SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended March 28, 2009





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
Transition Period from _______ to _______





Commission
File Number 0-27026




Pericom
Semiconductor Corporation


(Exact
Name of Registrant as Specified in Its Charter)





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





3545
North First Street


San Jose,
California  95134


(408)
435-0800


(Address
of Principal Executive Offices and


Issuer’s
Telephone Number, Including Area Code)





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 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes £   No
£





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





Large
      Accelerated Filer  ̈
              
              Accelerated
      Filer xNon-accelerated
      Filer  ̈
              
              Smaller
      Reporting Company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
126-2 of the Exchange Act)





Yes      ̈  
No    x




As of May
5, 2009 the Registrant had outstanding 25,306,815 shares of Common
Stock.







Pericom
Semiconductor Corporation





Form 10-Q
for the Quarter Ended March 28, 2009





INDEX





PagePART
      I.  FINANCIAL INFORMATIONItem
      1:
                          Condensed
      Consolidated Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of March 28, 2009 and June 28,
      2008
                          3Condensed
      Consolidated Statements of Operations for the three and nine months ended
      March 28, 2009 and March 29, 2008
                          4Condensed
      Consolidated Statements of Cash Flows for the nine months ended March 28,
      2009 and March 29, 2008
                          5Notes
      to Condensed Consolidated Financial Statements
                          6Item
      2:
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          20Item
      3:
                          Quantitative
      and Qualitative Disclosures about Market Risk
                          29Item
      4:
                          Controls
      and Procedures
                          30PART
      II.  OTHER INFORMATIONItem
      1A:
                          Risk
      Factors
                          31Item
      2:
                          Unregistered
      Sale of Equity Securities and Use of Proceeds
                          40Item
      6:
                          Exhibits
                          41Signatures




2




PART
I.  FINANCIAL INFORMATION


Item 1:
Condensed Consolidated Financial Statements





Pericom
Semiconductor Corporation


Condensed
Consolidated Balance Sheets


(In
thousands, except share data)





March 28,
                
                
                June 28,2009
                
                
                2008(Unaudited)
                
                
                
                (1)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                29,617
                
                
                $
                41,646Short-term
      investments
                
                
                69,261
                
                
                
                72,108Accounts
      receivableTrade
      (net of allowances of $1,837 and $1,950)
                
                
                22,158
                
                
                
                29,002Other
      receivables
                
                
                1,602
                
                
                
                1,684Inventories
                
                
                17,268
                
                
                
                17,921Prepaid
      expenses and other current assets
                
                
                1,395
                
                
                
                5,943Deferred
      income taxes
                
                
                3,888
                
                
                
                3,344Total
      current assets
                
                
                145,189
                
                
                
                171,648Property,
      plant and equipment – net
                
                
                34,103
                
                
                
                29,173Investments
      in unconsolidated affiliates
                
                
                10,512
                
                
                
                10,392Deferred
      income taxes – non-current
                
                
                4,652
                
                
                
                4,543Long-term
      investments in marketable securities
                
                
                24,023
                
                
                
                10,171Goodwill
                
                
                1,665
                
                
                
                1,325Intangible
      assets
                
                
                1,823
                
                
                
                1,140Other
      assets
                
                
                3,150
                
                
                
                3,191Total
      assets
                
                $
                225,117
                
                
                $
                231,583LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                6,843
                
                
                $
                13,431Accrued
      liabilities
                
                
                6,130
                
                
                
                8,779Total
      current liabilities
                
                
                12,973
                
                
                
                22,210Long
      term debt
                
                
                1,628
                
                
                
                -Deferred
      tax liabilities
                
                
                800
                
                
                
                800Income
      tax liability
                
                
                1,018
                
                
                
                -Minority
      interest in consolidated subsidiaries
                
                
                1,211
                
                
                
                1,118Total
      liabilities
                
                
                17,630
                
                
                
                24,128Shareholders’
      equity:Common
      stock and paid in capital - no par value, 60,000,000 shares authorized;
      shares issued and outstanding: March 28, 2009, 25,254,000; June 28, 2008,
      25,703,000
                
                
                130,819
                
                
                
                132,028Retained
      earnings
                
                
                78,052
                
                
                
                72,162Accumulated
      other comprehensive income (loss), net of tax
                
                
                (1,384
                )
                
                
                3,265Total
      shareholders’ equity
                
                
                207,487
                
                
                
                207,455Total
      liabilities and shareholders' equity
                
                $
                225,117
                
                
                $
                231,583





(1) The
information in this column was derived from the Company’s audited consolidated
financial statements for the year ended June 28, 2008.


See notes
to condensed consolidated financial statements.


3




Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Operations


(In
thousands, except per share amounts)


(Unaudited)





Three Months Ended
                
                
                Nine Months EndedMarch 28,
                
                
                March 29,
                
                
                March 28,
                
                
                March 29,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      revenues
                
                $
                24,394
                
                
                $
                41,177
                
                
                $
                99,022
                
                
                $
                120,371Cost
      of revenues
                
                
                15,731
                
                
                
                25,709
                
                
                
                63,657
                
                
                
                75,870Gross
      profit
                
                
                8,663
                
                
                
                15,468
                
                
                
                35,365
                
                
                
                44,501Operating
      expenses:Research
      and development
                
                
                3,996
                
                
                
                4,503
                
                
                
                12,580
                
                
                
                12,863Selling,
      general and administrative
                
                
                5,136
                
                
                
                5,705
                
                
                
                17,491
                
                
                
                17,330Restructuring
      charge
                
                
                293
                
                
                
                -
                
                
                
                510
                
                
                
                -Total
      operating expenses
                
                
                9,425
                
                
                
                10,208
                
                
                
                30,581
                
                
                
                30,193Income
      (loss) from operations
                
                
                (762
                )
                
                
                5,260
                
                
                
                4,784
                
                
                
                14,308Interest
      and other income
                
                
                1,501
                
                
                
                903
                
                
                
                3,871
                
                
                
                3,895Other
      than temporary decline in value of investment
                
                
                (48
                )
                
                
                (52
                )
                
                
                (92
                )
                
                
                (52
                )Income
      before income taxes
                
                
                691
                
                
                
                6,111
                
                
                
                8,563
                
                
                
                18,151Income
      tax expense
                
                
                460
                
                
                
                2,054
                
                
                
                2,676
                
                
                
                6,089Minority
      interest in income of consolidated subsidiaries
                
                
                (24
                )
                
                
                (47
                )
                
                
                (92
                )
                
                
                (63
                )Equity
      in net income of unconsolidated affiliates
                
                
                49
                
                
                
                131
                
                
                
                95
                
                
                
                421Net
      income
                
                $
                256
                
                
                $
                4,141
                
                
                $
                5,890
                
                
                $
                12,420Basic
      income per share
                
                $
                0.01
                
                
                $
                0.16
                
                
                $
                0.23
                
                
                $
                0.48Diluted
      income per share
                
                $
                0.01
                
                
                $
                0.16
                
                
                $
                0.23
                
                
                $
                0.47Shares
      used in computing basic income per share
                
                
                25,218
                
                
                
                25,835
                
                
                
                25,438
                
                
                
                25,823Shares
      used in computing diluted income per share
                
                
                25,282
                
                
                
                26,633
                
                
                
                25,673
                
                
                
                26,657





See notes
to condensed consolidated financial statements.


4


Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Cash Flows


(In
thousands)


(Unaudited)





Nine Months EndedMarch 28,
                          
                          
                          March 29,2009
                          
                          
                          2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                          
                          $
                          5,890
                          
                          
                          $
                          12,420Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          5,844
                          
                          
                          
                          4,126Stock
      based compensation
                          
                          
                          2,698
                          
                          
                          
                          1,743Tax
      benefit resulting from stock option transactions
                          
                          
                          170
                          
                          
                          
                          2,312Excess
      tax benefit resulting from stock option transactions
                          
                          
                          (13
                          )
                          
                          
                          (1,287
                          )In
      process research and development
                          
                          
                          34
                          
                          
                          
                          -Other
      than temporary decline in the value of investments
                          
                          
                          44
                          
                          
                          
                          -Gain
      on sale of investments
                          
                          
                          (1,071
                          )
                          
                          
                          -Loss
      on disposal of assets
                          
                          
                          2
                          
                          
                          
                          -Equity
      in net income of unconsolidated affiliates
                          
                          
                          (95
                          )
                          
                          
                          (421
                          )Minority
      interest in consolidated subsidiary’s net income (loss)
                          
                          
                          92
                          
                          
                          
                          158Deferred
      taxes
                          
                          
                          (677
                          )
                          
                          
                          531Changes
      in assets and liabilities net of effects of entities
    acquired:Accounts
      receivable
                          
                          
                          5,275
                          
                          
                          
                          (8,167
                          )Inventories
                          
                          
                          (31
                          )
                          
                          
                          (3,551
                          )Prepaid
      expenses and other current assets
                          
                          
                          4,796
                          
                          
                          
                          (281
                          )Other
      assets
                          
                          
                          (11
                          )
                          
                          
                          (728
                          )Accounts
      payable
                          
                          
                          (5,463
                          )
                          
                          
                          (841
                          )Accrued
      liabilities
                          
                          
                          (1,524
                          )
                          
                          
                          (1,577
                          )Other
      long term liabilities
                          
                          
                          -
                          
                          
                          
                          (3
                          )Net
      cash provided by operating activities
                          
                          
                          15,960
                          
                          
                          
                          4,434CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                          
                          
                          (12,683
                          )
                          
                          
                          (7,482
                          )Purchase
      of available for sale investments
                          
                          
                          (100,683
                          )
                          
                          
                          (66,242
                          )Maturities
      and sales of available for sale investments
                          
                          
                          89,847
                          
                          
                          
                          68,901Cash
      paid for PTL minority interest acquisition
                          
                          
                          (1,285
                          )
                          
                          
                          -Net
      cash used in investing activities
                          
                          
                          (24,804
                          )
                          
                          
                          (4,823
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issuance under stock plans
                          
                          
                          1,544
                          
                          
                          
                          7,730Excess
      tax benefit on stock based compensation
                          
                          
                          13
                          
                          
                          
                          1,287Proceeds
      from mortgage financing
                          
                          
                          1,669
                          
                          
                          
                          -Principal
      payments on long-term debt and capital leases
                          
                          
                          -
                          
                          
                          
                          (784
                          )Repurchase
      of common stock
                          
                          
                          (5,451
                          )
                          
                          
                          (20,122
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          (2,225
                          )
                          
                          
                          (11,889
                          )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                          
                          
                          (960
                          )
                          
                          
                          439NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                          
                          
                          (12,029
                          )
                          
                          
                          (11,839
                          )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                          
                          
                          41,646
                          
                          
                          
                          29,173End
      of period
                          
                          $
                          29,617
                          
                          
                          $
                          17,334





See notes
to condensed consolidated financial statements.


5





Pericom
Semiconductor Corporation


Notes To
Condensed Consolidated Financial Statements


(Unaudited)




1.  BASIS
OF PRESENTATION





The
condensed consolidated financial statements have been prepared by Pericom
Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and
regulations of the Securities and Exchange Commission.  In the opinion
of management, these unaudited condensed consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, necessary for a fair presentation of the Company’s financial position
as of March 28, 2009, the results of operations for the three and nine months
ended March 28, 2009 and March 29, 2008 and cash flows for the nine months ended
March 28, 2009 and March 29, 2008.  This unaudited quarterly
information should be read in conjunction with the audited consolidated
financial statements of Pericom and the notes thereto included in the Company’s
Annual Report on Form 10-K as filed with the Securities and Exchange Commission
on September 11, 2008.





The
preparation of the interim condensed consolidated 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 and liabilities and disclosure of contingent assets
and liabilities as of the date of the interim condensed consolidated financial
statements and the reported amounts of revenue and expenses during the
period.  Actual amounts could differ from these
estimates.  The results of operations for the three and nine month
periods ended March 28, 2009 and March 29, 2008 are not necessarily indicative
of the results to be expected for the entire year.  The three and nine
month periods ended March 28, 2009 and March 29, 2008 each had 13 and 39 week
periods, respectively.





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 the overall demand for products offered by the Company; changes in
customer relationships; acquisitions and the subsequent integration of the
acquired entity with the Company; litigation or claims against the Company based
on intellectual property, patent, product, regulatory or other factors; risks
associated with changes in domestic and international economic and/or political
conditions or regulations; availability of necessary components; fluctuations in
currencies given the Company’s sales and operations heavily weighted and paid in
foreign currencies; and the Company’s ability to attract and retain employees
necessary to support its growth.





These
interim condensed consolidated financial statements include the accounts of
Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom
Taiwan Limited Corporation (“PTL”), Pericom Semiconductor Hong Kong Limited
(“PSC-HK”) and Pericom Asia Limited (“PAL”) as well as its majority owned
subsidiary, SaRonix-eCERA Corporation (“SRe”). In January 2008, we initiated a
project to build a factory in China for the development and manufacture of
frequency control products (“FCPs”). We have established PSE Technology
(Shandong) Corporation ("PSE") in China to develop and operate the factory. PSE
is a wholly-owned subsidiary of PAL. The Company eliminates all significant
intercompany balances and transactions in consolidation.




Recently
Issued Accounting Standards




Updates
to recent accounting standards as disclosed in Pericom’s Annual Report on
Form 10-K for the fiscal year ended June 28, 2008 are as
follows:





In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1
and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”, to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP also
amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in all interim financial statements. FSP FAS 107-1 and APB 28-1 is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009 and shall be
applied prospectively. The Company does not expect that the implementation of
FSP FAS 107-1 and APB 28-1 will have a material impact on its consolidated
financial statements.


6




In
April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS
157-4”). FSP FAS 157-4 clarifies when markets are illiquid or that market
pricing may not actually reflect the “real” value of an asset. If a market is
determined to be inactive and market price is reflective of a distressed price
then an alternative method of pricing can be used, such as a present value
technique to estimate fair value. FSP FAS 157-4 identifies factors to be
considered when determining whether or not a market is inactive. FSP FAS 157-4
is effective for interim and annual periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15, 2009 and
shall be applied prospectively. The Company is evaluating the impact the
implementation of FSP FAS 157-4 will have on its consolidated financial
statements.





In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of
Other-Than-Temporary Impairments (OTTI) (“FSP FAS 115-2 and FAS 124-2”)
which is intended to provide greater clarity to investors about the credit and
noncredit component of an OTTI event and to more effectively communicate when an
OTTI event has occurred. The FSP applies to debt securities and requires that
the total OTTI be presented in the statement of income with an offset for the
amount of impairment that is recognized in other comprehensive income, which is
the noncredit component. Noncredit component losses are to be recorded in other
comprehensive income if an investor can assess that (a) it does not have
the intent to sell or (b) it is not more likely than not that it will have
to sell the security prior to its anticipated recovery. The FSP is effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. The FSP will be applied
prospectively with a cumulative effect transition adjustment as of the beginning
of the period in which it is adopted. An entity early adopting this FSP must
also early adopt FSP FAS 157-4. The Company is evaluating the impact the
implementation of FSP FAS 115-2 and FAS 124-2 will have on its consolidated
financial statements.





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





On June
29, 2008, the Company adopted FSP SFAS No. 157, Fair Value Measurements ("FSP
SFAS 157") for financial assets and liabilities, which clarifies the meaning of
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.  Fair value is defined
under FSP SFAS 157 as the exchange price that would be received for an asset or
paid to transfer a liability in the principal or most advantageous market for
the assets or liabilities in an orderly transaction between market participants
on the measurement date.  Subsequent changes in fair value of these
financial assets and liabilities are recognized in earnings or other
comprehensive income when they occur. The effective date of the provisions of
FSP SFAS 157 for non-financial assets and liabilities is the fiscal year
beginning June 28, 2009, except for items recognized at fair value on a
recurring basis.  The Company is currently evaluating the impact of
the provisions for non-financial assets and liabilities.  The adoption
of FSP SFAS 157 for financial assets and liabilities did not have an impact on
the Company's consolidated financial position or results of
operations.  For additional information on the fair value of financial
assets and liabilities, see Note 15, Fair Value Measurements.





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued FSP
SFAS No. 141(R), Business
Combinations (“FSP SFAS 141(R)”).FSP SFAS 141(R) establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree. FSP SFAS
141(R) also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The provisions of FSP SFAS 141(R) are
effective for the fiscal year beginning June 28, 2009.  The Company is
currently evaluating the impact of the provisions of FSP SFAS
141(R).


7





In
December 2007, the FASB issued FSP SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of ARB No. 51 (“FSP SFAS
160”).FSP SFAS 160
establishes new accounting and reporting standards for a non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
separate from the parent’s equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income statement. FSP SFAS 160 clarifies that changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the non-controlling equity investment on the
deconsolidation date. FSP SFAS 160 also includes expanded disclosure
requirements regarding the interests of the parent and its non-controlling
interest. The provisions of FSP SFAS 160 are effective for the fiscal year
beginning June 28, 2009 and the presentation and disclosure requirements
must be applied retrospectively for all periods presented at that date. We are
currently evaluating the impact that FSP SFAS 160 will have on our financial
statements.




2.
BUSINESS COMBINATION




Acquisition
of remaining minority interest in PTL





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





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





The
Company has included the results of operations of PTL in the Company’s
consolidated financial statements from the date of acquiring a majority stake in
PTL.  The Company recorded the assets acquired on October 27, 2008,
the date of the acquisition of the remaining minority interest, at estimated
fair values as determined by management, prorated for the stake
acquired.  The Company based the fair values on the appropriate
application of generally accepted income based approaches.  The
Company allocated the purchase price of PTL’s minority stake as
follows:





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





The
in-process research and development was expensed during the quarter ended
December 27, 2008. The core developed technology is included in intangible
assets and will be amortized over a period of 5 years.




3.
INTANGIBLE ASSETS




Pericom’s
intangible assets are derived from completed acquisitions and for each of the
following periods are composed of:


8




March 28, 2009
                
                
                June 28, 2008(in thousands)
                
                Gross
                
                
                Accumulated
                  Amortization
                
                
                Net
                
                
                Gross
                
                
                Accumulated
                  Amortization
                
                
                NeteCERA
      customer relationships
                
                $
                106
                
                
                $
                (106
                )
                
                $
                -
                
                
                $
                117
                
                
                $
                (111
                )
                
                $
                6eCERA
      trade name
                
                
                39
                
                
                
                (20
                )
                
                
                19
                
                
                
                43
                
                
                
                (17
                )
                
                
                26Core
      developed technology
                
                
                1,807
                
                
                
                (689
                )
                
                
                1,118
                
                
                
                939
                
                
                
                (566
                )
                
                
                373SaRonix
      supplier relationship
                
                
                397
                
                
                
                (126
                )
                
                
                271
                
                
                
                398
                
                
                
                (78
                )
                
                
                320Total
      amortizable purchased intangible assets
                
                
                2,349
                
                
                
                (941
                )
                
                
                1,408
                
                
                
                1,497
                
                
                
                (772
                )
                
                
                725SaRonix
      trade name
                
                
                415
                
                
                
                -
                
                
                
                415
                
                
                
                415
                
                
                
                -
                
                
                
                415Total
      purchased intangible assets
                
                $
                2,764
                
                
                $
                (941
                )
                
                $
                1,823
                
                
                $
                1,912
                
                
                $
                (772
                )
                
                $
                1,140




In
October 2008, the Company acquired the outstanding minority interest of PTL as
described in Note 2 to these financial statements. This resulted in an increase
of $904,000 in intangible assets, consisting of core developed technology, which
will be amortized over five years.





Amortization
expense related to finite-lived purchased intangible assets was approximately
$76,000 and $177,000 for the three and nine month periods ended March 28, 2009
and $58,000 and $147,000 for the three and nine month periods ended March 29,
2008, respectively.





The
Company performs an impairment review of its intangible assets at least
annually, in conformity with SFAS No. 142, Goodwill and Other Intangible Assets(“SFAS No. 142”).  Based on the results of its most recent
impairment review, the Company determined that no impairment of its intangible
assets existed as of June 28, 2008. However, future impairment reviews could
result in a charge to earnings.





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





Months
      from 3/28/2009(in
      thousands)
                        
                        Next
      12
                          Months
                        
                        
                        13-24
                          Months
                        
                        
                        25-36
                          Months
                        
                        
                        37-48
                          Months
                        
                        
                        49-60
                          MonthsExpected
      amortization-PTL
                        
                        $
                        177
                        
                        
                        $
                        177
                        
                        
                        $
                        177
                        
                        
                        $
                        177
                        
                        
                        $
                        103Expected
      amortization-SaRonix
                        
                        
                        117
                        
                        
                        
                        117
                        
                        
                        
                        117
                        
                        
                        
                        117
                        
                        
                        
                        35Expected
      amortization-eCERA
                        
                        
                        28
                        
                        
                        
                        28
                        
                        
                        
                        28
                        
                        
                        
                        10
                        
                        
                        
                        -$
                        322
                        
                        
                        $
                        322
                        
                        
                        $
                        322
                        
                        
                        $
                        304
                        
                        
                        $
                        138




4.  INCOME
PER SHARE





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





Basic and
diluted income per share for the three and nine month periods ended March 28,
2009 and March 29, 2008 are computed as follows:


9




Three Months Ended
                
                
                Nine Months EndedMarch 28,
                
                
                March 29,
                
                
                March 28,
                
                
                March 29,(in thousands, except per share data)
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      income
                
                $
                256
                
                
                $
                4,141
                
                
                $
                5,890
                
                
                $
                12,420Computation
      of common shares outstanding – basic earnings per share:Weighted
      average shares of common stock
                
                
                25,218
                
                
                
                25,835
                
                
                
                25,438
                
                
                
                25,823Basic
      earnings per share
                
                $
                0.01
                
                
                $
                0.16
                
                
                $
                0.23
                
                
                $
                0.48Computation
      of common shares outstanding – diluted earnings per share:Weighted
      average shares of common stock
                
                
                25,218
                
                
                
                25,835
                
                
                
                25,438
                
                
                
                25,823Dilutive
      options using the treasury stock method
                
                
                64
                
                
                
                798
                
                
                
                235
                
                
                
                834Shares
      used in computing diluted earnings per share
                
                
                25,282
                
                
                
                26,633
                
                
                
                25,673
                
                
                
                26,657Diluted
      earnings per share
                
                $
                0.01
                
                
                $
                0.16
                
                
                $
                0.23
                
                
                $
                0.47




Options
to purchase 3,816,000 and 3,165,000 shares of common stock, and restricted stock
units of 217,000 and 130,000 were outstanding as of March 28, 2009 for the three
and nine months ended respectively, but not included in the computation of
diluted earnings per share because the options and units would be anti-dilutive
under the treasury stock method. Options to purchase 1,706,000 and 1,805,000
shares of common stock were outstanding as of March 29, 2008 for the three and
nine months ended respectively, but not included in the computation of diluted
earnings per share because the options would be anti-dilutive under the treasury
stock method.




5.  INVENTORIES




Inventories
consist of:




March
      28,
                  
                  
                  June
      28,(in
      thousands)
                  
                  2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  6,807
                  
                  
                  $
                  6,326Work
      in process
                  
                  
                  5,460
                  
                  
                  
                  4,472Finished
      goods
                  
                  
                  5,001
                  
                  
                  
                  7,123$
                  17,268
                  
                  
                  $
                  17,921




The
Company considers raw material inventory obsolete and writes it off if the raw
material has not moved in 365 days.  The Company reviews its assembled
devices for excess and writes them off if the quantity of assembled devices in
inventory is in excess of the greater of the quantity shipped in the previous
twelve months, the quantity in backlog or the quantity forecasted to be shipped
in the following twelve months.  In certain circumstances, management
will determine, based on expected usage or other factors, that inventory
considered excess by these guidelines should not be written off. The Company
does occasionally determine that last twelve months’ sales levels will not
continue and reserves inventory in line with the quantity forecasted. As of
March 28, 2009, the Company had $4.8 million of written-off inventory as
compared to $5.0 million at June 28, 2008.  The Company attributes
this reduction of approximately $0.2 million in obsolete inventory between March
28, 2009 and June 28, 2008 to sales of previously reserved inventory as well as
physically scrapping a portion of the written-off inventory.




6.  ACCRUED
LIABILITIES




Accrued
liabilities consist of:


10




March
      28,
                  
                  
                  June
      28,(in
      thousands)
                  
                  2009
                  
                  
                  2008Accrued
      compensation
                  
                  $
                  3,594
                  
                  
                  $
                  6,089Accrued
      income tax
                  
                  
                  911
                  
                  
                  
                  434External
      sales representative commissions
                  
                  
                  439
                  
                  
                  
                  615Other
      accrued expenses
                  
                  
                  1,186
                  
                  
                  
                  1,641$
                  6,130
                  
                  
                  $
                  8,779




7.
DEBT




The long
term debt as reported in the consolidated balance sheet as of March 28,
2009is as
follows:




Annual
                  
                  
                  
                  
                  
                  Total Amounts Due(in
      thousands)
                  
                  Interest
                    Rate
                  
                  
                  Total
      due
                  
                  
                  Within
                    12
      Months
                  
                  
                  After
                    12
      MonthsMortgage
      loan - PTL
                  
                  
                  1.8
                  %
                  
                  $
                  1,628
                  
                  
                  $
                  -
                  
                  
                  $
                  1,628




PTL took
out a 15-year mortgage on its building in December 2008 in the amount of $1.7
million. The debt carries a variable rate of interest at the 1-year time deposit
rate plus 0.64% for the first two years and plus 1.34% afterwards. The loan is
denominated in New Taiwanese Dollars and only interest is required to be paid
for the first 12 months.




8.  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 and tracks its results in one
reportable segment.  The Company designs, develops, manufactures and
markets a broad range of interface integrated circuits and frequency control
products.





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





Net
      RevenuesThree
      Months Ended
                    
                    
                    Nine
      Months EndedMarch
      28,
                    
                    
                    March
      29,
                    
                    
                    March
      28,
                    
                    
                    March
      29,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Customer
      A
                    
                    
                    21
                    %
                    
                    
                    16
                    %
                    
                    
                    18
                    %
                    
                    
                    14
                    %Customer
      B
                    
                    
                    10
                    %
                    
                    
                    *
                    
                    
                    
                    14
                    %
                    
                    
                    *All
      others
                    
                    
                    69
                    %
                    
                    
                    84
                    %
                    
                    
                    68
                    %
                    
                    
                    86
                    %100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %





Accounts
      ReceivableMarch
      28,
                          
                          
                          June
      28,2009
                          
                          
                          2008Customer
      A
                          
                          
                          24
                          %
                          
                          
                          16
                          %All
      others
                          
                          
                          76
                          %
                          
                          
                          84
                          %100
                          %
                          
                          
                          100
                          %





* Less
than 10 percent of total net revenues and accounts receivable





For
geographical reporting, we attribute net revenues to the country where customers
are located (the “bill to” location). We neither conduct business in nor sell to
persons in Iran, Syria, Sudan, or North Korea, countries located in referenced
regions identified as state sponsors of terrorism by the U.S. Department of
State and subject to U.S. economic sanctions and export controls. The following
table sets forth net revenues by country as a percentage of total net revenues
for the three and nine month periods ended March 28, 2009 and March 29,
2008:


11




Three
      Months Ended
                
                
                Nine
      Months EndedMarch
      28,
                
                
                March
      29,
                
                
                March
      28,
                
                
                March
      29,2009
                
                
                2008
                
                
                2009
                
                
                2008Taiwan
                
                
                42
                %
                
                
                32
                %
                
                
                42
                %
                
                
                30
                %China
      (including Hong Kong)
                
                
                35
                %
                
                
                39
                %
                
                
                34
                %
                
                
                39
                %United States
                
                
                9
                %
                
                
                9
                %
                
                
                8
                %
                
                
                9
                %Singapore
                
                
                2
                %
                
                
                4
                %
                
                
                3
                %
                
                
                5
                %Other
      (less than 10% each)
                
                
                12
                %
                
                
                15
                %
                
                
                13
                %
                
                
                17
                %Total
      net revenues
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %




Long-lived
assets consist of all non-monetary assets, excluding non-current deferred tax
assets, goodwill and intangible assets. We attribute long-lived assets to the
country where they are located. The following table sets forth the Company’s
long-lived assets by country of location as a percentage of total net property
and equipment as of March 28, 2009 and June 28, 2008:




March
      28,
                  
                  
                  June
      28,2009
                  
                  
                  2008Taiwan
                  
                  
                  61
                  %
                  
                  
                  74
                  %United
      States
                  
                  
                  19
                  %
                  
                  
                  21
                  %China
      (including Hong Kong)
                  
                  
                  16
                  %
                  
                  
                  1
                  %Other
      countries
                  
                  
                  4
                  %
                  
                  
                  4
                  %Total
                  
                  
                  100
                  %
                  
                  
                  100
                  %




9.  STOCK
REPURCHASE PROGRAM




On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of our common stock and on April 29, 2008, the Board authorized
the repurchase of an additional $30 million worth of common stock. The Company
was authorized to repurchase the shares from time to time in the open market or
private transactions, at the discretion of the Company’s
management.  Pursuant to the 2007 authority, the Company repurchased
approximately 139,000 shares in the six months ended December 27, 2008 for an
aggregate cost of $1.9 million, and this completed the repurchase of 2.0 million
shares at a cost of approximately $25.2 million. Pursuant to the 2008 authority,
the Company repurchased approximately 573,000 shares in the nine months ended
March 28, 2009 for an aggregate cost of $3.5 million. During the same period of
the prior year, the Company repurchased approximately 1,559,000 shares for an
aggregate cost of $20.1 million.





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




10.  MINORITY
INTEREST





The
Company consolidates its subsidiary SRe, which has a minority interest. Parties
other than the Company own approximately 2.71% of the outstanding shares of SRe
at March 28, 2009, and as of this date the minority interest in SRe was valued
at $1.2 million.





As of
September 27, 2008, Pericom owned approximately 87.9% of its subsidiary PTL with
the remaining interest owned by PTL employees. During the quarter ended December
27, 2008, Company purchased the remaining 3.7 million shares held by employees
for a total price of $1.3 million, with the result that PTL is now a wholly
owned subsidiary.


12




11.
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION




PREFERRED
STOCK





The
Company’s shareholders have authorized the Board of Directors to issue 5,000,000
shares of preferred stock from time to time in one or more series and to fix the
rights, privileges and restrictions of each series.  As of March 28,
2009, the Company has issued no shares of preferred stock.





STOCK OPTION
PLANS





At March
28, 2009 the Company had four stock option plans and one employee stock purchase
plan, consisting of the 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix
Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the 2000 Employee
Stock Purchase Plan.





Under the
four stock option plans, the Company has reserved an aggregate of 7.9 million
shares of common stock as of March 28, 2009 for issuance to employees, officers,
directors, independent contractors and consultants of the Company in the form of
incentive or nonqualified stock options, or grants of restricted
stock.





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





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





The value
of the Company’s stock options granted under its stock option plans during the
three months ended March 28, 2009 and March 29, 2008 was estimated at the date
of grant using the following weighted average assumptions:




Three
      Months EndedMarch
      28,
                  
                  
                  March
      29,2009
                  
                  
                  2008Expected
      Life
                  
                  5.2
      years
                  
                  
                  5.1
      yearsRisk-free
      interest rate
                  
                  
                  1.70
                  %
                  
                  
                  3.05
                  %Volatility
                  
                  
                  51
                  %
                  
                  
                  45
                  %Dividend
      Yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %




The
weighted average fair value of options granted during the three months ended
March 28, 2009 and March 29, 2008 were $3.19 and $6.70,
respectively.





The
following table summarizes the Company’s stock option activity for the nine
months ended March 28, 2009:


13




Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Term
                  
                  
                  Aggregate
                    Intrinsic
      Value(in
      thousands)
                  
                  
                  
                  
                  
                  (years)
                  
                  
                  (in
      thousands)Options
      outstanding at June 28, 2008
                  
                  
                  3,874
                  
                  
                  $
                  13.42
                  
                  
                  
                  5.2
                  
                  
                  $
                  16,677Granted
      (weighted average grant date fair value of $6.30)
                  
                  
                  300
                  
                  
                  
                  14.33Exercised
                  
                  
                  (128
                  )
                  
                  
                  5.25Cancelled
      or expired
                  
                  
                  (168
                  )
                  
                  
                  13.31Options
      outstanding at March 28, 2009
                  
                  
                  3,878
                  
                  
                  $
                  13.76
                  
                  
                  
                  4.8
                  
                  
                  $
                  334Options
      vested and expected to vest at March 28, 2009
                  
                  
                  3,768
                  
                  
                  $
                  13.78
                  
                  
                  
                  4.7
                  
                  
                  $
                  328Options
      exercisable at March 28, 2009
                  
                  
                  3,018
                  
                  
                  $
                  14.15
                  
                  
                  
                  3.8
                  
                  
                  $
                  296




At March
28, 2009, 3.6 million shares were available for future grants under the option
plans.  The aggregate intrinsic value of options exercised during the
three and nine months ended March 28, 2009 was $172,000 and $472,000,
respectively.





At March
28, 2009, expected future compensation expense relating to options and
restricted stock units outstanding at that date is $6.4 million, which will be
amortized to expense over a weighted average period of 2.4 years for the options
and 3.7 years for the restricted stock units.





Additional
information regarding options outstanding and exercisable as of March 28, 2009
is as follows:





Options
      Outstanding
                              
                              
                              Exercisable
      OptionsRange
      of Exercise
                                Prices
                              
                              
                              Number
                                Outstanding
      as
                                of
      March 28,
                                2009
                              
                              
                              Weighted
                                Average
                                Remaining
                                Contractual
                                Term
      (years)
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price
                              
                              
                              Number
                                Exercisable
                                as
      of March 28,
                                2009
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price$
                              4.44
                              
                              $
                              5.25
                              
                              
                              
                              137,000
                              
                              
                              
                              0.7
                              
                              
                              $
                              5.23
                              
                              
                              
                              131,000
                              
                              
                              $
                              5.25$
                              5.48
                              
                              $
                              10.68
                              
                              
                              
                              1,467,000
                              
                              
                              
                              6.3
                              
                              
                              $
                              8.96
                              
                              
                              
                              1,109,000
                              
                              
                              $
                              8.85$
                              10.77
                              
                              $
                              13.96
                              
                              
                              
                              811,000
                              
                              
                              
                              4.0
                              
                              
                              $
                              12.33
                              
                              
                              
                              702,000
                              
                              
                              $
                              12.46$
                              14.00
                              
                              $
                              16.56
                              
                              
                              
                              790,000
                              
                              
                              
                              6.3
                              
                              
                              $
                              15.46
                              
                              
                              
                              423,000
                              
                              
                              $
                              15.36$
                              16.59
                              
                              $
                              37.22
                              
                              
                              
                              673,000
                              
                              
                              
                              1.7
                              
                              
                              $
                              25.69
                              
                              
                              
                              653,000
                              
                              
                              $
                              25.94$
                              4.44
                              
                              $
                              37.22
                              
                              
                              
                              3,878,000
                              
                              
                              
                              4.8
                              
                              
                              $
                              13.76
                              
                              
                              
                              3,018,000
                              
                              
                              $
                              14.15





Restricted
Stock Units





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


14





Shares
                    
                    
                    Weighted
                      Average
                      Grant
                      Date
      Fair
                      Value
                    
                    
                    Weighted
                      Average
                      Remaining
                      Vesting
                      Term
                    
                    
                    Aggregate
                      Intrinsic
      Value(in
      thousands)
                    
                    
                    
                    
                    
                    (years)
                    
                    
                    (in
      thousands)RSUs
      outstanding at June 28, 2008
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -Awarded
                    
                    
                    347
                    
                    
                    $
                    10.49Released
                    
                    
                    -Forfeited
                    
                    
                    (15
                    )
                    
                    $
                    14.99RSUs
      outstanding at March 28, 2009
                    
                    
                    332
                    
                    
                    $
                    10.29
                    
                    
                    
                    2.33
                    
                    
                    $
                    2,470RSUs
      vested and expected to vest after March 28, 2009
                    
                    
                    255
                    
                    
                    $
                    10.29
                    
                    
                    
                    2.21
                    
                    
                    $
                    1,896RSUs
      exercisable at March 28, 2009
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -









2000 EMPLOYEE STOCK PURCHASE
PLAN





The
Company’s 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows
eligible employees of the Company to purchase shares of Common Stock through
payroll deductions.  The Company reserved 2.1 million shares of the
Company’s Common Stock for issuance under this Plan, of which 408,000 remain
available at March 28, 2009 and which may be released at the Board of Directors’
discretion.  The Stock Purchase Plan permits eligible employees to
purchase Common Stock at a discount through payroll deductions during 24-month
purchase periods.  The Company divides each purchase period into eight
consecutive three-month accrual periods.  Participants in the Stock
Purchase Plan may purchase stock at 85% of the lower of the stock’s fair market
value on the first day of the purchase period or the last day of the accrual
period.  The maximum number of shares of Common Stock that any
employee may purchase under the Stock Purchase Plan during any three-month
accrual period is 1,000 shares.  During the first nine months
of  fiscal years 2009 and 2008, the Company issued 135,075 and 94,587
shares of common stock under the Stock Purchase Plan at weighted average prices
of $6.47 and $7.88, respectively.  The weighted average fair value of
the awards for the first nine months of fiscal 2009 and 2008 were $1.70 and
$3.10 per share, respectively.





The
Company estimates the fair value of stock purchase rights granted under the
Company’s Stock Purchase Plan on the date of grant using the Black-Scholes
option valuation model.  The Company bases volatility on the expected
volatility of the Company’s stock during the accrual period.  The
expected term is determined by the time from enrollment until purchase, and the
Company uses the U.S. Treasury yield for the risk-free interest rate for the
contractual period.





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





Three
      Months EndedMarch
      28,
                  
                  
                  March
      29,2009
                  
                  
                  2008Expected
      Life
                  
                  13.5
      months
                  
                  
                  13.5
      monthsRisk-free
      interest rate
                  
                  
                  0.58
                  %
                  
                  
                  2.12
                  %Volatility
                  
                  
                  67
                  %
                  
                  
                  55
                  %Dividend
      Yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %




The
following table summarizes activity in the Company’s employee stock purchase
plan during the nine months ended March 28, 2009:


15




Shares
                    
                    
                    Weighted
                      Average
                      Purchase
                      PriceBeginning
      Available
                    
                    
                    543,313Purchases
                    
                    
                    (135,075
                    )
                    
                    $
                    6.47Ending
      Available
                    
                    
                    408,238




At March
28, 2009, the Company had $1.1 million in unamortized share-based compensation
related to its employee stock purchase plan.  The Company estimates
this expense will be amortized and recognized in the consolidated statement of
operations over the next 1.1 years.





SHARE-BASED
COMPENSATION





The
following table shows total share-based compensation expense classified by
Consolidated Statements of Operations reporting caption for the three and nine
months ended March 28, 2009 and March 29, 2008 generated from the plans
mentioned above:




Three
      Months Ended
                  
                  
                  Nine
      Months EndedMarch
      28,
                  
                  
                  March
      29,
                  
                  
                  March
      28,
                  
                  
                  March
      29,(In
      Thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Cost
      of goods sold
                  
                  $
                  72
                  
                  
                  $
                  42
                  
                  
                  $
                  192
                  
                  
                  $
                  115Research
      and development
                  
                  
                  393
                  
                  
                  
                  231
                  
                  
                  
                  1048
                  
                  
                  
                  582Selling,
      general and administrative
                  
                  
                  533
                  
                  
                  
                  312
                  
                  
                  
                  1458
                  
                  
                  
                  1046Pre-tax
      share-based compensation expense
                  
                  
                  998
                  
                  
                  
                  585
                  
                  
                  
                  2,698
                  
                  
                  
                  1,743Income
      tax impact
                  
                  
                  196
                  
                  
                  
                  160
                  
                  
                  
                  574
                  
                  
                  
                  511Net
      share-based compensation expense
                  
                  $
                  802
                  
                  
                  $
                  425
                  
                  
                  $
                  2,124
                  
                  
                  $
                  1,232




Share-based
compensation by type of award is as follows:





Three
      Months Ended
                
                
                Nine
      Months EndedMarch
      28,
                
                
                March
      29,
                
                
                March
      28,
                
                
                March
      29,(In
      Thousands)
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Stock
      options
                
                $
                602
                
                
                $
                480
                
                
                $
                1,783
                
                
                $
                1,527Restricted
      stock units
                
                
                151
                
                
                
                -
                
                
                
                301
                
                
                
                -Stock
      purchase plan
                
                
                245
                
                
                
                105
                
                
                
                614
                
                
                
                216Total
      share-based compensation expense
                
                $
                998
                
                
                $
                585
                
                
                $
                2,698
                
                
                $
                1,743




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




12.
INCOME TAXES




Accounting
for Uncertainty in Income Taxes




Effective
July 1, 2007, the Company adopted Financial Accounting Standards Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109(“FIN No. 48”).  As a result of the implementation of FIN No.
48, the Company recognized no change in the liability for unrecognized tax
benefits related to tax positions taken in prior periods.  All
positions taken in its US and foreign returns with respect to any book-tax
adjustments were highly certain, and accordingly the Company did not record any
valuation adjustments against those positions.  Upon adoption of FIN
No. 48, the Company’s policy to include interest and penalties related to
unrecognized tax benefits within the Company’s provision for income taxes did
not change.  As of March 28, 2009, the Company had accrued $120,000
for any interest and penalties related to unrecognized tax
benefits.  The Company’s total amount of unrecognized tax benefits as
of March 28, 2009 was $898,000.  All of this amount would affect the
corporation’s tax rate if recognized.  The tax years 2003 to 2008
remain open in the United States.




16




Income
Tax Expense




Income
tax expense for the nine months ended March 28, 2009 and March 29, 2008 was $2.7
million and $6.1 million, respectively, and was comprised of domestic federal
and state income tax and foreign income and withholding tax.




13.
INVESTMENT IN AFFILIATES




Our
investment in unconsolidated affiliates is comprised of the
following:




March
      28,
                    
                    
                    June
      28,(in
      thousands)
                    
                    2009
                    
                    
                    2008Pericom
      Technology, Inc.
                    
                    $
                    8,568
                    
                    
                    $
                    8,505Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                    
                    
                    1,944
                    
                    
                    
                    1,887Total
                    
                    $
                    10,512
                    
                    
                    $
                    10,392




The
Company has an approximate 44.1% ownership interest in Pericom Technology, Inc.
(“PTI”).  Pericom accounts for its investment in PTI using the equity
method due to the Company’s significant influence over its
operations.  In addition, certain of the directors of the Company are
directors of PTI, and certain shareholders of the Company are shareholders of
PTI. PTI was incorporated in 1994 and in 1995 established a design center and
sales office to pursue opportunities and participate in joint ventures in the
People’s Republic of China. For the first nine months of fiscal 2009 and
2008, the Company’s allocated portion of PTI’s results was income of $64,000 and
$232,000, respectively. Condensed operating results of PTI were as
follows:




Three
      Months Ended
                  
                  
                  Nine
      Months EndedMarch
      28,
                  
                  
                  March
      29,
                  
                  
                  March
      28,
                  
                  
                  March
      29,(in
      thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenue
                  
                  $
                  2,516
                  
                  
                  $
                  2,301
                  
                  
                  $
                  8,976
                  
                  
                  $
                  8,623Gross
      profit
                  
                  
                  1,447
                  
                  
                  
                  1,202
                  
                  
                  
                  4,585
                  
                  
                  
                  4,290Operating
      income
                  
                  
                  321
                  
                  
                  
                  169
                  
                  
                  
                  976
                  
                  
                  
                  736Net
      income
                  
                  
                  258
                  
                  
                  
                  199
                  
                  
                  
                  254
                  
                  
                  
                  910




SRe has a
49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd.
(“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City,
Henan Province, China. JCP is a key manufacturing partner of SRe. For the first
nine months of fiscal 2009 and 2008, the Company’s allocated portion of JCP’s
results was income of $31,000 and $218,000, respectively.




14. COMPREHENSIVE
INCOME




Comprehensive
income consists of net income, net unrealized gains (losses) on
available-for-sale securities and foreign currency translation gains (losses)
generated by the Company’s consolidated subsidiaries.  The components
of comprehensive income, net of related tax effects, are as
follows:


17




Three
      Months Ended
                  
                  
                  Nine
      Months EndedMarch
      28,
                  
                  
                  March
      29,
                  
                  
                  March
      28,
                  
                  
                  March
      29,(In
      Thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income
                  
                  $
                  256
                  
                  
                  $
                  4,141
                  
                  
                  $
                  5,890
                  
                  
                  $
                  12,420Unrealized
      gain (loss) on securities available for sale, net
                  
                  
                  77
                  
                  
                  
                  320
                  
                  
                  
                  (751
                  )
                  
                  
                  1,434Translation
      gain (loss), net
                  
                  
                  (848
                  )
                  
                  
                  2,588
                  
                  
                  
                  (3,898
                  )
                  
                  
                  2,955Comprehensive
      income (loss)
                  
                  $
                  (515
                  )
                  
                  $
                  7,049
                  
                  
                  $
                  1,241
                  
                  
                  $
                  16,809




15.
FAIR VALUE MEASUREMENTS





Effective
June 29, 2008, we adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”). In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2, Effective
Date of FASB Statement No. 157, which provides a one year deferral
of the effective date of SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually (fair value of reporting
units for goodwill impairment tests, non-financial assets and liabilities
acquired in a business combination). Therefore we adopted the provisions of SFAS
157 with respect to our financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value under SFAS 157 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs that
may be used to measure fair value, of which the first two are considered
observable and the last is considered unobservable:




•
            
            Level
      1 - Quoted prices in active markets for identical assets or
      liabilities.•
            
            Level
      2 - Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.•
            
            Level
      3 - Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.




The
adoption of this statement with respect to our financial assets and liabilities
did not impact our consolidated results of operations and financial condition,
but requires additional disclosure for assets and liabilities measured at fair
value.  In accordance with SFAS 157, the following table represents our
fair value hierarchy for financial assets (cash equivalents and investments)
measured at fair value on a recurring basis.  Level 1 available-for-sale
investments are primarily comprised of investments in U.S. Treasury securities,
valued using market prices in active markets.  Level 2 investment
valuations are obtained from readily-available pricing sources for comparable
instruments. A majority of our investments are priced by pricing vendors and are
classified as Level 1 or Level 2 investments, as these vendors either provide a
quoted market price in an active market or use observable inputs.





Assets
measured at fair value as of March 28, 2009 are summarized as
follows:





(in
      thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  TotalInvestments
      (1)Treasury
      bills
                  
                  $
                  4,362
                  
                  
                  $
                  -
                  
                  
                  $
                  4,362Corporate
      bonds and notes
                  
                  
                  -
                  
                  
                  
                  50,993
                  
                  
                  
                  50,993Government
      securities
                  
                  
                  -
                  
                  
                  
                  24,619
                  
                  
                  
                  24,619Asset/mortgage
      backed securities
                  
                  
                  -
                  
                  
                  
                  13,310
                  
                  
                  
                  13,310Total
                  
                  $
                  4,362
                  
                  
                  $
                  88,922
                  
                  
                  $
                  93,284





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




18





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





The
Company’s investment in debt securities includes government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include federal agencies and municipal bonds.
Many of the municipal bonds are insured; those that are not are nearly all
AAA/Aaa rated. The corporate debt securities are all investment grade and nearly
all are single A-rated or better. The asset-backed securities are AAA/Aaa rated
and are backed by auto loans. When assessing marketable securities for
other-than-temporary declines in value, we consider a number of factors. Our
analyses of the severity and duration of price declines, portfolio manager
reports, economic forecasts and the specific circumstances of issuers indicate
that it is reasonable to expect marketable securities with unrealized losses at
March 28, 2009 to recover in fair value up to our cost bases within a reasonable
period of time. We have the ability and intent to hold these investments until
maturity, when the obligors are required to redeem them at full face value or
par, and we believe the obligors have the financial resources to redeem the debt
securities. Accordingly, we do not consider our investments to be
other-than-temporarily impaired at March 28, 2009.





16.
RESTRUCTURING CHARGE





During
the quarter ended December 27, 2008, the Company instituted a restructuring plan
to align its costs with prevailing market conditions. As part of the
restructuring plan, through the quarter ended March 28, 2009 the Company has
reduced its workforce by 61 employees. Of the employees terminated, 26 were in
operations, 17 in research and development, 11 in sales and marketing, and 7 in
general and administration. The Company incurred $510,000 of restructuring
charges through March 28, 2009, as compared with none in the same period of the
prior year. At March 28, 2009, $435,000 of the $510,000 had been paid with the
balance expected to be paid over the next six months. We believe that as of
March 28, 2009, the restructuring plan is essentially complete.


19





Item 2:
Management’s Discussion and Analysis


of
Financial Condition and Results of Operations





Pericom
Semiconductor Corporation





The
following information should be read in conjunction with the unaudited financial
statements and notes thereto included in Part 1 - Item 1 of this Quarterly
Report and the audited financial statements and notes thereto and Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company’s Annual Report on Form 10-K for the year ended June
28, 2008 (the “Form 10-K”).





Factors
That May Affect Operating Results





This
Quarterly Report on Form 10-Q 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 the Company’s expected fourth quarter revenues, the
Company’s total investment in the Jinan Hi-Tech Industries Development Zone, the
continuation of a high level of turns orders, higher or lower levels of
inventory, future gross profit and gross margin; the plans and objectives of
management for future operations; the Company’s tax rate; currency fluctuations;
the adequacy of allowances for returns, price protection and other concessions;
the sufficiency of cash generated from operations and cash balances; the
Company’s exposure to interest rate risk; expectations regarding our R&D and
SG&A expenses; and our possible future acquisitions and assumptions
underlying any of the foregoing. In some cases, forward-looking statements can
be identified by the use of terminology such as “may,” “will,” “expects,”
“plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative
thereof or other comparable terminology. Although 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 (i) in Item
1A, Risk Factors, of Part II of this Form 10-Q, and (ii) in Note 1 to the Notes
to Condensed Consolidated Financial Statements. All forward-looking statements
and reasons why results may differ included in this Quarterly 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.


20


Results
of Operations





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





Three
      Months Ended
                
                
                Nine
      Months EndedMarch
      28,
                
                
                March
      29,
                
                
                March
      28,
                
                
                March
      29,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      revenues
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of revenues
                
                
                64.5
                %
                
                
                62.4
                %
                
                
                64.3
                %
                
                
                63.0
                %Gross
      profit
                
                
                35.5
                %
                
                
                37.6
                %
                
                
                35.7
                %
                
                
                37.0
                %Operating
      expenses:Research
      and development
                
                
                16.4
                %
                
                
                10.9
                %
                
                
                12.7
                %
                
                
                10.7
                %Selling,
      general and administrative
                
                
                21.1
                %
                
                
                13.9
                %
                
                
                17.7
                %
                
                
                14.4
                %Restructuring
      charge
                
                
                1.2
                %
                
                
                0.0
                %
                
                
                0.5
                %
                
                
                0.0
                %Total
                
                
                38.7
                %
                
                
                24.8
                %
                
                
                30.9
                %
                
                
                25.1
                %Income
      (loss) from operations
                
                
                (3.2
                )%
                
                
                12.8
                %
                
                
                4.8
                %
                
                
                11.9
                %Interest
      and other income
                
                
                6.2
                %
                
                
                2.2
                %
                
                
                3.9
                %
                
                
                3.2
                %Other
      than temporary decline in value of investment
                
                
                (0.2
                )%
                
                
                (0.1
                )%
                
                
                (0.1
                )%
                
                
                0.0
                %Income
      before income taxes
                
                
                2.8
                %
                
                
                14.9
                %
                
                
                8.6
                %
                
                
                15.1
                %Income
      taxes
                
                
                1.9
                %
                
                
                5.0
                %
                
                
                2.7
                %
                
                
                5.1
                %Minority
      interest in income of consolidated subsidiaries
                
                
                (0.1
                )%
                
                
                (0.1
                )%
                
                
                (0.1
                )%
                
                
                0.0
                %Equity
      in net income of unconsolidated affiliates
                
                
                0.2
                %
                
                
                0.3
                %
                
                
                0.1
                %
                
                
                0.3
                %Net
      income
                
                
                1.0
                %
                
                
                10.1
                %
                
                
                5.9
                %
                
                
                10.3
                %





Net
Revenues





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


Three
      Months Ended
                
                
                Nine
      Months Ended(In
      thousands)
                
                March
      28,
                
                
                March
      29,
                
                
                %
                
                
                March
      28,
                
                
                March
      29,
                
                
                %2009
                
                
                2008
                
                
                Change
                
                
                2009
                
                
                2008
                
                
                ChangeNet
      revenues
                
                $
                24,394
                
                
                $
                41,177
                
                
                
                -40.8
                %
                
                $
                99,022
                
                
                $
                120,371
                
                
                
                -17.7
                %%
      of net sales accounted for by top 5 direct customers (1)
                
                
                52.4
                %
                
                
                41.6
                %
                
                
                
                
                
                
                50.1
                %
                
                
                38.1
                %Number
      of direct customers that each account for more than 10% of net
      sales
                
                
                2
                
                
                
                1
                
                
                
                
                
                
                
                2
                
                
                
                1%
      of net sales accounted for by top 5 end customers (2)
                
                
                30.1
                %
                
                
                22.2
                %
                
                
                
                
                
                
                27.5
                %
                
                
                21.8
                %Number
      of end customers that each account for more than 10% of net
      sales
                
                
                1
                
                
                
                0
                
                
                
                
                
                
                
                1
                
                
                
                0




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




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





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


21





Net
revenues consist of product sales, which are recognized upon shipment, less an
estimate for returns and allowances. Over the past two quarters
we have experienced a sharp decline in revenue, which is consistent with
declining end-market demand and inventory reduction initiatives across the
supply chain.Net revenue decreased $16.8 million or 40.8% in the
third quarter of fiscal 2009 versus the third quarter of fiscal 2008 primarily
as the result of:


·
            a
      decrease of $7.4 million or 44.1% in sales of our FCP products to $16.7
      million and·
            a
      $9.4 million decline in sales of IC products to $24.5 million, for a 38.4%
      sales decrease.





Net
revenue declined $21.3 million or 17.7% for the first nine months of fiscal 2009
versus the first nine months of fiscal 2008 primarily as the result
of:


·
            a
      decrease of $8.6 million or 17.7% in sales of our FCP products to $48.7
      million and·
            a
      decline in sales of IC products to $71.7 million, for a $12.7 million or
      17.7% decrease.





The
following table sets forth net revenues by country as a percentage of total net
revenues for the three and nine month periods ended March 28, 2009 and March 29,
2008:





Three
      Months Ended
                
                
                Nine
      Months EndedMarch
      28,
                
                
                March
      29,
                
                
                March
      28,
                
                
                March
      29,2009
                
                
                2008
                
                
                2009
                
                
                2008Taiwan
                
                
                42
                %
                
                
                32
                %
                
                
                42
                %
                
                
                30
                %China
      (including Hong Kong)
                
                
                35
                %
                
                
                38
                %
                
                
                34
                %
                
                
                39
                %United
      States
                
                
                9
                %
                
                
                9
                %
                
                
                8
                %
                
                
                9
                %Singapore
                
                
                2
                %
                
                
                4
                %
                
                
                3
                %
                
                
                5
                %Other
      (less than 10% each)
                
                
                12
                %
                
                
                16
                %
                
                
                13
                %
                
                
                17
                %Total
      net revenues
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %




For the
three and nine months ended March 28, 2009, as compared with the same periods of
the prior year, the percentage of our net revenues derived from sales to Taiwan
increased as a result of continued demand for technological devices and an
increasing concentration of contract manufacturing there. We expect our future
sales to continue to grow, as a percentage of net revenues, in Asian
countries.





We have
announced our expectation that fiscal fourth quarter revenues will show
improvement from the amount reported for the fiscal third quarter based in part
on improved bookings and backlog at the beginning of the fourth quarter. Our net
revenue levels have been highly dependent on the number of new orders that are
received for products to be delivered to the customer within the same quarter,
also called “turns” orders.  Because of our lack of visibility into demand
when turns orders are high, it is difficult to predict which products to build
to match future demand.  We believe the current high level of turns orders
will continue indefinitely.  The sustainability of customer demand is
uncertain and our markets are highly dependent on worldwide economic
conditions.  The high level of turns orders together with the uncertainty
of product mix and pricing makes it difficult to predict future levels of sales
and may require us to carry higher levels of inventory.




Gross
Profit





The
following table sets forth our gross profit for the periods
indicated.





Three
      Months Ended
                        
                        
                        
                        
                        
                        Nine
      Months EndedMarch
      28,
                        
                        
                        March
      29,
                        
                        
                        %
                        
                        
                        March
      28,
                        
                        
                        March
      29,
                        
                        
                        %(In
      thousands)
                        
                        2009
                        
                        
                        2008
                        
                        
                        Change
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        ChangeNet
      revenues
                        
                        $
                        24,394
                        
                        
                        $
                        41,177
                        
                        
                        
                        -40.8
                        %
                        
                        $
                        99,022
                        
                        
                        $
                        120,371
                        
                        
                        
                        -17.7
                        %Gross
      profit
                        
                        
                        8,663
                        
                        
                        
                        15,468
                        
                        
                        
                        -44.0
                        %
                        
                        
                        35,365
                        
                        
                        
                        44,501
                        
                        
                        
                        -20.5
                        %Gross
      profit as a percentage of net revenues (gross margin)
                        
                        
                        35.5
                        %
                        
                        
                        37.6
                        %
                        
                        
                        
                        
                        
                        
                        35.7
                        %
                        
                        
                        37.0
                        %




22




The
decrease in gross profit for the three and nine month periods ended March 28,
2009 as compared with the same periods of the prior year was primarily due to
significant sales declines in the second and third quarters in both IC and FCP
products. To a lesser extent margin decreases also contributed, and reflect both
the long-term downward trend in prices as well as somewhat higher production
costs due to lower volumes and higher overhead absorption rates.





Specifically,
the decrease in gross profit in the third quarter of fiscal 2009 as compared to
the third quarter of fiscal 2008 of $6.8 million is the result of:


·
            decreased
      sales of the FCP product family, which led to $1.8 million of decreased
      gross profit,·
            decreased
      sales of IC products, which led to $4.0 million of decreased gross profit,
      and·
            margin
      declines which led to $1.0 million of decreased gross
    profit.





With
respect to the decrease in gross profit in the first nine months of fiscal 2009
as compared to the first nine months of fiscal 2008 of $9.1 million, the
decrease is the result of:


·
            decreased
      sales of the FCP product family, which led to $2.3 million of decreased
      gross profit,·
            decreased
      sales of IC products, which led to $5.3 million of decreased gross profit,
      and·
            margin
      declines which led to $1.5 million of decreased gross
    profit.





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 FCP
products and our higher margin integrated circuit products.  Although
we have been successful at favorably improving our integrated circuit product
mix and penetrating new end markets, there can be no assurance that this will
continue. Accordingly, we are not able to predict future gross profit levels or
gross margins with certainty.





During
the three and nine months ended March 28, 2009, gross profit and gross margin
benefited as a result of the sale of inventory of $72,000 and $187,000,
respectively, that we had previously identified as excess and written down to
zero value, as compared with $364,000 and $954,000, respectively, for the same
periods of the prior year.





Research
and Development(“R&D”)





Three
      Months Ended
                
                
                
                
                
                Nine
      Months EndedMarch
      28,
                
                
                March
      29,
                
                
                %
                
                
                March
      28,
                
                
                March
      29,
                
                
                %(In
      thousands)
                
                2009
                
                
                2008
                
                
                Change
                
                
                2009
                
                
                2008
                
                
                ChangeNet
      revenues
                
                $
                24,394
                
                
                $
                41,177
                
                
                
                -40.8
                %
                
                $
                99,022
                
                
                $
                120,371
                
                
                
                -17.7
                %Research
      and development
                
                
                3,996
                
                
                
                4,503
                
                
                
                -11.3
                %
                
                
                12,580
                
                
                
                12,863
                
                
                
                -2.2
                %R&D
      as a percentage of net revenues
                
                
                16.4
                %
                
                
                10.9
                %
                
                
                
                
                
                
                12.7
                %
                
                
                10.7
                %




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 design support, and
technical customer applications support of our products.  The $507,000
expense reduction for the three month period ended March 28, 2009 as compared to
the same period of the prior year reflects the restructuring program and cost
saving efforts, with reductions of $176,000 in salaries and $439,000 in expenses
related to masks, engineering and consultants, partially offset by a $162,000
increase in share-based compensation costs. The $283,000 expense decrease for
the nine month period ended March 28, 2009 as compared to the same period of the
prior year is similarly attributable to the restructuring program and cost
saving efforts, with reductions of $368,000 in expenses related to masks,
engineering and consultants.





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 as a result 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.


23


Selling,
General and Administrative (“SG&A”)





Three Months Ended
                                    
                                    
                                    
                                    
                                    
                                    Nine Months EndedMarch 28,
                                    
                                    
                                    March 29,
                                    
                                    
                                    %
                                    
                                    
                                    March 28,
                                    
                                    
                                    March 29,
                                    
                                    
                                    %(In
      thousands)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    Change
                                    
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    ChangeNet
      revenues
                                    
                                    $
                                    24,394
                                    
                                    
                                    $
                                    41,177
                                    
                                    
                                    
                                    -40.8
                                    %
                                    
                                    $
                                    99,022
                                    
                                    
                                    $
                                    120,371
                                    
                                    
                                    
                                    -17.7
                                    %Selling,
      general and administration
                                    
                                    
                                    5,136
                                    
                                    
                                    
                                    5,705
                                    
                                    
                                    
                                    -10.0
                                    %
                                    
                                    
                                    17,491
                                    
                                    
                                    
                                    17,330
                                    
                                    
                                    
                                    0.9
                                    %SG&A
      as a percentage of net revenues
                                    
                                    
                                    21.1
                                    %
                                    
                                    
                                    13.9
                                    %
                                    
                                    
                                    
                                    
                                    
                                    
                                    17.7
                                    %
                                    
                                    
                                    14.4
                                    %




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 decrease of $569,000 for the
three month period ended March 28, 2009 as compared to the same period of the
prior year is attributable primarily to reduced sales volumes, as commissions
and bonus expenses have declined by $493,000. The expense increase of $161,000
for the nine month period ended March 28, 2009 as compared to the same period of
the prior year is attributable to increased salaries of $829,000 and share-based
compensation expense of $419,000, partially offset by reductions in sales
volume-related costs of commissions and bonus accruals, down $810,000, and
product samples provided to prospective customers, down $368,000.





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.  The Company
intends to continue its focus on controlling costs.  If business
conditions deteriorate or the rate of improvement does not meet our
expectations, the Company may implement further cost-cutting
actions.





Interest
and Other Income, Net





Three Months Ended
                            
                            
                            
                            
                            
                            Nine Months EndedMarch 28,
                            
                            
                            March 29,
                            
                            
                            %
                            
                            
                            March 28,
                            
                            
                            March 29,
                            
                            
                            %(In thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            Change
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            ChangeInterest
      and other income, net
                            
                            $
                            1,501
                            
                            
                            $
                            903
                            
                            
                            
                            66.2
                            %
                            
                            $
                            3,871
                            
                            
                            $
                            3,895
                            
                            
                            
                            -0.6
                            %




The
$598,000 increase in interest and other income for the three month period ended
March 28, 2009 as compared with the same period of the prior year was primarily
the result of $571,000 of realized gains on sales of short-term investments.
Interest and other income for the nine month period ended March 28, 2009 was
essentially unchanged from the same period of the prior year.





Income
Tax Expense





Three Months Ended
                            
                            
                            
                            
                            
                            Nine Months EndedMarch 28,
                            
                            
                            March 29,
                            
                            
                            %
                            
                            
                            March 28,
                            
                            
                            March 29,
                            
                            
                            %(In
      thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            Change
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            ChangePre-tax
      income
                            
                            $
                            691
                            
                            
                            $
                            6,111
                            
                            
                            
                            -88.7
                            %
                            
                            $
                            8,563
                            
                            
                            $
                            18,151
                            
                            
                            
                            -52.8
                            %Income
      tax
                            
                            
                            460
                            
                            
                            
                            2,054
                            
                            
                            
                            -77.6
                            %
                            
                            
                            2,676
                            
                            
                            
                            6,089
                            
                            
                            
                            -56.1
                            %Effective
      tax rate
                            
                            
                            67
                            %
                            
                            
                            34
                            %
                            
                            
                            
                            
                            
                            
                            31
                            %
                            
                            
                            34
                            %





The
decrease in income tax expense for the three and nine months ended March 29,
2008 over the same periods of the prior year is due to the significant decreases
in income before income taxes in the second and third quarters as well as the
reinstatement of the research and development tax credit. The high effective tax
rate for the quarter ended March 28, 2009 is due to adjustments to reflect
management’s current estimate of the annual effective tax rate of 31%. The 31%
year-to-date effective tax rate is reduced from the rate in fiscal 2008
primarily as a result of the reduced level of pretax income and the earnings mix
between tax jurisdictions.





Our
effective tax rate differs from the federal statutory rate primarily due to
state income taxes, research and development tax credits, stock-based
compensation from incentive stock options, tax-exempt interest income, and
differing tax rates in income-earning jurisdictions.


24





Equity
in Net Income of Unconsolidated Affiliates





Three Months Ended
                    
                    
                    
                    
                    
                    Nine Months EndedMarch 28,
                    
                    
                    March 29,
                    
                    
                    
                    
                    
                    March 28,
                    
                    
                    March 29,(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    ChangeEquity
      in net income of PTI
                    
                    $
                    64
                    
                    
                    $
                    54
                    
                    
                    $
                    10
                    
                    
                    $
                    64
                    
                    
                    $
                    232
                    
                    
                    $
                    (168
                    )Equity
      in net income (loss) of JCP
                    
                    
                    (15
                    )
                    
                    
                    78
                    
                    
                    
                    (93
                    )
                    
                    
                    31
                    
                    
                    
                    218
                    
                    
                    
                    (187
                    )Equity
      in net lossess of other investees
                    
                    
                    -
                    
                    
                    
                    (1
                    )
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    (29
                    )
                    
                    
                    29Total
                    
                    $
                    49
                    
                    
                    $
                    131
                    
                    
                    $
                    (82
                    )
                    
                    $
                    95
                    
                    
                    $
                    421
                    
                    
                    $
                    (326
                    )





Equity in
net income of unconsolidated affiliates includes our allocated portion of the
net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
corporation based in Shanghai, People’s Republic of China and Hong Kong. Our
allocated portion of PTI’s results was income of $64,000 for the three and nine
months ended March 28, 2009, as compared with income of $54,000 and $232,000 for
the same periods of the prior year.





Equity in
net income of unconsolidated affiliates also includes the Company’s allocated
portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology
Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan
City, Henan Province, China. JCP is a key manufacturing partner of SRe, and SRe
has acquired a 49% equity interest in JCP. For the three and nine month periods
ended March 28, 2009, the Company’s allocated portion of JCP’s results were a
loss of $15,000 and income of $31,000, respectively, as compared with income of
$78,000 and $218,000 for the same periods of the prior year.





Liquidity
and Capital Resources





As of
March 28, 2009, the Company’s principal sources of liquidity included cash, cash
equivalents and short-term and long-term investments of approximately $122.9
million as compared with $123.9 million on June 28, 2008.





The
Company’s investments in debt securities include government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include federal agencies and municipal bonds.
Many of the municipal bonds are insured; those that are not are nearly all
AAA/Aaa rated. The corporate debt securities are all investment grade and nearly
all are single A-rated or better. The asset-backed securities are AAA/Aaa rated
and are backed by auto loans. Most of our mortgage-backed securities are
collateralized by prime residential mortgages issued by government agencies
including FNMA, FHLMC and FHLB. Those issued by banks are AAA-rated. At March
28, 2009, unrealized losses on marketable securities were $427,000. When
assessing marketable securities for other-than-temporary declines in value, we
consider a number of factors. Our analyses of the severity and duration of price
declines, portfolio manager reports, economic forecasts and the specific
circumstances of issuers indicate that it is reasonable to expect marketable
securities with unrealized losses at March 28, 2009 to recover in fair value up
to our cost bases within a reasonable period of time. We have the ability and
intent to hold these investments until maturity, when the obligors are required
to redeem them at full face value or par, and we believe the obligors have the
financial resources to redeem the debt securities. Accordingly, we do not
consider our investments to be other-than-temporarily impaired at March 28,
2009.





As of
March 28, 2009, $29.6 million was classified as cash and cash equivalents
compared with $41.6 million as of June 28, 2008.  The maturities of
the Company’s short term investments are staggered throughout the year so that
cash requirements are met.  Because the Company is a fabless
semiconductor manufacturer, it has lower capital equipment requirements than
other semiconductor manufacturers that own wafer fabrication
facilities.  For the nine month period ended March 28, 2009, the
Company spent approximately $12.7 million on property and equipment compared to
$7.5 million for the nine month period ended March 29, 2008.  The
Company generated approximately $3.9 million of interest and other income, net
for the nine month period ended March 28, 2009, unchanged from the $3.9 million
of interest and other income, net for the nine month period ended March 29,
2008. 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.


25





The
Company’s net cash provided by operating activities of $16.0 million for the
nine months ended March 28, 2009 was primarily the result of net income of $5.9
million, non-cash expenses of $5.8 million in depreciation and amortization and
$2.7 million of share-based compensation expense, partially offset by a $677,000
increase in net deferred taxes and a $1.1 million gain on sale of
investments in marketable securities. Additional contributions to cash included
a $5.3 million decrease in accounts receivable and a $4.8 million decrease in
prepaid expenses and other current assets. Partially offsetting these were a
$5.5 million decrease in accounts payable and a $1.5 million decrease in other
current liabilities. The Company’s net cash provided by operating activities was
$4.4 million in the nine months ended March 29, 2008.





Generally,
as sales levels fall, the Company expects accounts receivable and accounts
payable, and to a lesser extent inventories, to decrease. Inventories react more
slowly because we outsource much of our production, and reduced demand takes
time to be reflected back through our supply chain. Further, there will be
routine fluctuations in these accounts from period to period that may be
significant in amount.





The
Company’s cash used in investing activities of $24.8 million for the nine months
ended March 28, 2009  was primarily due to the Company’s additions to
property and equipment of approximately $12.7 million as well as purchases of
short term investments exceeding sales and maturities of short-term investments
by approximately $10.8 million and $1.3 million paid for the acquisition of
PTL’s minority interest. The Company’s cash used in investing activities was
$4.8 million for the nine months ended March 29, 2008.





The
Company’s cash used in financing activities for the nine months ended March 28,
2009 of $2.2 million was the result of repurchases of the Company’s common stock
at a cost of $5.5 million, partially offset by $1.7 million in proceeds from
borrowings of long-term debt by a wholly-owned subsidiary and $1.5 million in
proceeds generated from the issuance of common stock in the Company’s employee
stock plans. The Company used $11.9 million of cash in financing activities for
the nine months ended March 29, 2008.





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.





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 efforts, 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. We believe our current cash balances and cash
flows generated by operations will be sufficient to satisfy our anticipated cash
needs for working capital and capital expenditures.





Contractual
Obligations and Commitments





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




PTL
incurred a 15-year mortgage on its building in December 2008 in the amount of
$1.7 million. The debt carries a variable rate of interest at the 1-year time
deposit rate plus 0.64% for the first two years and plus 1.34% afterwards. The
loan is denominated in New Taiwanese Dollars and only interest is required to be
paid for the first 12 months.





The
Company’s contractual obligations and commitments at March 28, 2009 are as
follows:


26





Payments Due by Period(in thousands)
                
                Total
                
                
                1 Year orLess
                
                
                2 – 3 Years
                
                
                4 – 5 Years
                
                
                ThereafterOperating
      leases and operating expense commitments
                
                $
                5,854
                
                
                $
                1,348
                
                
                $
                2,538
                
                
                $
                1,968
                
                
                $
                -Capital
      equipment purchase commitments
                
                
                18,874
                
                
                
                15,272
                
                
                
                3,602
                
                
                
                -
                
                
                
                -PTL
      debt payments
                
                
                1,852
                
                
                
                57
                
                
                
                285
                
                
                
                277
                
                
                
                1,233Total
                
                $
                26,580
                
                
                $
                16,677
                
                
                $
                6,425
                
                
                $
                2,245
                
                
                $
                1,233





Jinan
Cooperation Agreement





On
January 26, 2008, the Company entered into a Cooperation Agreement with the
Jinan Hi-Tech Industries Development Zone Commission (the “Commission”) in the
People’s Republic of China (the “PRC”) for the Company’s investment in the Jinan
Hi-Tech Industries Development Zone (the “Zone”) that is located in Shandong
Province, PRC. Under the Cooperation Agreement, the Company will, through a
wholly-owned Hong Kong subsidiary, Pericom Asia Ltd., build a factory in the
Zone for the development and manufacturing of frequency control products. It is
expected that the Company’s total gross investment will be approximately $35
million over the next few years. We have land use rights
for 75 acres, and the factory is being designed for 13 surface mount device
(SMD) production lines. Phase I consists of an administration building, workers
dormitory and fabrication plant, and is scheduled for completion late in fiscal
2009 at an estimated cost of approximately $15 million. Expenditures through
March 28, 2009 totaled approximately $5.8 million. We have included the Phase I
commitments in the above contractual obligations and commitments table, but the
timing of subsequent development is uncertain at this time.





Off-Balance
Sheet Arrangements





The
Company has no off-balance sheet arrangements, defined by Regulation S-K item
303(a)(4), other than operating leases.





Critical
Accounting Policies





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





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





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
price 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 nine
months ended March 28, 2009 the majority of the Company’s revenues were from
sales to distributors.





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


27





The
market price for the Company’s products can be significantly different from 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 the
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
anticipated to be utilized 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 RMA being established. The Company is only obligated
to accept returns of defective parts. For customer convenience, the Company may
approve a particular return request even though it is not obligated to do so.
Each month a sales reserve is recorded for the approved RMAs that have not yet
been returned.  The Company does not keep a general warranty reserve
because historically valid warranty returns, which are the result of a part not
meeting specifications or being non-functional, have been immaterial and parts
can frequently be re-sold to other customers for use in other
applications.





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





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





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





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


28





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





SHIPPING
COSTS.  Shipping costs are charged to cost of revenues as
incurred.





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. Raw material inventory is considered obsolete and written off if it has
not moved in 365 days.  The Company reviews its assembled devices for
excess and writes them off if the quantity of assembled devices in inventory is
in excess of the greater of the quantity shipped in the previous twelve months,
the quantity in backlog or the quantity forecasted to be shipped in the
following twelve months.In certain
circumstances, management will determine, based on expected usage or other
factors, that inventory considered obsolete by these guidelines should not be
written off. The Company does occasionally determine that the last twelve
months’ sales levels will not continue and reserves inventory in line with the
quantity forecasted. 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 and resulting in material effects on our gross
margin.





IMPAIRMENT OF
INTANGIBLE ASSETS.The Company performs an
impairment review of its intangible assets at least annually, in conformity with
SFAS No. 142, Goodwill and
Other Intangible Assets. Based on the results of its most recent
impairment review, the Company determined that no impairment of its intangible
assets existed as of June 28, 2008. However, future impairment reviews could
result in a charge to earnings.





INVESTMENTS.
We have made 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 carryforwards. Based on estimates, the
carrying value of our net deferred tax assets assumes that it is more likely
than not that the Company will be able to generate sufficient future taxable
income in certain tax jurisdictions. Our judgments regarding future
profitability may change due to future market conditions, changes in U.S. or
international tax laws and other factors. If, in the future, the Company
experiences losses for a sustained period of time, the Company may not be able
to conclude that it is more likely than not that the Company will be able to
generate sufficient future taxable income to realize our deferred tax assets. If
this occurs, the Company may be required to increase the valuation allowance
against the deferred tax assets resulting in additional income tax
expense.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





At March
28, 2009 our investment portfolio consisted of investment-grade fixed income
securities, excluding those classified as cash equivalents, of $93.3
million.  These securities are subject to interest rate risk and will
decline in value if market interest rates increase. However, we do not believe
that such a decrease would have a material effect on our results of operations
over the next fiscal year.  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.


29





When the
general economy weakens significantly, as it has recently, the credit profile,
financial strength and growth prospects of certain issuers of interest-bearing
securities held in our investment portfolios may deteriorate, and our
interest-bearing securities may lose value either temporarily or other than
temporarily. We may implement investment strategies of different types with
varying duration and risk/return trade-offs that do not perform well. At March
28, 2009, we held a significant portion of our corporate cash in diversified
portfolios of investment-grade marketable securities, mortgage- and asset-backed
securities, and other securities that have been affected by recent credit market
concerns and had unrealized losses of $427,000. Although we consider these
unrealized losses to be temporary, there is a risk that we may incur
other-than-temporary impairment charges or realized losses on the values of
these and other similarly affected securities if U.S. credit and equity markets
do not stabilize and recover to previous levels in the coming
quarters.





The
Company transacts business in various non-U.S. currencies, primarily the New
Taiwan Dollar. The Company is exposed to fluctuations in foreign currency
exchange rates on accounts receivable from sales in these foreign currencies and
the net monetary assets and liabilities of the related foreign
subsidiary.  A hypothetical 10% favorable or unfavorable change in
foreign currency exchange rates would have a material impact on our financial
position or results of operations.





ITEM
4. CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Our
management, with the participation of our principal executive officer and
principal 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 Exchange Act) as of March
28, 2009.  Based on such evaluation, our principal executive officer and
principal financial officer have concluded that as of March 28, 2009 our
disclosure controls and procedures were effective.




Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the three months ended March 28, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


30





PART
II.  OTHER INFORMATION





Item
1A: Risk Factors




This
quarterly report on Form 10-Q contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward-looking statement as a result of various factors,
including those set forth below. The listing below includes any material changes
to and supersedes the description of the risk factors affecting our business
previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual
Report on Form 10-K for the fiscal year ended June 28, 2008.





FACTORS
THAT MAY AFFECT OPERATING RESULTS`





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





Although
we currently have an improving outlook on our fiscal fourth quarter ending June
27, 2009, we continue to face achallenging business
environment and limited visibility on end-market demands. Revenues in the fiscal
second and third quarters were down significantly from revenues in the first
fiscal quarter.





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





·
              changes
      in the quantity of our products
sold;


·
              changes
      in the average selling price of our
products;


·
              general
      conditions in the semiconductor
industry;


·
              changes
      in our product mix;


·
              a
      change in the gross margins of our
products;


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


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


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


·
              customer
      acceptance of new products introduced by
us;


·
              delay
      or decline in orders received from
distributors;


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


·
              the
      availability of manufacturing capacity with our wafer
      suppliers;


·
              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:


31





·
            computers
      and computer related peripherals;


·
            data
      communications and telecommunications
equipment;


·
            electronic
      commerce and the Internet; and


·
            consumer
      electronics equipment.





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





Our
earnings are subject to substantial quarterly and annual fluctuations and to
adverse economic conditions and market downturns





Our
revenues and earnings have fluctuated significantly in the past and may
fluctuate significantly in the future. General economic or other conditions
could cause a downturn in the market for our products or technology. The recent
financial disruption affecting the banking system, investment banks, insurance
companies and financial markets have resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets and extreme
volatility in fixed income, credit and equity markets. In addition to the
potential impact on our marketable securities portfolio, there could be a number
of follow-on effects from the credit crisis on our business that could also
adversely affect our operating results. The credit crisis may result in the
insolvency of key suppliers resulting in product delays; the inability of our
customers to obtain credit to finance purchases of our products and/or customer
insolvencies that cause our customers to change delivery schedules, cancel or
reduce orders; a slowdown in global economies which could result in lower
end-user demand for our products; and increased impairments of our investments.
Net investment income could vary from expectations depending on the gains or
losses realized on the sale or exchange of securities, gains or losses from
equity method investments, and impairment charges related to marketable
securities. Our cash and marketable securities investments represent significant
assets that may be subject to fluctuating or even negative returns depending
upon interest rate movements and financial market conditions in fixed income
securities. The current volatility in the financial markets and overall economic
uncertainty increase the risk of substantial quarterly and annual fluctuations
in our earnings.





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;


32





·
            sufficient
      wafer fabrication capacity; and


·
            achievement
      of acceptable manufacturing yields by our wafer
  suppliers.





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





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





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





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





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.





Currently
there is a general slowdown in the global economy and it may last for an
unpredictable period with adverse impacts on credit availability, ability of our
company and our customers to maintain or grow revenues and profits, and end-user
demand across our customer base.





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





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


33





Our
potential future acquisitions may not be successful.





Our
potential future acquisitions could result in the following:





·
            large
      one-time write-offs;


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


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


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


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


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


·
            potentially
      dilutive issuances of equity
securities;


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


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


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





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





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





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





·
            general
      conditions in the semiconductor and electronic systems
      industries;


·
            quarter-to-quarter
      variations in operating results;


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


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





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





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


34





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




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





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





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





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





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





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


35





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





·
            lack
      of adequate capacity;


·
            lack
      of available manufactured products;


·
            lack
      of control over delivery schedules;
and


·
            unanticipated
      changes in wafer prices.





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





At
present, we purchase wafers from our suppliers through the issuance of purchase
orders based on our rolling 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.


36





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





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





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





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





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





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





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





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





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





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


37





We
are subject to risks related to taxes.





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





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





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





·
            the
      level of contaminants in the manufacturing
  environment;


·
            impurities
      in the materials used; and


·
            the
      performance of manufacturing personnel and production
      equipment.





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





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





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





A
relatively small number of customers have accounted for a significant portion of
our net revenues in each of the past several fiscal years. In general we expect
this to continue for the foreseeable future.  We had two direct
customers that each accounted for more than 10% of net revenues during the nine
months ended March 28, 2009. As a percentage of net revenues, sales to our top
five direct customers during the nine months ended March 28, 2009 totaled
50.1%.





We do not
have long-term sales agreements with any of our customers.  Our
customers are not subject to minimum purchase requirements, may reduce or delay
orders periodically due to excess inventory and may discontinue purchasing our
products at any time. Our distributors typically offer competing products in
addition to ours.  For the nine months ended March 28, 2009 and the
fiscal year ended June 28, 2008, sales to our distributors were approximately
55% and 49% of net revenues, respectively as compared to approximately40% of net revenues in
the fiscal year ended June 30, 2007 and 39% for the fiscal year ended July 1,
2006. The increase in the percentage of sales to our distributors as compared
with the prior periods was due to growth in sales to Asian distributor
customers. The loss of one or more significant customers, or the decision by a
significant distributor to carry additional product lines of our competitors
could decrease our revenues.


38





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





Risks
associated with international business operations include the
following:





·
            disruptions
      or delays in shipments;


·
            changes
      in economic conditions in the countries where 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 the
nine months ended March 28, 2009, we derived approximately 85% of our net
revenues from sales in Asia and approximately 7% from sales outside of Asia and
the United States. In fiscal year 2008, we derived approximately 88% of our net
revenues from sales in Asia and approximately 3% from sales outside of Asia and
the United States. In fiscal year 2007, we derived approximately 82% of our net
revenues from sales in Asia and approximately 4% from sales outside of Asia and
the United States. In fiscal year 2006, we generated approximately 64% of our
net revenues from sales in Asia and approximately 17% from sales outside of Asia
and the United States. We expect that export sales will continue to represent a
significant portion of net revenues. We intend to continue the expansion of our
sales efforts outside the United States. This expansion will require significant
management attention and financial resources and further subject us to
international operating risks.  These risks include:





·
            tariffs
      and other barriers and
restrictions;


·
            unexpected
      changes in regulatory requirements;


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


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





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





Our
shareholder rights plan may adversely affect existing shareholders.





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





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


39





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.  Unregistered Sales of Equity Securities and Use of
Proceeds





On April
29, 2008, our Board of Directors authorized the repurchase of an additional $30
million of our common stock, as announced May 1, 2008.





The
repurchases may be made from time to time in the open market or through private
transactions at the discretion of Company management. Current cash balances and
the proceeds from stock option exercises and employee stock purchase plan
purchases have funded stock repurchases in the past, and we expect to fund
future stock repurchases from these same sources.





See Note
9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for
additional historical information on our stock purchase activity.





The
following table describes the shares repurchased under the authorization
described above for the fiscal quarter ended March 28, 2009:





Period
                  
                  Total
                    Numberof
                    Shares
                    Purchased
                  
                  
                  AveragePrice
                    Paidper Share
                  
                  
                  Total Number of
                    SharesPurchased
                    asPart of Publicly
                    AnnouncedPlans
                    orPrograms
                  
                  
                  Maximum ValueThat
                    May Yet be
                    Purchased Underthe
                    Plans orPrograms
                    (InThousands)December
      28, 2008 - January 24, 2009
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  26,928January
      25, 2009 - February 21, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  26,928February
      22, 2009 - March 28, 2009
                  
                  
                  85,803
                  
                  
                  
                  5.50
                  
                  
                  
                  85,803
                  
                  
                  
                  26,456Total
                  
                  
                  85,803
                  
                  
                  $
                  5.50
                  
                  
                  
                  85,803
                  
                  
                  $
                  26,456




40


Item
6. Exhibits.





Exhibit
                
                ExhibitNumber
                
                Description31.1
                
                Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                
                Certification
      of Angela Chen, Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                
                Certification
      of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
                
                Certification
      of Angela Chen, Chief Financial Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002




41


SIGNATURES





Pursuant
to the requirements 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 Corporation(Registrant)Date:      
      May 6, 2009
                By:
                /s/ Alex C. HuiAlex
      C. HuiChief
      Executive OfficerBy:
                /s/ Angela ChenAngela
      ChenChief
      Financial Officer




42