UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K





FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES


EXCHANGE
ACT OF 1934.


(Mark
One)





x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE
      FISCAL YEAR ENDED JUNE 27,
2009





 ̈
            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             ̈





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





Large Accelerated
Filer   ̈Accelerated
Filer  xNon
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 26, 2008 as reported
by the NASDAQ Stock Market was approximately $129,046,000. Shares of common
stock held by each officer and director have been excluded in that such persons
may be deemed to be affiliates.  This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.





As of
September 23, 2009 the Registrant had outstanding 25,515,297 shares of Common
Stock.




DOCUMENTS
INCORPORATED BY REFERENCE





Parts of
the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be
held December 11, 2009, 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 June 27, 2009





INDEX





PAGEPART
      IItem
      1:
                  Business
                  3Item
      1A:
                  Risk
      Factors
                  16Item
      1B:
                  Unresolved
      Staff Comments
                  26Item
      2:
                  Properties
                  26Item
      3:
                  Legal
      Proceedings
                  26Item
      4:
                  Submission
      of Matters to a Vote of Security Holders
                  27PART
      IIItem
      5:
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  28Item
      6:
                  Selected
      Financial Data
                  31Item
      7:
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  32Item
      7A:
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  47Item
      8:
                  Financial
      Statements and Supplementary Data
                  48Item
      9:
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  49Item
      9A:
                  Controls
      and Procedures
                  49Item
      9B:
                  Other
      Information
                  51PART
      IIIItem
      10:
                  Directors,
      Executive Officers and Corporate Governance
                  54Item
      11:
                  Executive
      Compensation
                  54Item
      12:
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                  54Item
      13:
                  Certain
      Relationships and Related Transactions, and Director
      Independence
                  55Item
      14:
                  Principal
      Accountant Fees and Services
                  55PART
      IVItem
      15:
                  Exhibits
      and Financial Statement Schedules
                  56Signatures
                  89


2




PART
I
 
 EXPLANATORY
NOTE
 
 As used
in this Form 10K, the term “fiscal 2009” refers to our fiscal year ended June
27, 2009, the term “fiscal 2008” refers to our fiscal year ended June 28, 2008
and the term “fiscal 2007” refers to our fiscal year ended June 30,
2007.
 
 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.
 
 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.
 
 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.
  3
  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
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.
 
 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.
  4
  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 March 1995.  We also
      endeavor to be a good corporate citizen, required by many customers, with
      solid environmental and other processes and we received our ISO 14001
      Environmental Management System certification in
  2004.
  ·
              Expand
      customer relationships through broad-based solutions.  We aim to
      grow our business with existing customers by offering product lines that
      provide increasingly extensive solutions for our customers’ high-speed
      interfacing needs.  By providing our customers with superior
      support in existing programs and anticipating our customers’ needs in
      next- generation products, we have often been able to increase our overall
      volume of business with those customers substantially.  With
      larger customers, we have also initiated electronic data interchange, or
      EDI, and remote warehousing programs, annual purchase and supply programs,
      joint development projects and other services intended to enhance our
      position as a key vendor.
  5
  ·
              Responding
      to our customer requirements is one of our highest
      priorities.  In order to accomplish this, several years ago we
      implemented an automated quoting system from Model N, a leader in
      e-business solutions.  We can respond very quickly to our
      customer needs and offer them superior service.  With the
      implementation of Model N’s ProChannel, we have also been able to
      streamline a number of internal
procedures.
  ·
              Maintain
      a comprehensive and intuitive web site with all required documentation
      needed by our customers.
  Technology
Focus:
 
 High
bandwidth, high-speed serial protocols inherently present challenges in system
design, such as error-free signal routing, end-point integrity and timing
sensitivities.  We focus on three main technology areas: serial
high-speed protocol switching, advanced silicon and quartz based timing and
unique signal conditioning solutions.  These focus areas combine at
the product level to provide a complimentary and complete system level solution
for high-speed serial protocol implementation.
 
 As a
result of this focus, we lead the market in high-speed analog switching
technology.  We possess a solid history of ‘industry first’ product
introductions, such as our dual HDMI and PCI Express signal switching solutions
and our unique serial signal integrity technology.  Focus product
families include high-frequency Signal Switches, Packet Switches, Bridges,
ReDrivers, Clock Generators/Buffers, Crystals and Oscillators.
 
 Today,
our technology encompasses all major serial high-speed protocols including PCI
Express, USB, HDMI/DVI, Display Port, SAS/SATA, 10-Gigabit Attachment Unit
Interface (XAUI) and Ethernet.
 
 Our
primary efforts are in the creation of additional proprietary digital, analog
and mixed-signal functionality.  We work closely with our wafer
suppliers to incorporate their advanced complementary metal oxide semiconductor
(CMOS) process technologies to improve our ability to introduce next generation
products expeditiously.  We continue to expand our patent portfolio
with the goal of providing increasingly proprietary product lines.
 
 For FCPs,
our strategy is to further our leadership in high-frequency,
superior-performance, low-jitter timing products by combining our
industry-unique crystal-and-silicon design capabilities. 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, Chartered Semiconductor Manufacturing Pte, Ltd.
(“Chartered”), Taiwan Semiconductor Manufacturing Corporation (“TSMC”),
Magnachip Semiconductor, Inc. (“Magnachip”) and United Microelectronics
Corporation (“UMC”).
 
 For FCPs,
our vertically integrated Asian design and manufacturing subsidiary,
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. Our FCP factory is located in Chungli (Taiwan), and a new FCP factory
is nearing completion in Jinan, located in Shandong Province of People’s
Republic of China (PRC).
  6
  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
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. In fiscal 2007, IC product revenues were $72.7 million or
59.0% of the $123.4 million in total revenues, with the balance of $50.7 million
attributable to FCP product revenues..
 
 SiliconConnectTM
Family
 
 Our
SiliconConnect family offers the highest level of complexity and integration
among our products.  It consists of our PCI and PCI-X Bridges and our
PCI Express Bridges and Packet Switches, as well as our legacy family of LVDS
high-speed differential drivers, receivers and transceivers.  In
fiscal 2009, we had overall growth of 80% in the revenues attributable to the
SiliconConnect family, mainly from PCI/PCI-X bridge products, and our new PCIe
product family.
 
 PCI/PCI-X:
 
 With a
comprehensive product portfolio based on performance and value, this legacy
product family continues to gain market share within both existing and new
applications across multiple market segments.  Manufacturers continue
to use PCI for legacy designs, especially in long-term higher-end platforms,
such as networking, storage, high-end server and embedded systems used in
military, industrial and computing applications.
 
 PCI
Express:
 
 PCI
Express (“PCIe”) is the next generation replacement for PCI.  PCIe is
a serial, high-speed technology, which offers many advantages over the parallel
bus based PCI technology.  All market segment applications are
adopting PCIe and our PCIe products actively target all major PCIe based
applications, 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.
  7
  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 including SATA and PCIe protocols that conditions
signals and ensures signal integrity in today’s very high-speed
protocols.  SiliconInterface also focuses on managing different
voltage levels by use of voltage level translator devices.  Our legacy
high-performance 5-volt, 3.3-volt, 2.5-volt, and 1.8-volt CMOS logic interface
circuits provide logic functions to handle data transfer between microprocessors
and memory, bus exchange, backplane interface and other logic interface
functions where high-speed, low-power, low-noise and high-output drive
characteristics are essential.
 
 ReDrivers/Signal
Conditioners:
 
 With the
adaptation of 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 and XAUI for applications including servers,
storage and notebook/docking stations.  Systems designers benefit from
our ReDriver products in another way:  they can now use our ReDrivers
with inexpensive cables, such as CAT6 or flexible ribbon cables instead of using
very expensive cables to achieve good signal integrity at the end of the trace.
In fiscal 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.
 
 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.
 
 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.
  9
  Gates:
 
 These
products operate from 1.65-volt to 5-volt to address the interface needs in many
applications.  We continue to tap into new product markets in the
areas of communication, PC peripherals and consumer digital
systems.
 
 SiliconClockTM
Family
 
 In
high-bandwidth systems, data transfer must be synchronized and this creates a
demand for timing products.  Our timing products provide the precise
timing signals needed to ensure reliable data transfer at high speeds in
applications ranging from servers to network switches to
televisions.  As systems continue to grow in processing power and
complexity, we expect the demand for these products to
accelerate.  The requirement for precision will also increase as
timing margins shrink in higher-bandwidth systems.
 
 Our
SiliconClock IC product line provides a broad range of general-purpose solutions
including voltage controlled crystal oscillators (“VCXO”) with integrated Phase
Locked Loop (“PLL”) clock generators, clock buffers, zero-delay clock drivers,
frequency synthesizers, spread-spectrum clock generators and programmable clock
products for a wide range of microprocessor systems, as well as a number of ASSP
markets like multi-function printers, registered memory modules, storage area
networks, servers, networking, set-top boxes and digital television. 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.
 
 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”).
 
 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
                
                MotorolaApple
  11
 
 Networking
      Equipment
                
                Mobile
      Terminal
                
                Contract
      ManufacturingCisco
                
                Garmin
                
                FoxconnAzureWave
      Technologies
                
                LG
      Electronics
                
                SolectronNettech
      Technology
                
                Samsung
                
                CelesticaAlpha
      Networks
                
                Even
                
                SCI-Sanmina2
      Wire
                
                Panasonic
                
                FlextronicsCameo
      Communications
                
                Inventec
      Appliance
                
                JabilTP-LINKAskeyPeripherals
                
                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
2009, our direct sales to Avnet and Techmosa, two Asian distributors, 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.
 
 In fiscal
2007, our direct sales to Asian Information Technology, Inc. (“AIT”) accounted
for approximately 13% of net revenues and direct sales to our top five customers
accounted for approximately 35% of net revenues.  No single end-user
customer accounted for greater than 10% of net revenues in the fiscal year ended
June 30, 2007.
 
 We
continue to expect a small number of customers to account for a large portion of
our net revenues. See Item 1A “Risk Factors; Factors That May Affect Operating
Results – The demand for our products depends on the growth of our end users’
markets” and “Risk Factors; Factors That May Affect Operating Results – A large
portion of our revenues is derived from sales to a few customers, who may cease
purchasing from us at any time” of this Annual Report on Form 10-K.
 
 Contract
manufacturers are important customers for us as systems designers in our target
markets continue to outsource portions of their manufacturing.  In
addition, these contract manufacturers continue to play a vital role in
determining which vendors' products are incorporated into new
designs.
  12
  DESIGN
AND PROCESS TECHNOLOGY
 
 Our
design efforts focus on the development of high-performance digital, analog and
mixed-signal ICs.  To minimize design cycle times of high-performance
products, we use a modular design methodology that has enabled us to produce
many new products each year and to meet our customers' need for fast
time-to-market response.  This methodology uses state-of-the-art
computer-aided design software tools such as high-level description language, or
HDL, logic synthesis, full-chip mixed-signal simulation, and automated design
layout and verification and uses our library of high-performance digital and
analog core cells.  We have developed this family of core cells over
several years and it contains high-performance, specialized digital and analog
functions not available in commercial ASIC libraries.  Among these
cells are our proprietary mixed-voltage input/output, or I/O, cells, high-speed,
low-noise I/O cells, analog and digital PLLs, charge pumps and data
communication transceiver circuits using low voltage differential
signaling.  The United States Patent and Trademark Office has granted
us 110 U.S. patents and we have 12 U.S. patent applications pending. Another
advantage of our modular design methodology is that it allows the application of
final design options late in the wafer manufacturing process to determine a
product's specific function.  This option gives us the ability to use
pre-staged wafers, which significantly reduces the design and manufacturing
cycle time and enables us to respond rapidly to a customer's prototype needs and
volume requirements.
 
 We use
advanced CMOS processes to achieve higher performance and lower die
cost.  Our process and device engineers work closely with our
independent wafer foundry partners to develop and evaluate new process
technologies.  Our process engineers also work closely with circuit
design engineers to improve the performance and reliability of our cell
library.  We currently manufacture a majority of our products using
0.8-, 0.6-, 0.5-, 0.35-, 0.25- and 0.18-micron CMOS process technologies and are
currently developing new products using 0.13-micron technology.  We
are also using a high-voltage CMOS process developed by one of our wafer
suppliers in the design of higher voltage switch products.
 
 For FCPs,
we have a well-established design focus, methodology and execution
technique.  We implement the majority of designs for oscillators and
higher-functionality parts with CMOS process technologies.  However,
we also pursue designs incorporating Bipolar, BiCMOS and Silicon-Germanium
(SiGe) technologies, as well as utilization of complex programmable logic device
(CPLD) and field-programmable gate array (FPGA) components.  Crystal
components developed and marketed by all suppliers are
similar.  However, the operating behavior of the resonator and the
specific techniques employed in their design, modeling, manufacturing &
testing processes are highly specialized and unique.  As such,
manufacturing processes, equipment and test procedures can form a distinct part
of the design activity.  The outcome of the development becomes a
permanent and proprietary part of the design specification.
 
 SALES
AND MARKETING
 
 We market
and distribute our products through a worldwide network of independent sales
representatives and distributors supported by our internal and field sales
organization.  Sales to domestic and international distributors
represented 56% of our net revenues in fiscal 2009, 49% of our net revenues in
fiscal 2008, and 40% of our net revenues in fiscal 2007.  Our major
distributors in North America and Europe include Avnet, Arrow Electronics,
Future Electronics and Nu Horizons Electronics.  Our major Asian
distributors include AIT (Hong Kong), Avnet (Asia), Chinatronics (Hong Kong),
Desner Electronics (Singapore), Internix (Japan), MCM (Japan), Maxmega
(Singapore) and Techmosa (Taiwan).
 
 We have
three regional sales offices in the United States, as well as international
sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan and the United
Kingdom.  International sales comprised approximately 92% of our net
revenues in fiscal 2009, 91% of our net revenues in fiscal 2008, and 87% of our
net revenues in fiscal 2007.  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 2009, 2008 and 2007 – 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.
  13
  We
believe that contract manufacturing customers are strategically important and we
employ sales and marketing personnel who focus on servicing these customers and
on expanding our product sales to OEMs via these customers.  In
addition, we use programs such as EDI, bonded inventories and remote warehousing
to enhance our service and attractiveness to contract
manufacturers.
 
 MANUFACTURING
 
 We have
adopted a fabrication foundry non-ownership (“fabless”) IC manufacturing
strategy by subcontracting our wafer production to independent wafer
foundries.  We have established collaborative relationships with
selected independent foundries with which we can develop a strategic
relationship to the benefit of both parties.  We believe that our
fabless strategy enables us to introduce high performance products quickly at
competitive cost.  To date, our principal manufacturing relationships
have been with Chartered, TSMC, MagnaChip, and UMC.  We have an
ongoing effort to qualify new foundry vendors that offer cost or other
advantages.
 
 We
primarily rely on foreign subcontractors for the assembly of our products and,
to a lesser extent, for the testing and packaging of our finished
products.  Some of these subcontractors are our single source supplier
for certain new packages.  We perform some testing of our finished
products in our in-house facility.
 
 To
manufacture FCPs 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.  SRe is ISO9000 certified and in December of 2005 received
TS16949 certification, which allows us access into the Automotive FCP
market.  To supplement our manufacturing capacity we are maintaining
established relationships with our manufacturing partners and we have a plan
already implemented for qualifying additional factories and creating new
partners.  New relationships and the expansion of our capacity are
necessary to continue cost reduction, grow our revenue and maintain our
competitive position in the FCP market.  We have an operations
department based in Asia that pursues lower cost packaging techniques and both
monitors and modifies manufacturing processes to maximize yields and improve
quality.  After a manufacturing partner has been qualified through a
stringent process, we maintain design and process controls that include using
recurring factory audits and in some cases using onsite inspectors.
 
 We are
also nearing completion of a new FCP factory, in which we invested $21.5 million
through the year ended June 27, 2009. The factory is in the Jinan Development
Zone in Shandong Province. It is expected that our total investment will
increase to approximately $35 million over the next year. We have land use
rights for 12 acres, and the factory is designed for 13 surface mount device
(SMD) production lines. Phase I consists of an administration building, workers
dormitory and fabrication plant, and is scheduled for completion early in fiscal
2010, with production expected to commence in the second quarter of fiscal
2010.
 
 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;
  14
  ·
              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 $16.7 million in
fiscal 2009, $17.2 million in fiscal 2008, and $16.0 million in fiscal
2007.  Additionally, we actively seek cooperative product development
relationships.
 
 INTELLECTUAL
PROPERTY
 
 In the
United States, we hold 110 patents covering certain aspects of our product
designs, with various expiration dates through September 2025, and we have 12
additional patent applications pending. We expect to continue to file patent
applications where appropriate to protect our proprietary technologies; however,
we believe that our continued success depends primarily on factors such as the
technological skills and innovation of our personnel, rather than on our
patents.
 
 EMPLOYEES
 
 As of
June 27, 2009, we had 724 full-time employees, including 100 in sales, marketing
and customer support, 346 in manufacturing, assembly and testing, 142 in
engineering and 136 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: 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 2010 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 Jinan Hi-Tech
Industries Development Zone; our exposure to interest rate risk; future economic
conditions or performance; plans to focus on cost control; plans to seek
intellectual property protection for our technologies; expectations regarding
export sales and net revenues; the expansion of sales efforts; acquisition
prospects; the results of our possible future acquisitions and assumptions
underlying any of the foregoing.  In some cases, forward-looking
statements can be identified by the use of terminology such as “may,” “will,”
“expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or
the negative thereof or other comparable terminology.  Although we
believe that the expectations reflected in the forward-looking statements
contained herein are reasonable, there can be no assurance that such
expectations or any of the forward-looking statements will prove to be correct,
and actual results could differ materially from those projected or assumed in
the forward-looking statements.  Our future financial condition and
results of operations, as well as any forward-looking statements, are subject to
risks and uncertainties, including but not limited to the factors set forth
below and elsewhere in this report.  All forward-looking statements
and reasons why results may differ included in this Annual Report are made as of
the date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results may differ.
 
 FACTORS
THAT MAY AFFECT OPERATING RESULTS
 
 In
the past, our operating results have varied significantly and are likely to
fluctuate in the future.
 
 Wide
varieties of factors affect our operating results.  These factors
might include the following:
 
 ·
              changes
      in the quantity of our products
sold;
 ·
              changes
      in the average selling price of our
products;
 ·
              general
      conditions in the semiconductor
industry;
 ·
              changes
      in our product mix;
 ·
              a
      change in the gross margins of our
products;
 ·
              the
      operating results of the FCP product line, which normally has a lower
      profit margin than IC products;
 ·
              expenses
      incurred in obtaining, enforcing, and defending intellectual property
      rights;
 ·
              the
      timing of new product introductions and announcements by us and by our
      competitors;
 ·
              customer
      acceptance of new products introduced by
us;
  16
  ·
              delay
      or decline in orders received from
distributors;
 ·
              growth
      or reduction in the size of the markets for interface
  ICs;
 ·
              the
      availability of manufacturing capacity with our wafer
      suppliers;
 ·
              changes
      in manufacturing costs;
 ·
              fluctuations
      in manufacturing yields;
 ·
              disqualification
      by our customers for quality or performance related
  issues;
 ·
              the
      ability of customers to pay us; and
 ·
              increased
      research and development expenses associated with new product
      introductions or process changes.
 
 All of
these factors are difficult to forecast and could seriously harm our operating
results.  Our expense levels are based in part on our expectations
regarding future sales and are largely fixed in the short
term.  Therefore, we may be unable to reduce our expenses fast enough
to compensate for any unexpected shortfall in sales.  Any significant
decline in demand relative to our expectations or any material delay of customer
orders could harm our operating results.  In addition, if our
operating results in future quarters fall below public market analysts' and
investors' expectations, the market price of our common stock would likely
decrease.
 
 The
demand for our products depends on the growth of our end users'
markets.
 
 Our
continued success depends in large part on the continued growth of markets for
the products into which our ICs and FCPs are incorporated.  These
markets include the following:
 
 ·
              computers
      and computer related peripherals;
 ·
              data
      communications and telecommunications
equipment;
 ·
              electronic
      commerce and the Internet; and
 ·
              consumer
      electronics equipment.
 
 Any
decline in the demand for products in these markets could seriously harm our
business, financial condition and operating results.  These markets
have also historically experienced significant fluctuations in
demand.  We may also be seriously harmed by slower growth in the other
markets in which we sell our products.
 
 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 recent
financial disruption affecting the banking system, investment banks, insurance
companies and financial markets have 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 on our marketable securities portfolio, there could be a number
of follow-on effects from the credit crisis on our business that could also
adversely affect our operating results, and indeed the credit crisis led to a
worldwide economic slowdown which significantly impacted our results in fiscal
2009. Credit crises 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 increase 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, Int'l.,
Hitachi, Integrated Device Technology, Inc., Intel Corp., Maxim Integrated
Products, Inc., Motorola, On Semiconductor Corp., NXP, Tundra Semiconductor
Corp., Parade Technologies, PLX Technology, STMicroelectronics, Texas
Instruments, Inc., and Toshiba. Most of those competitors have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines and longer-standing customer relationships than we do. We
also compete with other major or emerging companies that sell products to
certain segments of our markets. Competitors with greater financial resources or
broader product lines may have a greater ability to sustain price reductions in
our primary markets in order to gain or maintain  market
share.
 
 We
believe that our future success will depend on our ability to continue to
improve and develop our products and processes.  Unlike us, many of
our competitors maintain internal manufacturing capacity for the fabrication and
assembly of semiconductor products.  This ability may provide them
with more reliable manufacturing capability, shorter development and
manufacturing cycles and time-to-market advantages.  In addition,
competitors with their own wafer fabrication facilities that are capable of
producing products with the same design geometries as ours may be able to
manufacture and sell competitive products at lower prices.  Any
introduction of products by our competitors that are manufactured with improved
process technology could seriously harm our business. As is typical in the
semiconductor industry, our competitors have developed and marketed products
that function similarly or identically to ours.  If our products do
not achieve performance, price, size or other advantages over products offered
by our competitors, our products may lose market share. Competitive pressures
could also reduce market acceptance of our products, reduce our prices and
increase our expenses.
  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.
 
 Our
results of operations have been adversely affected by global economic slowdowns
in the past.
 
 In the
past, the global economy has experienced economic slowdowns that were due to
many factors, including decreased consumer confidence, unemployment, the threat
of terrorism, and reduced corporate profits and capital spending. These
unfavorable conditions have resulted in significant declines in our new customer
order rates. Any future global economic slowing may materially and adversely
affect our business, financial condition and results of operations.
 
 Currently
there is a general slowdown in the global economy and it may last for an
unpredictable period with adverse impacts on credit availability, ability of our
company and our customers to maintain or grow revenues and profits, and end-user
demand across our customer base.
 
 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.
  19
  The
trading price of our common stock and our operating results are likely to
fluctuate substantially in the future.
 
 The
trading price of our common stock has been and is likely to continue to be
highly volatile.  Our stock price could fluctuate widely in response
to factors some of which are not within our control, including:
 
 ·
              general
      conditions in the semiconductor and electronic systems
      industries;
 ·
              quarter-to-quarter
      variations in operating results;
 ·
              announcements
      of technological innovations or new products by us or our competitors;
      and
 ·
              changes
      in earnings estimates by analysts; and price and volume fluctuations in
      the overall stock market, which have particularly affected the market
      prices of many high technology
companies.
 
 Implementation
of Financial Accounting Standards Board (“FASB”) rules for the accounting of
equity instruments and the issuance of new laws or other accounting regulations,
or reinterpretation of existing laws or regulations, could materially impact our
business or stated results.
 
 Statement
of Financial Accounting Standards (“SFAS”) No. 123(R) Share-Based Payments required
the Company to recognize the cost of employee services received in exchange for
awards of equity instruments, based on the grant date fair value of those
awards, in the financial statements. The adoption of this statement resulted in
a negative impact on the Company’s reported results of operations. In general,
from time to time, the government, courts and the financial accounting boards
may issue new laws or accounting regulations, or modify or reinterpret existing
ones. There may be future changes in laws, interpretations or regulations that
would affect our financial results or the way in which we present them.
Additionally, changes in the laws or regulations could have adverse effects on
hiring and many other aspects of our business that would affect our ability to
compete, both nationally and internationally.
 
 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 most recent fiscal year, June 27, 2009.  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 30, 2007, and July 2, 2005,
we reported material weaknesses in our internal control over financial
reporting. We had since remediated those deficiencies and continued to spend
time and resources in an effort to maintain compliance with the requirements to
maintain internal control over financial reporting.
 
 However,
as reported in Item 9A of this report, Pericom had additional material
weaknesses in internal control over financial reporting as of June 27, 2009, and
management and our independent registered public accounting firm determined that
as of June 27, 2009, our internal control over financial reporting was not
effective.  As a result, we also concluded that our disclosure
controls and procedures were not effective as of June 27, 2009, or as of the end
of the first three fiscal quarters of 2009.
 
 The
errors described in Item 9A resulted in the restatement of our financial results
for the periods covered by the Forms 10-Q for the first three fiscal quarters of
FY 2009, which restated results are set forth in amended Forms 10-Q for each of
these periods.  Please refer to Item 9A of this report for a
discussion of the material weaknesses.
 
 Our
current and future results of operations may be adversely affected by
significant costs related to our investigation of and remedial measures relating
to these matters.
  20
  Although
we have renewed our efforts to maintain effective internal control in financial
reporting as described in Item 9A, there can be no assurance that material
weaknesses or significant deficiencies will not arise in the future. Should we
or our independent registered public accounting firm determine in future periods
that we have a material weakness in our internal control over financial
reporting, the reliability of our financial reports may be impacted, and
investors could lose confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on our stock price 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.  The Company is in the
process of implementing changes in its finance department, including but not
limited to adding support staff in different departments or through outside
contractors, enhancing training in certain areas, and formalizing related
structures and processes. 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
demand for our products is volatile and difficult to predict.
 
 The
Company’s customers continuously adjust their inventories in response to changes
in end market demand for their products and the availability of semiconductor
components. This results in frequent changes in demand for our products. The
volatility of customer demand limits our ability to predict future levels of
sales and profitability. The supply of semiconductors can quickly and
unexpectedly match or exceed demand because end customer demand can change very
quickly. Also, semiconductor suppliers can rapidly increase production output.
This can lead to a sudden oversupply situation and a subsequent reduction in
order rates and revenues as customers adjust their inventories to true demand
rates. A rapid and sudden decline in customer demand for the Company’s products
can result in excess quantities of certain products relative to demand. In this
event, our operating results might be adversely affected as a result of charges
to reduce the carrying value of  inventory to the estimated demand
level or market price.
 
 Changes
to environmental laws and regulations applicable to manufacturers of electrical
and electronic equipment are causing us to redesign our products, and may
increase our costs and expose us to liability.
 
 The
implementation of new environmental regulatory legal requirements could impact
our product designs and manufacturing processes. The impact of such regulations
on our product designs and manufacturing processes could affect the timing of
compliant product introductions as well as their commercial success. Redesigning
our products to comply with new regulations may result in increased research and
development and manufacturing and quality control costs.  In addition,
the products we manufacture that comply with new regulatory standards may not
perform as well as our current products. Moreover, if we are unable to
successfully and timely redesign existing products and introduce new products
that meet new standards set by environmental regulation and our customers, sales
of our products could decline, which could materially adversely affect our
business, financial condition and results of operations.
 
 Our
contracts with our wafer suppliers do not obligate them to a minimum supply or
set prices.  Any inability or unwillingness of our wafer suppliers
generally, and Chartered Semiconductor Manufacturing Ltd. and MagnaChip
Semiconductor, Inc. in particular, to meet our manufacturing requirements would
delay our production and product shipments and harm our business.
 
 In recent
years, we purchased approximately 80 to 90% of our wafers from MagnaChip and
Chartered, with the balance coming from three to six other suppliers. Our
reliance on independent wafer suppliers to fabricate our wafers at their
production facilities subjects us to possible risks such
as:
  21
  ·
              lack
      of adequate capacity;
 ·
              lack
      of available manufactured products;
 ·
              lack
      of control over delivery schedules;
and
 ·
              unanticipated
      changes in wafer prices.
 
 Any
inability or unwillingness of our wafer suppliers generally, and Chartered and
MagnaChip in particular, to provide adequate quantities of finished wafers to
meet our needs in a timely manner would delay our production and product
shipments and seriously harm our business. In March 2004, Chartered shut down
one of their production facilities that was used to manufacture our products. We
have transitioned the production of these products to different facilities. This
was a major project requiring significant technological coordination between
Chartered and Pericom. The transfer of production of our products to other
facilities subjects us to the above listed risks as well as potential yield or
other production problems which could arise as a result of the
change.
 
 At
present, we purchase wafers from our suppliers through the issuance of purchase
orders based on our rolling six-month forecasts.  The purchase orders
are subject to acceptance by each wafer supplier.  We do not have
long-term supply contracts that obligate our suppliers to a minimum supply or
set prices.  We also depend upon our wafer suppliers to participate in
process improvement efforts, such as the transition to finer
geometries.  If our suppliers are unable or unwilling to do so, our
development and introduction of new products could be
delayed.  Furthermore, sudden shortages of raw materials or production
capacity constraints can lead wafer suppliers to allocate available capacity to
customers other than us or for the suppliers' internal uses, interrupting our
ability to meet our product delivery obligations.  Any significant
interruption in our wafer supply would seriously harm our operating results and
our customer relations.  Our reliance on independent wafer suppliers
may also lengthen the development cycle for our products, providing
time-to-market advantages to our competitors that have in-house fabrication
capacity.
 
 In the
event that our suppliers are unable or unwilling to manufacture our key products
in required volumes, we will have to identify and qualify additional wafer
foundries.  The qualification process can take up to six months or
longer.  Furthermore, we are unable to predict whether additional
wafer foundries will become available to us or will be in a position to satisfy
any of our requirements on a timely basis.
 
 We
depend on single or limited source assembly subcontractors with whom we do not
have written contracts.  Any inability or unwillingness of our
assembly subcontractors to meet our assembly requirements would delay our
product shipments and harm our business.
 
 We
primarily rely on foreign subcontractors for the assembly and packaging of our
products and, to a lesser extent, for the testing of finished
products.  Some of these subcontractors are our single source supplier
for some of our new packages.  In addition, changes in our or a
subcontractor's business could cause us to become materially dependent on a
single subcontractor.  We have from time to time experienced
difficulties in the timeliness and quality of product deliveries from our
subcontractors and may experience similar or more severe difficulties in the
future.  We generally purchase these single or limited source
components or services pursuant to purchase orders and have no guaranteed
arrangements with these subcontractors.  These subcontractors could
cease to meet our requirements for components or services, or there could be a
significant disruption in supplies from them, or degradation in the quality of
components or services supplied by them.  Any circumstance that would
require us to qualify alternative supply sources could delay shipments, result
in the loss of customers and limit or reduce our revenues.
 
 We
may have difficulty accurately predicting revenues for future
periods.
 
 Our
expense levels are based in part on anticipated future revenue levels, which can
be difficult to predict.  Our business is characterized by short-term
orders and shipment schedules.  We do not have long-term purchase
agreements with any of our customers, and customers can typically cancel or
reschedule their orders without significant penalty.  We typically
plan production and inventory levels based on forecasts of customer demand
generated with input from customers and sales
representatives.  Customer demand is highly unpredictable and can
fluctuate substantially.  If customer demand falls significantly below
anticipated levels, our gross profit would be reduced.
  22
  We
compete with others to attract and retain key personnel, and any loss of or
inability to attract key personnel would harm us.
 
 To a
greater degree than non-technology companies, our future success will depend on
the continued contributions of our executive officers and other key management
and technical personnel.  None of these individuals has an employment
agreement with us and each one would be difficult to replace.  We do
not maintain any key person life insurance policies on any of these
individuals.  The loss of the services of one or more of our executive
officers or key personnel or the inability to continue to attract qualified
personnel could delay product development cycles or otherwise harm our business,
financial condition and results of operations.
 
 Our
future success also will depend on our ability to attract and retain qualified
technical, marketing and management personnel, particularly highly skilled
design, process and test engineers, for whom competition can be
intense.  During strong business cycles, we expect to experience
difficulty in filling our needs for qualified engineers and other
personnel.
 
 Our
limited ability to protect our intellectual property and proprietary rights
could harm our competitive position.
 
 Our
success depends in part on our ability to obtain patents and licenses and
preserve other intellectual property rights covering our products and
development and testing tools.  In the United States, we currently
hold 110 patents covering certain aspects of our product designs and have 12
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, and currently they 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, and as technologies continue to evolve
there may be manufacturing related problems that affect our FCP products. In
addition, we have just completed construction of the initial phase of a new FCP
facility located in the Jinan Development Zone in Shandong Province, China,
which adds the uncertainties involved with staffing and starting up a new
facility in a country where we have no previous operating
experience.
 
 A
large portion of our revenues is derived from sales to a few customers, who may
cease purchasing from us at any time.
 
 A
relatively small number of customers have accounted for a significant portion of
our net revenues in each of the past several fiscal years.  In general
we expect this to continue for the forseeable future.  During the
fiscal year ended June 27, 2009, we had two Asian distributors that individually
accounted for 18% and 14% of our net revenues.  We had one Asian
distributor that individually accounted for 14% of our net revenues during the
fiscal year ended June 28, 2008.   We had one Asian distributor
that individually accounted for 13% of our net revenues during the fiscal year
ended June 30, 2007.  As a percentage of net revenues, sales to our
top five direct customers totaled 51% in the fiscal year ended June 27, 2009,
40% in the fiscal year ended June 28, 2008 and 35% in the fiscal year ended June
30, 2007.
  We do not
have long-term sales agreements with any of our customers.  Our
customers are not subject to minimum purchase requirements, may reduce or delay
orders periodically due to excess inventory and may discontinue purchasing our
products at any time.  Our distributors typically offer competing
products in addition to ours.  For the fiscal year ended June 27,
2009, sales to our distributors were approximately 56% of net revenues as
compared to approximately 49% of net revenues in the fiscal year ended June 28,
2008, and 40% for the fiscal year ended June 30, 2007.  The increase
in the percentage of sales to our distributors as compared with the prior
periods was due to the increase in the percentage of 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.
  24





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





Risks
associated with international business operations include the
following:





·
            disruptions
      or delays in shipments;


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


·
            currency
      fluctuations;


·
            changes
      in political conditions;


·
            potentially
      reduced protection for intellectual
property;


·
            foreign
      governmental regulations;


·
            import
      and export controls; and


·
            changes
      in tax laws, tariffs and freight
rates.





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





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





In fiscal
year 2009, we generated 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.  In fiscal year 2007, we derived approximately 82% of our net
revenues from sales in Asia and approximately 4% from sales outside of Asia and
the United States.  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.





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


25





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 PTL
subsidiary 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,
we are building a
factory in the Jinan Development Zone in Shandong Province, China for the
development and manufacture of frequency control products, and we have land use
rights in that zone for 12 acres. Phase I of the project consists of an
administrative building, a workers dormitory, and a fabrication plant. The three
buildings will total approximately 344,000 square feet and are scheduled for
completion late in calendar year 2009.We also have leased or rented a
North American sales office located in Illinois as well as international sales
offices in Hong Kong, Japan, Korea, Singapore and the United
Kingdom.  We believe our current facilities are adequate to support
our needs through the end of fiscal 2010.




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.


26




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





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


27




PART
II




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





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




COMMON
STOCK PRICE RANGE





Our
common stock began trading publicly on the NASDAQ National Market on October 31,
1997 under the symbol PSEM.  Prior to that date, there was no public
market for the common stock.  We have not paid cash dividends and have
no present plans to do so.  It is our policy to reinvest our earnings
to finance expansion of our operations and to repurchase shares of our common
stock to help counter dilution from the Company’s Stock Incentive and Employee
Stock Purchase Plans.  The following table sets forth, for the periods
indicated, the high and low closing prices of the common stock on the NASDAQ
Stock Market.  As of June 30, 2009, we had 39 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 2009, we did not
sell any unregistered securities.





CloseHigh
                  
                  
                  LowFiscal
      year ended June 28, 2008First
      Quarter
                  
                  $
                  12.01
                  
                  
                  $
                  9.85Second
      Quarter
                  
                  
                  19.05
                  
                  
                  
                  11.29Third
      Quarter
                  
                  
                  18.70
                  
                  
                  
                  11.80Fourth
      Quarter
                  
                  
                  19.31
                  
                  
                  
                  14.48Fiscal
      year ended June 27, 2009First
      Quarter
                  
                  $
                  15.92
                  
                  
                  $
                  11.19Second
      Quarter
                  
                  
                  10.50
                  
                  
                  
                  4.89Third
      Quarter
                  
                  
                  8.19
                  
                  
                  
                  5.21Fourth
      Quarter
                  
                  
                  9.80
                  
                  
                  
                  7.28


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 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 approximately 712,000 shares at an
aggregate cost of $5.4 million. During the year ended June 28, 2008, the Company
repurchased approximately 1,559,000 shares for an aggregate cost of $20.1
million.


29





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.





The
Company did not repurchase any of its common stock during the fourth quarter of
the fiscal year ended June 27, 2009.


30




ITEM
6.  SELECTED FINANCIAL DATA





The
following selected financial data of the Company is qualified by reference to
and should be read in conjunction with the consolidated financial statements,
including the Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere
herein.  The consolidated statements of operations data for each of
the years in the three-year period ended June 27, 2009 and the consolidated
balance sheets data as of June 27, 2009, and June 28, 2008 are derived from, and
are qualified by reference to, the consolidated financial statements included
herein.  We derived the consolidated statements of operations data for
the years ended July 1, 2006 and July 2, 2005 and the consolidated balance
sheets data as of June 30, 2007, July 1, 2006 and July 2, 2005 from audited
financial statements not included herein.  The fiscal year ending July
2, 2005 contained 53 weeks and all other years contained 52 weeks.  On
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 EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  July
      1,
                  
                  
                  July
      2,2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
      (2)
                  
                  
                  2005(in
      thousands, except per share data)Consolidated
      Statements of Operations Data:Net
      revenues
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  $
                  105,878
                  
                  
                  $
                  79,557Cost
      of revenues
                  
                  
                  85,514
                  
                  
                  
                  103,638
                  
                  
                  
                  80,557
                  
                  
                  
                  69,374
                  
                  
                  
                  50,764Gross
      profit
                  
                  
                  43,131
                  
                  
                  
                  60,106
                  
                  
                  
                  42,813
                  
                  
                  
                  36,504
                  
                  
                  
                  28,793Operating
      expenses:Research
      and development
                  
                  
                  16,697
                  
                  
                  
                  17,159
                  
                  
                  
                  16,021
                  
                  
                  
                  15,492
                  
                  
                  
                  15,767Selling,
      general and administrative
                  
                  
                  22,833
                  
                  
                  
                  23,624
                  
                  
                  
                  21,878
                  
                  
                  
                  18,490
                  
                  
                  
                  15,538Restructuring
      charge
                  
                  
                  584
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  55
                  
                  
                  
                  294Total
      operating expenses
                  
                  
                  40,114
                  
                  
                  
                  40,783
                  
                  
                  
                  37,899
                  
                  
                  
                  34,037
                  
                  
                  
                  31,599Income
      (loss) from operations
                  
                  
                  3,017
                  
                  
                  
                  19,323
                  
                  
                  
                  4,914
                  
                  
                  
                  2,467
                  
                  
                  
                  (2,806
                  )Interest
      and other income, net
                  
                  
                  5,613
                  
                  
                  
                  5,513
                  
                  
                  
                  6,460
                  
                  
                  
                  3,875
                  
                  
                  
                  3,783Interest
      expense
                  
                  
                  (65
                  )
                  
                  
                  (12
                  )
                  
                  
                  (130
                  )
                  
                  
                  (342
                  )
                  
                  
                  (22
                  )Other-than-temporary
      decline in value of investments
                  
                  
                  (506
                  )
                  
                  
                  (76
                  )
                  
                  
                  (6
                  )
                  
                  
                  (64
                  )
                  
                  
                  (105
                  )Income
      before income taxes
                  
                  
                  8,059
                  
                  
                  
                  24,748
                  
                  
                  
                  11,238
                  
                  
                  
                  5,936
                  
                  
                  
                  850Income
      tax provision
                  
                  
                  2,209
                  
                  
                  
                  8,221
                  
                  
                  
                  2,985
                  
                  
                  
                  1,852
                  
                  
                  
                  27Minority
      interest in (income) loss of consolidated subsidiaries
                  
                  
                  (114
                  )
                  
                  
                  (116
                  )
                  
                  
                  (33
                  )
                  
                  
                  99
                  
                  
                  
                  58Equity
      in net income of unconsolidated affiliates
                  
                  
                  351
                  
                  
                  
                  602
                  
                  
                  
                  407
                  
                  
                  
                  1,796
                  
                  
                  
                  46Net
      income
                  
                  $
                  6,087
                  
                  
                  $
                  17,013
                  
                  
                  $
                  8,627
                  
                  
                  $
                  5,979
                  
                  
                  $
                  927Basic
      earnings per share
                  
                  $
                  0.24
                  
                  
                  $
                  0.66
                  
                  
                  $
                  0.33
                  
                  
                  $
                  0.23
                  
                  
                  $
                  0.04Diluted
      earnings per share
                  
                  $
                  0.24
                  
                  
                  $
                  0.64
                  
                  
                  $
                  0.32
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.03Shares
      used in computing basic earnings per share(1)
                  
                  
                  25,417
                  
                  
                  
                  25,737
                  
                  
                  
                  26,058
                  
                  
                  
                  26,254
                  
                  
                  
                  26,476Shares
      used in computing diluted earnings per share(1)
                  
                  
                  25,626
                  
                  
                  
                  26,611
                  
                  
                  
                  26,669
                  
                  
                  
                  26,994
                  
                  
                  
                  27,188





June
      27,
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  July
      1,
                  
                  
                  July
      2,2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005(in
      thousands)Consolidated
      Balance Sheets Data:Working
      capital
                  
                  $
                  135,376
                  
                  
                  $
                  149,438
                  
                  
                  $
                  89,135
                  
                  
                  $
                  88,119
                  
                  
                  $
                  159,488Total
      assets
                  
                  
                  246,058
                  
                  
                  
                  231,583
                  
                  
                  
                  214,235
                  
                  
                  
                  213,686
                  
                  
                  
                  193,995Long-term
      obligations
                  
                  
                  7,848
                  
                  
                  
                  1,918
                  
                  
                  
                  2,094
                  
                  
                  
                  6,141
                  
                  
                  
                  464Shareholders’
      equity
                  
                  
                  212,208
                  
                  
                  
                  207,455
                  
                  
                  
                  190,478
                  
                  
                  
                  184,111
                  
                  
                  
                  181,162




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


(2)
            On
      September 7, 2005, the Company acquired eCERA and on March 6, 2006
      completed the acquisition of
AZER.


31




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





This
Annual Report includes “forward-looking statements” within the meaning of
Section 27A of the Securities Act if 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended.  All statements other
than statements of historical fact are “forward-looking statements” for purposes
of these provisions, including any statements regarding projections of earnings,
statements regarding the future results of SRe, revenues, future research and
development expenses, the estimate of the increase in selling, general and
administrative expenses in the first quarter of fiscal 2010 and future selling,
general and administrative expenses in general, other expenses, gross margins or
other financial items; plans and objectives of management for future operations;
the implementation of advanced process technologies; future purchases of capital
equipment; future expenditures; potential acquisitions; proposed new products or
services and their development schedule; our future investment in the Jinan
Hi-Tech Industries Development Zone; industry, technological or market trends,
our ability to address the need for application specific logic products; our
ability to respond rapidly to customer needs; expanding product sales; future
economic conditions or performance, and any statement of assumptions underlying
any of the foregoing.  In some cases, forward-looking statements can
be identified by the use of terminology such as “may,” “will,” “expects,”
“plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative
thereof or other comparable terminology.  Although we believe that the
expectations reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements.  Some of the factors that could cause our actual results
to differ materially are set forth herein in Item 1A, Risk Factors, of this
report and elsewhere in this report.  All forward-looking statements
and reasons why results may differ included in this Annual Report are made as of
the date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results may differ.





CONTROL
DEFICIENCIES





We
restated Pericom’s consolidated financial statements for its first, second and
third fiscal quarters ended September 27, 2008, December 27, 2008, and March 28,
2009, and are filing amended Forms 10-Q for those periods reflecting the
restated information.  As a result of the errors leading to the
restatement, we have concluded in Item 9A of this report that our internal
control over financial reporting as of our fiscal 2009 year end at June 27,
2009, was not effective.  We also concluded that our disclosure
controls and procedures as of that date, and as of the end of those three
quarterly periods, were not effective.  Information concerning the
restatement is contained in the following sections of this report and should be
read in conjunction with the information reported under this Item
7:  Part II, Item 9A, Controls and Procedures, and Part I, Item 1A,
Risk Factors, “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 most recent fiscal year, June 27, 2009.
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.” And “Our finance department has undergone, and continues to undergo,
significant changes.”




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.


32





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





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





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred;


·
            The
      sales price is fixed or determinable;
and


·
            Collectibility
      is reasonably assured.





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





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





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





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


33





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. Reserves for price
protection were increased approximately $1.4 million in 2009, an amount well
above normal reserve increases which average approximately $100,000 annually.
This reflects the economic conditions and competitive situations that we faced
in fiscal 2009.





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”, “trading” or
“held-to-maturity”.  Further, we classify our trading securities as
current assets and our available-for-sale securities as either current or
non-current based on the specific attributes of each security.  We
recognize unrealized gains and losses in our trading securities in current
earnings, and unrealized gains and losses in our available-for sale securities
as an increase or reduction in shareholders’ equity.  We report our
trading and available-for-sale securities at their fair values.  We
evaluate our available-for-sale securities for impairment
quarterly.  We recognize impairment losses on other than temporary
declines in the value of investments in our consolidated statement of operations
in the period in which we discover the impairment.





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





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


34





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





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





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





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





IMPAIRMENT OF
GOODWILL AND OTHER INTANGIBLE ASSETS.As required by SFAS No.
142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill and
indefinite-lived intangible assets are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might
be impaired.  We determined that no impairment of our indefinite-lived
intangible assets existed at June 27, 2009.  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 of these other definite-lived intangible assets
existed at June 27, 2009.





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


35




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





·
            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, Pericom introduced a total of 40 new products across our
      Timing, Signal Conditioning, and Connectivity product areas, including
      industry leading or industry first product
  introductions:




·
            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.





·
            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.


36





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 Chartered
manufactured approximately 80 to 90% of the wafers for our semiconductor
products in fiscal years 2009, 2008 and 2007, 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.




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 EndedJune
      27,
                
                
                June
      28,
                
                
                June
      30,2009
                
                
                2008
                
                
                2007Net
      revenues
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of revenues
                
                
                66.5
                
                
                
                63.3
                
                
                
                65.3Gross
      margin
                
                
                33.5
                
                
                
                36.7
                
                
                
                34.7Operating
      expenses:Research
      and development
                
                
                13.0
                
                
                
                10.5
                
                
                
                13.0Selling,
      general and administrative
                
                
                17.7
                
                
                
                14.4
                
                
                
                17.7Restructuring
      charge
                
                
                0.5
                
                
                
                -
                
                
                
                -Total
      operating expenses
                
                
                31.2
                
                
                
                24.9
                
                
                
                30.7Income
      from operations
                
                
                2.3
                
                
                
                11.8
                
                
                
                4.0Interest
      and other income, net
                
                
                4.4
                
                
                
                3.3
                
                
                
                5.2Interese
      expense
                
                
                -
                
                
                
                -
                
                
                
                (0.1
                )Other
      than temporary decline in value of investment
                
                
                (0.4
                )
                
                
                -
                
                
                
                (0.0
                )Income  before
      income taxes
                
                
                6.3
                
                
                
                15.1
                
                
                
                9.1Income
      tax provision
                
                
                1.7
                
                
                
                5.0
                
                
                
                2.4Minority
      interest in (income) loss of consolidated subsidiaries
                
                
                (0.1
                )
                
                
                (0.1
                )
                
                
                -Equity
      in net income of unconsolidated affiliates
                
                
                0.3
                
                
                
                0.4
                
                
                
                0.3Net
      income
                
                
                4.7
                %
                
                
                10.4
                %
                
                
                7.0
                %




COMPARISON
OF FISCAL 2009, 2008 AND 2007





NET
REVENUES





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


37




Fiscal
      Year Ended
                  
                  
                  Fiscal
      Year EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  %
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  %(In
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  
                  32.7
                  %Percentage
      of net revenues accounted for by top 5 direct customers
(1)
                  
                  
                  50.5
                  %
                  
                  
                  40.1
                  %
                  
                  
                  
                  
                  
                  
                  40.1
                  %
                  
                  
                  34.9
                  %Number
      of direct customers that each account for more than 10% of net
      revenues
                  
                  
                  2
                  
                  
                  
                  1
                  
                  
                  
                  
                  
                  
                  
                  1
                  
                  
                  
                  1Percentage
      of net revenues accounted for by top 5 end customers (2)
                  
                  
                  27.8
                  %
                  
                  
                  21.3
                  %
                  
                  
                  
                  
                  
                  
                  21.3
                  %
                  
                  
                  22.9
                  %Number
      of end customers that each account for more than 10% of net
      revenues
                  
                  
                  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 $16.4 million as of June 27, 2009 and $25.9 million as of June
28, 2008.  We expect to fulfill most of our backlogged orders as of
June 27, 2009 within the first quarter of fiscal 2010.  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.





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


·
            A
      28.6% decrease in the sales of analog switch products to $31.2 million, a
      decrease of $12.5 million;


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


·
            sales
      decreases in digital switch, interface and clock IC products, which
      combined for a $15.5 million sales decrease, partially offset
      by


·
            a
      $7.5 million increase in connect IC products to $18.8
    million.


These
sales increases and decreases are primarily the result of changes in unit sales
volumes of existing products as well as the introduction and sale of new
products.





For the
years ended June 27, 2009 and June 28, 2008, net revenue was reduced by sales
reserves for price protection and rebates in the amount of $1.5 million and
$223,000, respectively. The increased reserves were a consequence of the
economic downturn and customers increasingly demanding price
concessions.





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


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


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


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


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





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





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


38





The
following table sets forth net revenues by country as a percentage of total net
revenues for the fiscal years ended June 27, 2009, June 28, 2008 and June 30,
2007:





Years
      EndedJune
      27,
                    
                    
                    June
      28,
                    
                    
                    June
      30,(in
      thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Net
      sales to countries:Taiwan
                    
                    
                    43.5
                    %
                    
                    
                    31.8
                    %
                    
                    
                    23.7
                    %China
      (including Hong Kong)
                    
                    
                    33.5
                    %
                    
                    
                    38.5
                    %
                    
                    
                    39.1
                    %United
      States
                    
                    
                    7.7
                    %
                    
                    
                    8.9
                    %
                    
                    
                    13.0
                    %Singapore
                    
                    
                    3.0
                    %
                    
                    
                    4.9
                    %
                    
                    
                    6.5
                    %Others
      (less than 10% each)
                    
                    
                    12.3
                    %
                    
                    
                    15.9
                    %
                    
                    
                    17.7
                    %Total
      net sales
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %




Over the
past three years, sales to Taiwan and China have increased, from 62.8% of total
net sales in the year ended June 30, 2007, to 70.3% in the year ended June 28,
2008, to 77.0% in the year ended June 27, 2009. 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, as they have during fiscal 2009
and 2008.





GROSS
PROFIT





Fiscal
      Year Ended
                  
                  
                  Fiscal
      Year EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  %
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  %(In
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  
                  32.7
                  %Gross
      profit
                  
                  
                  43,131
                  
                  
                  
                  60,106
                  
                  
                  
                  -28.2
                  %
                  
                  
                  60,106
                  
                  
                  
                  42,813
                  
                  
                  
                  40.4
                  %Gross
      profit percentage
                  
                  
                  33.5
                  %
                  
                  
                  36.7
                  %
                  
                  
                  
                  
                  
                  
                  36.7
                  %
                  
                  
                  34.7
                  %





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


·
            Sales
      declines in all lines except Connect IC, resulting in a $19.0 million
      reduction in gross profit;


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


·
            sales
      growth in Connect IC, which increased gross profit by approximately $4.3
      million.





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


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


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


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





During
fiscal years 2009, 2008 and 2007, gross profits and gross margins benefited from
the sale of inventory, previously valued at $108,000, $354,000 and $497,000,
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.


39





RESEARCH
AND DEVELOPMENT





Fiscal
      Year Ended
                  
                  
                  Fiscal
      Year EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  %
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  %(In
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  
                  32.7
                  %Research
      and development
                  
                  
                  16,697
                  
                  
                  
                  17,159
                  
                  
                  
                  -2.7
                  %
                  
                  
                  17,159
                  
                  
                  
                  16,021
                  
                  
                  
                  7.1
                  %R&D
      as a percentage of net revenues
                  
                  
                  13.0
                  %
                  
                  
                  10.5
                  %
                  
                  
                  
                  
                  
                  
                  10.5
                  %
                  
                  
                  13.0
                  %




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 $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.





The $1.1
million expense increase for fiscal 2008 as compared with fiscal 2007 is
attributable primarily to increases of $726,000 in compensation, reflecting
merit increases, bonus, and staff additions (from 118 to 144 employees); and
$192,000 in design and other consultant expenditures.





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 EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  %
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  %(In
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeNet
      revenues
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  
                  -21.4
                  %
                  
                  $
                  163,744
                  
                  
                  $
                  123,370
                  
                  
                  
                  32.7
                  %Selling,
      general and administrative
                  
                  
                  22,833
                  
                  
                  
                  23,624
                  
                  
                  
                  -3.3
                  %
                  
                  
                  23,624
                  
                  
                  
                  21,878
                  
                  
                  
                  8.0
                  %SG&A
      as a percentage of net revenues
                  
                  
                  17.7
                  %
                  
                  
                  14.4
                  %
                  
                  
                  
                  
                  
                  
                  14.4
                  %
                  
                  
                  17.7
                  %





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 $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.





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





Our
selling, general and administrative expenses are expected to increase
significantly in the first fiscal quarter of fiscal year 2010 due to an
estimated $1.1 million to $1.3 million of accounting, legal and other costs
related to the delayed filing of this report, the restatement and other matters
described in Item 9A of this report. We further 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, we believe continuing compliance with
Sarbanes-Oxley section 404 and remediation of our material weaknesses will be a
significant expense.  We intend to continue to focus on controlling
selling, general and administrative expenses.


40





RESTRUCTURING
CHARGE





In fiscal
2009, the Company instituted a restructuring plan to align its costs with
prevailing market conditions. As part of the restructuring plan, the Company
reduced its workforce by 61 employees, with 26 in operations, 17 in research and
development, 11 in sales and marketing, and 7 in general and administration. The
Company incurred $584,000 of restructuring charges in the year ended June 27,
2009, as compared with none in the year ended June 28, 2008. At June 27, 2009,
$547,000 of the $584,000 had been paid with the balance expected to be paid over
the next six months. The plan was implemented over the second and third quarters
of fiscal 2009, with full savings benefits of approximately $900,000 per quarter
realized beginning in the fourth quarter. The benefits arose from reduced
salaries and wages, commissions and bonus, and travel and entertainment
expenses, and were predominantly realized in operating expenses. These benefits
are expected to continue into fiscal 2010, although we expect that they will
eventually be eroded as the economy recovers and we anticipate we may require
additional resources to meet increasing demand.





INTEREST
AND OTHER INCOME, NET





Fiscal
      Year Ended
                            
                            
                            Fiscal
      Year EndedJune
      27,
                            
                            
                            June
      28,
                            
                            
                            %
                            
                            
                            June
      28,
                            
                            
                            June
      30,
                            
                            
                            %(In
      thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            Change
                            
                            
                            2008
                            
                            
                            2007
                            
                            
                            ChangeNet
      revenues
                            
                            $
                            128,645
                            
                            
                            $
                            163,744
                            
                            
                            
                            -21.4
                            %
                            
                            $
                            163,744
                            
                            
                            $
                            123,370
                            
                            
                            
                            32.7
                            %Interest
      income
                            
                            
                            5,553
                            
                            
                            
                            5,940
                            
                            
                            
                            -6.5
                            %
                            
                            
                            5,940
                            
                            
                            
                            5,371
                            
                            
                            
                            10.6
                            %Other
      income (expense)
                            
                            
                            60
                            
                            
                            
                            (427
                            )
                            
                            
                            n/m
                            (1)
                            
                            
                            (427
                            )
                            
                            
                            1,089
                            
                            
                            
                            n/m
                            (1)Total
      interest and other income, net
                            
                            $
                            5,613
                            
                            
                            $
                            5,513
                            
                            
                            
                            
                            
                            
                            $
                            5,513
                            
                            
                            $
                            6,460Interest
      and other income, net as apercentage
      of net revenues
                            
                            
                            4.4
                            %
                            
                            
                            3.4
                            %
                            
                            
                            
                            
                            
                            
                            3.4
                            %
                            
                            
                            5.2
                            %









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




The
decrease in interest income 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 an exchange rate gain and loss,
respectively.




The
increase in interest income for fiscal 2008, as compared to fiscal 2007, was
primarily the result of $644,000 in realized gains from the sale of investment
securities.  Other income (expense) for fiscal 2008 primarily results
from an exchange rate loss as the U.S. dollar weakened approximately 7% against
the New Taiwan Dollar, while in fiscal 2007 other income benefited from the gain
of $1.0 million resulting from the sale of 50% of an investment in a privately
held semiconductor company.





INTEREST
EXPENSE





Interest
expense increased to $65,000 in fiscal 2009 from $12,000 in fiscal 2008 as the
Company’s PTL subsidiary acquired its headquarters building with mortgage
financing. Interest expense was reduced to $12,000 in fiscal 2008 from $130,000
in fiscal 2007 as outstanding debt was retired in the first half of the 2008
fiscal year.





OTHER
THAN TEMPORARY DECLINE IN VALUE OF INVESTMENT





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.




41





PROVISION
FOR INCOME TAXES





Fiscal
      Year Ended
                  
                  
                  Fiscal
      Year EndedJune
      27,
                  
                  
                  June
      28,
                  
                  
                  %
                  
                  
                  June
      28,
                  
                  
                  June
      30,
                  
                  
                  %(In
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangePre-tax
      income
                  
                  $
                  8,059
                  
                  
                  $
                  24,748
                  
                  
                  
                  -67.4
                  %
                  
                  $
                  24,748
                  
                  
                  $
                  11,238
                  
                  
                  
                  120.2
                  %Income
      tax provision
                  
                  
                  2,209
                  
                  
                  
                  8,221
                  
                  
                  
                  -73.1
                  %
                  
                  
                  8,221
                  
                  
                  
                  2,985
                  
                  
                  
                  175.4
                  %Effective
      tax rate
                  
                  
                  27.4
                  %
                  
                  
                  33.2
                  %
                  
                  
                  
                  
                  
                  
                  33.2
                  %
                  
                  
                  26.6
                  %





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





The
effective tax rate for fiscal 2009 decreased from fiscal 2008 primarily due to
reduced state income taxes, net of federal benefit, reduced foreign income and
withholding taxes and increased research and development tax credits. The
effective tax rate for fiscal 2008 increased from fiscal 2007 primarily due to
increased state income taxes, net of federal benefit, reduced research and
development tax credits and unfavorable change in the valuation
allowance.  A reconciliation of our tax rates for fiscal years 2009,
2008 and 2007 is detailed in Note 18 to the Consolidated Financial Statements
contained in this report on Form 10-K.




MINORITY
INTEREST





For the
year ended June 27, 2009, net minority interest in income of our consolidated
subsidiaries, PTL and SRe, was $114,000. We acquired the minority interest of
PTL during the year. For the years ended June 28, 2008 and June 30, 2007, net
minority interest in income of PTL and SRe was $116,000 and $33,000,
respectively.





EQUITY
IN NET INCOME OF UNCONSOLIDATED AFFILIATES





Fiscal
      Year Ended
                    
                    
                    Fiscal
      Year EndedJune
      27,
                    
                    
                    June
      28,
                    
                    
                    %
                    
                    
                    June
      28,
                    
                    
                    June
      30,
                    
                    
                    %(In
      thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    ChangeEquity
      in net income of PTI
                    
                    $
                    301
                    
                    
                    $
                    274
                    
                    
                    
                    9.9
                    %
                    
                    $
                    274
                    
                    
                    $
                    477
                    
                    
                    
                    (42.6
                    )%Equity
      in net income of JCP
                    
                    
                    50
                    
                    
                    
                    360
                    
                    
                    
                    (86.1
                    )%
                    
                    
                    360
                    
                    
                    
                    33
                    
                    
                    
                    990.9
                    %Equity
      in net losses of other investees
                    
                    
                    -
                    
                    
                    
                    (32
                    )
                    
                    
                    100.0
                    %
                    
                    
                    (32
                    )
                    
                    
                    (103
                    )
                    
                    
                    68.9
                    %Total
                    
                    $
                    351
                    
                    
                    $
                    602
                    
                    
                    
                    (41.7
                    )%
                    
                    $
                    602
                    
                    
                    $
                    407
                    
                    
                    
                    47.9
                    %





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 2007, 2008 and
most of 2009 we accounted for our equity in PTI following our 25% ownership of
PTI’s Series A Preferred Stock, but in the fourth quarter we reverted to using
our overall 43.06% ownership position as the Series A investment recovery was
completed, thus completing the recuperation of all previously recorded losses.
Our allocated portion of PTI’s results increased to income of $301,000 in fiscal
2009 as compared with $274,000 in fiscal 2008, and $477,000 in fiscal
2007.





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 2009, the Company’s
allocated portion of JCP’s results was income of $50,000, as compared with
$360,000 and $33,000 for fiscal 2008 and 2007, respectively.


42




LIQUIDITY
AND CAPITAL RESOURCES





As of
June 27, 2009, our principal sources of liquidity included continuing operations
as well as cash, cash equivalents, and short-term and long-term investments of
approximately $124.6 million, as compared with $123.9 million as of June 28,
2008 and $131.0 million as of June 30, 2007. In fiscal 2009, 2008 and 2007, we
made no acquisitions of other companies.





As of
June 27, 2009, we owned assets classified as cash and cash equivalents of $37.3
million as compared to $41.6 million as of June 28, 2008 and $29.2 million as of
June 30, 2007.  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 2009 fiscal year, we purchased $26.9 million of
property and equipment as compared to $10.0 million and $6.0 million in fiscal
2008 and 2007, respectively.  The increase in capital expenditures for
property and equipment in fiscal 2009 compared with fiscal 2008 reflected
primarily the 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. The increase in capital expenditures for property and equipment in
fiscal 2008 compared with fiscal 2007 reflected an increase to $6.4 million from
$1.5 million at SRe to expand capacity through the addition of four surface
mount device (SMD) production lines, offset in part by a slight reduction to
$3.6 million from $4.2 million in the U.S.





We
generated approximately $5.6 million of interest and other income, net during
the fiscal year ended June 27, 2009 compared to $5.5 million and $6.5 million in
the fiscal years ended June 28, 2008 and June 30, 2007, respectively. The
decrease in interest and other income in fiscal 2008 as compared with fiscal
2007 was primarily the result of a $1.0 million gain from the sale of 50% of an
investment in a privately held semiconductor company in fiscal 2007. In the
longer term, we may generate less interest income if our total invested balance
decreases and the decrease is not offset by rising interest rates or realized
gains on the sale of investment securities.





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
adjustments to net income, plus favorable changes in assets and liabilities of
$15.9 million. The favorable 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. It should be noted that fiscal 2009 was a year with sales revenues 21%
lower than in fiscal 2008, and this resulted in cash being generated from
reductions in working capital. This process can be expected to reverse if sales
increase in future years.





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





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


43





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. Commitments for additional capital expenditures
for the completion of this plant were approximately $16.4 million at the end of
fiscal 2009, with nearly all of the expenditures to be made in fiscal
2010.





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





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





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.





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





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





In 2001,
our Board of Directors approved the repurchase of up to 2.0 million shares of
our common stock. The repurchases may be made from time to time in the open
market or through private transactions at the discretion of Company management.
In fiscal 2007, we repurchased 628,000 shares for $6.0 million, and this
completed the 2001 authorized 2.0 million share repurchase at a total cost of
approximately $17.8 million.





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, and 302,000 shares during fiscal 2007, at
an approximate cost of $3.1 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.


44





In
January 2008, we initiated a project to build a factory in China for the
development and manufacture of frequency control products (FCPs). The factory is
located in the Jinan Development Zone in Shandong Province. It is expected that
our total investment will be approximately $35 million over the next two years,
of which $21.5 million was spent in fiscal 2009. We have land use rights for 12
acres, and the factory is being designed for 13 surface mount device (SMD)
production lines. Phase I consists of an administration building, workers
dormitory and fabrication plant, and is scheduled for completion in the second
quarter of fiscal 2010. We have established PSE Technology (Shandong)
Corporation (“PSE”) in China to develop and operate the factory. PSE is a
subsidiary of Pericom Asia Ltd. (“PAL”), a wholly-owned Hong Kong subsidiary of
Pericom.





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





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




CONTRACTUAL
OBLIGATIONS AND COMMITMENTS





The
following table depicts our contractual obligations as of June 27,
2009:




Payments
      Due by Period(in
      thousands)
                                                
                                                
                                                
                                                
                                                Less
      than
                                                
                                                
                                                1-3
                                                
                                                
                                                3-5Contractual
      obligation
                                                
                                                Total
                                                
                                                
                                                1
      Year
                                                
                                                
                                                Years
                                                
                                                
                                                Years
                                                
                                                
                                                ThereafterOperating
      leases and operating expense commitments
                                                
                                                $
                                                5,520
                                                
                                                
                                                $
                                                1,422
                                                
                                                
                                                $
                                                2,416
                                                
                                                
                                                $
                                                1,682
                                                
                                                
                                                $
                                                -Capital
      equipment purchase commitments
                                                
                                                
                                                16,381
                                                
                                                
                                                
                                                15,534
                                                
                                                
                                                
                                                847
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Mortgage
      loan
                                                
                                                
                                                1,964
                                                
                                                
                                                
                                                89
                                                
                                                
                                                
                                                307
                                                
                                                
                                                
                                                301
                                                
                                                
                                                
                                                1,267Total
      contractual cash obligations
                                                
                                                $
                                                23,865
                                                
                                                
                                                $
                                                17,045
                                                
                                                
                                                $
                                                3,570
                                                
                                                
                                                $
                                                1,983
                                                
                                                
                                                $
                                                1,267





We have
no purchase obligations other than routine purchase orders and the capital
equipment purchase commitments shown in the table as of June 27, 2009. The
capital equipment purchase commitmentsare associated with the
construction of our factory in China for the development and manufacture of
frequency control products (FCPs). The mortgage loan  is at the
Company’s subsidiaryPTL, who took out a 15-year $1.7 million mortgage to
acquire its building in December 2008, and the related commitment may fluctuate
based on changes in interest rates.




OFF-BALANCE
SHEET ARRANGEMENTS





As of June 27, 2009, the Company did not
have any off-balance-sheet arrangements, as defined in Item 303(a)(4) of
SEC Regulation S-K other than operating leases on our buildings and the
commitment for capital expenditures in Jinan.




RECENTLY
ISSUED ACCOUNTING STANDARDS





In May
2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) 165, Subsequent Events. SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS 165 requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date,
that is, whether the date represents the date the financial statements were
issued or were available to be issued. In accordance with SFAS 165, the Company
has evaluated subsequent events through September 25, 2009. During the period
from June 28, 2009 to September 25, 2009, the Company did not have any material
recognizable subsequent events.


45




In June
2009, the FASB issued SFAS 167, Amendments to FASB
Interpretation. 46(R). In general, SFAS 167 amends 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. SFAS 167 is effective for fiscal years
beginning after November 15, 2009, for interim periods within those fiscal
years, and for interim and annual reporting periods thereafter. We do not expect
the adoption of SFAS 167 will have a material impact on our financial condition,
results of operations or cash flows.





In April 2009, the FASB
issued FSP FAS 107-1 and APB 28-1,Interim Disclosures
about Fair Value of Financial Instruments(FSP SFAS 107-1). FSP SFAS 107-1 amends
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to
require disclosures about fair value of financial instruments in interim as well
as in annual financial statements. This FSP also amends APB Opinion No. 28,
“Interim Financial Reporting”, to require those disclosures in all interim
financial statements. FSP SFAS 107-1 is effective for interim and annual periods
ending after June 15, 2009, and did not materially impact our
financial condition, results of operations or cash flows.




In April 2009, the FASB
issued FSP SFAS 157-4,Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly(FSP SFAS 157-4).
FSP SFAS 157-4 clarifies when markets are illiquid or that market pricing may
not actually reflect the “real” value of an asset. If a market is determined to
be inactive and market price is reflective of a distressed price then an
alternative method of pricing can be used, such as a present value technique to
estimate fair value. FSP SFAS 157-4 identifies factors to be considered when
determining whether or not a market is inactive. FSP SFAS 157-4 is effective for
interim and annual periods ending after June 15, 2009, and did not
materially impact our financial condition, results of operations or cash
flows.





In April 2009, the FASB issued FSP
SFAS 115-2 and SFAS 124-2Recognition and
Presentation of Other-Than-Temporary Impairments (OTTI)(FSP SFAS 115-2) which is intended to
provide greater clarity to investors about the credit and noncredit component of
an OTTI event and to more effectively communicate when an OTTI event has
occurred. FSP SFAS 115-2 applies to debt securities and requires that the total
OTTI be presented in the statement of income with an offset for the amount of
impairment that is recognized in other comprehensive income, which is the
noncredit component. Noncredit component losses are to be recorded in other
comprehensive income if an investor can assess that (a) it does not have
the intent to sell or (b) it is not more likely than not that it will have
to sell the security prior to its anticipated recovery. FSP SFAS 115-2 is
effective for interim and annual periods ending after June 15, 2009, and
did not materially impact our financial condition, results of operations
or cash flows.





On March
29, 2009 the Company adopted FSP SFAS 107-1, FSP SFAS 157-4 and FSP SFAS 115-2.
The adoption of these standards had no significant impact on our financial
position, results of operations or cash flows.





In
June 2009 the FASBissued SFAS168,
The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting
Principles.SFAS 168 defines the new hierarchy for U.S. GAAP
and explains how the FASB will use its Accounting Standards Codification
(ASC) as the sole source for all authoritative guidance. The Codification
will be effective for all reporting periods that end after September 15,
2009, which means it will be effective for our fiscal year beginning June 28,
2009. We expect that the adoption of this standard will have no significant
impact on our financial position, results of operations or cash
flows.





In
May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with generally accepted accounting principles in the
United States for non-governmental entities. SFAS 162 is effective November 15,
2008. The adoption of  SFAS 162 did not have an impact on the
Company’s consolidated financial position or results of
operation.


46





In
December 2007, the FASB issued SFAS 141(R), Business Combinations. SFAS
141(R) establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The provisions of SFAS 141(R) are
effective for the fiscal year beginning June 28, 2009.  The Company is
currently evaluating the impact of the provisions of SFAS 141(R).





In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of ARB No. 51. SFAS 160
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 non-controlling
interest (minority interest) as equity in the consolidated financial statements
separate from the parent’s equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income statement. SFAS 160 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. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling interest. The
provisions of SFAS 160 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. We are currently
evaluating the impact that SFAS 160 will have on our financial
statements.




ITEM
7A.  QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




MARKET
RISK DISCLOSURE





At June
27, 2009, the Company’s investment portfolio consisted primarily of fixed income
securities, excluding those classified as cash equivalents, of $87.3 million
(see Note 1 of Notes to Financial Statements).  These securities are
subject to interest rate risk and will decline in value if market interest rates
increase.  We could realize a loss on these securities if we were
forced to sell them in a period when interest rates are higher than current
rates.  We do not expect such a scenario to occur.  For
example, if market interest rates were to increase immediately and uniformly by
10% from levels as of June 27, 2009, such as from 4.5% to 5.0%, the decline in
the fair value of the portfolio would be approximately $7.9
million.  On the other hand, if interest rates were to decline the
effect on our portfolio would be in the opposite direction.





The
Company transacts business in various non-U.S. currencies, primarily the New
Taiwan Dollar and the Japanese Yen.  The Company is exposed to
fluctuations in foreign currency exchange rates on accounts receivable from
sales in these foreign currencies and the net monetary assets and liabilities of
the related foreign subsidiary.  A hypothetical 10% unfavorable change
in the foreign currency exchange rate would reduce cash by approximately
$177,000 as those monetary assets are converted to cash.


47




ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





1.
            INDEX TO CONSOLIDATED FINANCIAL
      STATEMENTS





The following Consolidated Financial
Statements are filed as part of this report:


Page No.Report
      of Independent Registered Public Accounting Firm
                59Consolidated
      Balance Sheets as of June 27, 2009 and June 28, 2008
                60Consolidated
      Statements of Operations for each of the three fiscal years in the period
      ended June 27, 2009
                61Consolidated
      Statements of Shareholders’ Equity and Comprehensive Income for each of
      the three fiscal years in the period ended June 27, 2009
                62Consolidated
      Statements of Cash Flows for each of the three fiscal years in the period
      ended June 27, 2009
                63Notes
      to Consolidated Financial Statements
                64





2.
            INDEX TO FINANCIAL STATEMENT
      SCHEDULE





The
following financial statement schedule of Pericom Semiconductor Corp. for the
years ended June 27, 2009, June 28, 2008 and June 30, 2007 is filed as part of
this report and should be read in conjunction with the Consolidated Financial
Statements of Pericom Semiconductor Corporation.





Schedule II – Valuation and Qualifying
      Accounts for each of the three fiscal years in the period
      ended June 27, 2009
                  90





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


48




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





None.




ITEM 9A.  CONTROLS
AND PROCEDURES





Disclosure
Controls and Procedures





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





Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rule 13a-15(e) and Rule
15d-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”)) as
of June 27,  2009.   Based on their evaluation, and the
matters described under "Discussion of Control Deficiencies"
below, our Chief Executive Officer and our Chief Financial Officer have
concluded that the Company’s disclosure controls and procedures were
not effective as of June 27, 2009, for the purposes set forth in Rule
13a-15(e) and 15d-15(e) under the Exchange Act.





Management’s
Annual Report on Internal Control over Financial Reporting




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




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




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




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




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




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of June 27,
2009.  Our assessment was based on criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated
Framework (“COSO Framework”).




Based on
this evaluation, the Company’s management concluded that, as of June 27, 2009,
our internal control over financial reporting was not effective based on the
criteria set forth in the COSO framework.




Burr,
Pilger & Mayer LLP, our independent registered public accounting firm that
audited the financial statements included in this annual report on Form 10-K,
has issued an attestation report on the effectiveness  of the
Company’s internal control over financial reporting, concluding that our
internal control over financial reporting was not effective as of the evaluation
date, which is included in this annual report on Form 10-K.


49





Changes
in Internal Controls over Financial Reporting





There
have been no changes during the Company’s fiscal quarter ended June 27, 2009 in
our internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





Discussion
of Control Deficiencies





Background





In a
press release dated August 5, 2009, and Form 8-K filed on August 7, 2009, we
reported that the Chairman of the Audit Committee of our Board of Directors
determined that Pericom will restate the company’s consolidated financial
statements for its quarters ended September 27, 2008, December 27, 2008, and
March 28, 2009, and the financial information for those periods included in
Forms 10-Q filed and prior press releases issued by Pericom for the relevant
periods should not be relied upon.  We also reported that Pericom was
undertaking a review of accounting matters relating to the first three fiscal
quarters of fiscal 2009.   At that time, we identified two errors in
the course of the review:





·
            For
      2009 Q1, Pericom did not record a decline in value of $414,000 on its
      income statement relating to an obligation owed by Lehman Brothers
      Holdings after Lehman filed for bankruptcy on September 15,
      2008.  Pericom’s internal accounting review failed to conclude
      that this impairment was other-than-temporary and to include this
      impairment in the income statement for 2009
Q1.





·
            For
      2009 Q2, in connection with the conversion of Pericom’s enterprise
      resource planning software, there was an inadvertent misclassification of
      cost data.  This misclassification led to an understatement of
      cost of goods sold by $772,000.  This error was not quantified
      or identified until balance sheet reconciliations with subledgers became
      available and were completed after 2009 Q3 results were
      reported.





During
the course of the Audit Committee review described below, we also identified
errors relating to inventory valuation and inventory reserves.





On
September 11, 2009, we filed a Form 12b-25 with the SEC indicating that we
expected to file our Form 10-K for the fiscal year ended June 27, 2009, within
15 calendar days after its due date as a result of the previously announced
review of accounting matters relating to the first three fiscal quarters of
fiscal 2009 and the additional time required to complete the financial
restatements for those periods, as well as finalization of the results for the
full year.





Audit
Committee Review





The Audit Committee engaged
independentlegal counsel to assist it in reviewing
issues relating to the Company’s third quarter accounting, and to do so in light
of the issues described in the August 5, 2009 press release and Form 8-K filed
on August 7, 2009.  This review was completed on September 22,
2009.  The Audit Committee concluded that the Company’s finance
function needed substantial improvement, and that accounting errors were made
during the first, second and third quarters of fiscal 2009, but that none of the
errors reflected intentional misconduct by management or accounting
personnel.  The Audit Committee has recommended a number of
improvements to Pericom’s finance department, including the implementation of
improved processes and systems, as well as additions to and upgrades of key
finance personnel.





Summary
of Restatement





All
applicable financial information included in this report gives effect to the
restatement described herein. Accordingly, the financial statements or
information for the relevant periods covered by  the Form 10-Qs for
the first three quarters of fiscal year 2009 or included in
announcements prior to our press release dated August 5, 2009, should not be
relied upon. We are filing Form 10-Q/A for each of the first three quarters of
fiscal 2009 which give effect to the restatement described above. In those
amended reports, we also concluded that our disclosure controls and procedures
were not effective as of the end of those fiscal quarters.


50


Material
Weaknesses





In
connection with the matters described above, our Company’s management identified
and reported to our Audit Committee the following control deficiencies, each of
which constitutes a material weakness in our internal control over financial
reporting as of June 27, 2009:





·
            The
      Company concluded that certain controls over period-end inventory
      accounting did not operate with sufficient precision. Misstatements were
      detected relating to inventory valuation and inventory reserves. In
      addition, the Company’s 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
      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.  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.





The above
material weaknesses contributed to the restatement of the Company’s quarterly
condensed consolidated financial statements during each of the first three
quarterly periods in the fiscal year ended June 27, 2009 as well as adjustments
in several accounts as part of the audit process for the fiscal year ended June
27, 2009.





Under SEC
rules, 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 registrant's annual or interim
financial statements will not be prevented or detected on a timely
basis.




We intend
to remediate these material weaknesses by making a number of improvements to our
finance department, including the implementation of improved processes and
systems, as well as additions to and upgrades of key finance personnel. We also
plan to review our training and oversight policies and re-examine our
documentation and review procedures as soon as is reasonably practical. We also
intend to engage the help of outside consultants to revamp the processes in the
cost module of the ERP system. We may also consider implementing other
remediation measures.




ITEM
9B.  OTHER INFORMATION





None


51


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 June 27, 2009, 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 concluded that certain controls over period-end inventory
      accounting did not operate with sufficient precision. Misstatements were
      detected relating to inventory valuation and inventory reserves. In
      addition, the Company’s 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.


52


·
            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.  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.





The above
material weaknesses contributed to the restatement of the Company’s quarterly
condensed consolidated financial statements during each of the first three
quarterly periods in the fiscal year ended June 27, 2009 as well as adjustments
in several accounts as part of the audit process for the fiscal year ended June
27, 2009.





These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the fiscal 2009 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 June 27, 2009, based on the COSO criteria.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Pericom
Semiconductor Corporation and its subsidiaries as of June 27, 2009 and June 28,
2008, 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 June 27, 2009, and the related financial statement schedule and
our report dated September 25, 2009 expressed an unqualified opinion on those
consolidated financial statements and the related financial statement
schedule.





/s/ Burr
Pilger & Mayer LLP





San Jose,
California


September
25, 2009


53




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 11,
2009, 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 June 27, 2009.





Plan Category
                
                Number of securities to
                  be issued upon exercise
                  of outstanding options,
                  warrants and rights
                
                
                Weighted average
                  exercise price of
                  outstanding options,
                  warrants and rights
                
                
                Number of securities
                  remaining available
                  for future issuance
                  under plansEquity
      compensation plans approved by shareholders:Option
      plans
                
                
                3,714,239
                
                
                $
                14.04
                
                
                
                3,541,865Employee
      stock purchase plan
                
                
                —
                
                
                
                
                
                
                
                363,905Equity
      compensation plans not approved by shareholders:SaRonix
      Inducement options (1)
                
                
                40,741
                
                
                $
                10.00
                
                
                
                —Total
                
                
                3,754,980
                
                
                $
                14.00
                
                
                
                3,905,770





(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.


54




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.




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.


55


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
                  
                  Description3.1
                  
                  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.


56





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.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 and 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 agreements under Pericom 2001 and 2004 stock
      incentive plans, 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.


57





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.14.1
              
              Pericom
      Semiconductor Corporation Code of Business Conduct and Ethics, filed as
      Exhibit 14.1 to the Company’s Form 10-K for the year ended June 26, 2004
      and incorporated herein by reference.21.1
              
              Subsidiaries
      of Pericom Semiconductor Corporation23.1
              
              Consent
      of Burr, Pilger & Mayer LLP Independent Registered Public Accounting
      Firm24.1
              
              Power
      of Attorney (see signature page)31.1
              
              Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              
              Certification
      of Angela Chen, Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              
              Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
              
              Certification
      of Angela Chen, Chief Financial Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




*
            Management
      contract or compensatory plan or
arrangement.


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





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


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


58


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 June 27, 2009 and June
28, 2008 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 June 27, 2009.  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 June 27, 2009 and June 28, 2008 and the
results of their operations and their cash flows for each of the three years in
the period ended June 27, 2009 in conformity with accounting principles
generally accepted in the United States of America.  Also, in our opinion,
the related financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of June 27, 2009, based on the criteria
established in Internal
Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated September 25, 2009 expressed an adverse
opinion thereon.





/s/ Burr
Pilger & Mayer LLP





San Jose,
California


September
25, 2009


59


PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)





June 27,
                
                
                June 28,2009
                
                
                2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                37,321
                
                
                $
                41,646Restricted
      cash
                
                
                3,200
                
                
                
                -Short-term
      investments in marketable securities
                
                
                75,471
                
                
                
                72,108Accounts
      receivable:Trade
      (net of allowances of $2,163 and $1,950)
                
                
                22,875
                
                
                
                29,002Other
      receivables
                
                
                1,663
                
                
                
                1,684Inventories
                
                
                16,340
                
                
                
                17,921Prepaid
      expenses and other current assets
                
                
                2,075
                
                
                
                5,943Deferred
      income taxes
                
                
                2,433
                
                
                
                3,344Total
      current assets
                
                
                161,378
                
                
                
                171,648Property,
      plant and equipment – net
                
                
                47,238
                
                
                
                29,173Investments
      in unconsolidated affiliates
                
                
                10,826
                
                
                
                10,392Deferred
      income taxes – non current
                
                
                4,657
                
                
                
                4,543Long-term
      investments in marketable securities
                
                
                11,780
                
                
                
                10,171Goodwill
                
                
                1,673
                
                
                
                1,325Intangible
      assets (net of accumulated amortization of $1,031 and
$772)
                
                
                1,764
                
                
                
                1,140Other
      assets
                
                
                6,742
                
                
                
                3,191Total
      assets
                
                $
                246,058
                
                
                $
                231,583LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                10,824
                
                
                $
                13,431Accrued
      liabilities
                
                
                15,118
                
                
                
                8,779Current
      portion of long-term debt
                
                
                60
                
                
                
                -Total
      current liabilities
                
                
                26,002
                
                
                
                22,210Long-term
      debt
                
                
                1,610
                
                
                
                -Industrial
      development subsidy
                
                
                3,718
                
                
                
                -Deferred
      tax liabilities
                
                
                -
                
                
                
                800Other
      long-term liabilities
                
                
                1,287
                
                
                
                -Minority
      interest in consolidated subsidiaries
                
                
                1,233
                
                
                
                1,118Total
      liabilities
                
                
                33,850
                
                
                
                24,128Commitments
      (Note 12)Shareholders’
      equity:Common
      stock and paid in capital - no par value, 60,000,000 shares authorized;
      shares issued and outstanding: at June 27, 2009, 25,462,000; at June 28,
      2008, 25,703,000
                
                
                133,162
                
                
                
                132,028Retained
      earnings
                
                
                78,249
                
                
                
                72,162Accumulated
      other comprehensive income, net of tax
                
                
                797
                
                
                
                3,265Total
      shareholders’ equity
                
                
                212,208
                
                
                
                207,455Total
      liabilities and shareholders' equity
                
                $
                246,058
                
                
                $
                231,583




See notes
to consolidated financial statements.


60





PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except per share data)





Year
      EndedJune 27,
                      
                      
                      June 28,
                      
                      
                      June 30,2009
                      
                      
                      2008
                      
                      
                      2007Net
      revenues
                      
                      $
                      128,645
                      
                      
                      $
                      163,744
                      
                      
                      $
                      123,370Cost
      of revenues
                      
                      
                      85,514
                      
                      
                      
                      103,638
                      
                      
                      
                      80,557Gross
      profit
                      
                      
                      43,131
                      
                      
                      
                      60,106
                      
                      
                      
                      42,813Operating
      expenses:Research
      and development
                      
                      
                      16,697
                      
                      
                      
                      17,159
                      
                      
                      
                      16,021Selling,
      general and administrative
                      
                      
                      22,833
                      
                      
                      
                      23,624
                      
                      
                      
                      21,878Restructuring
                      
                      
                      584
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      
                      40,114
                      
                      
                      
                      40,783
                      
                      
                      
                      37,899Income
      from operations
                      
                      
                      3,017
                      
                      
                      
                      19,323
                      
                      
                      
                      4,914Interest
      and other income, net
                      
                      
                      5,613
                      
                      
                      
                      5,513
                      
                      
                      
                      6,460Interest
      expense
                      
                      
                      (65
                      )
                      
                      
                      (12
                      )
                      
                      
                      (130
                      )Other
      than temporary decline in value of investment
                      
                      
                      (506
                      )
                      
                      
                      (76
                      )
                      
                      
                      (6
                      )Income  before
      income tax expense
                      
                      
                      8,059
                      
                      
                      
                      24,748
                      
                      
                      
                      11,238Income
      tax expense
                      
                      
                      2,209
                      
                      
                      
                      8,221
                      
                      
                      
                      2,985Minority
      interest in income of consolidated subsidiaries
                      
                      
                      (114
                      )
                      
                      
                      (116
                      )
                      
                      
                      (33
                      )Equity
      in net income of unconsolidated affiliates
                      
                      
                      351
                      
                      
                      
                      602
                      
                      
                      
                      407Net
      income
                      
                      $
                      6,087
                      
                      
                      $
                      17,013
                      
                      
                      $
                      8,627Basic
      earnings per share
                      
                      $
                      0.24
                      
                      
                      $
                      0.66
                      
                      
                      $
                      0.33Diluted
      earnings per share
                      
                      $
                      0.24
                      
                      
                      $
                      0.64
                      
                      
                      $
                      0.32Shares
      used in computing basic earnings per share
                      
                      
                      25,417
                      
                      
                      
                      25,737
                      
                      
                      
                      26,058Shares
      used in computing diluted earnings  per share
                      
                      
                      25,626
                      
                      
                      
                      26,611
                      
                      
                      
                      26,669





See notes
to consolidated financial statements.


61


PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


(In
thousands)





AccumulatedOther
                            
                            
                            TotalCommon
      Stock
                            
                            
                            Retained
                            
                            
                            Comprehensive
                            
                            
                            Shareholders’Shares
                            
                            
                            Amount
                            
                            
                            Earnings
                            
                            
                            Income
      (Loss)
                            
                            
                            EquityBALANCES,
      July 1, 2006
                            
                            
                            26,061
                            
                            
                            $
                            138,483
                            
                            
                            $
                            46,522
                            
                            
                            $
                            (894
                            )
                            
                            $
                            184,111Net
      income
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            8,627
                            
                            
                            
                            —
                            
                            
                            
                            8,627Change
      in unrealized gain (loss) on investments, net
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            624
                            
                            
                            
                            624Currency
      translation adjustment
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (288
                            )
                            
                            
                            (288
                            )Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            8,963Issuance
      of common stock under employee stock plans
                            
                            
                            707
                            
                            
                            
                            4,145
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            4,145Stock
      based compensation expense
                            
                            
                            —
                            
                            
                            
                            2,119
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            2,119Tax
      benefit resulting from stock option transactions
                            
                            
                            —
                            
                            
                            
                            309
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            309Repurchase
      and retirement of common stock
                            
                            
                            (930
                            )
                            
                            
                            (9,169
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (9,169
                            )BALANCES,
      June 30, 2007
                            
                            
                            25,838
                            
                            
                            
                            135,887
                            
                            
                            
                            55,149
                            
                            
                            
                            (558
                            )
                            
                            
                            190,478Net
      income
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            17,013
                            
                            
                            
                            —
                            
                            
                            
                            17,013Change
      in unrealized gain (loss) on investments, net
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            677
                            
                            
                            
                            677Currency
      translation adjustment
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            3,146
                            
                            
                            
                            3,146Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            20,836Issuance
      of common stock under employee stock plans
                            
                            
                            1,424
                            
                            
                            
                            10,929
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            10,929Stock
      based compensation expense
                            
                            
                            —
                            
                            
                            
                            2,358
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            2,358Tax
      benefit resulting from stock option transactions
                            
                            
                            —
                            
                            
                            
                            2,975
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            2,975Repurchase
      and retirement of common stock
                            
                            
                            (1,559
                            )
                            
                            
                            (20,121
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (20,121
                            )BALANCES,
      June 28, 2008
                            
                            
                            25,703
                            
                            
                            
                            132,028
                            
                            
                            
                            72,162
                            
                            
                            
                            3,265
                            
                            
                            
                            207,455Net
      income
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            6,087
                            
                            
                            
                            —
                            
                            
                            
                            6,087Change
      in unrealized gain (loss) on investments, net
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            545
                            
                            
                            
                            545Currency
      translation adjustment
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (3,013
                            )
                            
                            
                            (3,013
                            )Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3,619Issuance
      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
                            
                            
                            $
                            78,249
                            
                            
                            $
                            797
                            
                            
                            $
                            212,208





See
notes to consolidated financial statements.


62


PERICOM
SEMICONDUCTOR CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)





Year
      EndedJune 27,
                          
                          
                          June 28,
                          
                          
                          June 30,2009
                          
                          
                          2008
                          
                          
                          2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                          
                          $
                          6,087
                          
                          
                          $
                          17,013
                          
                          
                          $
                          8,627Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          7,786
                          
                          
                          
                          6,532
                          
                          
                          
                          6,108Stock
      based compensation
                          
                          
                          3,586
                          
                          
                          
                          2,358
                          
                          
                          
                          2,119Tax
      benefit resulting from stock option transactions
                          
                          
                          403
                          
                          
                          
                          3,409
                          
                          
                          
                          309Excess
      tax benefit resulting from stock option transactions
                          
                          
                          (79
                          )
                          
                          
                          (2,975
                          )
                          
                          
                          (163
                          )Other
      than temporary decline in the value of investments
                          
                          
                          506
                          
                          
                          
                          76
                          
                          
                          
                          6Gain
      on investments
                          
                          
                          (1,791
                          )
                          
                          
                          (644
                          )
                          
                          
                          (45
                          )(Gain)
      loss on disposal of assets
                          
                          
                          3
                          
                          
                          
                          5
                          
                          
                          
                          (72
                          )Gain
      on sales of investments in privately held companies
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,002
                          )Write
      off of in process research and development
                          
                          
                          34
                          
                          
                          
                          -
                          
                          
                          
                          -Loss
      on impairment of intangible assets
                          
                          
                          -
                          
                          
                          
                          23
                          
                          
                          
                          -Equity
      in net income of unconsolidated affiliates
                          
                          
                          (351
                          )
                          
                          
                          (602
                          )
                          
                          
                          (407
                          )Minority
      interest in consolidated subsidiary’s net income
                          
                          
                          116
                          
                          
                          
                          117
                          
                          
                          
                          33Deferred
      taxes
                          
                          
                          (439
                          )
                          
                          
                          2,059
                          
                          
                          
                          178Changes
      in assets and liabilities net of effects of entities
    acquired:Accounts
      receivable
                          
                          
                          4,933
                          
                          
                          
                          (10,029
                          )
                          
                          
                          3,548Inventories
                          
                          
                          1,054
                          
                          
                          
                          (2,664
                          )
                          
                          
                          1,878Prepaid
      expenses and other current assets
                          
                          
                          3,757
                          
                          
                          
                          (5,244
                          )
                          
                          
                          (124
                          )Investments
      in unconsolidated affiliates
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (17
                          )Other
      assets
                          
                          
                          225
                          
                          
                          
                          (1,224
                          )
                          
                          
                          (42
                          )Accounts
      payable
                          
                          
                          (1,921
                          )
                          
                          
                          85
                          
                          
                          
                          2,189Accrued
      liabilities
                          
                          
                          7,554
                          
                          
                          
                          (691
                          )
                          
                          
                          1,400Other
      long term liabilities
                          
                          
                          304
                          
                          
                          
                          -
                          
                          
                          
                          (393
                          )Net
      cash provided by operating activities
                          
                          
                          31,767
                          
                          
                          
                          7,604
                          
                          
                          
                          24,130CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property plant and equipment
                          
                          
                          (26,938
                          )
                          
                          
                          (10,027
                          )
                          
                          
                          (5,987
                          )Net
      proceeds from sale of property and equipment
                          
                          
                          -
                          
                          
                          
                          2
                          
                          
                          
                          251Net
      proceeds from sale of investments in privately held
    companies
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,004Purchase
      of available for sale investments
                          
                          
                          (120,623
                          )
                          
                          
                          (88,238
                          )
                          
                          
                          (448,605
                          )Maturities
      and sales of available for sale investments
                          
                          
                          117,489
                          
                          
                          
                          109,557
                          
                          
                          
                          457,218Cash
      paid for PTL minority interest acquisition
                          
                          
                          (1,285
                          )
                          
                          
                          -
                          
                          
                          
                          -Change
      in restricted cash balance
                          
                          
                          (3,200
                          )
                          
                          
                          -
                          
                          
                          
                          950Net
      cash provided by (used in) investing activities
                          
                          
                          (34,557
                          )
                          
                          
                          11,294
                          
                          
                          
                          5,831CASH
      FLOWS FROM FINANCING ACTIVITIES:Sale
      of common stock under stock plans
                          
                          
                          2,724
                          
                          
                          
                          10,929
                          
                          
                          
                          4,145Excess
      tax benefit on stock based compensation
                          
                          
                          79
                          
                          
                          
                          2,975
                          
                          
                          
                          163Proceeds
      from mortgage financing
                          
                          
                          1,669
                          
                          
                          
                          -
                          
                          
                          
                          -Proceeds
      from short-term and long-term debts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,789Principal
      payments on long-term debt and capital leases
                          
                          
                          -
                          
                          
                          
                          (792
                          )
                          
                          
                          (11,175
                          )Repurchase
      of common stock
                          
                          
                          (5,451
                          )
                          
                          
                          (20,121
                          )
                          
                          
                          (9,169
                          )Net
      cash used in financing activities
                          
                          
                          (979
                          )
                          
                          
                          (7,009
                          )
                          
                          
                          (13,247
                          )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                          
                          
                          (556
                          )
                          
                          
                          584
                          
                          
                          
                          (118
                          )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                          
                          
                          (4,325
                          )
                          
                          
                          12,473
                          
                          
                          
                          16,596CASH
      AND CASH EQUIVALENTS:Beginning
      of year
                          
                          
                          41,646
                          
                          
                          
                          29,173
                          
                          
                          
                          12,577End
      of year
                          
                          $
                          37,321
                          
                          
                          $
                          41,646
                          
                          
                          $
                          29,173SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for income taxes
                          
                          $
                          994
                          
                          
                          $
                          4,875
                          
                          
                          $
                          1,251Cash
      paid during the period for interest
                          
                          $
                          15
                          
                          
                          $
                          11
                          
                          
                          $
                          152





See notes
to consolidated financial statements


63





PERICOM
SEMICONDUCTOR CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





FISCAL
YEARS ENDED JUNE 27, 2009, JUNE 28, 2008 AND JUNE 30, 2007




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,  Pericom Taiwan Limited Corporation
(“PTL”) and Pericom Asia Limited (“PAL”) as well as a majority owned subsidiary,
SaRonix-eCERA Corporation (“SRe”).  The Company eliminates all
significant intercompany balances and transactions in
consolidation.





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





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





SHORT-TERM AND
LONG-TERM INVESTMENTS IN MARKETABLE SECURITIES – The Company’s policy is
to invest in instruments with investment grade credit ratings.  The
Company classifies its short-term investments as “available-for-sale” or
“trading” securities and the Company bases the cost of securities sold using the
specific identification method.  The Company accounts for unrealized
gains and losses on its available-for-sale securities as a separate component of
shareholders’ equity in the consolidated balance sheets in the period in which
the gain or loss occurs.  The Company recognizes unrealized gains and
losses in its trading securities in other income in the consolidated statements
of operations in the period in which the gain or loss occurs.  The
Company classifies trading securities as current assets and its
available-for-sale securities as current or noncurrent based on each security’s
attributes.  At June 27, 2009 and June 28, 2008, investments, and any
difference between the fair market value and the underlying cost of such
investments, consisted of the following:





Available
for Sale Securities:





As of June
      27, 2009Net
                                
                                
                                FairAmortized
                                
                                
                                Unrealized
                                
                                
                                Market(In thousands)
                                
                                Cost
                                
                                
                                Gain(Loss)
                                
                                
                                ValueCorporate
      bonds and notes
                                
                                $
                                45,875
                                
                                
                                $
                                1,093
                                
                                
                                $
                                46,968Government
      securities
                                
                                
                                29,522
                                
                                
                                
                                295
                                
                                
                                
                                29,817Asset
      / mortgage backed securities
                                
                                
                                10,702
                                
                                
                                
                                (309
                                )
                                
                                
                                10,393$
                                86,099
                                
                                
                                $
                                1,079
                                
                                
                                $
                                87,178


64





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





Trading
Securities:





Fiscal
      Year EndedJune
      27, 2009
                              
                              
                              June
      28, 2008Net
                              
                              
                              Fair
                              
                              
                              Net
                              
                              
                              FairUnrealized
                              
                              
                              Market
                              
                              
                              Unrealized
                              
                              
                              Market(In
      thousands)
                              
                              Gains
                              
                              
                              Value
                              
                              
                              Gains
                              
                              
                              ValueRepurchase
      funds
                              
                              $
                              -
                              
                              
                              $
                              73
                              
                              
                              $
                              -
                              
                              
                              $
                              -Other
      funds
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              39
                              
                              
                              
                              1,458Total
      Trading Securities
                              
                              $
                              -
                              
                              
                              $
                              73
                              
                              
                              $
                              39
                              
                              
                              $
                              1,458





The
following tables show the gross unrealized losses and fair market values of the
Company’s investments that have unrealized losses, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, at June 27, 2009 and June 28, 2008:




Securities in Portfolio with Unrealized Losses at June 27, 2009Less Than 12 Months
                
                
                12 Months or Longer
                
                
                Total(In thousands)
                
                Fair Market
                  Value
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  Market
                  Value
                
                
                Gross
                  Unrealized
                  Losses
                
                
                FairMarket
                  Value
                
                
                Gross
                  Unrealized
                  LossesCorporate
      bonds and notes
                
                $
                4,504
                
                
                $
                12
                
                
                $
                494
                
                
                $
                2
                
                
                $
                4,998
                
                
                $
                14Government
      securities
                
                
                3,226
                
                
                
                33
                
                
                
                -
                
                
                
                -
                
                
                
                3,226
                
                
                
                33Asset/mortgage
      backed securities
                
                
                2,203
                
                
                
                29
                
                
                
                2,327
                
                
                
                378
                
                
                
                4,530
                
                
                
                407$
                9,933
                
                
                $
                74
                
                
                $
                2,821
                
                
                $
                380
                
                
                $
                12,754
                
                
                $
                454




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





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.





The
following table lists the fair market value of the Company’s short- and
long-term investments by length of time to maturity as of June 27, 2009 and June
28, 2008:


65




(in thousands)
                    
                    June 27,
                      2009
                    
                    
                    June 28,
                      2008One
      year or less
                    
                    $
                    17,535
                    
                    
                    $
                    9,414Between
      one and three years
                    
                    
                    24,538
                    
                    
                    
                    33,538Greater
      than three years
                    
                    
                    45,178
                    
                    
                    
                    39,327$
                    87,251
                    
                    
                    $
                    82,279




In fiscal
2009, 2008 and 2007 realized gains on available-for-sale securities were $1.9
million, $644,000 and $21,000, respectively.





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.




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 write it down to zero if it
has not moved in 365 days.  For assembled devices, we disaggregate the
inventory by part number.  We compare the quantities on hand in each
part number category to the quantity we shipped in the previous twelve months,
the quantity in backlog and to the quantity we expect to ship in the next twelve
months.  We write down to zero the value of each quantity on hand that
is in excess of the lesser of the three comparisons.  We also
periodically review inventory for obsolescence beyond the established formulaic
tests. 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.





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.


66


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 June 27, 2009 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 (“FASB”s) Statement of Financial Accounting
Standards (“SFAS”) No. 109, Accounting for Income Taxes,
(“SFAS 109”) and related interpretations which requires an asset and liability
approach to recording deferred taxes.  We record a valuation allowance
to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized.





FOREIGN CURRENCY
TRANSLATION –The functional currency of the Company’s foreign
subsidiaries is the local currency.  In consolidation, the Company
translates assets and liabilities at exchange rates in effect at the balance
sheet date.  The Company translates revenue and expense accounts at
average exchange rates during the period in which the transaction takes
place.  Net gains or (losses) from foreign currency translation of
assets and liabilities of $(3.0) million and $3.1 million in fiscal 2009 and
2008, 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 $103,000,
$(309,000) and $281,000 in fiscal 2009, 2008 and 2007 respectively, and are
included in interest and other income, net.





SHARE-BASED
COMPENSATION–
The Company recognizes employee share-based compensation in accordance with the
provisions of SFAS 123 (revised 2004), Share-Based Payment (“SFAS
123(R)”).  Accordingly, share-based compensation cost is measured at
grant date, based on the fair value of the award, and is recognized as an
expense over the employee’s requisite service period.  See Note 14 for
further discussion of share-based compensation.





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





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred;


·
            The
      sales price is fixed or determinable;
and


·
            Collectibility
      is reasonably assured.





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


67


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





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





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





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





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





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





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





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


68


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





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





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





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


·
            advances
      and trends in new technologies;


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


·
            changes
      in product mix;


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


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


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


·
            availability
      of necessary components; and


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





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








Percentage ofTradeNet
                                      
                                      
                                      AccountsFiscal
      Year Ended:
                                      
                                      
                                      
                                      Revenues
                                      
                                      
                                      ReceivableJune
      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
                                      %June
      30, 2007
                                      
                                      Customer
      C
                                      
                                      
                                      13
                                      %
                                      
                                      
                                      9
                                      %All
      others
                                      
                                      
                                      87
                                      
                                      
                                      
                                      91100
                                      %
                                      
                                      
                                      100
                                      %




69


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.





RECENTLY ISSUED
ACCOUNTING STANDARDS – In May 2009, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 165, Subsequent Events. SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS 165 requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date,
that is, whether the date represents the date the financial statements were
issued or were available to be issued. In accordance with SFAS 165, the Company
has evaluated subsequent events through September 25, 2009. During the period
from June 28, 2009 to September 25, 2009, the Company did not have any material
recognizable subsequent events other than then restatements disclosed in Part II
Item 7 and Item 9A.




In June
2009, the FASB issued SFAS 167, Amendments to FASB
Interpretation. 46(R). In general, SFAS 167 amends 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. SFAS 167 is effective for fiscal years
beginning after November 15, 2009, for interim periods within those fiscal
years, and for interim and annual reporting periods thereafter. We do not expect
the adoption of SFAS 167 will have a material impact on our financial condition,
results of operations or cash flows.





In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments (FSP SFAS 107-1). FSP SFAS 107-1 amends SFAS
No. 107, “Disclosures about Fair Value of Financial Instruments”, to
require disclosures about fair value of financial instruments in interim as well
as in annual financial statements. This FSP also amends APB Opinion No. 28,
“Interim Financial Reporting”, to require those disclosures in all interim
financial statements. FSP SFAS 107-1 is effective for interim and annual periods
ending after June 15, 2009, and did not materially impact our financial
condition, results of operations or cash flows.




In
April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP SFAS
157-4). FSP SFAS 157-4 clarifies when markets are illiquid or that market
pricing may not actually reflect the “real” value of an asset. If a market is
determined to be inactive and market price is reflective of a distressed price
then an alternative method of pricing can be used, such as a present value
technique to estimate fair value. FSP SFAS 157-4 identifies factors to be
considered when determining whether or not a market is inactive. FSP SFAS 157-4
is effective for interim and annual periods ending after June 15, 2009, and
did not materially impact our financial condition, results of operations or cash
flows.





In
April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2 Recognition and Presentation of
Other-Than-Temporary Impairments (OTTI) (FSP SFAS 115-2) which is
intended to provide greater clarity to investors about the credit and noncredit
component of an OTTI event and to more effectively communicate when an OTTI
event has occurred. FSP SFAS 115-2 applies to debt securities and requires that
the total OTTI be presented in the statement of income with an offset for the
amount of impairment that is recognized in other comprehensive income, which is
the noncredit component. Noncredit component losses are to be recorded in other
comprehensive income if an investor can assess that (a) it does not have
the intent to sell or (b) it is not more likely than not that it will have
to sell the security prior to its anticipated recovery. FSP SFAS 115-2 is
effective for interim and annual periods ending after June 15, 2009, and
did not materially impact our financial condition, results of operations or cash
flows.




70




On March
29, 2009 the Company adopted FSP SFAS 107-1, FSP SFAS 157-4 and FSP SFAS 115-2.
The adoption of these standards had no significant impact on our financial
position, results of operations or cash flows.


In
June 2009 the FASB issued SFAS 168, The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting
Principles.SFAS 168 defines the new hierarchy for U.S. GAAP
and explains how the FASB will use its Accounting Standards Codification
(ASC) as the sole source for all authoritative guidance. The Codification
will be effective for all reporting periods that end after September 15,
2009, which means it will be effective for our fiscal year beginning June 28,
2009. We expect that the adoption of this standard will have no significant
impact on our financial position, results of operations or cash
flows.





In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles .SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with generally accepted accounting principles in the
United States for non-governmental entities. SFAS 162 is effective November 15,
2008. The adoption of  SFAS 162 did not have an impact on the
Company’s consolidated financial position or results of operation.





On June
29, 2008, the Company adopted SFAS 157, Fair Value Measurements for
financial assets and liabilities, which clarifies the meaning of fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to transfer a
liability in the principal or most advantageous market for the assets or
liabilities in an orderly transaction between market participants on the
measurement date.  Subsequent changes in fair value of these financial
assets and liabilities are recognized in earnings or other comprehensive income
when they occur. The effective date of the provisions of SFAS 157 for
non-financial assets and liabilities, except for items recognized at fair value
on a recurring basis, was deferred by FSP FAS 157-2 and are effective for the
fiscal year beginning June 28, 2009. The Company is currently evaluating the
impact of the provisions for non-financial assets and
liabilities.  The adoption of  SFAS 157 for financial assets
and liabilities did not have an impact on the Company's consolidated financial
position or results of operations.  For additional information on the
fair value of financial assets and liabilities, see Note 1, Business and
Significant Accounting Policies, and Note 16, Fair Value
Measurements.





In
December 2007, the FASB issued SFAS 141(R), Business Combinations. SFAS
141(R) establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The provisions of SFAS 141(R) are
effective for the fiscal year beginning June 28, 2009.  The Company is
currently evaluating the impact of the provisions of SFAS 141(R).





In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of ARB No. 51. SFAS 160
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 non-controlling
interest (minority interest) as equity in the consolidated financial statements
separate from the parent’s equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income statement. SFAS 160 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. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling interest. The
provisions of SFAS 160 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. We are currently
evaluating the impact that SFAS 160 will have on our financial
statements.


71


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





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





Basic and
diluted earnings per share for each of the three years in the period ended June
27, 2009 is as follows:





Fiscal Year Ended(In thousands, except for per share data)
                
                June 27, 2009
                
                
                June 28, 2008
                
                
                June 30, 2007Net income
                
                $
                6,087
                
                
                $
                17,013
                
                
                $
                8,627Computation
      of common shares outstanding – basic earnings per share:Weighted
      average common stock
                
                
                25,417
                
                
                
                25,737
                
                
                
                26,058Basic
      earnings per share
                
                $
                0.24
                
                
                $
                0.66
                
                
                $
                0.33Computation
      of common shares outstanding – diluted earnings per share:Weighted
      average common stock
                
                
                25,417
                
                
                
                25,737
                
                
                
                26,058Dilutive
      options using the treasury stock method
                
                
                209
                
                
                
                874
                
                
                
                611Shares
      used in computing diluted earnings per share
                
                
                25,626
                
                
                
                26,611
                
                
                
                26,669Diluted
      earnings per share
                
                $
                0.24
                
                
                $
                0.64
                
                
                $
                0.32





Weighted
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 and
2.8 million shares of common stock were outstanding as of June 28, 2008 and June
30, 2007, respectively, and were excluded from the computation of diluted net
earnings per share because such options were anti-dilutive.




2.
OTHER RECEIVABLES





Other
receivables consist of:





As ofJune 27,
                  
                  
                  June 28,(in thousands)
                  
                  2009
                  
                  
                  2008Interest
      receivable
                  
                  $
                  859
                  
                  
                  $
                  690Other
      accounts receivable
                  
                  
                  804
                  
                  
                  
                  994$
                  1,663
                  
                  
                  $
                  1,684




3.
INVENTORIES





Inventories
consist of:





As ofJune 27,
                    
                    
                    June 28,(in thousands)
                    
                    2009
                    
                    
                    2008Finished
      goods
                    
                    $
                    5,442
                    
                    
                    $
                    7,123Work-in-process
                    
                    
                    5,369
                    
                    
                    
                    4,472Raw
      materials
                    
                    
                    5,529
                    
                    
                    
                    6,326$
                    16,340
                    
                    
                    $
                    17,921





The
Company considers raw material inventory obsolete and it writes it off if the
raw material has not moved in 365 days.  The Company considers
assembled devices excessive and writes them off if the quantity of assembled
devices in inventory is in excess of the greater of the quantity shipped in the
previous twelve months, the quantity in backlog or the quantity forecasted to be
shipped in the following twelve months.  In certain circumstances,
management will determine, based on expected usage or other factors, that
inventory considered excess by these guidelines should not be written
off.  As of June 27, 2009, the Company had $4.1 million of written-off
inventory as compared to $5.0 million at June 28, 2008.  The Company
attributes this overall reduction of approximately $0.9 million in obsolete
inventory between the fiscal year ended June 27, 2009 and the fiscal year ended
June 28, 2008 to physically scrapping products as well as sales of products that
were previously written-off.


72


4.
PROPERTY, PLANT AND EQUIPMENT – NET





As ofJune 27,
                  
                  
                  June 28,(in thousands)
                  
                  2009
                  
                  
                  2008Machinery
      and equipment
                  
                  $
                  36,003
                  
                  
                  $
                  36,688Computer
      equipment and software
                  
                  
                  16,878
                  
                  
                  
                  13,942Building
                  
                  
                  4,805
                  
                  
                  
                  3,840Land
                  
                  
                  3,335
                  
                  
                  
                  2,729Furniture
      and fixtures
                  
                  
                  991
                  
                  
                  
                  925Leasehold
      improvements
                  
                  
                  775
                  
                  
                  
                  781Vehicles
                  
                  
                  89
                  
                  
                  
                  56Total
                  
                  
                  62,876
                  
                  
                  
                  58,961Accumulated
      depreciation and amortization
                  
                  
                  (37,811
                  )
                  
                  
                  (33,724
                  )Construction-in-progress
                  
                  
                  22,173
                  
                  
                  
                  3,936Property,
      plant and equipment – net
                  
                  $
                  47,238
                  
                  
                  $
                  29,173





Depreciation
expense for the years ended June 27, 2009, June 28, 2008 and June 30, 2007 was
$7.2 million, $6.3 million and $6.0 million, respectively.




5.
OTHER ASSETS





As ofJune 27,
                  
                  
                  June 28,(in thousands)
                  
                  2009
                  
                  
                  2008Land
      use rights
                  
                  $
                  4,746
                  
                  
                  $
                  655Investments
      in privately held companies
                  
                  
                  1,501
                  
                  
                  
                  1,597Deposits
                  
                  
                  204
                  
                  
                  
                  238Other
                  
                  
                  291
                  
                  
                  
                  701Total
                  
                  $
                  6,742
                  
                  
                  $
                  3,191





The
Company purchased land use rights from the People’s Republic of China (“China”).
These rights enable 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 2009, 2008 or 2007.


73




6.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
 
 Our
investment in unconsolidated affiliates is comprised of the
following:




As
      of the Year EndedJune
      27,
                
                
                June
      28,(in
      thousands)
                
                2009
                
                
                2008Pericom
      Technology, Inc.
                
                $
                8,806
                
                
                $
                8,505Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                
                
                2,020
                
                
                
                1,887Total
                
                $
                10,826
                
                
                $
                10,392





The
Company has a 43.06% ownership interest in Pericom Technology, Inc.
(“PTI”).  Pericom accounts for its investment in PTI using the equity
method due to the Company’s significant influence over its
operations.  In addition, certain of the directors of the Company are
directors of PTI, and certain shareholders of the Company are shareholders of
PTI.  At June 27, 2009 and June 28, 2008, the Company's carrying value
of the investment in PTI exceeded the Company’s underlying equity in the net
assets of PTI by $486,000 and $550,000, 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 $67,000 $150,000 and $116,000 in goods
and services from PTI during the years ended June 27, 2009, June 28, 2008 and
June 30, 2007, respectively.  PTI owed the Company $83,000, $123,000
and $121,000 at June 27, 2009, June 28, 2008 and June 30, 2007, respectively for
reimbursement of certain administrative expenses incurred by the Company on
behalf of PTI and for advances made to PTI by the Company.  Condensed
financial information of PTI at June 27, 2009 and June 28, 2008 is as
follows:





As
      of the Year EndedJune
      27,
                    
                    
                    June
      28,(in
      thousands)
                    
                    2009
                    
                    
                    2008Total
      assets
                    
                    $
                    20,721
                    
                    
                    $
                    19,599Total
      liabilities
                    
                    $
                    1,401
                    
                    
                    $
                    1,568Total
      equity
                    
                    $
                    19,320
                    
                    
                    $
                    18,031Revenue
                    
                    $
                    12,009
                    
                    
                    $
                    11,675Cost
      of revenues
                    
                    
                    5,965
                    
                    
                    
                    5,839Gross
      profit
                    
                    
                    6,044
                    
                    
                    
                    5,836Expenses
                    
                    
                    4,611
                    
                    
                    
                    4,555Operating
      income
                    
                    
                    1,433
                    
                    
                    
                    1,281Interest
      and other income
                    
                    
                    (216
                    )
                    
                    
                    191Tax
      provision
                    
                    
                    102
                    
                    
                    
                    172Net
      income
                    
                    $
                    1,115
                    
                    
                    $
                    1,300





The
Company recouped PTI’s net income at 25% in 2007 and 2008.  The
percentage at which the Company recognizes its proportionate share of the income
of PTI is equal to the percentage of ownership held in successive rounds of
financing of PTI in which the Company participated.  As the earlier
losses attributable to each round are fully recovered through subsequent
profitability, the Company’s participation percentage related to the next round
of financing is applied to any additional profits.  The Company
continued to use the 25% allocation percentage in 2009 until all the losses
recognized in prior years were recouped, in accordance with EITF
02-14.  This was completed in the fourth quarter of 2009, and the
Company subsequently reverted to recognizing its share of PTI’s net income at
its percentage ownership level, which is currently 43.06%.





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 June 27, 2009, 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
$324,000.


74




7.
ACQUISITION OF NONCONTROLLING INTEREST IN SUBSIDIARY




Acquisition
of remaining minority interest in PTL





PTL was
founded in May 2003. Via participation in two rounds of equity financing,
Pericom became its largest shareholder. In April 2003, Pericom purchased 15
million PTL shares, and sold 1 million shares to other shareholders of PTL in
November 2004. Subsequently, in November 2005 and April 2006, Pericom purchased
an additional 13 million shares. On August 1, 2008, Pericom’s Board of Directors
approved the acquisition of the remaining PTL shares.





Pericom owned
approximately 87.9% of PTL with the remaining interest owned by PTL employees.
On October 27, 2008, the Company purchased the remaining 3.7 million shares held
by employees for a total price of $1.3 million, with the result that PTL is now
a wholly owned subsidiary. The Company concluded that the purchase price
was not compensation to the employees who owned the stock because the Company
determined it had paid fair market value for the shares based on a share price
analysis using established valuation techniques that were performed prior to
acquisition.





The
Company has included the results of operations of PTL in the Company’s
consolidated financial statements from the date of acquiring a majority stake in
PTL.  The Company recorded the assets acquired on October 27, 2008,
the date of the acquisition of the remaining minority interest, 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 during the quarter ended
December 27, 2008. 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:




June
      27, 2009
                    
                    
                    June
      28, 2008(in
      thousands)
                    
                    Gross
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    Net
                    
                    
                    Gross
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    NeteCERA
      customer relationships
                    
                    $
                    109
                    
                    
                    $
                    (109
                    )
                    
                    $
                    -
                    
                    
                    $
                    117
                    
                    
                    $
                    (111
                    )
                    
                    $
                    6eCERA
      trade name
                    
                    
                    40
                    
                    
                    
                    (22
                    )
                    
                    
                    18
                    
                    
                    
                    43
                    
                    
                    
                    (17
                    )
                    
                    
                    26Core
      developed technology
                    
                    
                    1,833
                    
                    
                    
                    (757
                    )
                    
                    
                    1,076
                    
                    
                    
                    939
                    
                    
                    
                    (566
                    )
                    
                    
                    373SaRonix
      supplier relationship
                    
                    
                    398
                    
                    
                    
                    (143
                    )
                    
                    
                    255
                    
                    
                    
                    398
                    
                    
                    
                    (78
                    )
                    
                    
                    320Total
      amortizable purchased intangible assets
                    
                    
                    2,380
                    
                    
                    
                    (1,031
                    )
                    
                    
                    1,349
                    
                    
                    
                    1,497
                    
                    
                    
                    (772
                    )
                    
                    
                    725SaRonix
      trade name
                    
                    
                    415
                    
                    
                    
                    -
                    
                    
                    
                    415
                    
                    
                    
                    415
                    
                    
                    
                    -
                    
                    
                    
                    415Total
      purchased intangible assets
                    
                    $
                    2,795
                    
                    
                    $
                    (1,031
                    )
                    
                    $
                    1,764
                    
                    
                    $
                    1,912
                    
                    
                    $
                    (772
                    )
                    
                    $
                    1,140





Amortization
expense related to finite-lived purchased intangible assets was approximately
$271,000 in fiscal 2009, $186,000 in fiscal 2008 and $198,000 in fiscal
2007.





The
Company performs an annual impairment review of its long-lived assets, including
its intangible assets, in conformity with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(“SFAS No. 144”).  Based on the
results of its most recent annual impairment tests, the Company determined that
no impairment of the intangible assets existed as of June 27, 2009 or June 28,
2008.  However, future impairment tests could result in a charge to
earnings.


75


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 four years.  We expect our future
amortization expense over the next five years associated with these assets to
be:





(in
      thousands)
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
      and
                    beyondExpected
      amortization-eCERA
                  
                  $
                  28
                  
                  
                  $
                  28
                  
                  
                  $
                  29
                  
                  
                  $
                  5
                  
                  
                  $
                  -Expected
      amortization-PTL
                  
                  
                  181
                  
                  
                  
                  181
                  
                  
                  
                  181
                  
                  
                  
                  181
                  
                  
                  
                  61Expected
      amortization-SaRonix
                  
                  
                  117
                  
                  
                  
                  117
                  
                  
                  
                  116
                  
                  
                  
                  111
                  
                  
                  
                  13$
                  326
                  
                  
                  $
                  326
                  
                  
                  $
                  326
                  
                  
                  $
                  297
                  
                  
                  $
                  74




9.
ACCRUED LIABILITIES





Accrued
liabilities consist of:





June
      27,
                  
                  
                  June
      28,(in
      thousands)
                  
                  2009
                  
                  
                  2008Accrued
      construction liabilities
                  
                  $
                  8,958
                  
                  
                  $
                  -Accrued
      compensation
                  
                  
                  3,815
                  
                  
                  
                  6,089Accrued
      income tax
                  
                  
                  971
                  
                  
                  
                  434External
      sales representative commissions
                  
                  
                  470
                  
                  
                  
                  615Other
      accrued expenses
                  
                  
                  904
                  
                  
                  
                  1,641$
                  15,118
                  
                  
                  $
                  8,779




10.  DEBT




The long
term debt as reported in the consolidated balance sheet as of June 27, 2009is as
follows:




Annual
                      
                      
                      
                      
                      
                      Total
      Amounts Due(in
      thousands)
                      
                      Interest
                        Rate
                      
                      
                      Total
      due
                      
                      
                      Within
                        12
      Months
                      
                      
                      After
                        12
      MonthsMortgage
      loan - PTL
                      
                      
                      1.8
                      %
                      
                      $
                      1,670
                      
                      
                      $
                      60
                      
                      
                      $
                      1,610




PTL took
out a 15-year mortgage on its building in December 2008 in the amount of $1.7
million. The debt carries a variable rate of interest at the 1-year time deposit
rate plus 0.64% for the first two years and plus 1.34% afterwards. The loan is
denominated in New Taiwanese Dollars and only interest is required to be paid
until March 2010.




11.  RESTRICTED
ASSETS





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 PSE 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. The PTL loan is described in
Note 10. The PSE letter of credit has a final maturity of January 6,
2010.





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


76




12.  COMMITMENTS





The
future minimum commitments at June 27, 2009 are as follows:





Fiscal
      Year Ending(in
      thousands)
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  Thereafter
                  
                  
                  TotalOperating
      lease payments
                  
                  $
                  1,422
                  
                  
                  $
                  1,205
                  
                  
                  $
                  1,211
                  
                  
                  $
                  1,116
                  
                  
                  $
                  566
                  
                  
                  $
                  -
                  
                  
                  $
                  5,520Mortgage
      loan
                  
                  
                  89
                  
                  
                  
                  152
                  
                  
                  
                  155
                  
                  
                  
                  152
                  
                  
                  
                  149
                  
                  
                  
                  1,267
                  
                  
                  
                  1,964Capital
      equipment purchase commitments
                  
                  
                  15,534
                  
                  
                  
                  847
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,381Total
                  
                  $
                  17,045
                  
                  
                  $
                  2,204
                  
                  
                  $
                  1,366
                  
                  
                  $
                  1,268
                  
                  
                  $
                  715
                  
                  
                  $
                  1,267
                  
                  
                  $
                  23,865





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. The capital equipment purchase commitments
are in PSE for the new FCP facility in China. The mortgage loan commitment is
described further in Note 10 above, and our commitment may fluctuate due to
changes in interest rates.





Rent
expense during the fiscal years ended June 27, 2009, June 28, 2008 and June 30,
2007 was $1.7 million, $1.8 million and $1.7 million, respectively.




13.  INDUSTRIAL
DEVELOPMENT SUBSIDY





During
the year ended June 27, 2009, an industrial development subsidy in the amount of
$3.7 million was granted to PSE by the Jinan Hi-Tech Industries Development Zone
Commission and may be used by PSE for the acquisition of assets or to cover
business expenses. When the subsidy is used to acquire assets, the subsidy will
be amortized over the useful life of the asset. When the subsidy is used for
expenses incurred, the subsidy is regarded as earned upon the incurrence of the
expenditure.




14.  COMPREHENSIVE
INCOME





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.





For the
year ending June 27, 2009, comprehensive income of $3.6 million consisted of net
income of $6.1 million and an increase of  $545,000 of unrealized
gains on investments net of tax, partially offset by $3.0 million of currency
translation losses. For the year ending June 28, 2008, comprehensive income of
$20.8 million consisted of net income of $17.0 million, an increase of $677,000
of unrealized gains on investments net of tax, and $3.1 million of currency
translation gains. For the year ending June 30, 2007, comprehensive income of
$9.0 million consisted of net income of $8.6 million, an increase of $624,000 of
unrealized gains on investments net of tax, partially offset by $288,000 of
currency translation losses.





As of
June 27, 2009, accumulated other comprehensive income consists of $689,000 of
unrealized gains net of tax and $108,000 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 June 27,
2009, the Company has issued no shares of preferred stock.


77




STOCK
OPTION PLANS





At June
27, 2009 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 June 27, 2009 totaled $3.6 million, as compared with $2.4 million
and $2.1 million for fiscal 2008 and 2007, respectively.  The Company
recognized $770,000, $684,000 and $513,000 in income tax benefit in the
consolidated statements of operations for fiscal 2009, 2008 and 2007,
respectively, related to the Company’s share-based compensation
arrangements.  The net impact of share-based compensation for the
fiscal years ended June 27, 2009, June 28, 2008 and June 30, 2007 was a
reduction in net income of $2.8 million, $1.7 million and $1.6 million,
respectively, or a reduction of $0.11, $0.06 and $0.06 per diluted share,
respectively.





Under the
Company’s 2004, 2001, and 1995 stock option plans and the SaRonix Acquisition
Stock Option plan, the Company has reserved 7.8 million shares of common stock
as of June 27, 2009 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 and not less than 85% of the fair
value on grant date for incentive stock options and nonqualified stock options,
respectively.  Options vest over periods of up to 72 months as
determined by the Board of Directors.  Options granted under the Plans
expire 10 years from the grant date.





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





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





Fiscal
      Year EndedJune 27, 2009
                  
                  
                  June 28, 2008
                  
                  
                  June 30, 2007Expected
      life
                  
                  5.2-5.3
      years
                  
                  
                  5.0-5.2
      years
                  
                  
                  4.9
      yearsRisk-free
      interest rate
                  
                  
                  1.70-3.29
                  %
                  
                  
                  2.92-4.70
                  %
                  
                  
                  4.56-4.79
                  %Volatility
      range
                  
                  
                  46%-52
                  %
                  
                  
                  44%-47
                  %
                  
                  
                  46%-48
                  %Dividend
      yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %


78





The
following table summarizes the Company’s stock option plans as of July 1, 2006
and changes during the three fiscal periods ended June 27, 2009:





Outstanding
      OptionsOptions
                
                Shares
                
                
                Weighted
      Average
                  Exercise
      Price
                
                
                Aggregate
                  Intrinsic
      Value(in
      thousands)
                
                
                
                
                
                (in
      millions)Options
      outstanding at July 1, 2006
                
                
                5,277
                
                
                $
                11.43
                
                
                $
                16.5Options
      granted (weighted average grant date fair value of $4.40)
                
                
                516
                
                
                
                9.43Options
      exercised
                
                
                (561
                )
                
                
                5.62Options
      forfeited or expired
                
                
                (414
                )
                
                
                11.97Options
      outstanding at June 30, 2007
                
                
                4,818
                
                
                
                11.84
                
                
                
                10.2Options
      granted (weighted average grant date fair value of $6.01)
                
                
                664
                
                
                
                13.54Options
      exercised
                
                
                (1,304
                )
                
                
                7.59Options
      forfeited or expired
                
                
                (304
                )
                
                
                13.68Options
      outstanding at June 28, 2008
                
                
                3,874
                
                
                
                13.42
                
                
                
                16.7Options
      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
                
                
                $
                0.4





At June
27, 2009, 3,542,000 shares were available for future grants under the option
plans.  The aggregate intrinsic value of options exercised during the
year ended June 27, 2009 was $929,000. The status of options vested and expected
to vest and options that are currently exercisable as of June 27, 2009 is as
follows:





Options
                    Vested
      and
                    Expected
                    to
      Vest
                  
                  
                  Options
                    Currently
                    ExercisableShares
      (millions)
                  
                  
                  3.6
                  
                  
                  
                  2.9Aggregate
      intrinsic value (thousand $)
                  
                  $
                  400
                  
                  
                  $
                  239Weighted
      average contractual term (years)
                  
                  
                  4.8
                  
                  
                  
                  3.9Weighted
      average exercise price
                  
                  $
                  14.04
                  
                  
                  $
                  14.54





The
Company has unamortized share-based compensation expense related to options of
$3.6 million, which will be amortized to expense over a weighted average period
of 2.3 years.





Additional
information regarding options outstanding as of June 27, 2009 is as
follows:





Options
      Outstanding
                        
                        
                        Options
      ExercisableRange
      of Exercise Prices
                        
                        
                        Number
                          Outstanding
      as
                          of
      6/27/09
                        
                        
                        Weighted
      Average
                          Remaining
                          Contractual
      Term
                          (Years)
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Number
                          Exercisable
      as of
                          6/27/09
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price$
                        4.89
                        
                        
                        $
                        8.65
                        
                        
                        
                        768,130
                        
                        
                        
                        6.50
                        
                        
                        $
                        7.99
                        
                        
                        
                        576,362
                        
                        
                        $
                        8.13$
                        8.67
                        
                        
                        $
                        10.77
                        
                        
                        
                        813,977
                        
                        
                        
                        6.49
                        
                        
                        $
                        9.94
                        
                        
                        
                        579,730
                        
                        
                        $
                        9.76$
                        10.85
                        
                        
                        $
                        14.20
                        
                        
                        
                        854,881
                        
                        
                        
                        3.08
                        
                        
                        $
                        12.80
                        
                        
                        
                        806,936
                        
                        
                        $
                        12.83$
                        14.23
                        
                        
                        $
                        17.81
                        
                        
                        
                        754,170
                        
                        
                        
                        6.17
                        
                        
                        $
                        15.96
                        
                        
                        
                        410,775
                        
                        
                        $
                        16.27$
                        17.85
                        
                        
                        $
                        37.22
                        
                        
                        
                        563,822
                        
                        
                        
                        1.19
                        
                        
                        $
                        27.25
                        
                        
                        
                        554,781
                        
                        
                        $
                        27.40$
                        4.89
                        
                        
                        $
                        37.22
                        
                        
                        
                        3,754,980
                        
                        
                        
                        4.86
                        
                        
                        $
                        14.00
                        
                        
                        
                        2,928,584
                        
                        
                        $
                        14.54




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. A summary of activity of RSUs in fiscal 2009 is presented
below:




79





Shares
                
                
                Weighted
                  Average
                  Grant Date
                  Fair Value
                
                
                Weighted
                  Average
                  Remaining
                  Vesting
                  Term
                
                
                Aggregate
                  Intrinsic
                  Value(in thousands)
                
                
                
                
                
                (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
                
                
                $
                2,980RSUs
      vested and expected to vest after June 27, 2009
                
                
                275
                
                
                $
                10.18
                
                
                
                1.96
                
                
                $
                2,354RSUs
      exercisable at June 27, 2009
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -





The
Company has unamortized share-based compensation expense related to RSUs of $2.4
million, which will be amortized to expense over a weighted average period of
3.4 years.




2000
EMPLOYEE STOCK PURCHASE PLAN





The
Company’s 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows
eligible employees of the Company to purchase shares of Common Stock through
payroll deductions.  The Company reserved 2.1 million shares of the
Company’s Common Stock for issuance under the Stock Purchase Plan, of which
364,000 remain available at June 27, 2009.  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 2009, 2008 and 2007, the Company issued 180,000, 120,000 and 146,000
shares of common stock under the Stock Purchase Plan at weighted average prices
of $6.17, $8.55 and $6.83, respectively.  The weighted average grant
date fair value of the fiscal 2009, 2008 and 2007 awards were $2.83, $3.15 and
$2.49 per share, respectively.





The
Company estimates the fair value of stock purchase rights granted under the
Company’s Stock Purchase Plan on the date of grant using the Black-Scholes
option valuation model.  The Company bases volatility on the
volatility of the Company’s stock during the expected term.  The
Company uses historical data to 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 EndedJune 27, 2009
                
                June 28, 2008
                
                June 30, 2007Expected
      life
                13.5
      months
                
                13.5
      months
                
                13.5
      monthsRisk-free
      interest rate
                0.55-2.19%
                
                1.97-4.95%
                
                4.98-5.08%Volatility
      range
                61%-70%
                
                40%-60%
                
                41%-42%Dividend
      yield
                0.00%
                
                0.00%
                
                0.00%





The
following table summarizes activity in the Company’s employee stock purchase
plan during the fiscal year ended June 27, 2009:


80




Shares
                              
                              
                              Weighted Average
                                Purchase PriceBeginning
      Available
                              
                              
                              544,323Purchases
                              
                              
                              (180,417
                              )
                              
                              $
                              6.17Ending
      Available
                              
                              
                              363,906





At June
27, 2009, the Company has $875,000 in unamortized share-based compensation
related to its employee stock purchase plan.  We estimate this expense
will be amortized and recognized in the consolidated statement of operations
over the next 1.01 years.




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)
                      
                      June 27, 2009
                      
                      
                      June 28, 2008
                      
                      
                      June 30, 2007Cost
      of revenues
                      
                      $
                      244
                      
                      
                      $
                      155
                      
                      
                      $
                      141Research
      and development
                      
                      
                      1,407
                      
                      
                      
                      811
                      
                      
                      
                      865Selling,
      general and administrative
                      
                      
                      1,935
                      
                      
                      
                      1,392
                      
                      
                      
                      1,113Pre-tax
      stock-based compensation expense
                      
                      
                      3,586
                      
                      
                      
                      2,358
                      
                      
                      
                      2,119Income
      tax effect
                      
                      
                      770
                      
                      
                      
                      684
                      
                      
                      
                      513Net
      stock-based compensation expense
                      
                      $
                      2,816
                      
                      
                      $
                      1,674
                      
                      
                      $
                      1,606




The
amount of share-based compensation expense in inventory at June 27, 2009 and
June 28, 2008 is immaterial.





Share-based
compensation expense categorized by the type of award from which it arose is as
follows for fiscal year ended June 27, 2009:





Fiscal Year Ended(in thousands)
                  
                  June 27, 2009
                  
                  
                  June 28, 2008
                  
                  
                  June 30, 2007Stock
      option plans
                  
                  $
                  2,770
                  
                  
                  $
                  2,054
                  
                  
                  $
                  1,597Less
      income tax effect
                  
                  
                  770
                  
                  
                  
                  684
                  
                  
                  
                  513Net
      stock option plan expense
                  
                  
                  2,000
                  
                  
                  
                  1,370
                  
                  
                  
                  1,084Employee
      stock purchase plan
                  
                  
                  816
                  
                  
                  
                  304
                  
                  
                  
                  522Less
      income tax effect
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      employee stock purchase plan expense
                  
                  
                  816
                  
                  
                  
                  304
                  
                  
                  
                  522$
                  2,816
                  
                  
                  $
                  1,674
                  
                  
                  $
                  1,606




STOCK
REPURCHASE PLAN





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of the Company’s common stock.  The Company may
repurchase the shares from time to time in open market or private transactions,
at the discretion of the Company’s management. Pursuant to the 2007 authority,
in fiscal 2008 the Company repurchased approximately 1.6 million shares at an
approximate aggregate cost of $20.1 million. In fiscal 2009, 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.





On April
29, 2008, the Board of Directors authorized the repurchase of an additional $30
million of common stock. Pursuant to the 2008 authority, in fiscal 2009 the
Company repurchased approximately 573,000 shares for an aggregate cost of $3.5
million. Total fiscal 2009 stock repurchases were approximately 712,000 shares
for an approximate aggregate cost of $5.4 million.


81





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.




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
June 27, 2009, there were 25,462,000 rights outstanding.





17.
FAIR VALUE MEASUREMENTS





Effective
June 29, 2008, the Company adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”). In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2, Effective
Date of FASB Statement No. 157, which provides a one year deferral
of the effective date of SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually (fair value of reporting
units for goodwill impairment tests, non-financial assets and liabilities
acquired in a business combination). Therefore we adopted the provisions of SFAS
157 with respect to our financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 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 under SFAS 157 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy 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.


82




The
adoption of this statement with respect to our financial assets and liabilities
did not impact our consolidated results of operations and financial condition,
but requires additional disclosure for assets and liabilities measured at fair
value.  In accordance with SFAS 157, 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 1 or 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 June 27, 2009 are summarized as
follows:





(in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  TotalInvestments (1)Treasury
      bills
                  
                  $
                  3,036
                  
                  
                  $
                  -
                  
                  
                  $
                  3,036Corporate
      bonds and notes
                  
                  
                  -
                  
                  
                  
                  47,041
                  
                  
                  
                  47,041Government
      securities
                  
                  
                  -
                  
                  
                  
                  26,781
                  
                  
                  
                  26,781Asset/mortgage
      backed securities
                  
                  
                  -
                  
                  
                  
                  10,393
                  
                  
                  
                  10,393Total
                  
                  $
                  3,036
                  
                  
                  $
                  84,215
                  
                  
                  $
                  87,251




(1)
              Included
      in Short-term and Long-term investments in marketable securities on
      ourcondensed
      consolidated balance sheet




Effective
June 29, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(“SFAS 159”). SFAS 159 allows an entity
the irrevocable option to elect fair value for the initial and subsequent
measurement for specified financial assets and liabilities on a
contract-by-contract basis. We did not elect the fair value option under SFAS
159 for our financial assets and liabilities.





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 federal agencies and municipal bonds.
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 mortgages and auto loans. 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
June 27, 2009 to recover in fair value up to our cost bases within a reasonable
period of time. We have the ability and intent to hold these investments 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 June 27, 2009.




18.
RESTRUCTURING CHARGE





In fiscal
2009, the Company instituted a restructuring plan to align its costs with
prevailing market conditions. As part of the restructuring plan, the Company
reduced its workforce by 61 employees, with 26 in operations, 17 in research and
development, 11 in sales and marketing, and 7 in general and administration. The
Company incurred $584,000 of restructuring charges in the year ended June 27,
2009, as compared with none in the year ended June 28, 2008. At June 27, 2009,
$547,000 of the $584,000 had been paid with the balance expected to be paid over
the next six months.


83




19.
INCOME TAXES





Income
tax expense consists of (in thousands):





Fiscal Year EndedJune 27,
                    
                    
                    June 28,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2007Federal:Current
                    
                    $
                    1,302
                    
                    
                    $
                    2,279
                    
                    
                    $
                    1,543Deferred
                    
                    
                    421
                    
                    
                    
                    4,454
                    
                    
                    
                    (587
                    )1,723
                    
                    
                    
                    6,733
                    
                    
                    
                    956State:Current
                    
                    
                    56
                    
                    
                    
                    4
                    
                    
                    
                    49Deferred
                    
                    
                    (277
                    )
                    
                    
                    445
                    
                    
                    
                    25(221
                    )
                    
                    
                    449
                    
                    
                    
                    74Foreign:Current
                    
                    
                    (474
                    )
                    
                    
                    963
                    
                    
                    
                    957Deferred
                    
                    
                    1,181
                    
                    
                    
                    76
                    
                    
                    
                    998707
                    
                    
                    
                    1,039
                    
                    
                    
                    1,955Total
      income tax expense
                    
                    $
                    2,209
                    
                    
                    $
                    8,221
                    
                    
                    $
                    2,985





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





Fiscal Year EndedJune 27,
                        
                        
                        June 28,
                        
                        
                        June 30,2009
                        
                        
                        2008
                        
                        
                        2007Tax
      provision at federal statutory rate
                        
                        
                        34.0
                        %
                        
                        
                        34.0
                        %
                        
                        
                        35.0
                        %State
      income taxes, net of federal benefit
                        
                        
                        (1.5
                        )
                        
                        
                        0.8
                        
                        
                        
                        0.5Foreign
      income and withholding taxes
                        
                        
                        (4.3
                        )
                        
                        
                        (2.9
                        )
                        
                        
                        (2.3
                        )Benefits
      from resolution of certain tax audits andexpiration
      of statute of limitations
                        
                        
                        (3.3
                        )
                        
                        
                        (0.6
                        )
                        
                        
                        -Stock
      compensation
                        
                        
                        4.2
                        
                        
                        
                        0.6
                        
                        
                        
                        1.9Research
      and development tax credits
                        
                        
                        (1.2
                        )
                        
                        
                        0.1
                        
                        
                        
                        (4.3
                        )Change
      in valuation allowance
                        
                        
                        2.3
                        
                        
                        
                        (0.4
                        )
                        
                        
                        (1.0
                        )Other
                        
                        
                        (2.8
                        )
                        
                        
                        1.6
                        
                        
                        
                        (3.2
                        )Income
      tax expense
                        
                        
                        27.4
                        %
                        
                        
                        33.2
                        %
                        
                        
                        26.6
                        %




84


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





As ofJune 27,
                    
                    
                    June 28,2009
                    
                    
                    2008Deferred tax
      assets:Credit
      carryforwards
                    
                    $
                    4,131
                    
                    
                    $
                    3,704Inventory
      reserves
                    
                    
                    1,329
                    
                    
                    
                    1,740Cumulative
      gain(loss) on investment in unconsolidated affiliates
                    
                    
                    (58
                    )
                    
                    
                    26Unrealized
      loss on short-term investments
                    
                    
                    313
                    
                    
                    
                    425Accrued
      compensation and other benefits
                    
                    
                    371
                    
                    
                    
                    478Capitalized
      research and development
                    
                    
                    95
                    
                    
                    
                    139Capital
      loss carry forward
                    
                    
                    -
                    
                    
                    
                    205Land
      use right
                    
                    
                    557Basis
      difference in fixed assets
                    
                    
                    (1,323
                    )
                    
                    
                    -Other
      prepaid accruals
                    
                    
                    (78
                    )
                    
                    
                    -Accounts
      receivable reserve
                    
                    
                    727
                    
                    
                    
                    655Lease
      structure reserve
                    
                    
                    185
                    
                    
                    
                    -Inventory
      UNICAP
                    
                    
                    89
                    
                    
                    
                    121Stock
      compensation
                    
                    
                    1,551
                    
                    
                    
                    940Others
                    
                    
                    20
                    
                    
                    
                    88Total
      deferred tax asset
                    
                    
                    7,909
                    
                    
                    
                    8,521Deferred
      tax liabilities:Basis
      difference in fixed assets
                    
                    
                    -
                    
                    
                    
                    (704
                    )Other
      prepaid accruals
                    
                    
                    -
                    
                    
                    
                    (96
                    )Total
      deferred tax liabilities
                    
                    
                    -
                    
                    
                    
                    (800
                    )Valuation
      allowance
                    
                    
                    (819
                    )
                    
                    
                    (634
                    )Net
      Deferred tax assets
                    
                    $
                    7,090
                    
                    
                    $
                    7,087




As of
June 27, 2009, the Company has tax credit carryforwards of approximately $3.5
million and $1.2 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.





Consolidated
income before income taxes includes non-U.S. income of approximately $3.2
million, $5.0 million and $4.3 million for the fiscal years ended June 27, 2009,
June 28, 2008 and June 30, 2007, respectively.  Pericom has not
provided U.S. income taxes on a cumulative total of approximately $15.0 million
of undistributed earnings reported by certain foreign
subsidiaries.  The Company intends to reinvest these earnings
indefinitely in its foreign subsidiaries.  If these earnings were
distributed to the United States in the form of dividends or otherwise, or if
the shares of the relevant foreign subsidiaries were sold or otherwise
transferred, the Company would be subject to additional U.S. income taxes
(subject to an adjustment for foreign tax credits) and foreign withholding
taxes.




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


85


The
Company recognized $756,000 for unrecognized tax benefits as of June 27, 2009. A
reconciliation of the beginning and ending amount of unrecognized tax benefit
since adoption of FIN 48 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
                    )True-up
      of R&D credit
                    
                    
                    (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
                    )




All of
this amount would affect the corporation’s tax rate if
recognized.  The tax years 2004 to 2008 remain open in the United
States.





Upon
adoption of FIN 48, the Company’s policy to include interest and penalties
related to unrecognized tax benefits within the Company’s provision for income
taxes did not change.  As of June 27, 2009, the Company has accrued
$84,000 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 2009, 2008 or 2007.




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), as defined by SFAS 131, Disclosures about Segments of an
Enterprise and Related Information (“SFAS 131”), is the company’s
President and Chief Executive Officer (CEO).  Because the Company’s
products are complementary and share common customers and suppliers, the CODM
reviews and assesses financial information, operating results and performance of
the Company’s business in the aggregate and allocates resources to develop new
products and drive sales using information about the market in which the Company
operates, as a whole.





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





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


86


Operating
net revenues for the three years is shown below:





Years EndedJune 27,
                    
                    
                    June 28,
                    
                    
                    June 30,(in thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Net
      revenuesIC
      product family
                    
                    $
                    76,072
                    
                    
                    $
                    96,612
                    
                    
                    $
                    72,728FCP
      product family
                    
                    
                    52,573
                    
                    
                    
                    67,132
                    
                    
                    
                    50,642Total
                    
                    $
                    128,645
                    
                    
                    $
                    163,744
                    
                    
                    $
                    123,370





For
geographical reporting, we attribute net sales to the country where customers
are located (the “bill to” location). We neither conduct business in nor sell to
persons in Iran, Syria, Sudan, or North Korea, countries located in the
referenced regions that are identified as state sponsors of terrorism by the
U.S. Department of State, and are subject to U.S. economic sanctions and export
controls. Long-lived assets consist of all non-monetary assets, excluding
non-current deferred tax assets, goodwill and intangible assets.  The
Company attributes long-lived assets to the country where they are
located.  The following presents net sales for the years ended June
27, 2009, June 28, 2008 and June 30, 2007; and the net book value of long-lived
assets as of June 27, 2009, June 28, 2008 and June 30, 2007 by geographical
segment:





Years EndedJune 27,
                  
                  
                  June 28,
                  
                  
                  June 30,(in thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007Net
      sales to countries:Taiwan
                  
                  $
                  55,819
                  
                  
                  $
                  52,103
                  
                  
                  $
                  29,253China
      (including Hong Kong)
                  
                  
                  43,160
                  
                  
                  
                  63,071
                  
                  
                  
                  48,282United
      States
                  
                  
                  9,842
                  
                  
                  
                  14,466
                  
                  
                  
                  15,988Singapore
                  
                  
                  3,856
                  
                  
                  
                  8,073
                  
                  
                  
                  8,004Others
      (less than 10% each)
                  
                  
                  16,723
                  
                  
                  
                  26,031
                  
                  
                  
                  21,843Total
      net sales
                  
                  $
                  128,645
                  
                  
                  $
                  163,744
                  
                  
                  $
                  123,370(in
      thousands)Long-lived
      assets:China
      (including Hong Kong)
                  
                  $
                  21,806
                  
                  
                  $
                  345
                  
                  
                  $
                  400Taiwan
                  
                  
                  19,424
                  
                  
                  
                  23,402
                  
                  
                  
                  18,169United
      States
                  
                  
                  4,445
                  
                  
                  
                  6,622
                  
                  
                  
                  6,441Korea
                  
                  
                  1,199
                  
                  
                  
                  856
                  
                  
                  
                  -Singapore
                  
                  
                  300
                  
                  
                  
                  353
                  
                  
                  
                  1,627Others
      (less than 10% each)
                  
                  
                  64
                  
                  
                  
                  60
                  
                  
                  
                  78Total
      long-lived assets
                  
                  $
                  47,238
                  
                  
                  $
                  31,638
                  
                  
                  $
                  26,715




22.
QUARTERLY FINANCIAL DATA (Unaudited)




Following
is a summary of quarterly operating results and share data for the years ended
June 27, 2009 and June 28, 2008.  Subsequent to the issuance of the
Company’s interim financial statements for the quarters ended September 27,
2008, December 27, 2008 and March 28, 2009, the Company determined that certain
errors occurred in the accounting for other than temporary impairments as well
as misclassifications of cost data which impacted intercompany revenue
eliminations and cost of goods sold. As a result, the operating results
presented below for the quarters ended September 27, 2008, December 27, 2008 and
March 28, 2009 have been restated.




87




PERICOM
SEMICONDUCTOR CORPORATION


QUARTERLY
FINANCIAL DATA


(Amounts
in thousands, except per share data)


(Unaudited)





For the Quarter EndedJune 27,
                          
                          
                          Mar 28,
                          
                          
                          Dec 27,
                          
                          
                          Sep 27,2009
                          
                          
                          2009
                          
                          
                          2008
                            Restated
                          
                          
                          2008
                            RestatedNet
      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
      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
                          )
                          
                          
                          1,930Minority
      interest in the loss (income) of consolidated subsidiaries
                          
                          
                          (22
                          )
                          
                          
                          (24
                          )
                          
                          
                          (23
                          )
                          
                          
                          (45
                          )Equity
      in net income of unconsolidated affiliates
                          
                          
                          256
                          
                          
                          
                          49
                          
                          
                          
                          (71
                          )
                          
                          
                          117Net
      income
                          
                          $
                          1,040
                          
                          
                          $
                          256
                          
                          
                          $
                          1,130
                          
                          
                          $
                          3,661Basic
      earnings per share
                          
                          $
                          0.04
                          
                          
                          $
                          0.01
                          
                          
                          $
                          0.04
                          
                          
                          $
                          0.14Diluted
      earnings per share
                          
                          $
                          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





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




88




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





PERICOM
      SEMICONDUCTOR CORPORATIONBy:
              /s/   ALEX C. HUIAlex C. HuiChief Executive Officer, President and
                Chairman of the Board of DirectorsDate:
              September 25, 2009


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





Signature
            Title
            Date/s/    ALEX C. HUI
            Chief Executive Officer, President and
            September 25, 2009Alex C. Hui
            Chairman of the Board of Directors(Principal Executive Officer)/s/   ANGELA CHEN
            Chief Financial Officer
            September 25, 2009Angela Chen
            (Principal Financial Officer and AccountingOfficer)/s/   JOHN CHI-HUNG HUI
            Senior Vice President, R&D and Director
            September 25, 2009John Chi-Hung Hui/s/   HAU L LEE
            Director
            September 25, 2009Hau L. Lee/s/   SIMON WONG
            Director
            September 25, 2009Simon Wong/s/   MICHAEL SOPHIE
            Director
            September 25, 2009Michael Sophie/s/   DENNIS MCKENNA
            Director
            September 25, 2009Dennis McKenna/s/   EDWARD YANG
            Director
            September 25, 2009Edward Yang




89




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 June 27, 2009
                  
                  $
                  1,695
                  
                  
                  $
                  4,152
                  
                  
                  $
                  3,952
                  
                  
                  $
                  1,895Fiscal
      year ending June 28, 2008
                  
                  
                  2,185
                  
                  
                  
                  3,460
                  
                  
                  
                  3,950
                  
                  
                  
                  1,695Fiscal
      year ending June 30, 2007
                  
                  
                  1,913
                  
                  
                  
                  5,340
                  
                  
                  
                  5,068
                  
                  
                  
                  2,185




Balance at
                  
                  
                  Charged to
                  
                  
                  
                  
                  
                  Balance atBeginning
                  
                  
                  Costs and
                  
                  
                  Deductions/
                  
                  
                  End ofof Period
                  
                  
                  Expenses
                  
                  
                  Write-offs
                  
                  
                  PeriodAllowance
      for doubtful accountsFiscal
      year ending June 27, 2009
                  
                  $
                  255
                  
                  
                  $
                  225
                  
                  
                  $
                  212
                  
                  
                  $
                  268Fiscal
      year ending June 28, 2008
                  
                  
                  103
                  
                  
                  
                  165
                  
                  
                  
                  13
                  
                  
                  
                  255Fiscal
      year ending June 30, 2007
                  
                  
                  292
                  
                  
                  
                  37
                  
                  
                  
                  226
                  
                  
                  
                  103








90