SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR
15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended September 26, 2009





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR
15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For the
Transition Period from _______ to _______





Commission
File Number 0-27026





Pericom
Semiconductor Corporation


(Exact
Name of Registrant as Specified in Its Charter)





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





3545
North First Street


San Jose,
California  95134


(408)
435-0800


(Address
of Principal Executive Offices and


Issuer’s
Telephone Number, Including Area Code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.


Yes
            x
            No
             ̈





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





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





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





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





Yes
             ̈
            No
            x





As of
November 4, 2009 the Registrant had outstanding 25,568,000 shares of Common
Stock.







Pericom
Semiconductor Corporation





Form 10-Q
for the Quarter Ended September 26, 2009





INDEX





PagePART
      I.  FINANCIAL INFORMATIONItem
      1:
                                          Condensed
      Consolidated Financial Statements (Unaudited)
                                          3Condensed
      Consolidated Balance Sheets as ofSeptember
      26, 2009 and June 27, 2009
                                          3Condensed
      Consolidated Statements of Operationsfor
      the three months ended September 26, 2009and
      September 27, 2008
                                          4Condensed
      Consolidated Statements of Cash Flowsfor
      the three months ended September 26, 2009and
      September 27, 2008
                                          5Notes
      to Condensed Consolidated Financial Statements
                                          6Item
      2:
                                          Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                                          21Item
      3:
                                          Quantitative
      and Qualitative Disclosures aboutMarket
      Risk
                                          30Item
      4:
                                          Controls
      and Procedures
                                          31PART
      II.  OTHER INFORMATIONItem
      1A:
                                          Risk
      Factors
                                          32Item
      2:
                                          Unregistered
      Sale of Equity Securities and Use of Proceeds
                                          41Item
      6:
                                          Exhibits
                                          43Signatures
                                          44




2





PART
I.  FINANCIAL INFORMATION


Item 1:
Condensed Consolidated Financial Statements





Pericom
Semiconductor Corporation


Condensed
Consolidated Balance Sheets


(In
thousands, except share data)




September
      26,
                    
                    
                    June
      27,2009
                    
                    
                    2009(Unaudited)
                    
                    
                    (1)ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    43,516
                    
                    
                    $
                    37,321Restricted
      cash
                    
                    
                    3,200
                    
                    
                    
                    3,200Short-term
      investments
                    
                    
                    74,578
                    
                    
                    
                    75,471Accounts
      receivableTrade
      (net of allowances of $2,351 and $2,163)
                    
                    
                    21,791
                    
                    
                    
                    22,875Other
      receivables
                    
                    
                    1,687
                    
                    
                    
                    1,663Inventories
                    
                    
                    16,032
                    
                    
                    
                    16,340Prepaid
      expenses and other current assets
                    
                    
                    1,288
                    
                    
                    
                    2,075Deferred
      income taxes
                    
                    
                    2,723
                    
                    
                    
                    2,433Total
      current assets
                    
                    
                    164,815
                    
                    
                    
                    161,378Property,
      plant and equipment – net
                    
                    
                    48,799
                    
                    
                    
                    47,238Investments
      in unconsolidated affiliates
                    
                    
                    11,319
                    
                    
                    
                    10,826Deferred
      income taxes – non-current
                    
                    
                    3,708
                    
                    
                    
                    4,657Long
      term investments in marketable securities
                    
                    
                    9,108
                    
                    
                    
                    11,780Goodwill
                    
                    
                    1,679
                    
                    
                    
                    1,673Intangible
      assets
                    
                    
                    1,696
                    
                    
                    
                    1,764Other
      assets
                    
                    
                    6,900
                    
                    
                    
                    6,742Total
      assets
                    
                    $
                    248,024
                    
                    
                    $
                    246,058LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                    
                    $
                    11,667
                    
                    
                    $
                    10,824Accrued
      liabilities
                    
                    
                    12,049
                    
                    
                    
                    15,118Current
      portion of long term debt
                    
                    
                    91
                    
                    
                    
                    60Total
      current liabilities
                    
                    
                    23,807
                    
                    
                    
                    26,002Long
      term debt
                    
                    
                    1,605
                    
                    
                    
                    1,610Industrial
      development subsidy
                    
                    
                    4,217
                    
                    
                    
                    3,718Other
      long term liabilities
                    
                    
                    1,274
                    
                    
                    
                    1,287Total
      liabilities
                    
                    
                    30,903
                    
                    
                    
                    32,617Shareholders’
      equity:Common
      stock and paid in capital - no par value, 60,000,000
sharesauthorized;
      shares issued and outstanding: September 26, 2009,25,515,000;
      June 27, 2009, 25,462,000
                    
                    
                    134,375
                    
                    
                    
                    133,162Retained
      earnings
                    
                    
                    79,584
                    
                    
                    
                    78,249Accumulated
      other comprehensive income, net of tax
                    
                    
                    1,908
                    
                    
                    
                    797Total
      Pericom shareholders’ equity
                    
                    
                    215,867
                    
                    
                    
                    212,208Noncontrolling
      interests in consolidated subsidiaries
                    
                    
                    1,254
                    
                    
                    
                    1,233Total
      equity
                    
                    
                    217,121
                    
                    
                    
                    213,441Total
      liabilities and equity
                    
                    $
                    248,024
                    
                    
                    $
                    246,058





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


See notes
to condensed consolidated financial statements.


3





Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Operations


(In
thousands, except per share amounts)


(Unaudited)





Three
      Months EndedSeptember
      26,
                
                
                September
      27,2009
                
                
                2008Net
      revenues
                
                $
                32,952
                
                
                $
                43,798Cost
      of revenues
                
                
                22,416
                
                
                
                27,805Gross
      profit
                
                
                10,536
                
                
                
                15,993Operating
      expenses:Research
      and development
                
                
                4,046
                
                
                
                4,221Selling,
      general and administrative
                
                
                6,828
                
                
                
                6,901Total
      operating expenses
                
                
                10,874
                
                
                
                11,122Income
      (loss) from operations
                
                
                (338
                )
                
                
                4,871Interest
      and  other income
                
                
                1,643
                
                
                
                1,106Other-than-temporary
      decline in value of investment
                
                
                -
                
                
                
                (458
                )Income  before
      income taxes
                
                
                1,305
                
                
                
                5,519Income
      tax expense
                
                
                475
                
                
                
                1,930Income
      from consolidated companies
                
                
                830
                
                
                
                3,589Equity
      in net income of unconsolidated affiliates
                
                
                527
                
                
                
                117Net
      income
                
                
                1,357
                
                
                
                3,706Net
      income attributable to the noncontrolling interests
                
                
                (22
                )
                
                
                (45
                )Net
      income attributable to Pericom shareholders
                
                $
                1,335
                
                
                $
                3,661Basic
      income per share to Pericom shareholders
                
                $
                0.05
                
                
                $
                0.14Diluted
      income per share to Pericom shareholders
                
                $
                0.05
                
                
                $
                0.14Shares
      used in computing basic income per share
                
                
                25,509
                
                
                
                25,679Shares
      used in computing diluted income  per share
                
                
                25,678
                
                
                
                26,239





See notes
to condensed consolidated financial statements.


4


Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Cash Flows


(In
thousands)


(Unaudited)




Three Months EndedSeptember
      26,
                
                
                September
      27,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                1,357
                
                
                $
                3,706Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                1,939
                
                
                
                1,964Stock
      based compensation
                
                
                930
                
                
                
                795Excess
      tax benefit resulting from stock option transactions
                
                
                -
                
                
                
                (58
                )Other
      than temporary decline in the value of investments
                
                
                -
                
                
                
                458Gain
      on sale of investments
                
                
                (946
                )
                
                
                (25
                )Equity
      in net income of unconsolidated affiliates
                
                
                (527
                )
                
                
                (117
                )Deferred
      taxes
                
                
                465
                
                
                
                (643
                )Changes
      in assets and liabilities:Accounts
      receivable
                
                
                1,361
                
                
                
                (4,169
                )Inventories
                
                
                473
                
                
                
                (1,028
                )Prepaid
      expenses and other current assets
                
                
                756
                
                
                
                829Other
      assets
                
                
                (219
                )
                
                
                (248
                )Accounts
      payable
                
                
                740
                
                
                
                1,915Accrued
      liabilities
                
                
                (3,137
                )
                
                
                344Other
      long term liabilities
                
                
                483
                
                
                
                -Net
      cash provided by operating activities
                
                
                3,675
                
                
                
                3,723CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                
                
                (2,888
                )
                
                
                (2,468
                )Purchase
      of available-for-sale investments
                
                
                (22,650
                )
                
                
                (29,458
                )Maturities
      and sales of available-for-sale investments
                
                
                27,616
                
                
                
                28,470Net
      cash provided by (used in) investing activities
                
                
                2,078
                
                
                
                (3,456
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issuance under stock plans
                
                
                282
                
                
                
                426Excess
      tax benefit resulting from stock option transactions
                
                
                -
                
                
                
                58Repurchase
      of common stock
                
                
                -
                
                
                
                (2,668
                )Net
      cash provided by (used in) financing activities
                
                
                282
                
                
                
                (2,184
                )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                
                
                160
                
                
                
                (660
                )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                6,195
                
                
                
                (2,577
                )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                
                
                37,321
                
                
                
                41,646End
      of period
                
                $
                43,516
                
                
                $
                39,069





See notes
to condensed consolidated financial statements.


5





Pericom
Semiconductor Corporation


Notes To
Condensed Consolidated Financial Statements


(Unaudited)




1.  BASIS
OF PRESENTATION





The
condensed consolidated financial statements have been prepared by Pericom
Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and
regulations of the Securities and Exchange Commission.  In the opinion
of management, these unaudited condensed consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, necessary for a fair presentation of the Company’s financial position
as of September 26, 2009, the results of operations for the three months ended
September 26, 2009 and September 27, 2008 and cash flows for the three months
ended September 26, 2009 and September 27, 2008.  This unaudited
quarterly information should be read in conjunction with the audited
consolidated financial statements of Pericom and the notes thereto included in
the Company’s Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on September 25, 2009.





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 months ended
September 26, 2009 and September 27, 2008 are not necessarily indicative of the
results to be expected for the entire year.  The three month periods
ended September 26, 2009 and September 27, 2008 each had 13 weeks.





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





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





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





SUBSEQUENT EVENTSThe Company has evaluated subsequent events through November 5, 2009.
During the period from September 26, 2009 to November 5, 2009, the Company did
not have any material recognizable subsequent events.


6




Recently
Issued Accounting Standards




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standard Codification (“ASC”) No. 105, Generally Accepted Accounting
Principles (“GAAP”) (“ASC 105” or “FASB Codification”), previously
referred to as  Statement of Financial Accounting Standard (“SFAS”)
No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles - a replacement of FASB Statement No 162(“SFAS 168”).The effective date for
use of the FASB Codification is for interim and annual periods ending after
September 15, 2009. Effective June 28, 2009, the Company adopted the FASB
Codification and its adoption did not have an impact on its condensed
consolidated financial statements. The Company has updated its
disclosures with the appropriate FASB Codification references during the
three months ended September 26, 2009.  As such, all the notes to the
condensed consolidated financial statements below as well as the critical
accounting policies in the Management’s Discussion and Analysis section have
been updated with the appropriate FASB Codification references.




In June
2009, the FASB amended certain guidance for determining whether an entity is a
variable interest entity (VIE), requires a qualitative rather than a
quantitative analysis to determine the primary beneficiary for a VIE, requires
continuous assessments of whether an enterprise is the primary beneficiary of a
VIE and requires enhanced disclosures about an enterprise’s involvement with a
VIE. The guidance is effective for fiscal years beginning after
November 15, 2009, for interim periods within those fiscal years, and for
interim and annual reporting periods thereafter. We do not expect the adoption
of this guidance will have a material impact on our financial condition, results
of operations or cash flows.





In
December 2007, the FASB issued ASC No. 805, Business Combinations (“ASC
805”), previously referred to as  SFAS 141(R), Business Combinations. ASC 805 establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree. ASC 805
also provides guidance for recognizing and measuring the goodwill acquired in
the business combination and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The provisions of ASC 805 are effective for the
fiscal year beginning June 28, 2009.  The adoption of  ASC
805 did not have an impact on the Company’s consolidated financial position,
results of operations or cash flows.





In
December 2007, the FASB issued ASC No. 810-10-65, Transition Related to Noncontrolling
Interests in Consolidated Financial Statement(“ASC 810-10-65”),
previously referred to asSFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
(“ARB”) No. 51. ASC 810-10-65 establishes new accounting and reporting
standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the
consolidated financial statements separate from the parent’s equity. The amount
of net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. ASC 810-10-65
clarifies that changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. ASC 810-10-65
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. The provisions of ASC 810-10-65 are
effective for the fiscal year beginning June 28, 2009 and the presentation
and disclosure requirements must be applied retrospectively for all periods
presented at that date. The Company has adopted this standard, and prior periods
have been restated to reflect the presentation and disclosure requirements of
the new guidance.


7


2.
INTANGIBLE ASSETS
  Pericom’s
intangible assets are derived from completed acquisitions and for each of the
following period-ending dates are composed of:


September 26, 2009
                  
                  
                  June 27, 2009(in thousands)
                  
                  Gross
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                  
                  
                  Gross
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NeteCERA
      customer relationships
                  
                  $
                  110
                  
                  
                  $
                  (110
                  )
                  
                  $
                  -
                  
                  
                  $
                  109
                  
                  
                  $
                  (109
                  )
                  
                  $
                  -eCERA
      trade name
                  
                  
                  40
                  
                  
                  
                  (23
                  )
                  
                  
                  17
                  
                  
                  
                  40
                  
                  
                  
                  (22
                  )
                  
                  
                  18Core
      developed technology
                  
                  
                  1,850
                  
                  
                  
                  (825
                  )
                  
                  
                  1,025
                  
                  
                  
                  1,833
                  
                  
                  
                  (757
                  )
                  
                  
                  1,076SaRonix
      supplier relationship
                  
                  
                  398
                  
                  
                  
                  (159
                  )
                  
                  
                  239
                  
                  
                  
                  398
                  
                  
                  
                  (143
                  )
                  
                  
                  255Total
      amortizable purchased intangible assets
                  
                  
                  2,398
                  
                  
                  
                  (1,117
                  )
                  
                  
                  1,281
                  
                  
                  
                  2,380
                  
                  
                  
                  (1,031
                  )
                  
                  
                  1,349SaRonix
      trade name
                  
                  
                  415
                  
                  
                  
                  -
                  
                  
                  
                  415
                  
                  
                  
                  415
                  
                  
                  
                  -
                  
                  
                  
                  415Total
      purchased intangible assets
                  
                  $
                  2,813
                  
                  
                  $
                  (1,117
                  )
                  
                  $
                  1,696
                  
                  
                  $
                  2,795
                  
                  
                  $
                  (1,031
                  )
                  
                  $
                  1,764





In fiscal
2009, the Company acquired the outstanding noncontrolling interest of PTL. This
resulted in an increase of $904,000 in intangible assets, consisting of core
developed technology, which will be amortized over five years.





Amortization
expense related to finite-lived purchased intangible assets was approximately
$82,000 and $42,000 for the three month periods ended September 26, 2009 and
September 27, 2008, respectively.





The
Company performs an impairment review of its intangible assets at least
annually.  Based on the results of its most recent impairment review,
the Company determined that no impairment of its intangible assets existed as of
June 27, 2009. However, future impairment reviews could result in a charge to
earnings.





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





Months from 9/26/2009(in thousands)
                  
                  Next 12
                    Months
                  
                  
                  13-24
                    Months
                  
                  
                  25-36
                    Months
                  
                  
                  37-48
                    Months
                  
                  
                  49-60
                    MonthsExpected
      amortization-PTL
                  
                  $
                  184
                  
                  
                  $
                  184
                  
                  
                  $
                  184
                  
                  
                  $
                  184
                  
                  
                  $
                  16Expected
      amortization-SaRonix
                  
                  
                  117
                  
                  
                  
                  117
                  
                  
                  
                  117
                  
                  
                  
                  94
                  
                  
                  
                  -Expected
      amortization-eCERA
                  
                  
                  29
                  
                  
                  
                  29
                  
                  
                  
                  26
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  330
                  
                  
                  $
                  330
                  
                  
                  $
                  327
                  
                  
                  $
                  278
                  
                  
                  $
                  16




3.  INCOME
PER SHARE





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




8




Basic and
diluted income per share attributable to Pericom shareholders for the three
month periods ended September 26, 2009 and September 27, 2008 are computed as
follows:




Three
      Months EndedSeptember
      26,
                  
                  
                  September
      27,(in
      thousands, except per share data)
                  
                  2009
                  
                  
                  2008Net
      income attributable to Pericom shareholders
                  
                  $
                  1,335
                  
                  
                  $
                  3,661Computation
      of common shares outstanding – basic earnings per share:Weighted
      average shares of common stock
                  
                  
                  25,509
                  
                  
                  
                  25,679Basic
      earnings per share attributable to Pericom shareholders
                  
                  $
                  0.05
                  
                  
                  $
                  0.14Computation
      of common shares outstanding – diluted earnings per share:Weighted
      average shares of common stock
                  
                  
                  25,509
                  
                  
                  
                  25,679Dilutive
      options using the treasury stock method
                  
                  
                  169
                  
                  
                  
                  560Shares
      used in computing diluted earnings per share
                  
                  
                  25,678
                  
                  
                  
                  26,239Diluted
      earnings per share attributable to Pericom shareholders
                  
                  $
                  0.05
                  
                  
                  $
                  0.14





Options
to purchase 2,908,000 and 1,828,000 shares of common stock, and restricted stock
units of 89,000 and 60,000 were outstanding as of September 26, 2009 and
September 27, 2008 respectively, but not included in the computation of diluted
earnings per share because the options and units would be anti-dilutive under
the treasury stock method.




4.  INVENTORIES





Inventories
consist of:





September
      26,
                      
                      
                      June
      27,(in
      thousands)
                      
                      2009
                      
                      
                      2009Raw
      materials
                      
                      $
                      6,013
                      
                      
                      $
                      5,529Work
      in process
                      
                      
                      4,776
                      
                      
                      
                      5,369Finished
      goods
                      
                      
                      5,243
                      
                      
                      
                      5,442$
                      16,032
                      
                      
                      $
                      16,340





The
Company considers raw material inventory obsolete and writes it off if the raw
material has not moved in 365 days.  The Company reviews its assembled
devices for excess and writes them off if the quantity of assembled devices in
inventory is in excess of the greater of the quantity shipped in the previous
twelve months, the quantity in backlog or the quantity forecasted to be shipped
in the following twelve months.  In certain circumstances, management
will determine, based on expected usage or other factors, that inventory
considered excess by these guidelines should not be written off. The Company
does occasionally determine that last twelve months’ sales levels will not
continue and reserves inventory in line with the quantity forecasted. As of
September 26, 2009, the Company had $3.5 million of written-off inventory as
compared to $4.1 million at June 27, 2009.  The Company attributes
this reduction of approximately $600,000 in obsolete inventory between September
26, 2009 and June 27, 2009 to sales of previously reserved inventory as well as
physically scrapping a portion of the written-off inventory.




9




5.  ACCRUED
LIABILITIES





Accrued
liabilities consist of:





September
      26,
                  
                  
                  June
      27,(in
      thousands)
                  
                  2009
                  
                  
                  2009Accrued
      construction liabilities
                  
                  $
                  6,617
                  
                  
                  $
                  8,958Accrued
      compensation
                  
                  
                  3,520
                  
                  
                  
                  3,815Accrued
      income tax
                  
                  
                  637
                  
                  
                  
                  971External
      sales representative commissions
                  
                  
                  565
                  
                  
                  
                  470Other
      accrued expenses
                  
                  
                  710
                  
                  
                  
                  904$
                  12,049
                  
                  
                  $
                  15,118




6.
DEBT




The short
and long term debt as reported in the consolidated balance sheet as of September
26, 2009is as
follows:




Annual
                    
                    
                    
                    
                    
                    Total Amounts Due(in
      thousands)
                    
                    Interest
                      Rate
                    
                    
                    Total due
                    
                    
                    Within
                      12 Months
                    
                    
                    After
                      12 MonthsMortgage
      loan - PTL
                    
                    
                    1.75
                    %
                    
                    $
                    1,696
                    
                    
                    $
                    91
                    
                    
                    $
                    1,605




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




7.  COMMITMENTS




The
Company’s future minimum commitments at September 26, 2009 are as
follows:




Months
      from 9/26/2009(in thousands)
                    
                    Less than
                      12 Months
                    
                    
                    12-24
                      Months
                    
                    
                    24-36
                      Months
                    
                    
                    36-48
                      Months
                    
                    
                    48-60
                      Months
                    
                    
                    Thereafter
                    
                    
                    TotalOperating
      lease payments
                    
                    $
                    1,542
                    
                    
                    $
                    1,225
                    
                    
                    $
                    1,181
                    
                    
                    $
                    1,124
                    
                    
                    $
                    283
                    
                    
                    $
                    -
                    
                    
                    $
                    5,355Mortgage
      loan
                    
                    
                    120
                    
                    
                    
                    156
                    
                    
                    
                    156
                    
                    
                    
                    153
                    
                    
                    
                    150
                    
                    
                    
                    1,249
                    
                    
                    
                    1,984Capital
      equipment purchase commitments
                    
                    
                    8,445
                    
                    
                    
                    848
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,293Total
                    
                    $
                    10,107
                    
                    
                    $
                    2,229
                    
                    
                    $
                    1,337
                    
                    
                    $
                    1,277
                    
                    
                    $
                    433
                    
                    
                    $
                    1,249
                    
                    
                    $
                    16,632





The
operating lease commitments are primarily the lease on the Company’s corporate
headquarters, which expires in 2013 but with two consecutive options to extend
for an additional five years each. The capital equipment purchase commitments
are in PSE for the new FCP facility in China. The mortgage loan commitment is
described further in Note 10 above, and our commitment may fluctuate due to
changes in interest rates.




8.  INDUSTRY
AND SEGMENT INFORMATION





ASC No.
280, Segment Reporting,established annual and interim reporting standards for an enterprise’s
business segments and related disclosures about its products, services,
geographical areas and major customers.  The Company operates and
tracks its results in one reportable segment.  The Company designs,
develops, manufactures and markets a broad range of interface integrated
circuits and frequency control products.


10




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




Net
      RevenuesThree Months EndedSeptember
      26,
                          
                          
                          September
      27,2009
                          
                          
                          2008Customer
      A
                          
                          
                          23
                          %
                          
                          
                          18
                          %Customer
      B
                          
                          
                          15
                          %
                          
                          
                          14
                          %Customer
      C
                          
                          
                          10
                          %
                          
                          
                          *All
      others
                          
                          
                          52
                          %
                          
                          
                          68
                          %100
                          %
                          
                          
                          100
                          %Accounts
      ReceivableThree Months EndedSeptember
      26,
                          
                          
                          September
      27,2009
                          
                          
                          2008Customer
      A
                          
                          
                          28
                          %
                          
                          
                          16
                          %Customer
      C
                          
                          
                          *
                          
                          
                          
                          10
                          %All
      others
                          
                          
                          72
                          %
                          
                          
                          74
                          %100
                          %
                          
                          
                          100
                          %





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





For
geographical reporting, we attribute net revenues to the country where customers
are located (the “bill to” location). We neither conduct business in nor sell to
persons in Iran, Syria, Sudan, or North Korea, countries located in referenced
regions identified as state sponsors of terrorism by the U.S. Department of
State and subject to U.S. economic sanctions and export controls. The following
table sets forth net revenues by country for the three month periods ended
September 26, 2009 and September 27, 2008:





Three
      Months EndedSeptember
      26,
                      
                      
                      September
      27,2009
                      
                      
                      2008Taiwan
                      
                      $
                      17,604
                      
                      
                      $
                      18,323China
      (including Hong Kong)
                      
                      
                      8,940
                      
                      
                      
                      15,433United
      States
                      
                      
                      2,267
                      
                      
                      
                      2,504Other
      (less than 10% each)
                      
                      
                      4,141
                      
                      
                      
                      7,538Total
      net revenues
                      
                      $
                      32,952
                      
                      
                      $
                      43,798





Long-lived
assets consist of all non-monetary assets, excluding financial assets, goodwill
and intangible assets. We attribute long-lived assets to the country where they
are located. The following table sets forth the Company’s long-lived assets by
country of location as of September 26, 2009 and June 27, 2009:





September
      26,
                        
                        
                        June
      27,2009
                        
                        
                        2009China
      (including Hong Kong)
                        
                        $
                        24,177
                        
                        
                        $
                        21,806Taiwan
                        
                        
                        18,763
                        
                        
                        
                        19,424United
      States
                        
                        
                        4,296
                        
                        
                        
                        4,445Other
      countries
                        
                        
                        1,563
                        
                        
                        
                        1,563Total
                        
                        $
                        48,799
                        
                        
                        $
                        47,238




9.  STOCK
REPURCHASE PROGRAM





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of the Company’s common stock, and on April 29, 2008, the Board
of Directors authorized the repurchase of an additional $30 million of common
stock. The Company may repurchase the shares from time to time in open market or
private transactions, at the discretion of the Company’s
management.


11





During
the three month period ended September 26, 2009, the Company did not repurchase
any shares of common stock. During the three month period ended September 27,
2008, the Company repurchased approximately 200,000 shares for an aggregate cost
of $2.7 million, which included the shares needed to complete the repurchase of
2.0 million shares under the 2007 authority.





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




10.
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION




PREFERRED
STOCK





The
Company’s shareholders have authorized the Board of Directors to issue 5,000,000
shares of preferred stock from time to time in one or more series and to fix the
rights, privileges and restrictions of each series.  As of September
26, 2009, the Company has issued no shares of preferred stock.





STOCK OPTION
PLANS





At
September 26, 2009 the Company had four stock option plans and one employee
stock purchase plan, consisting of the 1995 Stock Option Plan, 2001 Stock Option
Plan, SaRonix Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the
2000 Employee Stock Purchase Plan.





Under the
four stock option plans, the Company has reserved an aggregate of 3.6 million
shares of common stock as of September 26, 2009 for issuance to employees,
officers, directors, independent contractors and consultants of the Company in
the form of incentive or nonqualified stock options, or grants of restricted
stock.





The
Company may grant options at the fair value on the grant date for incentive
stock options and nonqualified stock options.  Options vest over
periods of up to 72 months as determined by the Board of
Directors.  Options granted under the Plans expire 10 years from the
grant date.





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





We did
not grant any stock options for the three months ended September 26, 2009. The
value of the Company’s stock options granted under its stock option plans during
the three months ended  September 27, 2008 was estimated at the date
of grant using the following weighted average assumptions:





ThreeMonths
      EndedSeptember
      27,2008Expected
      Life
                  
                  5.2
      yearsRisk-free
      interest rate
                  
                  
                  3.29
                  %Volatility
                  
                  
                  46
                  %Dividend
      Yield
                  
                  
                  0
                  %




12





The
weighted average fair value of options granted during the three months ended
September 27, 2008  was $6.64.





The
following table summarizes the Company’s stock option activity for the three
months ended September 26, 2009:





Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Term
                  
                  
                  Aggregate
                    IntrinsicValue(in
      thousands)
                  
                  
                  
                  
                  
                  (years)
                  
                  
                  (in
      thousands)Options
      outstanding at June 27, 2009
                  
                  
                  3,755
                  
                  
                  $
                  14.00
                  
                  
                  
                  4.9
                  
                  
                  $
                  427Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Cancelled
      or expired
                  
                  
                  (8
                  )
                  
                  
                  10.22Options
      outstanding at September 26, 2009
                  
                  
                  3,747
                  
                  
                  $
                  14.01
                  
                  
                  
                  4.6
                  
                  
                  $
                  1,677Options
      vested and expected to vest at September 26, 2009
                  
                  
                  3,664
                  
                  
                  $
                  14.04
                  
                  
                  
                  4.5
                  
                  
                  $
                  1,632Options
      exercisable at September 26, 2009
                  
                  
                  3,028
                  
                  
                  $
                  14.45
                  
                  
                  
                  3.8
                  
                  
                  $
                  1,266





At
September 26, 2009, 3.6 million shares were available for future grants under
the option plans.





At
September 26, 2009, expected future compensation expense relating to options
outstanding at that date is $3.2 million, which will be amortized to expense
over a weighted average period of 2.1 years.





Additional
information regarding options outstanding and exercisable as of September 26,
2009 is as follows:





Options
      Outstanding
                                  
                                  
                                  Exercisable OptionsRange of Exercise
                                    Prices
                                  
                                  
                                  Number
                                    Outstanding asof
                                    September26,
                                    2009
                                  
                                  
                                  Weighted
                                    Average
                                    Remaining
                                    Contractual
                                    Term(years)
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
                                    Price
                                  
                                  
                                  Number
                                    Exercisable
                                    as ofSeptember
                                    26, 2009
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
                                    Price$
                                  4.89
                                  
                                  
                                  $
                                  8.65
                                  
                                  
                                  
                                  764,000
                                  
                                  
                                  
                                  6.2
                                  
                                  
                                  $
                                  8.00
                                  
                                  
                                  
                                  595,000
                                  
                                  
                                  $
                                  8.13$
                                  8.67
                                  
                                  
                                  $
                                  10.77
                                  
                                  
                                  
                                  814,000
                                  
                                  
                                  
                                  6.2
                                  
                                  
                                  $
                                  9.94
                                  
                                  
                                  
                                  617,000
                                  
                                  
                                  $
                                  9.79$
                                  10.85
                                  
                                  
                                  $
                                  14.20
                                  
                                  
                                  
                                  853,000
                                  
                                  
                                  
                                  2.8
                                  
                                  
                                  $
                                  12.80
                                  
                                  
                                  
                                  812,000
                                  
                                  
                                  $
                                  12.83$
                                  14.23
                                  
                                  
                                  $
                                  17.81
                                  
                                  
                                  
                                  752,000
                                  
                                  
                                  
                                  5.9
                                  
                                  
                                  $
                                  15.96
                                  
                                  
                                  
                                  448,000
                                  
                                  
                                  $
                                  16.20$
                                  17.85
                                  
                                  
                                  $
                                  37.22
                                  
                                  
                                  
                                  564,000
                                  
                                  
                                  
                                  1.0
                                  
                                  
                                  $
                                  27.25
                                  
                                  
                                  
                                  556,000
                                  
                                  
                                  $
                                  27.38$
                                  4.89
                                  
                                  
                                  $
                                  37.22
                                  
                                  
                                  
                                  3,747,000
                                  
                                  
                                  
                                  4.6
                                  
                                  
                                  $
                                  14.01
                                  
                                  
                                  
                                  3,028,000
                                  
                                  
                                  $
                                  14.45





Restricted
Stock Units





Restricted
stock units (“RSUs”) are converted into shares of the Company’s common stock
upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to
the employee’s continuing service to the Company. RSUs generally vest over a
period of 4 years and are expensed ratably on a straight-line basis over their
respective vesting period net of estimated forfeitures.  The fair value of
RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product
of the number of shares granted and the grant date fair value of our common
stock. During the quarter ended September 26, 2009, a number of RSU’s vested but
were not released to employees as a blackout on employee activity in Pericom
stock was in place during the quarter. The vested RSUs will be released the next
time the blackout is lifted. A summary of activity of RSUs for the three months
ended September 26, 2009 is presented below:


13





Shares
                  
                  
                  Weighted
                    Average
                    Grant
                    Date Fair
                    Value
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Term
                  
                  
                  Aggregate
                    Intrinsic Value(in
      thousands)
                  
                  
                  
                  
                  
                  (years)
                  
                  
                  (in
      thousands)RSUs
      outstanding at June 27, 2009
                  
                  
                  349
                  
                  
                  $
                  10.18
                  
                  
                  
                  2.1
                  
                  
                  $
                  2,980Awarded
                  
                  
                  2
                  
                  
                  $
                  8.37Released
                  
                  
                  -Forfeited
                  
                  
                  (6
                  )
                  
                  
                  9.59RSUs
      outstanding at September 26, 2009
                  
                  
                  345
                  
                  
                  $
                  10.18
                  
                  
                  
                  2.0
                  
                  
                  $
                  3,397RSUs
      vested and expected to vest after September 26, 2009
                  
                  
                  254
                  
                  
                  $
                  10.18
                  
                  
                  
                  1.9
                  
                  
                  $
                  2,506





At
September 26, 2009, expected future compensation expense relating to RSU’s is
$2.1 million, which will be amortized to expense over a weighted average period
of 3.2 years.





2000 EMPLOYEE STOCK PURCHASE
PLAN





The
Company’s 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows
eligible employees of the Company to purchase shares of Common Stock through
payroll deductions.  The Company reserved 2.1 million shares of the
Company’s Common Stock for issuance under this Plan, of which 311,000 remain
available at September 26, 2009 and which may be released at the Board of
Directors’ discretion.  The Stock Purchase Plan permits eligible
employees to purchase Common Stock at a discount through payroll deductions
during 24-month purchase periods.  The Company divides each purchase
period into eight consecutive three-month accrual
periods.  Participants in the Stock Purchase Plan may purchase stock
at 85% of the lower of the stock’s fair market value on the first day of the
purchase period or the last day of the accrual period.  The maximum
number of shares of Common Stock that any employee may purchase under the Stock
Purchase Plan during any three-month accrual period is 1,000
shares.  During the first three months of fiscal years 2010 and 2009,
the Company issued 53,182 and 24,956 shares of common stock under the Stock
Purchase Plan at weighted average prices of $5.31 and $10.76,
respectively.  The weighted average fair value of the awards for the
first three months of fiscal 2010 and 2009 were $3.76 and $4.31 per share,
respectively.





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





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





Three Months EndedSeptember
      26,
                  
                  
                  September
      27,2009
                  
                  
                  2008Expected
      Life
                  
                  13.5
      months
                  
                  
                  13.5
      monthsRisk-free
      interest rate
                  
                  
                  0.63
                  %
                  
                  
                  2.19
                  %Volatility
                  
                  
                  69
                  %
                  
                  
                  61
                  %Dividend
      Yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %




14


The
following table summarizes activity in the Company’s employee stock purchase
plan during the three months ended September 26, 2009:


Shares
                    
                    
                    Weighted
                      Average
                      Purchase
                      PriceBeginning
      Available
                    
                    
                    363,906Purchases
                    
                    
                    (53,182
                    )
                    
                    $
                    5.31Ending
      Available
                    
                    
                    310,724





At
September 26, 2009, the Company had $664,000 in unamortized share-based
compensation related to its employee stock purchase plan.  The Company
estimates this expense will be amortized and recognized in the consolidated
statement of operations over the next 1.0 years.





SHARE-BASED
COMPENSATION





The
following table shows total share-based compensation expense classified by
Consolidated Statements of Operations reporting caption for the three months
ended September 26, 2009 and September 27, 2008 generated from the plans
mentioned above:





Three
      Months EndedSeptember
      26,
                        
                        
                        September
      27,(In
      Thousands)
                        
                        2009
                        
                        
                        2008Cost
      of goods sold
                        
                        $
                        63
                        
                        
                        $
                        51Research
      and development
                        
                        
                        352
                        
                        
                        
                        307Selling,
      general and administrative
                        
                        
                        515
                        
                        
                        
                        437Pre-tax
      share-based compensation expense
                        
                        
                        930
                        
                        
                        
                        795Income
      tax impact
                        
                        
                        236
                        
                        
                        
                        278Net
      share-based compensation expense
                        
                        $
                        694
                        
                        
                        $
                        517





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





Three
      Months EndedSeptember
      26,
                    
                    
                    September
      27,(In
      Thousands)
                    
                    2009
                    
                    
                    2008Stock
      options
                    
                    $
                    500
                    
                    
                    $
                    573Restricted
      stock units
                    
                    
                    197
                    
                    
                    
                    51Stock
      purchase plan
                    
                    
                    233
                    
                    
                    
                    171Total
      share-based compensation expense
                    
                    $
                    930
                    
                    
                    $
                    795





The
amount of share-based compensation expense in inventory at September 26, 2009
and June 27, 2009 is immaterial.




11.
INCOME TAXES




Accounting
for Uncertainty in Income Taxes




As of
September 26, 2009, the Company has recorded a valuation allowance of $819,000
against its deferred tax assets.  In addition, as of September 26,
2009 the Company had accrued $84,000 for any interest and penalties related to
unrecognized tax benefits.  The Company’s total amount of unrecognized
tax benefits as of September 26, 2009 was $756,000.  All of this
amount would affect the corporation’s tax rate if recognized.  The tax
years 2004 to 2009 remain open in the United States.


15




Income
Tax Expense




Income
tax expense for the three months ended September 26, 2009 and September 27, 2008
was $475,000 and $1.9 million, respectively, and was comprised of domestic
federal and state income tax and foreign income and withholding
tax.




12.
INVESTMENTS IN AFFILIATES




Our
investments in unconsolidated affiliates are comprised of the
following:




September
      26,
                    
                    
                    June
      27,(in
      thousands)
                    
                    2009
                    
                    
                    2009Pericom
      Technology, Inc.
                    
                    $
                    9,274
                    
                    
                    $
                    8,806Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                    
                    
                    2,045
                    
                    
                    
                    2,020Total
                    
                    $
                    11,319
                    
                    
                    $
                    10,826




The
Company has an approximate 42.7% ownership interest in Pericom Technology, Inc.
(“PTI”).  Pericom accounts for its investment in PTI using the equity
method due to the Company’s significant influence over its
operations.  In addition, certain of the directors of the Company are
directors of PTI, and certain shareholders of the Company are shareholders of
PTI. PTI was incorporated in 1994 and in 1995 established a design center and
sales office to pursue opportunities and participate in joint ventures in the
People’s Republic of China. For the first three months of fiscal 2010 and
2009, the Company’s allocated portion of PTI’s results was income of $468,000
and $60,000, respectively. Condensed operating results of PTI were as
follows:





Three
      Months EndedSeptember
      26,
                  
                  
                  September
      27,(in
      thousands)
                  
                  2009
                  
                  
                  2008Revenue
                  
                  $
                  3,817
                  
                  
                  $
                  3,550Gross
      profit
                  
                  
                  1,877
                  
                  
                  
                  1,756Operating
      income
                  
                  
                  852
                  
                  
                  
                  460Net
      income
                  
                  
                  1,096
                  
                  
                  
                  242





SRe has a
49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd.
(“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City,
Henan Province, China. JCP is a key manufacturing partner of SRe. For the first
three months of fiscal 2010 and 2009, the Company’s allocated portion of JCP’s
results was income of $59,000 and $57,000, respectively.




13. EQUITY ANDCOMPREHENSIVE INCOME




Effective
June 28, 2009, the Company adopted the FASB’s new guidance regarding the
accounting for noncontrolling interests. The new rules require the recognition
of a noncontrolling interest as equity in the consolidated financial statements
and separate from the parent’s equity. The amount of net income attributable to
the noncontrolling interest is shown on the face of condensed consolidated
income statement.





The
Company consolidates its subsidiary SRe, which has noncontrolling interests.
Parties other than the Company own approximately 2.71% of the outstanding shares
of SRe at September 26, 2009, and as of this date the noncontrolling interests
in SRe were valued at $1.3 million.




16




Comprehensive income consists of net
income, net unrealized gain (loss) on available-for-sale securities and foreign
currency translation gain (loss) generated by the Company’s consolidated
subsidiaries.  Changes in equity including
comprehensive income for the three months ended September 27, 2008 and
September 26, 2009 are as follows:





(In Thousands)
                
                Shareholders'
                  Equity
                
                
                Noncontrolling
                  Interests
                
                
                TotalEquityBalance
      June 28, 2008
                
                $
                207,455
                
                
                $
                1,118
                
                
                $
                208,573Net
      income
                
                
                3,661
                
                
                
                45
                
                
                
                3,706Other
      comprehensive incomeUnrealized
      gain (loss) on securities available for sale, net
                
                
                (937
                )
                
                
                -
                
                
                
                (937
                )Translation
      gain (loss), net
                
                
                (1,917
                )
                
                
                -
                
                
                
                (1,917
                )Total
      comprehensive income
                
                
                807
                
                
                
                45
                
                
                
                852Issuance
      of common stock - options and ESPP
                
                
                425
                
                
                
                -
                
                
                
                425Stock
      expense - APIC
                
                
                795
                
                
                
                -
                
                
                
                795Stock
      repurchases
                
                
                (2,668
                )
                
                
                -
                
                
                
                (2,668
                )Balance
      September 27, 2008
                
                $
                206,814
                
                
                $
                1,163
                
                
                $
                207,977Balance
      June 27, 2009
                
                $
                212,208
                
                
                $
                1,233
                
                
                $
                213,441Net
      income
                
                
                1,335
                
                
                
                22
                
                
                
                1,357Other
      comprehensive incomeUnrealized
      gain (loss) on securities available for sale, net
                
                
                469
                
                
                
                -
                
                
                
                469Translation
      gain (loss), net
                
                
                641
                
                
                
                -
                
                
                
                641Total
      comprehensive income
                
                
                2,445
                
                
                
                22
                
                
                
                2,467Issuance
      of common stock - options and ESPP
                
                
                284
                
                
                
                -
                
                
                
                284Stock
      expense - APIC
                
                
                930
                
                
                
                -
                
                
                
                930Stock
      repurchases
                
                
                -
                
                
                
                -
                
                
                
                0Balance
      September 26, 2009
                
                $
                215,867
                
                
                $
                1,255
                
                
                $
                217,122





14.SHORT- AND LONG-TERM INVESTMENTS IN
MARKETABLE SECURITIES





The
Company’s policy is to invest in instruments with investment grade credit
ratings.  The Company classifies its short-term investments as
“available-for-sale” securities and the Company bases the cost of securities
sold using the specific identification method.  The Company accounts
for unrealized gains and losses on its available-for-sale securities as a
separate component of shareholders’ equity in the consolidated balance sheets in
the period in which the gain or loss occurs.  The Company recognizes
unrealized gains and losses in its trading securities in other income in the
consolidated statements of operations in the period in which the gain or loss
occurs.  The Company classifies its available-for-sale securities as
current or noncurrent based on each security’s attributes.  At
September 26, 2009 and June 27, 2009, investments, and any difference between
the fair market value and the underlying cost of such investments, consisted of
the following:





As of September
      26, 2009
                  
                  
                  As of June
      27, 2009(in thousands)
                  
                  Amortized Cost
                  
                  
                  Net
                    Unrealized
                    Gain (Loss)
                  
                  
                  Fair Market
                    Value
                  
                  
                  Amortized
                    Cost
                  
                  
                  Net
                    Unrealized
                    Gain
                    (Loss)
                  
                  
                  Fair Market
                    ValueAvailable-for-Sale
      SecuritiesCorporate
      bonds and notes
                  
                  $
                  47,076
                  
                  
                  $
                  1,620
                  
                  
                  $
                  48,696
                  
                  
                  $
                  45,875
                  
                  
                  $
                  1,093
                  
                  
                  $
                  46,968Government
      securities
                  
                  
                  24,292
                  
                  
                  
                  293
                  
                  
                  
                  24,585
                  
                  
                  
                  29,522
                  
                  
                  
                  295
                  
                  
                  
                  29,817Asset/mortgage
      backed securities
                  
                  
                  10,564
                  
                  
                  
                  (159
                  )
                  
                  
                  10,405
                  
                  
                  
                  10,702
                  
                  
                  
                  (309
                  )
                  
                  
                  10,393Total
                  
                  $
                  81,932
                  
                  
                  $
                  1,754
                  
                  
                  $
                  83,686
                  
                  
                  $
                  86,099
                  
                  
                  $
                  1,079
                  
                  
                  $
                  87,178





The
following table shows the gross unrealized gains and losses of the Company’s
investments, aggregated by investment category, at September 26, 2009 and June
27, 2009:


17





As of September
      26, 2009
                  
                  
                  As of June
      27, 2009(in thousands)
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Net
                    Unrealized
                    Gain (Loss)
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Net
                    Unrealized
                    Gain (Loss)Unrealized
      Gains (Losses)Corporate
      bonds and notes
                  
                  $
                  1,629
                  
                  
                  $
                  (9
                  )
                  
                  $
                  1,620
                  
                  
                  $
                  1,107
                  
                  
                  $
                  (14
                  )
                  
                  $
                  1,093Government
      securities
                  
                  
                  295
                  
                  
                  
                  (2
                  )
                  
                  
                  293
                  
                  
                  
                  328
                  
                  
                  
                  (33
                  )
                  
                  
                  295Asset/mortgage
      backed securities
                  
                  
                  82
                  
                  
                  
                  (241
                  )
                  
                  
                  (159
                  )
                  
                  
                  98
                  
                  
                  
                  (407
                  )
                  
                  
                  (309
                  )Total
                  
                  $
                  2,006
                  
                  
                  $
                  (252
                  )
                  
                  $
                  1,754
                  
                  
                  $
                  1,533
                  
                  
                  $
                  (454
                  )
                  
                  $
                  1,079





The
following tables show the gross unrealized losses and fair market values of the
Company’s investments that have unrealized losses, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, at September 26, 2009 and June 27, 2009:





Securities in Portfolio with Unrealized Losses at September 26, 2009Less Than 12 Months
                                
                                
                                12 Months or Longer
                                
                                
                                Total(In thousands)
                                
                                Fair Market
                                  Value
                                
                                
                                Gross
                                  Unrealized
                                  Losses
                                
                                
                                Fair
                                  Market
                                  Value
                                
                                
                                Gross
                                  Unrealized
                                  Losses
                                
                                
                                Fair Market
                                  Value
                                
                                
                                Gross
                                  Unrealized
                                  LossesCorporate
      bonds and notes
                                
                                $
                                4,301
                                
                                
                                $
                                9
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                4,301
                                
                                
                                $
                                9Government
      securities
                                
                                
                                1,297
                                
                                
                                
                                2
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,297
                                
                                
                                
                                2Asset/mortgage
      backed securities
                                
                                
                                1,855
                                
                                
                                
                                3
                                
                                
                                
                                1,653
                                
                                
                                
                                238
                                
                                
                                
                                3,508
                                
                                
                                
                                241$
                                7,453
                                
                                
                                $
                                14
                                
                                
                                $
                                1,653
                                
                                
                                $
                                238
                                
                                
                                $
                                9,106
                                
                                
                                $
                                252





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





The
unrealized losses are of a temporary nature due to the Company’s intent and
ability to hold the investments until maturity or until the cost is
recoverable.  The unrealized losses are primarily due to fluctuations
in market interest rates. The Company reports unrealized gains and losses on its
“available-for-sale” securities in other comprehensive income in shareholders’
equity.





The
Company records gains or losses on sales of available-for-sale securities in
interest and other income on its condensed consolidated income statement. The
cost of securities sold is based on the specific identification of the security
and its amortized cost. For the three months ended September 26, 2009 and
September 27, 2008, proceeds from sales of available-for-sale securities were
$25.6 million and $27.0 million, respectively, and realized gains (losses) were
$946,000 and $(12,000), respectively.





In
addition, the Company recognized an other-than-temporary impairment (“OTTI”)
credit loss of $414,000 for the three months ended September 27, 2008 which was
reclassified out of other comprehensive income. Activity for the three months
ended September 26, 2009 related to the pretax available-for-sale credit loss
component reflected within retained earnings for securities still held at
September 26, 2009 was as follows:


18





ThreeMonths endedSeptember 26,(In
      Thousands)
                
                2009Beginning
      balance of credit losses on available-for-sale securities
                
                $
                414Addditional
      credit losses for which an OTTI loss was previously
    recognized
                
                
                -Addditional
      credit losses for which an OTTI loss was not previously
      recognized
                
                
                -Reductions
      for securities sold during the period
                
                
                -Reductions
      for securities the Company intends to sell or more likely than not will be
      required to sell
                
                
                -Ending
      balance of credit losses on available-for-sale securities
                
                $
                414





The
following table lists the fair market value of the Company’s short- and
long-term investments by length of time to maturity as of September 26, 2009.
Securities with maturities over multiple dates are mortgage-backed (MBS) or
asset-backed securities (ABS) featuring periodic principle paydowns through
2048.





(in thousands)
                  
                  September26,
                    2009Contractual MaturitiesLess
      than 12 months
                  
                  $
                  14,354One
      to three years
                  
                  
                  28,536Over
      three years
                  
                  
                  32,300MBS
      or ABS
                  
                  
                  8,496Total
                  
                  $
                  83,686





15.FAIR VALUE
MEASUREMENTS





The
Company defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. The standard describes a fair value hierarchy based
on three levels of inputs that may be used to measure fair value, of which the
first two are considered observable and the last is considered
unobservable:




•
              Level
      1 - Quoted prices in active markets for identical assets or
      liabilities.


•
              Level
      2 - Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.


•
                Level
      3 - Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.




The
adoption of this statement with respect to our financial assets and liabilities
did not impact our consolidated results of operations and financial condition,
but requires additional disclosure for assets and liabilities measured at fair
value.  The following table represents our fair value hierarchy for
financial assets (cash equivalents and investments) measured at fair value on a
recurring basis.  All of our investments are classified as Level 2 at
September 26, 2009. Level 2 investment valuations are obtained from
readily-available pricing sources for comparable instruments. A majority of our
investments are priced by pricing vendors and are classified as Level 2
investments based on the use of observable inputs from comparable
securities.


19





(in thousands)
                
                Fair Value
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3Investments
      (1)Corporate
      bonds and notes
                
                $
                48,696
                
                
                $
                -
                
                
                $
                48,696
                
                
                $
                -Government
      securities
                
                
                24,585
                
                
                
                -
                
                
                
                24,585
                
                
                
                -Asset/mortgage
      backed securities
                
                
                10,405
                
                
                
                -
                
                
                
                10,405
                
                
                
                -Total
                
                $
                83,686
                
                
                $
                -
                
                
                $
                83,686
                
                
                $
                -





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





The
Company’s investment in debt securities includes government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include federal agencies and municipal bonds.
Many of the municipal bonds are insured; those that are not are nearly all
AAA/Aaa rated. The corporate debt securities are all investment grade and nearly
all are single A-rated or better. The asset-backed securities are AAA/Aaa rated
and are backed by auto loans and mortgages. When assessing marketable securities
for other-than-temporary declines in value, we consider a number of factors. Our
analyses of the severity and duration of price declines, portfolio manager
reports, economic forecasts and the specific circumstances of issuers indicate
that it is reasonable to expect marketable securities with unrealized losses at
September 26, 2009 to recover in fair value up to our cost bases within a
reasonable period of time. We have the ability and intent to hold these
investments until maturity, when the obligors are required to redeem them at
full face value or par, and we believe the obligors have the financial resources
to redeem the debt securities. Accordingly, we do not consider our investments
to be other-than-temporarily impaired at September 26, 2009.





The
Company has determined that the amounts reported for cash and cash equivalents,
accounts receivable, deposits, accounts payable, accrued liabilities and debt
approximate fair value because of their short
maturities and/or variable interest rates.


20





Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of
Operations





Pericom
Semiconductor Corporation





The
following information should be read in conjunction with the unaudited financial
statements and notes thereto included in Part 1 - Item 1 of this Quarterly
Report and the audited financial statements and notes thereto and Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company’s Annual Report on Form 10-K for the year ended June
27, 2009 (the “Form 10-K”).





Factors
That May Affect Operating Results





This
Quarterly Report on Form 10-Q includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act.  All statements other than statements of historical fact are
“forward-looking statements” for purposes of these provisions, including any
statements regarding the Company’s expected revenues for the second quarter of
fiscal 2010, the Company’s sales to Taiwan and China, plans to remediate the
material weaknesses in our internal control over financial reporting, the
Company’s total investment in the Jinan Hi-Tech Industries Development Zone, the
continuation of a high level of turns orders, higher or lower levels of
inventory, future gross profit and gross margin; the plans and objectives of
management for future operations; the Company’s tax rate; currency fluctuations;
the adequacy of allowances for returns, price protection and other concessions;
the sufficiency of cash generated from operations and cash balances; the
Company’s exposure to interest rate risk; expectations regarding our R&D and
SG&A expenses; and our possible future acquisitions and assumptions
underlying any of the foregoing. In some cases, forward-looking statements can
be identified by the use of terminology such as “may,” “will,” “expects,”
“plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative
thereof or other comparable terminology. Although the Company believes that the
expectations reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. The Company’s future financial condition and results of operations,
as well as any forward-looking statements, are subject to risks and
uncertainties, including but not limited to the factors set forth (i) in Item
1A, Risk Factors, of Part II of this Form 10-Q, and (ii) in Note 1 to the Notes
to Condensed Consolidated Financial Statements. All forward-looking statements
and reasons why results may differ included in this Quarterly Report are made as
of the date hereof, and the Company assumes no obligation to update any such
forward-looking statement or reason why actual results may
differ.


21


Results
of Operations





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





Three Months EndedSeptember
      26,
                                            
                                            
                                            September
      27,2009
                                            
                                            
                                            2008Net
      revenues
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %Cost
      of revenues
                                            
                                            
                                            68.0
                                            %
                                            
                                            
                                            63.5
                                            %Gross
      profit
                                            
                                            
                                            32.0
                                            %
                                            
                                            
                                            36.5
                                            %Operating
      expenses:Research
      and development
                                            
                                            
                                            12.3
                                            %
                                            
                                            
                                            9.6
                                            %Selling,
      general and administrative
                                            
                                            
                                            20.7
                                            %
                                            
                                            
                                            15.8
                                            %Total
                                            
                                            
                                            33.0
                                            %
                                            
                                            
                                            25.4
                                            %Income
      (loss) from operations
                                            
                                            
                                            (1.0
                                            )%
                                            
                                            
                                            11.1
                                            %Interest
      and other income
                                            
                                            
                                            5.0
                                            %
                                            
                                            
                                            2.5
                                            %Other-than-temporary
      decline in value of investment
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (1.0
                                            )%Income
      before income taxes
                                            
                                            
                                            4.0
                                            %
                                            
                                            
                                            12.6
                                            %Income
      taxes
                                            
                                            
                                            1.5
                                            %
                                            
                                            
                                            4.4
                                            %Income
      from consolidated companies
                                            
                                            
                                            2.5
                                            %
                                            
                                            
                                            8.2
                                            %Equity
      in net income of unconsolidated affiliates
                                            
                                            
                                            1.6
                                            %
                                            
                                            
                                            0.3
                                            %Net
      income
                                            
                                            
                                            4.1
                                            %
                                            
                                            
                                            8.5
                                            %Net
      income attributable to the noncontrolling interests
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (0.1
                                            )%Net
      income attributable to Pericom shareholders
                                            
                                            
                                            4.1
                                            %
                                            
                                            
                                            8.4
                                            %





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
      26,
                                                                    2009
                                                                  
                                                                  
                                                                  September
      27,
                                                                    2008
                                                                  
                                                                  
                                                                  %
                                                                    ChangeNet
      revenues
                                                                  
                                                                  $
                                                                  32,952
                                                                  
                                                                  
                                                                  $
                                                                  43,798
                                                                  
                                                                  
                                                                  
                                                                  -24.8
                                                                  %%
      of net sales accounted for by top 5 direct customers (1)
                                                                  
                                                                  
                                                                  56.0
                                                                  %
                                                                  
                                                                  
                                                                  49.5
                                                                  %Number
      of direct customers that each account for more than 10% of net
      sales
                                                                  
                                                                  
                                                                  3
                                                                  
                                                                  
                                                                  
                                                                  2%
      of net sales accounted for by top 5 end customers (2)
                                                                  
                                                                  
                                                                  34.4
                                                                  %
                                                                  
                                                                  
                                                                  29.5
                                                                  %Number
      of end customers that each account for more than 10% of net
      sales
                                                                  
                                                                  
                                                                  1
                                                                  
                                                                  
                                                                  
                                                                  1





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





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


22





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





Net
revenues consist of product sales, which are recognized upon shipment, less an
estimate for returns and allowances. Over the past two quarters
we have experienced a sharp decline in revenue, which is consistent with
declining end-market demand and inventory reduction initiatives across the
supply chain.Net revenue decreased $10.8 million or 24.8% in the
first quarter of fiscal 2010 versus the first quarter of fiscal 2009 primarily
as the result of:





·
            a
      decrease of $6.3 million or 34.8% in sales of our FCP products to $11.9
      million and


·
            a
      $4.5 million decline in sales of IC products to $21.1 million, for a 17.6%
      sales decrease.





The
following table sets forth net revenues by country as a percentage of total net
revenues for the three months ended September 26, 2009 and September 27,
2008:





Three Months EndedSeptember 26,
                  
                  
                  September 27,2009
                  
                  
                  2008Taiwan
                  
                  
                  54
                  %
                  
                  
                  42
                  %China
      (including Hong Kong)
                  
                  
                  27
                  %
                  
                  
                  35
                  %United
      States
                  
                  
                  7
                  %
                  
                  
                  6
                  %Other
      (less than 10% each)
                  
                  
                  12
                  %
                  
                  
                  17
                  %Total
      net revenues
                  
                  
                  100
                  %
                  
                  
                  100
                  %





For the
three months ended September 26, 2009 as compared with the same period of the
prior year, the percentage of our net revenues derived from sales to Taiwan
increased as a result of continued demand for technological devices and an
increasing concentration of contract manufacturing there. We expect our future
sales to continue to grow, as a percentage of net revenues, in Taiwan and China
in future periods.  As the migration of assembly operations to Asia
continues, we expect our net revenues from sales in North America to continue a
modest decline.





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





Gross
Profit





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


23





Three Months EndedSeptember 26,
                    
                    
                    September 27,
                    
                    
                    %(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    ChangeNet
      revenues
                    
                    $
                    32,952
                    
                    
                    $
                    43,798
                    
                    
                    
                    -24.8
                    %Gross
      profit
                    
                    
                    10,536
                    
                    
                    
                    15,993
                    
                    
                    
                    -34.1
                    %Gross
      profit as a percentage of net revenues (gross margin)
                    
                    
                    32.0
                    %
                    
                    
                    36.5
                    %





The
decrease in gross profit for the three months ended September 27, 2009 as
compared with the same period of the prior year was primarily due to significant
sales declines in both IC and FCP products. To a lesser extent margin decreases
also contributed, and reflect both a competitive marketplace as well as somewhat
higher production costs due to lower volumes and higher overhead absorption
rates.





Specifically,
the decrease in gross profit in the first quarter of fiscal 2010 as compared to
the first quarter of fiscal 2009 of $5.5 million is the result of:





·
            decreased
      sales, which led to $3.5 million of decreased gross profit,
      and





·
            margin
      declines, which led to $2.0 million of decreased gross
    profit.





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





During
the three months ended September 26, 2009 and September 27, 2008, gross profit
and gross margin benefited as a result of the sale of inventory of $63,000 that
we had previously identified as excess and written down to zero
value.





Research
and Development(“R&D”)





Three Months EndedSeptember 26,
                    
                    
                    September 27,
                    
                    
                    %(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    ChangeNet
      revenues
                    
                    $
                    32,952
                    
                    
                    $
                    43,798
                    
                    
                    
                    -24.8
                    %Research
      and development
                    
                    
                    4,046
                    
                    
                    
                    4,221
                    
                    
                    
                    -4.1
                    %R&D
      as a percentage of net revenues
                    
                    
                    12.3
                    %
                    
                    
                    9.6
                    %





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 $175,000
expense reduction for the three month period ended September 26, 2009 as
compared to the same period of the prior year reflects the restructuring program
completed last year and cost saving efforts, with reductions of $256,000 in
salaries and bonus, partially offset by a $98,000 increase in fabrication and
assembly expenses.





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


24





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





Three Months EndedSeptember 26,
                    
                    
                    September 27,
                    
                    
                    %(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    ChangeNet
      revenues
                    
                    $
                    32,952
                    
                    
                    $
                    43,798
                    
                    
                    
                    -24.8
                    %Selling,
      general and administrative
                    
                    
                    6,828
                    
                    
                    
                    6,901
                    
                    
                    
                    -1.1
                    %SG&A
      as a percentage of net revenues
                    
                    
                    20.7
                    %
                    
                    
                    15.8
                    %





Selling,
general and administrative expenses consist primarily of personnel and related
overhead costs for sales, marketing, finance, administration, human resources
and general management.  The expense decrease of $73,000 for the three
month period ended September 26, 2009 as compared to the same period of the
prior year is attributable primarily to savings related to reduced sales
volumes, with reduced expenditures for compensation ($716,000), commissions
($166,000), travel and entertainment ($136,000), and samples and postage
($106,000), with the savings nearly offset by increased expenditures of $1.2
million for legal and accounting fees in connection with the fiscal 2009
year-end accounting review, quarterly restatements and delayed 10-K
filing.





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





Interest
and Other Income, Net





Three Months Ended(In thousands)
                    
                    September 26,
                    
                    
                    September 27,
                    
                    
                    %2009
                    
                    
                    2008
                    
                    
                    ChangeInterest
      income, net
                    
                    $
                    1,762
                    
                    
                    $
                    917
                    
                    
                    
                    92.1
                    %Exchange
      gain (loss)
                    
                    
                    (118
                    )
                    
                    
                    230
                    
                    
                    
                    -151.3
                    %Other
      income (expense)
                    
                    
                    (1
                    )
                    
                    
                    (41
                    )
                    
                    
                    -97.6
                    %Interest
      and other income
                    
                    $
                    1,643
                    
                    
                    $
                    1,106
                    
                    
                    
                    48.6
                    %





The
$537,000 increase in interest and other income for the three month period ended
September 26, 2009 as compared with the same period of the prior year was
primarily the result of $946,000 of realized gains on sales of short-term
investments this year as compared with a small realized loss last year,
partially offset by the $348,000 adverse change due to exchange rates, which
went from causing a gain last year to a loss this year as the US dollar weakened
against the Taiwan dollar.





Other-Than-Temporary
Decline in Value of Investment





Other-than-temporary
decline in value of investment decreased to zero for the three month period
ended September 26, 2009 as compared with $458,000 in the same period of the
prior year. The prior year decline was primarily caused by a $414,000 loss in
value of an investment security held in our short-term investment portfolio,
which resulted from the issuing company filing for Chapter 11 bankruptcy
protection. The Company’s investment guidelines require a diversified portfolio
of investment grade instruments, and it is unlikely that any future impairments
on individual securities would be material to the Company’s liquidity and
financial position.


25





Income
Tax Expense





Three Months EndedSeptember 26,
                    
                    
                    September 27,
                    
                    
                    %(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    ChangePre-tax
      income
                    
                    $
                    1,305
                    
                    
                    $
                    5,519
                    
                    
                    
                    -76.4
                    %Income
      tax
                    
                    
                    475
                    
                    
                    
                    1,930
                    
                    
                    
                    -75.4
                    %Effective
      tax rate
                    
                    
                    36
                    %
                    
                    
                    35
                    %





The
decrease in income tax expense for the three months ended September 29, 2008
over the same period of the prior year is due to the significant decrease in
income before income taxes. The effective tax rate of 36% for the quarter ended
September 26, 2009 is  modestly higher than the rate in the same
period last year primarily as a result of the reduced level of pretax income and
the earnings mix between tax jurisdictions.





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





Equity
in Net Income of Unconsolidated Affiliates





September 26,
                    
                    
                    June 27,(in thousands)
                    
                    2009
                    
                    
                    2009Pericom
      Technology, Inc.
                    
                    $
                    9,274
                    
                    
                    $
                    8,806Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                    
                    
                    2,045
                    
                    
                    
                    2,020Total
                    
                    $
                    11,319
                    
                    
                    $
                    10,826





Equity in
net income of unconsolidated affiliates includes our allocated portion of the
net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
corporation based in Shanghai, People’s Republic of China and Hong Kong. Our
allocated portion of PTI’s results was income of $468,000 for the three months
ended September 26, 2009, as compared with income of $60,000 for the same period
of the prior year.





Equity in
net income of unconsolidated affiliates also includes the Company’s allocated
portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology
Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan
City, Henan Province, China. JCP is a key manufacturing partner of SRe, and SRe
has acquired a 49% equity interest in JCP. For the three month period ended
September 26, 2009, the Company’s allocated portion of JCP’s results was income
of $59,000 as compared with income of $57,000 for the same period of the prior
year.





Liquidity
and Capital Resources





As of
September 26, 2009, the Company’s principal sources of liquidity included cash,
cash equivalents and short-term and long-term investments of approximately
$127.2 million as compared with $124.6 million on June 27, 2009.





The
Company’s investments in debt securities include government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Government securities include federal agencies and municipal bonds.
Many of the municipal bonds are insured; those that are not are nearly all
AAA/Aaa rated. The corporate debt securities are all investment grade and nearly
all are single A-rated or better. The asset-backed securities are AAA/Aaa rated
and are backed by auto loans or mortgages. Most of our mortgage-backed
securities are collateralized by prime residential mortgages issued by
government agencies including FNMA, FHLMC and FHLB. Those issued by banks are
AAA-rated. At September 26, 2009, unrealized gains on marketable securities net
of taxes were $1.2 million. When assessing marketable securities for
other-than-temporary declines in value, we consider a number of factors. Our
analyses of the severity and duration of price declines, portfolio manager
reports, economic forecasts and the specific circumstances of issuers indicate
that it is reasonable to expect marketable securities with unrealized losses at
September 26, 2009 to recover in fair value up to our cost bases within a
reasonable period of time. We have the ability and intent to hold these
investments until maturity, when the obligors are required to redeem them at
full face value or par, and we believe the obligors have the financial resources
to redeem the debt securities. Accordingly, we do not consider our investments
to be other-than-temporarily impaired at September 26, 2009.


26





As of
September 26, 2009, $43.5 million was classified as cash and cash equivalents
compared with $37.3 million as of June 27, 2009.  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 26, 2009, the
Company spent approximately $2.9 million on property and equipment compared to
$2.5 million for the three month period ended September 27, 2008.  The
Company generated approximately $1.6 million of interest and other income, net
for the three month period ended September 26, 2009, as compared with $1.1
million of interest and other income, net for the three month period ended
September 27, 2008. In the longer term the Company may generate less interest
income if its total invested balance decreases and these decreases are not
offset by rising interest rates or increased cash generated from operations or
other sources.





The
Company’s net cash provided by operating activities of $3.7 million for the
three months ended September 26, 2009 was primarily the result of net income of
$1.4 million, non-cash expenses of $1.9 million in depreciation and
amortization, $930,000 of share-based compensation expense and $465,000 of
deferred taxes, partially offset by a $946,000 gain on sale of investments in
marketable securities and $527,000 equity in net income of unconsolidated
affiliates. Additional contributions to cash included decreases of $1.4 million
in accounts receivable, $473,000 in inventory and $756,000 in prepaid expenses
and other current assets, and an increase of $740,000 in accounts payable.
Partially offsetting these was a $3.1 million decrease in other current
liabilities. The Company’s net cash provided by operating activities was $3.7
million in the three months ended September 27, 2008.





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





The
Company’s cash provided by investing activities of $2.1 million for the three
months ended September 26, 2009  was primarily due to sales and
maturities of short-term investments exceeding purchases of short term
investments by approximately $5.0 million, partially offset by the Company’s
additions to property and equipment of approximately $2.9 million. The Company’s
cash used in investing activities was $3.5 million for the three months ended
September 27, 2008.





The
Company’s cash provided by financing activities for the three months ended
September 26, 2009 of $282,000 was the result of proceeds generated from the
issuance of common stock in the Company’s employee stock plans. The Company used
$2.2 million of cash in financing activities for the three months ended
September 27, 2008.





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





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





Contractual
Obligations and Commitments





The
Company’s contractual obligations and commitments at September 26, 2009 are as
follows:


27





Payments Due by Period(in thousands)
                  
                  Total
                  
                  
                  1 Year orLess
                  
                  
                  2 – 3 Years
                  
                  
                  4 – 5 Years
                  
                  
                  ThereafterOperating
      leases and operating expense commitments
                  
                  $
                  5,356
                  
                  
                  $
                  1,542
                  
                  
                  $
                  2,406
                  
                  
                  $
                  1,408
                  
                  
                  $
                  -Capital
      equipment purchase commitments
                  
                  
                  9,292
                  
                  
                  
                  8,445
                  
                  
                  
                  847
                  
                  
                  
                  -
                  
                  
                  
                  -PTL
      debt payments
                  
                  
                  1,984
                  
                  
                  
                  120
                  
                  
                  
                  312
                  
                  
                  
                  303
                  
                  
                  
                  1,249Total
                  
                  $
                  16,632
                  
                  
                  $
                  10,107
                  
                  
                  $
                  3,565
                  
                  
                  $
                  1,711
                  
                  
                  $
                  1,249





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.





We have
no purchase obligations other than routine purchase orders and the capital
equipment purchase commitments shown in the table as of September 26, 2009. The
capital equipment purchase commitmentsare associated with the
construction of our factory in China for the development and manufacture of
frequency control products (FCPs). The mortgage loan is at the Company’s
subsidiaryPTL, who took out a 15-year $1.7 million mortgage to acquire
its building in December 2008, and the related commitment may fluctuate based on
changes in interest rates.





Off-Balance
Sheet Arrangements





The
Company has no off-balance sheet arrangements, defined by Regulation S-K item
303(a)(4), other than operating leases on our buildings and the commitment for
capital expenditures in Jinan.





Critical
Accounting Policies





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





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





REVENUE
RECOGNITION. The Company recognizes revenue from the sale of its products
upon shipment, provided title and risk of loss has passed to the customer, the
price is fixed or determinable and collection of the revenue is reasonably
assured.  A provision for estimated future returns and other charges
against revenue is recorded at the time of shipment.  For the three
months ended September 26, 2009 the majority of the Company’s revenues were from
sales to distributors.





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


28





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





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





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





Price
protection is granted solely at the discretion of Pericom management. The
purpose of price protection is to reduce the distributor’s cost of inventory as
market prices fall, thus reducing SSD rates.  Pericom sales management
prepares price protection proposals for individual products located at
individual distributors. Pericom general management reviews these proposals and
if a particular price protection arrangement is approved, the dollar impact will
be estimated based on the book price reduction per unit for the products
approved and the number of units of those products in the distributor’s
inventory. A sales reserve is then recorded in that period for the estimated
amount.





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





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





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





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


29





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





INVENTORIES. Inventories are recorded at
the lower of standard cost (which generally approximates actual cost on a
first-in, first-out basis) or market value.  We adjust the carrying
value of inventory for excess and obsolete inventory based on inventory age,
shipment history and our forecast of demand over a specific future period of
time. Raw material inventory is considered obsolete and written off if it has
not moved in 365 days.  The Company reviews its assembled devices for
excess and writes them off if the quantity of assembled devices in inventory is
in excess of the greater of the quantity shipped in the previous twelve months,
the quantity in backlog or the quantity forecasted to be shipped in the
following twelve months.In certain
circumstances, management will determine, based on expected usage or other
factors, that inventory considered obsolete by these guidelines should not be
written off. The Company does occasionally determine that the last twelve
months’ sales levels will not continue and reserves inventory in line with the
quantity forecasted. The
semiconductor markets that we serve are volatile and actual results may vary
from our forecast or other assumptions, potentially impacting our assessment of
excess and obsolete inventory and resulting in material effects on our gross
margin.





IMPAIRMENT OF
INTANGIBLE ASSETS.The Company performs an
impairment review of its intangible assets at least annually. Based on the
results of its most recent impairment review, the Company determined that no
impairment of its intangible assets existed as of June 27, 2009. However, future
impairment reviews could result in a charge to earnings.





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





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





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





At
September 26, 2009 our investment portfolio consisted of investment-grade fixed
income securities, excluding those classified as cash equivalents, of $83.7
million.  These securities are subject to interest rate risk and will
decline in value if market interest rates increase. However, we do not believe
that such a decrease would have a material effect on our results of operations
over the next fiscal year.  Due to the short duration and conservative
nature of these instruments, we do not believe that we have a material exposure
to interest rate risk.


30


When the
general economy weakens significantly, as it has recently, the credit profile,
financial strength and growth prospects of certain issuers of interest-bearing
securities held in our investment portfolios may deteriorate, and our
interest-bearing securities may lose value either temporarily or other than
temporarily. We may implement investment strategies of different types with
varying duration and risk/return trade-offs that do not perform well. At
September 26, 2009, we held a significant portion of our corporate cash in
diversified portfolios of investment-grade marketable securities, mortgage- and
asset-backed securities, and other securities that had unrealized gains net of
tax of $1.2 million. Although we consider unrealized gains and  losses
on individual securities to be temporary, there is a risk that we may incur
other-than-temporary impairment charges if credit and equity markets are
unstable and adversely impact securities issuers.





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





ITEM
4. CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the
Exchange Act”)) that are designed to ensure that information required to be
disclosed by us in the reports we file or submit under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.





Our
management, with the participation of our principal executive officer and
principal financial officer has evaluated the effectiveness of our disclosure
controls and procedures.  Based on such evaluation, our principal executive
officer and principal financial officer have concluded that our disclosure
controls and procedures were not effective as of September 26, 2009 due to the
fact that management had not fully remediated the material weakness described in
our annual report on Form 10-K for the year ended June 27, 2009.




Changes
in Internal Control over Financial Reporting




As
previously disclosed in our Form 10-K for the year ended June 27, 2009, our
Company’s management identified and reported to our Audit Committee the
following control deficiencies, each of which constitutes a material weakness in
our internal control over financial reporting as of June 27, 2009:





·
            The
      Company concluded that certain controls over period-end inventory
      accounting did not operate with sufficient precision. Misstatements were
      detected relating to inventory valuation and inventory reserves. In
      addition, the Company’s new enterprise resource planning (“ERP”) system,
      which was implemented in the second quarter of fiscal 2009, contained
      programming errors that caused certain inventory items to be incorrectly
      valued.





·
            The
      Company did not maintain a sufficient complement of personnel with an
      appropriate level of accounting knowledge, experience and training in the
      application of generally accepted accounting principles commensurate with
      the Company’s financial reporting requirements. As a result, the Company
      concluded that controls over the financial statement close process related
      to account reconciliations and analyses, including investment accounts,
      accounts receivable reserves, inventories, accounts payable and accrued
      liabilities, were not effective.  As a result, a large volume of
      adjustments identified as part of the audit process were necessary to
      completely and accurately present the consolidated financial statements in
      accordance with generally accepted accounting
  principles.





As a
result, we concluded that as of June 27, 2009 our internal control over
financial reporting was not effective.





We are
working to remediate the material weaknesses by making a number of improvements
to our finance department, including the implementation of improved processes
and procedures, as well as additions to and upgrades of key finance personnel.
Since June 27, 2009,
we have hired a new general accounting manager and a cost accounting manager to
augment our accounting staff.We also plan to review our training and
oversight policies and re-examine our documentation and review procedures as
soon as is reasonably practical. We also intend to engage the help of outside
consultants to revamp the processes in the cost module of the ERP system. We may
also consider implementing other remediation measures.


31





We
consider the remediation of our material weaknesses in our internal control over
financial reporting which we identified in the fiscal year ended June 27, 2009 a
significant priority for the Company. We will continue our efforts in this
regard. While we
believe we have made progress, we will not be able to establish that remediation
has been effective until testing is completed later in our fiscal
year.





Except
for the changes described above, there were no changes in our internal control
over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
three months ended September 26, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





PART
II.  OTHER INFORMATION





Item
1A: Risk Factors




This
quarterly report on Form 10-Q contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward-looking statement as a result of various factors,
including those set forth below. The listing below includes any material changes
to and supersedes the description of the risk factors affecting our business
previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual
Report on Form 10-K for the fiscal year ended June 27, 2009.





FACTORS
THAT MAY AFFECT OPERATING RESULTS`





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





Although
we currently have an improving outlook on our fiscal second quarter ending
December 26, 2009, we continue to face achallenging business
environment and limited visibility on end-market demands. Revenues in the last
four quarters have been down significantly from revenues in the first quarter of
fiscal 2009 ending September 27, 2008.





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





·
              changes
      in the quantity of our products
sold;


·
              changes
      in the average selling price of our
products;


·
              general
      conditions in the semiconductor
industry;


·
              changes
      in our product mix;


·
              a
      change in the gross margins of our
products;


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


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


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


·
              customer
      acceptance of new products introduced by
us;


·
              delay
      or decline in orders received from
distributors;


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


·
              the
      availability of manufacturing capacity with our wafer
      suppliers;


·
              changes
      in manufacturing costs;


·
              fluctuations
      in manufacturing yields;


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


·
              the
      ability of customers to pay us;
and


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


32





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.





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





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





If
we do not develop products that our customers and end-users design into their
products, or if their products do not sell successfully, our business and
operating results would be harmed.





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


33





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





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





·
            product
      performance and functionality;


·
            customer
      acceptance;


·
            competitive
      cost structure and pricing;


·
            successful
      and timely completion of product
development;


·
            sufficient
      wafer fabrication capacity; and


·
            achievement
      of acceptable manufacturing yields by our wafer
  suppliers.





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





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





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





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





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.


34





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





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





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





Our
potential future acquisitions may not be successful.





Our
potential future acquisitions could result in the following:





·
            large
      one-time write-offs;


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


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


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


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


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


·
            potentially
      dilutive issuances of equity
securities;


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


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


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





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





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.


35





Implementation
of new FASB rules 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.





In
general, from time to time, the government, courts and the financial accounting
boards may issue new laws or accounting regulations, or modify or reinterpret
existing ones. There may be future changes in laws, interpretations or
regulations that would affect our financial results or the way in which we
present them. Additionally, changes in the laws or regulations could have
adverse effects on hiring and many other aspects of our business that would
affect our ability to compete, both nationally and internationally.





We
and our independent registered public accounting firm determined that we had
material weaknesses in our internal control over financial reporting as of the
end of our most recent fiscal year, June 27, 2009.  There can be no
assurance that a material weakness will not arise in the future. As a result,
current and potential stockholders could lose confidence in our financial
reporting, which would harm our business and the trading price of our
stock.





Under SEC
rules, we are required to maintain, and evaluate the effectiveness of, our
internal control over financial reporting and disclosure controls and
procedures.





In our
annual reports on Form 10-K for the years ended June 30, 2007, and July 2, 2005,
we reported material weaknesses in our internal control over financial
reporting. We had since remediated those deficiencies and continued to spend
time and resources in an effort to maintain compliance with the requirements to
maintain internal control over financial reporting.





However,
as reported in Item 9A of our recently filed 10-K, Pericom had additional
material weaknesses in internal control over financial reporting as of June 27,
2009, and management and our independent registered public accounting firm
determined that as of June 27, 2009, our internal control over financial
reporting was not effective.  As a result, we also concluded that our
disclosure controls and procedures were not effective as of June 27, 2009, or as
of the end of the first three fiscal quarters of 2009. As set forth in this Form
10-Q, we determined that our disclosure controls and procedures were not
effective as of September 26, 2009 due to the fact that management had not fully
remediated the material weaknesses described in our Form 10-K.





The
errors described in Item 9A resulted in the restatement of our financial results
for the periods covered by the Forms 10-Q for the first three fiscal quarters of
FY 2009, which restated results are set forth in amended Forms 10-Q for each of
these periods.  Please refer to Item 9A of the 10-K for a discussion
of the material weaknesses.





Our
current and future results of operations may be adversely affected by
significant costs related to our investigation of and remedial measures relating
to these matters.





Although
we have renewed our efforts to maintain effective internal control in financial
reporting as described in Item 4 of this report on Form 10-Q, there can be no
assurance that material weaknesses or significant deficiencies will not arise in
the future. Should we or our independent registered public accounting firm
determine in future periods that we have a material weakness in our internal
control over financial reporting, the reliability of our financial reports may
be impacted, and investors could lose confidence in the accuracy and
completeness of our financial reports, which could have an adverse effect on our
stock price and we could suffer other materially adverse consequences if our
future internal control over financial reporting and disclosure controls and
procedures are not effective.





Our
finance department has undergone, and continues to undergo, significant
changes.





The
Company has recently undergone significant turnover of personnel in the finance
department, including in significant positions.  The Company is in the
process of implementing changes in its finance department, including but not
limited to adding support staff in different departments or through outside
contractors, enhancing training in certain areas, and formalizing related
structures and processes. There can be no assurance that these changes will
sufficiently improve the Company's finance functions, or that the finance
personnel turnover the Company has experienced will not continue.  In
either event, the reliability of our financial reports may be impacted, and
investors may lose confidence in the accuracy or completeness of our financial
reports, which could have an adverse impact on our stock price.


36





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





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





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





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





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





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





·
            lack
      of adequate capacity;


·
            lack
      of available manufactured products;


·
            lack
      of control over delivery schedules;
and


·
            unanticipated
      changes in wafer prices.





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


37


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.





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.


38





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





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





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





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





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





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





We
are subject to risks related to taxes.





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





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





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





·
            the
      level of contaminants in the manufacturing
  environment;


·
            impurities
      in the materials used; and


·
            the
      performance of manufacturing personnel and production
      equipment.


39





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





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





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





A
relatively small number of customers have accounted for a significant portion of
our net revenues in each of the past several fiscal years. In general we expect
this to continue for the foreseeable future.  We had 3 direct
customers that each accounted for more than 10% of net revenues during the three
months ended September 26, 2009. As a percentage of net revenues, sales to our
top five direct customers during the three months ended September 26, 2009
totaled 56.0%.





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 three months ended September 26, 2009 and
the fiscal year ended June 27, 2009, sales to our distributors were
approximately 61% and 56% of net revenues, respectively as compared to
approximately49%
of net revenues in the fiscal year ended June 28, 2008 and 40% for the fiscal
year ended June 30, 2007. The increase in the percentage of sales to our
distributors as compared with the prior periods was due to growth in sales to
Asian distributor customers. The loss of one or more significant customers, or
the decision by a significant distributor to carry additional product lines of
our competitors could decrease our revenues.





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





Risks
associated with international business operations include the
following:





·
            disruptions
      or delays in shipments;


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


·
            currency
      fluctuations;


·
            changes
      in political conditions;


·
            potentially
      reduced protection for intellectual
property;


·
            foreign
      governmental regulations;


·
            import
      and export controls; and


·
            changes
      in tax laws, tariffs and freight
rates.





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


40





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





In the
three months ended September 26, 2009, we derived approximately 89% of our net
revenues from sales in Asia and approximately 4% from sales outside of Asia and
the United States. In fiscal year 2009, we derived approximately 88% of our net
revenues from sales in Asia and approximately 4% from sales outside of Asia and
the United States.  In fiscal year 2008, we derived approximately 88%
of our net revenues from sales in Asia and approximately 3% from sales outside
of Asia and the United States. In fiscal year 2007, we derived approximately 82%
of our net revenues from sales in Asia and approximately 4% from sales outside
of Asia and the United States. We expect that export sales will continue to
represent a significant portion of net revenues. We intend to continue the
expansion of our sales efforts outside the United States. This expansion will
require significant management attention and financial resources and further
subject us to international operating risks.  These risks
include:





·
            tariffs
      and other barriers and
restrictions;


·
            unexpected
      changes in regulatory requirements;


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


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





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





Our
shareholder rights plan may adversely affect existing shareholders.





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





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





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





Our
headquarters and some of our major suppliers' manufacturing facilities are
located near major earthquake faults. One of the foundries we use is located in
Taiwan, which suffered a severe earthquake during fiscal 2000. We did not
experience significant disruption to our operations as a result of that
earthquake. Taiwan is also exposed to typhoons, which can affect not only
foundries we rely upon but also our SaRonix-eCERA subsidiary. If a major
earthquake, typhoon or other natural disaster were to affect our operations or
those of our suppliers, our product supply could be interrupted, which would
seriously harm our business.





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





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares of our common stock and on April 29, 2008, the Board authorized
the repurchase of an additional $30 million worth of common stock. The Company
was authorized to repurchase the shares from time to time in the open market or
private transactions, at the discretion of the Company’s management. The Company
did not repurchase any of its common stock during the three months ended
September 26, 2009.


41





Pursuant
to the 2007 authority, the Company repurchased 139,190 shares in the three
months ended September 27, 2008 for an aggregate cost of $1.9 million and
thereby completed the repurchase of 2.0 million shares at an aggregate
cumulative cost of approximately $25.2 million. Pursuant to the 2008 authority,
the Company repurchased 60,810 shares in the three months ended September 27,
2008 for an aggregate cost of $0.8 million.





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


42


Item
6.  Exhibits.





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


43


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
      5, 2009
                
                By:
                /s/ Alex C. HuiAlex
      C. HuiChief
      Executive OfficerBy:
                /s/ Angela ChenAngela
      ChenChief
      Financial Officer


44