##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2006



| ̈ | 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



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Pericom Semiconductor
Corporation

(Exact Name of Registrant as Specified in Its Charter)



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

3545 North First Street

San Jose, California 95134

(408) 435-0800

(Address of Principal Executive Offices and

Issuers Telephone Number, Including Area Code)



---

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

Indicate by check mark whether the Registrant 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 ̈Accelerated Filer  x                    Non-accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
126-2 of the Exchange Act)    Yes ̈No  x

As of November 9, 2006 the Registrant had outstanding 26,141,874 shares of Common Stock.



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##### Table of Contents

Pericom Semiconductor Corporation

Form 10-Q for the Quarter Ended September 30, 2006

INDEX



|                               |  |  |  |            |  |                                                                                                                                 |  |   
|------------------------------ |  |  |  | ---------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | --
|                               |  |  |  | Page      
|PART I.  FINANCIAL INFORMATION |  | 
|                               |  |  |  |           
|                               |  |  |  | Item 1:    |  | Condensed Consolidated Financial Statements (Unaudited)                                                                         |  |   
|                               |  |  |  |           
|                               |  |  |  |            |  | Condensed Consolidated Balance Sheets as of September 30, 2006 and July 1, 2006                                                 |  | 3 
|                               |  |  |  |           
|                               |  |  |  |            |  | Condensed Consolidated Statements of Operations for the three months ended September 30, 2006 and October 1, 2005 (as restated) |  | 4 
|                               |  |  |  |           
|                               |  |  |  |            |  | Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2006 and October 1, 2005 (as restated) |  | 5 
|                               |  |  |  |           
|                               |  |  |  |            |  | Notes to Condensed Consolidated Financial Statements                                                                            |  | 6 
|                               |  |  |  |           
|                               |  |  |  | Item 2:    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                           |  | 16
|                               |  |  |  |           
|                               |  |  |  | Item 3:    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                      |  | 27
|                               |  |  |  |           
|                               |  |  |  | Item 4:    |  | Controls and Procedures                                                                                                         |  | 27
|                               | 
|PART II.  OTHER INFORMATION    |  | 
|                               |  |  |  |           
|                               |  |  |  | Item 1A:   |  | Risk Factors                                                                                                                    |  | 28
|                               |  |  |  |           
|                               |  |  |  | Item 2:    |  | Unregistered Sale of Equity Securities and Use of Proceeds                                                                      |  | 37
|                               |  |  |  |           
|                               |  |  |  | Item 6:    |  | Exhibits                                                                                                                        |  | 38
|                               |  |  | 
|                               |  |  |  | Signatures |  | 39                                                                                                                             



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

Pericom Semiconductor Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data)



|                                                                                                                                              |  |                   |         |   |             |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------- | - | ------- | -
|                                                                                                                                              |  | September 30,2006 |         |   | July 1,2006 |  
|                                                                                                                                              |  | (Unaudited)       |         |   | (1)         |  
|ASSETS                                                                                                                                        |  |                   |         |   |             |   |         |  
|Current assets:                                                                                                                               |  |                   |         |   |             |   |         |  
|Cash and cash equivalents                                                                                                                     |  | $                 | 9,788   |   |             | $ | 12,577  |  
|Restricted cash                                                                                                                               |  |                   | 608     |   |             |   | 950     |  
|Short-term investments                                                                                                                        |  |                   | 78,447  |   |             |   | 52,761  |  
|Accounts receivable:                                                                                                                          |  |                   |         |   |             |   |         |  
|Trade (net of allowances of $1,827 and $2,205)                                                                                                |  |                   | 20,478  |   |             |   | 20,741  |  
|Other receivables                                                                                                                             |  |                   | 1,792   |   |             |   | 2,565   |  
|Inventories                                                                                                                                   |  |                   | 15,419  |   |             |   | 16,742  |  
|Prepaid expenses and other current assets                                                                                                     |  |                   | 787     |   |             |   | 508     |  
|Deferred income taxes                                                                                                                         |  |                   | 4,109   |   |             |   | 4,709   |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total current assets                                                                                                                          |  |                   | 131,428 |   |             |   | 111,553 |  
|Property and equipment  net                                                                                                                  |  |                   | 24,326  |   |             |   | 24,376  |  
|Investments in unconsolidated affiliates                                                                                                      |  |                   | 9,332   |   |             |   | 9,056   |  
|Goodwill                                                                                                                                      |  |                   | 1,348   |   |             |   | 1,348   |  
|Long term investment in marketable securities                                                                                                 |  |                   | 33,615  |   |             |   | 56,297  |  
|Deferred income taxes  non-current                                                                                                           |  |                   | 5,050   |   |             |   | 5,043   |  
|Intangible assets (net of accumulated amortization of $427 and $381)                                                                          |  |                   | 2,930   |   |             |   | 2,976   |  
|Other assets                                                                                                                                  |  |                   | 2,995   |   |             |   | 3,037   |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total                                                                                                                                         |  | $                 | 211,024 |   |             | $ | 213,686 |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                          |  |                   |         |   |             |   |         |  
|Current liabilities:                                                                                                                          |  |                   |         |   |             |   |         |  
|Accounts payable                                                                                                                              |  | $                 | 10,722  |   |             | $ | 10,435  |  
|Accrued liabilities                                                                                                                           |  |                   | 6,617   |   |             |   | 7,243   |  
|Short-term and current portion of long-term debt                                                                                              |  |                   | 2,776   |   |             |   | 5,756   |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total current liabilities                                                                                                                     |  |                   | 20,115  |   |             |   | 23,434  |  
|Long-term debt                                                                                                                                |  |                   | 2,600   |   |             |   | 3,482   |  
|Deferred tax liabilities                                                                                                                      |  |                   | 1,288   |   |             |   | 1,288   |  
|Other long term liabilities                                                                                                                   |  |                   | 333     |   |             |   | 402     |  
|Minority interest in consolidated subsidiaries                                                                                                |  |                   | 978     |   |             |   | 969     |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total liabilities                                                                                                                             |  |                   | 25,314  |   |             |   | 29,575  |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Shareholders equity:                                                                                                                         |  |                   |         |   |             |   |         |  
|Common stock and paid in capital - no par value, 60,000,000 shares authorized; shares issued and outstanding: September 30, 2006,
26,080,000; |  |                   |         |   |             |   |         |  
|July 1, 2006, 26,061,000                                                                                                                      |  |                   | 138,128 |   |             |   | 138,483 |  
|Accumulated other comprehensive loss                                                                                                          |  |                   | (564    | ) |             |   | (894    | )
|Retained earnings                                                                                                                             |  |                   | 48,146  |   |             |   | 46,522  |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total shareholders equity                                                                                                                    |  |                   | 185,710 |   |             |   | 184,111 |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  
|Total                                                                                                                                         |  | $                 | 211,024 |   |             | $ | 213,686 |  
|                                                                                                                                              |  |                   |         |   |             |   |         |  

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|(1) | The information in this column was derived from the Companys audited consolidated financial statements for the year ended July 1, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.



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Pericom Semiconductor Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



|                                                                |  |                    |        |   |                            |   |        |  
|--------------------------------------------------------------- |  | ------------------ | ------ | - | -------------------------- | - | ------ | -
|                                                                |  | Three Months Ended |       
|                                                                |  | September 30,2006  |        |   | October 1,2005             |  
|                                                                |  |                    |        |   | (As Restated, See Note 14) |  
|Net revenues                                                    |  | $                  | 30,826 |   |                            | $ | 22,473 |  
|Cost of revenues                                                |  |                    | 20,394 |   |                            |   | 14,967 |  
|                                                                |  |                    |        |   |                            |   |        |  
|Gross profit                                                    |  |                    | 10,432 |   |                            |   | 7,506  |  
|                                                                |  |                    |        |   |                            |   |        |  
|Operating expenses:                                             |  |                    |        |   |                            |   |        |  
|Research and development                                        |  |                    | 3,942  |   |                            |   | 3,753  |  
|Selling, general and administrative                             |  |                    | 5,795  |   |                            |   | 4,182  |  
|Restructuring charge                                            |  |                    |       |   |                            |   | 55     |  
|                                                                |  |                    |        |   |                            |   |        |  
|Total                                                           |  |                    | 9,737  |   |                            |   | 7,990  |  
|                                                                |  |                    |        |   |                            |   |        |  
|Income (loss) from operations                                   |  |                    | 695    |   |                            |   | (484   | )
|Interest income                                                 |  |                    | 1,280  |   |                            |   | 898    |  
|Other than temporary decline in value of investment             |  |                    | (1     | ) |                            |   |       |  
|                                                                |  |                    |        |   |                            |   |        |  
|Income before income taxes                                      |  |                    | 1,974  |   |                            |   | 414    |  
|Income tax expense (benefit)                                    |  |                    | 620    |   |                            |   | 137    |  
|Minority interest in income (loss) of consolidated subsidiaries |  |                    | (9     | ) |                            |   | 23     |  
|Equity in net income of investees                               |  |                    | 280    |   |                            |   | 325    |  
|                                                                |  |                    |        |   |                            |   |        |  
|Net income                                                      |  | $                  | 1,625  |   |                            | $ | 625    |  
|                                                                |  |                    |        |   |                            |   |        |  
|Basic income per share                                          |  | $                  | 0.06   |   |                            | $ | 0.02   |  
|                                                                |  |                    |        |   |                            |   |        |  
|Diluted income per share                                        |  | $                  | 0.06   |   |                            | $ | 0.02   |  
|                                                                |  |                    |        |   |                            |   |        |  
|Shares used in computing basic income per share                 |  |                    | 26,131 |   |                            |   | 26,352 |  
|                                                                |  |                    |        |   |                            |   |        |  
|Shares used in computing diluted income per share               |  |                    | 26,692 |   |                            |   | 27,143 |  
|                                                                |  |                    |        |   |                            |   |        |  

See notes to condensed consolidated financial statements.



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Pericom Semiconductor Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                  |  |                    |          |   |                |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------ | -------- | - | -------------- | - | -------- | -
|                                                                                  |  | Three Months Ended |         
|                                                                                  |  | September 30, 2006 |          |   | October 1,2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                    |          |   |                |   |          |  
|Net income                                                                        |  | $                  | 1,625    |   |                | $ | 625      |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |          |   |                |   |          |  
|Depreciation and amortization                                                     |  |                    | 1,558    |   |                |   | 970      |  
|Stock based compensation                                                          |  |                    | 515      |   |                |   | 278      |  
|Tax benefit related to stock based compensation plan                              |  |                    |         |   |                |   | 16       |  
|Excess tax benefit on stock based compensation                                    |  |                    | (45      | ) |                |   | (9       | )
|(Gain)/loss on sale of short-term investments                                     |  |                    | 62       |   |                |   | (9       | )
|Other than temporary decline in investment                                        |  |                    | 1        |   |                |   |         |  
|(Gain)/loss on sale of disposal of assets                                         |  |                    | (73      | ) |                |   |         |  
|Equity in net (income) loss of investees                                          |  |                    | (280     | ) |                |   | (309     | )
|Deferred income taxes                                                             |  |                    | 170      |   |                |   | 225      |  
|Minority interest in subsidiarys net income (loss)                               |  |                    | 9        |   |                |   | (23      | )
|Non-cash restructuring charge                                                     |  |                    |         |   |                |   | 55       |  
|Changes in assets and liabilities net of effects of acquisition                   |  |                    |          |   |                |   |          |  
|Accounts receivable                                                               |  |                    | 812      |   |                |   | (1,228   | )
|Inventories                                                                       |  |                    | 1,217    |   |                |   | 2,808    |  
|Prepaid expenses and other current assets                                         |  |                    | (283     | ) |                |   | 952      |  
|Accounts payable                                                                  |  |                    | 363      |   |                |   | (1,419   | )
|Accrued liabilities                                                               |  |                    | (584     | ) |                |   | (220     | )
|Other assets                                                                      |  |                    | 38       |   |                |   |         |  
|Long term investment                                                              |  |                    | (20      | ) |                |   |         |  
|Other long term liabilities                                                       |  |                    | (62      | ) |                |   | (81      | )
|                                                                                  |  |                    |          |   |                |   |          |  
|Net cash provided by operating activities                                         |  |                    | 5,023    |   |                |   | 2,631    |  
|                                                                                  |  |                    |          |   |                |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                    |          |   |                |   |          |  
|Additions to property and equipment                                               |  |                    | (1,637   | ) |                |   | (410     | )
|Net proceeds from sales of property and equipment                                 |  |                    | 248      |   |                |   |         |  
|Purchase of short-term investments                                                |  |                    | (149,087 | ) |                |   | (150,523 | )
|Maturities of short-term investments                                              |  |                    | 147,029  |   |                |   | 149,349  |  
|Cash paid for eCERA acquisition, net of cash received                             |  |                    |         |   |                |   | (11,674  | )
|Change in restricted cash balance                                                 |  |                    | 342      |   |                |   |         |  
|Decrease (increase) in other assets                                               |  |                    |         |   |                |   | (15      | )
|                                                                                  |  |                    |          |   |                |   |          |  
|Net cash used in investing activities                                             |  |                    | (3,105   | ) |                |   | (13,273  | )
|                                                                                  |  |                    |          |   |                |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                    |          |   |                |   |          |  
|Sale of common stock                                                              |  |                    | 930      |   |                |   | 327      |  
|Proceeds generated from sale of stock to minority interest                        |  |                    |         |   |                |   |         |  
|Excess tax benefit on stock based compensation                                    |  |                    | 45       |   |                |   | 9        |  
|Proceeds from short-term and long-term debts                                      |  |                    | 1,991    |   |                |   |         |  
|Principal payments on short-term, long-term debts and capital leases              |  |                    | (5,699   | ) |                |   | (278     | )
|Payment of bank loan                                                              |  |                    |         |   |                |   |         |  
|Repurchase of common stock                                                        |  |                    | (1,800   | ) |                |   | (1,157   | )
|                                                                                  |  |                    |          |   |                |   |          |  
|Net cash used in financing activities                                             |  |                    | (4,533   | ) |                |   | (1,099   | )
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                      |  |                    | (174     | ) |                |   | (27      | )
|                                                                                  |  |                    |          |   |                |   |          |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                         |  |                    | (2,789   | ) |                |   | (11,768  | )
|CASH AND CASH EQUIVALENTS:                                                        |  |                    |          |   |                |   |          |  
|Beginning of period                                                               |  |                    | 12,577   |   |                |   | 20,902   |  
|                                                                                  |  |                    |          |   |                |   |          |  
|End of period                                                                     |  | $                  | 9,788    |   |                | $ | 9,134    |  
|                                                                                  |  |                    |          |   |                |   |          |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                 |  |                    |          |   |                |   |          |  
|Cash paid during the period for:                                                  |  |                    |          |   |                |   |          |  
|Income taxes                                                                      |  | $                  | (221     | ) |                | $ | (25      | )
|Interest                                                                          |  | $                  | (71      | ) |                | $ | (11      | )
|FINANCING ACTIVITIES                                                              |  |                    |          |   |                |   |          |  
|Note payable to Aker for eCERA                                                    |  |                    |         |   |                |   | (2,300   | )

See notes to condensed consolidated financial statements.



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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 30, 2006, the results of operations for the three months ended September 30, 2006 and October 1, 2005 and cash flows for the three months ended
September 30, 2006 and October 1, 2005. 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 30, 2006 and October 1, 2005 are not necessarily indicative of the results to be expected for the entire year. The three month periods ended September 30, 2006 and October 1, 2005 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, eCERA Comtek Corporation (eCERA) and Pericom Taiwan Limited Corporation. All significant intercompany balances and transactions are eliminated in consolidation.
eCERA Comtek Corporation and its subsidiary Azer Crystal Technology Co. Ltd. (Azer) was acquired on September 7, 2005 (See Note 3).

2.
Stock-Based Compensation

Effective July 3, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123(R), 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 Company previously applied Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, 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), and, accordingly, the Company recorded compensation costs as the requisite service was rendered for the unvested portion of previously issued awards that remain
outstanding at the initial date of adoption and any awards issued, modified, repurchased, or cancelled after the effective date of SFAS 123(R). Periods prior to adoption have not been restated.



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The following table shows total stock-based compensation expense for the three months ended September 30, 2006 and
October 1, 2005 from all of the Companys stock compensation plans, included in the condensed consolidated statement of operations (in thousands):



|                                         |  |                                       |     |                                    |   |    
|---------------------------------------- |  | ------------------------------------- | --- | ---------------------------------- | - | ---
|                                         |  | Three Months Ended September 30, 2006 |     | Three Months Ended October 1, 2005
|Cost of goods sold                       |  | $                                     | 28  |                                    | $ | 24 
|Research and development                 |  |                                       | 219 |                                    |   | 121
|Selling, general and administrative      |  |                                       | 268 |                                    |   | 133
|                                         |  |                                       |     |                                    |   |    
|Pre-tax stock-based compensation expense |  |                                       | 515 |                                    |   | 278
|Income tax                               |  |                                       | 162 |                                    |   | 64 
|                                         |  |                                       |     |                                    |   |    
|Net stock-based compensation expense     |  | $                                     | 353 |                                    | $ | 214
|                                         |  |                                       |     |                                    |   |    

The value of the Companys stock options granted under its stock option plans during the three months ended
September 30, 2006 and October 1, 2005 was estimated at the date of grant using the following weighted average assumptions:



|                        |  |           |   |  |            |  
|----------------------- |  | --------- | - |  | ---------- | -
|                        |  | 30-Sep-06 |   |  | 1-Oct-05   |  
|Expected Life           |  | 4.9 years |   |  | 5.75 years |  
|Risk-free interest rate |  | 4.76      | % |  | 4.03       | %
|Volatility range        |  | 48        | % |  | 38         | %
|Dividend Yield          |  | 0.00      | % |  | 0.00       | %

3. Business Combination

Acquisition of eCERA Comtek Corporation

On
September 7, 2005 the Company purchased a 99.9% share of eCERA Comtek Corporation (eCERA). The total purchase price, including assumed debt of approximately $14.9 million was approximately $29.4 million including transaction costs.
The Company also had the right through March 7, 2006 to purchase the remaining 50% of eCERAs 50% owned crystal blank manufacturing subsidiary, AZER Crystal Technology Co, Ltd. (Azer). The Company exercised this right to
purchase the remaining 50% of Azer for cash consideration of approximately $1.6 million and assumed debt of approximately $1.8 million on February 6, 2006. eCERA and its subsidiary Azer, have been key suppliers of quartz crystal blanks and
crystal oscillator products for the Companys frequency control product line.

The results of operations of eCERA from the date of acquisition have
been included in the Companys condensed consolidated financial statements. The assets acquired and liabilities assumed at the date of the acquisition were recorded at estimated fair values as determined by management. Fair values of intangible
assets acquired are based on appropriate application of the income, market, and cost approaches and the fair value of tangible assets acquired and liabilities assumed were determined using estimates of current replacement cost, present value of
amounts to be collected in the future, and other techniques. Management has completed its preliminary allocation of the purchase price and does not expect the final allocation to differ materially from the preliminary determination. The purchase
price has been preliminarily allocated as follows (in thousands):



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|                                                  |  |   |         |  
|------------------------------------------------- |  | - | ------- | -
|Current assets                                    |  | $ | 16,846  |  
|Property and equipment                            |  |   | 14,646  |  
|Other assets                                      |  |   | 2,594   |  
|Goodwill                                          |  |   | 566     |  
|Other intangible assets subject to amortization : |  |   |         |  
|Trade name                                        |  |   | 40      |  
|Core developed technology                         |  |   | 160     |  
|Customer relations                                |  |   | 111     |  
|                                                  |  |   |         |  
|Total assets acquired                             |  |   | 34,397  |  
|                                                  |  |   |         |  
|Current liabilities                               |  |   | (12,269 | )
|Long-term liabilities                             |  |   | (7,414  | )
|                                                  |  |   |         |  
|Total liabilities assumed                         |  |   | (19,683 | )
|                                                  |  |   |         |  
|Minority interest                                 |  |   | (10     | )
|                                                  |  |   |         |  
|Net assets acquired                               |  | $ | 14,704  |  
|                                                  |  |   |         |  

Amortization of intangible assets for the three-month period ended September 30, 2006 was $16,000. The
following table sets forth the amortization of intangible assets for the remainder of fiscal 2007 through 2013 and beyond and is as follows (in thousands)



|             |  |      |    |      |   |      |  |      |    |      |   |      |  |            |    |  |   |    |  |   |  
|------------ |  | ---- | -- | ---- | - | ---- |  | ---- | -- | ---- | - | ---- |  | ---------- | -- |  | - | -- |  | - | -
|             |  | 2007 |    | 2008 |   | 2009 |  | 2010 |    | 2011 |   | 2012 |  | Thereafter
|Amortization |  | $    | 49 |      | $ | 65   |  | $    | 35 |      | $ | 29   |  | $          | 29 |  | $ | 29 |  | $ | 4

The fair value of intangible assets acquired excluding goodwill will be amortized over a remaining life of seven
years for trade name, seven years for core and current technology, and three years for customer relationships.

The following table sets forth the cost,
accumulated amortization, and net value of the intangible assets acquired in the acquisition of eCERA as of September 30, 2006 (in thousands):



|                         |  |                   |     |  
|------------------------ |  | ----------------- | --- | -
|                         |  | September 30,2006 |    
|Cost                     |  | $                 | 311 |  
|Accumulated amortization |  |                   | (71 | )
|                         |  |                   |     |  
|Net value                |  | $                 | 240 |  
|                         |  |                   |     |  

The following unaudited pro forma information shows the results of operations for the three month periods ended
September 30, 2006 and October 1, 2005 as if the eCERA acquisition occurred on the first day of each three month period, with the exception that the purchase accounting adjustments were estimated based on the closing date of the eCERA
acquisition.



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##### Table of Contents

The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred if the acquisition had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results.





|                                                                         |  |                    |        |                 |   |       
|------------------------------------------------------------------------ |  | ------------------ | ------ | --------------- | - | ------
|                                                                         |  | Three Months Ended
|Unaudited pro-forma information (in thousands except per share amounts): |  | September 30, 2006 |        | October 1, 2005
|Net revenue                                                              |  | $                  | 30,826 |                 | $ | 27,150
|Net income                                                               |  |                    | 1,625  |                 |   | 862   
|                                                                         |  |                    |        |                 |   |       
|Basic income per share                                                   |  | $                  | 0.06   |                 | $ | 0.04  
|                                                                         |  |                    |        |                 |   |       
|Diluted income per share                                                 |  | $                  | 0.06   |                 | $ | 0.04  
|                                                                         |  |                    |        |                 |   |       

4. PURCHASED INTANGIBLE ASSETS

Pericoms purchased intangible assets associated with completed acquisitions for each of the following periods are composed of:



|                                              |  |                    |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|--------------------------------------------- |  | ------------------ | ----- | ----------------------- | - | ---- | --- |  | ----- | ----- | ----------------------- | - | ----- | --- | - | ---- | - |  | - | -----
|                                              |  | September 30, 2006 |       | July 1, 2006           
|                                              |  | Gross              |       | AccumulatedAmortization |   |      | Net |  | Gross |       | AccumulatedAmortization |   |       | Net
|                                              |  | In thousands      
|Supplier relationship                         |  | $                  | 110   |                         | $ | (40  | )   |  | $     | 70    |                         | $ | 110   |     | $ | (30  | ) |  | $ | 80   
|Trade name                                    |  |                    | 40    |                         |   | (6   | )   |  |       | 34    |                         |   | 40    |     |   | (5   | ) |  |   | 35   
|Core development technology                   |  |                    | 1,349 |                         |   | (381 | )   |  |       | 968   |                         |   | 1,349 |     |   | (346 | ) |  |   | 1,003
|                                              |  |                    |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|Total amortizable purchased intangible assets |  |                    | 1,499 |                         |   | (427 | )   |  |       | 1,072 |                         |   | 1,499 |     |   | (381 | ) |  |   | 1,118
|SaRonix supplier relationship                 |  |                    | 901   |                         |   |     |     |  |       | 901   |                         |   | 901   |     |   |     |   |  |   | 901  
|SaRonix trade name                            |  |                    | 957   |                         |   |     |     |  |       | 957   |                         |   | 957   |     |   |     |   |  |   | 957  
|                                              |  |                    |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      
|Total purchased intangible assets             |  | $                  | 3,357 |                         | $ | (427 | )   |  | $     | 2,930 |                         | $ | 3,357 |     | $ | (381 | ) |  | $ | 2,976
|                                              |  |                    |       |                         |   |      |     |  |       |       |                         |   |       |     |   |      |   |  |   |      



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5. 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 30,
2006 and October 1, 2005 are computed as follows (in thousands, except for per share data):



|                                                                    |  |                    |        |                 |   |       
|------------------------------------------------------------------- |  | ------------------ | ------ | --------------- | - | ------
|                                                                    |  | Three Months Ended
|                                                                    |  | September 30, 2006 |        | October 1, 2005
|Net income                                                          |  | $                  | 1,625  |                 | $ | 625   
|                                                                    |  |                    |        |                 |   |       
|Computation of common shares outstanding  basicincome per share:   |  |                    |        |                 |   |       
|Weighted average shares of common stock                             |  |                    | 26,131 |                 |   | 26,352
|                                                                    |  |                    |        |                 |   |       
|Shares used in computing basic income per share                     |  |                    | 26,131 |                 |   | 26,352
|                                                                    |  |                    |        |                 |   |       
|Basic income per share                                              |  | $                  | 0.06   |                 | $ | 0.02  
|                                                                    |  |                    |        |                 |   |       
|Computation of common shares outstanding  dilutedincome per share: |  |                    |        |                 |   |       
|Weighted average shares of common stock                             |  |                    | 26,131 |                 |   | 26,352
|Dilutive options using the treasury stock method                    |  |                    | 561    |                 |   | 791   
|                                                                    |  |                    |        |                 |   |       
|Shares used in computing diluted income per share                   |  |                    | 26,692 |                 |   | 27,143
|                                                                    |  |                    |        |                 |   |       
|Diluted income per share                                            |  | $                  | 0.06   |                 | $ | 0.02  
|                                                                    |  |                    |        |                 |   |       

Options to purchase 3,960,384 shares of common stock were outstanding as of September 30, 2006, but not
included in the computation of diluted net income per share because the options had an exercise price greater than the average market price of the common stock for the three months ended September 30, 2006 and therefore would be anti-dilutive
under the treasury stock method. Likewise, for the three month period ended October 1, 2005, 3,850,454 options to purchase common stock were outstanding, but not included in the computation of diluted net loss per share because the options had
an exercise price greater than the average market price for the three months ended October 1, 2005.

6. Inventories

Inventories consist of (in thousands):



|                |  |                   |        |             |   |       
|--------------- |  | ----------------- | ------ | ----------- | - | ------
|                |  | September 30,2006 |        | July 1,2006
|Raw materials   |  | $                 | 4,684  |             | $ | 5,062 
|Work in process |  |                   | 4,115  |             |   | 4,220 
|Finished goods  |  |                   | 6,620  |             |   | 7,460 
|                |  |                   |        |             |   |       
|                |  | $                 | 15,419 |             | $ | 16,742
|                |  |                   |        |             |   |       



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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 reserved. In certain circumstances, management will determine,
based on expected usage or other factors, that inventory considered obsolete by these guidelines should not be reserved. To date as of September 30, 2006 $8.6 million of inventory on hand had been reserved as compared with $8.5 million at
July 1, 2006.

During the three months ended September 30, 2006 and October 1, 2005, gross profit benefited as a result of the sale of
inventory of $529,517 and $731,000, respectively, that had been previously identified as excess and written down to zero.

7. Accrued Liabilities

Accrued liabilities consist of (in thousands):



|                                          |  |                   |       |             |   |      
|----------------------------------------- |  | ----------------- | ----- | ----------- | - | -----
|                                          |  | September 30,2006 |       | July 1,2006
|Accrued compensation                      |  | $                 | 3,453 |             | $ | 3,953
|Accrued income tax                        |  |                   | 1,273 |             |   | 1,269
|External sales representative commissions |  |                   | 698   |             |   | 686  
|Other accrued expenses                    |  |                   | 1,193 |             |   | 1,335
|                                          |  |                   |       |             |   |      
|                                          |  | $                 | 6,617 |             | $ | 7,243
|                                          |  |                   |       |             |   |      

8. Debt

As of
September 30, 2006, there was approximately $2.8 million classified as current portion of long term debt, and $2.6 million classified as long-term debt on the consolidated balance sheet (in thousands):



|                        |  |                    |   |  |                         |  |                          |  |                         
|----------------------- |  | ------------------ | - |  | ----------------------- |  | ------------------------ |  | ------------------------
|Debt Description        |  | AnnualInterestRate |   |  | Total dueandoutstanding |  | Due9/30/06through9/30/07 |  | Due9/30/07through9/30/09
|Line of Credit  Taiwan |  | 2.00               | % |  | 226                     |  | 226                      |  |                        
|Bank Note  Taiwan      |  | 3.51               | % |  | 1,032                   |  | 688                      |  | 344                     
|Bank Note  Taiwan      |  | 3.82               | % |  | 3,053                   |  | 1,474                    |  | 1,579                   
|Bank Note  Taiwan      |  | 3.38               | % |  | 1,065                   |  | 388                      |  | 677                     
|                        |  |                    |   |  |                         |  |                          |  |                         
|Total                   |  |                    |   |  | 5,376                   |  | 2,776                    |  | 2,600                   
|                        |  |                    |   |  |                         |  |                          |  |                         

As part of the acquisition of eCERA the remaining debt obligations assumed by the Company totaled $14.9 million at
the time of the acquisition consisting of both long term and other short term line of credit accounts. The short-term debt obligations are principally made up of lines of credits with variable interest rate terms ranging from the Bank Board Listing
rate minus 1.05% to the Bank Board Listing rate minus 2% and the six month sibor plus 1.2% to the six month sibor plus 1.5%. The first long-term debt obligation is with Farmers Bank of China which is secured by land the Company owns in Taiwan and
has a variable interest rate of 0.25% over the Bank Board Listing Rate and is payable in monthly installments of principal and interest in New Taiwanese Dollars. The second long-term debt obligation is with China Development Industrial bank which is
secured by machinery and equipment the Company owns in Taiwan and has a variable interest rate of 2.3% over the benchmark 90 days from the Secondary Markets Telerate fixing rate and is payable in monthly installments of principal and interest in New
Taiwanese Dollars.



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9. Restricted Cash

As part of the acquisition of eCERA, the Company assumed debt obligations that carried with them debt covenants that required the Company to carry a minimum cash balance in support of repayment of the Companys debt obligations. For
the three month period ended September 30, 2006 there was $608,000 of cash designated as restricted cash. For the three month period ended October 1, 2005 there were no debt obligations requiring the Company to restrict cash. The decrease
in restricted cash from prior quarters is the result of decreasing debt outstanding that requires restricted cash through debt covenants.

10. 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.

There was one direct
customer/distributor that accounted for 11% of net revenues in the three months ended September 30, 2006 and one direct customer, an Asian distributor, who accounted for 17% of net revenues in the three months ended October 1, 2005. At
both September 30, 2006 and October 1, 2005, there were no customers that 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 30, 2006 and July 1, 2005.



|                           |  |                   |   |  |             |  
|-------------------------- |  | ----------------- | - |  | ----------- | -
|                           |  | September 30,2006 |   |  | July 1,2006 |  
|Taiwan                     |  | 79.2              | % |  | 81.3        | %
|United States              |  | 13.0              | % |  | 12.1        | %
|Other (less than 10% each) |  | 7.8               | % |  | 6.6         | %
|                           |  |                   |   |  |             |  
|Total                      |  | 100.0             | % |  | 100.0       | %
|                           |  |                   |   |  |             |  

The following table sets forth net revenues by country as a percentage of total net revenues for the three month
periods ended September 30, 2006 and October 1, 2005.



|                            |  |                    |   |  |                |  
|--------------------------- |  | ------------------ | - |  | -------------- | -
|                            |  | Three Months Ended |  
|                            |  | September 30, 2006 |   |  | October 1,2005 |  
|China (including Hong Kong) |  | 31.9               | % |  | 21.7           | %
|Taiwan                      |  | 23.7               | % |  | 26.9           | %
|United States               |  | 16.1               | % |  | 21.1           | %
|Singapore                   |  | 7.5                | % |  | 11.6           | %
|Other (less than 10% each)  |  | 20.8               | % |  | 18.7           | %
|                            |  |                    |   |  |                |  
|Total                       |  | 100.0              | % |  | 100.0          | %
|                            |  |                    |   |  |                |  



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11. Comprehensive Income (Loss)

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



|                                                                                               |  |                    |       |   |                 |   |     |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | --------------- | - | --- | -
|                                                                                               |  | Three Months Ended |      
|                                                                                               |  | September 30, 2006 |       |   | October 1, 2005 |  
|Net income                                                                                     |  | $                  | 1,625 |   |                 | $ | 625 |  
|Change in unrealized gain (loss) on securities available for sale                              |  |                    | 1,012 |   |                 |   | (89 | )
|Income tax effect                                                                              |  |                    | (383  | ) |                 |   | 37  |  
|Reclassification adjustment for (loss) on available for sale securities included in net income |  |                    | (4    | ) |                 |   | (10 | )
|Income tax effect                                                                              |  |                    | 2     |   |                 |   | 4   |  
|Translation (loss)                                                                             |  |                    | (297  | ) |                 |   | (28 | )
|                                                                                               |  |                    |       |   |                 |   |     |  
|Comprehensive income                                                                           |  | $                  | 1,955 |   |                 | $ | 539 |  
|                                                                                               |  |                    |       |   |                 |   |     |  

12. Stock Repurchase Program

On October 22, 2001 the Companys Board of Directors authorized a stock repurchase program to repurchase up to 2,000,000 shares of Pericom common stock. Purchases may be made in the open market or in
privately negotiated transactions from time to time at managements discretion. The Company began repurchasing shares of Pericom stock on July 23, 2002. 197,686 shares were repurchased in the three months ended September 30, 2006 at a
cost of approximately $1.8 million. The Company has purchased a total of 1,569,773 shares at a total cost of approximately $13.5 million as of September 30, 2006. Stock repurchases have been funded by current cash balances and the proceeds from
stock option exercises and employee stock purchase plan purchases. The Company expects to fund future stock repurchases, if any, from these same sources.

13. 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 30, 2006, the minority interest in PTL was $111,000. Parties other than Pericom Semiconductor Corporation own approximately 2.71% of the
outstanding shares of eCERA Comtek Corporation. As of September 30, 2006, the minority interest in eCERA Comtek Corporation was valued at $867,000.

14. Restatement

Subsequent to the issuance of the Companys interim financial statements for the quarters ended October 1,
2005, December 31, 2005 and April 1, 2005 the Company determined that certain errors occurred in the accounting for capitalized mask costs that were incorrectly amortized as research and development expense when such costs should have
been amortized to cost of sales. This reclassification from research and development expense to cost of sales had no effect on previously reported net income. As a result, the operating results for the three month period ended October 1, 2005
has been restated. A summary of the significant effects of the restatement is as follows (in thousands except for earnings per share):



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##### Table of Contents

Effects of the restatement on the statements of operations is as follows:



|                       |  |                                   |        |            |   |       
|---------------------- |  | --------------------------------- | ------ | ---------- | - | ------
|                       |  | Three Months EndedOctober 1, 2005
|                       |  | As Previously Reported            |        | AsRestated
|Cost of revenues       |  | $                                 | 14,729 |            | $ | 14,967
|Gross profit           |  |                                   | 7,744  |            |   | 7,506 
|Research & development |  |                                   | 3,991  |            |   | 3,753 

15. Stock Option Plans

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

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

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



|                                                                                    |  |           |   |  |                              |      
|----------------------------------------------------------------------------------- |  | --------- | - |  | ---------------------------- | -----
|                                                                                    |  | Shares    |   |  | WeightedAverageExercisePrice
|Balance, July 1, 2006 (4,205,504 exercisable at a weighted average price of $12.16) |  | 5,276,633 |   |  |                              | 11.43
|Granted (weighted average fair value of $2.96 per share)                            |  | 266,500   |   |  |                              | 8.53 
|Exercised                                                                           |  | (184,040  | ) |  |                              | 3.87 
|Canceled                                                                            |  | (205,725  | ) |  |                              | 12.49
|                                                                                    |  |           |   |  |                              |      
|Balance, July 1, 2006                                                               |  | 5,153,368 |   |  | $                            | 11.50
|                                                                                    |  |           |   |  |                              |      

At September 30, 2006 1,868,190 shares were available for future issuance under the option plans.

Additional information regarding options outstanding as of July 1, 2006 is as follows:



|                         |  |                                   |       |                                           |           |                                |      |                                     |   |                                |  |           |  |   |      
|------------------------ |  | --------------------------------- | ----- | ----------------------------------------- | --------- | ------------------------------ | ---- | ----------------------------------- | - | ------------------------------ |  | --------- |  | - | -----
|Range of Exercise Prices |  | NumberOutstanding asof 09/30/2006 |       | Weighted AverageRemainingContractual Term |           | Weighted AverageExercise Price |      | Number Exercisable as of 09/30/2006 |   | Weighted AverageExercise Price
|$    2.00                |  | $                                 | 3.38  |                                           | 614,456   |                                | 1.44 |                                     | $ | 2.71                           |  | 614,456   |  | $ | 2.71 
|$    3.59                |  | $                                 | 7.87  |                                           | 633,896   |                                | 5.79 |                                     | $ | 6.59                           |  | 372,724   |  | $ | 5.70 
|$    7.88                |  | $                                 | 8.40  |                                           | 729,511   |                                | 8.40 |                                     | $ | 8.19                           |  | 289,511   |  | $ | 8.20 
|$    8.41                |  | $                                 | 9.19  |                                           | 561,801   |                                | 8.03 |                                     | $ | 8.80                           |  | 282,532   |  | $ | 8.79 
|$    9.20                |  | $                                 | 11.47 |                                           | 583,579   |                                | 7.61 |                                     | $ | 10.52                          |  | 401,886   |  | $ | 10.78
|$  11.49                 |  | $                                 | 13.44 |                                           | 518,050   |                                | 5.72 |                                     | $ | 11.84                          |  | 518,050   |  | $ | 11.84
|$  13.45                 |  | $                                 | 14.20 |                                           | 535,150   |                                | 4.81 |                                     | $ | 14.04                          |  | 535,150   |  | $ | 14.04
|$  14.40                 |  | $                                 | 23.50 |                                           | 524,850   |                                | 4.20 |                                     | $ | 18.15                          |  | 524,850   |  | $ | 18.15
|$  24.56                 |  | $                                 | 33.75 |                                           | 446,050   |                                | 3.69 |                                     | $ | 29.13                          |  | 446,050   |  | $ | 29.13
|$  37.22                 |  | $                                 | 37.22 |                                           | 6,000     |                                | 3.94 |                                     | $ | 37.22                          |  | 6,000     |  | $ | 37.22
|                         |  |                                   |       |                                           |           |                                |      |                                     |   |                                |  |           |  |   |      
|$    2.00                |  | $                                 | 37.22 |                                           | 5,153,343 |                                | 5.64 |                                     | $ | 11.50                          |  | 3,991,209 |  | $ | 12.37



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##### Table of Contents

(I changed the above table - Consider using only TWO Decimal points in the above table for share price to make it more
meaningful (i.e. $2.00 instead of $2.000000)

16. Recently Issued Accounting Standards

In June 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which prescribes accounting for and
disclosure of uncertainty in tax positions. This interpretation defines the criteria that must be met for the benefits of a tax position to be recognized. The provisions of FIN 48 are effective as of the beginning of the Companys 2007 fiscal
year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements. SAB 108 is effective for fiscal years ending on or after November 15, 2006 and addresses how financial statement errors should be considered from a materiality perspective
and corrected. The literature provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. Historically there have been two common
approaches used to quantify such errors: (i) the rollover approach, which quantifies the error as the amount by which the current year income statement is misstated, and (ii) the iron curtain approach, which
quantifies the error as the cumulative amount by which the current year balance sheet is misstated. The SEC Staff believes that companies should quantify errors using both approaches and evaluate whether either of these approaches results in
quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The Company is currently evaluating the impact, if any, of adopting the provisions of SAB 108 on our financial position, results of
operations and liquidity.

In September 2006, the FASB issued Statement of Financial Accounting Standards No, 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). This statement requires balance sheet recognition of the overfunded or underfunded status of pension and
postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in
Accumulated Other Non-Shareowners Changes in Equity, net of tax effects, until they are amortized as a component of net periodic benefit cost. The adoption of SFAS 158 is not expected to have a material impact on the financial position or
results of operations of the Company.

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. This statement 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.



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##### Table of Contents

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 July 1, 2006 (the Form 10-K). The following management discussion and analysis gives effect to
the restatement discussed in Note 13 to the unaudited condensed consolidated financial statements.

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; 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 July 1, 2006, 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.



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Results of Operations

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



|                                                         |  |                    |    |  |                           |   
|-------------------------------------------------------- |  | ------------------ | -- |  | ------------------------- | --
|                                                         |  | Three Months Ended |   
|                                                         |  | September 30, 2006 |    |  | October 1,2005            |   
|                                                         |  |                    |    |  | (As Restated,See Note 13) |   
|Net revenues                                             |  | 100.0              | %  |  | 100.0                     | % 
|Cost of revenues                                         |  | 66.2               | %  |  | 66.6                      | % 
|                                                         |  |                    |    |  |                           |   
|Gross profit                                             |  | 33.8               | %  |  | 33.4                      | % 
|                                                         |  |                    |    |  |                           |   
|Operating expenses:                                      |  |                    |    |  |                           |   
|Research and development                                 |  | 12.8               | %  |  | 16.7                      | % 
|Selling, general and administrative                      |  | 18.8               | %  |  | 18.6                      | % 
|Restructuring charge                                     |  | 0.0                | %  |  | 0.2                       | % 
|                                                         |  |                    |    |  |                           |   
|Total                                                    |  | 31.6               | %  |  | 35.5                      | % 
|                                                         |  |                    |    |  |                           |   
|Income (loss) from operations                            |  | 2.2                | %  |  | (2.1                      | )%
|Interest income                                          |  | 4.2                | %  |  | 4.0                       | % 
|Other than temporary decline in investment               |  | 0.0                | %  |  | 0.0                       | % 
|                                                         |  |                    |    |  |                           |   
|Income (loss) before income taxes                        |  | 6.4                | %  |  | 1.9                       | % 
|Income taxes                                             |  | (2.0               | )% |  | (0.6                      | )%
|Minority interest in income of consolidated subsidiaries |  | 0.0                | %  |  | 0.1                       | % 
|Equity in net income of investees                        |  | 0.9                | %  |  | 1.4                       | % 
|                                                         |  |                    |    |  |                           |   
|Net income                                               |  | 5.3                | %  |  | 2.8                       | % 
|                                                         |  |                    |    |  |                           |   



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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 30, 2006 |        |   | October 1, 2005 |   |        | %Change | 
|Net revenues                                                                |  | $                  | 30,826 |   |                 | $ | 22,473 |         |  | 37.2 | %
|Percentage of net sales accounted for by top 5 direct customers (1)         |  |                    | 33.7   | % |                 |   | 41.8   | %       |  |      |  
|                                                                            |  |                    |        |   |                 |   |        |         |  |      |  
|Number of direct customers that each account for more than 10% of net sales |  |                    | 1      |   |                 |   | 1      |         |  |      |  
|                                                                            |  |                    |        |   |                 |   |        |         |  |      |  
|Percentage of gross sales accounted for by top 5 end customers (2)          |  |                    | 25.6   | % |                 |   | 36.7   | %       |  |      |  
|                                                                            |  |                    |        |   |                 |   |        |         |  |      |  
|Number of end customers that each account for more than 10% of gross sales  |  |                    | 0      |   |                 |   | 2      |         |  |      |  

---

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

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

On September 7,
2005 the Company acquired a 99.9% interest in eCERA Comtek Corporation from Aker Technology Co., Ltd. Beginning with the quarter ended October 1, 2005, the Companys revenues included revenues from eCERA. In the three month periods ended
September 30, 2006 and October 1, 2005, net revenues from eCERA product sales were approximately $8.4 million and $2 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 30, 2006 as compared
with the same period in the prior year is primarily attributable to the $8.4 million in revenues contributed by eCERA for the three month period ended September 30, 2006 compared to the $2.0 million in revenues contributed for the three month
period ended October 1, 2005. The remainder of the increase in net revenues is attributable to customer acceptance of the Companys new product offerings as well as an improved pricing environment for the Companys Digital Switches
and Interface Logic product lines. However, the pricing environment could again become more difficult as other companies compete more aggressively for business. Pricing for the Companys higher margin Analog Switch, Clock and Connect products,
many of which are proprietary, is more stable and price declines are generally offset by new product introductions and cost reductions.



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The following table sets forth net revenues by country as a percentage of total net revenues for the three-month periods
ended September 30, 2006 and October 1, 2005.



|                            |  |                    |   |  |                |  
|--------------------------- |  | ------------------ | - |  | -------------- | -
|                            |  | Three Months Ended |  
|                            |  | September 30, 2006 |   |  | October 1,2005 |  
|China (including Hong Kong) |  | 31.9               | % |  | 21.7           | %
|Taiwan                      |  | 23.7               | % |  | 26.9           | %
|United States               |  | 16.1               | % |  | 21.1           | %
|Singapore                   |  | 7.5                | % |  | 11.6           | %
|Other (less than 10% each)  |  | 20.8               | % |  | 18.7           | %
|                            |  |                    |   |  |                |  
|Total                       |  | 100.0              | % |  | 100.0          | %
|                            |  |                    |   |  |                |  

For the three months ended September 30, 2006, 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 our acquisition of eCERA as well as a general increase in core business in China for the period. This increase in both China and Taiwan can in
large part be attributed to our acquisition of eCERA which provided us with additional customers and products to sell within these markets.

While the
semiconductor industry has generally recovered from the significant industry downturn that began in fiscal 2001, order rates are still down, and have caused a corresponding drop in backlog, and have caused the percentage of net sales represented by
orders placed and shipped in the same quarter to grow. These orders are called turns orders. This near-term order pattern has persisted through the present due to the uncertain growth rate of the world economy and distribution
channels reluctance to build inventory levels again. This keeps longer-term visibility limited, making it difficult to predict near term demand.

Gross Profit



|                                                            |  |                    |        |   |                 |   |        |         |  |      |  
|----------------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | ------- |  | ---- | -
|                                                            |  | Three Months Ended |        |   |                 |  
|(In thousands)                                              |  | September 30, 2006 |        |   | October 1, 2005 |   |        | %Change | 
|Net revenues                                                |  | $                  | 30,826 |   |                 | $ | 22,473 |         |  | 37.2 | %
|Gross profit                                                |  |                    | 10,432 |   |                 |   | 7,506  |         |  | 38.9 | %
|Gross profit as a percentage of net revenues (gross margin) |  |                    | 33.8   | % |                 |   | 33.4   | %       |  |      |  

The increase in gross profit in the three month period ended September 30, 2006, as compared with the same
period in the prior year was primarily due to an increase in the unit sales volume of our core integrated circuit products that resulted from improved end-market demand and improved gross margins on core products as well as the inclusion of $2.5
million of gross profit generated from the addition of eCERA during the three-months ended September 30, 2006 compared to gross profit of $224,000 generated from eCERA for the three-months ended October 1, 2005. The increase in gross
margin for the three month period ended September 30, 2006 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.



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During the three months ended September 30, 2006, and October 1, 2005, gross profit and gross margin benefited
as a result of the sale of inventory of $529,517 and $731,000 respectively, that had been previously identified as excess and written down to zero.

Research and Development



|                                    |  |                    |        |   |                 |   |        |         |  |      |  
|----------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | ------- |  | ---- | -
|                                    |  | Three Months Ended |        |   |                 |  
|(In thousands)                      |  | September 30, 2006 |        |   | October 1, 2005 |   |        | %Change | 
|Net revenues                        |  | $                  | 30,826 |   |                 | $ | 22,473 |         |  | 37.2 | %
|Research and development            |  |                    | 3,942  |   |                 |   | 3,753  |         |  | 5.0  | %
|R&D as a percentage of net revenues |  |                    | 12.8   | % |                 |   | 16.7   | %       |  |      |  

Research and development expenses consist primarily of costs related to personnel and overhead, non-recurring
engineering charges, and other costs associated with the design, prototyping, testing, manufacturing process design support and technical customer applications support of our products. The expense increase in absolute dollars for the three month
period ended September 30, 2006 as compared to the same period in the previous year is attributable to an increase in Research and Development spending as a result of the eCERA acquisition of approximately $213,000 for the three month period
ended September 30, 2006. eCERA was acquired in September 2005 and thus the quarter ended October 1, 2005 includes less than one full month of eCERA research and development expense; whereas in contrast, the quarter ended
September 30, 2006 includes a full quarter of eCERA research and development expense.

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



|                                                      |  |                    |        |   |                 |   |        |         |  |      |  
|----------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | ------- |  | ---- | -
|                                                      |  | Three Months Ended |        |   |                 |  
|(In thousands)                                        |  | September 30, 2006 |        |   | October 1, 2005 |   |        | %Change | 
|Net revenues                                          |  | $                  | 30,826 |   |                 | $ | 22,473 |         |  | 37.2 | %
|Selling, general and administration                   |  |                    | 5,795  |   |                 |   | 4,182  |         |  | 38.6 | %
|S, G&A as a percentage of net revenues (gross margin) |  |                    | 18.8   | % |                 |   | 18.6   | %       |  |      |  

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 30, 2006 as compared to the same
period in the prior year can be attributable to added expense resulting from a full quarter of eCERA expenses which represent an approximate $700,000 increase for the three month period ended September 30, 2006 over the quarter ended
October 1, 2005. In addition there were increased Sarbanes Oxley 404 and audit fees realized in the quarter ended September 1, 2006 which was approximately a $500,000 increase over the same quarter last year. Such increase in Sarbanes
Oxley 404 and audit fees increase is due to the company switching the method of realizing such expense from an annual accrual methodology to an as incurred methodology. With respect to the quarter ended October 1, 2005 there was very little
realized in Sarbanes Oxley 404 and audit fees for that quarter because the expense



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was spread over the course of the full fiscal 2005 for the 2005 audit. In comparison with respect to the quarter ended September 30, 2006, most of the
Sarbanes Oxley 404 and audit fees realized for the fiscal 2006 audit were recognized when incurred during the first quarter of fiscal 2007; representing a significant increase that quarter which resulted in a significant expense increase for that
quarter as compared to the same quarter last year. There were also other expense increases in personnel costs due to hiring of personnel to support growth of the organization and increased FAS 123R stock based expense year over year.

The Company anticipates that selling, general and administrative expenses will increase in future periods over the long term due to increased staffing levels,
particularly in sales and marketing, as well as increased commission expense to the extent the Company achieves higher sales levels. In the short term, costs associated with Sarbanes Oxley 404 compliance efforts will increase selling, general and
administrative expenses. 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 Income



|                     |  |                    |       |                |   |         |  |      |  
|-------------------- |  | ------------------ | ----- | -------------- | - | ------- |  | ---- | -
|                     |  | Three Months Ended |       |                |  
|(In thousands)       |  | September 30,2006  |       | October 1,2005 |   | %Change | 
|Interest income, net |  | $                  | 1,280 |                | $ | 898     |  | 42.5 | %

The increase in interest income for the three month period ended September 30, 2006 as compared to the
comparable prior year period was primarily due to increased returns on investment. Interest rates continue to trend upwards as a result of actions taken by the Federal Reserve Board. For this reason the Company was able to generate approximately
$1.3 million of net interest income for the three month period ended September 30, 2006 which represents an approximate $400,000 increase over the $900,000 of net interest income for the three month period ended October 1, 2005.

Provision for Income Taxes



|                      |  |                    |       |   |                |   |      |  
|--------------------- |  | ------------------ | ----- | - | -------------- | - | ---- | -
|                      |  | Three Months Ended |      
|(In thousands)        |  | September 30,2006  |       |   | October 1,2005 |  
|Pre-tax income (loss) |  | $                  | 1,974 |   |                | $ | 414  |  
|Income tax (benefit)  |  |                    | 620   |   |                |   | 137  |  
|Effective tax rate    |  |                    | 31.4  | % |                |   | 33.1 | %

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.



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Equity in Net Income (Loss) of Investees



|                                  |  |                    |     |                 |   |        |  |   |     |  
|--------------------------------- |  | ------------------ | --- | --------------- | - | ------ |  | - | --- | -
|                                  |  | Three Months Ended |     |                 |  
|(In thousands)                    |  | September 30, 2006 |     | October 1, 2005 |   | Change | 
|Equity in net income of investees |  | $                  | 280 |                 | $ | 325    |  | $ | (45 | )

Equity in net income of investees is the Companys allocated portion of the net income or losses of Pericom
Technology, Inc. (PTI), a British Virgin Islands corporation based in Shanghai, Peoples Republic of China. 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 in the quarter ended December 31, 2004. This adoption did not cause the Company to cease recognizing its allocated portion of the net
income or losses of PTI. The Companys allocated portion of PTIs results decreased to income of $280,000 for the three month period ended September 30, 2006 from income of $325,000 for the comparable period in the prior year. This
year over year decrease is directly attributable to a change in the rate at which Pericom recognizes income from PTIs operations. For the three months ended October 1, 2005 ,,Pericom was realizing 74.4% of PTIs income until all
losses realized under PTIs Series C Preferred Stock round of financing had been recouped. Pericom will now realize 25% of PTIs net income until all losses realized under the PTI Series A Preferred Stock Round of financing have been
recouped. After the Series A Preferred Stock Round of financing has been recouped, the Company will then realize revenue at the percentage ownership the Company owns of PTI. As of September 30, 2006 the percentage of ownership the Company owns
of PTI is 44.3%.

Liquidity and Capital Resources

As
of September 30, 2006, the Companys principal sources of liquidity included cash, cash equivalents and short-term and long-term investments of approximately $122.4 million as compared with $122.6 million on July 1, 2006.

As of September 30, 2006, $9.8 million is classified as cash and cash equivalents compared with $12.6 million as of July 1, 2006. 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 30, 2006, the Company spent approximately $1.6 million on property and equipment compared to $0.4 million for the three month period ended
October 1, 2005. Interest rates continue to trend upwards as a result of actions taken by the Federal Reserve Board. For this reason the Company was able to generate approximately $1.3 million of net interest income for the three month period
ended September 30, 2006 an approximate $400,000 increase over the $900,000 of net interest income for the three month period ended October 1, 2005. Higher return on invested capital contributed to interest income increasing despite a
similar level of capital available for investment of $122.4 million for the three month period ended September 30, 2006 and $122.6 million for the three month period ended October 1, 2005. In the longer term the Company may generate less
interest income if its total invested balance decreases and these decreases are not offset by rising interest rates or increased cash generated from operations or other sources.

The Companys net cash provided by operating activities of $5.1 million in the three months ended September 30, 2006 was primarily a result of net income of $1.6 million, a reduction in net inventories of
$1.2 million, depreciation and amortization of approximately $1.6 million and non-cash stock based compensation expense of $515,000. The reduction in net inventories during the three month period ended September 30, 2006 is due to a combination
of tightening of supply and a continued concerted effort to reduce inventory levels to a lower level in fiscal 2007 as well as reserving inventory that has become excess and obsolete. The Companys net cash provided by operating activities of
$2.6 million in the three months ended October 1, 2005 was primarily due to a net income of $625,000, a reduction in net inventories of $2.8 million, and depreciation and amortization of $970,000. These factors were partially offset by a



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decrease in accounts payable of $1.4 million and a $1.2 million increase in accounts receivable. The reduction in net inventories during the three month
period ended October 1, 2005 was primarily due to the tightening of supply and a continued effort to reduce inventory levels to a lower level during fiscal 2006. The increase in accounts receivable during this period was primarily due to
increasing sales and the addition of receivables from the eCERA acquisition. The decrease to accounts payable during this period was the result of routine period to period fluctuations.

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 $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 million as well as additions of property and equipment of approximately $1.6 million. The Companys cash
used in investing activities of $13.3 million for the three months ended October 1, 2005 was primarily due to the Companys acquisition of eCERA Comtek Corporation for which the Company used $11.7 million in cash to complete the purchase
on September 7, 2005.

The Companys cash used in financing activities in the three months ended September 30, 2006 of $4.6 million was
primarily due to principal payments on short-term, long-term debts and capital leases of approximately $5.7 million from debt obligations from eCERA as well as repurchases of common stock of $1.8 million which were offset in part by $2 million in
proceeds from short and long term debt and approximately $1 million in proceeds generated from the sale of common stock from the Companys employee stock plans. The Companys cash used by financing activities in the three months ended
October 1, 2005 of $1.1 million was primarily due to repurchases of common stock of $1.2 million offset in part by proceeds of approximately $327,000 from the sale of common stock from the Companys employee stock plans.

The Companys Board of Directors has approved the repurchase of up to 2,000,000 shares of the Companys common stock. As of September 30, 2006, the
Company has repurchased an aggregate of 1,569,773 shares at a cost of approximately $13.5 million. The Company repurchased 197,686 shares during the three months ended September 30, 2006 at an approximate cost of $1.8 million. The Company
intends to continue repurchasing shares under this program over time depending upon price and share availability. Stock repurchases have been funded by current cash balances and the proceeds from stock option exercises and employee stock purchase
plan purchases. The Company expects to fund future stock repurchases from these same sources.

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

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.



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##### Table of Contents

The Companys contractual obligations and commitments including eCERAs debt obligations at September 30,
2006 are as follows (in thousands):



|                            |  |                        |        |                  |   |            |  |            |       |            |   |       |  |   |      
|--------------------------- |  | ---------------------- | ------ | ---------------- | - | ---------- |  | ---------- | ----- | ---------- | - | ----- |  | - | -----
|                            |  | Payments Due by Period
|Fiscal Year                 |  | Total                  |        | Less than 1 Year |   | 1  3Years |  | 3  5Years |       | Thereafter
|Operating leases            |  | $                      | 8,032  |                  | $ | 1,242      |  | $          | 2,202 |            | $ | 2,089 |  | $ | 2,499
|Notes payable               |  |                        | 5,376  |                  |   | 2,776      |  |            | 2,600 |            |   |      |  |   |     
|                            |  |                        |        |                  |   |            |  |            |       |            |   |       |  |   |      
|Operating lease obligations |  | $                      | 13,408 |                  | $ | 4,018      |  | $          | 4,802 |            | $ | 2,089 |  | $ | 2,499
|                            |  |                        |        |                  |   |            |  |            |       |            |   |       |  |   |      

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.

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 30, 2006 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.



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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.

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



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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 GOODWILL AND OTHER 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 goodwill with a net carrying value of $1.3
million that resulted from our investment in Pericom Technology, Inc. In addition, the Company also has other indefinite-lived intangible assets resulting from the acquisition of Saronix which includes trade name, and customer relations and eCERA
goodwill. Accordingly, SFAS No. 142 requires that goodwill and 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 30, 2006.

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

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



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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 30, 2006 our investment portfolio
consisted of investment-grade fixed income securities, excluding those classified as cash equivalents, of $113 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 30, 2006, 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 not have a
material impact on our financial position or results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of our
Chief Executive Officer (CEO) and our Chief Financial Officer (CFO) of the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures include controls to ensure that information that the Company is required to
disclose in reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is
accumulated and communicated to the Companys management, including the CEO and CFO of the Company, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer has concluded that our disclosure controls and procedures were effective as of September 30, 2006.

It should be noted that any
control system, no matter how well designed and operated, can provide only reasonable assurance to the tested objectives. The design of any control systems is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes
in Internal Control over Financial Reporting

Management did not make any changes in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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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 and eCERA product line, which we acquired on October 1, 2003 and September 7, 2005 respectively;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  | 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.



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

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



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

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

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

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

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

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

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

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



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



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



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



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



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



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



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



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



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



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

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



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

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



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



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



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



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

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

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

We determined that we had a material weakness in our internal control over financial reporting as of July 2, 2005, October 1, 2005, and at December 31, 2005, all of which we have implemented
procedures to remediate. As a result, we had to implement supplemental compensating procedures to determine that our financial statements are fairly stated in all material respects. 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, beginning with our Annual Report on Form 10-K for the fiscal year ended July 2, 2005, we are required to furnish a report by our management on our internal control over financial reporting. Such report 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 July 2, 2005, it identified a material weakness relating to the accounting for certain research and development costs. On October 1, 2005, it identified a material weakness
relating to procedures for inventory review. On December 31, 2005, it identified material weaknesses relating to the controls over the process of consolidating the results of its subsidiaries.

The Company believes that it has implemented measures that remediate all of the material weaknesses but there can be no assurance, however, that other material
weaknesses will not be identified in the future.



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If further material weaknesses in our internal control are identified, this could cause investors to lose confidence in
the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

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

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

In fiscal 2006, 2005 and 2004 we purchased approximately 43%, 43% and 75%, respectively, of our wafers from Chartered Semiconductor Manufacturing Ltd. Also in fiscal 2006, 2005 and 2004 we purchased approximately 41%,
43% and 16% respectively, of our wafers from MagnaChip. In fiscal 2006, three other suppliers manufactured the remainder of our wafers. In fiscal 2005, five other suppliers manufactured the remainder of our wafers. In fiscal 2004, only four other
suppliers manufactured the remainder of our wafers. 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



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production and product shipments and seriously harm our business. In March 2004, Chartered shut down one of their production facilities that are used to
manufacture our products. We have transitioned the production of these products to different facilities. This was a major project requiring significant technological coordination between Chartered and Pericom. The transfer of production of our
products to other facilities subjects us to the above listed risks as well as potential yield or other production problems, which could arise as a result of the change.

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

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

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

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

We may have difficulty accurately
predicting revenues for future periods.

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

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.



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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 103 patents covering certain aspects of our product designs and have at least 20 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 have deferred tax assets that we may not be able to use under certain circumstances.

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



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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 Comtek Corporation, the concentration of our largest customers has been reduced, as the largest customers of eCERA Comtek
Corporation are somewhat different than those of our core integrated circuit business and existing FCP business. There was one direct customer, an Asian distributor that individually accounted for more than 10% of net revenues during the fiscal year
ended July 1, 2006. There were two direct customers, both Asian distributors, that individually accounted for more than 10% of net revenues during the fiscal year ended July 2, 2005. For the fiscal year ended June 26, 2004, there was
one direct customer that individually accounted for more than 10% of net revenues. As a percentage of net revenues, sales to our top five direct customers for the fiscal year ended July 1, 2006 totaled 36%, the year ended July 2, 2005
totaled 46%, and was 41% for the fiscal year ended June 26, 2004.

We do not have long-term sales agreements with any of our customers. Our customers
are not subject to minimum purchase requirements, may reduce or delay orders periodically due to excess inventory and may discontinue purchasing our products at any time. Our distributors typically offer competing products in addition to ours. For
the fiscal year ended July 1, 2006 sales to our distributors were approximately 39% of net revenues as compared to approximately 51% of net revenues in the fiscal year ended July 2, 2005, and 58% for the fiscal year ended June 26,
2004. 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.



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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 2006, approximately 63% of our net revenues derived 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. In fiscal year 2004, approximately 61% 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.



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

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

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of
Equity Securities



|                                      |  |                               |  |                            |      |                                                                               |           |                                                                            |        
|------------------------------------- |  | ----------------------------- |  | -------------------------- | ---- | ----------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------- | -------
|Period                                |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |      | Total Number ofShares Purchased as Part of PubliclyAnnounced Plansor Programs |           | Maximum Numberof
Shares that MayYet be PurchasedUnder the Plans orPrograms
|July 2, 2006 to July 29, 2006         |  |                              |  |                            |     |                                                                               | 1,372,087 |                                                                            | 627,913
|July 30, 2006 to August 26, 2006      |  | 72,696                        |  | $                          | 8.96 |                                                                               | 1,444,783 |                                                                            | 555,217
|August 27, 2006 to September 30, 2006 |  | 124,990                       |  | $                          | 9.16 |                                                                               | 1,569,773 |                                                                            | 430,227
|                                      |  |                               |  |                            |      |                                                                               |           |                                                                            |        
|Total                                 |  | 197,686                       |  | $                          | 9.09 |                                                                               |           |                                                                            |        
|                                      |  |                               |  |                            |      |                                                                               |           |                                                                            |        

In October, 2001, the Companys Board of Directors approved the repurchase of up to 2,000,000 shares of the
Companys common stock. As of September 30, 2006, the Company has repurchased an aggregate of 1,569,773 shares at a cost of approximately $13.5 million. The Company repurchased 197,686 shares during the three months ended
September 30, 2006 at an approximate cost of $1.8 million.



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Item 6. Exhibits.



|              |  |                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                     
|              | 
|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



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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 10, 2006 |  | By:                                            |  | /s/ Alex C. Hui        
|                        |  |                                                |  | Alex C. Hui            
|                        |  |                                                |  | Chief Executive Officer
|                        |  |                                               
|                        |  | By:                                            |  | /s/ Angela Chen        
|                        |  |                                                |  | Angela Chen            
|                        |  |                                                |  | Chief Financial Officer



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