.
As Pericom retained its controlling interest in SRe, this was treated as an
equity transaction in accordance with the provisions of ASC 810,
Consolidation.


73





Acquisition
of remaining minority interest in PTL





Pericom
owned approximately 87.9% of PTL with the remaining interest owned by PTL
employees. In fiscal 2009, the Company purchased the remaining 3.7 million
shares held by employees for a total price of $1.3 million.The Company
recorded the assets acquired at estimated fair values as determined by
management, prorated for the stake acquired.  The Company based the
fair values on the appropriate application of generally accepted income based
approaches.  The Company allocated the purchase price of PTL’s
minority stake as follows:





(in
      thousands)Goodwill
                    
                    $
                    347Core
      developed technology
                    
                    
                    904In-process
      research and development
                    
                    
                    34Total
      purchase price
                    
                    $
                    1,285





The
in-process research and development was expensed in fiscal 2009. The core
developed technology is included in intangible assets and is being amortized
over a period of 5 years.




8.
PURCHASED INTANGIBLE ASSETS




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





As of the year endedJuly 3, 2010
                
                
                June 27, 2009(in thousands)
                
                Gross
                
                
                Accumulated
                  Amortization
                
                
                Net
                
                
                Gross
                
                
                Accumulated
                  Amortization
                
                
                NeteCERA
      trade name
                
                $
                40
                
                
                $
                (28
                )
                
                $
                12
                
                
                $
                40
                
                
                $
                (22
                )
                
                $
                18Core
      developed technology
                
                
                1,856
                
                
                
                (1,021
                )
                
                
                835
                
                
                
                1,833
                
                
                
                (757
                )
                
                
                1,076SaRonix
      supplier relationship
                
                
                398
                
                
                
                (208
                )
                
                
                190
                
                
                
                398
                
                
                
                (143
                )
                
                
                255Total
      amortizable purchased intangible assets
                
                
                2,294
                
                
                
                (1,257
                )
                
                
                1,037
                
                
                
                2,271
                
                
                
                (922
                )
                
                
                1,349SaRonix
      trade name
                
                
                415
                
                
                
                -
                
                
                
                415
                
                
                
                415
                
                
                
                -
                
                
                
                415Total
      purchased intangible assets
                
                $
                2,709
                
                
                $
                (1,257
                )
                
                $
                1,452
                
                
                $
                2,686
                
                
                $
                (922
                )
                
                $
                1,764





Amortization
expense related to finite-lived purchased intangible assets was approximately
$331,000 in fiscal 2010, $271,000 in fiscal 2009 and $186,000 in fiscal
2008.





The Company performs an annual impairment review of its
long-lived assets, including its intangible assets. Based on the results of its
most recent annual impairment tests, the Company determined that no impairment
of the intangible assets existed as of July 3, 2010 or June 27,
2009.  However, future impairment tests could result in a charge to
earnings.





The
finite-lived purchased intangible assets consist of supplier relationships,
trade name, and core developed technology, which have remaining weighted average
useful lives of approximately three years.  We expect our future
amortization expense over the next five years associated with these assets to
be:





As
      of the year ended(in
      thousands)
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      2014
                      
                      
                      2015
      and
                        beyondExpected
      amortization-eCERA
                      
                      $
                      214
                      
                      
                      $
                      214
                      
                      
                      $
                      190
                      
                      
                      $
                      62
                      
                      
                      $
                      -Expected
      amortization-SaRonix
                      
                      
                      117
                      
                      
                      
                      117
                      
                      
                      
                      111
                      
                      
                      
                      12
                      
                      
                      
                      -$
                      331
                      
                      
                      $
                      331
                      
                      
                      $
                      301
                      
                      
                      $
                      74
                      
                      
                      $
                      -




74




9.
ACCRUED LIABILITIES





Accrued
liabilities consist of:





As of the year endedJuly 3,
                  
                  
                  June 27,(in thousands)
                  
                  2010
                  
                  
                  2009Accrued
      compensation
                  
                  $
                  5,632
                  
                  
                  $
                  3,815Accrued
      construction liabilities
                  
                  
                  1,960
                  
                  
                  
                  8,958Accrued
      income tax
                  
                  
                  1,357
                  
                  
                  
                  971External
      sales representative commissions
                  
                  
                  639
                  
                  
                  
                  470Other
      accrued expenses
                  
                  
                  1,193
                  
                  
                  
                  904$
                  10,781
                  
                  
                  $
                  15,118




10.  DEBT




PTL took
out a 15-year mortgage on its building in December 2008 in the amount of $1.7
million that carried an annual interest rate of 1.8%. The debt was paid off
during fiscal 2010.




11.  RESTRICTED
ASSETS





As of
July 3, 2010, the Company had pledged and restricted assets of $4.1 million.
These consist of land and buildings SRe has pledged for loan and credit
facilities. The SRe loan and credit facility is for equipment purchases or
inventory financing and has an October 20, 2010 maturity with the right to
extend upon SRe request. No amounts are currently outstanding under this
facility.





As of
June 27, 2009, the Company had pledged and restricted assets of $9.2 million.
These consisted of $4.0 million of land and buildings SRe has pledged for loan
and credit facilities, $2.0 million of land and buildings PTL has pledged for
loan and credit facilities, and a $3.2 million time deposit at PAL to back a
letter of credit for equipment purchases. The SRe loan and credit facility is
for equipment purchases or inventory financing and has an October 31, 2009
maturity with the right to extend upon SRe request.




12.  COMMITMENTS





The
future minimum commitments at July 3, 2010 are as follows:





Fiscal Year Ending(in thousands)
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      2014
                      
                      
                      2015
                      
                      
                      Thereafter
                      
                      
                      TotalOperating
      lease payments
                      
                      $
                      1,301
                      
                      
                      $
                      1,246
                      
                      
                      $
                      1,269
                      
                      
                      $
                      706
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      4,522Capital
      equipment purchase commitments
                      
                      
                      1,473
                      
                      
                      
                      985
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,458Yangzhou
      capital injection
                      
                      
                      6,000
                      
                      
                      
                      7,000
                      
                      
                      
                      8,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      21,000Total
                      
                      $
                      8,774
                      
                      
                      $
                      9,231
                      
                      
                      $
                      9,269
                      
                      
                      $
                      706
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      27,980





The
operating lease commitments are primarily the lease on the Company’s corporate
headquarters, which expires in 2013 but with two consecutive options to extend
for an additional five years each.





We have
no purchase obligations other than routine purchase orders and the capital
equipment purchase commitments shown in the table as of July 3,
2010.





On
December 1, 2009, the Company entered into an R&D Center Investment
Agreement (the “R&D Agreement”) with the Administrative Committee of the
Yangzhou Economic and Technology Development Zone (the “Zone”) for the Company’s
investment in the Zone, located in Jiangsu Province, People’s Republic of China.
Under the R&D Agreement, the Company or its majority-owned affiliate will
invest in and establish a research and development center to engage in the
research and development of the IC design technologies related to “high-speed
serial connectivity” and the “XO crystal oscillator” and the manufacture of
relevant products.  It is expected that the Company’s total
investment, over a period of two to three years, will be approximately $30
million U.S. Dollars. As of July 3, 2010, the Company’s commitment for capital
injections for the Yangzhou project is $21 million, which is included in the
table above.


75





Rent
expense during the fiscal years ended July 3, 2010, June 27, 2009 and June 28,
2008 was $1.7 million, $1.7 million and $1.8 million,
respectively.




13.  INDUSTRIAL
DEVELOPMENT SUBSIDY





As of
July 3, 2010, industrial development subsidies in the amount of $7.3 million
have been earned and applied for by PSE-SD from the Jinan Hi-Tech Industries
Development Zone Commission based on meeting certain pre-defined criteria. The
subsidies may be used for the acquisition of assets or to cover business
expenses. When a subsidy is used to acquire assets, the subsidy will be
amortized over the useful life of the asset. When a subsidy is used for expenses
incurred, the subsidy is regarded as earned upon the incurrence of the
expenditure. The remaining balance of the subsidies at July 3, 2010 was $6.6
million, which amount is expected to be recognized over the next ten
years.





We
recognized $0.7 million of industrial development subsidy as a reduction of cost
of goods sold in the consolidated statement of operations for the year ended
July 3, 2010.




14.  EQUITY
AND COMPREHENSIVE INCOME




Effective
June 28, 2009, the Company adopted the FASB’s new guidance regarding the
accounting for noncontrolling interests. The new rules require the recognition
of a noncontrolling interest as equity in the consolidated financial statements
and separate from the parent’s equity. The amount of net income attributable to
the noncontrolling interest is shown on the face of the condensed consolidated
statement of operations.





The
Company’s subsidiary SRe had noncontrolling interests for the first four months
of fiscal 2010. Parties other than the Company owned approximately 2.71% of the
outstanding shares of SRe, and these shares were acquired by the Company in
November 2009 for approximately $1.2 million.





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





As of
July 3, 2010, accumulated other comprehensive income consists of $803,000 of
unrealized gains net of tax and $1,268,000 of accumulated currency translation
gains.




15.  SHAREHOLDERS’
EQUITY AND SHARE-BASED COMPENSATION




PREFERRED
STOCK





The
Company’s shareholders have authorized the Board of Directors to issue 5,000,000
shares of preferred stock from time to time in one or more series and to fix the
rights, privileges and restrictions of each series.  As of July 3,
2010, the Company has issued no shares of preferred stock.




STOCK
OPTION PLANS





At July
3, 2010 the Company had four stock option plans and one employee stock purchase
plan, including the 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix
Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the 2000 Employee
Stock Purchase Plan (“ESPP”).  The Company’s aggregate compensation
cost due to option and restricted stock unit grants, and the ESPP for the twelve
months ended July 3, 2010 totaled $4.0 million, as compared with $3.6 million
and $2.4 million for fiscal 2009 and 2008, respectively.  The Company
recognized $1,159,000, $949,000 and $684,000 in income tax benefit in the
consolidated statements of operations for fiscal 2010, 2009 and 2008,
respectively, related to the Company’s share-based compensation
arrangements.  The net impact of share-based compensation for the
fiscal years ended July 3, 2010, June 27, 2009 and June 28, 2008 was a reduction
in net income of $2.9 million, $2.6 million and $1.7 million, respectively, or a
reduction of $0.11, $0.10 and $0.06 per diluted share,
respectively.


76





Under the
Company’s 2004, 2001, and 1995 stock option plans and the SaRonix Acquisition
Stock Option plan, the Company has reserved 7.0 million shares of common stock
as of July 3, 2010 for issuance to employees, officers, directors, independent
contractors and consultants of the Company in the form of incentive and
nonqualified stock options and restricted stock units.





The
Company may grant options at the fair value on grant date for incentive stock
options and nonqualified stock options.  Options vest over periods of
generally 48 months as determined by the Board of Directors.  Options
granted under the Plans expire 10 years from the grant date.





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





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





Fiscal Year EndedJuly 3, 2010
                    
                    June 27, 2009
                    
                    June 28, 2008Expected
      life
                    5.4-5.5
      years
                    
                    5.2-5.3
      years
                    
                    5.0-5.2
      yearsRisk-free
      interest rate
                    2.45-2.60%
                    
                    1.70-3.29%
                    
                    2.92-4.70%Volatility
      range
                    53%-54%
                    
                    46%-52%
                    
                    44%-47%Dividend
      yield
                    0.00%
                    
                    0.00%
                    
                    0.00%





The
following table summarizes the Company’s stock option plans as of June 30, 2007
and changes during the three fiscal periods ended July 3, 2010:





Outstanding OptionsOptions
                  
                  Shares
                  
                  
                  WeightedAverage
                    ExercisePrice
                  
                  
                  Aggregate
                    IntrinsicValue(inthousands)
                  
                  
                  
                  
                  
                  (inthousands)Options
      outstanding at June 30, 2007
                  
                  
                  4,818
                  
                  
                  $
                  11.84
                  
                  
                  $
                  10,167Options
      granted (weighted average grant date fair value of $6.01)
                  
                  
                  664
                  
                  
                  
                  13.54Options
      exercised
                  
                  
                  (1,304
                  )
                  
                  
                  7.59Options
      forfeited or expired
                  
                  
                  (304
                  )
                  
                  
                  13.68Options
      outstanding at June 28, 2008
                  
                  
                  3,874
                  
                  
                  
                  13.42
                  
                  
                  $
                  16,677Options
      granted (weighted average grant date fair value of $5.75)
                  
                  
                  374
                  
                  
                  
                  12.98Options
      exercised
                  
                  
                  (291
                  )
                  
                  
                  5.56Options
      forfeited or expired
                  
                  
                  (202
                  )
                  
                  
                  13.14Options
      outstanding at June 27, 2009
                  
                  
                  3,755
                  
                  
                  
                  14.00
                  
                  
                  $
                  427Options
      granted (weighted average grant date fair value of $5.11)
                  
                  
                  470
                  
                  
                  
                  10.24Options
      exercised
                  
                  
                  (105
                  )
                  
                  
                  8.72Options
      forfeited or expired
                  
                  
                  (643
                  )
                  
                  
                  23.71Options
      outstanding at July 3, 2010
                  
                  
                  3,477
                  
                  
                  $
                  11.85
                  
                  
                  $
                  872





At July
3, 2010, 2,724,000 shares were available for future grants under the option
plans.  The aggregate intrinsic value of options exercised during the
year ended July 3, 2010 was $226,000. The status of options vested and expected
to vest and options that are currently exercisable as of July 3, 2010 is as
follows:


77





Options
                      Vested and
                      Expected
                      to Vest
                    
                    
                    Options
                      Currently
                      ExercisableShares
      (millions)
                    
                    
                    3.4
                    
                    
                    
                    2.7Aggregate
      intrinsic value (thousand $)
                    
                    $
                    858
                    
                    
                    $
                    760Weighted
      average contractual term (years)
                    
                    
                    5.0
                    
                    
                    
                    4.1Weighted
      average exercise price
                    
                    $
                    11.88
                    
                    
                    $
                    11.94





The
Company has unamortized share-based compensation expense related to options of
$3.5 million, which will be amortized to expense over a weighted average period
of 2.6 years.





Additional
information regarding options outstanding as of July 3, 2010 is as
follows:





Options Outstanding
                          
                          
                          Options ExercisableRange of ExercisePrices
                          
                          
                          Number
                            Outstanding as
                            of July 3, 2010
                          
                          
                          WeightedAverage
                            Remaining
                            ContractualTerm
                            (Years)
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                          
                          
                          Number
                            Exercisableas of
                            July 3,2010
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price$
                          4.89
                          
                          $
                          8.60
                          
                          
                          
                          717,775
                          
                          
                          
                          5.50
                          
                          
                          $
                          8.01
                          
                          
                          
                          659,704
                          
                          
                          $
                          8.08$
                          8.65
                          
                          $
                          10.25
                          
                          
                          
                          731,782
                          
                          
                          
                          6.99
                          
                          
                          $
                          9.63
                          
                          
                          
                          401,514
                          
                          
                          $
                          9.40$
                          10.49
                          
                          $
                          11.50
                          
                          
                          
                          784,412
                          
                          
                          
                          5.15
                          
                          
                          $
                          11.08
                          
                          
                          
                          606,430
                          
                          
                          $
                          11.09$
                          11.63
                          
                          $
                          15.45
                          
                          
                          
                          710,403
                          
                          
                          
                          3.84
                          
                          
                          $
                          14.28
                          
                          
                          
                          567,981
                          
                          
                          $
                          14.11$
                          15.60
                          
                          $
                          37.22
                          
                          
                          
                          532,150
                          
                          
                          
                          3.85
                          
                          
                          $
                          17.99
                          
                          
                          
                          447,860
                          
                          
                          $
                          18.33$
                          4.89
                          
                          $
                          37.22
                          
                          
                          
                          3,476,522
                          
                          
                          
                          5.15
                          
                          
                          $
                          11.85
                          
                          
                          
                          2,683,489
                          
                          
                          $
                          11.94




Restricted
Stock Units





Restricted
stock units (“RSUs”) are converted into shares of the Company’s common stock
upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to
the employee’s continuing service to the Company. RSUs generally vest over a
period of 4 years and are expensed ratably on a straight-line basis over their
respective vesting period net of estimated forfeitures.  The fair value of
RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product
of the number of shares granted and the grant date fair value of our common
stock. The following table summarizes the activity of the Company’s RSUs as of
the fiscal years ended June 28, 2009 and July 3, 2010:





Shares
                  
                  
                  Weighted
                    Average Grant
                    Date Fair
                    Value
                  
                  
                  Weighted
                    Average
                    Remaining
                    VestingTerm
                  
                  
                  Aggregate
                    IntrinsicValue(inthousands)
                  
                  
                  
                  
                  
                  (years)
                  
                  
                  (in thousands)RSUs
      outstanding at June 28, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -Awarded
                  
                  
                  364
                  
                  
                  
                  10.39Released
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  (15
                  )
                  
                  
                  15.01RSUs
      outstanding at June 27, 2009
                  
                  
                  349
                  
                  
                  $
                  10.18
                  
                  
                  
                  2.08
                  
                  
                  $
                  2,980Awarded
                  
                  
                  303
                  
                  
                  
                  10.52Released
                  
                  
                  (39
                  )
                  
                  
                  12.76Forfeited
                  
                  
                  (22
                  )
                  
                  
                  10.41RSUs
      outstanding at July 3, 2010
                  
                  
                  591
                  
                  
                  $
                  10.18
                  
                  
                  
                  1.66
                  
                  
                  $
                  5,403RSUs
      vested and expected to vest after July 3, 2010
                  
                  
                  499
                  
                  
                  $
                  10.17
                  
                  
                  
                  1.55
                  
                  
                  $
                  4,563





The
Company has unamortized share-based compensation expense related to RSUs of $3.7
million, which will be amortized to expense over a weighted average period of
3.0 years.


78




2000
EMPLOYEE STOCK PURCHASE PLAN





The
Company’s 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows
eligible employees of the Company to purchase shares of Common Stock through
payroll deductions.  The Company reserved 3.3 million shares of the
Company’s Common Stock for issuance under the Stock Purchase Plan, of which 2.0
million remain available at July 3, 2010.  The Stock Purchase Plan
permits eligible employees to purchase Common Stock at a discount through
payroll deductions, during 24-month purchase periods.  The Company
divides each purchase period into eight consecutive three-month accrual
periods.  Participants in the Stock Purchase Plan may purchase stock
at 85% of the lower of the stock’s fair market value on the first day of the
purchase period or the last day of the accrual period.  The maximum
number of shares of Common Stock that any employee may purchase under the Stock
Purchase Plan during any accrual period is 1,000 shares.  During
fiscal year 2010, 2009 and 2008, the Company issued 200,000, 180,000 and 120,000
shares of common stock under the Stock Purchase Plan at weighted average prices
of $5.33, $6.17 and $8.55, respectively.  The weighted average grant
date fair value of the fiscal 2010, 2009 and 2008 awards were $3.39, $2.83 and
$3.15 per share, respectively.





The
Company estimates the fair value of stock purchase rights granted under the
Company’s Stock Purchase Plan on the date of grant using the Black-Scholes
option valuation model.  ASC Topic 718, Stock Based
Compensation, states that a “lookback” pricing provision with a share limit
should be considered a combination of stock and a call option. The valuation
results for these elements have been combined to value the specific features of
the stock purchase rights.The Company bases volatility on the
expected volatility of the Company’s stock during the accrual
period.  The expected term is determined by the time from enrollment
until purchase. The Company uses historical data to determine expected
forfeitures and the U.S. Treasury yield for the risk-free interest rate for the
expected term.





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





Fiscal Year EndedJuly 3, 2010
                      
                      June 27, 2009
                      
                      June 28, 2008Expected
      life
                      
                      4.5
      - 13.5 months
                      
                      13.5
      months
                      
                      13.5
      monthsRisk-free
      interest rate
                      
                      0.17-0.63%
                      
                      0.55-2.19%
                      
                      1.97-4.95%Volatility
      range
                      
                      50%-70%
                      
                      61%-70%
                      
                      40%-60%Dividend
      yield
                      
                      0.00%
                      
                      0.00%
                      
                      0.00%





The
following table summarizes activity in the Company’s employee stock purchase
plan during the fiscal year ended July 3, 2010:





Shares
                  
                  
                  WeightedAverage
                    PurchasePriceBeginning
      available
                  
                  
                  363,906Shares
      added
                  
                  
                  1,800,000Purchases
                  
                  
                  (199,733
                  )
                  
                  $
                  5.33Ending
      Available
                  
                  
                  1,964,173





At July
3, 2010, the Company has $203,000 in unamortized share-based compensation
related to its employee stock purchase plan.  We estimate this expense
will be amortized and recognized in the consolidated statements of operations
over the next 4 months.




2010
EMPLOYEE STOCK PURCHASE PLAN





The
Company’s 2010 Employee Stock Purchase Plan (the “2010 Plan”) was approved at
the annual meeting of shareholders in December 2009 as replacement for the 2000
Stock Purchase Plan, which is scheduled to expire in October 2010. The 2010 Plan
becomes effective on the day preceding the last exercise date of the 2000 Stock
Purchase Plan. The Company reserved 2.0 million shares of the Company’s Common
Stock for issuance under this plan.  The 2010 Plan permits eligible
employees to purchase Common Stock at a discount through payroll deductions
during 6-month purchase periods. Participants in the 2010 Plan may purchase
stock at 85% of the lower of the stock’s fair market value on the first day and
last day of the offering period. The maximum number of shares of Common Stock
that any employee may purchase during any offering period under the plan is
1,000 shares, and an employee may not accrue more than $10,000 for share
purchases in any offering period.


79




REPORTING
SHARE-BASED COMPENSATION





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





Fiscal Year Ended(in thousands)
                          
                          July 3, 2010
                          
                          
                          June 27, 2009
                          
                          
                          June 28, 2008Cost
      of revenues
                          
                          $
                          286
                          
                          
                          $
                          244
                          
                          
                          $
                          155Research
      and development
                          
                          
                          1,506
                          
                          
                          
                          1,407
                          
                          
                          
                          811Selling,
      general and administrative
                          
                          
                          2,257
                          
                          
                          
                          1,935
                          
                          
                          
                          1,392Pre-tax
      stock-based compensation expense
                          
                          
                          4,049
                          
                          
                          
                          3,586
                          
                          
                          
                          2,358Income
      tax effect
                          
                          
                          1,159
                          
                          
                          
                          949
                          
                          
                          
                          684Net
      stock-based compensation expense
                          
                          $
                          2,890
                          
                          
                          $
                          2,637
                          
                          
                          $
                          1,674





The
amount of share-based compensation expense in inventory at July 3, 2010 and June
27, 2009 is immaterial.





Share-based
compensation expense categorized by the type of award from which it arose is as
follows for fiscal years ended July 3, 2010, June 27, 2009 and June 28,
2008:





Fiscal Year Ended(in thousands)
                      
                      July 3, 2010
                      
                      
                      June 27, 2009
                      
                      
                      June 28, 2008Stock
      option plans
                      
                      $
                      3,376
                      
                      
                      $
                      2,770
                      
                      
                      $
                      2,054Less
      income tax effect
                      
                      
                      1,159
                      
                      
                      
                      949
                      
                      
                      
                      684Net
      stock option plan expense
                      
                      
                      2,217
                      
                      
                      
                      1,821
                      
                      
                      
                      1,370Employee
      stock purchase plan
                      
                      
                      673
                      
                      
                      
                      816
                      
                      
                      
                      304Less
      income tax effect
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      employee stock purchase plan expense
                      
                      
                      673
                      
                      
                      
                      816
                      
                      
                      
                      304$
                      2,890
                      
                      
                      $
                      2,637
                      
                      
                      $
                      1,674




STOCK
REPURCHASE PLAN





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of our common stock and on April 29, 2008, the Board authorized
the repurchase of an additional $30 million worth of common stock. The Company
was authorized to repurchase the shares from time to time in the open market or
private transactions, at the discretion of the Company’s
management.  During the year ended July 3, 2010, the Company
repurchased approximately 908,000 shares for an aggregate cost of $8.7 million.
During the year ended June 27, 2009, the repurchases totaled approximately
712,000 shares at an aggregate cost of $5.5 million. During the year ended June
28, 2008, the Company repurchased approximately 1,559,000 shares for an
aggregate cost of $20.1 million.





Current
cash balances and the proceeds from stock option exercises and purchases in the
stock purchase plan have funded stock repurchases in the past, and the Company
expects to fund future stock repurchases from these same
sources.


80




16.
SHAREHOLDER RIGHTS PLAN





The
Company has adopted a Shareholder Rights Plan (“the Plan”) and declared a
dividend distribution of one right for each outstanding share of the Company’s
common stock.  The record date for the distribution was March 21,
2002.  The Company designed the plan to protect the long-term value of
the Company for its shareholders during any future unsolicited acquisition
attempt.  The Company did not adopt the Plan in response to any
specific attempt to acquire the Company or its shares and the Company is not
aware of any current efforts to do so.  These rights will become
exercisable only upon the occurrence of certain events specified in the plan,
including the acquisition of 15% of the Company’s outstanding common stock by a
person or group.  Should a person or group acquire 15% or more of the
outstanding common stock or announce an unsolicited tender offer, the
consummation of which would result in a person or group acquiring 15% or more of
the outstanding common stock, shareholders other than the acquiring person may
exercise the rights, unless the Board of Directors has approved the transaction
in advance.  Each right entitles the holder, other than an acquiring
person, to purchase shares of the Company’s common stock (or, in the event that
there are insufficient authorized common stock shares, substitute consideration
such as cash, property, or other securities of the Company, such as Preferred
Stock) at a 50% discount to the then prevailing market price.  Prior
to the acquisition by a person or group of 15% or more of the outstanding common
stock, the Company may redeem the rights for $0.001 per right at the option of
the Board of Directors.  All shares issued since March 21, 2002
contain one right. The rights will expire on March 21, 2012.  As of
July 3, 2010, there were 24,898,000 rights outstanding.





17.
FAIR VALUE MEASUREMENTS





The
Company defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. The fair value hierarchy is based on three levels of
inputs that may be used to measure fair value, of which the first two are
considered observable and the last is considered unobservable:




•
            Level
      1 - Quoted prices in active markets for identical assets or
      liabilities.


•
            Level
      2 - Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.


•
            Level
      3 - Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.




The
following table represents our fair value hierarchy for financial assets (cash
equivalents and investments) measured at fair value on a recurring basis. 
Level 1 available-for-sale investments are primarily comprised of investments in
U.S. Treasury securities, valued using market prices in active markets. 
Level 2 investment valuations are obtained from readily-available pricing
sources for comparable instruments. A majority of our investments are priced by
pricing vendors and are classified as Level 2 investments, as these vendors
either provide a quoted market price in an active market or use observable
inputs.





Assets
measured at fair value as of July 3, 2010 are summarized as
follows:





(in thousands)
                  
                  Fair Value
                  
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3Investments (1)US
      Treasury securities
                  
                  $
                  210
                  
                  
                  $
                  210
                  
                  
                  $
                  -
                  
                  
                  $
                  -Government
      and agency securities
                  
                  
                  15,007
                  
                  
                  
                  -
                  
                  
                  
                  15,007
                  
                  
                  
                  -State
      and municipal bond obligations
                  
                  
                  8,109
                  
                  
                  
                  -
                  
                  
                  
                  8,109
                  
                  
                  
                  -Corporate
      bonds and notes
                  
                  
                  45,613
                  
                  
                  
                  -
                  
                  
                  
                  45,613
                  
                  
                  
                  -Asset
      backed securities
                  
                  
                  11,675
                  
                  
                  
                  -
                  
                  
                  
                  11,675
                  
                  
                  
                  -Mortgage
      backed securities
                  
                  
                  8,818
                  
                  
                  
                  -
                  
                  
                  
                  8,818
                  
                  
                  
                  -Total
                  
                  $
                  89,431
                  
                  
                  $
                  210
                  
                  
                  $
                  89,221
                  
                  
                  $
                  -





(1)
            Included
      in short-term and long-term investments in marketable securities on
      our
              consolidated
      balance sheet




The
Company had no transfers in between Level 1 and Level 2 during the year ended
July 3, 2010.


81




The
Company’s investment in debt securities includes government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include US treasury securities, US federal
agency securities, foreign government and agency securities, and US state and
municipal bond obligations. Many of the municipal bonds are insured; those that
are not are nearly all AAA/Aaa rated. The corporate debt securities are all
investment grade and nearly all are single A-rated or better. The asset-backed
securities are AAA/Aaa rated and are backed by auto loans, student loans, credit
card balances and residential or commercial mortgages. When assessing marketable
securities for other-than-temporary declines in value, we consider a number of
factors. Our analyses of the severity and duration of price declines, portfolio
manager reports, economic forecasts and the specific circumstances of issuers
indicate that it is reasonable to expect marketable securities with unrealized
losses at July 3, 2010 to recover in fair value up to our cost bases within a
reasonable period of time. We do not intend to sell investments with unrealized
losses before maturity, when the obligors are required to redeem them at full
face value or par, and we believe the obligors have the financial resources to
redeem the debt securities. Accordingly, we do not consider our investments to
be other-than-temporarily impaired at July 3, 2010.





The
Company has determined that the amounts reported for cash and cash equivalents,
accounts receivable, deposits, accounts payable, accrued liabilities and debt
approximate fair value because of their short
maturities and/or variable interest rates.




18.
RESTRUCTURING CHARGE





There
were no restructuring charges for the fiscal year ended July 3,
2010.





In fiscal
2009, the Company instituted a restructuring plan to align its costs with
prevailing market conditions, incurring $584,000 of restructuring charges during
the year that were primarily related to workforce reductions, of which $547,000
was paid in fiscal 2009 and the remainder paid in fiscal 2010.




19.
INCOME TAXES





Income
tax expense consists of Federal, state and foreign current and deferred income
taxes as follows:





Fiscal Year EndedJuly 3,
                        
                        
                        June 27,
                        
                        
                        June 28,($ thousands)
                        
                        2010
                        
                        
                        2009
                        
                        
                        2008Income
      before income taxesU.S.
                        
                        $
                        10,024
                        
                        
                        $
                        4,848
                        
                        
                        $
                        19,608Foreign
                        
                        
                        2,279
                        
                        
                        
                        3,211
                        
                        
                        
                        5,14012,303
                        
                        
                        
                        8,059
                        
                        
                        
                        24,748Federal:Current
                        
                        
                        3,502
                        
                        
                        
                        1,302
                        
                        
                        
                        2,279Deferred
                        
                        
                        (179
                        )
                        
                        
                        421
                        
                        
                        
                        4,4543,323
                        
                        
                        
                        1,723
                        
                        
                        
                        6,733State:Current
                        
                        
                        7
                        
                        
                        
                        56
                        
                        
                        
                        4Deferred
                        
                        
                        (315
                        )
                        
                        
                        (277
                        )
                        
                        
                        445(308
                        )
                        
                        
                        (221
                        )
                        
                        
                        449Foreign:Current
                        
                        
                        855
                        
                        
                        
                        (474
                        )
                        
                        
                        963Deferred
                        
                        
                        41
                        
                        
                        
                        1,181
                        
                        
                        
                        76896
                        
                        
                        
                        707
                        
                        
                        
                        1,039Total
      current
                        
                        
                        4,364
                        
                        
                        
                        884
                        
                        
                        
                        3,246Total
      deferred
                        
                        
                        (453
                        )
                        
                        
                        1,325
                        
                        
                        
                        4,975Total
      income tax expense
                        
                        $
                        3,911
                        
                        
                        $
                        2,209
                        
                        
                        $
                        8,221




82





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





Fiscal Year EndedJuly 3,
                      
                      
                      June 27,
                      
                      
                      June 28,2010
                      
                      
                      2009
                      
                      
                      2008Tax
      provision at federal statutory rate
                      
                      
                      34.0
                      %
                      
                      
                      34.0
                      %
                      
                      
                      34.0
                      %State
      income taxes, net of federal benefit
                      
                      
                      (0.9
                      )
                      
                      
                      (1.5
                      )
                      
                      
                      0.8Foreign
      income and withholding taxes
                      
                      
                      1.3
                      
                      
                      
                      (4.3
                      )
                      
                      
                      (2.9
                      )Benefits
      from resolution of certain tax audits and expiration of statute of
      limitations
                      
                      
                      (2.7
                      )
                      
                      
                      (3.3
                      )
                      
                      
                      (0.6
                      )Stock
      compensation
                      
                      
                      1.6
                      
                      
                      
                      4.2
                      
                      
                      
                      0.6Research
      and development tax credits
                      
                      
                      (0.4
                      )
                      
                      
                      (1.2
                      )
                      
                      
                      0.1Change
      in valuation allowance
                      
                      
                      (1.1
                      )
                      
                      
                      2.3
                      
                      
                      
                      (0.4
                      )Other
                      
                      
                      -
                      
                      
                      
                      (2.8
                      )
                      
                      
                      1.6Income
      tax expense
                      
                      
                      31.8
                      %
                      
                      
                      27.4
                      %
                      
                      
                      33.2
                      %





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





As of the year endedJuly 3,
                  
                  
                  June 27,2010
                  
                  
                  2009Deferred tax
      assets:Credit
      carryforwards
                  
                  $
                  3,162
                  
                  
                  $
                  4,131Inventory
      reserves
                  
                  
                  1,049
                  
                  
                  
                  1,329Cumulative
      gain (loss) on investment in unconsolidated affiliates
                  
                  
                  (112
                  )
                  
                  
                  (58
                  )Unrealized
      loss on investments
                  
                  
                  218
                  
                  
                  
                  313Accrued
      compensation and other benefits
                  
                  
                  879
                  
                  
                  
                  371Capitalized
      research and development
                  
                  
                  59
                  
                  
                  
                  95State
      taxes
                  
                  
                  64
                  
                  
                  
                  -Land
      use right
                  
                  
                  -
                  
                  
                  
                  557Basis
      difference in fixed assets
                  
                  
                  (1,383
                  )
                  
                  
                  (1,323
                  )NOL
      carryforward
                  
                  
                  542
                  
                  
                  
                  256Other
      prepaid accruals
                  
                  
                  (89
                  )
                  
                  
                  (78
                  )Accounts
      receivable reserve
                  
                  
                  775
                  
                  
                  
                  727Deferred
      rent
                  
                  
                  164
                  
                  
                  
                  185Inventory
      UNICAP
                  
                  
                  131
                  
                  
                  
                  89Stock
      compensation
                  
                  
                  2,382
                  
                  
                  
                  1,551Others
                  
                  
                  111
                  
                  
                  
                  20Total
      deferred tax asset
                  
                  
                  7,952
                  
                  
                  
                  8,165Valuation
      allowance
                  
                  
                  (965
                  )
                  
                  
                  (819
                  )Net
      deferred tax assets
                  
                  $
                  6,987
                  
                  
                  $
                  7,346





As of
July 3, 2010, the Company has tax credit carryforwards of approximately $182,000
and $3.8 million available to offset future state taxable income and federal
taxable income, respectively.  The state tax credit carryforwards do
not have an expiration date and may be carried forward
indefinitely.  The federal tax credit carryforward expires in twenty
years; any remainder will then be deductible in the twenty-first
year.





The
Company provides a valuation allowance for deferred tax assets when it is more
likely than not, based upon currently available evidence and other factors, that
some portion or all of the deferred tax asset will not be
realized.


83





Consolidated
income before income taxes includes non-U.S. income of approximately $2.3
million, $3.2 million and $5.0 million for the fiscal years ended July 3, 2010,
June 27, 2009 and June 28, 2008, respectively.  Pericom has not
provided U.S. income taxes on a cumulative total of approximately $17.3 million
of undistributed earnings reported by certain foreign
subsidiaries.  The Company intends to reinvest these earnings
indefinitely in its foreign subsidiaries.  If these earnings were
distributed to the United States in the form of dividends or otherwise, or if
the shares of the relevant foreign subsidiaries were sold or otherwise
transferred, the Company would be subject to additional U.S. income taxes
(subject to an adjustment for foreign tax credits) and foreign withholding
taxes.





The
Company recognized $545,000 for unrecognized tax benefits as of July 3, 2010. A
reconciliation of the beginning and ending amount of unrecognized tax benefit
from the fiscal year beginning July 1, 2007 through July 3, 2010 is as
follows:





Balance
      as of July 1, 2007
                    
                    $
                    (974,000
                    )Gross
      increases - current-period tax positions
                    
                    
                    (72,000
                    )Reductions
      as a result of a lapse of statute of limitations
                    
                    
                    148,000Balance
      as of June 28, 2008
                    
                    
                    (898,000
                    )Gross
      increases - prior period tax positions
                    
                    
                    (24,000
                    )Gross
      increases - current-period tax positions
                    
                    
                    (101,000
                    )Reductions
      as a result of a lapse of statute of limitations
                    
                    
                    267,000Balance
      as of June 27, 2009
                    
                    $
                    (756,000
                    )Gross
      decreases - prior period tax positions
                    
                    
                    3,000Gross
      increases - prior period tax positions
                    
                    
                    (27,000
                    )Gross
      increases - current-period tax positions
                    
                    
                    (91,000
                    )Reductions
      as a result of a lapse of statute of limitations
                    
                    
                    326,000Balance
      as of July 3, 2010
                    
                    $
                    (545,000
                    )





All of this amount would
affect the corporation’s tax rate if recognized.The Company
is subject to examination by Federal, foreign, and various state jurisdictions
for the years 2004 through 2009. To the Company’s knowledge, there are currently
no examinations underway.





As of
July 3, 2010, the Company has accrued $38,000 for interest and penalties related
to the unrecognized tax benefits. The balance of unrecognized tax benefits and
the related interest and penalties is recorded as a noncurrent liability on our
consolidated balance sheet.




20.
EMPLOYEE BENEFIT PLAN





The
Company has a 401(k) tax-deferred savings plan under which eligible employees
may elect to have a portion of their salary deferred and contributed to the
plan.  The Board of Directors determines the employer matching
contributions at their discretion.  There were no employer-matching
contributions in fiscal 2010, 2009 or 2008.




21.
INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION





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





The Chief
Operating Decision Maker (CODM), is the Company’s President and Chief Executive
Officer (CEO).  Because the Company’s products are complementary and
share common customers and suppliers, the CODM reviews and assesses financial
information, operating results and performance of the Company’s business in the
aggregate and allocates resources to develop new products and drive sales using
information about the market in which the Company operates, as a
whole.





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


84





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





Operating
net revenues for each of the three years in the period ended July 3, 2010 is
shown below:





Years EndedJuly 3,
                  
                  
                  June 27,
                  
                  
                  June 28,(in thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  2008Net
      revenuesIC
      product family
                  
                  $
                  92,290
                  
                  
                  $
                  76,072
                  
                  
                  $
                  96,612FCP
      product family
                  
                  
                  54,623
                  
                  
                  
                  52,573
                  
                  
                  
                  67,132Total
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  $
                  163,744





For
geographical reporting, the Company attributes net sales to the country where
customers are located (the “bill to” location). The Company neither conducts
business in nor sells to persons in Iran, Syria, Sudan, or North Korea,
countries located in the referenced regions that are identified as state
sponsors of terrorism by the U.S. Department of State, and are subject to U.S.
economic sanctions and export controls. Long-lived assets consist of all
non-monetary assets, excluding non-current deferred tax assets, goodwill and
intangible assets.  The Company attributes long-lived assets to the
country where they are located.  The following presents net sales for
each of the three years in the period ended July 3, 2010; and the net book value
of long-lived assets as of July 3, 2010, June 27, 2009 and June 28, 2008 by
geographical segment,





Fiscal year endedJuly 3,
                  
                  
                  June 27,
                  
                  
                  June 28,(in thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  2008Net
      sales to countries:Taiwan
                  
                  $
                  74,905
                  
                  
                  $
                  55,819
                  
                  
                  $
                  52,103China
      (including Hong Kong)
                  
                  
                  40,120
                  
                  
                  
                  43,160
                  
                  
                  
                  63,071United
      States
                  
                  
                  11,981
                  
                  
                  
                  9,842
                  
                  
                  
                  14,466Singapore
                  
                  
                  2,613
                  
                  
                  
                  3,856
                  
                  
                  
                  8,073Others
      (less than 10% each)
                  
                  
                  17,294
                  
                  
                  
                  16,723
                  
                  
                  
                  26,031Total
      net sales
                  
                  $
                  146,913
                  
                  
                  $
                  128,645
                  
                  
                  $
                  163,744(in
      thousands)Long-lived
      assets:China
      (including Hong Kong)
                  
                  $
                  27,883
                  
                  
                  $
                  21,806
                  
                  
                  $
                  345Taiwan
                  
                  
                  17,519
                  
                  
                  
                  19,424
                  
                  
                  
                  23,402United
      States
                  
                  
                  3,751
                  
                  
                  
                  4,445
                  
                  
                  
                  6,622Korea
                  
                  
                  1,161
                  
                  
                  
                  1,199
                  
                  
                  
                  856Singapore
                  
                  
                  407
                  
                  
                  
                  300
                  
                  
                  
                  353Others
      (less than 10% each)
                  
                  
                  39
                  
                  
                  
                  64
                  
                  
                  
                  60Total
      long-lived assets
                  
                  $
                  50,760
                  
                  
                  $
                  47,238
                  
                  
                  $
                  31,638


85




22.
QUARTERLY FINANCIAL DATA (Unaudited)




Following
is a summary of quarterly operating results and share data for the years ended
July 3, 2010 and June 27, 2009.





PERICOM
SEMICONDUCTOR CORPORATION


QUARTERLY
FINANCIAL DATA


(Amounts
in thousands, except per share data)


(Unaudited)





For the Quarter EndedJuly 3,
                                
                                
                                Mar 27,
                                
                                
                                Dec 26,
                                
                                
                                Sep 26,2010
                                
                                
                                2010
                                
                                
                                2009
                                
                                
                                2009Net
      revenues
                                
                                $
                                41,495
                                
                                
                                $
                                36,661
                                
                                
                                $
                                35,805
                                
                                
                                $
                                32,952Cost
      of revenues
                                
                                
                                26,246
                                
                                
                                
                                23,723
                                
                                
                                
                                23,762
                                
                                
                                
                                22,416Gross
      profit
                                
                                
                                15,249
                                
                                
                                
                                12,938
                                
                                
                                
                                12,043
                                
                                
                                
                                10,536Operating
      expenses:Research
      and development
                                
                                
                                4,575
                                
                                
                                
                                4,251
                                
                                
                                
                                4,336
                                
                                
                                
                                4,046Selling,
      general and administrative
                                
                                
                                7,413
                                
                                
                                
                                6,201
                                
                                
                                
                                6,035
                                
                                
                                
                                6,828Total
      operating expenses
                                
                                
                                11,988
                                
                                
                                
                                10,452
                                
                                
                                
                                10,371
                                
                                
                                
                                10,874Income
      (loss) from operations
                                
                                
                                3,261
                                
                                
                                
                                2,486
                                
                                
                                
                                1,672
                                
                                
                                
                                (338
                                )Interest
      and other income, net
                                
                                
                                1,072
                                
                                
                                
                                1,219
                                
                                
                                
                                1,288
                                
                                
                                
                                1,643Income
      before income tax expense
                                
                                
                                4,333
                                
                                
                                
                                3,705
                                
                                
                                
                                2,960
                                
                                
                                
                                1,305Income
      tax expense
                                
                                
                                1,174
                                
                                
                                
                                1,260
                                
                                
                                
                                1,002
                                
                                
                                
                                475Net
      income from consolidated companies
                                
                                
                                3,159
                                
                                
                                
                                2,445
                                
                                
                                
                                1,958
                                
                                
                                
                                830Equity
      in net income of unconsolidated affiliates
                                
                                
                                759
                                
                                
                                
                                608
                                
                                
                                
                                536
                                
                                
                                
                                527Net
      income
                                
                                
                                3,918
                                
                                
                                
                                3,053
                                
                                
                                
                                2,494
                                
                                
                                
                                1,357Net
      income attributable to noncontrolling interests
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (6
                                )
                                
                                
                                (22
                                )Net
      income attributable to Pericom shareholders
                                
                                $
                                3,918
                                
                                
                                $
                                3,053
                                
                                
                                $
                                2,488
                                
                                
                                $
                                1,335Basic
      income per share to Pericom shareholders
                                
                                $
                                0.16
                                
                                
                                $
                                0.12
                                
                                
                                $
                                0.10
                                
                                
                                $
                                0.05Diluted
      income per share to Pericom shareholders
                                
                                $
                                0.15
                                
                                
                                $
                                0.12
                                
                                
                                $
                                0.10
                                
                                
                                $
                                0.05Shares
      used in computing basic income per share
                                
                                
                                25,210
                                
                                
                                
                                25,386
                                
                                
                                
                                25,543
                                
                                
                                
                                25,509Shares
      used in computing diluted income per share
                                
                                
                                25,582
                                
                                
                                
                                25,697
                                
                                
                                
                                25,911
                                
                                
                                
                                25,678





For the Quarter EndedJune 27,
                                                        
                                                        
                                                        Mar 28,
                                                        
                                                        
                                                        Dec 27,
                                                        
                                                        
                                                        Sep 27,2009
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        2008Net
      revenues
                                                        
                                                        $
                                                        29,721
                                                        
                                                        
                                                        $
                                                        24,394
                                                        
                                                        
                                                        $
                                                        30,732
                                                        
                                                        
                                                        $
                                                        43,798Cost
      of revenues
                                                        
                                                        
                                                        21,193
                                                        
                                                        
                                                        
                                                        15,731
                                                        
                                                        
                                                        
                                                        20,785
                                                        
                                                        
                                                        
                                                        27,805Gross
      profit
                                                        
                                                        
                                                        8,528
                                                        
                                                        
                                                        
                                                        8,663
                                                        
                                                        
                                                        
                                                        9,947
                                                        
                                                        
                                                        
                                                        15,993Operating
      expenses:Research
      and development
                                                        
                                                        
                                                        4,117
                                                        
                                                        
                                                        
                                                        3,996
                                                        
                                                        
                                                        
                                                        4,363
                                                        
                                                        
                                                        
                                                        4,221Selling,
      general and administrative
                                                        
                                                        
                                                        5,343
                                                        
                                                        
                                                        
                                                        5,136
                                                        
                                                        
                                                        
                                                        5,453
                                                        
                                                        
                                                        
                                                        6,901Restructuring
      charge
                                                        
                                                        
                                                        74
                                                        
                                                        
                                                        
                                                        293
                                                        
                                                        
                                                        
                                                        217
                                                        
                                                        
                                                        
                                                        -Total
      operating expenses
                                                        
                                                        
                                                        9,534
                                                        
                                                        
                                                        
                                                        9,425
                                                        
                                                        
                                                        
                                                        10,033
                                                        
                                                        
                                                        
                                                        11,122Income
      (loss) from operations
                                                        
                                                        
                                                        (1,006
                                                        )
                                                        
                                                        
                                                        (762
                                                        )
                                                        
                                                        
                                                        (86
                                                        )
                                                        
                                                        
                                                        4,871Interest
      and other income, net
                                                        
                                                        
                                                        1,677
                                                        
                                                        
                                                        
                                                        1,501
                                                        
                                                        
                                                        
                                                        1,264
                                                        
                                                        
                                                        
                                                        1,106Other
      than temporary decline in the value of investments
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (48
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (458
                                                        )Income
      before income tax expense
                                                        
                                                        
                                                        671
                                                        
                                                        
                                                        
                                                        691
                                                        
                                                        
                                                        
                                                        1,178
                                                        
                                                        
                                                        
                                                        5,519Income
      tax expense
                                                        
                                                        
                                                        (135
                                                        )
                                                        
                                                        
                                                        460
                                                        
                                                        
                                                        
                                                        (46
                                                        )
                                                        
                                                        
                                                        1,930Net
      income from consolidated companies
                                                        
                                                        
                                                        806
                                                        
                                                        
                                                        
                                                        231
                                                        
                                                        
                                                        
                                                        1,224
                                                        
                                                        
                                                        
                                                        3,589Equity
      in net income of unconsolidated affiliates
                                                        
                                                        
                                                        256
                                                        
                                                        
                                                        
                                                        49
                                                        
                                                        
                                                        
                                                        (71
                                                        )
                                                        
                                                        
                                                        117Net
      income
                                                        
                                                        
                                                        1,062
                                                        
                                                        
                                                        
                                                        280
                                                        
                                                        
                                                        
                                                        1,153
                                                        
                                                        
                                                        
                                                        3,706Net
      income attributable to noncontrolling interests
                                                        
                                                        
                                                        (22
                                                        )
                                                        
                                                        
                                                        (24
                                                        )
                                                        
                                                        
                                                        (23
                                                        )
                                                        
                                                        
                                                        (45
                                                        )Net
      income attributable to Pericom shareholders
                                                        
                                                        $
                                                        1,040
                                                        
                                                        
                                                        $
                                                        256
                                                        
                                                        
                                                        $
                                                        1,130
                                                        
                                                        
                                                        $
                                                        3,661Basic
      income per share to Pericom shareholders
                                                        
                                                        $
                                                        0.04
                                                        
                                                        
                                                        $
                                                        0.01
                                                        
                                                        
                                                        $
                                                        0.04
                                                        
                                                        
                                                        $
                                                        0.14Diluted
      income per share to Pericom shareholders
                                                        
                                                        $
                                                        0.04
                                                        
                                                        
                                                        $
                                                        0.01
                                                        
                                                        
                                                        $
                                                        0.04
                                                        
                                                        
                                                        $
                                                        0.14Shares
      used in computing basic earnings per share
                                                        
                                                        
                                                        25,354
                                                        
                                                        
                                                        
                                                        25,218
                                                        
                                                        
                                                        
                                                        25,418
                                                        
                                                        
                                                        
                                                        25,679Shares
      used in computing diluted earnings per share
                                                        
                                                        
                                                        25,485
                                                        
                                                        
                                                        
                                                        25,282
                                                        
                                                        
                                                        
                                                        25,496
                                                        
                                                        
                                                        
                                                        26,239





23.
SUBSEQUENT EVENT





On August
9, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement”) to acquire all remaining outstanding shares of PTI capital stock not
previously owned by Pericom for up to approximately $35 million in cash. Pericom
currently has an approximately 42.4% ownership interest in PTI (40.3% on a fully
diluted basis reflecting outstanding capital stock and PTI employee stock
options), and has accounted for its investment in PTI using the equity method
due to Pericom’s significant influence over PTI’s operations. Under the Merger
Agreement, the Company has agreed to pay approximately $29 million in cash upon
the closing of the merger for the remaining 59.7% of fully diluted ownership (to
be allocated among holders of PTI capital stock and eligible vested PTI employee
stock options), increased or decreased under a potential working capital
adjustment described in the Merger Agreement.  Up to an additional
approximately $6 million in earn-out consideration and bonus payments is also
payable by the Company upon achievement of gross profit milestones during a one
year earn-out period.  Portions of the merger consideration are to be
held in an escrow fund in respect of the PTI shareholders’ indemnity obligations
owed to Pericom and in a fund relating to the potential working capital
adjustment. The Company expects that the merger will be completed during the
latter part of the Company’s first quarter of its fiscal year 2011. The
completion of the merger is subject to closing conditions, which include, among
other things, approval by the holders of PTI’s outstanding common and preferred
stock, and compliance with certain covenants.


86





Alex Hui,
Chairman of the Pericom Board of Directors and Pericom’s Chief Executive Officer
and President, and John Hui, a director of Pericom and Pericom’s Senior Vice
President, Research and Development, respectively own 6.6% and 4.2% of the
outstanding capital stock of PTI on a fully diluted basis (in the case of John
Hui, this percentage includes shares issuable in connection with his vested
options) and are entitled to an equivalent percentage of the consideration
payable in respect of the Merger to holders of PTI capital stock and
options.  Each of these individuals also serves as a director of PTI,
and Alex Hui serves as the Chief Executive Officer and President of
PTI.





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:
              August
      31, 2010





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





Signature
                        
                        Title
                        
                        Date/s/    ALEX C.
      HUI
                        
                        Chief
      Executive Officer, President and
                        
                        August
      31, 2010Alex
      C. Hui
                        
                        Chairman
      of the Board of Directors(Principal
      Executive Officer)/s/   AARON
      TACHIBANA
                        
                        Chief
      Financial Officer
                        
                        August
      31, 2010Aaron
      Tachibana
                        
                        (Principal
      Financial Officer and AccountingOfficer)/s/   JOHN CHI-HUNG
      HUI
                        
                        Senior
      Vice President, R&D and Director
                        
                        August
      31, 2010John
      Chi-Hung Hui/s/   HAU L
    LEE
                        
                        Director
                        
                        August
      31, 2010Hau
      L. Lee/s/   SIMON
    WONG
                        
                        Director
                        
                        August
      31, 2010Simon
      Wong/s/   MICHAEL
      SOPHIE
                        
                        Director
                        
                        August
      31, 2010Michael
      Sophie/s/   DENNIS
      MCKENNA
                        
                        Director
                        
                        August
      31, 2010Dennis
      McKenna/s/   EDWARD
      YANG
                        
                        Director
                        
                        August
      31, 2010Edward
      Yang




87




Schedule
II





PERICOM
SEMICONDUCTOR CORPORATION





VALUATION
AND QUALIFYING ACCOUNTS


(In
Thousands)





Balance at
                  Beginning
                
                
                Charged to
                
                
                
                
                
                Balance at
                  End ofof Period
                
                
                Revenues
                
                
                Deductions
                
                
                PeriodReserves
      for returns and pricing adjustmentsFiscal
      year ending July 3, 2010
                
                $
                1,895
                
                
                $
                5,416
                
                
                $
                4,945
                
                
                $
                2,366Fiscal
      year ending June 27, 2009
                
                
                1,695
                
                
                
                4,152
                
                
                
                3,952
                
                
                
                1,895Fiscal
      year ending June 28, 2008
                
                
                2,185
                
                
                
                3,460
                
                
                
                3,950
                
                
                
                1,695





Balance at
                
                
                Charged to
                
                
                
                
                
                Balance atBeginning
                
                
                Costs and
                
                
                Deductions/
                
                
                End ofof Period
                
                
                Expenses
                
                
                Write-offs
                
                
                PeriodAllowance
      for doubtful accountsFiscal
      year ending July 3, 2010
                
                $
                268
                
                
                $
                64
                
                
                $
                33
                
                
                $
                299Fiscal
      year ending June 27, 2009
                
                
                255
                
                
                
                225
                
                
                
                212
                
                
                
                268Fiscal
      year ending June 28, 2008
                
                
                103
                
                
                
                165
                
                
                
                13
                
                
                
                255


___________


88