##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-K



---



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

SECURITIES EXCHANGE ACT OF 1934.



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



FOR THE FISCAL YEAR ENDED JULY 2, 2005.



| ̈ | 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 Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



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



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



---



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



Securities registered pursuant to Section 12(g) of the Act: Common Stock



---



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



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



Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2):    Yes  x    No ̈



Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



The aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the closing price of the Common Stock on September 13, 2005 as reported by the NASDAQ National Market was approximately $230,065,086. 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 13, 2004 the Registrant had outstanding 26,353,389 shares of Common Stock.



---



---

##### Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE



Parts of the Registrants Proxy Statement for the Annual Meeting of Shareholders to be held December 14, 2005, which will be filed
subsequently, are incorporated by reference in Part III of this report on Form 10-K.



2



---

##### Table of Contents

Pericom Semiconductor Corporation



Form 10-K
for the Year Ended July 2, 2005



INDEX



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|           |  | Page                                                                                 
|PART I     |  |                                                                                      
|Item 1:    |  | Business                                                                              |  | 4 
|Item 2:    |  | Properties                                                                            |  | 25
|Item 3:    |  | Legal Proceedings                                                                     |  | 25
|Item 4:    |  | Submission of Matters to a Vote of Security Holders                                   |  | 25
|           | 
|PART II    |  |                                                                                      
|Item 5:    |  | Market for Registrants Common Stock and Related Stockholder Matters                  |  | 26
|Item 6:    |  | Selected Financial Data                                                               |  | 28
|Item 7:    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29
|Item 7A:   |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 42
|Item 8:    |  | Financial Statements and Supplementary Data                                           |  | 43
|Item 9:    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 44
|Item 9A:   |  | Controls and Procedures                                                               |  | 44
|Item 9B:   |  | Other Information                                                                     |  | 45
|           | 
|PART III   |  |                                                                                      
|Item 10:   |  | Directors and Executive Officers of the Registrant                                    |  | 48
|Item 11:   |  | Executive Compensation                                                                |  | 48
|Item 12:   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 48
|Item 13:   |  | Certain Relationships and Related Transactions                                        |  | 48
|Item 14:   |  | Principal Accountant Fees and Services                                                |  | 49
|           | 
|PART IV    |  |                                                                                      
|Item 15:   |  | Exhibits, Financial Statement Schedules                                               |  | 49
|           | 
|Signatures |  | 76                                                                                   



3



---

##### Table of Contents

PART I



ITEM 1. BUSINESS



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



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



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



INDUSTRY BACKGROUND



OVERVIEW



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



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



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



4



---

##### Table of Contents

The development of high-performance personal computers, the requirement for higher network performance and the increased
level of connectivity among different types of electronic devices have driven the demand for high-speed, high-performance interface circuits to handle the transfer, routing and timing of digital and analog signals at high speeds with minimal loss of
signal quality. High-speed signal transfer is essential to fully utilize the speed and bandwidth of the microprocessor, the memory and the LAN or WAN. High signal quality is equally essential to achieve optimal balance between high data transmission
rates and reliable system operation. Without high signal quality, transmission errors occur as bandwidth increases. Market requirements for interface circuits are driven by the same market pressures as those imposed on microprocessors, including
higher speed, reduced power consumption, lower-voltage operation, smaller size and higher levels of integration.



Our interface and timing products are used to increase system bandwidth in applications such as servers, network switches and routers, storage area networks, wireless
base-stations, and notebook computers. Bandwidth can be increased by widening the data path (widening the pipe), increasing the clock rate (increase the flow rate through the pipe) or allowing multiple, simultaneous transactions on the bus using a
crossbar switch. We are pioneering technology in each of these areas.



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



We believe that several major market trends make reliable operations of systems at high frequency and high data transfer rates critical. Internet and high-performance network applications continue to push for more data bandwidth on system
buses and across system boundaries. Computer and networking system clock frequencies continue to increase at a very rapid rate, shortening the time available to perform data transfers. While the data transfer rate has typically increased every few
years, the continuing desire for higher system reliability with minimal system downtime creates increasing pressure to achieve lower data error rates. Increasing system-wide EMI emissions resulting from higher-frequency ICs compels system designers
to develop and implement new ways to further reduce these emissions. These factors all increase the need for very high-speed, high performance, interface circuits.



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



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



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



Electronic systems designers and OEMs have increasingly required solutions to the technical
challenges described above in order to take advantage of continuing speed and performance enhancements in microprocessor and memory ICs. These customers have also continued to migrate from single-part vendors



5



---

##### Table of Contents

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



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



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



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



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



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



THE PERICOM
STRATEGY



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



Products are defined in collaboration with the industry-leading OEMs and
industry enablers such as Intel and IBM, and our modular design methodology shortens our time to market and time to volume relative to our competitors. The key elements of our strategy are:



Market Focus.Our market strategy is to focus on certain high-growth,
high-performance segments of the computing, communications and consumer markets. Currently, we design and sell products for specific



6



---

##### Table of Contents

high-volume applications within these target markets, including notebook computers, PC servers, storage, networking
equipment, wireless and wireline telecommunications infrastructure, cellular telephones and other mobile terminal devices, and digital television, set-top box and other related consumer devices. Our customers and end-users of our products include a
number of leading OEMs in each market:



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



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



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



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



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



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



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



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



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



Customer
Focus.Our customer strategy is to use a superior level of responsiveness to customer needs to continually expand our customer base as well as sell a wider range of products to our existing and targeted new customers. Key elements of our
customer strategy are:



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



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



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



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



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



Technology Focus.Our technology strategy is to maintain a leading position in the development of new, higher-performance
interface and timing IC products by continuing to design additional core cells that address the more challenging problems of signal interface as electronic systems become faster and require lower power and voltages. Our primary efforts are in the
creation of additional proprietary digital, analog and mixed-signal functionality. We are working closely with our wafer suppliers to incorporate their advanced CMOS process technologies to improve our ability to introduce next generation products
expeditiously. We are continuing to expand our patent portfolio with the goal of providing increasingly proprietary product lines.



7



---

##### Table of Contents

Our technology strategy for Frequency Control Products is to further our leadership in high-frequency,
superior-performance, low jitter crystal, oscillator and timing module devices by continuing to develop new designs and solutions incorporating mainly bulk acoustic wave quartz resonators. Additionally, we will leverage internal proprietary IC
designs in digital, analog and mixed-signal functionality to add specialized features and optimize costs. Working closely with historical manufacturing partners, and developing new ones, we will continue to contribute toward advancements in
proprietary process techniques and capabilities required to complement new technology products.



Manufacturing Focus. Our manufacturing strategy is closely integrated with our focus on customer needs. Central to this strategy is our intent to support high-volume shipment requirements on short notice
from customers. We design products so that we may manufacture many different ICs from a single partially processed wafer. Accordingly, we keep inventory in the form of wafer bank, from which wafers can be completed to produce a variety of specific
ICs in as little as two to four weeks. This approach has enabled us to reduce our overall work-in-process inventory while providing increased availability to produce a variety of finished products. In addition, we keep some inventory in the form of
die bank, which can become finished product in two weeks or less. We have established relationships with three leading foundries, Chartered Semiconductor Manufacturing Pte, Ltd. (Chartered), Taiwan Semiconductor Manufacturing Corporation
(TSMC), and Magnachip Semiconductor Inc (Magnachip). We are maintaining our relationship with New Japan Radio Corporation (NJRC) for some of our products that are manufactured in high-voltage CMOS processes. Also,
in fiscal 2004, we qualified Semiconductor Manufacturing International Corporation (SMIC) to produce our products.



For SaRonix frequency control products, our Asian supplier relationships provide a significant competitive advantage through a highly efficient design transfer process,
in combination with strict quality standards and low-cost labor. High quality standards are maintained and all subcontractor plants are ISO 9000 certified. A major supplier relationship has existed since 1978 with Elcom, a Korean-owned supplier of
crystals and oscillators and its Yantai, China manufacturing facility. In addition, on September 7, 2005, the Company purchased a 99.93% ownership position in eCERA Comtek Corporation (eCERA) of Taiwan. eCERA and its 50% owned
subsidiary, Azer Crystal Technology Co, Ltd. (Azer) have been key suppliers of quartz crystal blanks and crystal oscillator products. The Company has an option to purchase the remaining 50% of Azer within six months of September 7, 2005.
With this acquisition, the Company secured access to a top caliber FCP factory to accelerate the development of advanced FCP products and availability of high volume, cost competitive surface mount capability to support our top OEM customers.



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



PRODUCTS



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



8



---

##### Table of Contents

SiliconSwitch



Through our SiliconSwitch product line, we offer a broad range of high-performance ICs for switching digital and analog signals. The ability to switch or route high-speed
digital or analog signals with minimal delay and signal distortion is a critical requirement in many high-speed computers, networking and multimedia applications. Historically, systems designers have used mechanical relays and solid-state relays
which have significant disadvantages as compared to IC switches: mechanical relays are bulky, dissipate significant power and have very low response times; solid-state relays are expensive.



Digital Switches. We offer a family of digital switches in 8-, 16- and 32-bit
widths that address the switching needs of high-performance systems. These digital switches offer performance and cost advantages over traditional switch functions, offering both low on-resistance and capacitance, low propagation delay (less than
250 picoseconds), low standby current (as low as .2 microamps) and series resistor options that support low electromagnetic interference, or EMI, emission requirements. Applications for our digital switches include 5-volt to 3.3-volt signal
translation, high-speed data transfer and switching between microprocessors, PCI slots, and multiple memories, and hot plug interfaces in notebook and desktop computers, servers and switching hubs and routers. We also have products at 2.5 and
3.3-volts offering industry-leading performance in switching times, and low capacitance for bus isolation applications. We continued to expand the number of devices and the performance of these families during fiscal 2005.



Analog Switches. We offer a family of analog switches for low-voltage (1.8- 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 introduced a new set of 3-volt Low R-on 0.4
Ohm switches. To complement this low-voltage family we also offer a higher voltage (17-volt) analog switch family for applications requiring higher signal range, such as instrumentation, telecommunications and industrial control.



ASSP Switch Products.We offer a line of application specific standard products
(ASSP) switches for LAN, Video, PCI Express, DVI/HDMI applications. The LAN switches address the high performance demands of 10/100/1000 Ethernet LANs and video switches address the high bandwidth video switches that enable the switching
between different video sources associated with video graphic cards and flat panel displays. The latest video switches the company launched addresses the HDMI (High-Definition Multimedia Interface) standard. We are also marketing our PCI Express
signal switches for the Desk Top PC Gaming stations, Servers & Storage markets. We continue to expand our innovations in this area to address next generation Networking and Media platform.



SiliconInterface



Through our SiliconInterface product line, we offer high- performance 5-volt, 3.3-volt, 2.5-volt, and 1.8-volt CMOS logic interface circuits. These products 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.



5-Volt Interface 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.



3.3-Volt Interface Logic. To support the trend toward
lower system voltages for higher silicon integration, from 8-Bit to 32-Bits, system performance and power savings we offer five families of 3.3-volt interface logic to address a range of performance and cost requirements with very low power
consumption. As the industry continues to migrate to 3.3-volt interface, we continued to enhance and expand our 3.3-volt logic



9



---

##### Table of Contents

product portfolio with the introduction of a new 16-bit logic family called LVTC targeted to replace power hungry LVT
BiCMOS logic in the Telecom market place. Our ASIC design methodology and existing cell based designs contribute to our rapid product development in this area.



2.5-Volt Interface Logic. Our 1.8- and 2.5-volt product families offer a family of products with high output current offering sub-2.5 nanosecond
propagation delays and the lowest power consumption in its class. We also have a lower balanced drive family with a propagation delay of less than 2 nanoseconds to support high-speed processor-memory interfacing and a balanced drive family optimized
for low-noise operation at very low voltages. Increasingly, networking, PC and memory module manufacturers are demanding application specific logic products. We have met this challenge in 2005 by introducing new application specific logic functions
that support next generation DDR II register products that meet the demands of current and next generation memory module applications associated with the Server markets.



1.8Volt/3.3Volt ULS. We have launched a new family of ULS (Universal Level Shifter) products family, which addresses the needs
for voltage translations between 1.8Volt and 3.3Volt, without any direction control signals.



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



SiliconClock



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



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



Clock Buffers and Zero-Delay Clock
Drivers. Clock buffers receive a clock signal from a frequency source and create multiple copies of the same frequency for distribution across system boards. We offer 1.5-volt, 1.8-volt, 2.5-volt, 3.3-volt and 5-volt clock buffers for
high-speed, low-skew applications in computers and networking equipment. We also provide a flexible selection of output levels for interfacing to various system components. For systems that require higher performance, we have differential clock
buffers with frequencies up to 800MHz. Zero-delay clocks virtually eliminate propagation delays by synchronizing the clock outputs with the incoming frequency source. Our 5-volt, 3.3-volt, 2.5-volt and 1.8-volt zero-delay clock drivers offer
frequencies of up to 270 MHz for applications in networking switches, routers and hubs, computer servers, and memory modules. Timing products to support the 2ndgeneration double date rate (DDR II) memory technologies are available today.



Clock Frequency Synthesizers. Clock frequency synthesizers generate various output frequencies using a single input frequency source. Clock frequency
synthesizers are used to provide critical timing signals to microprocessors, memory and peripheral functions. Our clock synthesizers support a wide range of microprocessor systems and their associated integrated chipsets for computing, communication
and consumer applications. For computing applications we provide 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. It eliminates a number of individual clock oscillators. For consumer applications like digital TV, and digital set-top boxes we have developed a line of high performance audio and video clocks. We have also developed
spread-spectrum clock generators used for reducing Electro Magnetic Interference (EMI) in graphics and video applications, In addition we also offer a clock synthesizer developed specifically for laser printer products.



10



---

##### Table of Contents

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



SiliconConnect



SiliconConnect offers the highest level of complexity and integration
among our products. It consists of our LVDS family of high-speed differential drivers, receivers, and transceivers, PCI and PCI-X Bridges, and a SERDES product.



To support higher system bandwidth at acceptable noise and power levels customers are increasingly moving to serial rather than parallel architectures and using
differential signaling to reduce noise and EMI. We offer a comprehensive LVDS product portfolio that includes drivers, receivers and transceivers with data rates of 660 megabits per second, or Mbps, and allowing point-to-point connections over
distances up to 10 meters. This new low-voltage differential signaling, or LVDS, standard offers a number of improvements over the older emitter-coupled logic, or ECL, and pseudo emitter-coupled logic, or PECL, in applications requiring lower power
consumption and noise. Pericoms LVDS family is approximately 50 products today.



In fiscal 2004 we continued to expand our Bridge product portfolio by introducing higher performance versions, asynchronous capabilities, and our first PCI-X bridge product. Bridge devices are used in industrial PCs and certain other
computers; high end multifunction printers; video security monitoring; on RAID and Fibre Channel cards in the Storage Area Network space; Multi-channel Ethernet NICs; and routers and switches.



In fiscal 2005, there continued to be overall growth of the Connect product line, mainly from
PCI bridge products. During fiscal 2005, we also began design of our PCI Express Bridge and packet switch products, with initial products slated for introduction during the year ending July 1, 2006



SaRonix Frequency Control Products



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



We are continuing to
enhance and refine our existing product lines, while working to add next-generation products that address new market opportunities on a timely basis. See Risk Factors; Factors That May Affect Operating Results  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 could be harmed.



11



---

##### Table of Contents

CUSTOMERS



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



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



Our customers include a broad range of
end-user customers and OEMs in the computer, peripherals, networking and telecommunications markets as well as the contract manufacturers that service these markets. Our direct sales are billings directly to a customer who may in turn sell through
to an end-user customer. Our end-user customers may buy directly or through our distribution or contract manufacturing channels. In fiscal 2005, our direct sales to two international distributors accounted for approximately 14% of net revenues each
and direct sales to our top five customers accounted for approximately 45.8% of net revenues. In addition there was one end-user customer who accounted for greater than 10% of net revenues for fiscal year ended July 2, 2005. In fiscal 2004, our
direct sales to an international distributor accounted for approximately 11% of net revenues and direct sales to our top five customers accounted for approximately 41% of net revenues. In fiscal 2004, no end-user customers individually accounted for
more than 10% of net revenues. In fiscal 2003, our direct sales to a global contract manufacturer and to an international distributor each accounted for approximately 12% of net revenues and direct sales to our top five customers accounted for
approximately 45% of net revenues. In fiscal 2003, there was one end-user customer that accounted for greater than 10% of net revenues and sales to our top five end user customers accounted for 39% of net revenues. See  Risk Factors; Factors
That May Affect Operating Results  The demand for our products depends on the growth of our end-user customer markets and Risk Factors; Factors That May Affect Operating Results  A large portion of our revenues is derived
from sales to a few customers, who may cease purchasing from us at any time.



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



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



12



---

##### Table of Contents

response. This methodology uses state-of-the-art computer-aided design software tools such as high-level description
language, or HDL, logic synthesis, full-chip mixed-signal simulation, and automated design layout and verification and uses our library of high-performance digital and analog core cells. This family of core cells has been developed over several
years and contains high-performance, specialized digital and analog functions not available in commercial ASIC libraries. Among these cells are our proprietary mixed-voltage input/output, or I/O, cells, high-speed, low-noise I/O cells, analog and
digital phase-locked loops, or PLLs, charge pumps and data communication transceiver circuits using low voltage differential signaling. We have been granted 91 U.S. patents and have at least 25 U.S. patent applications pending. Another advantage of
this modular design methodology is that it allows the application of final design options late in the wafer manufacturing process to determine a products specific function. This option gives us the ability to use pre-staged wafers, which
significantly reduces the design and manufacturing cycle time and enables us to respond rapidly to a customers prototype needs and volume requirements.



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



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



SALES AND MARKETING



We market and distribute our products through a worldwide network of
independent sales representatives and distributors supported by our internal and field sales organization. Sales to domestic and international distributors represented 51% of our net revenues in fiscal 2005, 58% of our net revenues in fiscal 2004
and 59% of our net revenues in fiscal 2003. Our major distributors in the United States include All American Semiconductor, Arrow Electronics, Inc., Future Electronics and Nu Horizons Electronics. Our major international distributors include AIT
(Hong Kong), Avnet (Asia), Chinatronics (Hong Kong), Desner Electronics (Singapore), Internix (Japan), MCM (Japan), Maxmega (Singapore), and Techmosa (Taiwan).



We have four regional sales offices in the United States and international sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan, and the United Kingdom.
International sales comprised approximately 78% of our net revenues in fiscal 2005, approximately 71% of our net revenues in fiscal 2004, and approximately 68% of our net revenues in fiscal 2003. 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 2005; 2004; and 2003  Net Revenue in Item 7 of this
Annual Report on Form 10-K. We also support field sales design-in and training activities with application engineers. Marketing and product management personnel are located at our corporate headquarters in San Jose, California and also in Taiwan.



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



13



---

##### Table of Contents

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



MANUFACTURING



We have adopted a fabless IC manufacturing strategy by subcontracting our wafer production
to independent wafer foundries. We have established collaborative relationships with selected independent foundries with whom we can develop a strategic relationship to the benefit of both parties. We believe that our fabless strategy enables us to
introduce high performance products quickly at competitive cost. To date, our principal manufacturing relationships have been with Chartered Semiconductor Manufacturing Pte, Ltd., Taiwan Semiconductor Manufacturing Corporation, MagnaChip, Inc and
CSMC. We have also used New Japan Radio Corporation as a foundry. In fiscal 2004, we qualified Semiconductor Manufacturing International Corporation as a foundry. We have an ongoing effort to qualify new foundry vendors that offer cost or other
advantages.



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



For the manufacture of FCPs we have
established relationships with selected Asian factories the primary of which are Chungho Elcom in Inchon, South Korea and Yantai Chungho in Yantai, China as well as factories in Taiwan and Japan. We have an ongoing effort to establish relationships
and qualify additional factories to continue cost reduction and maintain our competitive position in the FCP market. We have established an operations department based in Asia to pursue lower cost packaging techniques and to monitor and modify
manufacturing processes to maximize yields and improve quality. Further, through our acquisition of eCERA on September 7, 2005, we have acquired a frequency control products and crystal blank manufacturing facility. This acquisition should assist us
in accelerating the development of advanced FCP products and should make available to us ability of high volume, cost competitive surface mount capability to support our top OEM customers



COMPETITION



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



| |  | product features and performance;
|- |  | ---------------------------------



| |  | price;
|- |  | ------



| |  | product quality;
|- |  | ----------------



| |  | success in developing new products;
|- |  | -----------------------------------



| |  | timing of new product introductions;
|- |  | ------------------------------------



| |  | general market and economic conditions;
|- |  | ---------------------------------------



| |  | adequate wafer fabrication, assembly and test capacity and sources of raw materials;
|- |  | ------------------------------------------------------------------------------------



| |  | efficiency of production; and
|- |  | -----------------------------



| |  | ability to protect intellectual property rights and proprietary information.
|- |  | ----------------------------------------------------------------------------



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



14



---

##### Table of Contents

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



RESEARCH AND DEVELOPMENT



We believe that the continued timely development of new interface ICs and FCPs is essential
to maintaining our competitive position. Accordingly, we have assembled a team of highly skilled engineers whose activities are focused on the development of signal transfer, routing and timing technologies and products. We have IC design centers
located in San Jose, California, Hong Kong, and Taiwan and FCP development is done in San Jose, California and in State College, Pennsylvania. Research and development expenses were $15.8 million in fiscal 2005, $14.2 million in fiscal 2004 and
$11.3 million in fiscal 2003. Additionally, we actively seek cooperative product development relationships.



INTELLECTUAL PROPERTY



In the United
States, we hold 91 patents covering certain aspects of our product designs, with various expiration dates through August 2022. and have at least 25 additional patent applications pending. We expect to continue to file patent applications where
appropriate to protect our proprietary technologies; however, we believe that our continued success depends primarily on factors such as the technological skills and innovation of our personnel, rather than on our patents.



EMPLOYEES



As of July 2, 2005, we had 256 full-time employees (5 are temporary employees) and 1 part-time employee, including 59 in sales, marketing
and customer support, 47 in manufacturing, assembly and testing, 118 in engineering and quality assurance and 32 in finance and administration, including information systems. We have never had a work stoppage and no employee is represented by a
labor organization. We consider our employee relations to be good.



AVAILABLE INFORMATION



We file electronically with the
Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The
Securities and Exchange Commission maintains an Internet site at http://www.sec.gov that contains these reports, proxy and information statements. We make available on our website at http://www.pericom.com, free of charge, copies of these reports as
soon as reasonably practicable after filing or furnishing the information to the SEC.



RISK FACTORS; FACTORS THAT MAY AFFECT OPERATING RESULTS



In
addition to other information contained in this Form 10-K, investors should carefully consider the following factors that could adversely affect our business, financial condition and operating results as well as adversely affect the value of an
investment in our common stock. This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of
historical fact are forward-looking statements for purposes of these provisions, including any statements regarding: projections of revenues, expenses, gross profit, gross margin, or other financial items; the plans and objectives of
management for future operations; the Companys tax rate; the adequacy of allowances for returns, price protection and other concessions; proposed new products or services; the sufficiency of cash generated from operations and cash balances;
the Companys exposure to interest rate risk; future economic conditions or performance; plans to focus on cost control; plans to seek intellectual property protection for the Companys technologies; expectations regarding export sales and
net revenues; the expansion of sales efforts; acquisition prospects; the results of our acquisition of SaRonix and our other possible future acquisitions and assumptions underlying any of the foregoing. In some cases, forward-looking statements can
be identified by the use of terminology such as may, will, expects, plans, anticipates, estimates, potential, or continue, or the negative thereof or
other comparable terminology. Although



15



---

##### Table of Contents

the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable,
there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. The Companys
future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth below and else ware in this report. All forward-looking
statements and reasons why results may differ included in this Annual Report are made as of the date hereof, and the Company assumes no obligation to update any such forward-looking statement or reason why actual results may differ.



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



A wide variety of factors affect our operating results.
These factors might include the following:



| |  | changes in the quantity of our products sold
|- |  | --------------------------------------------



| |  | changes in the average selling price of our products
|- |  | ----------------------------------------------------



| |  | general conditions in the semiconductor industry;
|- |  | -------------------------------------------------



| |  | changes in our product mix;
|- |  | ---------------------------



| |  | a decline in the gross margins of our products;
|- |  | -----------------------------------------------



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



| |  | expenses incurred in obtaining, enforcing, and defending intellectual property rights;
|- |  | --------------------------------------------------------------------------------------



| |  | the timing of new product introductions and announcements by us and by our competitors;
|- |  | ---------------------------------------------------------------------------------------



| |  | customer acceptance of new products introduced by us;
|- |  | -----------------------------------------------------



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



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



| |  | the availability of manufacturing capacity with our wafer suppliers;
|- |  | --------------------------------------------------------------------



| |  | changes in manufacturing costs;
|- |  | -------------------------------



| |  | fluctuations in manufacturing yields;
|- |  | -------------------------------------



| |  | disqualification by our customers for quality or performance related issues;
|- |  | ----------------------------------------------------------------------------



| |  | the ability of customers to pay us; and
|- |  | ---------------------------------------



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



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



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



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



| |  | computers and computer related peripherals;
|- |  | -------------------------------------------



| |  | data communications and telecommunications equipment;
|- |  | -----------------------------------------------------



| |  | electronic commerce and the Internet; and
|- |  | -----------------------------------------



| |  | consumer electronics equipment.
|- |  | -------------------------------



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



16



---

##### Table of Contents

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 Circuit Systems, Inc., Integrated Device Technology, Inc., Intel Corp., Maxim Integrated Products, Inc., Motorola, On Semiconductor Corp., Philips, Tundra Semiconductor Corp., PLX Technology,
STMicroelectronics, Texas Instruments, Inc., and Toshiba. Most of those competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing customer relationships than
we do. We also compete with other major or emerging companies that sell products to certain segments of our markets. Competitors with greater financial resources or broader product lines may have a greater ability to sustain price reductions in our
primary markets in order to gain or maintain market share.



We 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



17



---

##### Table of Contents

achieve performance, price, size or other advantages over products offered by our competitors, our products may lose
market share. Competitive pressures could also reduce market acceptance of our products, reduce our prices and increase our expenses.



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



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



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



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



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



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



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



The eCERAacquisition and other potential future acquisitions could result in the following:



| |  | large one-time write-offs;
|- |  | --------------------------



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



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



| |  | the risk of diverting the attention of senior management from other business concerns;
|- |  | --------------------------------------------------------------------------------------



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



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



| |  | potentially dilutive issuances of equity securities;
|- |  | ----------------------------------------------------



| |  | the incurrence of debt and contingent liabilities or amortization expenses related to intangible assets;
|- |  | --------------------------------------------------------------------------------------------------------



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



| |  | difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses
|- |  | ----------------------------------------------------------------------------------------------------------------------------



As part of our business strategy, we expect to seek other acquisition prospects, in addition
to eCERA, that would complement our existing product offerings, improve our market coverage or enhance our technological capabilities. Although we are evaluating acquisition and strategic investment opportunities on



18



---

##### Table of Contents

an ongoing basis, we may not be able to locate suitable acquisition or investment opportunities. In addition, from time
to time, we invest in other companies, without actually acquiring them, and such investments involve many of the same risks as are involved with acquisitions



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



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



| |  | general conditions in the semiconductor and electronic systems industries;
|- |  | --------------------------------------------------------------------------



| |  | quarter-to-quarter variations in operating results;
|- |  | ---------------------------------------------------



| |  | announcements of technological innovations or new products by us or our competitors; and
|- |  | ----------------------------------------------------------------------------------------



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



Implementation of the new FASB rules for the
accounting of equity and the issuance of new laws or other accounting regulations, or reinterpretation of existing laws or regulations, could materially impact our business or stated results.



The recently issued Statement of Accounting Standards (SFAS) No. 123(R)
Share-Based Payments will require 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. Management
is still assessing the total impact but expects the adoption of this statement to have a negative impact on the Companys future results of operations. In general, from time to time, the government, courts and the financial accounting boards
may issue new laws or accounting regulations, or modify or reinterpret existing ones. There may be future changes in laws, interpretations or regulations that would affect our financial results or the way in which we present them. Additionally,
changes in the laws or regulations could have adverse effects on hiring and many other aspects of our business that would affect our ability to compete, both nationally and internationally.



We determined that we had a material weakness in our internal control over financial
reporting as of July 2, 2005, which we are in the process of remediating. As a result, we had to implement supplemental compensating procedures to determine that our financial statements are fairly stated in all material respects. This material
weakness, could result in a loss of investor confidence in our financial reports and have an adverse impact on our stock price.



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



The Committee of Sponsoring Organizations of the Treadway
Commission (COSO) provides a framework to assess and improve our internal control systems. Auditing standard No. 2 provides the professional standards and related performance guidance for auditors to attest to, and report on, managements
assessment of the effectiveness of internal control over financial reporting under section 404. Managements assessment of internal controls over financial reporting requires management to make subjective judgments and, particularly because
Section 404 and Auditing standard No. 2 are newly effective, some of the judgments will be in areas that may be open to interpretation and therefore the report will be uniquely difficult to prepare.



We have performed the system and process documentation and evaluation needed to comply with
Section 404 of the Sarbanes-Oxley Act of 2002, which is both costly and challenging. Management had identified a



19



---

##### Table of Contents

material weakness in its internal control processes over financial reporting. Specifically, we incurred increased
research and development costs as many of our products were redesigned to be manufactured by a different manufacturing facility. Initially, these costs were expensed to research and development. Subsequently, these costs were incorrectly removed
from research and development expense and capitalized into inventory.. This incorrect capitalization led to restatement of our financial statements for the first three quarters of 2005. As a result of the restatement, R&D increased in each of
the first three quarters of fiscal 2005 from amounts previously reported and inventory and cost of sales decreased from amounts previously reported. Having a material weakness in our internal controls could cause investors to lose confidence in the
accuracy and completeness of our financial reports, which could have an adverse effect on our stock price The company is in the process of designing internal control procedures to remediate the material weakness and expects to complete the effort in
the first quarter of fiscal 2006, and until this is completed this could cause a loss of investor confidence and decline in our stock price.



Customer demand for the Companys products is volatile and difficult to predict.



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



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



The implementation of new environmental regulatory legal requirements, such as lead free initiatives, could impact our product designs and manufacturing processes. The
impact of such regulations on our product designs and manufacturing processes could affect the timing of compliant product introductions as well as their commercial success. For example, a recent directive in the European Union bans the use of lead
and other heavy metals in electrical and electronic equipment after July 1, 2006. As a result, in advance of this deadline, some of our customers selling products in Europe have begun demanding product from component manufacturers that do not
contain these banned substances. Because most of our existing assembly processes (as well as those of most other manufacturers) utilize a tin-lead alloy as a soldering material in the manufacturing process, we must redesign many of our products if
we are to meet customer demand. This redesign may result in increased research and development and manufacturing and quality control costs. In addition, the products that we manufacture that comply with the new regulatory standards may not perform
as well as our current products. Moreover, if we are unable to successfully and timely redesign existing products and introduce new products that meet the standards set by environmental regulation and our customers, sales of our products could
decline, which could materially adversely affect our business, financial condition and results of operations.



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



In fiscal 2005, 2004 and 2003 we purchased approximately 43%, 75% and 72%, respectively, of our wafers from Chartered Semiconductor Manufacturing Ltd. Also in fiscal
2005, 2004 and 2003 we purchased approximately 43%, 16% and 14% respectively, of our wafers from MagnaChip. In fiscal 2005, five other suppliers manufactured the remainder of our wafers. In fiscal 2004, only four other suppliers manufactured the
remainder of our wafers. In fiscal 2003, three other suppliers manufactured the remainder of our wafers. Our reliance on independent wafer suppliers to fabricate our wafers at their production facilities subjects us to possible risks such as:



| |  | lack of adequate capacity;
|- |  | --------------------------



20



---

##### Table of Contents

| |  | 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 are used to manufacture our products. We have transitioned the
production of these products to different facilities. This was a major project requiring significant technological coordination between Chartered and Pericom. The transfer of production of our products to other facilities subjects us to the above
listed risks as well as potential yield or other production problems, which could arise as a result of the change.



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



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



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



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



We may have difficulty accurately predicting revenues for future periods.



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



21



---

##### Table of Contents

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 hold 91 patents covering certain aspects of our product designs and have at least 25 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.



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



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



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



22



---

##### Table of Contents

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



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



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



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



| |  | the level of contaminants in the manufacturing environment;
|- |  | -----------------------------------------------------------



| |  | impurities in the materials used; and
|- |  | -------------------------------------



| |  | the performance of manufacturing personnel and production equipment.
|- |  | --------------------------------------------------------------------



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



We do not manufacture any of our IC products. Therefore, we are referred to in the semiconductor industry as a fabless producer.
Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers that can produce semiconductors that meet our needs. However, as the industry continues to
progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of
the industry and our status as a fabless IC semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or increase our costs. With the acquisition of
eCERA, in the future we will be directly involved in the manufacture of our FCP products. As we have not previously operated a manufacturing facility, we may not be successful in operating the FCP facility, and as a consequence, there may be
manufacturing related problems that affect our FCP products. See Risk Factors; Factors That May Affect Operating Results  Our Acquisition of eCERA And Other Potential Future Acquisitions May Not Be Successful.



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



A relatively small number of customers
have accounted for a significant portion of our net revenues in each of the past several fiscal years. In general we expect this to continue for the foreseeable future. With the addition of SaRonix, Inc. the concentration of top customers has been
reduced, as the top customers of SaRonix, Inc. are somewhat different than those of our core integrated circuit business. There were two direct customers, both Asian distributors that individually accounted for more than 10% of net revenues during
the fiscal year ended July 2, 2005. For the fiscal year ended June 26, 2004 there was one direct customer that individually accounted for more than 10% of net revenues. For the fiscal year ended June 28, 2003 there were two direct customers that
individually accounted for more than 10% of net revenues. As a percentage of net revenues, sales to our top five direct customers for the fiscal year ended July 2, 2005 totaled 46%, was 41% for the fiscal year ended June 26, 2004, and 45% for fiscal
year ended June 28, 2003.



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



23



---

##### Table of Contents

discontinue purchasing our products at any time. Our distributors typically offer competing products in addition to ours.
For the fiscal year ended July 2, 2005 sales to our distributors were approximately 51% of net revenues as compared to approximately 58% of net revenues in the fiscal year ended June 26, 2004, and 59% for the fiscal year ended June 28, 2003. The
decrease in the percentage of sales to our distributors as compared with the prior periods was due in part to lower sales to domestic distributor customers. The loss of one or more significant customers, or the decision by a significant distributor
to carry the product lines of our competitors, could decrease our revenues.



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



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



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



| |  | changes in economic conditions in the countries where these subcontractors are located;
|- |  | ---------------------------------------------------------------------------------------



| |  | currency fluctuations;
|- |  | ----------------------



| |  | changes in political conditions;
|- |  | --------------------------------



| |  | potentially reduced protection for intellectual property;
|- |  | ---------------------------------------------------------



| |  | foreign governmental regulations;
|- |  | ---------------------------------



| |  | import and export controls; and
|- |  | -------------------------------



| |  | changes in tax laws, tariffs and freight rates.
|- |  | -----------------------------------------------



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



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



In fiscal year 2005, approximately 68% of our net revenues derived from
sales in Asia and approximately 6% from net sales in Europe. In fiscal year 2004, approximately 61% of our net revenues derived from sales in Asia and approximately 6% from net sales in Europe. In fiscal year 2003, approximately 59% of our net
revenues derived from sales in Asia and approximately 8% from net sales in Europe. We expect that export sales will continue to represent a significant portion of net revenues. We intend to expand our sales efforts outside the United States. This
expansion will require significant management attention and financial resources and further subject us to international operating risks. These risks include:



| |  | tariffs and other barriers and restrictions;
|- |  | --------------------------------------------



| |  | unexpected changes in regulatory requirements;
|- |  | ----------------------------------------------



| |  | the burdens of complying with a variety of foreign laws; and
|- |  | ------------------------------------------------------------



| |  | delays resulting from difficulty in obtaining export licenses for technology.
|- |  | -----------------------------------------------------------------------------



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



Our shareholder rights plan may adversely affect existing shareholders.



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



24



---

##### Table of Contents

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



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



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



ITEM 2. PROPERTIES



We lease approximately 76,410
square feet of space in San Jose, California in which our headquarters, technology and product development and testing facilities are located. This property is leased through December 2013, and has renewal options. We also lease an approximate 4,000
square foot research and development facility in State College, Pennsylvania. This facility is leased through September 2006 and has renewal options. We also have leased North American sales offices located in Illinois as well as International sales
offices in Hong Kong, Japan, Korea, Singapore, Taiwan, and the United Kingdom. We believe our current facilities are adequate to support our needs through the end of fiscal 2006.



ITEM 3. LEGAL PROCEEDINGS



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



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



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



25



---

##### Table of Contents

PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS



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



COMMON STOCK PRICE RANGE



The Common Stock of the Company began trading publicly on the NASDAQ National Market on
October 31, 1997 under the symbol PSEM. Prior to that date, there was no public market for the Common Stock. The Company has not paid cash dividends and has no present plans to do so. It is the policy of the Company to reinvest earnings of the
Company to finance expansion of the Companys operations and to repurchase shares of its Common Stock to help counter dilution from the Companys Stock Incentive and Employee Stock Purchase Plans. The following table sets forth for the
periods indicated the high and low closing prices of the Common Stock on the NASDAQ National Market. As of July 2, 2005 there were approximately 3,900 holders of record of the Companys Common Stock. During fiscal year 2005, the Company did not
sell any unregistered securities.



|                                 |  |      |       |     |   |     
|-------------------------------- |  | ---- | ----- | --- | - | ----
|                                 |  | High |       | Low
|Fiscal year ended June 26, 2004: |  |      |       |     |   |     
|First Quarter                    |  | $    | 11.07 |     | $ | 8.39
|Second Quarter                   |  |      | 12.10 |     |   | 9.94
|Third Quarter                    |  |      | 13.94 |     |   | 9.88
|Fourth Quarter                   |  |      | 11.77 |     |   | 9.77
|Fiscal year ended July 2, 2005:  |  |      |       |     |   |     
|First Quarter                    |  |      | 10.50 |     |   | 9.26
|Second Quarter                   |  |      | 9.99  |     |   | 8.60
|Third Quarter                    |  |      | 9.63  |     |   | 8.11
|Fourth Quarter                   |  |      | 8.58  |     |   | 7.63



SHAREHOLDER RIGHTS PLAN



On March 6, 2002, the Company adopted a shareholder rights plan and, in
connection with the plan, the Company has filed a Certificate of Designation designating the rights, preferences and privileges of a new Series D Junior Participating Preferred Share. Pursuant to the plan, the Company issued rights to its
stockholders of record as of March 21, 2002, entitling each stockholder to the right to purchase one one-hundredth of a Series D Junior Participating Preferred Share 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.



26



---

##### Table of Contents

STOCK REPURCHASE PLAN



Issuer Purchases of Equity Securities



|                                |  |                               |  |                            |      |                                                                              |         |                                                                            |          
|------------------------------- |  | ----------------------------- |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------- | ---------
|Period                          |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |      | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |         | Maximum Numberof Shares that mayYet be PurchasedUnder the Plans orPrograms
|March 27, 2005  April 23, 2005 |  | 85,800                        |  | $                          | 8.45 |                                                                              | 552,087 |                                                                            | 1,447,913
|April 24, 2005  May 21, 2005   |  | 70,000                        |  |                            | 8.17 |                                                                              | 622,087 |                                                                            | 1,377,913
|May 22, 2005  July 2, 2005     |  |                              |  |                            |     |                                                                              | 622,087 |                                                                            | 1,377,913
|                                |  |                               |  |                            |      |                                                                              |         |                                                                            |          
|Total                           |  | 155,800                       |  | $                          | 8.32 |                                                                              |         |                                                                            |          
|                                |  |                               |  |                            |      |                                                                              |         |                                                                            |          



In October, 2001, the Companys
Board of Directors has approved the repurchase of up to 2,000,000 shares of the Companys common stock. As of July 2, 2005, the Company has repurchased an aggregate of 622,087 shares at a cost of approximately $5.2 million. The Company
repurchased 347,587 shares during the fiscal year ended July 2, 2005 at an approximate cost of $3.0 million.



27



---

##### Table of Contents

ITEM 6. SELECTED FINANCIAL DATA



The following
selected financial data of the Company is qualified by reference to and should be read in conjunction with the Financial Statements, including the Notes thereto, and Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The Statement of Operations Data for each of the years in the three-year period ended July 2, 2005 and the Balance Sheet Data as of July 2, 2005 and June 26, 2004 are derived from, and are qualified by reference
to, the Financial Statements included herein. The Statement of Operations Data for the years ended June 29, 2002, and June 30, 2001 and the Balance Sheet Data as of June 28, 2003, June 29, 2002 and June 30,2001 are derived from audited financial
statements not included herein. The fiscal year ending July 2, 2005 contained 53 weeks and all other years contained 52 weeks. On October 1, 2003 the Company, acting through its wholly owned subsidiary SaRonix, Inc., exercised its option to acquire
substantially all the assets and related liabilities of privately-held SaRonix, LLC (SaRonix). The results of operations of SaRonix, Inc. from the date of acquisition are included in the Companys consolidated financial statements.



|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------- | - | --------------- | - | ------- | ------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                               |  | Fiscal Year Ended                     |        
|                                                               |  | July 2,2005                           |         |   | June 26,2004(2) |   |         | June 28,2003 |  |   | June 29,2002 |   |  | June 30,2001 |        
|                                                               |  | (in thousands, except per share data) |        
|Statement of Operations Data:                                  |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Net revenues                                                   |  | $                                     | 79,557  |   |                 | $ | 66,417  |              |  | $ | 44,958       |   |  | $            | 47,589  |   |  | $ | 108,313 |  
|Cost of revenues                                               |  |                                       | 50,764  |   |                 |   | 45,182  |              |  |   | 31,468       |   |  |              | 33,871  |   |  |   | 62,388  |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                   |  |                                       | 28,793  |   |                 |   | 21,235  |              |  |   | 13,490       |   |  |              | 13,718  |   |  |   | 45,925  |  
|Operating expenses:                                            |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Research and development                                       |  |                                       | 15,767  |   |                 |   | 14,161  |              |  |   | 11,347       |   |  |              | 11,663  |   |  |   | 10,993  |  
|Selling, general and administrative                            |  |                                       | 15,538  |   |                 |   | 14,979  |              |  |   | 11,283       |   |  |              | 11,778  |   |  |   | 15,150  |  
|Restructuring charge                                           |  |                                       | 294     |   |                 |   | 784     |              |  |   | 1,431        |   |  |              |        |   |  |   | 522     |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Total operating expenses                                       |  |                                       | 31,599  |   |                 |   | 29,924  |              |  |   | 24,061       |   |  |              | 23,441  |   |  |   | 26,665  |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Income (loss) from operations                                  |  |                                       | (2,806  | ) |                 |   | (8,689  | )            |  |   | (10,571      | ) |  |              | (9,723  | ) |  |   | 19,260  |  
|Other income, net                                              |  |                                       | 3,761   |   |                 |   | 3,700   |              |  |   | 5,243        |   |  |              | 5,554   |   |  |   | 8,287   |  
|Other-than-temporary recovery (decline) in investment          |  |                                       | (105    | ) |                 |   | (14     | )            |  |   | (1,027       | ) |  |              | (2,650  | ) |  |   |        |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                              |  |                                       | 850     |   |                 |   | (5,003  | )            |  |   | (6,355       | ) |  |              | (6,819  | ) |  |   | 27,547  |  
|Income tax provision (benefit)                                 |  |                                       | 27      |   |                 |   | (2,380  | )            |  |   | (2,767       | ) |  |              | (2,962  | ) |  |   | 9,789   |  
|Minority interest in (income) loss of consolidated subsidiary  |  |                                       | 58      |   |                 |   |        |              |  |   |             |   |  |              |        |   |  |   |        |  
|Equity in net income (loss) of investee                        |  |                                       | 46      |   |                 |   | 513     |              |  |   | (739         | ) |  |              | (1,410  | ) |  |   | (399    | )
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Net income (loss)                                              |  | $                                     | 927     |   |                 | $ | (2,110  | )            |  | $ | (4,327       | ) |  | $            | (5,267  | ) |  | $ | 17,359  |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Basic earnings (loss) per share                                |  | $                                     | 0.04    |   |                 | $ | (0.08   | )            |  | $ | (0.17        | ) |  | $            | (0.21   | ) |  | $ | 0.70    |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Diluted earnings (loss) per share                              |  | $                                     | 0.03    |   |                 | $ | (0.08   | )            |  | $ | (0.17        | ) |  | $            | (0.21   | ) |  | $ | 0.64    |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Shares used in computing basic earnings (loss) per share (1)   |  |                                       | 26,476  |   |                 |   | 26,075  |              |  |   | 25,721       |   |  |              | 25,339  |   |  |   | 24,914  |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Shares used in computing diluted earnings (loss) per share (1) |  |                                       | 27,188  |   |                 |   | 26,075  |              |  |   | 25,721       |   |  |              | 25,339  |   |  |   | 27,242  |  
|                                                               |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|                                                               |  |                                       |         |   |                
|                                                               |  | July 2,2005                           |         |   | June 262004     |   |         | June 28,2003 |  |   | June 29,2002 |   |  | June 30,2001 |        
|                                                               |  | (in thousands)                        |        
|Balance Sheet Data:                                            |  |                                       |         |   |                 |   |         |              |  |   |              |   |  |              |         |   |  |   |         |  
|Working capital                                                |  | $                                     | 159,488 |   |                 | $ | 158,718 |              |  | $ | 158,662      |   |  | $            | 167,517 |   |  | $ | 168,066 |  
|Total assets                                                   |  |                                       | 193,995 |   |                 |   | 197,452 |              |  |   | 190,237      |   |  |              | 193,745 |   |  |   | 196,427 |  
|Long-term obligation                                           |  |                                       | 464     |   |                 |   | 139     |              |  |   | 619          |   |  |              | 0       |   |  |   | 0       |  
|Shareholders equity                                           |  |                                       | 181,162 |   |                 |   | 181,897 |              |  |   | 182,323      |   |  |              | 185,722 |   |  |   | 187,190 |  

---

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

|(2) | On October 1, 2003 the Company acquired SaRonix, LLC (see Note 7 to the Consolidated Financial Statements).
|--- | -----------------------------------------------------------------------------------------------------------



28



---

##### Table of Contents

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



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



CRITICAL ACCOUNTING POLICIES



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



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



REVENUE RECOGNITION. We recognize revenue from the sale of our products upon shipment, provided title and risk of loss has passed to the customer, the fee
is fixed or determinable and collection of the revenue is reasonably assured. A provision for estimated future returns and other charges against revenue is recorded at the time of shipment. For the twelve months ended July 2, 2005 the majority of
our sales were to distributors.



We sell products to large, domestic
distributors at the price listed in our price book for that distributor. We recognize revenue at the time of shipment. At the time of shipment, we book a sales reserve for the entire amount if the customer has the right to return the product. Also,
at the time of sale we book a sales reserve for ship from stock and debits (SSDs), stock rotations, return material authorizations (RMAs), authorized price protection programs, and any special programs approved by management.
These sales reserves offset against revenues, which then leads to the net revenue amount we report.



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



29



---

##### Table of Contents

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



From time to time, customers may request to return parts for various reasons including the
customers belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. These requests are reviewed by management and when
approved result in a return material authorization (RMA) being established. We are only obligated to accept returns of defective parts. For customer convenience, we may approve a particular return request, even though we are not
obligated to do so. Each month a sales reserve is recorded for the approved RMAs that have not yet been returned. In the past we have not kept a general warranty reserve because historically valid warranty returns, which are the result of a part not
meeting specifications or being non-functional, have been immaterial and parts can frequently be re-sold to other customers for use in other applications. We do however monitor and assess RMA activity and overall materiality to assess whether a
general warranty reserve has become appropriate.



Price protection is granted
solely at the discretion of Pericom management. The purpose of price protection is to reduce our distributors cost of inventory as market prices fall thus reducing SSD rates. Price protection proposals for individual products located at
individual distributors are prepared by Pericom sales management. Pericom general management reviews these proposals and if a particular price protection arrangement is approved, then the dollar impact will be estimated based on the book price
reduction per unit for the products approved and the number of units of those products in that distributors inventory. A sales reserve is then recorded in that period for the estimated amount in accordance with Issue 4 of Emerging Issues Task
Force Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products).



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



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



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



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



IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS.As required by (SFAS) Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which the Company adopted in fiscal 2002, the Company ceased amortizing goodwill with a net carrying value of



30



---

##### Table of Contents

$1.3 million that resulted from our investment in Pericom Technology, Inc. SFAS No. 142 also requires that goodwill be
tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company determined that no impairment of this goodwill existed in fiscal 2005. The Company also tests other
intangible assets for impairment when events or changes in circumstances indicate that the assets might be impaired. The Company determined that no impairment of these other intangible assets existed in fiscal 2005.



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



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



OVERVIEW



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



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



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



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



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



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



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



| |  | in fiscal 2000, a crossbar switch for backplane applications like server clusters, networking, industrial computing and Storage Area Networks; a family of drivers, receivers, and
transceivers supporting the
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



---

##### Table of Contents

Low Voltage Differential Signaling interface standard; the SuperClock
programmable skew timing product family targeting networking, telecommunications and Storage Area Network applications; a complete interface solution for the new double data rate (DDR) SDRAM memory standard; a family of LVDS cross-point switches to
route signals in OC12 networks; and the AVC+ family of high speed interface logic;



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



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



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



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



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



As is typical in the semiconductor industry, we expect selling prices for our products to decline over the life of each product. Our ability
to increase net revenues is highly dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products in quantities sufficient to compensate for the anticipated declines in selling prices of
existing products. We seek to increase unit sales volume through increased wafer fabrication capacity allocations from our existing foundries, qualification of new foundries, increased number of die per wafer through die size reductions and improved
yields of good die through the implementation of advanced process technologies, but there can be no assurance that we will be successful in these efforts. Chartered Semiconductor Manufacturing manufactured approximately 43%, 75%, and 72% of the
wafers for our semiconductor products in fiscal years 2005, 2004 and 2003, respectively.In addition, Magnachip formerly known as Hynix manufactured approximately 43%, 16%, and 14% of the wafers for our semiconductor products in fiscal years
2005, 2004 and 2003.



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



32



---

##### Table of Contents

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 economies 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.



RECENT
DEVELOPMENTS



On September 7, 2005, the Company purchased for
approximately $14.7 million a 99.93% ownership position in eCERA Comtek Corporation (eCERA) of Taiwan. eCERA and its 50% owned subsidiary, AZER Crystal Technology Co, Ltd. (Azer) have been a key supplier of quartz crystal
blanks and crystal oscillator products. The Company has an option to purchase the remaining 50% of Azer within six months of September 7, 2005.



RESULTS OF OPERATIONS



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



|                                                              |  |                    |   |  |              |    |  |             |   
|------------------------------------------------------------- |  | ------------------ | - |  | ------------ | -- |  | ----------- | --
|                                                              |  | Fiscal Year Ended, |  
|                                                              |  | July 2,2005        |   |  | June 26,2004 |    |  | June 282003 |   
|Net revenues                                                  |  | 100.0              | % |  | 100.0        | %  |  | 100.0       | % 
|Cost of revenues                                              |  | 63.8               |   |  | 68.0         |    |  | 70.0        |   
|                                                              |  |                    |   |  |              |    |  |             |   
|Gross margin                                                  |  | 36.2               |   |  | 32.0         |    |  | 30.0        |   
|Operating expenses:                                           |  |                    |   |  |              |    |  |             |   
|Research and development                                      |  | 19.8               |   |  | 21.3         |    |  | 25.2        |   
|Selling, general and administrative                           |  | 19.5               |   |  | 22.6         |    |  | 25.1        |   
|Restructuring charge                                          |  | 0.4                |   |  | 1.2          |    |  | 3.2         |   
|                                                              |  |                    |   |  |              |    |  |             |   
|Total operating expenses                                      |  | 39.7               |   |  | 45.1         |    |  | 53.5        |   
|                                                              |  |                    |   |  |              |    |  |             |   
|Loss from operations                                          |  | (3.5               | ) |  | (13.1        | )  |  | (23.5       | ) 
|Other income, net                                             |  | 4.6                |   |  | 5.5          |    |  | 9.4         |   
|                                                              |  |                    |   |  |              |    |  |             |   
|Income (Loss) before income taxes                             |  | 1.1                |   |  | (7.6         | )  |  | (14.1       | ) 
|Income tax provision (benefit)                                |  | 0.0                |   |  | (3.6         | )  |  | (6.1        | ) 
|Minority interest in (income) loss of Consolidated subsidiary |  | 0.1                |   |  | 0.0          |    |  | 0.0         |   
|Equity in net income (loss) of investee                       |  | 0.0                |   |  | 0.8          |    |  | (1.6        | ) 
|                                                              |  |                    |   |  |              |    |  |             |   
|Net income (loss)                                             |  | 1.2                | % |  | (3.2         | )% |  | (9.6        | )%
|                                                              |  |                    |   |  |              |    |  |             |   



33



---

##### Table of Contents

COMPARISON OF FISCAL 2005, 2004 AND 2003



NET REVENUES



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



|                                                                            |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|--------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ----------------- | ------------ | ---- | ------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                                                            |  | Fiscal Year Ended |        |   | %Change      |   |        | Fiscal Year Ended |              |      | %Change |             
|                                                                            |  | July 2,2005       |        |   | June 26,2004 |   |        |                   | June 26,2004 |      |         | June 28,2003 |   |       
|Net revenues (In thousands)                                                 |  | $                 | 79,557 |   |              | $ | 66,417 |                   |              | 19.8 | %       |              | $ | 66,417 |   |  | $ | 44,958 |   |  | 47.7 | %
|Percentage of net sales accounted for by top 5 direct customers (1)         |  |                   | 45.8   | % |              |   | 41.0   | %                 |              |      |         |              |   | 41.0   | % |  |   | 45.2   | % |  |      |  
|                                                                            |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|Number of direct customers that each account for more than 10% of net sales |  |                   | 2      |   |              |   | 1      |                   |              |      |         |              |   | 1      |   |  |   | 2      |   |  |      |  
|                                                                            |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|Percentage of gross sales accounted for by top 5 end customers (2)          |  |                   | 36.3   | % |              |   | 30.5   | %                 |              |      |         |              |   | 30.5   | % |  |   | 38.9   | % |  |      |  
|                                                                            |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|Number of end customers that each account for more than 10% of gross sales  |  |                   | 1      |   |              |   | 0      |                   |              |      |         |              |   | 0      |   |  |   | 1      |   |  |      |  

---

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

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



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



The rapid semiconductor
industry downturn that began in fiscal 2001 caused an over-supply of inventories in the global distribution and contract manufacturing channels. This inventory imbalance pushed order rates down, caused a corresponding drop in backlog, and caused the
percentage of net sales represented by orders placed and shipped in the same quarter to grow. These orders are called turns orders. During much of fiscal 2004 business conditions in the semiconductor industry improved and the percentage
of the companys revenue represented by turns orders declined. In late fiscal 2004 order rates again slowed in response to an imbalance of inventory as compared with end-demand, and the percentage of turns orders again increased although not to
the levels of 2000-2003. Integrated circuit order rates in fiscal 2005 have subsequently improved, but the Company remains heavily reliant on turns orders. This reliance on turns orders, the uncertain strength of our end-markets, and the uncertain
growth rate of the world economy make it difficult to predict near term demand.



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



34



---

##### Table of Contents

The net revenue increase in fiscal 2004 versus fiscal 2003 is due to: fiscal 2004 net revenues of $15.1 million versus
zero in fiscal 2003 resulting from the October 2003 acquisition of SaRonix; a recovery in integrated circuit demand drove a higher volume of unit shipments; the higher demand levels stabilized pricing; inventories in distribution channels had been
worked down to a very low level and stabilized so orders through distribution increased and were becoming reflective of end-demand; and increased acceptance and shipments of the Companys new integrated circuit product offerings. For the year
ended June 26, 2004, and June 28, 2003, respectively net revenue included sales reserves for price protection and rebates totaling $749,000 and $389,000.



The following table sets forth net revenues by country as a percentage of total net revenues for the fiscal years ended July 2, 2005, June 26, 2004, and June 28, 2003.



|                            |  |                   |   |  |              |   |  |              |  
|--------------------------- |  | ----------------- | - |  | ------------ | - |  | ------------ | -
|                            |  | Fiscal Year Ended |  
|                            |  | July 2,2005       |   |  | June 26,2004 |   |  | June 28,2003 |  
|China (including Hong Kong) |  | 22.9              | % |  | 20.7         | % |  | 16.8         | %
|United States               |  | 21.4              | % |  | 28.5         | % |  | 30.6         | %
|Taiwan                      |  | 19.8              | % |  | 18.9         | % |  | 18.1         | %
|Singapore                   |  | 12.5              | % |  | 11.2         | % |  | 13.5         | %
|Other (less than 10% each)  |  | 23.4              | % |  | 20.7         | % |  | 21.0         | %
|                            |  |                   |   |  |              |   |  |              |  
|Total                       |  | 100.0             | % |  | 100.0        | % |  | 100.0        | %
|                            |  |                   |   |  |              |   |  |              |  



For the fiscal year ended July 2,
2005, as compared with fiscal years 2004 and 2003, the percentage of our net revenues derived from sales to the United States decreased principally because of decreased sales to domestic distributors as these distributors adjusted their inventory
levels. In addition, an increasing number of shipments are going to Asia where an increasing volume of contract manufacturing work is done.



GROSS PROFIT



|                                                            |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|----------------------------------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ----------------- | ------------ | ---- | ------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                                            |  | Fiscal Year Ended |        |   | %Change      |   |        | Fiscal Year Ended |              |      | %Change |             
|(In thousands)                                              |  | July 2,2005       |        |   | June 26,2004 |   |        |                   | June 26,2004 |      |         | June 28,2003 |   |       
|Net revenues                                                |  | $                 | 79,557 |   |              | $ | 66,417 |                   |              | 19.8 | %       |              | $ | 66,417 |   |  | $ | 44,958 |   |  | 47.7 | %
|Gross profit                                                |  |                   | 28,793 |   |              |   | 21,235 |                   |              | 35.6 | %       |              |   | 21,235 |   |  |   | 13,490 |   |  | 57.4 | %
|Gross profit as a percentage of net revenues (gross margin) |  |                   | 36.2   | % |              |   | 31.9   | %                 |              |      |         |              |   | 31.9   | % |  |   | 30.0   | % |  |      |  



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



35



---

##### Table of Contents

Gross profit in fiscal 2004 versus fiscal 2003 increased due to the following factors: fiscal 2004 had nine months of
SaRonix sales totaling $15.1 million whereas fiscal 2003 had none; the industry-wide recovery of the integrated circuit business started in fiscal 2004 and drove increased unit shipments; and we had higher gross margin on sales because of a
favorable product mix change resulting from a higher percentage of sales of our newer, higher margin integrated circuit products. Partially offsetting this is the inclusion of SaRonix revenues for nine months in fiscal 2004 versus no SaRonix
revenues in fiscal 2003 since SaRonix margins are less than the Companys total average margins.



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



RESEARCH AND DEVELOPMENT



|                                    |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|----------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ----------------- | ------------ | ---- | ------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                    |  | Fiscal Year Ended |        |   | %Change      |   |        | Fiscal Year Ended |              |      | %Change |             
|(In thousands)                      |  | July 2,2005       |        |   | June 26,2004 |   |        |                   | June 26,2004 |      |         | June 28,2003 |   |       
|Net revenues                        |  | $                 | 79,557 |   |              | $ | 66,417 |                   |              | 19.8 | %       |              | $ | 66,417 |   |  | $ | 44,958 |   |  | 47.7 | %
|Research and development            |  |                   | 15,767 |   |              |   | 14,161 |                   |              | 11.3 | %       |              |   | 14,161 |   |  |   | 11,347 |   |  | 24.8 | %
|R&D as a percentage of net revenues |  |                   | 19.8   | % |              |   | 21.3   | %                 |              |      |         |              |   | 21.3   | % |  |   | 25.2   | % |  |      |  



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



The expense increase for fiscal 2004 as compared to fiscal 2003 was also due to increased
mask costs; the inclusion of nine months of SaRonix engineering expenses in fiscal 2004 versus zero in fiscal 2003; the ramp-up of Pericom Taiwan Ltd in fiscal 2004. Lower expense in 2003 was partially offset by a write off of $360,000 of in-process
research and development that had been acquired from SaRonix. No such write off occurred in fiscal 2004.



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



SELLING, GENERAL AND ADMINISTRATIVE



|                                    |  |                   |        |   |              |   |        |                   |              |      |         |              |   |        |   |  |   |        |   |  |      |  
|----------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ----------------- | ------------ | ---- | ------- | ------------ | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                    |  | Fiscal Year Ended |        |   | %Change      |   |        | Fiscal Year Ended |              |      | %Change |             
|(In thousands)                      |  | July 2,2005       |        |   | June 26,2004 |   |        |                   | June 26,2004 |      |         | June 28,2003 |   |       
|Net revenues                        |  | $                 | 79,557 |   |              | $ | 66,417 |                   |              | 19.8 | %       |              | $ | 66,417 |   |  | $ | 44,958 |   |  | 47.7 | %
|Selling, general and administrative |  |                   | 15,538 |   |              |   | 14,979 |                   |              | 3.7  | %       |              |   | 14,979 |   |  |   | 11,283 |   |  | 32.8 | %
|S,G&A percentage of net revenues    |  |                   | 19.5   | % |              |   | 22.6   | %                 |              |      |         |              |   | 22.6   | % |  |   | 25.1   | % |  |      |  



36



---

##### Table of Contents

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



The expense increase in fiscal 2004 versus 2003 is due to: The inclusion of nine months of SaRonix SG&A expense in fiscal 2004 versus zero in fiscal 2003; higher
sales commission expense due to increased revenues from the SaRonix acquisition; and the fiscal 2004 write-off of $320,000 SaRonix customer backlog valuation. These increases were partially offset by the impact of the reductions in force in November
2003.



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



RESTRUCTURING CHARGE



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



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



In the year ended June 28, 2003 there was a
restructuring charge of $1.4 million related to another unused leased facility. This facility had originally been leased to accommodate future expansion. As a result of the semiconductor industry downturn then underway, the Company revised its
expansion plans and this facility was subleased. At the time of the sublease, a $522,000 restructuring charge was recorded that represented the difference between the sublease rate and the rate the Company was paying. The $1.4 million restructuring
charge was recorded when the Company received notice that the tenant would move from this facility and the Company estimated that it would not be able to sublease the facility due to the excess available real estate in San Jose, California. Due to
the continued downturn in the Companys business, the Company determined that this portion of the facility would not be utilized over the remaining lease term. The restructuring charge represented the future lease payments and estimated utility
and maintenance costs for the remainder of the lease. The restructuring accrual was fully depleted in the fourth quarter of fiscal 2005, when the lease terminated.



MINORITY INTEREST



For the year ended July 2, 2005, Minority interest in the losses of our consolidated subsidiary Pericom Taiwan Ltd. was $58,000. There were no minority interest in the
years ended June 26, 2004 or June 28, 2003.



37



---

##### Table of Contents

INTEREST INCOME



|                |  |                   |       |              |   |       |                   |      |              |  |   |       |  |   |       |  |       |   
|--------------- |  | ----------------- | ----- | ------------ | - | ----- | ----------------- | ---- | ------------ |  | - | ----- |  | - | ----- |  | ----- | --
|                |  | Fiscal Year Ended |       | %Change      |   |       | Fiscal Year Ended |      | %Change      | 
|(In thousands)  |  | July 2,2005       |       | June 26,2004 |   |       | June 26,2004      |      | June 28,2003 | 
|Interest income |  | $                 | 3,761 |              | $ | 3,700 |                   | (1.7 | )%           |  | $ | 3,700 |  | $ | 5,243 |  | (29.4 | )%



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



The decrease in interest income in fiscal 2004 versus fiscal 2003 is due to a $430,000
reduction in capital gains coupled with many higher yielding investments maturing and being reinvested at lower interest rates.



PROVISION FOR INCOME TAXES



|                               |  |                   |     |   |                   |   |        |              |  |   |              |   |  |   |        |  
|------------------------------ |  | ----------------- | --- | - | ----------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                               |  | Fiscal Year Ended |     |   | Fiscal Year Ended |  
|(In thousands)                 |  | July 2,2005       |     |   | June 26,2004      |   |        | June 26,2004 |  |   | June 28,2003 |  
|Pre-tax income (loss)          |  | $                 | 850 |   |                   | $ | (5,003 | )            |  | $ | (5,003       | ) |  | $ | (6,355 | )
|Income tax provision (benefit) |  |                   | 27  |   |                   |   | (2,380 | )            |  | $ | (2,380       | ) |  |   | (2,767 | )
|Effective tax rate             |  |                   | 2.9 | % |                   |   | 47.6   | %            |  |   | 47.6         | % |  |   | 43.5   | %



Our effective tax rate differs from
the federal statutory rate primarily due to state income taxes, the effect of foreign income tax and foreign loss, the utilization of research and development tax credits and changes in the deferred tax asset valuation allowance. For fiscal 2005 the
rate was very low compared to statutory rates and prior year because relatively small pre-tax income of $850,000 was almost completely offset by various tax credits. A reconciliation of our tax rates for fiscal years 2005, 2004 and 2003 is detailed
in Note 15 to the Condensed Consolidated Financial Statements contained in this report on Form 10-K.



The income tax benefit in fiscal 2004 was $2.4 million as compared with a benefit of $2.8 million in fiscal 2003. The decrease was due to lower net operating losses in fiscal 2004 partially offset by an increase in
the deferred tax asset valuation allowance in fiscal 2004. The provision for income taxes differed from the federal statutory rate primarily due to state income taxes, the utilization of research and development tax credits and a change in the
deferred asset valuation allowance.



EQUITY IN NET INCOME (LOSS) OF
PERICOM TECHNOLOGY, INC.



|                                        |  |                   |    |              |   |     |                   |   |              |        |  |   |     |  |   |      |   |  |   |      
|--------------------------------------- |  | ----------------- | -- | ------------ | - | --- | ----------------- | - | ------------ | ------ |  | - | --- |  | - | ---- | - |  | - | -----
|                                        |  | Fiscal Year Ended |    | Change       |   |     | Fiscal Year Ended |   |              | Change
|(In thousands)                          |  | July 2,2005       |    | June 26,2004 |   |     | June 26,2004      |   | June 28,2003 |        | 
|Equity in net income (loss) of investee |  | $                 | 46 |              | $ | 513 |                   | $ | (467         | )      |  | $ | 513 |  | $ | (739 | ) |  | $ | 1,252



Equity in net income (loss) of
investee is the Companys allocated portion of the net income or losses of Pericom Technology, Inc. (PTI), a British Virgin Islands corporation based in Shanghai, Peoples Republic of China. Pericom and certain Pericom
shareholders formed PTI in 1994 to develop and market semiconductors in China and certain other Asian countries. The Company adopted EITF 02-14 in the quarter ended December 31, 2004. This adoption did not cause the Company to cease recognizing its
allocated portion of the net income or losses of Pericom Technology, Inc. The Companys allocated portion of PTIs results declined to a profit of $46,000 for fiscal 2005 from a profit of $513,000 for fiscal 2004 due to telecommunications
revenue declines as a result of the slowdown in China telecommunications markets that PTI serves.



38



---

##### Table of Contents

The Companys allocated portion of PTIs results in fiscal 2004 which was a profit of $513,000 improved from a
loss of $739,000 in fiscal 2003 due to strength in the China telecommunications market and success with certain new consumer products both of which drove improvements in gross margin and profitability.



LIQUIDITY AND CAPITAL RESOURCES



As of July 2, 2005, the Companys principal sources of liquidity included cash, cash
equivalents and short-term investments of approximately $143.3 million as compared with $144.4 million as of June 26, 2004 and $149.0 million as of June 28, 2003. On September 7, 2005, the Company purchased for approximately $14.7 million a 99.93%
ownership position in eCERA Comtek Corporation (eCERA) of Taiwan. eCERA and its 50% owned subsidiary, AZER Crystal Technology Co, Ltd. (Axer) have been a key supplier of quartz crystal blanks and crystal oscillator products.
The Company has an option to purchase for approximately $1.4 million the remaining 50% of Azer within six months of September 7, 2005. Consequently, up to approximately $16.1 million of the companys cash, cash equivalents and short-term
investments may be used to complete these investments. As of July 2, 2005. $20.9 million is liquid and classified as cash and equivalents compared with $13.9 million as of June 26, 2004 and $9.7 million as of June 28, 2003. The maturities of the
Companys short term investments are staggered throughout the year so that cash requirements are met. Since the Company is a fabless semiconductor manufacturer, it has lower capital equipment requirements than other semiconductor manufacturers
that own fabs. For fiscal year 2005, the Company spent $2.8 million on property and equipment compared to $3.2 million and $1.8 million as of June 26, 2004 and 2003 respectively. Interest rates are at a historically low level although they have been
trending upwards as a result of actions taken by the Federal Reserve Board. The Company generated $3.8 million of interest income for the fiscal year ended July 2, 2005 compared to $3.7 million and $5.2 million in fiscal year ended June 26, 2004 and
June 28, 2003 respectively. In the longer term the Company may generate less interest income if its total invested balance decreases and these decreases are not offset by rising interest rates or increased cash generated from operations or other
sources.



The Companys net cash provided in operating activities of $3.0
million in fiscal 2005 was primarily a result of net income of $927,000, a $2.6 million decrease in inventories, including depreciation and amortization of $3.6 million, partially off-set by a decrease to accounts payable of $1.3 million, and an
increase in accounts receivable of $1.9 million. The decrease in accounts receivable is the result of a decrease in the accounts receivable allowance of approximately $1.5 million. This decrease is primarily due to a reduction in the reserves for
returned product at July 2, 2005 as compared with June 26, 2004. At June 28, 2004 the accounts receivable allowance included reserves for the return of product from terminated distributors as well as for the return of product associated with the
product end of life program then underway. On July 2,2005, there were no terminated distributors in the process of returning product and there was no product end of life program underway. a $502,000 reduction in accrued liabilities, and a $455,000
gain on sale or disposal of assets. The reduction in net inventories during fiscal year ended July 2, 2005 was largely due to inventory written off as well as a result of a concerted effort to reduce inventory levels to a lower level in fiscal year
2005. The decrease in accounts payable during this period was the result of routine period to period fluctuations. The increase in accounts receivable is primarily a result of a decrease in the accounts receivable allowance of approximately $1.9
million as a result of decreased RMAs & stock rotation, ship from stock & debit, and price protection. In fiscal year 2004, the Companys net cash used in operating activities of $20,000 was primarily due to net losses of $2.1
million, a $2.5 million increase in deferred income taxes and a $3.0 million increase in inventories partially offset by depreciation and amortization of $4.2 million and an increase to accounts payable of $2.0 million. These are net of the fair
value of the assets acquired and liabilities assumed of SaRonix LLC. The increase in inventories and accounts payable are primarily due to the growth in our operation. The Companys cash provided by operating activities of $2.1 million in
fiscal 2003 was primarily due to net losses of $4.3 million offset by depreciation and amortization of $3.9 million, and other-than-temporary decline in the value of investments of $1.2 million and a $1.6 million decrease in accounts receivable.



Generally, as sales levels rise, the Company expects inventories, accounts
receivable and accounts payable to increase. However, there will be routine fluctuations in these accounts from period to period that may be significant in amount.



39



---

##### Table of Contents

The Companys net cash provided by investing activities of $6.8 million in fiscal 2005 was primarily due to
maturities of short-term investments exceeding purchases by $7.5 million, proceeds from the sale of a building held for sale (a building in Ireland from the Saronix acquisition) of $2.0 million and the sale of a minority interest in a subsidiary of
$315,000 which were partially offset, and in part, by purchases of property and equipment of $2.8 million. The Companys cash provided by investing activities of $1.8 million in fiscal 2004 was primarily due to maturities of short-term
investments exceeding purchases by $6.0 million partially offset by loans to SaRonix of $1.2 million and purchases of property and equipment of $3.2 million. The Companys cash used in investing activities of $4.7 million for fiscal 2003 was
primarily due to $1.8 million of purchases of property and equipment, loans provided to SaRonix of $6.7 million and an investment of approximately $1.8 million increase in other assets primarily from an investment in GCT Semiconductor which was
partially offset by maturities of short-term investments exceeding purchases by $5.4 million.



The Companys cash used in financing activities in fiscal 2005 of $3.0 million was primarily due to the repurchase of $3.0 million in common stock and payment of a bank loan of $1.3 million, partially offset by
the sale of common stock from the Companys employee stock plans of $1.3 million. The Companys cash provided by financing activities in fiscal 2004 of $2.3 million was primarily due to the sale of common stock from the Companys
employee stock plans. The Companys cash used in financing activities in fiscal 2003 of $514,000 was due to the repurchase of common stock by the Company of $2.2 million, which was offset by proceeds received from the sale of common stock from
the Companys employee stock plans of $1.7 million.



The Companys
Board of Directors has approved the repurchase of up to 2,000,000 shares of the Companys common stock. As of July 2, 2005, the Company has repurchased 622,000 shares at a cost of approximately $5.2 million. In fiscal year 2005, there were
347,587 shares repurchased at an approximate cost of approximately $3.0 million. No shares were repurchased during fiscal year 2004. As of September 8, there were 274,500 shares repurchased at an approximate cost of $2.2 million. The Company intends
to continue repurchasing shares under this program over time depending upon price and share availability. Stock repurchases have been funded by current cash balances and the proceeds from stock option exercises and employee stock purchase plan
purchases. The Company expects to fund future stock repurchases from these same sources.



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



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



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



CONTRACTUAL OBLIGATIONS AND COMMITMENTS



The following table depicts our contractual obligations as of July 2, 2005 (in thousands):



|                                  |  |                        |       |                 |   |          |  |          |       |            |   |       |  |   |      
|--------------------------------- |  | ---------------------- | ----- | --------------- | - | -------- |  | -------- | ----- | ---------- | - | ----- |  | - | -----
|                                  |  | Payments Due by Period
|Contractual obligation            |  | Total                  |       | Less than1 Year |   | 1-3Years |  | 3-5Years |       | Thereafter
|Operating leases                  |  | $                      | 9,084 |                 | $ | 1,253    |  | $        | 2,000 |            | $ | 2,013 |  | $ | 3,818
|                                  |  |                        |       |                 |   |          |  |          |       |            |   |       |  |   |      
|Total contractual cash obligation |  | $                      | 9,084 |                 | $ | 1,253    |  | $        | 2,000 |            | $ | 2,013 |  | $ | 3,818
|                                  |  |                        |       |                 |   |          |  |          |       |            |   |       |  |   |      



The Company has no purchase
obligations other than routine purchase orders as of July 2, 2005.



40



---

##### Table of Contents

RECENTLY ISSUED ACCOUNTING STANDARDS



In March 2004, the EITF reached a consensus on Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments (EITF No. 03-01). EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and disclosures about unrealized losses on available-for-sale debt and equity
securities accounted for under the FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities. The additional disclosures for cost method investments are effective for fiscal years ending after June 15,
2004. For investments accounted for under FAS 115, the disclosures are effective in annual financial statements for fiscal years ending after December 15, 2003. The adoption of this standard did not have a material impact on the Companys
consolidated balance sheet or statement of operations.



In July 2004, the EITF
reached a consensus on Issue No. 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock (EITF No. 02-14). The consensus was that an investor should only apply the equity
method of accounting when it has investments in either common stock (as already required by Accounting Principles Board Opinion No. 18 (APB 18)) or in-substance common stock of a corporation, provided that the investor has the ability to
exercise significant influence over the operating and financial policies of the investee. EITF No. 02-14 defines in-substance common stock and provides guidance on determining whether an investment is substantially similar to the common stock of the
investee. EITF No. 02-14 was effective in the first reporting period beginning after September 15, 2004. Management determined that the Company will continue to apply the equity method of accounting and the adoption of this standard did not have a
material impact on the Companys consolidated balance sheet or statement of operations.



In September 2004, the EITF reached a consensus on EITF Issue No. 04-10, Applying Paragraph 19 of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131), in
Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds. The EITF clarifies the criteria for aggregating an operating segment that does not meet all of the aggregation criteria of FAS 131, but also
falls below the quantitative criteria that would dictate that the segment be reported separately. The consensus reached would enable an entity to aggregate two or more segments that have similar economic characteristics and share a majority of the
aggregation criteria of FAS 131. The EITF requires retroactive restatement to previous periods. The effective date of the EITF 04-10 has been delayed pending the release of an anticipated staff position that will address the meaning of similar
economic characteristics. We are assessing the impact if any this will have on the presentation of our financial statements.



In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments
for goods or services. In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107  Share-Based Payment, which provides interpretive guidance related to SFAS No. 123(R). SFAS No. 123(R) requires a
public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for annual reporting periods beginning on or after June 15, 2005. The Company will adopt SFAS 123(R) as of the beginning of the first quarter of fiscal year 2006
starting July 3, 2005. At July 2, 2005, Management expects the adoption of this statement to have an adverse impact on the Companys future results of operations.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29. This
standard amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, by eliminating the exception to fair value measurement for exchanges of similar productive assets and replaces it with a general exception for exchange
transactions that do not have commercial substance  that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. SFAS No. 153 will become effective for the Company for nonmonetary
asset exchanges occurring in the first quarter of fiscal 2006. The Company does not expect the adoption of SFAS No. 153 to have a material effect on its financial position, results of operation or cash flows.



41



---

##### Table of Contents

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



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement replaces APB No. 20 and SFAS No. 3 and changes the
requirements for the accounting for and reporting of a change in accounting principle. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the
cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective application to prior periods financial statements of voluntary changes in accounting principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 will have a significant impact on our results of operations or financial position.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



MARKET RISK DISCLOSURE



At July 2,
2005, our investment portfolio consisted primarily of fixed income securities, excluding those classified as cash equivalents, of $122.4 million (see Note 1 of Notes to Financial Statements). These securities are subject to interest rate risk and
will decline in value if market interest rates increase. Due to the short duration and conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. For example, if market interest rates were to
increase immediately and uniformly by 10% from levels as of July 2, 2005, the decline in the fair value of the portfolio would not have a material effect on our results of operations over the next fiscal year.



42



---

##### Table of Contents

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                                                                                                                                                                                                                     |  | 46      
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Consolidated Balance Sheets as of July 2, 2005 and June 26, 2004.                                                                                                                                                                                                           |  | 52      
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Consolidated Statements of Operations for each of the three fiscal years ended July 2, 2005                                                                                                                                                                                 |  | 53      
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for each of the three fiscal years ended July 2, 2005                                                                                                                                       |  | 54      
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Consolidated Statements of Cash Flows for each of the three fiscal years ended July 2, 2005                                                                                                                                                                                 |  | 55      
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                  |  | 56      
|   |  |                                                                                                                                                                                                                                                                            
|2. |  | INDEX TO FINANCIAL STATEMENT SCHEDULE                                                                                                                                                                                                                                       |  |         
|   |  |                                                                                                                                                                                                                                                                            
|   |  | The following financial statement schedule of Pericom Semiconductor Corp. for the years ended July 2, 2005, June 26, 2004, and June 28, 2003 is filed as part of this report and should be read
in conjunction with the Financial Statements of Pericom Semiconductor Corp. |  |         
|   |  |                                                                                                                                                                                                                                                                            
|   |  | Schedule II  Valuation and Qualifying Accounts for each of the three fiscal years in the period ended July 2, 2005                                                                                                                                                         |  | 77      



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



43



---

##### Table of Contents

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



Not Applicable



ITEM 9A. CONTROLS AND PROCEDURES



Disclosure
Controls and Procedures



Our management, with the participation of Alex C.
Hui, our Chief Executive Officer and, Michael D. Craighead, our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of
1934, as amended (the Exchange Act)) as of July 2, 2005. Based on their evaluation, our management has concluded that the process for the establishment of appropriate accounting procedures arising from significant changes in its business
operations failed. Specifically, we incurred increased research and development costs as many of our products were redesigned to be manufactured by a different manufacturing facility. Initially, these costs were expensed to research and development.
Subsequently, these costs were incorrectly removed from research and development expense and capitalized into inventory. As discussed in Note 18 to the Consolidated Financial Statements, the correction of this error resulted in the restatement of
our consolidated financial statements for the first, second, and third quarters of fiscal 2005, and in us recording adjustments to the fiscal 2005 financial statements. Management concluded that the restatement was the result of a material weakness
in the design of internal controls over financial reporting. Additionally, this material weakness could result in a misstatement of inventory, cost of goods sold, and research and development expenses that would result in a material misstatement to
our annual or interim financial statements that would not be prevented or detected. Additionally, based on their evaluation, our management has concluded that, due to our restatement as detailed above, our disclosure controls and procedures were not
effective as of July 2, 2005 for the purpose of alerting them on a timely basis to material information required to be included in the Companys reports filed or submitted under the Exchange Act.



Managements Report on Internal Control Over Financial Reporting



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



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



| | (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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of July 2, 2005. 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).



44



---

##### Table of Contents

A material weakness in internal control over financial reporting is a control deficiency (within the meaning of the
Public Company Accounting Oversight Boards (PCAOB) Auditing Standard No. 2), or a combination of control deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that, because of their likely significant negative effect on internal control over financial reporting, are to be
regarded as at least significant deficiencies, as well as strong indicators of a material weakness, including the restatement of previously issued consolidated financial statements to reflect the correction of a misstatement. As a result of the
material weakness related to our research and development accounting, we have concluded that, as of July 2, 2005, our internal control over financial reporting was not effective based on the criteria set forth in the COSO framework. We identified no
other material weaknesses in performing our assessment and reaching our conclusion.



Deloitte & Touche LLP, our independent auditors, has issued an attestation report on managements assessment of the Companys internal control over financial reporting, which is included in their report
on page 46.



Changes in Internal Controls over Financial Reporting



There were no changes in our internal control over
financial reporting that occurred during the fourth quarter of fiscal 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



The Company is in the process of designing internal control procedures to
remediate the material weakness and expects to complete the effort in the first quarter of fiscal 2006.



ITEM 9B. OTHER INFORMATION



Not applicable.



45



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of

Pericom Semiconductor Corporation:



We have audited managements assessment, included in the accompanying Managements Annual Report on Internal Controls Over
Financial Reporting, that Pericom Semiconductor Corporation and subsidiaries (the Company) did not maintain effective internal control over financial reporting as of July 2, 2005, because of the effect of the material weakness identified
in managements assessment, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on
the effectiveness of the Companys internal control over financial reporting based on our audit.



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



A companys internal control over financial reporting is a process designed by, or under
the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel 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 the inherent limitations of internal control
over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the 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 significant deficiency, or combination
of significant 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 weakness has been identified and included
in managements assessment: As of July 2, 2005, the Company did not have an effective control procedure for the evaluation of appropriate accounting principles related to the accounting consequences arising from significant changes in its
business operations. Specifically, the Company incurred increased research and development costs as it redesigned many of its products to be manufactured by a different manufacturing facility. Initially, these costs were expensed to research and
development. Subsequently, these costs were incorrectly capitalized into inventory. This material weakness resulted in adjustments that were included in the restatement of the Companys consolidated financial statements for the first, second,
and third quarters of fiscal 2005, and in the Company recording adjustments to the fiscal 2005 financial statements. Additionally, this material weakness could result in a misstatement of inventory, cost of goods sold, and research and development
expenses that would result in a material misstatement to annual or interim



46



---

##### Table of Contents

financial statements that would not be prevented or detected. This material weakness was considered in determining the
nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended July 2, 2005 of the Company, and this report does not affect our report on such
financial statements and financial statement schedule.



In our opinion,
managements assessment that the Company did not maintain effective internal control over financial reporting as of July 2, 2005, is fairly stated, in all material respects, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the
control criteria, the Company has not maintained effective internal control over financial reporting as of July 2, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.



We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended July 2, 2005 of the Company, and our report dated September 15,
2005 expressed an unqualified opinion on those financial statements and financial statement schedule.



/s/ DELOITTE & TOUCHE LLP



San Jose,
California

September 15, 2005



47



---

##### Table of Contents

PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The information required by this item is incorporated by reference to the section captioned Election of Directors to be contained in the Companys Definitive Proxy Statement related to the Annual
Meeting of Shareholders to be held December 14, 2005, to be filed by the Company with the Securities and Exchange Commission (the Proxy Statement).



ITEM 11. EXECUTIVE COMPENSATION



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



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



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



EQUITY COMPENSATION PLANS



The following table summarizes share and exercise price information about our equity
compensation plans as of July 2, 2005.



|                                                       |  |                                                                                         |  |                                                                          |       |                                                                       |          
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | --------------------------------------------------------------------- | ---------
|Plan Category                                          |  | Number of Securitiesto be Issued UponExercise ofOutstanding Options,Warrants and Rights |  | Weighted AverageExercise Price ofOutstanding Options,Warrants and Rights |       | Number of SecuritiesRemaining AvailableFor Future IssuanceUnder Plans
|Equity Compensation Plans Approved by Shareholders     |  |                                                                                         |  |                                                                          |       |                                                                       |          
|Option Plans                                           |  | 5,294,978                                                                               |  | $                                                                        | 11.57 |                                                                       | 2,420,010
|Employee Stock Purchase Plan                           |  |                                                                                        |  |                                                                          |      |                                                                       | 950,083  
|Equity Compensation Plans not Approved by Shareholders |  |                                                                                         |  |                                                                          |       |                                                                       |          
|SaRonix Inducement Options (1)                         |  | 248,500                                                                                 |  | $                                                                        | 10.00 |                                                                       |         
|                                                       |  |                                                                                         | 
|Total                                                  |  | 5,543,478                                                                               |  | $                                                                        | 11.50 |                                                                       | 3,370,093

---

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



Material Features of Equity Compensation Plans Not Approved by Shareholders



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



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



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



48



---

##### Table of Contents

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



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



PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



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



|      |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)   |   |  | Financial Statements and Financial Statement Schedule  See Index to Financial Statements and Financial Statement Schedule at Item 8 on Page 43 of this report.                                                                                                                                                                                                                                                                           
|      |  
|(2)   |   |  | Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Report:                                                                                                                                                                                                                                                                                                                                    
|      |  
|2.1   |   |  | Purchase Option Agreement dated as of January 28, 2003, by and between Pericom Semiconductor Corporation and SaRonix, LLC, filed as exhibit 2.1 to the Companys Form 8-K filed October 2,
2003, and incorporated herein by reference.                                                                                                                                                                                                    
|      |  
|2.2   |   |  | Amendment No. 1 to Purchase Option Agreement dated as of March 28, 2003, by and among Pericom Semiconductor Corporation, SaRonix, LLC and Ben Healy, filed as an exhibit 2.1.1 to the
Companys Form 8-K, filed October 2, 2003 and incorporated herein by reference.                                                                                                                                                                     
|      |  
|2.3   |   |  | Amendment No. 2 to Purchase Option Agreement dated as of September 26, 2003 by and among Pericom Semiconductor Corporation and SaRonix, LLC, filed as exhibit 2.1.2 to the Companys Form
8-K, filed October 2, 2003, and incorporated herein by reference.                                                                                                                                                                               
|      |  
|2.4   |   |  | Share Purchase Agreement, dated August 30, 2005, by and between Pericom Semiconductor Corporation, AKER Technology Company, Ltd. and Shi-Hsiung Stone Liu for the sale by AKER and purchase by
Pericom of 39,773,792 shares of common stock representing 99.93% of the outstanding common stock of eCERA Comtek Corporation, filed as Exhibit 2.1 to the Companys form 8-K, filed September 6, 2005 and incorporated herein by
reference.
|      |  
|2.5   |   |  | Share Purchase Agreement, dated August 30, 2005, by and between AKER Technology Company, Ltd., eCERA Comtek Corporation, and Shi-Hsiung Stone Liu for the sale by AKER and purchase by eCERA of
5,500,000 shares of common stock, representing 50% of the outstanding common stock of Azer Crystal Technology Co., Ltd. filed as Exhibit 2.1.1 to the Companys Form 8-K, filed September 6, 2005, and incorporated herein by
reference.  
|      |  
|3.1   |   |  | Restated Articles of Incorporation of the Registrant (1)                                                                                                                                                                                                                                                                                                                                                                                  
|      |  
|3.2   |   |  | Amended and Restated Bylaws of the Registrant (2)                                                                                                                                                                                                                                                                                                                                                                                         
|      |  
|3.3   |   |  | Certificate of Determination of the Series D Junior Participating Preferred Shares. Incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 30, 2002                                                                                                                                                                                                                       
|      |  
|4.1   |   |  | Rights Agreement between Pericom Semiconductor Corporation and Equiserve Trust Company, N.A. dated as of March 6, 2002 including Form of Right Certificate attached thereto as Exhibit B.
Incorporated by reference to Exhibit 4 to Registration Statement on Form 8-A filed by the Registrant dated March 12, 2002                                                                                                                       
|      |  
|10.1  | * |  | Registrants 1990 Stock Option Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                                         
|      |  
|10.2  | * |  | Registrants 1995 Stock Option Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                                         
|      |  
|10.3  | * |  | Registrants 1997 Employee Stock Purchase Plan, including Forms of Agreements thereunder (3)                                                                                                                                                                                                                                                                                                                                              
|      |  
|10.4  |   |  | Lease, dated November 29, 1993, by and between Orchard Investment Company Number 510 as Landlord and Registrant as Tenant, as amended (3)                                                                                                                                                                                                                                                                                                 
|      |  
|10.5  |   |  | Third Amendment to Lease, dated April 23, 1999, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (2)                                                                                                                                                                                                                                                                                                    
|      |  
|10.6  |   |  | Fourth Amendment to Lease, dated January 21, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (4)                                                                                                                                                                                                                                                                                                 
|      |  
|10.7  |   |  | Fifth Amendment to Lease, dated May 1, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (4)                                                                                                                                                                                                                                                                                                       
|      |  
|10.8  |   |  | Sixth Amendment to Lease, dated October 31, 2000, by and between CarrAmerica Realty Corporation as Landlord and Registrant as Tenant (6)                                                                                                                                                                                                                                                                                                  
|      |  
|10.11 |   |  | Form of Indemnification Agreement (3)                                                                                                                                                                                                                                                                                                                                                                                                     
|      |  
|10.12 |   |  | Pericom Technology Agreement, dated March 17, 1995 by and between the Registrant and Pericom Technology, Inc. (3)                                                                                                                                                                                                                                                                                                                         



49



---

##### Table of Contents

|      |   |  |                                                                                                                                                                                                                                                                  
|----- | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 | * |  | Registrants 2000 Employee Stock Purchase Plan, including forms of Agreement thereunder (5)                                                                                                                                                                      
|      |  
|10.14 | * |  | Registrants 2001 Stock Incentive Plan, including forms of Agreement thereunder (5)                                                                                                                                                                              
|      |  
|10.15 |   |  | Change of Control Agreement (7)                                                                                                                                                                                                                                  
|      |  
|10.16 |   |  | Form of Notice of Grant of Stock Option and Option Agreement for Inducement Options filed as Exhibit 10.1 to the Companys Form 10-Q for the quarter ended September 27, 2003 and
incorporated herein by reference.                                              
|      |  
|10.18 |   |  | Lease, dated October 27, 2003 by and between CarrAmerica Realty Corporation as Landlord and the Registrant as Tenant, as amended, filed as Exhibit 10.2 to the Companys form 10-Q for the
quarter ended September 27, 2003 and incorporated herein by reference.
|      |  
|10.19 | * |  | 2004 Stock Incentive Plan, filed as Appendix B to the Companys proxy statement for its 2004 annual meeting, filed on October 22, 2004 and incorporated herein by
reference.                                                                                     
|      |  
|10.20 | * |  | Amended and Restated 2001 Stock Incentive Plan and form of agreement thereunder, attached as Exhibit 10.2 to the Companys Form 8-K, filed December 21, 2004, and incorporated herein by
reference.                                                              
|      |  
|10.21 | * |  | Amended and Restated 2004 Stock Incentive Plan and form of agreement thereunder, attached as Exhibit 10.1 to the Companys Form 8-K, filed January 27, 2005, and incorporated herein by
reference.                                                               
|      |  
|14.1  |   |  | Pericom Semiconductor Corporation Code of Business Conduct and Ethics filed as Exhibit 14.1 to the Companys form 10-K for the year ended June 26, 2004 and incorporated herein by
reference.                                                                    
|      |  
|21.1  |   |  | Subsidiaries of Pericom Semiconductor Corporation                                                                                                                                                                                                                
|      |  
|23.1  |   |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                         
|      |  
|24.1  |   |  | Power of Attorney (See signature page of this report)                                                                                                                                                                                                            
|      |  
|31.1  |   |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|      |  
|31.2  |   |  | Certification of Michael D. Craighead, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                        
|      |  
|32.1  |   |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|      |  
|32.2  |   |  | Certification of Michael D. Craighead, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                        

---

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

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

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

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

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

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

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

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



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



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



50



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of

Pericom Semiconductor Corporation:



We have audited the accompanying consolidated balance sheets of Pericom Semiconductor Corporation and subsidiaries (the Company) as of July 2, 2005 and June
26, 2004, and the related consolidated statements of operations, shareholders equity and comprehensive income (loss), and cash flows for each of the three years in the period ended July 2, 2005. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(1). These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.



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



In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pericom Semiconductor Corporation and
subsidiaries at July 2, 2005 and June 26, 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 2, 2005, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of July 2, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated September 15, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial
reporting and an adverse opinion on the effectiveness of the Companys internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP



San Jose, California

September 15, 2005



51



---

##### Table of Contents

PERICOM SEMICONDUCTOR CORPORATION



CONSOLIDATED BALANCE SHEETS



(In thousands,
except share data)



|                                                                                                                                          |  |             |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                          |  | July 2,2005 |         |   | June 26,2004 |  
|ASSETS                                                                                                                                    |  |             |         |   |              |   |         |  
|Current assets:                                                                                                                           |  |             |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                 |  | $           | 20,902  |   |              | $ | 13,965  |  
|Short-term investments                                                                                                                    |  |             | 122,385 |   |              |   | 130,412 |  
|Accounts receivable:                                                                                                                      |  |             |         |   |              |   |         |  
|Trade (net of allowances of $2,239 and $4,128)                                                                                            |  |             | 7,629   |   |              |   | 5,308   |  
|Other                                                                                                                                     |  |             | 1,813   |   |              |   | 2,241   |  
|Inventories                                                                                                                               |  |             | 13,428  |   |              |   | 15,980  |  
|Prepaid expenses and other current assets                                                                                                 |  |             | 409     |   |              |   | 664     |  
|Deferred income taxes                                                                                                                     |  |             | 5,291   |   |              |   | 5,564   |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|Total current assets                                                                                                                      |  |             | 171,857 |   |              |   | 174,134 |  
|Property and equipmentnet                                                                                                                |  |             | 5,927   |   |              |   | 6,442   |  
|Investment in and advances to Pericom Technology Inc.                                                                                     |  |             | 5,932   |   |              |   | 5,694   |  
|Deferred income taxesnon current                                                                                                         |  |             | 2,205   |   |              |   | 1,419   |  
|Building held for sale                                                                                                                    |  |             |        |   |              |   | 1,532   |  
|Goodwill                                                                                                                                  |  |             | 1,325   |   |              |   | 1,325   |  
|Intangible assets (net of accumulated amortization of $208 and $89)                                                                       |  |             | 2,839   |   |              |   | 2,958   |  
|Other assets                                                                                                                              |  |             | 3,910   |   |              |   | 3,948   |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|Total                                                                                                                                     |  |             | 193,995 |   |              |   | 197,452 |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                      |  |             |         |   |              |   |         |  
|Current liabilities:                                                                                                                      |  |             |         |   |              |   |         |  
|Accounts payable                                                                                                                          |  | $           | 6,899   |   |              | $ | 8,153   |  
|Accrued liabilities                                                                                                                       |  |             | 5,470   |   |              |   | 5,972   |  
|Current portion of long term debt                                                                                                         |  |             |        |   |              |   | 1,291   |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|Total current liabilities                                                                                                                 |  |             | 12,369  |   |              |   | 15,416  |  
|Other long term liabilities                                                                                                               |  |             | 207     |   |              |   | 139     |  
|Minority interest in consolidated subsidiary                                                                                              |  |             | 257     |   |              |   |         |  
|Commitments (Note 11)                                                                                                                     |  |             |         |   |              |   |         |  
|Shareholders equity:                                                                                                                     |  |             |         |   |              |   |         |  
|Common stock and paid in capital  no par value, 60,000,000 shares authorized; shares outstanding: 2005, [26,358,100]; 2004,
[26,474,381] |  |             | 141,233 |   |              |   | 142,607 |  
|Accumulated other comprehensive income (loss)                                                                                             |  |             | (681    | ) |              |   | (393    | )
|Retained earnings                                                                                                                         |  |             | 40,610  |   |              |   | 39,683  |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|Total shareholders equity                                                                                                                |  |             | 181,162 |   |              |   | 181,897 |  
|                                                                                                                                          |  |             |         |   |              |   |         |  
|Total                                                                                                                                     |  |             | 193,995 |   |              |   | 197,452 |  
|                                                                                                                                          |  |             |         |   |              |   |         |  



See notes to
consolidated financial statements.



52



---

##### Table of Contents

PERICOM SEMICONDUCTOR CORPORATION



CONSOLIDATED STATEMENTS OF OPERATIONS



(In
thousands, except per share amounts)



|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|-------------------------------------------------------- |  | ----------- | ------ | - | ------------ | - | ------ | ------------ |  | - | ------- | -
|                                                         |  | Year Ended  |       
|                                                         |  | July 2,2005 |        |   | June 26,2004 |   |        | June 28,2003 | 
|Net revenues                                             |  | $           | 79,557 |   |              | $ | 66,417 |              |  | $ | 44,958  |  
|Cost of revenues                                         |  |             | 50,764 |   |              |   | 45,182 |              |  |   | 31,468  |  
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Gross profit                                             |  |             | 28,793 |   |              |   | 21,235 |              |  |   | 13,490  |  
|Operating expenses:                                      |  |             |        |   |              |   |        |              |  |   |         |  
|Research and development                                 |  |             | 15,767 |   |              |   | 14,161 |              |  |   | 11,347  |  
|Selling, general and administrative                      |  |             | 15,538 |   |              |   | 14,979 |              |  |   | 11,283  |  
|Restructuring charge                                     |  |             | 294    |   |              |   | 784    |              |  |   | 1,431   |  
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Total                                                    |  |             | 31,599 |   |              |   | 29,924 |              |  |   | 24,061  |  
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Loss from operations                                     |  |             | (2,806 | ) |              |   | (8,689 | )            |  |   | (10,571 | )
|Interest income                                          |  |             | 3,761  |   |              |   | 3,700  |              |  |   | 5,243   |  
|Other than temporary decline in the value of investments |  |             | (105   | ) |              |   | (14    | )            |  |   | (1,027  | )
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Income (loss) before income taxes                        |  |             | 850    |   |              |   | (5,003 | )            |  |   | (6,355  | )
|Income tax provision (benefit)                           |  |             | 27     |   |              |   | (2,380 | )            |  |   | (2,767  | )
|Minority interest in loss of consolidated subsidiary     |  |             | 58     |   |              |   |       |              |  |   |        |  
|Equity in net income (loss) of Pericom Technology, Inc.  |  |             | 46     |   |              |   | 513    |              |  |   | (739    | )
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Net income (loss)                                        |  | $           | 927    |   |              | $ | (2,110 | )            |  | $ | (4,327  | )
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Basic income (loss) per share                            |  | $           | 0.04   |   |              | $ | (0.08  | )            |  | $ | (0.17   | )
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Diluted income (loss) per share                          |  | $           | 0.03   |   |              | $ | (0.08  | )            |  | $ | (0.17   | )
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Shares used in computing basic income (loss) per share   |  |             | 26,476 |   |              |   | 26,075 |              |  |   | 25,721  |  
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  
|Shares used in computing diluted income (loss) per share |  |             | 27,188 |   |              |   | 26,075 |              |  |   | 25,721  |  
|                                                         |  |             |        |   |              |   |        |              |  |   |         |  



See notes to
consolidated financial statements.



53



---

##### Table of Contents

PERICOM SEMICONDUCTOR CORPORATION



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND

COMPREHENSIVE INCOME (LOSS)

(In thousands)



|                                                     |  |              |   |  |          |         |   |                                 |   |        |                     |  |   |        |   |  |   |         |  
|---------------------------------------------------- |  | ------------ | - |  | -------- | ------- | - | ------------------------------- | - | ------ | ------------------- |  | - | ------ | - |  | - | ------- | -
|                                                     |  | Common Stock |   |  | Retained |         |   | Accumulated Other Comprehensive |   |        | Total Shareholders | 
|                                                     |  | Shares       |   |  | Amount   |         |   | Earnings                        |   |        | Income (Loss)       |  |   | Equity |  
|BALANCES, June 29, 2002                              |  | 25,660       |   |  | $        | 139,345 |   |                                 | $ | 46,120 |                     |  | $ | 257    |   |  | $ | 185,722 |  
|Net loss                                             |  |             |   |  |          |        |   |                                 |   | (4,327 | )                   |  |   |       |   |  |   | (4,327  | )
|Unrealized gain on investments                       |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | 854    |   |  |   | 854     |  
|Currency translation gain                            |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | 18     |   |  |   | 18      |  
|Comprehensive loss                                   |  |             |   |  |          |        |   |                                 |   |       |                     |  |   |       |   |  |   |        |  
|Issuance of common stock under employee stock plans  |  | 380          |   |  |          | 1,686   |   |                                 |   |       |                     |  |   |       |   |  |   | 1,686   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |          | 570     |   |                                 |   |       |                     |  |   |       |   |  |   | 570     |  
|Repurchase and retirement of common stock            |  | (275         | ) |  |          | (2,200  | ) |                                 |   |       |                     |  |   |       |   |  |   | (2,200  | )
|                                                     |  |              |   |  |          |         |   |                                 |   |        |                     |  |   |        |   |  |   |         |  
|BALANCES, June 28, 2003                              |  | 25,765       |   |  |          | 139,401 |   |                                 |   | 41,793 |                     |  |   | 1,129  |   |  |   | 182,323 |  
|Net loss                                             |  |             |   |  |          |        |   |                                 |   | (2,110 | )                   |  |   |       |   |  |   | (2,110  | )
|Unrealized loss on investments                       |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | (1,641 | ) |  |   | (1,641  | )
|Currency translation gain                            |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | 119    |   |  |   | 119     |  
|Comprehensive loss                                   |  |             |   |  |          |        |   |                                 |   |       |                     |  |   |       |   |  |   |        |  
|Issuance of common stock under employee stock plans  |  | 709          |   |  |          | 2,428   |   |                                 |   |       |                     |  |   |       |   |  |   | 2,428   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |          | 778     |   |                                 |   |       |                     |  |   |       |   |  |   | 778     |  
|                                                     |  |              |   |  |          |         |   |                                 |   |        |                     |  |   |        |   |  |   |         |  
|BALANCES, June 26, 2004                              |  | 26,474       |   |  |          | 142,607 |   |                                 |   | 39,683 |                     |  |   | (393   | ) |  |   | 181,897 |  
|Net income                                           |  |             |   |  |          |        |   |                                 |   | 927    |                     |  |   |       |   |  |   | 927     |  
|Unrealized loss on investments                       |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | (416   | ) |  |   | (416    | )
|Currency translation gain                            |  |             |   |  |          |        |   |                                 |   |       |                     |  |   | 128    |   |  |   | 128     |  
|Comprehensive income                                 |  |             |   |  |          |        |   |                                 |   |       |                     |  |   |       |   |  |   |        |  
|Issuance of common stock under employee stock plans  |  | 231          |   |  |          | 1,294   |   |                                 |   |       |                     |  |   |       |   |  |   | 1,294   |  
|Tax benefit resulting from stock option transactions |  |             |   |  |          | 320     |   |                                 |   |       |                     |  |   |       |   |  |   | 320     |  
|Repurchase and retirement of common stock            |  | (348         | ) |  |          | (2,988  | ) |                                 |   |       |                     |  |   |       |   |  |   | (2,988  | )
|                                                     |  |              |   |  |          |         |   |                                 |   |        |                     |  |   |        |   |  |   |         |  
|BALANCES, July 2, 2005                               |  | 26,357       |   |  | $        | 141,233 |   |                                 | $ | 40,610 |                     |  | $ | (681   | ) |  | $ | 181,162 |  
|                                                     |  |              |   |  |          |         |   |                                 |   |        |                     |  |   |        |   |  |   |         |  



See notes to
consolidated financial statements.



54



---

##### Table of Contents

PERICOM SEMICONDUCTOR CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS



(In
thousands)



|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ------------ | - | -------- | ------------ |  | - | -------- | -
|                                                                                         |  | Years Ended  |         
|                                                                                         |  | July 2, 2005 |          |   | June 26,2004 |   |          | June 28,2003 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Net income (loss)                                                                        |  | $            | 927      |   |              | $ | (2,110   | )            |  | $ | (4,327   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |              |          |   |              |   |          |              |  |   |          |  
|Depreciation and amortization                                                            |  |              | 3,586    |   |              |   | 4,216    |              |  |   | 3,916    |  
|Purchased in-process technology                                                          |  |              |         |   |              |   | 360      |              |  |   |         |  
|Other than temporary decline in the value of investments                                 |  |              | 105      |   |              |   | 14       |              |  |   | 1,156    |  
|(Gain) loss on short-term investments                                                    |  |              | (51      | ) |              |   | 78       |              |  |   |         |  
|(Gain) loss on disposal of assets                                                        |  |              |         |   |              |   | 143      |              |  |   | (45      | )
|(Gain) loss on disposal of building held for sale                                        |  |              | (455     | ) |              |   |         |              |  |   |         |  
|Equity in net (income) loss of Pericom Technology, Inc.                                  |  |              | (46      | ) |              |   | (513     | )            |  |   | 739      |  
|Deferred income taxes                                                                    |  |              | (352     | ) |              |   | (3,298   | )            |  |   | (1,235   | )
|Minority interest in consolidated subsidiarys net loss                                  |  |              | (58      | ) |              |   |         |              |  |   |         |  
|Tax benefit resulting from stock option transactions                                     |  |              | 321      |   |              |   | 778      |              |  |   | 570      |  
|Changes in assets and liabilities net of effects of purchase of SaRonix LLC:             |  |              |          |   |              |   |          |              |  |   |          |  
|Accounts receivable                                                                      |  |              | (1,893   | ) |              |   | 450      |              |  |   | 1,550    |  
|Inventories                                                                              |  |              | 2,552    |   |              |   | (2,963   | )            |  |   | (624     | )
|Prepaid expenses and other current assets                                                |  |              | 54       |   |              |   | 875      |              |  |   | (3       | )
|Accounts payable                                                                         |  |              | (1,254   | ) |              |   | 2,004    |              |  |   | (374     | )
|Accrued liabilities                                                                      |  |              | (502     | ) |              |   | (14      | )            |  |   | 904      |  
|Other long term liabilities                                                              |  |              | 68       |   |              |   |         |              |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by operating activities                                                |  |              | 3,002    |   |              |   | 20       |              |  |   | 2,227    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Purchases of property and equipment                                                      |  |              | (2,770   | ) |              |   | (3,207   | )            |  |   | (1,842   | )
|Net proceeds from sale of property and equipment                                         |  |              |         |   |              |   | 83       |              |  |   | 212      |  
|Net proceeds from sale of building held for sale                                         |  |              | 2,005    |   |              |   |         |              |  |   |         |  
|Purchase of short-term investments                                                       |  |              | (447,913 | ) |              |   | (193,218 | )            |  |   | (172,936 | )
|Maturities of short-term investments                                                     |  |              | 455,413  |   |              |   | 199,173  |              |  |   | 178,371  |  
|Increase in other assets                                                                 |  |              | (67      | ) |              |   | (371     | )            |  |   | (1,784   | )
|Increase in investment in PTI                                                            |  |              | (192     | ) |              |   |         |              |  |   |         |  
|Cash received from SaRonix acquisition, net of transaction costs                         |  |              |         |   |              |   | 518      |              |  |   |         |  
|Loan to SaRonix                                                                          |  |              |         |   |              |   | (1,197   | )            |  |   | (6,703   | )
|Sale of minority interest                                                                |  |              | 315      |   |              |   |         |              |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |              | 6,791    |   |              |   | 1,781    |              |  |   | (4,682   | )
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |              |          |   |              |   |          |              |  |   |          |  
|Sale of common stock                                                                     |  |              | 1,294    |   |              |   | 2,428    |              |  |   | 1,686    |  
|Payment of Bank Loan for building in Ireland                                             |  |              | (1,251   | ) |              |   |         |              |  |   |         |  
|Principal payments on long-term debt and capital leases                                  |  |              | (40      | ) |              |   | (88      | )            |  |   |         |  
|Repurchase of common stock                                                               |  |              | (2,988   | ) |              |   |         |              |  |   | (2,200   | )
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |              | (2,985   | ) |              |   | 2,340    |              |  |   | (514     | )
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             |  |              | 128      |   |              |   | 119      |              |  |   | 18       |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |              | 6,936    |   |              |   | 4,260    |              |  |   | (2,951   | )
|CASH AND CASH EQUIVALENTS:                                                               |  |              |          |   |              |   |          |              |  |   |          |  
|Beginning of period                                                                      |  |              | 13,965   |   |              |   | 9,705    |              |  |   | 12,656   |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|End of period                                                                            |  | $            | 20,901   |   |              | $ | 13,965   |              |  | $ | 9,705    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                        |  |              |          |   |              |   |          |              |  |   |          |  
|Cash received (paid) during the period for income taxes                                  |  | $            | (13      | ) |              | $ | 1,962    |              |  | $ | 2,097    |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Cash (paid) during the period for interest                                               |  | $            | (1       | ) |              | $ | (40      | )            |  | $ |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                   |  |              |          |   |              |   |          |              |  |   |          |  
|Fair value of SaRonix, LLC assets acquired                                               |  | $            |         |   |              | $ | 14,053   |              |  | $ |         |  
|Acquisition related costs                                                                |  |              |         |   |              |   | (1,731   | )            |  |   |         |  
|Loans forgiven                                                                           |  |              |         |   |              |   | (7,900   | )            |  |   |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  
|Liabilities assumed                                                                      |  | $            |         |   |              | $ | 4,422    |              |  | $ |         |  
|                                                                                         |  |              |          |   |              |   |          |              |  |   |          |  



See notes to
consolidated financial statements.



55



---

##### Table of Contents

PERICOM SEMICONDUCTOR CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FISCAL YEARS ENDED JUNE 30, 2005, 2004 AND 2003



1. BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES



Pericom Semiconductor Corporation
(the Company) was incorporated in June 1990. The Company designs, manufactures and markets high performance digital, analog and mixed-signal integrated circuits and frequency control products 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 two wholly owned subsidiaries, Pericom Semiconductor (HK) Limited, and SaRonix, Incorporated as well as its majority owned subsidiary Pericom Taiwan Limited Corporation. Pericom Semiconductor (HK) Limited was incorporated
in Hong Kong on May 31, 2000 and is engaged in circuit design services solely for Pericom Semiconductor Corporation. Pericom Taiwan Limited Corporation was incorporated in Taiwan on April 29, 2003 and is initially engaged in the design, field
application engineering and marketing of ICs targeted at Taiwanese customers and will engage in other circuit design services for Pericom Semiconductor Corporation. SaRonix, Incorporated was incorporated on September 18, 2003 to purchase
substantially all of the assets and related liabilities of SaRonix, LLC, and is engaged in the design, manufacture and marketing of frequency control products. All significant intercompany balances and transactions are eliminated in consolidation.



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



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



SHORT-TERM
INVESTMENTS  The Companys policy is to invest in short-term instruments with investment grade credit ratings. The Company classifies its short-term investments as available-for-sale or trading securities
and the cost of securities sold is based on the specific identification method. At July 2, 2005 short-term investments, and any difference between the fair market value and the underlying cost of such investments, consisted of the following (in
thousands):



Available for Sale Securities:



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



56



---

##### Table of Contents

The following table shows the gross unrealized losses and market value of the Companys investments with unrealized
losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at July 2, 2005.



|                                 |  |                     |        |                       |   |            |  |                       |        |            |   |                       |  |   |         |  |   |      
|-------------------------------- |  | ------------------- | ------ | --------------------- | - | ---------- |  | --------------------- | ------ | ---------- | - | --------------------- |  | - | ------- |  | - | -----
|                                 |  | Less Than 12 Months |        | 12 Months or Greater  |   | Total     
|                                 |  | Fair Value          |        | GrossUnrealizedLosses |   | Fair Value |  | GrossUnrealizedLosses |        | Fair Value |   | GrossUnrealizedLosses
|Corporate bonds and notes        |  | $                   | 15,195 |                       | $ | 189        |  | $                     | 37,921 |            | $ | 560                   |  | $ | 53,116  |  | $ | 749  
|Government securities            |  |                     | 18,291 |                       |   | 223        |  |                       | 15,087 |            |   | 232                   |  |   | 33,378  |  |   | 455  
|Asset/mortgage backed securities |  |                     | 24,808 |                       |   | 240        |  |                       | 8,520  |            |   | 149                   |  |   | 33,328  |  |   | 389  
|                                 |  |                     |        |                       |   |            |  |                       |        |            |   |                       |  |   |         |  |   |      
|                                 |  | $                   | 58,294 |                       | $ | 652        |  | $                     | 61,528 |            | $ | 941                   |  | $ | 119,822 |  | $ | 1,593
|                                 |  |                     |        |                       |   |            |  |                       |        |            |   |                       |  |   |         |  |   |      



Trading Securities:



|                          |  |                                |      |                                 |                     |   |                            |  |   |                     |   |  |   |    
|------------------------- |  | ------------------------------ | ---- | ------------------------------- | ------------------- | - | -------------------------- |  | - | ------------------- | - |  | - | ---
|                          |  | Fiscal Year Ended July 2, 2005 |      | Fiscal Year Ended June 26, 2004
|(In thousands)            |  | Net UnrealizedGains (Loss)     |      |                                 | EstimatedFair Value |   | Net UnrealizedGains (Loss) |  |   | EstimatedFair Value
|Corporate bonds and notes |  | $                              | (126 | )                               |                     | $ | 932                        |  | $ | (23                 | ) |  | $ | 972
|Funds                     |  |                                | 0    |                                 |                     |   | 125                        |  |   | (40                 | ) |  |   | 831
|                          |  |                                |      |                                 |                     |   |                            |  |   |                     |   |  |   |    
|Total Trading Assets      |  | $                              | (126 | )                               |                     | $ | 1,057                      |  | $ | (63                 | ) |  | $ | 803
|                          |  |                                |      |                                 |                     |   |                            |  |   |                     |   |  |   |    



At June 26, 2004 short-term
investments, and any difference between the fair market value and the underlying cost of such investments, consisted of the following (in thousands):



|                                   |  |               |         |                      |   |                       |  |             |       |  |   |        
|---------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | ----------- | ----- |  | - | -------
|                                   |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | MarketValue
|Corporate bonds and notes          |  | $             | 59,724  |                      | $ | 1,311                 |  | $           | 23    |  | $ | 60,971 
|Government securities              |  |               | 43,906  |                      |   |                      |  |             | 2,277 |  |   | 41,629 
|Asset / mortgage backed securities |  |               | 27,034  |                      |   |                      |  |             | 53    |  |   | 26,981 
|Funds                              |  |               | 831     |                      |   |                      |  |             | 40    |  |   | 831    
|                                   |  |               |         |                      |   |                       |  |             |       |  |   |        
|                                   |  | $             | 131,495 |                      | $ | 1,311                 |  | $           | 2,394 |  | $ | 130,412
|                                   |  |               |         |                      |   |                       |  |             |       |  |   |        



57



---

##### Table of Contents

At July 2, 2005, June 26, 2004 and June 28, 2003 these investments had the following maturities (in thousands):



|                            |  |                          |         |                          |   |                          |  |   |        
|--------------------------- |  | ------------------------ | ------- | ------------------------ | - | ------------------------ |  | - | -------
|                            |  | MarketValue July 2, 2005 |         | MarketValueJune 26, 2004 |   | MarketValueJune 28, 2003
|One year or less            |  | $                        | 47,431  |                          | $ | 23,502                   |  | $ | 53,774 
|Between one and three years |  |                          | 70,982  |                          |   | 98,907                   |  |   | 76,035 
|Greater than three years    |  |                          | 3,972   |                          |   | 8,003                    |  |   | 9,476  
|                            |  |                          |         |                          |   |                          |  |   |        
|                            |  | $                        | 122,385 |                          | $ | 130,412                  |  | $ | 139,285
|                            |  |                          |         |                          |   |                          |  |   |        



In fiscal 2005, 2004 and 2003 realized
gains on short-term investments were $125,000, $338,000 and $769,000, respectively.



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



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



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



OTHER ASSETS include investments in
privately held companies, assets held for sale and deposits. Investments in privately held companies are carried at the lower of cost or market if the investment has experienced an other than temporary decline in value. Assets held for sale are
carried at the lower of the assets carrying amount or fair value less costs to sell.



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



INCOME TAXES  The Company accounts
for income taxes under Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes, which requires an asset and liability approach to recording deferred taxes. A valuation allowance is recorded to
reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.



STOCK-BASED COMPENSATION The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and all of its interpretations and presents pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure.



The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, which requires that the fair value of such instruments be recognized as an expense over the period in which the related services are received.



SFAS No. 148, requires the disclosure of pro forma net income as if the Company had adopted
the fair value method as of the beginning of fiscal 1996. Under SFAS No. 148, the fair value of stock-based awards



58



---

##### Table of Contents

to employees is calculated through the use of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the terms of the Companys stock option awards. These models also require subjective assumptions, including expected
time to exercise, which greatly affect the calculated values. The Companys calculations were made using the Black-Scholes option-pricing model with the following weighted average assumptions for the Companys stock option grants:



|                            |  |            |  |            |  |           
|--------------------------- |  | ---------- |  | ---------- |  | ----------
|                            |  | 2005       |  | 2004       |  | 2003      
|Expected life               |  | 5.9 years  |  | 5 years    |  | 5 years   
|Risk-free interest rate     |  | 3.49-3.88% |  | 2.99-3.72% |  | 2.57-3.18%
|Volatility range (low/high) |  | 33%-37%    |  | 41%-52%    |  | 40%-73%   
|Dividend yield              |  | 0.00%      |  | 0.00%      |  | 0.00%     



The following weighted average
assumptions are included in the estimated grant date fair value calculations for rights to purchase stock under the Stock Purchase Plan:



|                            |  |          |  |          |  |         
|--------------------------- |  | -------- |  | -------- |  | --------
|                            |  | 2005     |  | 2004     |  | 2003    
|Expected life               |  | 3 months |  | 3 months |  | 3 months
|Risk-free interest rate     |  | 1.5-2.9% |  | 0.9-1.1% |  | 1.1-1.7%
|Volatility range (low/high) |  | 30%-37%  |  | 46%-51%  |  | 47%-77% 
|Dividend yield              |  | 0.00%    |  | 0.00%    |  | 0.00%   



Note that the volatility range
disclosed is the high and low of the four volatility figures for a given year.



PRO FORMA NET LOSS AND LOSS PER SHARE



Had the Company
amortized to expense the computed fair values of the 2005, 2004 and 2003 awards under the 1990 Stock Option Plan, 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix Acquisition Stock Option Plan, and 2000 Employee Stock Purchase Plan, the
Companys pro forma net loss and loss per share for the three fiscal years in the period ended July 2, 2005 would have been as follows (in thousands, except per share amounts):



|                                                                                                                            |  |      |        |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                            |  | 2005 |        |   | 2004 |   |         | 2003 | 
|Net loss as reported                                                                                                        |  | $    | 927    |   |      | $ | (2,110  | )    |  | $ | (4,327  | )
|Less: Total stock-based employee compensation determined under fair value based method for all awards, net of related taxes |  |      | (7,432 | ) |      |   | (8,009  | )    |  |   | (6,219  | )
|                                                                                                                            |  |      |        |   |      |   |         |      |  |   |         |  
|Pro forma net loss                                                                                                          |  | $    | (6,505 | ) |      | $ | (10,119 | )    |  | $ | (10,546 | )
|                                                                                                                            |  |      |        |   |      |   |         |      |  |   |         |  
|Loss per share:                                                                                                             |  |      |        |   |      |   |         |      |  |   |         |  
|Basic  as reported                                                                                                         |  | $    | 0.04   |   |      | $ | (0.08   | )    |  | $ | (0.17   | )
|Diluted  as reported                                                                                                       |  | $    | 0.03   |   |      | $ | (0.08   | )    |  | $ | (0.17   | )
|Basic and diluted  proforma                                                                                                |  | $    | (0.25  | ) |      | $ | (0.39   | )    |  | $ | (0.41   | )



REVENUE RECOGNITION
The Company recognizes revenue from the sale of its products upon shipment, provided title and risk of loss has passed to the customer, the fee is fixed or determinable and collection of the revenue is reasonably assured. A provision for
estimated future returns and other charges against revenue is recorded at the time of shipment. For the fiscal year ended July 2, 2005 the majority of the Companys sales were to distributors.



The Company sells products to large, domestic distributors at the price listed in its
price book for that distributor. The Company recognizes revenue at the time of shipment. At the time of sale the Company books a sales reserve for ship from stock and debits (SSDs), stock rotations, return material authorizations
(RMAs), authorized price protection programs, and any special programs approved by management. The sales reserve is offset against revenues, which then leads to the net revenue amount reported.



59



---

##### Table of Contents

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



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



From time to time, customers may request to return parts for various reasons including the customers belief that the parts are not performing to specification. Many such return requests are the result of
customers incorrectly using the parts, not because the parts are defective. These requests are reviewed by management and when approved result in a return material authorization (RMA) being established. The Company is only obligated to
accept returns of defective parts. For customer convenience, the Company may approve a particular return request, even though it is not obligated to do so. Each month a sales reserve is recorded for the approved RMAs that have not yet been returned.
The Company does not keep a general warranty reserve because historically valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and parts can frequently be re-sold to other
customers for use in other applications.



Price protection is granted solely at
the discretion of Pericom management. The purpose of price protection is to reduce the distributors cost of inventory as market prices fall thus reducing SSD rates. Price protection proposals for individual products located at individual
distributors are prepared by Pericom sales management. Pericom general management reviews these proposals and if a particular price protection arrangement is approved, then the dollar impact will be estimated based on the book price reduction per
unit for the products approved and the number of units of those products in that distributors inventory. A sales reserve is then recorded in that period for the estimated amount in accordance with Issue 4 of Emerging Issues Task Force Issue
No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products).



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



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



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



60



---

##### Table of Contents

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 RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized.
On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company accrues for the estimated cost at the time the decision to accept the return is made. As a consequence of
the Companys standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.



SHIPPING COSTS  Shipping costs are charged to cost of goods sold
as incurred.



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



The Company participates in a dynamic high technology industry and believes that changes in
any of the following areas could have a material adverse effect on the Companys future financial position or results of operations: advances and trends in new technologies; competitive pressures in the form of new products or price reductions
on current products; changes in product mix; changes in the overall demand for products and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent, product,
regulatory or other factors; risks associated with having a concentration of a few suppliers; risks associated with changes in domestic and international economic and/or political conditions or regulations; availability of necessary components; and
the Companys ability to attract and retain employees necessary to support its growth.



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



RECENTLY ISSUED ACCOUNTING STANDARDS



In March 2004, the EITF reached a consensus on Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
(EITF No. 03-01). EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and disclosures about unrealized losses on available-for-sale debt and equity securities accounted for under the
FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities. The additional disclosures for cost method investments are effective for fiscal years ending after June 15, 2004. For investments accounted for
under FAS 115, the disclosures are effective in annual financial statements for fiscal years ending after December 15, 2003. The adoption of this standard did not have a material impact on the Companys consolidated balance sheet or statement
of operations.



In July 2004, the EITF reached a consensus on Issue No. 02-14,
Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock (EITF No. 02-14). The consensus was that an investor should only apply the equity method of accounting when it has
investments in either common stock (as already required by Accounting Principles Board Opinion No. 18 (APB 18)) or in-substance common stock of a corporation, provided that the investor has the ability to exercise significant influence
over the operating and financial policies of the investee. EITF No. 02-14 defines in-substance common stock and provides guidance on determining whether an investment is substantially similar to the common stock of the investee. EITF No. 02-14
should be applied in the first reporting period beginning after September 15, 2004. Management determined that the Company will continue to apply the equity method of accounting and the adoption of this standard did not have a material impact on the
Companys consolidated balance sheet or statement of operations.



61



---

##### Table of Contents

In September 2004, the EITF reached a consensus on EITF Issue No. 04-10, Applying Paragraph 19 of FASB Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131), in Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds. The EITF clarifies the criteria for aggregating an
operating segment that does not meet all of the aggregation criteria of FAS 131, but also falls below the quantitative criteria that would dictate that the segment be reported separately. The consensus reached would enable an entity to aggregate two
or more segments that have similar economic characteristics and share a majority of the aggregation criteria of FAS 131. The EITF requires retroactive restatement to previous periods. The effective date of the EITF 04-10 has been delayed pending the
release of an anticipated staff position that will address the meaning of similar economic characteristics. We are assessing the impact if any this will have on the presentation of our financial statements.



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107
 Share-Based Payment, which provides interpretive guidance related to SFAS No. 123(R). SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for annual reporting periods beginning on or
after June 15, 2005. The Company will adopt SFAS 123(R) as of the beginning of the first quarter of fiscal year 2006 starting July 3, 2005. Management expects the adoption of this statement to have an adverse impact on the Companys future
results of operations



In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29. This standard amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, by eliminating the exception to fair value measurement for exchanges
of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance  that is, transactions that are not expected to result in significant changes in the cash flows of the
reporting entity. SFAS No. 153 will become effective for the Company for nonmonetary asset exchanges occurring in the first quarter of fiscal 2006. The Company does not expect the adoption of SFAS No. 153 to have a material effect on its financial
position, results of operation or cash flows.



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



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. APB No. 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change the cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective application to prior periods financial statements of voluntary
changes in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 will have a significant impact on our
results of operations or financial position.



62



---

##### Table of Contents

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



EARNINGS PER SHARE  Basic earnings per share is based upon the weighted
average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.



Basic and diluted earnings (loss) per share for each of the three years in the period ended
July 2, 2005 is as follows (in thousands):



|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|----------------------------------------------------------------------------- |  | ----------- | ------ | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                                              |  | Year Ended  |       
|                                                                              |  | July 2,2005 |        | June 26,2004 |   |        | June 28,2003 | 
|Net income (loss)                                                             |  | $           | 927    |              | $ | (2,110 | )            |  | $ | (4,327 | )
|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|Computation of common shares outstanding  basic loss per share:              |  |             |        |              |   |        |              |  |   |        |  
|Weighted average common stock                                                 |  |             | 26,476 |              |   | 26,075 |              |  |   | 25,721 |  
|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|Basic earnings (loss) per share                                               |  | $           | 0.04   |              | $ | (0.08  | )            |  | $ | (0.17  | )
|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|Computation of common shares outstanding  diluted earnings (loss) per share: |  |             |        |              |   |        |              |  |   |        |  
|Weighted average common stock                                                 |  |             | 26,476 |              |   | 26,075 |              |  |   | 25,721 |  
|Dilutive options using the treasury stock method                              |  |             | 712    |              |   |       |              |  |   |       |  
|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|Shares used in computing diluted loss per share                               |  |             | 27,188 |              |   | 26,075 |              |  |   | 25,721 |  
|                                                                              |  |             |        |              |   |        |              |  |   |        |  
|Diluted earnings (loss) per share                                             |  | $           | 0.03   |              | $ | (0.08  | )            |  | $ | (0.17  | )



Options to purchase 3,877,288,
5,550,513, and 5,552,412 shares of Common Stock were outstanding as of July 2, 2005, June 26, 2004 and June 28, 2003, respectively, and were excluded from the computation of diluted net earnings (loss) per share because such options were
anti-dilutive.



2. OTHER ACCOUNTS RECEIVABLE



Other accounts receivable consist of (in thousands):



|                          |  |             |       |              |   |      
|------------------------- |  | ----------- | ----- | ------------ | - | -----
|                          |  | As of      
|                          |  | July 2,2005 |       | June 26,2004
|Interest receivable       |  | $           | 1,317 |              | $ | 1,337
|Other accounts receivable |  |             | 496   |              |   | 904  
|                          |  |             |       |              |   |      
|                          |  | $           | 1,813 |              | $ | 2,241
|                          |  |             |       |              |   |      



3. INVENTORIES



Inventories consist of (in thousands):



|                |  |             |        |              |   |       
|--------------- |  | ----------- | ------ | ------------ | - | ------
|                |  | As of      
|                |  | July 2,2005 |        | June 26,2004
|Finished goods  |  | $           | 6,130  |              | $ | 7,424 
|Work-in-process |  |             | 3,562  |              |   | 3,588 
|Raw materials   |  |             | 3,736  |              |   | 4,968 
|                |  |             |        |              |   |       
|                |  | $           | 13,428 |              | $ | 15,980
|                |  |             |        |              |   |       



63



---

##### Table of Contents

Raw material inventory is considered obsolete and written off if it has not moved in 270 days. By part number, the
quantity of assembled devices in inventory that is in excess of the greater of the quantity shipped in the previous twelve months or the quantity in backlog are considered obsolete and written off. In certain circumstances, management will
determine, based on expected usage or other factors, that inventory considered obsolete by these guidelines should not be written off. At July 2, 2005 $9,186,000 of inventory on hand had been written off as compared with $8,110,000 at June 26, 2004.
During the twelve months ended July 2, 2005 the Company wrote off $1,044,000 of inventory related to a product end-of-life program.



During the twelve months ended July 2, 2005, and June 26, 2004, gross profit and gross margin benefited as a result of the sale of inventory of $491,000 and $487,000,
respectively, which had been previously identified as obsolete and written down to zero.



4. PROPERTY AND EQUIPMENT  NET



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



|                                          |  |             |         |   |              |   |         |  
|----------------------------------------- |  | ----------- | ------- | - | ------------ | - | ------- | -
|                                          |  | As of       |        
|                                          |  | July 2,2005 |         |   | June 26,2004 |  
|Machinery and equipment                   |  | $           | 12,492  |   |              | $ | 12,084  |  
|Computer equipment and software           |  |             | 10,348  |   |              |   | 10,263  |  
|Furniture and fixtures                    |  |             | 708     |   |              |   | 725     |  
|Leasehold improvements                    |  |             | 721     |   |              |   | 645     |  
|                                          |  |             |         |   |              |   |         |  
|Total                                     |  |             | 24,269  |   |              |   | 23,717  |  
|Accumulated depreciation and amortization |  |             | (18,794 | ) |              |   | (17,409 | )
|Construction-in-progress                  |  |             | 452     |   |              |   | 134     |  
|                                          |  |             |         |   |              |   |         |  
|Property and equipment  net              |  | $           | 5,927   |   |              | $ | 6,442   |  
|                                          |  |             |         |   |              |   |         |  



Depreciation expense for the years
ended July 2, 2005 and June 26, 2004 was $3.5 million and $3.8 million, respectively.



5. OTHER ASSETS



Other assets consist of (in thousands):



|                                       |  |             |       |              |   |      
|-------------------------------------- |  | ----------- | ----- | ------------ | - | -----
|                                       |  | As of      
|                                       |  | July 2,2005 |       | June 26,2004
|Investment in privately held companies |  | $           | 2,819 |              | $ | 2,885
|Assets held for sale                   |  |             | 550   |              |   | 848  
|Deposits                               |  |             | 218   |              | $ | 214  
|Other                                  |  |             | 323   |              |   | 1    
|                                       |  |             |       |              |   |      
|Total                                  |  | $           | 3,910 |              | $ | 3,948
|                                       |  |             |       |              |   |      



Assets held for sale included
manufacturing equipment with a carrying value of approximately $550,000 & $848,000 at July 2, 2005 and June 26, 2004, respectively. The equipment held as of July 2, 2005 will be sold to a subcontract-manufacturing vendor to increase its
capacity. The Company expects to complete the sale of this equipment in fiscal 2006



The Company has investments in certain privately held and public companies, which it accounts for under the cost method. The carrying amount of other such investments was approximately $2.8 million and $2.9 million at July 2, 2005 and June
26, 2004, respectively, and these amounts are recorded in other assets. The Company recorded write offs of certain investments totaling approximately $1.0 million in 2003 as the Company determined that these investments had experienced an other than
temporary decline in value. There were no significant investment write offs in 2004 or 2005.



64



---

##### Table of Contents

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



The Company has an approximate 45% ownership interest in Pericom Technology, Inc.
(PTI) The investment in PTI is accounted for using the equity method due to the Companys significant influence over its operations. In addition, certain of the directors of the Company are also directors of PTI, and certain
shareholders of the Company are also shareholders of PTI. At July 2, 2005 and June 26, 2004 the difference between the carrying value and the underlying equity in the net assets of PTI was approximately ($672,000) and ($668,000), respectively. PTI
was incorporated in 1994 and in 1995 established a design center and sales office to pursue opportunities and participate in joint ventures in China. During the years ended June 26, 2004 and June 28, 2003, the Company sold $142,000 and $66,000
respectively, in services to PTI. The Company sold no services to PTI during the year ended July 2, 2005. During the years ended July 2, 2005, June 26, 2004 and June 28, 2003, the Company purchased $383,000, $763,000 and $557,000 in goods and
services from PTI, respectively. At July 2, 2005, June 26, 2004 and June 28, 2003, $57,000, $354,000 and $152,000 respectively, was owed to the Company by PTI for reimbursement of certain administrative expenses incurred by the Company on behalf of
PTI and for advances made to PTI by the Company. Condensed financial information of PTI at July 2, 2005 and June 26, 2004 is as follows (in thousands):



|                          |  |      |        |   |      |   |        |  
|------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                          |  | 2005 |        |   | 2004 |  
|Total assets              |  | $    | 12,961 |   |      | $ | 12,691 |  
|Total liabilities         |  | $    | 1,271  |   |      | $ | 1,270  |  
|Total equity              |  | $    | 11,690 |   |      | $ | 11,421 |  
|Revenue                   |  | $    | 6,166  |   |      | $ | 7,558  |  
|Cost of revenues          |  |      | 3,035  |   |      |   | 3,902  |  
|                          |  |      |        |   |      |   |        |  
|Gross profit              |  |      | 3,131  |   |      |   | 3,656  |  
|                          |  |     
|Expenses                  |  |      | 3,665  |   |      |   | 4,093  |  
|                          |  |      |        |   |      |   |        |  
|Operating income (loss)   |  |      | (534   | ) |      |   | (437   | )
|Interest and other income |  |      | 596    |   |      |   | 1,128  |  
|Net income (loss)         |  | $    | 62     |   |      | $ | 691    |  
|                          |  |      |        |   |      |   |        |  



7. BUSINESS COMBINATIONS



Acquisition of Assets of SaRonix, LLC.



On October 1, 2003 the Company, acting through a wholly owned subsidiary, exercised its
option to acquire substantially all the assets and related liabilities of privately held SaRonix, LLC (SaRonix). The primary reason for the acquisition was to expand the breadth of the Companys portfolio of timing solutions. Total
consideration paid was approximately $7,900,000 in the form of the cancellation of previously advanced loans pursuant to the terms of a Secured Loan Agreement. The Company also incurred approximately $1,731,000 in acquisition related costs, for a
total purchase price of approximately $9,631,000. SaRonix designs, manufactures and distributes industry-standard and custom frequency control products (FCP) including Crystal and Surface Acoustic Wave Oscillators, Quartz Crystals, and Timing
Modules. The Company acquired SaRonix for this complementary portfolio of timing solutions.



65



---

##### Table of Contents

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



|                                                 |  |   |        |  
|------------------------------------------------ |  | - | ------ | -
|Current assets                                   |  | $ | 7,005  |  
|Property and equipment                           |  |   | 1,173  |  
|Building held for sale                           |  |   | 1,532  |  
|Other assets                                     |  |   | 616    |  
|Other intangible assets subject to amortization: |  |   |        |  
|Customer backlog                                 |  |   | 320    |  
|Core developed technology                        |  |   | 1,189  |  
|In-process research and development              |  |   | 360    |  
|Supplier relationship                            |  |   | 901    |  
|Trade name                                       |  |   | 957    |  
|                                                 |  |   |        |  
|Total assets acquired                            |  |   | 14,053 |  
|                                                 | 
|Current liabilities                              |  |   | (4,422 | )
|                                                 |  |   |        |  
|Total liabilities assumed                        |  |   | (4,422 | )
|                                                 |  |   |        |  
|Net assets acquired                              |  | $ | 9,631  |  
|                                                 |  |   |        |  



The Company amortized customer backlog
over the three months ended December 31, 2003. Supplier relationship and trade name will not be amortized, but will be reviewed at least annually for impairment. Core developed technology will be amortized over its estimated useful life of ten
years. Intangible asset amortization expense for the fiscal years ended July 2, 2005 and June 26, 2004 was $119,000 and $89,000, respectively. Amortization for each fiscal year through 2013 will be $119,000 per year and amortization for 2014 will be
$30,000.



Approximately $360,000 of the purchase price was allocated to the
estimated fair value of in-process research and development projects. The estimated future cost to complete these projects was approximately $300,000. At the date of acquisition, these projects had not reached technological feasibility and had no
future alternative use. Accordingly, the value allocated to these projects was immediately expensed in research and development on the acquisition date. As of July 2, 2005 all of these projects had either been completed or cancelled.



8. ACCRUED LIABILITIES



Accrued liabilities consist of (in thousands):



|                                          |  |             |       |              |   |      
|----------------------------------------- |  | ----------- | ----- | ------------ | - | -----
|                                          |  | As of      
|                                          |  | July 2,2005 |       | June 26,2004
|Accrued compensation                      |  | $           | 2,449 |              | $ | 2,202
|Accrued income tax                        |  |             | 1,163 |              |   | 1,117
|External sales representative commissions |  |             | 833   |              |   | 785  
|Restructuring reserve  current portion   |  |             |      |              |   | 733  
|Other accrued expenses                    |  |             | 1,025 |              |   | 1,135
|                                          |  |             |       |              |   |      
|                                          |  | $           | 5,470 |              | $ | 5,972
|                                          |  |             |       |              |   |      



9. SHORT TERM DEBT



As part of the acquisition of SaRonix (see Note 7), the Company assumed a loan from a
bank. The loan had a variable interest rate of 2.5% over the 30 day Libor rate and was payable in monthly installments of principal and interest in Irish Pounds for ten years. This loan was amended twice, with the latest amendment effective in
September 2003, to modify the payment terms to require interest only payments until October 31, 2004. This loan was secured by a building owned by the company in Ireland, which was classified as held for sale at June 26, 2004. At June 26, 2004, the
Company had $1.3 million outstanding under this loan classified as a current liability based on the Companys intent to pay off this loan in connection with the sale of the building. At July 2, 2005, the Company has no debt outstanding because
the Company paid off this loan in its entirety when the building was sold in fiscal 2005.



66



---

##### Table of Contents

10. COMMITMENTS



Building Lease



In October 2003, the Company entered into a lease for a new corporate headquarters for a period of ten years with two consecutive options to extend for an additional five years each. The future minimum operating lease
commitments, including leases on abandoned facilities, at July 2, 2005 are as follows (in thousands):



|                         |  |                    |       |            |   |       |  |      |     |      |   |     |  |   |       |  |   |      
|------------------------ |  | ------------------ | ----- | ---------- | - | ----- |  | ---- | --- | ---- | - | --- |  | - | ----- |  | - | -----
|                         |  | Fiscal Year Ending |       | Thereafter
|                         |  | 2006               |       | 2007       |   | 2008  |  | 2009 |     | 2010 |  
|Operating lease payments |  | $                  | 1,253 |            | $ | 1,037 |  | $    | 963 |      | $ | 992 |  | $ | 1,021 |  | $ | 3,818
|                         |  |                    |       |            |   |       |  |      |     |      |   |     |  |   |       |  |   |      



Rent expense for the years ended July
2, 2005, June 26, 2004 and June 28, 2003 was $1,624,000, $1,718,000 and $1,486,000, respectively. This is net of sublease proceeds received of approximately $241,000 for the year ended June 30, 2003. There were no sublease proceeds in fiscal year
2004 and fiscal year 2005.



11. COMPREHENSIVE INCOME



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



|                                                                                                     |  |             |      |   |              |   |        |              |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                                                                     |  | Years Ended |     
|                                                                                                     |  | July 2,2005 |      |   | June 26,2004 |   |        | June 28,2003 | 
|Net Income (Loss)                                                                                    |  | $           | 927  |   |              | $ | (2,110 | )            |  | $ | (4,327 | )
|Change in unrealized (loss) gains on securities available for sale                                   |  | $           | (642 | ) |              | $ | (3,178 | )            |  | $ | 700    |  
|Income tax effect                                                                                    |  |             | 187  |   |              |   | 1,361  |              |  |   | (373   | )
|Reclassification adjustment for gains on available for sale securities included in net income (loss) |  |             | 65   |   |              |   | 337    |              |  |   | 864    |  
|Income tax effect                                                                                    |  |             | (26  | ) |              |   | (161   | )            |  |   | (337   | )
|Translation gain                                                                                     |  |             | 128  |   |              |   | 119    |              |  |   | 18     |  
|                                                                                                     |  |             |      |   |              |   |        |              |  |   |        |  
|Other Comprehensive income (loss)                                                                    |  | $           | 639  |   |              | $ | (3,632 | )            |  | $ | (3,455 | )
|                                                                                                     |  |             |      |   |              |   |        |              |  |   |        |  



12. SHAREHOLDERS EQUITY



PREFERRED STOCK



The number of shares of preferred stock authorized to be issued is 5,000,000. The Board of
Directors is authorized to issue the preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of the shares of such series. As of July 2, 2005, no shares of preferred stock were outstanding.



STOCK OPTION PLANS



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



The options may be granted at not less than the fair value and not less than 85% of the fair
value on grant date for incentive stock options and nonqualified stock options, respectively. Options vest over periods of up to 60 months as determined by the Board of Directors. Options granted under the Plans expire 10 years from grant date.



67



---

##### Table of Contents

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



|                                                                                     |  |           |   |  |                              |      
|------------------------------------------------------------------------------------ |  | --------- | - |  | ---------------------------- | -----
|                                                                                     |  | Shares    |   |  | WeightedAverageExercisePrice
|Balance, June 29, 2002 (3,256,939 exercisable at a weighted average price of $9.00)  |  | 5,648,057 |   |  | $                            | 11.57
|Granted (weighted average fair value of $4.09 per share)                             |  | 576,300   |   |  |                              | 8.60 
|Exercised                                                                            |  | (241,839  | ) |  |                              | 2.64 
|Canceled                                                                             |  | (430,106  | ) |  |                              | 15.33
|                                                                                     |  |           |   |  |                              |      
|Balance, June 28, 2003 (3,843,461 exercisable at a weighted average price of $10.45) |  | 5,552,412 |   |  |                              | 11.36
|Granted (weighted average fair value of $5.57 per share)                             |  | 955,350   |   |  |                              | 10.70
|Exercised                                                                            |  | (570,451  | ) |  |                              | 2.48 
|Canceled                                                                             |  | (386,798  | ) |  |                              | 14.91
|                                                                                     |  |           |   |  |                              |      
|Balance, June 26, 2004 (3,857,138 exercisable at a weighted average price of $12.24) |  | 5,550,513 |   |  |                              | 11.92
|Granted (weighted average fair value of $3.49 per share)                             |  | 653,820   |   |  |                              | 8.44 
|Exercised                                                                            |  | (85,938   | ) |  |                              | 2.88 
|Canceled                                                                             |  | (574,917  | ) |  |                              | 13.36
|                                                                                     |  |           |   |  |                              |      
|Balance, July 2, 2005                                                                |  | 5,543,478 |   |  | $                            | 11.50
|                                                                                     |  |           |   |  |                              |      



At July 2, 2005, 2,420,010 shares were
available for future issuance under the option plans.



Additional information
regarding options outstanding as of July 2, 2005 is as follows:



|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      
|------------------------ |  | ------------------- |  | ----------------------------------------------- |  | ---------------------------- | ----- | ----------------- | --------- | ---------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                            
|Range of Exercise Prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife (Years) |  | WeightedAverageExercisePrice |       | NumberExercisable |           | WeightedAverageExercisePrice
|$ 1.20  5.25            |  | 1,199,612           |  | 2.79                                            |  | $                            | 3.07  |                   | 1,199,612 |                              | $ | 3.07 
|5.50  9.06              |  | 1,143,379           |  | 8.00                                            |  |                              | 8.13  |                   | 512,205   |                              |   | 7.95 
|9.07  11.50             |  | 1,194,090           |  | 7.72                                            |  |                              | 10.82 |                   | 964,150   |                              |   | 11.07
|11.56  16.56            |  | 1,142,105           |  | 6.22                                            |  |                              | 14.23 |                   | 1,142,105 |                              |   | 14.23
|16.68  37.22            |  | 864,292             |  | 5.07                                            |  |                              | 24.97 |                   | 864,292   |                              |   | 24.97
|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      
|$1.20  37.22            |  | 5,543,478           |  | 5.99                                            |  | $                            | 11.50 |                   | 4,682,364 |                              | $ | 12.01
|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      



2000 EMPLOYEE STOCK PURCHASE
PLAN



In 2000, the Company approved the 2000 Employee Stock Purchase
Plan (the Stock Purchase Plan), which allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions. A total of 1,500,000 shares of the Companys Common Stock have been reserved for issuance
under the Stock Purchase Plan under managements discretion. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a discount through payroll deductions, during 24-month purchase periods. Each purchase period will be
divided into eight consecutive three-month accrual periods. The price at which stock is purchased under the Stock Purchase Plan is equal to 85% of the fair market value of the Common Stock on the first day of the purchase period or the last day of
the accrual period, whichever is lower. The maximum number of shares of Common Stock that any employee may purchase under the Stock Purchase Plan during any accrual period is 1,000 shares. During fiscal year 2005, 2004 and 2003, the Company issued
145,368 138,753 and 137,629, shares of common stock under the Stock Purchase Plan at weighted average prices of $7.20, $7.32 and $7.61, respectively. The weighted average fair value of the fiscal 2005, fiscal 2004 and fiscal 2003 awards for each
year were $3.49, $5.57 and $4.09 per share respectively.



68



---

##### Table of Contents

STOCK REPURCHASE PLAN



On October 22, 2001, the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Companys common stock. The
Company may repurchase the shares from time to time in open market or private transactions, at the discretion of the Companys management. The Company began repurchasing shares on July 23, 2002. In fiscal year 2003, 274,500 shares were
repurchased at an approximate cost of $2.2 million. The approximate number of shares repurchased during Fiscal year 2005 was 348,000. There were no shares repurchased during fiscal 2004. As of July 2, 2005, the Company had repurchased approximately
622,000 shares at an approximate cost of $5.2 million.



13. SHAREHOLDER
RIGHTS PLAN



Pericom has adopted a Shareholder Rights Plan and declared a
dividend distribution of one right for each outstanding share of the Companys common stock. The record date for the distribution was March 21, 2002. The plan is designed to protect the long-term value of the Company for its shareholders during
any future unsolicited acquisition attempt. Adoption of the plan was not made in response to any specific attempt to acquire the Company or its shares and the Company is not aware of any current efforts to do so. These rights will become exercisable
only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of the Companys outstanding common stock by a person or group. After a person or group acquires 15% or more of the outstanding common stock or
announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the outstanding common stock, the rights will become exercisable by persons other than the acquiring person, unless the Board of
Directors has approved the transaction in advance. Each right entitles the holder, other than an acquiring person, to acquire shares of the Companys common stock (or, in the event that there are insufficient authorized common stock shares,
substitute consideration such as cash, property, or other securities of the Company, such as Preferred Stock) at a 50% discount to the then prevailing market price. Prior to the acquisition by a person or group of 15% or more of the outstanding
common stock, the rights are redeemable for $0.001 per right at the option of the Board of Directors. The rights will expire on March 6, 2012. As of July 2, 2005, there were 26,358,100 rights outstanding.



14. RESTRUCTURING CHARGE



During the quarter ended December, 31, 2002, the Company revised its estimate related to a
previous restructuring accrual for an unused leased facility that was subleased at a lower rate than what the company was leasing the facility for, this restructuring resulted in recording an additional restructuring charge of $1.4 million. This
charge represents the future lease payments and estimated utility and maintenance costs for the remainder of the lease, which expired in May 2005. The Company received notice that a sub lessee would move from this facility and the Company estimated
that it would not be able to sublease the facility due to the excess available real estate in the San Jose, California area. Due to continued downturn in the Companys business, the Company determined that this portion of the facility would not
be utilized over the remaining lease term.



The following table summarizes this
restructuring activity through July 2, 2005 (in thousands):



|                                   |  |                |       |  
|---------------------------------- |  | -------------- | ----- | -
|                                   |  | ExcessFacility |      
|Beginning Balance in fiscal 2003   |  | $              | 197   |  
|Additional reserves in fiscal 2003 |  |                | 1,431 |  
|Cash payments in fiscal 2003       |  |                | (356  | )
|                                   |  |                |       |  
|Balance at June 28, 2003           |  | $              | 1,272 |  
|Cash payments in fiscal 2004       |  |                | (653  | )
|                                   |  |                |       |  
|Balance at June 26, 2004           |  | $              | 619   |  
|Cash payments in fiscal 2005       |  |                | (619  | )
|Ending Balance at July 2, 2005     |  | $              | 0     |  
|                                   |  |                |       |  



69



---

##### Table of Contents

During the quarter ended December 31, 2003, the Company recorded an additional restructuring charge of $784,000 to cover
seven months of remaining costs on its existing corporate headquarters lease after signing a new lease for a new corporate headquarters. The move to the new corporate headquarters resulted in an approximate $50,000 per month savings.



The following table summarizes this restructuring activity through July 2, 2005 (in
thousands):



|                                   |  |                |      |  
|---------------------------------- |  | -------------- | ---- | -
|                                   |  | ExcessFacility |     
|Beginning Balance in fiscal 2004   |  | $              | 0    |  
|Additional reserves in fiscal 2004 |  |                | 784  |  
|Cash payments in fiscal 2004       |  |                | (670 | )
|                                   |  |                |      |  
|Balance at June 30, 2004           |  | $              | 114  |  
|Cash payments in fiscal 2005       |  |                | (114 | )
|                                   |  |                |      |  
|Ending Balance at July 2, 2005     |  | $              | 0    |  
|                                   |  |                |      |  



There was also a restructuring charge
resulting from a reduction in force in fiscal 2005 resulting in a layoff of 24 employees. Of the employees terminated, 11 were in operations, 1 in research & development, 4 in sales & marketing, and 8 in General & Administration. On July
2, 2005, the remaining balance of this restructuring charge was $22,000 after incurring restructuring charges of $294,000 and payments of approximately $1 million. The $294,000 in restructuring charges was the result of a reduction in force in
fiscal year ended July 2, 2005.



The following table summarizes this
restructuring activity through July 2, 2005 (in thousands):



|                                   |  |                   |      |  
|---------------------------------- |  | ----------------- | ---- | -
|                                   |  | ReductionIn Force |     
|Beginning Balance in fiscal 2005   |  | $                 | 0    |  
|Additional reserves in fiscal 2005 |  |                   | 294  |  
|Cash payments in fiscal 2004       |  |                   | (272 | )
|                                   |  |                   |      |  
|Balance at July 2, 2005            |  | $                 | 22   |  
|                                   |  |                   |      |  



15. INCOME TAXES



The provision for income taxes consists of (in thousands):



|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  
|------------------------------------------------------------ |  | ----------------- | ---- | - | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                             |  | Fiscal Year Ended |     
|                                                             |  | July 2,2005       |      |   | June 26,2004 |   |        | June 28,2003 | 
|Federal:                                                     |  |                   |      |   |              |   |        |              |  |   |        |  
|Current                                                      |  | $                 | (288 | ) |              | $ | 85     |              |  | $ | (2,133 | )
|Deferred                                                     |  |                   | 815  |   |              |   | (2,072 | )            |  |   | (536   | )
|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  
|                                                             |  |                   | 527  |   |              |   | (1,987 | )            |  |   | (2,669 | )
|State:                                                       |  |                   |      |   |              |   |        |              |  |   |        |  
|Current                                                      |  |                   | (3   | ) |              |   | 46     |              |  |   | 22     |  
|Deferred                                                     |  |                   | (493 | ) |              |   | (937   | )            |  |   | (928   | )
|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  
|                                                             |  |                   | (496 | ) |              |   | (891   | )            |  |   | (906   | )
|Foreign:                                                     |  |                   |      |   |              |   |        |              |  |   |        |  
|Current                                                      |  |                   | 22   |   |              |   | 8      |              |  |   | 9      |  
|Deferred                                                     |  |                   | (346 | ) |              |   | (288   | )            |  |   | 229    |  
|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  
|                                                             |  |                   | (324 | ) |              |   | (280   | )            |  |   | 238    |  
|Charge in lieu of taxes attributable to employee stock plans |  |                   | 321  |   |              |   | 778    |              |  |   | 570    |  
|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  
|Provision for income taxes                                   |  | $                 | 27   |   |              | $ | (2,380 | )            |  | $ | (2,767 | )
|                                                             |  |                   |      |   |              |   |        |              |  |   |        |  



70



---

##### Table of Contents

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



|                                           |  |                   |   |  |              |    |  |              |   
|------------------------------------------ |  | ----------------- | - |  | ------------ | -- |  | ------------ | --
|                                           |  | Fiscal Year Ended |  
|                                           |  | July 2,2005       |   |  | June 26,2004 |    |  | June 28,2003 |   
|Tax at federal statutory rate              |  | 35.0              | % |  | (35.0        | )% |  | (35.0        | )%
|State income taxes, net of federal benefit |  | (43.2             | ) |  | (11.2        | )  |  | (8.3         | ) 
|Foreign income tax                         |  | (35.6             | ) |  |             |    |  |             |   
|Foreign loss                               |  | 51.2              |   |  |             |    |  |             |   
|Tax exempt investment income               |  | (1.0              | ) |  | (1.1         | )  |  | (1.1         | ) 
|Research and development tax credits       |  | (41.7             | ) |  | (5.4         | )  |  | (3.5         | ) 
|Change in valuation allowance              |  | 38.1              |   |  | (0.7         | )  |  | 8.9          |   
|Change in FAS 5 contingency                |  | 1.2               |   |  |             |    |  |             |   
|Other                                      |  | (1.1              | ) |  | 0.4          |    |  |             |   
|                                           |  |                   |   |  |              |    |  |              |   
|Provision (Benefit) for income taxes       |  | 2.9               | % |  | (53.0        | )% |  | (39.0        | )%
|                                           |  |                   |   |  |              |    |  |              |   



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



|                                                |  |             |        |   |              |   |        |  
|----------------------------------------------- |  | ----------- | ------ | - | ------------ | - | ------ | -
|                                                |  | As of       |       
|                                                |  | July 2,2005 |        |   | June 26,2004 |  
|Deferred tax assets:                            |  |             |        |   |              |   |        |  
|Credit carryforwards                            |  | $           | 3,300  |   |              | $ | 2,219  |  
|Inventory Reserve                               |  |             | 2,162  |   |              |   | 1,809  |  
|NOL carryforwards                               |  |             | 1,527  |   |              |   | 2,328  |  
|Cumulative loss on investment in joint ventures |  |             | 846    |   |              |   | 1,916  |  
|Unrealized loss on short-term investments       |  |             | 650    |   |              |   | 489    |  
|Accrued compensation & other benefits           |  |             | 587    |   |              |   | 635    |  
|Capitalized R&D                                 |  |             | 547    |   |              |   | 785    |  
|Capital loss carryforward                       |  |             | 536    |   |              |   | 575    |  
|Basis difference in fixed assets                |  |             | 264    |   |              |   |       |  
|Inventory Capitalization                        |  |             | 248    |   |              |   | 77     |  
|Lease Structure Reserve                         |  |             | 192    |   |              |   | 461    |  
|Other                                           |  |             | 24     |   |              |   | 158    |  
|                                                |  |             |        |   |              |   |        |  
|Total deferred tax assets                       |  | $           | 10,883 |   |              | $ | 11,452 |  
|                                                |  |            
|Deferred tax liabilities:                       |  |             |        |   |              |   |        |  
|Deferred state taxes                            |  |             | (1,202 | ) |              |   | (1,133 | )
|Other prepaid & accruals                        |  |             | (104   | ) |              |   | (74    | )
|Basis difference in fixed assets                |  |             | 0      |   |              |   | (1,164 | )
|                                                |  |             |        |   |              |   |        |  
|Total deferred tax liabilities                  |  | $           | (1,306 | ) |              | $ | (2,371 | )
|Valuation allowance                             |  | $           | (2,082 | ) |              | $ | (2,099 | )
|                                                |  |             |        |   |              |   |        |  
|Net Deferred tax assets                         |  | $           | 7,496  |   |              | $ | 6,982  |  
|                                                |  |             |        |   |              |   |        |  



As of July 2, 2005, the Company has
tax credit carryforwards of approximately $2,382,000 and $888,000 available to offset future state taxable income and federal taxable income, respectively. The state tax credit carryforwards do not have an expiration date and may be carried forward
indefinitely. The federal tax credit carryforward expires in twenty years; any remainder will then be deductible in the twenty-first year. As of July 2, 2005, the Company had federal net operating loss carryforwards of $4,282,000, which expires in
twenty years.



The Company provides a valuation allowance for deferred tax
assets when it is more likely than not, based upon currently available evidence and other factors, that some portion or all of the deferred tax asset will not be realized. Due to the uncertainty surrounding the Companys ability to offset the
cumulative equity losses in Pericom Technology, Inc. (PTI) and write-downs in investments, the Company has provided for a partial valuation allowance in the amount of $2.1 million against the tax effect of these losses as of July 2,
2005. The valuation allowance is reduced by the tax effect of any realized capital gains that are available to offset such losses.



71



---

##### Table of Contents

16. EMPLOYEE BENEFIT PLAN



The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and
contributed to the plan. Employer matching contributions are determined by the Board of Directors and are discretionary. There were no employer matching contributions in fiscal 2005, 2004, or 2003.



17. INDUSTRY AND SEGMENT INFORMATION



SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, established annual and interim reporting standards for an enterprises business segments and related disclosures about its products, services, geographical areas and major customers. The Company operates in one reportable
segment. Revenues from the sale of FCP product for the fiscal year ended July 2, 2005 were approximately $19.0 million. Revenues from the sale of IC product for fiscal 2005 were approximately $60.6 million. Revenues from the sale of FCP product for
the nine months from the SaRonix acquisition to June 26, 2004 were approximately $15.1 million. Revenues from the sale of IC product for fiscal 2004 were approximately $51.3 million. All revenues in fiscal 2003 were from the sale of IC
products.



At July 2, 2005, there were three customers that individually
represented more than 10% of accounts receivable one at 15% and the other two customers at 11% each. In addition, in fiscal 2005 there were 2 customers that represented over 10% of net revenue, one at 14.2% and the other at 13.8% of net revenue. In
fiscal 2004, there were no direct customers that represented more than 10% of accounts receivable. In fiscal 2004, there was one direct customer, an international distributor that represented 11% of net revenues. In fiscal 2003, one distributor and
one contract manufacturer each of who purchase directly from the Company and sell to multiple end user customers, each represented 12% of net revenues. At June 28, 2003, two customers each represented 10% of trade accounts receivable.



For geographical reporting, net sales are attributed to the country where customers are
located (the bill to location). Long-lived assets consist of property and equipment as well as assets held for sale and are attributed to the country where they are located. The following presents net sales for the years ended July 2,
2005, June 26, 2004 and June 28, 2003; and the net book value of long-lived assets as of July 2, 2005, June 26, 2004 and June 28, 2003 (in thousands):



|                            |  |      |        |      |   |        |  |   |       
|--------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                            |  | 2005 |        | 2004 |   | 2003  
|Net sales to countries:     |  |      |        |      |   |        |  |   |       
|China (including Hong Kong) |  | $    | 18,247 |      | $ | 13,734 |  | $ | 7,566 
|United States               |  |      | 17,018 |      |   | 18,910 |  |   | 13,741
|Taiwan                      |  |      | 15,766 |      |   | 12,525 |  |   | 8,119 
|Singapore                   |  |      | 9,901  |      |   | 7,463  |  |   | 6,056 
|Others (less than 10% each) |  |      | 18,625 |      |   | 13,785 |  |   | 9,476 
|                            |  |      |        |      |   |        |  |   |       
|Total net sales             |  | $    | 79,557 |      | $ | 66,417 |  | $ | 44,958
|                            |  |      |        |      |   |        |  |   |       
|Long-lived assets:          |  |      |        |      |   |        |  |   |       
|United States               |  | $    | 2,863  |      | $ | 3,664  |  | $ | 4,488 
|Singapore                   |  |      | 1,624  |      |   | 1,545  |  |   | 925   
|Taiwan                      |  |      | 801    |      |   | 291    |  |   | 69    
|Thailand                    |  |      | 701    |      |   | 215    |  |   |      
|Ireland                     |  |      |       |      |   | 1,532  |  |   |      
|China (including Hong Kong) |  |      | 312    |      |   | 566    |  |   | 810   
|India                       |  |      | 166    |      |   | 995    |  |   |      
|Others (less than 10% each) |  |      | 10     |      |   | 14     |  |   | 13    
|                            |  |      |        |      |   |        |  |   |       
|Total long-lived assets     |  | $    | 6,477  |      | $ | 8,822  |  | $ | 6,305 
|                            |  |      |        |      |   |        |  |   |       



72



---

##### Table of Contents

18. QUARTERLY FINANCIAL DATA (Unaudited)



Following is a summary of quarterly operating results and share data for the years ended July 2, 2005 and June 30, 2004. Subsequent to the
issuance of the Companys interim financial statements for the quarters ended September 25, 2004, December 25, 2004, and March 26, 2005, the Company determined that certain errors occurred in the accounting for research and development costs as
many of our products were redesigned to be manufactured by a different manufacturing facility. Initially, these costs were expensed to research and development. Subsequently, these costs were incorrectly removed from research and development expense
and capitalized into inventory. certain new product research and development costs (initial wafer production costs) that were incorrectly capitalized into inventory. As a result, the operating results presented below for the quarters ended September
25, 2004, December 25, 2004, and March 26, 2005 have been restated.



PERICOM SEMICONDUCTOR CORPORATION

QUARTERLY FINANCIAL DATA

(Amounts in thousands, except per share data)

(Unaudited)



|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|---------------------------------------------------------- | ----------- | --------------------- | ------ | ------------------- |  | - | ------------------- | - |  | ------------------- | ------ | - |  | - | ------ | -
|                                                           |             | For the Quarter Ended |       
|                                                           | July 2,2005 |                       |        | Mar 262005 Restated |  |   | Dec 252004 Restated |   |  | Sep 252004 Restated |       
|                                                           |             |                       |       
|Net revenues                                               |             | $                     | 21,121 |                     |  | $ | 19,433              |   |  | $                   | 19,217 |   |  | $ | 19,786 |  
|Cost of revenues                                           |             |                       | 12,940 |                     |  |   | 11,982              |   |  |                     | 13,071 |   |  |   | 12,771 |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Gross profit                                               |             |                       | 8,181  |                     |  |   | 7,451               |   |  |                     | 6,146  |   |  |   | 7,015  |  
|Operating expenses:                                        |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Research and development                                   |             |                       | 3,992  |                     |  |   | 4,022               |   |  |                     | 3,806  |   |  |   | 3,947  |  
|Selling, general and administrative                        |             |                       | 4,150  |                     |  |   | 3,849               |   |  |                     | 3,707  |   |  |   | 3,832  |  
|Restructuring charge                                       |             |                       | 51     |                     |  |   | 243                 |   |  |                     |       |   |  |   |       |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Total operating expenses                                   |             |                       | 8,193  |                     |  |   | 8,114               |   |  |                     | 7,513  |   |  |   | 7,779  |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Loss from operations                                       |             |                       | (12    | )                   |  |   | (663                | ) |  |                     | (1,367 | ) |  |   | (764   | )
|Other income, net                                          |             |                       | 1,042  |                     |  |   | 913                 |   |  |                     | 875    |   |  |   | 931    |  
|Other than temporary decline in value of investment        |             |                       | (5     | )                   |  |   | (4                  | ) |  |                     | (96    | ) |  |   | 0      |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Income (loss) before income taxes                          |             |                       | 1,025  |                     |  |   | 246                 |   |  |                     | (588   | ) |  |   | 167    |  
|Income tax provision (benefit)                             |             |                       | 120    |                     |  |   | 95                  |   |  |                     | (203   | ) |  |   | 15     |  
|Minority income (loss) in consolidated subsidiary          |             |                       | 26     |                     |  |   | 22                  |   |  |                     | 10     |   |  |   |       |  
|Equity in net income (loss) of investee                    |             |                       | 242    |                     |  |   | (73                 | ) |  |                     | 0      |   |  |   | (123   | )
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Net income (loss)                                          |             | $                     | 1,173  |                     |  | $ | 100                 |   |  | $                   | (375   | ) |  | $ | 29     |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Basic earnings (loss) per share                            |             | $                     | 0.04   |                     |  | $ | 0.00                |   |  | $                   | (0.01  | ) |  | $ | 0.00   |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Diluted earnings (loss) per share                          |             | $                     | 0.04   |                     |  | $ | 0.00                |   |  | $                   | (0.01  | ) |  | $ | 0.00   |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |             |                       | 26,371 |                     |  |   | 26,531              |   |  |                     | 26,554 |   |  |   | 26,515 |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |             |                       | 27,076 |                     |  |   | 27,112              |   |  |                     | 26,554 |   |  |   | 27,268 |  
|                                                           |             |                       |        |                     |  |   |                     |   |  |                     |        |   |  |   |        |  



73



---

##### Table of Contents

|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|---------------------------------------------------------- |  | ---------------------- | ------ | - | ---------- | - | ------ | ---------- |  | - | ---------- | - |  | - | ------ | -
|                                                           |  | For the Quarters Ended |       
|                                                           |  | June 26,2004           |        |   | Mar 272004 |   |        | Dec 272003 |  |   | Sep 272003 |  
|Net revenues                                               |  | $                      | 20,029 |   |            | $ | 18,466 |            |  | $ | 16,850     |   |  | $ | 11,072 |  
|Cost of revenues                                           |  |                        | 12,791 |   |            |   | 12,275 |            |  |   | 12,262     |   |  |   | 7,854  |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Gross profit                                               |  |                        | 7,238  |   |            |   | 6,191  |            |  |   | 4,588      |   |  |   | 3,218  |  
|Operating expenses:                                        |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Research and development                                   |  |                        | 3,513  |   |            |   | 3,451  |            |  |   | 3,987      |   |  |   | 3,210  |  
|Selling, general and administrative                        |  |                        | 3,895  |   |            |   | 4,277  |            |  |   | 4,292      |   |  |   | 2,515  |  
|Restructuring charge                                       |  |                        |       |   |            |   |       |            |  |   | 784        |   |  |   |       |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Total operating expenses                                   |  |                        | 7,408  |   |            |   | 7,728  |            |  |   | 9,063      |   |  |   | 5,725  |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Loss from operations                                       |  |                        | (170   | ) |            |   | (1,537 | )          |  |   | (4,475     | ) |  |   | (2,507 | )
|Other income, net                                          |  |                        | 698    |   |            |   | 1,014  |            |  |   | 996        |   |  |   | 992    |  
|Other than temporary decline in value of investment        |  |                        | (15    | ) |            |   | 10     |            |  |   | 0          |   |  |   | (9     | )
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Income (loss) before income taxes                          |  |                        | 513    |   |            |   | (513   | )          |  |   | (3,479     | ) |  |   | (1,524 | )
|Income tax provision (benefit)                             |  |                        | 80     |   |            |   | (269   | )          |  |   | (1,536     | ) |  |   | (655   | )
|Equity in net income (loss) of investee                    |  |                        | 228    |   |            |   | 148    |            |  |   | 68         |   |  |   | 69     |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Net income (loss)                                          |  | $                      | 661    |   |            | $ | (96    | )          |  | $ | (1,875     | ) |  | $ | (800   | )
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Basic earnings (loss) per share                            |  | $                      | 0.03   |   |            | $ | (0.00  | )          |  | $ | (0.07      | ) |  | $ | (0.03  | )
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Diluted earnings (loss) per share                          |  | $                      | 0.02   |   |            | $ | (0.00  | )          |  | $ | (0.07      | ) |  | $ | (0.03  | )
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |  |                        | 26,388 |   |            |   | 26,166 |            |  |   | 25,928     |   |  |   | 25,816 |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |  |                        | 27,289 |   |            |   | 26,166 |            |  |   | 25,928     |   |  |   | 25,816 |  
|                                                           |  |                        |        |   |            |   |        |            |  |   |            |   |  |   |        |  



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



|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | - | --------------------- | - | ------ | ------------------------------- |  | - | --------------------- | - |  | ------------------------------- | ------ | - | --------------------- | - | ------ | - |  | - | ------ | -
|                                                           |  | For the Quarters Ended          |       
|                                                           |  | Mar 262005 AsPreviouslyReported |        |   | Mar 262005 AsRestated |   |        | Dec 252004 AsPreviouslyReported |  |   | Dec 252004 AsRestated |   |  | Sep 252004 AsPreviouslyReported |        |   | Sep 252004 AsRestated |  
|Net revenues                                               |  | $                               | 19,433 |   |                       | $ | 19,433 |                                 |  | $ | 19,217                |   |  | $                               | 19,217 |   |                       | $ | 19,786 |   |  | $ | 19,786 |  
|Cost of revenues                                           |  |                                 | 12,262 |   |                       |   | 11,982 |                                 |  |   | 13,219                |   |  |                                 | 13,071 |   |                       |   | 12,806 |   |  |   | 12,771 |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Gross profit                                               |  |                                 | 7,171  |   |                       |   | 7,451  |                                 |  |   | 5,998                 |   |  |                                 | 6,146  |   |                       |   | 6,980  |   |  |   | 7,015  |  
|Operating expenses:                                        |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Research and development                                   |  |                                 | 3,678  |   |                       |   | 4,022  |                                 |  |   | 3,485                 |   |  |                                 | 3,806  |   |                       |   | 3,716  |   |  |   | 3,947  |  
|Selling, general and administrative                        |  |                                 | 3,849  |   |                       |   | 3,849  |                                 |  |   | 3,707                 |   |  |                                 | 3,707  |   |                       |   | 3,832  |   |  |   | 3,832  |  
|Restructuring charge                                       |  |                                 | 243    |   |                       |   | 243    |                                 |  |   |                      |   |  |                                 |       |   |                       |   |       |   |  |   |       |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Total operating expenses                                   |  |                                 | 7,770  |   |                       |   | 8,114  |                                 |  |   | 7,192                 |   |  |                                 | 7,513  |   |                       |   | 7,548  |   |  |   | 7,779  |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Income (loss) from operations                              |  |                                 | (599   | ) |                       |   | (663   | )                               |  |   | (1,194                | ) |  |                                 | (1,367 | ) |                       |   | (568   | ) |  |   | (764   | )
|Other income, net                                          |  |                                 | 909    |   |                       |   | 909    |                                 |  |   | 779                   |   |  |                                 | 779    |   |                       |   | 931    |   |  |   | 931    |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Income (loss) before income taxes                          |  |                                 | 310    |   |                       |   | 246    |                                 |  |   | (415                  | ) |  |                                 | (588   | ) |                       |   | 363    |   |  |   | 167    |  
|Income tax provision (benefit)                             |  |                                 | 125    |   |                       |   | 95     |                                 |  |   | (102                  | ) |  |                                 | (203   | ) |                       |   | 89     |   |  |   | 15     |  
|Minority income (loss) in consolidated subsidiary          |  |                                 | 22     |   |                       |   | 22     |                                 |  |   | 10                    |   |  |                                 | 10     |   |                       |   |       |   |  |   |       |  
|Equity in net income (loss) of investee                    |  |                                 | (73    | ) |                       |   | (73    | )                               |  |   | 0                     |   |  |                                 | 0      |   |                       |   | (123   | ) |  |   | (123   | )
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Net income (loss)                                          |  | $                               | 134    |   |                       | $ | 100    |                                 |  | $ | (303                  | ) |  | $                               | (375   | ) |                       | $ | 151    |   |  | $ | 29     |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Basic earnings (loss) per share                            |  | $                               | 0.01   |   |                       | $ | 0.00   |                                 |  | $ | (0.01                 | ) |  | $                               | (0.01  | ) |                       | $ | 0.01   |   |  | $ | 0.00   |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Diluted earnings (loss) per share                          |  | $                               | 0.00   |   |                       | $ | 0.00   |                                 |  | $ | (0.01                 | ) |  | $                               | (0.01  | ) |                       | $ | 0.01   |   |  | $ | 0.00   |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Shares used in computing basic earnings (loss) per share   |  |                                 | 26,531 |   |                       |   | 26,531 |                                 |  |   | 26,554                |   |  |                                 | 26,554 |   |                       |   | 26,515 |   |  |   | 26,515 |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  
|Shares used in computing diluted earnings (loss) per share |  |                                 | 27,112 |   |                       |   | 27,112 |                                 |  |   | 26,554                |   |  |                                 | 26,554 |   |                       |   | 27,268 |   |  |   | 27,268 |  
|                                                           |  |                                 |        |   |                       |   |        |                                 |  |   |                       |   |  |                                 |        |   |                       |   |        |   |  |   |        |  



74



---

##### Table of Contents

19. SUBSEQUENT EVENTS



On September 7, 2005, the Company purchased for approximately $14.7 million a 99.93% ownership position in eCERA Comtek Corporation (eCERA) of Taiwan. eCERA
and its subsidiary, AZER Crystal Technology Co, Ltd. (Azer) have been a key supplier of quartz crystal blanks and crystal oscillator products.



75



---

##### Table of Contents

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 15, 2005




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



|                         |  |  |  |                                                                                                         |  |                    |  | 
|------------------------ |  |  |  | ------------------------------------------------------------------------------------------------------- |  | ------------------ |  | 
|Signature                |  |  |  | Title                                                                                                   |  | Date              
|/s/ ALEX C. HUI          |  |  |  | Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |  | September 15, 2005
|Alex C. Hui              |  |  |  |                                                                                                        
|                         |  |  |  |                                                                                                        
|                         |  |  | 
|/s/ MICHAEL D. CRAIGHEAD |  |  |  | Vice President, Finance & Administration (Principal Financial Officer and Accounting Officer)           |  | September 15, 2005
|Michael D. Craighead     |  |  |  |                                                                                                        
|                         |  |  |  |                                                                                                        
|                         |  |  | 
|/s/ JOHN CHI-HUNG HUI    |  |  |  | Vice President, Technology and Director                                                                 |  | September 15, 2005
|John Chi-Hung Hui        |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ GARY L. FISCHER      |  |  |  | Director                                                                                                |  | September 15, 2005
|Gary L. Fischer          |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ TAY THIAM SONG       |  |  |  | Director                                                                                                |  | September 15, 2005
|Tay Thiam Song           |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ MILLARD PHELPS       |  |  |  | Director                                                                                                |  | September 15, 2005
|Millard Phelps           |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ HAU L LEE.           |  |  |  | Director                                                                                                |  | September 15, 2005
|Hau L. Lee               |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ MURRAY GOLDMAN       |  |  |  | Director                                                                                                |  | September 15, 2005
|Murray Goldman           |  |  |  |                                                                                                         |  |                   
|                         |  |  | 
|/s/ ALEX C. HUI          |  |  |  | Attorney-in-Fact and Agent                                                                              |  | September 15, 2005
|Alex C. Hui              |  |  |  |                                                                                                         |  |                   



76



---

##### Table of Contents

Schedule II



PERICOM
SEMICONDUCTOR CORPORATION



VALUATION AND QUALIFYING
ACCOUNTS

(In Thousands)



|                                             |  |                               |       |                  |   |                    |  |            |       |                        |   |       |  |   |      
|-------------------------------------------- |  | ----------------------------- | ----- | ---------------- | - | ------------------ |  | ---------- | ----- | ---------------------- | - | ----- |  | - | -----
|                                             |  | Balance atBeginning Of Period |       | ReservesAcquired |   | Charged toRevenues |  | Deductions |       | Balance atEnd ofPeriod
|                                             |  |                               |       | (a)              |   | (b)                |  | (c)        |       |                       
|Reserves for returns and pricing adjustments |  |                               |       |                  |   |                    |  |            |       |                        |   |       |  |   |      
|July 2, 2005                                 |  | $                             | 3,744 |                  |   |                   |  | $          | 5,970 |                        | $ | 7,494 |  | $ | 2,220
|June 26, 2004                                |  |                               | 3,446 |                  | $ | 165                |  |            | 8,904 |                        |   | 8,771 |  |   | 3,744
|June 28, 2003                                |  |                               | 4,276 |                  |   |                   |  |            | 7,618 |                        |   | 8,448 |  |   | 3,446

---

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

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

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



|                                |  |                               |     |                  |   |                             |  |   |            |   |  |                        |      |   |  |   |    
|------------------------------- |  | ----------------------------- | --- | ---------------- | - | --------------------------- |  | - | ---------- | - |  | ---------------------- | ---- | - |  | - | ---
|                                |  | Balance atBeginning Of Period |     | ReservesAcquired |   | Charged toCosts andExpenses |  |   | Deductions |   |  | Balance atEnd ofPeriod
|                                |  |                               |     | (d)              |   | (e)                         |  |   | (f)        |   |  |                       
|Allowance for doubtful accounts |  |                               |     |                  |   |                             |  |   |            |   |  |                        |      |   |  |   |    
|July 2, 2005                    |  | $                             | 384 |                  | $ | 0                           |  | $ | (277       | ) |  | $                      | (88  | ) |  | $ | 19 
|June 26, 2004                   |  |                               | 100 |                  |   | 437                         |  |   |           |   |  |                        | (153 | ) |  |   | 384
|June 28, 2003                   |  |                               | 100 |                  |   |                            |  |   |           |   |  |                        |     |   |  |   | 100

---

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

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

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



77