UNITED
      STATES


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 September 29, 2007





o
            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
o





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non accelerated filer. See definition of accelerated
      filer and large accelerated filer (as defined in Exchange Act Rule
      12b-2):





Large
      Accelerated Filer o 
Accelerated
      Filer
x
      Non-accelerated Filer o





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





Yes
o  No x





As
      of
      November 9, 2007 the Registrant had outstanding 25,920,741 shares of Common
      Stock.











Pericom
      Semiconductor Corporation





Form
      10-Q
      for the Quarter Ended September 29, 2007





INDEX


PART
                  I. FINANCIAL INFORMATION
              
              
              PageItem
                  1: Condensed Consolidated Financial Statements (Unaudited)Condensed
                  Consolidated Balance Sheets as ofSeptember
                  29, 2007 and June 30, 2007
              
              
              3Condensed
                  Consolidated Statements of Operationsfor
                  the three months ended September 29, 2007and
                  September 30, 2006
              
              
              4Condensed
                  Consolidated Statements of Cash Flowsfor
                  the three months ended September 29, 2007and
                  September 30, 2006
              
              
              5Notes
                  to Condensed Consolidated Financial Statements
              
              
              6Item
                  2: Management’s Discussion and Analysis ofFinancial
                  Condition and Results of Operations
              
              
              17Item
                  3: Quantitative and Qualitative Disclosures aboutMarket
                  Risk
              
              
              27Item
                  4: Controls and Procedures
              
              
              27PART
                  II. OTHER INFORMATIONItem
                  1A: Risk Factors
              
              
              29Item
                  2: Unregistered Sale of Equity Securities and Use of
                  Proceeds
              
              
              38Item
                  6: Exhibits
              
              
              39Signatures
              
              
              40


2


PART
      I.
      FINANCIAL INFORMATION


Item
      1:
      Condensed Consolidated Financial Statements





Pericom
      Semiconductor Corporation


Condensed
      Consolidated Balance Sheets


(In
      thousands, except share data)




September
                29,
              2007
            
            June
                30,
              2007(unaudited)
            
            (1)AssetsCurrent
                Assets:Cash
                & cash equivalents
            
            $
            6,810
            
            $
            29,173Restricted
                cash
            
            
            —
            
            
            —Short-term
                investments
            
            
            98,461
            
            
            42,268Accounts
                receivable
            
            
            21,455
            
            
            19,621Inventories
            
            
            16,105
            
            
            14,787Prepaid
                expenses and other current assets
            
            
            732
            
            
            669Deferred
                income taxes
            
            
            4,449
            
            
            4,280Total
                current assets
            
            
            148,012
            
            
            110,798Property
                and equipment, net
            
            
            24,181
            
            
            23,940Investments
                in unconsolidated affiliates
            
            
            9,751
            
            
            9,619Deferred
                income taxes-non current
            
            
            5,517
            
            
            5,572Long-term
                investment in marketable securities
            
            
            25,586
            
            
            59,574Goodwill
            
            
            1,348
            
            
            1,348Intangible
                assets
            
            
            1,267
            
            
            1,311Other
                assets
            
            
            3,027
            
            
            2,073Total
                assets
            
            $
            218,689
            
            $
            214,235Liabilities
                and Shareholders’ EquityCurrent
                liabilities:Accounts
                payable
            
            $
            14,649
            
            $
            12,553Accrued
                liabilities
            
            
            10,220
            
            
            8,718Short-term
                and current portion of long-term debt
            
            
            394
            
            
            392Total
                current liabilities
            
            
            25,263
            
            
            21,663Long-term
                debt
            
            
            292
            
            
            388Deferred
                tax liabilities
            
            
            797
            
            
            797Other
                long-term liabilities
            
            
            —
            
            
            3Minority
                interest in consolidated subsidiaries
            
            
            903
            
            
            906Total
                liabilities
            
            
            27,255
            
            
            23,757Shareholders’
                equity:Common
                stock and paid in capital - no par value, 60,000,000 shares authorized;
                shares outstanding: September 29, 2007, (25,496,000); June 30, 2007,
                (25,838,000)
            
            
            132,103
            
            
            135,887Retained
                earnings
            
            
            59,032
            
            
            54,591Accumulated
                other comprehensive loss, net of tax
            
            
            299
            
            
            (558
            )Total
                shareholders' equity
            
            
            191,434
            
            
            190,478Total
                liabilities and shareholders' equity
            
            $
            218,689
            
            $
            214,235




(1)
      The
      information in this column was derived from the Company’s audited consolidated
      financial statements for the year ended June 30, 2007.




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 EndedSeptember
                29,
            
            September
                30,2007
            
            2006Net
                revenues
            
            $
            38,468
            
            $
            30,826Cost
                of revenues
            
            
            24,467
            
            
            20,394Gross
                profit
            
            
            14,001
            
            
            10,432Operating
                expenses:Research
                and development
            
            
            4,082
            
            
            3,942Selling,
                general and administrative
            
            
            5,839
            
            
            5,795Total
            
            
            9,921
            
            
            9,737Income
                from operations
            
            
            4,080
            
            
            695Interest
                and other income
            
            
            1,370
            
            
            1,280Other
                than temporary decline in value of investment
            
            
            —
            
            
            (1
            )Income
                before income taxes
            
            
            5,450
            
            
            1,974Income
                tax expense
            
            
            1,691
            
            
            620Minority
                interest in loss (income) of consolidated subsidiaries
            
            
            3
            
            
            (9
            )Equity
                in net income of unconsolidated affiliates
            
            
            121
            
            
            280Net
                income
            
            $
            3,883
            
            $
            1,625Basic
                income per share
            
            $
            0.15
            
            $
            0.06Diluted
                income per share
            
            $
            0.15
            
            $
            0.06Shares
                used in computing basic income per share
            
            
            25,745
            
            
            26,131Shares
                used in computing diluted income per share
            
            
            26,379
            
            
            26,692




See
      notes
      to condensed consolidated financial statements.


4


Pericom
      Semiconductor Corporation


Condensed
      Consolidated Statements of Cash Flows


(In
      thousands)


(Unaudited)





CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            3,883
            
            $
            1,625Adjustments
                to reconcile net income to net cash provided byoperating
                activities:Depreciation
                and amortization
            
            
            1,178
            
            
            1,558Stock
                based compensation
            
            
            508
            
            
            515Tax
                benefit related to stock based compensation plan
            
            
            (34
            )
            
            —Excess
                tax benefit from stock based compensation
            
            
            (55
            )
            
            (45
            )(Gain)
                or loss on sale of short-term investments
            
            
            —
            
            
            62Other
                than temporary decline in investment
            
            
            —
            
            
            1(Gain)
                or loss on sale of disposal of assets
            
            
            (7
            )
            
            (73
            )Equity
                in net income of unconsolidated subsidiaries
            
            
            (121
            )
            
            (280
            )Deferred
                income taxes
            
            
            (105
            )
            
            170Minority
                interest in subsidiary’s net income (loss)
            
            
            (3
            )
            
            9Changes
                in assets and liabilitiesAccounts
                receivable
            
            
            (1,758
            )
            
            812Inventories
            
            
            (1,271
            )
            
            1,217Prepaid
                expenses and other current assets
            
            
            18
            
            
            (283
            )Other
                assets
            
            
            (943
            )
            
            38Long
                term investment
            
            
            —
            
            
            (20
            )Accounts
                payable
            
            
            1,875
            
            
            363Accrued
                liabilities
            
            
            1,476
            
            
            (584
            )Other
                long term liabilities
            
            
            (8
            )
            
            (62
            )Net
                cash provided by operating activities
            
            
            4,633
            
            
            5,023CASH
                FLOWS FROM INVESTING ACTIVITIES:Additions
                to property and equipment
            
            
            (1,439
            )
            
            (1,637
            )Net
                proceeds from sales of property and equipment
            
            
            —
            
            
            248Purchase
                of short-term investments
            
            
            (63,888
            )
            
            (149,087
            )Maturities
                of short-term investments
            
            
            42,453
            
            
            147,029Change
                in restricted cash balance
            
            
            —
            
            
            342Net
                cash used in investing activities
            
            
            (22,874
            )
            
            (3,105
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from issuance of common stock
            
            
            667
            
            
            930Proceeds
                from short-term and long-term debt
            
            
            —
            
            
            1,991Excess
                tax benefit from stock based compensation
            
            
            55
            
            
            45Repayment
                of debt
            
            
            (98
            )
            
            (5,699
            )Repurchase
                of common stock
            
            
            (4,958
            )
            
            (1,800
            )Net
                cash used in financing activities
            
            
            (4,334
            )
            
            (4,533
            )EFFECT
                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            212
            
            
            (174
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (22,363
            )
            
            (2,789
            )CASH
                AND CASH EQUIVALENTS:Beginning
                of period
            
            
            29,173
            
            
            12,577End
                of period
            
            $
            6,810
            
            $
            9,788SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the period for:Income
                taxes
            
            $
            277
            
            $
            221Interest
            
            $
            7
            
            $
            71





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
      September 29, 2007, the results of operations for the three months ended
      September 29, 2007 and September 30, 2006 and cash flows for the three months
      ended September 29, 2007 and September 30, 2006. This unaudited quarterly
      information should be read in conjunction with the audited consolidated
      financial statements of Pericom and the notes thereto incorporated by reference
      in the Company’s Annual Report on Form 10-K as filed with the Securities and
      Exchange Commission.





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 month periods ended September 29, 2007 and September 30, 2006 are
      not
      necessarily indicative of the results to be expected for the entire year. The
      three month periods ended September 29, 2007 and September 30, 2006 each had
      13
      week periods.





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





These
      condensed consolidated financial statements include the accounts of Pericom
      Semiconductor Corporation and its three majority-owned subsidiaries, Pericom
      Semiconductor (HK) Limited, SaRonix-eCERA Corporation (“eCERA”) and Pericom
      Taiwan Limited Corporation (“PTL”). All significant intercompany balances and
      transactions are eliminated in consolidation. eCERA and its subsidiary Azer
      Crystal Technology Co. Ltd. (”Azer”) was acquired on September 7, 2005 (See Note
      2).




**2.
      BUSINESS COMBINATIONS**





***Acquisition
      of SaRonix, LLC***





On
      October 1, 2003, the Company purchased SaRonix, LLC. Included in the purchase
      were certain deferred tax assets. In the initial evaluation of these assets,
      management concluded the assets could not be utilized so the Company assigned
      no
      value to them. During fiscal 2007, the Company determined that certain deferred
      tax assets acquired in the SaRonix transaction could be utilized. The Company
      calculated the value of the assets by determining the present value of certain
      tax savings the Company could realize in the future. The amount the Company
      assigned to the deferred tax assets was $1.5 million. In accordance with SFAS
      No. 109, *Accounting
      for Income Taxes,* the fair
      value of the deferred tax assets are reported on the consolidated balance sheets
      at June 30, 2007, with a corresponding offset to intangible assets. ** The
      following table illustrates the Company’s initial allocation of the purchase
      price and changes the Company made during fiscal 2007:




6





**Purchase
                Allocation****Revised**
            
            **Deferred
                Tax**
            
            **Original****2007**
            
            **Adjustment**
            
            **2003**(in
                thousands)Current
                assets (includes deferred tax assets)
            
            $
            8,471
            
            $
            1,466
            
            $
            7,005Property
                and equipment
            
            
            1,173
            
            
            —
            
            
            1,173Building
                held for sale
            
            
            1,532
            
            
            —
            
            
            1,532Other
                assets (includes deferred tax assets)
            
            
            616
            
            
            —
            
            
            616Other
                intangible assets subject to amortization:Customer
                backlog
            
            
            320
            
            
            —
            
            
            320Core
                developed tech
            
            
            767
            
            
            (422
            )
            
            1,189In-process
                research and development
            
            
            360
            
            
            —
            
            
            360Supplier
                relationship
            
            
            399
            
            
            (502
            )
            
            901Trade
                name
            
            
            415
            
            
            (542
            )
            
            957Total
                assets acquired
            
            
            14,053
            
            
            —
            
            
            14,053Current
                liabilities
            
            
            (4,422
            )
            
            —
            
            
            (4,422
            )Total
                liabilities assumed
            
            
            (4,422
            )
            
            
            
            
            (4,422
            )Net
                assets acquired
            
            $
            9,631
            
            $
            —
            
            $
            9,631





***Acquisition
      of eCERA Comtek Corporation***





On
      September 7, 2005 the Company purchased a 99.9% share of eCERA Comtek
      Corporation. The Company purchased eCERA and its fifty percent-owned subsidiary,
      AZER Crystal Technology Co, Ltd. (“Azer”), to ensure availability of frequency
      control products to meet customer demand as well as to drive cost efficiencies.
      The purchase price for eCERA, including net cash consideration of $14.7 million
      and assumed liabilities of approximately $19.7 million, totaled approximately
      $34.4 million including transaction costs. The Company also had the right
      through March 7, 2006 to purchase the remaining fifty percent of eCERA’s crystal
      blank manufacturing subsidiary, Azer. The Company exercised this right for
      cash
      consideration of approximately $1.6 million and assumed debt of approximately
      $1.8 million on February 6, 2006. eCERA and Azer subsequently merged and eCERA
      was the surviving entity. eCERA changed its name to SaRonix-eCERA (hereafter
      referred to as “eCERA”) after the Company combined the operations of eCERA and
      SaRonix.  eCERA has been a key supplier of quartz crystal blanks and
      crystal oscillator products for the Company’s frequency control product
      line.





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




7




**Purchase
                Price Allocation****Revised**
            
            **Deferred
                Tax**
            
            **Original****2006**
            
            **Adjustment**
            
            **2006**(in
                thousands)Current
                assets
            
            $
            16,846
            
            $
            998
            
            $
            15,848Property
                and equipment
            
            
            14,646
            
            
            —
            
            
            14,646Other
                assets
            
            
            2,594
            
            
            1,407
            
            
            1,187Goodwill
            
            
            —
            
            
            (566
            )
            
            566Other
                intangible assets subject to amortization :Trade
                name
            
            
            40
            
            
            (238
            )
            
            278Core
                developed technology
            
            
            160
            
            
            (950
            )
            
            1,110Customer
                relations
            
            
            110
            
            
            (651
            )
            
            761Total
                assets acquired
            
            
            34,396
            
            
            —
            
            
            34,396Current
                liabilities
            
            
            (12,269
            )
            
            —
            
            
            (12,269
            )Long-term
                liabilities
            
            
            (7,414
            )
            
            —
            
            
            (7,414
            )Total
                liabilities assumed
            
            
            (19,683
            )
            
            —
            
            
            (19,683
            )Minority
                interest
            
            
            (10
            )
            
            —
            
            
            (10
            )Net
                assets acquired
            
            $
            14,703
            
            $
            —
            
            $
            14,703





**3.
      INTANGIBLE ASSETS**




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




**September
                29, 2007**
            
            **June
                30, 2007****Accumulated**
            
            
            
            
            
            **Accumulated****Gross**
            
            **Amortization**
            
            **Net**
            
            **Gross**
            
            **Amortization**
            
            **Net**Supplier
                relationship
            
            $
            110
            
            $
            (75
            )
            $
            35
            
            $
            111
            
            $
            (67
            )
            $
            44Trade
                name
            
            
            40
            
            
            (12
            )
            
            28
            
            
            40
            
            
            (10
            )
            
            30Core
                developed technology
            
            
            927
            
            
            (507
            )
            
            420
            
            
            927
            
            
            (488
            )
            
            439SaRonix
                supplier relationship
            
            
            398
            
            
            (29
            )
            
            369
            
            
            399
            
            
            (13
            )
            
            386Total
                amortizable purchased intangible assets
            
            
            1,475
            
            
            (623
            )
            
            852
            
            
            1,477
            
            
            (578
            )
            
            899SaRonix
                trade name
            
            
            415
            
            
            —
            
            
            415
            
            
            415
            
            
            —
            
            
            415Foreign
                exchange effect
            
            
            —
            
            
            —
            
            
            —
            
            
            (2
            )
            
            (1
            )
            
            (3
            )Total
                purchased intangible assets
            
            $
            1,890
            
            $
            (623
            )
            $
            1,267
            
            $
            1,890
            
            $
            (579
            )
            $
            1,311





Amortization
      expense related to finite-lived purchased intangible assets was approximately
      $44,000 and $45,000 in the three months ended September 29, 2007 and September
      30, 2006, respectively.





The
      Company performs an annual impairment review of its long-lived assets, including
      its intangible assets, in conformity with SFAS No. 144,*Accounting
      for the Impairment or Disposal of Long-Lived Assets*(“SFAS
      No. 144”). Based on the results of its most recent annual impairment tests, the
      Company determined that no impairment of the intangible assets existed as of
      June 30, 2007. However, future impairment tests could result in a charge to
      earnings.





The
      finite-lived purchased intangible assets consist of supplier relationships,
      trade name and core developed technology, which have remaining weighted average
      useful lives of approximately seven years. In fiscal 2007, the Company reviewed
      the SaRonix supplier relationship, determining that it had a finite life of
      six
      years and should be amortized over that expected useful life. We expect our
      future amortization expense associated with the Company’s intangible assets over
      the next five years to be:




8


Amortization
                  expense expected to be recognized during:(in
                  thousands)
              
              Next
                  12 Months
              
              13-24
                  Months
              
              25-36
                  Months
              
              37-48
                  Months
              
              49-60
                  MonthsExpected
                  amortization-eCERA
              
              $
              62
              
              $
              29
              
              $
              29
              
              $
              29
              
              $
              26Expected
                  amortization-SaRonix
              
              
              117
              
              
              117
              
              
              117
              
              
              117
              
              
              117$
              179
              
              $
              146
              
              $
              146
              
              $
              146
              
              $
              143




**4.
      INCOME (LOSS) PER SHARE**




Basic
      income (loss) per share is based upon the weighted average number of common
      shares outstanding. Diluted income (loss) 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 (loss) per share for the three month periods ended September
      29,
      2007 and September 30, 2006 are computed as follows (in thousands, except for
      per share data):




Three
                Months EndedSeptember
                29, 2007
            
            September
                30, 2006Net
                income
            
            $
            3,883
            
            $
            1,625Computation
                of common shares outstanding - basic income per share:Weighted
                average shares of common stock
            
            
            25,745
            
            
            26,131Basic
                income per share
            
            $
            0.15
            
            $
            0.06Computation
                of common shares outstanding - diluted income per share:Weighted
                average shares of common stock
            
            
            25,745
            
            
            26,131Dilutive
                options using the treasury stock method
            
            
            634
            
            
            561Shares
                used in computing diluted income per share
            
            
            26,379
            
            
            26,692Diluted
                income per share
            
            $
            0.15
            
            $
            0.06





Options
      to purchase 2,676,189 and 3,960,384 shares of common stock that were outstanding
      as of September 29, 2007 and September 30, 2006, respectively, were not included
      in the computation of diluted net income per share because the options would
      be
      anti-dilutive under the treasury stock method.




**5.
      INVENTORIES**




Inventories
      consist of:




September
                29, 2007
            
            June
                30, 2007(in
                thousands)Raw
                materials
            
            $
            5,560
            
            $
            4,570Work
                in process
            
            
            4,598
            
            
            4,057Finished
                goods
            
            
            5,947
            
            
            6,160$
            16,105
            
            $
            14,787




9




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. As of September 29, 2007, the
      Company had $8,031,000 of written-off inventory as compared to $8,316,000 at
      June 30, 2007. The Company attributes this overall reduction of approximately
      $285,000 in obsolete inventory between the three months ended September 29,
      2007
      and the fiscal year ended June 30, 2007 to sales of inventory previously
      reserved as well as physically scrapping written-off inventory.





During
      the three months ended September 29, 2007 and September 30, 2006, gross profit
      benefited as a result of the sale of inventory of $262,000 and $530,000,
      respectively, that had been previously identified as excess and written down
      to
      zero.





**6.
      ACCRUED LIABILITIES**




Accrued
      liabilities consist of:




September
                29, 2007
            
            June
                30, 2007(in
                thousands)Accrued
                compensation
            
            $
            4,031
            
            $
            4,515Accrued
                income tax
            
            
            3,576
            
            
            2,159External
                sales representative commissions
            
            
            785
            
            
            832Other
                accrued expenses
            
            
            1,828
            
            
            1,212$
            10,220
            
            $
            8,718





**7.
      DEBT**




As
      of
      September 29, 2007, the Company had outstanding debt reported on the
      consolidated balance sheet as follows:





Annual
            
            
            
            Total
                Amounts DueInterest
            
            
            
            Within
            
            After(in
                thousands)
            
            Rate
            
            Total
                due
            
            12
                Months
            
            12
                MonthsBank
                Loan - eCERA
            
            
            3.35
            %
            $
            686
            
            $
            394
            
            $
            292





As
      part
      of the acquisition of eCERA discussed in Note 2, the debt obligations assumed
      by
      the Company in the transaction totaled $14.9 million and consisted of long-term
      debt and short-term lines of credit. The Company repaid the lines of credit
      during 2007. The long-term debt carries a variable interest rate of 1.3% over
      the 90 Day Secondary Markets Telerate benchmark and is payable in New Taiwan
      Dollars in quarterly installments of principal and monthly installments of
      interest.




**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.




10





One
      direct customer, a worldwide distributor, accounted for 14% of net revenues
      in
      the three months ended September 29, 2007 and one direct customer, an Asian
      distributor, accounted for 11% of net revenues in the three months ended
      September 30, 2006. At both September 29, 2007 and September 30, 2006, no
      customers individually accounted for 10% or greater of accounts receivable.





The
      following table sets forth the Company’s net property and equipment by country
      of location as a percentage of total net property and equipment as of September
      29, 2007 and June 30, 2007:





September
                29,
              2007
            
            June
                30,
              2007Taiwan
            
            
            67
            %
            
            68
            %United
                States
            
            
            24
            %
            
            24
            %Other
                countries
            
            
            9
            %
            
            8
            %Total
            
            
            100
            %
            
            100
            %





The
      following table sets forth net revenues by country as a percentage of total
      net
      revenues for the three month periods ended September 29, 2007 and September
      30,
      2006:





Three
                Months EndedSeptember
                29, 2007
            
            September
                30, 2006China
                (including Hong Kong)
            
            
            40
            %
            
            32
            %Taiwan
            
            
            29
            %
            
            24
            %United
                States
            
            
            10
            %
            
            16
            %Others
                (less than 10% each)
            
            
            21
            %
            
            28
            %Total
            
            
            100
            %
            
            100
            %





**9.
      STOCK REPURCHASE PROGRAM**




On
      October 22, 2001, the Board of Directors authorized the repurchase of up to
      2,000,000 shares of the Company’s common stock. The Company may repurchase the
      shares from time to time in the open market or private transactions, at the
      discretion of the Company’s management. The Company began repurchasing shares on
      July 23, 2002. In fiscal year 2007, the Company repurchased 628,000 shares
      and
      by June 30, 2007, the Company had fulfilled the Board of Directors authorization
      of the repurchase of 2,000,000 shares at a cost of approximately $17.8 million.





On
      April
      26, 2007, the Company’s Board of Directors authorized the repurchase of an
      additional 2.0 million shares. Under the currently active authority, the Company
      repurchased 454,000 shares in the three months ended September 29, 2007 for
      an
      aggregate cost of $5.0 million. The Company has purchased a total of 756,000
      shares under the current authority. 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 subsidiaries Pericom Taiwan Limited (PTL) and eCERA.
      During the three months ended December 31, 2004, the Company sold 6.82% of
      PTL
      to its employees for $315,000 in cash. At September 29, 2007, the minority
      interest in PTL was valued at $12,000. Parties other than Pericom Semiconductor
      Corporation own approximately 2.71% of the outstanding shares of eCERA. As
      of
      September 29, 2007, the minority interest in SaRonix-eCERA Corporation was
      valued at $891,000.





11




**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 September 29, 2007,
      the Company has issued no shares of preferred stock.





***SHARE-BASED
      COMPENSATION***





Effective
      July 3, 2005, the Company adopted the provisions of Statement of Financial
      Accounting Standards (“SFAS”) No. 123 (revised 2004), *Share-Based
      Payment* (“SFAS
      123(R)”). SFAS 123(R) establishes accounting for stock-based awards exchanged
      for employee services.  Accordingly, stock-based compensation cost is
      measured at grant date, based on the fair value of the award and is recognized
      as an expense over the employee’s requisite service period (the vesting period).
 The Company previously applied Accounting Principles Board (“APB”) Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* ,
      (“APB
      25”) and related interpretations and provided the required pro forma disclosures
      of SFAS No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”). The Company elected to adopt the modified prospective application method
      as provided by SFAS 123(R). Under this transition method, stock-based
      compensation cost recognized subsequent to July 3, 2005 includes: (a)
      compensation cost for all share-based awards granted prior to but not yet vested
      as of July 2, 2005, based on the grant-date fair value estimated in accordance
      with SFAS 123, and (b) compensation cost for all share-based awards granted
      subsequent to July 2, 2005, based on the grant-date fair value estimated in
      accordance with SFAS 123(R). In accordance with the modified prospective method
      of adoption, the Company’s results of operations and financial position for
      prior periods have not been restated.





***STOCK
      OPTION PLANS***




At
      September 29, 2007 the Company had five stock option plans and one employee
      stock purchase plan, including the 1990 Stock Option Plan, 1995 Stock Option
      Plan, 2001 Stock Option Plan (2001 Plan), SaRonix acquisition stock option
      plan,
      2004 Stock Incentive Plan and the 2000 Employee Stock Purchase Plan (“ESP
      Plan”). The Company’s aggregate compensation cost, before income tax, for the
      three months ended September 29, 2007 totaled $508,000 and for the three months
      ended September 30, 2006 totaled $515,000. The Company recognized $134,000
      and
      $162,000 in income tax benefit in the consolidated statement of operations
      for
      the three months ended September 29, 2007 and September 30, 2006, respectively,
      related to the Company’s share-based compensation arrangements.





Under
      the
      Company’s 2004, 2001, 1995 and 1990 stock option plans and the SaRonix
      acquisition stock option plan, the Company has reserved 6.3 million shares
      of
      common stock as of September 29, 2007 for issuance to employees, officers,
      directors, independent contractors and consultants of the Company in the form
      of
      incentive and nonqualified stock options.




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 upon the U.S.
      Treasury yield corresponding to the expected life of the underlying
      option.




12


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


Three
                Months EndedSeptember
                29, 2007
            
            September
                30, 2006Expected
                life
            
            4.98
                years
            
            4.9
                yearsRisk-free
                interest rate
            
            4.60%
            
            4.76%Volatility
                range (low/high)
            
            44%
            
            48%Dividend
                yield
            
            0.00%
            
            0.00%





The
      following table summarizes the Company’s stock option plans as of July 1, 2006
      and changes during the following fiscal year and the three months ended
      September 29, 2007:





**Outstanding
                Options****Options**
            
            **Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Aggregate
                Intrinsic Value**(in
                thousands)
            
            
            
            (in
                millions)Options
                outstanding at July 1, 2006
            
            
            5,277
            
            $
            11.43
            
            $
            16.5Options
                granted (weighted average grant date fair value of $4.40)
            
            
            516
            
            
            9.43Options
                exercised
            
            
            (561
            )
            
            5.62Options
                forfeited or expired
            
            
            (414
            )
            
            11.97Options
                outstanding at June 30, 2007
            
            
            4,818
            
            
            11.84
            
            $
            10.2
                10.2Options
                granted (weighted average grant date fair value of $4.79)
            
            
            291
            
            
            10.80Options
                exercised
            
            
            (78
            )
            
            5.43Options
                forfeited or expired
            
            
            (198
            )
            
            14.26Options
                outstanding at September 29, 2007
            
            
            4,833
            
            $
            11.78
            
            $
            11.3





At
      September 29, 2007, 1,476,765 shares were available for future issuance under
      the option plans. The aggregate intrinsic value of options exercised during
      the
      three months ended September 29, 2007 was $454,000. The number, aggregate
      intrinsic value, weighted-average contractual term and weighted-average exercise
      price of options vested and expected to vest as of September 29, 2007 was 4.6
      million, $10.7 million, 4.82 years and $11.94, respectively. The number,
      aggregate intrinsic value, weighted-average contractual term and
      weighted-average exercise price of options that are currently exercisable as
      of
      September 29, 2007 was 3.7 million, $8.7 million, 3.90 years and $12.51,
      respectively. The Company has unamortized stock-based compensation expense
      related to options of $4.0 million, which will be amortized to expense over
      a
      weighted average period of 2.9 years.





Additional
      information regarding options outstanding as of September 29, 2007 is as
      follows:




Options
                Outstanding
            
            
            Exercisable
                OptionsRange
                of Exercise Prices
            
            
            Number
                Outstanding
            
            
            Weighted
                  Ave. Remaining Contractual Term(years)
            
            
            Weighted
                Average Exercise Price
            
            
            Number
                Exercisable
            
            
            Weighted
                Average Exercise Price$
            2.34
            to
            $
            7.87
            
            
            987,733
            
            
            2.81
            
            $
            4.88
            
            
            821,667
            
            $
            4.27$
            7.88
            to
            $
            9.11
            
            
            1,017,780
            
            
            7.05
            
            $
            8.41
            
            
            642,266
            
            $
            8.43$
            9.17
            to
            $
            11.50
            
            
            1,262,858
            
            
            7.27
            
            $
            10.76
            
            
            692,604
            
            $
            11.03$
            11.59
            to
            $
            17.50
            
            
            972,250
            
            
            3.71
            
            $
            14.38
            
            
            965,250
            
            $
            14.40$
            17.81
            to
            $
            37.22
            
            
            592,700
            
            
            2.71
            
            $
            26.99
            
            
            592,700
            
            $
            26.99$
            2.34
            to
            $
            37.22
            
            
            4,833,321
            
            
            5.04
            
            $
            11.78
            
            
            3,714,487
            
            $
            12.51




13




***2000
      EMPLOYEE STOCK PURCHASE PLAN***





In
      2000,
      the Company approved the 2000 Employee Stock Purchase Plan (the “Stock Purchase
      Plan”) to replace the earlier 1997 Employee Stock Purchase Plan (together, “the
      Plans”). The Stock Purchase Plan allows eligible employees of the Company to
      purchase shares of Common Stock through payroll deductions. The Company reserved
      2.1 million shares of the Company’s Common Stock for issuance under the Plans,
      of which 629,184 remain available at September 29, 2007 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 accrual period is 1,000
      shares. During fiscal year 2007 and 2006, the Company issued 146,000 and 141,000
      shares of common stock under the Stock Purchase Plan at weighted average prices
      of $6.83 and $6.79, respectively. The weighted average fair value of the fiscal
      2007 and 2006 awards were $2.49 and $2.11 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 Company uses historical
      data to estimate the expected holding period and expected forfeitures and 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 EndedSeptember
                29, 2007
            
            September
                30, 2006Expected
                life
            
            13.5
                months
            
            13.5
                monthsRisk-free
                interest rate
            
            4.95%
            
            5.08%Volatility
            
            40%
            
            41%Dividend
                yield
            
            0.00%
            
            0.00%





The
      following table summarizes activity in the Company’s employee stock purchase
      plan during the three months ended September 29, 2007:




**Shares**
            
            **Weighted
                Average Purchase Price**Beginning
                Available
            
            
            663,910Purchases
            
            
            (34,726
            )
            $
            6.96Ending
                Available
            
            
            629,184




At
      September 29, 2007, the Company had $104,000 in unamortized stock-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.




14





***REPORTING
      STOCK-BASED COMPENSATION***





The
      following table shows total stock-based compensation expense classified by
      Consolidated Statement of Operations reporting caption for the three months
      ended September 29, 2007 and September 30, 2006 generated from the plans
      mentioned above:





**Three
                Months Ended****September
                29,**
            
            **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**Cost
                of revenues
            
            $
            29
            
            $
            28Research
                and development
            
            
            150
            
            
            219Selling,
                general and administrative
            
            
            329
            
            
            268Pre-tax
                stock-based compensation expense
            
            
            508
            
            
            515Less
                income tax benefit
            
            
            134
            
            
            162Net
                stock-based compensation expense
            
            $
            374
            
            $
            353





The
      amount of share-based compensation expense in inventory at September 29, 2007
      and June 30, 2007 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”). FIN No. 48 prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of uncertain tax
      positions taken or expected to be taken in a company’s income tax return, and
      also provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. FIN No. 48 utilizes
      a
      two-step approach for evaluating uncertain tax positions accounted
      for in accordance with SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      No. 109”) .
      Step
      one, Recognition, requires a company to determine if the weight of available
      evidence indicates that a tax position is more likely than not to be sustained
      upon audit, including resolution of related appeals or litigation processes,
      if
      any. Step two, Measurement, is based on the largest amount of benefit, which
      is
      more likely than not to be realized on ultimate settlement. The cumulative
      effect of adopting FIN No. 48 on July 1, 2007 is recognized as a change in
      accounting principle, recorded as an adjustment to the opening balance of
      retained earnings on the adoption date.




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 return 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
      September 29, 2007, the Company had not accrued any reserve for payment of
      interest and penalties related to unrecognized tax benefits as any adjustments
      would be offset by additional credits and unused net operating loss
      carryforwards. The Company’s total amounts of unrecognized tax benefits as of
      September 29, 2007 amount to $974,000. All of this amount would affect the
      corporation’s tax rate if recognized. The tax years 2002 to 2006 remain open in
      the United States.




**Income
      Tax Expense**




Income
      tax expense for the three months ended September 29, 2007 and September 30,
      2006
      was $1.7 million and $620,000, respectively and was comprised of domestic
      federal and state income tax and foreign income and withholding tax.




**13.
      COMPREHENSIVE INCOME** ****




15




Comprehensive
      income consists of net income, net unrealized gains on available-for-sale
      investments and changes in translation gain (loss) generated by the Company’s
      consolidated subsidiaries. The components of comprehensive income and related
      tax effects were as follows:





Three
                Months Ended(in
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006Net
                income
            
            $
            3,883
            
            $
            1,625Change
                in unrealized gain (loss) on securities available for sale
            
            
            655
            
            
            1,012Income
                tax effect
            
            
            —
            
            
            (383
            )Reclassification
                adjustment for gains on available for sale securities included in
                net
                income (loss)
            
            
            —
            
            
            (4
            )Income
                tax effect
            
            
            —
            
            
            2Translation
                gain (loss)
            
            
            202
            
            
            (297
            )Other
                comprehensive income
            
            $
            4,740
            
            $
            1,955





**14.
      RECENTLY ISSUED ACCOUNTING STANDARDS** ****




In
      February 2007, the FASB issued SFAS No, 159 *,
      The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“SFAS
      No. 159”). SFAS No. 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value. The standard requires that
      unrealized gains and losses on items for which the Company elects the fair
      value
      option be reported in earnings. The Company is required to adopt the provision
      of SFAS No. 159 beginning with the first fiscal quarter in fiscal 2009, although
      the FASB permits earlier adoption. The Company’s management is currently
      evaluating the impact that SFAS No. 159 will have on the consolidated balance
      sheet and the consolidated statements of operations and cash flows.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157,*Fair
      Value Measurements*(“SFAS
      157”) which is effective for fiscal years beginning after November 15, 2007 and
      for interim periods within those years. SFAS 157 defines fair value, establishes
      a framework for measuring fair value and expands the related disclosure
      requirements. The Company is currently evaluating the potential impact that
      SFAS
      157 will have on our financial position, results of operations and liquidity.




16





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
      30, 2007 (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: projections of revenues, expenses, gross profit, gross
      margin, or other financial items; the plans and objectives of management for
      future operations; the Company’s tax rate; the adequacy of allowances for
      returns, price protection and other concessions; proposed new products or
      services; the sufficiency of cash generated from operations and cash balances;
      the Company’s exposure to interest rate risk; future economic conditions or
      performance; plans to focus on cost control; expectations regarding export
      sales
      and net revenues; expectations regarding the demand for our products; the
      expansion of sales efforts; acquisition prospects; the results of our
      acquisition of eCERA and our other possible future acquisitions and assumptions
      underlying any of the foregoing. In some cases, forward-looking statements
      can
      be identified by the use of terminology such as “may,” “will,” “expects,”
“plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative
      thereof or other comparable terminology. Although the Company believes that
      the
      expectations reflected in the forward-looking statements contained herein are
      reasonable, there can be no assurance that such expectations or any of the
      forward-looking statements will prove to be correct, and actual results could
      differ materially from those projected or assumed in the forward-looking
      statements. The Company’s future financial condition and results of operations,
      as well as any forward-looking statements, are subject to risks and
      uncertainties, including but not limited to the factors set forth (i) in Item
      1A, Risk Factors, of Part II of this Form 10-Q, (ii) in Item 1A, Risk Factors,
      of Part I of the Company’s Form 10-K for the year ended June 30, 2007, and (iii)
      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.




17


**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 EndedSeptember
                29, 2007
            
            September
                30, 2006Net
                revenues
            
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            63.6
            %
            
            66.2
            %Gross
                profit
            
            
            36.4
            %
            
            33.8
            %Operating
                expenses:Research
                and development
            
            
            10.6
            %
            
            12.8
            %Selling,
                general and administrative
            
            
            15.2
            %
            
            18.8
            %Total
            
            
            25.8
            %
            
            31.6
            %Income
                from operations
            
            
            10.6
            %
            
            2.2
            %Interest
                and other income
            
            
            3.6
            %
            
            4.2
            %Income
                before income taxes
            
            
            14.2
            %
            
            6.4
            %Income
                taxes
            
            
            (4.4
            )%
            
            (2.0
            )%Equity
                in net income of investees
            
            
            0.3
            %
            
            0.9
            %Net
                income
            
            
            10.1
            %
            
            5.3
            %





18


***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(In
                thousands)
            
            September
              29,
                2007
            
            September
              30,
                2006
            
            %
              ChangeNet
                revenues
            
            $
            38,468
            
            $
            30,826
            
            
            24.8
            %Percentage
                of net revenues accounted for by top 5 direct customers(1)
            
            
            36.3
            %
            
            33.7
            %Number
                of direct customers that each account for more than 10% of net
                sales
            
            
            1
            
            
            1Percentage
                of gross sales accounted for by top 5 end customers(2)
            
            
            22.2
            %
            
            25.6
            %Number
                of end customers that each account for more than 10% of gross
                sales
            
            
            None
            
            
            None





(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 holds a 97.29% interest in eCERA Comtek Corporation (“eCERA”). In the
      three month periods ended September 29, 2007 and September 30, 2006, net
      revenues from eCERA product sales were approximately $9.4 million and $8.4
      million, respectively.




Net
      revenues consist of product sales, which are recognized upon shipment, less
      an
      estimate for returns and allowances. The increase in net revenues for the three
      month period ended September 29, 2007 was primarily due to a 103% increase
      in
      the sales of analog switches to $11.1 million and a 16% increase in sales of
      our
      FCP product family to $15.2 million as compared to sales in the year ago period.
      Pricing for our higher margin analog switch, clock and connect products, many
      of
      which include proprietary technology, is more stable and we can generally offset
      price declines by introducing new products and reducing manufacturing costs.




The
      following table sets forth net revenues by country as a percentage of total
      net
      revenues for the three-month periods ended September 29, 2007 and September
      30,
      2006:





Three
                Months EndedSeptember
              29,
                2007
            
            September
              30,
                2006China
                (including Hong Kong)
            
            
            40
            %
            
            32
            %Taiwan
            
            
            29
            %
            
            24
            %United
                States
            
            
            10
            %
            
            16
            %Others
                (less than 10% each)
            
            
            21
            %
            
            28
            %Total
            
            
            100
            %
            
            100
            %





For
      the
      three months ended September 29, 2007, as compared with the same period in
      the
      prior year, the percentage of our net revenues derived from sales to China
      (including Hong Kong) increased as a result of an increasing demand for
      technological devices in China and a continuing concentration of contract
      manufacturing in that region during the period.




19




The
      semiconductor industry is currently enjoying an upturn in demand for its
      products but customer demand for semiconductors can change quickly and
      unexpectedly.  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(In
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            %
                ChangeNet
                revenues
            
            $
            38,468
            
            $
            30,826
            
            
            24.8
            %Gross
                profit
            
            
            14,001
            
            
            10,432
            
            
            34.2
            %Gross
                profit as a percentage of net revenues (gross margin)
            
            
            36.4
            %
            
            33.8
            %





The
      increase in gross profit in the three month period ended September 29, 2007
      over
      the gross profit in the prior year three month period was primarily due to
      the
      103% increase in our sales of analog switches which carry a larger margin than
      our other product families. The increase in gross margin for the three month
      period ended September 29, 2007 can be primarily attributable to higher margins
      from the Company’s focus IC products caused by improved product mix and a
      generally favorable pricing environment. These factors were partially off-set
      by
      the negative impact of the addition of lower margin eCERA revenue.





Future
      gross profit and gross margin are highly dependent on the level and product
      mix
      of net revenues. This includes the mix of sales between lower margin SaRonix
      and
      eCERA 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 months ended September 29, 2007 and September 30, 2006, gross profit
      and gross margin benefited as a result of the sale of inventory of $262,000
      and
      $530,000 respectively, that we had previously identified as excess and written
      down to zero value.





***Research
      and Development***





Three
                Months Ended(In
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            %
                ChangeNet
                revenues
            
            $
            38,468
            
            $
            30,826
            
            
            24.8
            %Research
                and development
            
            
            4,082
            
            
            3,942
            
            
            3.6
            %R&D
                as a percentage of net revenues
            
            
            10.6
            %
            
            12.8
            %





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 expense increase in absolute
      dollars for the three month period ended September 29, 2007 as compared to
      the
      same period in the previous year is attributable to increased salary costs
      of
      $235,000, partially offset by reduced FAS 123R expense which decreased $69,000
      as compared to our costs in the same period in the prior fiscal
      year.




20





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





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





Three
                Months Ended(In
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            %
                ChangeNet
                revenues
            
            $
            38,468
            
            $
            30,826
            
            
            24.8
            %Selling,
                general and administration
            
            
            5,839
            
            
            5,795
            
            
            0.8
            %SG&A
                as a percentage of net revenues (gross margin)
            
            
            15.2
            %
            
            18.8
            %





Selling,
      general and administrative expenses consist primarily of personnel and related
      overhead costs for sales, marketing, finance, administration, human resources
      and general management. The expense increase in absolute dollars in selling,
      general and administrative expenses in the three month period ended September
      29, 2007 as compared to the same period in the prior year was attributable
      to
      increased payroll costs which added $123,000 and increased FAS 123R expense
      which added $60,000 to our costs. Payroll costs at our Taiwan operations
      increased $174,000. These increases were partially offset by a reduction in
      professional services fees of $281,000 in our US operations.




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





***Interest
      and Other Income***





Three
                Months Ended(in
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            %
                ChangeInterest
                and other income
            
            $
            1,370
            
            $
            1,280
            
            
            7.0
            %





The
      increase in interest and other income for the three month period ended September
      29, 2007 as compared to the comparable prior year period was primarily due
      to an
      increase of 10% in the amount we invested in short-term and long-term
      interest-bearing investments. For this reason the Company was able to generate
      approximately $1.4 million of net interest income for the three month period
      ended September 29, 2007 which represents an approximate $90,000 increase over
      the $1.3 million of net interest income for the three month period in the prior
      year.





***Income
      Tax Expense***




21




Three
                Months Ended(in
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            %
                ChangePre-tax
                income
            
            $
            5,450
            
            $
            1,974
            
            
            176.1
            %Income
                tax
            
            
            1,691
            
            
            620
            
            
            172.7
            %Effective
                tax rate
            
            
            31.0
            %
            
            31.4
            %





The
      increase in income tax expense in the three months ended September 29, 2007
      over
      the same period in the prior year is due to a 176% increase in income before
      income taxes partially offset by a marginally lower effective tax
      rate.





Our
      effective tax rate differs from the federal statutory rate primarily due to
      state income taxes, the utilization of research and development tax credits,
      stock-based compensation from incentive stock options, changes in the deferred
      tax asset valuation allowance, and differing tax rates in income-earning
      jurisdictions.





***Equity
      in Net Income of Unconsolidated Affiliates***




Three
                Months Ended(In
                thousands)
            
            September
                29, 2007
            
            September
                30, 2006
            
            ChangeEquity
                in net income of unconsolidated affiliates
            
            $
            121
            
            $
            280
            
            $
            (159
            )





Equity
      in
      net income of unconsolidated affiliates is the Company’s allocated portion of
      the net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
      corporation based in Shanghai, People’s Republic of China. PTI was formed by
      Pericom and certain Pericom shareholders in 1994 to develop and market
      semiconductors in China and certain other Asian countries. The Company adopted
      Emerging Issue Task Force (“EITF”) Issue No. 02-14, *Whether
      an Investor Should Apply the Equity Method of Accounting to Investments Other
      Than Common Stock,* (“EITF
      02-14”) in the quarter ended December 31, 2004. EITF 02-14 requires us to
      account for our investment in securities, other than common stock, of PTI using
      the equity method of accounting. We have invested in PTI using several different
      transactions over a period of years. Initially, PTI generated losses which
      were
      attributable to each of the various rounds of financing and we accounted for
      those losses using our percentage of each round of financing until our
      investment was exhausted. Currently, we are accounting for our equity in PTI
      following our percentage involvement in PTI’s Series A Preferred Stock which is
      25%. After all losses attributable to the Series A Preferred Stock round of
      financing has been recouped, the Company will begin to realize its share of
      PTI’s earnings at the Company’s overall percentage ownership of PTI. As of
      September 29, 2007 that percentage ownership is 44.3%. The Company’s allocated
      portion of PTI’s results decreased to income of $121,000 for the three month
      period ended September 29, 2007 from income of $280,000 for the comparable
      period in the prior year. This year over year decrease is attributable to
      reduced sales at PTI and a resulting decrease in PTI’s net income.





***Liquidity
      and Capital Resources***





As
      of
      September 29, 2007, the Company’s principal sources of liquidity included cash,
      cash equivalents and short-term and long-term investments of approximately
      $130.9 million as compared with $131.0 million on June 30, 2007.





As
      of
      September 29, 2007, $6.8 million was classified as cash and cash equivalents
      compared with $29.2 million as of June 30, 2007. 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
      three
      month period ended September 29, 2007, the Company spent approximately $1.4
      million on property and equipment compared to $1.6 million for the three month
      period ended September 30, 2006. We have been able to generate cash from
      operations over the last 15 months of $28.7 million. The Company was able to
      generate approximately $1.4 million of net interest income for the three month
      period ended September 29, 2007, an approximate $100,000 increase over the
      $1.3
      million of net interest income for the three month period ended September 30,
      2006. An increase of $9.0 million in liquid resources contributed to increased
      interest income for the three month period ended September 29, 2007 as compared
      to the three month period ended September 30, 2006. 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.




22





The
      Company’s net cash provided by operating activities of $4.6 million in the three
      months ended September 29, 2007 was primarily a result of net income of $3.9
      million, a reduction in accounts payable of $1.9 million, a reduction in accrued
      expenses of $1.5 million, depreciation and amortization of approximately $1.2
      million and non-cash stock based compensation expense of $508,000. These
      contributions to cash were partially offset by increases of accounts receivable,
      inventory and other assets of $1.8 million, $1.3 million and $943,000,
      respectively. The Company’s net cash provided by operating activities of $5.0
      million in the three months ended September 30, 2006 was primarily due to net
      income of $1.6 million, a reduction in net inventories of $1.2 million, and
      depreciation and amortization of $1.6 million. The reduction in net inventories
      during the three month period ended September 30, 2006 was primarily due to
      the
      tightening of supply and a continued effort to reduce inventory levels to a
      lower level during fiscal 2007.





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





The
      Company’s cash used in investing activities of $22.9 million for the three
      months ended September 29, 2007 was primarily due to the Company’s purchases of
      short term investments exceeding maturities of short-term investments by
      approximately $21.4 million as well as additions of property and equipment
      of
      approximately $1.4 million. The Company’s cash used in investing activities of
      $3.1 million for the three months ended September 30, 2006 was primarily due
      to
      the Company’s purchase of short term investments exceeding maturities of
      short-term investments by approximately $2.1 million as well as additions of
      property and equipment of approximately $1.6 million.





The
      Company’s cash used in financing activities in the three months ended September
      29, 2007 of $4.3 million was primarily the result of repurchases of the
      Company’s common stock which amounted to $5.0 million. This was partially offset
      by $667,000 in proceeds generated from the issuance of common stock in the
      Company’s employee stock plans. The Company’s cash used by financing activities
      in the three months ended September 30, 2006 of $4.5 million was primarily
      due
      to principal payments on short-term and long-term debts and capital leases
      of
      approximately $5.7 million on debt obligations assumed in the eCERA acquisition
      as well as repurchases of common stock of $1.8 million, offset in part by
      proceeds of approximately $2.0 million through the issuance of debt and
      approximately $930,000 from the sale of common stock in the Company’s employee
      stock plans.





On
      October 22, 2001, the Board of Directors authorized the repurchase of up to
      2,000,000 shares of the Company’s common stock. The Company may repurchase the
      shares from time to time in open market or private transactions, at the
      discretion of the Company’s management. The Company began repurchasing shares on
      July 23, 2002. In fiscal year 2007, the Company repurchased 628,000 shares
      and
      by June 30, 2007, the Company had fulfilled the Board of Directors authorization
      of the repurchase of 2,000,000 shares at a cost of approximately $17.8 million.





On
      April
      26, 2007, the Company’s Board of Directors authorized the repurchase of an
      additional 2.0 million shares. Under the currently active authority, the Company
      repurchased 454,000 shares in the three months ended September 29, 2007 for
      an
      aggregate cost of $5.0 million. The Company has purchased a total of 756,000
      shares under the current authority. 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.




23





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.




**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.





The
      Company’s contractual obligations and commitments including eCERA’s debt
      obligations at September 29, 2007 are as follows (in thousands):




Payments
                Due by PeriodFiscal
                Year
            
            Total
            
            Less
                than 1 Year
            
            1
                -
                3 Years
            
            3
                -
                5 Years
            
            ThereafterOperating
                leases
            
            $
            7,184
            
            $
            1,270
            
            $
            2,355
            
            $
            2,151
            
            $
            1,408Notes
                payable
            
            
            686
            
            
            394
            
            
            292
            
            
            —
            
            
            —Total obligations
            
            $
            7,870
            
            $
            1,664
            
            $
            2,647
            
            $
            2,151
            
            $
            1,408





**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; impairment of goodwill, other
      intangible assets and investments, which impacts goodwill, intangible assets
      and
      investments; and stock-based compensation, which impacts costs of goods sold,
      research and development and selling, general and administrative expenses.
      These
      policies and the estimates and judgments involved are discussed further
      below.




24





We
      consider the following accounting policies to be “critical” as defined by the
      Securities and Exchange Commission, in that they are both highly important
      to
      the portrayal of our financial condition and results, and require us to make
      difficult judgments and assumptions about matters that are inherently uncertain.





***REVENUE
      RECOGNITION*** -The
      Company recognizes revenue from the sale of its products upon shipment, provided
      title and risk of loss has passed to the customer, the fee is fixed or
      determinable and collection of the revenue is reasonably assured. A provision
      for estimated future returns and other charges against revenue is recorded
      at
      the time of shipment. For the quarter ended September 29, 2007 the majority
      of
      the Company’s revenues were to distributors.





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





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





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





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





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





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




25





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





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





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





***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 270 days. By part number, the quantity of assembled
      devices in inventory that is in excess of the greater of the quantity shipped
      in
      the previous twelve months or the quantity in backlog are considered obsolete
      and written off. In certain circumstances, management will determine, based
      on
      expected usage or other factors, that inventory considered obsolete by these
      guidelines should not be written off. The semiconductor markets that we serve
      are volatile and actual results may vary from our forecast or other assumptions,
      potentially impacting our assessment of excess and obsolete inventory resulting
      in material effects on our gross margin.





***IMPAIRMENT
      OF INTANGIBLE ASSETS.*** **** As
      required by Statement of Financial Accounting Standards (“SFAS”) No. 142, *Goodwill
      and Other Intangible Assets* ,
      which
      the Company adopted in fiscal 2002, the Company ceased amortizing its
      indefinite-lived intangible assets acquired in the acquisition of Saronix which
      is comprised of the SaRonix trade name. Accordingly, SFAS No. 142 requires
      that
      indefinite-lived intangible assets be tested for impairment annually or more
      frequently if events or changes in circumstances indicate that the asset might
      be impaired. The Company also reviews other intangible assets for impairment
      when events or changes in circumstances indicate that the assets might be
      impaired. The Company determined that no impairment of goodwill other intangible
      assets existed in the three month period ended September 29, 2007.





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




26




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





***STOCK
      BASED COMPENSATION*** **.**  Effective
      July 3, 2005, the Company adopted the provisions of SFAS No. 123(R), *Share-Based
      Payment* (“SFAS
      123(R)”).  SFAS 123(R) establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity’s equity instruments or that may be settled by the issuance of those
      equity instruments. Accordingly, stock-based compensation cost is measured
      at
      grant date, based on the fair value of the award, and is recognized as expense
      over the employee’s requisite service period.  The measurement of stock
      based compensation cost is based on several criteria including, but not limited
      to, the valuation model used and associated input factors such as expected
      term
      of the award, stock price volatility, dividend rate, risk free interest rate,
      and award cancellation rate. The input factors to use in the valuation model
      are
      based on subjective future expectations combined with management judgment.
      If
      there is a difference between the forfeiture assumptions used in determining
      stock based compensation costs and the actual forfeitures which become known
      over time, the Company may change the input factors used in determining stock
      based compensation costs. These changes may materially impact the Company’s
      results of operations in the period such changes are made.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK**





At
      September 29, 2007 our investment portfolio consisted of investment-grade fixed
      income securities, excluding those classified as cash equivalents, of $124
      million. These securities are subject to interest rate risk and will decline
      in
      value if market interest rates increase. For example, if market interest rates
      were to increase immediately and uniformly by 10% per annum from levels as
      of
      September 29, 2007, the fair market value of the portfolio would decrease.
      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.





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**




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




27




Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures pursuant
      to
      Exchange Act Rule 13a-15 of the Exchange Act as of September 29, 2007. Based
      on
      that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures were not effective as
      of
      such date due to the fact that management had not fully remediated the material
      weakness described in our annual report on Form 10-K for the year ended June
      30,
      2007 by September 29, 2007.




**Changes
      in Internal Control over Financial Reporting**




As
      previously disclosed in our annual report on Form 10-K for the year ended June
      30, 2007, we determined that we did not maintain a sufficient complement of
      personnel with an appropriate level of accounting knowledge, experience and
      training in the application of generally accepted accounting principles
      commensurate with our financial reporting requirements.




We
      have
      begun to remediate this material weakness by reviewing our current processes
      and
      procedures, changing certain procedures where necessary and in certain areas,
      supplementing them with new procedures. We have evaluated our current staff
      and
      the tasks assigned to them, changing those assignments as appropriate under
      the
      current circumstances. We are interviewing candidates to bolster our staff
      to
      improve our ability to understand and comply with generally accepted accounting
      principles.




We
      consider the remediation of our material weakness in our internal control over
      financial reporting which we identified in the fiscal year ended June 30, 2007
      a
      significant priority in the operation of the Company. We will continue our
      efforts in this regard and believe that we will achieve full remediation in
      the
      near future.




28





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.





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





·
            changes
                in the quantity of our products
                sold;





·
            changes
                in the average selling price of our
                products;





·
            general
                conditions in the semiconductor
                industry;





·
            currency
                fluctuation that effect our foreign subsidiaries;





·
            changes
                in our product mix;





·
            a
                decline in the gross margins of our
                products;





·
            the
                operating results of SaRonix-eCERA product line, which normally have
                a
                smaller profit margin;





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





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





·
            customer
                acceptance of new products introduced by
                us;





·
            delay
                or decline in orders received from
                distributors;





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





·
            the
                availability of manufacturing capacity with our wafer
                suppliers;





·
            changes
                in manufacturing costs;





·
            fluctuations
                in manufacturing yields;





·
            disqualification
                by our customers for quality or performance related
                issues;





·
            the
                ability of customers to pay us; and





·
            increased
                research and development expenses associated with new product
                introductions or process changes.





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





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





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





·
            computers
                and computer related peripherals;





·
            data
                communications and telecommunications
                equipment;





·
            electronic
                commerce and the Internet; and





·
            consumer
                electronics equipment.





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





**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.**




29





We
      have
      relied in the past and continue to rely upon our relationships with our
      customers and end-users for insights into product development strategies for
      emerging system requirements. We generally incorporate new products into a
      customer's or end-user's product or system at the design stage. However, these
      design efforts, which can often require significant expenditures by us, may
      precede product sales, if any, by a year or more. Moreover, the value to us
      of
      any design win will depend in large part on the ultimate success of the customer
      or end-user's product and on the extent to which the system's design
      accommodates components manufactured by our competitors. If we fail to achieve
      design wins or if the design wins fail to result in significant future revenues,
      our operating results would be harmed. If we have problems developing or
      maintaining our relationships with our customers and end-users, our ability
      to
      develop well-accepted new products may be impaired.





**The
      markets for our products are characterized by rapidly changing technology,
      and
      our financial results could be harmed if we do not successfully develop and
      implement new manufacturing technologies or develop, introduce and sell new
      products.**





The
      markets for our products are characterized by rapidly changing technology,
      frequent new product introductions and declining selling prices over product
      life cycles. We currently offer a comprehensive portfolio of silicon and quartz
      based products. Our future success depends upon the timely completion and
      introduction of new products, across all our product lines, at competitive
      price
      and performance levels. The success of new products depends on a variety of
      factors, including the following:





·
            product
                performance and functionality;





·
            customer
                acceptance;





·
            competitive
                cost structure and pricing;





·
            successful
                and timely completion of product
                development;





·
            sufficient
                wafer fabrication capacity; and





·
            achievement
                of acceptable manufacturing yields by our wafer suppliers.





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





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





The
      semiconductor industry is intensely competitive. Our competitors include Analog
      Devices, Cypress Semiconductor Corporation, Fairchild Semiconductor, Int'l.,
      Hitachi, Integrated Device Technology, Inc., Intel Corp., Maxim Integrated
      Products, Inc., Motorola, On Semiconductor Corp., 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.




30





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





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





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





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





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





**Our
      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.**




31




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.





**We
      determined that we had a material weakness in our internal control over
      financial reporting as of June 30, 2007. As a result, we are currently
      implementing supplemental procedures to ensure that our financial statements
      are
      fairly stated in all material respects. This process make take more time than
      we
      originally planned. The existence of one or more material weaknesses could
      result in a loss of investor confidence in our financial reports and have an
      adverse impact on our stock price.**





Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish
      a
      report by our management on our internal control over financial reporting.
      Such
      report must contain, among other matters, a statement as to whether or not
      our
      internal control over financial reporting is effective. This assessment must
      include disclosure of any material weaknesses in our internal control over
      financial reporting identified by management. Such report must also contain
      a
      statement that our auditors have issued an attestation report on management’s
      assessment of such internal controls.





We
      have
      performed the system and process documentation and evaluation needed to comply
      with section 404 of the Sarbanes-Oxley Act of 2002, which is both costly and
      challenging. Through such evaluation the Company has previously identified
      material weaknesses in its internal control over financial reporting. On June
      30, 2007, the Company did not maintain a sufficient complement of personnel
      with
      an appropriate level of accounting knowledge, experience and training in the
      application of generally accepted accounting principles commensurate with our
      financial reporting requirements. Because of this lack of sufficient staff,
      there were a number of internal control deficiencies. In addition, our external
      auditors proposed audit adjustments. Because of the number and nature of these
      significant deficiencies, when aggregated, we concluded we had a material
      weakness in internal control over financial reporting at June 30, 2007. In
      the
      aggregate, these control deficiencies could result in a misstatement in our
      account balances or disclosures which could cause a material misstatement in
      the
      consolidated financial statements that would not be prevented or detected.
      We
      intend to remediate this material weakness by implementing a plan to review
      and
      supplement our processes and procedures, including the recruitment of additional
      staff with the appropriate level of depth and skill in the application of
      generally accepted accounting principles, reviewing our training and oversight
      policies and re-examining our documentation and review procedures, as soon
      as is
      reasonably practical .




32





The
      Company believes that the new measures being developed will remediate all of
      the
      significant deficiencies but there can be no assurance, however, that other
      material weaknesses will not be identified in the future.





If
      further material weaknesses in our internal control are identified, 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, could impact our product designs and manufacturing processes.
      The impact of such regulations on our product designs and manufacturing
      processes could affect the timing of compliant product introductions as well
      as
      their commercial success. Redesigning our products to comply with new
      regulations may result in increased research and development and manufacturing
      and quality control costs. In addition, the products that 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. in particular, to meet our
      manufacturing requirements would delay our production and product shipments
      and
      harm our business.**





In
      fiscal
      2007, 2006 and 2005 we purchased approximately 52%, 41% and 43%, respectively,
      of our wafers from MagnaChip. In addition, in fiscal 2007, 2006 and 2005 we
      purchased approximately 39%, 43% and 43% respectively, of our wafers from
      Chartered. In fiscal 2007, three other suppliers manufactured the remainder
      of
      our wafers. In fiscal 2006, three other suppliers manufactured the remainder
      of
      our wafers. In fiscal 2005, five other suppliers manufactured the remainder
      of
      our wafers. Our reliance on independent wafer suppliers to fabricate our wafers
      at their production facilities subjects us to possible risks such
      as:





·
            lack
                of adequate capacity;





·
            lack
                of available manufactured products;





·
            lack
                of control over delivery schedules;
                and





·
            unanticipated
                changes in wafer prices.





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




33





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





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





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





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





**We
      may have difficulty accurately predicting revenues for future periods.**





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





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





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




34





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 at least 14
      additional patent applications pending. Copyrights, mask work protection, trade
      secrets and confidential technological know-how are also key to our business.
      Additional patents may not be issued to us or our patents or other intellectual
      property may not provide meaningful protection. We may be subject to, or
      initiate, interference proceedings in the U.S. Patent and Trademark Office.
      These proceedings can consume significant financial and management resources.
      We
      may become involved in litigation relating to alleged infringement by us of
      others' patents or other intellectual property rights. This type of litigation
      is frequently expensive to both the winning party and the losing party and
      takes
      up significant amounts of management's time and attention. In addition, if
      we
      lose such a lawsuit, a court could require us to pay substantial damages and/or
      royalties or prohibit us from using essential technologies. For these and other
      reasons, this type of litigation could seriously harm our business. Also,
      although we may seek to obtain a license under a third party's intellectual
      property rights in order to bring an end to certain claims or actions asserted
      against us, we may not be able to obtain such a license on reasonable terms
      or
      at all.





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





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





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





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





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





**We
      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.




35





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





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





·
            the
                level of contaminants in the manufacturing
                environment;





·
            impurities
                in the materials used; and





·
            the
                performance of manufacturing personnel and production equipment.





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





We
      do not
      manufacture any of our IC products. Therefore, we are referred to in the
      semiconductor industry as a "fabless" producer. Consequently, we depend upon
      third party manufacturers to produce semiconductors that meet our
      specifications. We currently have third party manufacturers that can produce
      semiconductors that meet our needs. However, as the industry continues to
      progress to smaller manufacturing and design geometries, the complexities of
      producing semiconductors will increase. Decreasing geometries may introduce
      new
      problems and delays that may affect product development and deliveries. Due
      to
      the nature of the industry and our status as a "fabless" IC semiconductor
      company, we could encounter fabrication-related problems that may affect the
      availability of our products, delay our shipments or increase our costs. With
      the acquisition of eCERA we are directly involved in the manufacture of our
      FCP
      products. As we have not previously operated a manufacturing facility, we may
      not be successful in operating the FCP facility, and as a consequence, there
      may
      be manufacturing related problems that affect our FCP products. See ITEM 1A
      “Risk Factors; Factors That May Affect Operating Results - Our Acquisition of
      eCERA And Other Potential Future Acquisitions May Not Be
      Successful.”





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





A
      relatively small number of customers have accounted for a significant portion
      of
      our net revenues in each of the past several fiscal years. In general we expect
      this to continue for the foreseeable future. With the addition of eCERA, the
      concentration of our largest customers has been reduced, as the largest
      customers of eCERA are somewhat different than those of our core integrated
      circuit business and existing FCP business. We had one direct customer that
      accounted for more than 10% of net revenues during the three months ended
      September 29, 2007. As a percentage of gross revenues, sales to our top five
      direct customers during the three months ended September 29, 2007 totaled 22%.





We
      do not
      have long-term sales agreements with any of our customers. Our customers are
      not
      subject to minimum purchase requirements, may reduce or delay orders
      periodically due to excess inventory and may discontinue purchasing our products
      at any time. Our distributors typically offer competing products in addition
      to
      ours. For the fiscal year ended June 30, 2007 sales to our distributors were
      approximately 40% of net revenues as compared to approximately 39% of net
      revenues in the fiscal year ended July 1, 2006 and 51% for the fiscal year
      ended
      July 2, 2005. The decrease in the percentage of sales to our distributors as
      compared with the prior periods was due in part to lower sales to domestic
      distributor customers. The loss of one or more significant customers, or the
      decision by a significant distributor to carry the product lines of our
      competitors, could decrease our revenues.





36




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





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





·
            disruptions
                or delays in shipments;





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





·
            currency
                fluctuations;





·
            changes
                in political conditions;





·
            potentially
                reduced protection for intellectual
                property;





·
            foreign
                governmental regulations;





·
            import
                and export controls; and





·
            changes
                in tax laws, tariffs and freight rates.





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





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





In
      fiscal
      year 2007, we derived approximately 82% of our net revenues from sales in Asia
      and approximately 4% from net 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 net sales outside of Asia and the United
      States. In fiscal year 2005, approximately 68% of our net revenues derived
      from
      sales in Asia and approximately 6% from net sales in Europe. We expect that
      export sales will continue to represent a significant portion of net revenues.
      We intend to expand our sales efforts outside the United States. This expansion
      will require significant management attention and financial resources and
      further subject us to international operating risks. These risks
      include:





·
            tariffs
                and other barriers and
                restrictions;





·
            unexpected
                changes in regulatory requirements;





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





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





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





**Our
      shareholder rights plan may adversely affect existing
      shareholders.**





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





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





37





**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**





In
      October 2001, our Board of Directors approved the repurchase of up to 2,000,000
      shares of our common stock. As of March 30, 2007, we had completed the
      repurchase of 2,000,000 shares at a cost of approximately $17.8 million,
      pursuant to the 2001 Board of Directors’ authorization.





On
      April
      26, 2007, our Board of Directors approved the repurchase of an additional
      2,000,000 shares. 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. Pursuant to the 2007 Board of Directors’ authorization, we
      repurchased 454,000 shares during the three months ended September 29, 2007,
      at
      an approximate cost of $5.0 million.





Our
      repurchases of our common stock under the latest Board of Directors’
authorization is represented in the following table:





Period
            
            Total
                Number of Shares Purchased
            
            Average
                Price Paid per Share
            
            Total
                Number of Shares Purchased as Part of Publicly Announced Plans or
                Programs
            
            Maximum
                Number of Shares that May Yet be Purchased Under the Plans or
                ProgramsAugust
                10, 2007 to August 16, 2007
            
            
            174,000
            
            $
            10.52
            
            
            475,832
            
            
            1,524,168August
                29, 2007 to September 14, 2007
            
            
            280,000
            
            $
            11.18
            
            
            755,832
            
            
            1,244,168Total
            
            
            454,000
            
            $
            10.93




38


**Item
      6.**  **Exhibits.**




Exhibit Number
            Description  3.1
            Certificate
                of Amenment of Amended and Restated Bylaws, filed as Exhibit 3.1
                to the
                Company’s Form 8-K, dated November 1, 2007, and incorporated herein by
                reference





31.1
            Certification
                of Alex C. Hui, Chief Executive Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002





31.2
            Certification
                of Angela Chen, Chief Financial Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002





32.1
            Certification
                of Alex C. Hui, Chief Executive Officer, pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002





32.2
            Certification
                of Angela Chen, Chief Financial Officer, pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002





39


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:November
              13, 2007
            By:
            /s/ Alex
              C.
              HuiAlex
              C. HuiChief Executive Officer By:
            /s/ Angela
              ChenAngela
              ChenChief Financial Officer




40