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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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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 30, 2002





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|- |  | -------------------------------------------------

| |  | OF THE SECURITIES EXCHANGE ACT OF 1934
| |  | --------------------------------------




For the Transition Period from  to





Commission File Number 0-27026





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Pericom Semiconductor Corporation


(Exact Name of Registrant as Specified in Its Charter)





California

77-0254621(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)





2380 Bering Drive


San Jose, California 95131


(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  ̈





As of October 31, 2002 the Registrant had
outstanding 25,780,090 shares of Common Stock.





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Pericom Semiconductor Corporation





Form 10-Q for the Quarter Ended September 30, 2002





INDEX





PagePART I.    FINANCIAL INFORMATIONItem 1:

Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2002 and June 30, 2002

3Condensed Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001

4Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and 2001

5Notes to Condensed Consolidated Financial Statements

6Item 2:

Managements Discussion and Analysis of Financial Condition and Results of Operations

11Item 3:

Quantitative and Qualitative Disclosures about Market Risk

23Item 4:

Controls and Procedures

23PART II.    OTHER INFORMATIONItem 6:

Exhibits and Reports on Form 8-K

24Signatures

25




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##### Table of Contents

PART I.    FINANCIAL INFORMATION





Item 1:    Condensed Consolidated
Financial Statements





Pericom Semiconductor Corporation





Condensed Consolidated Balance Sheets


(In thousands, except share data)





September 30, 2002

June 30, 2002
(1)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
12,657

$
12,656Short-term investments


143,908


143,156Accounts receivable:Trade (net of allowances of $4,307, and $4,376)


3,422


3,981Other receivables


2,007


1,871Inventories


9,598


9,339Prepaid expenses and other current assets


2,047


1,298Deferred income taxes


2,071


2,600Total current assets


175,710


174,901Property and equipmentnet


8,321


8,608Investment in and advances to joint venture


5,573


5,920Goodwill, net of amortization


1,325


1,325Other assets


2,432


2,991Total

$
193,361

$
193,745LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
4,173

$
4,544Accrued liabilities


3,095


2,840Total current liabilities


7,268


7,384Deferred income taxes


639


639Shareholders equity:Common stock, 60,000,000 shares authorized; Shares outstanding: September 30, 25,740,083; June 30, 25,660,209


139,314


139,345Accumulated other comprehensive gain


942


257Retained earnings


45,198


46,120Total shareholders equity


185,454


185,722Total

$
193,361

$
193,745


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|(1) |  | Derived from the June 30, 2002 audited balance sheet included in the Companys Annual Report on Form 10-K.
|--- |  | ----------------------------------------------------------------------------------------------------------




See notes to condensed consolidated financial statements.




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##### Table of Contents

Pericom Semiconductor Corporation





Condensed Consolidated Statements of Operations


(Unaudited)


(In thousands, except per share amounts)





Three Months Ended September 30,2002


2001Net revenues

$
10,828


$
13,114Cost of revenues


7,560



8,633Gross profit


3,268



4,481Operating expenses:Research and development


2,918



2,579Selling, general and administrative


3,158



2,943Total


6,076



5,522Loss from operations


(2,808
)


(1,041
)Equity in net loss of investee


(347
)


(206
)Interest income


1,499



1,357Other-than-temporary decline in investment


(52
)


Income (loss) before income taxes


(1,708
)


110Income tax provision (benefit)


(786
)


39Net income (loss)

$
(922
)

$
71Basic earnings (loss) per share

$
(0.04
)

$
0.00Diluted earnings (loss) per share

$
(0.04
)

$
0.00Shares used in computing basic earnings (loss) per share


25,730



25,189Shares used in computing diluted earnings (loss) per share


25,730



27,114





See notes to condensed consolidated financial statements.




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##### Table of Contents

Pericom Semiconductor Corporation





Condensed Consolidated Statements of Cash Flows


(Unaudited)


(In thousands)





Three Months Ended September 30,2002


2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(922
)

$
71Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


1,012



1,038Other-than-temporary decline in investment


52



Loss on disposal of assets


2



Equity in net loss of investee


347



206Changes in assets and liabilities:Accounts receivable


423



599Inventories


(259
)


1,571Prepaid expenses and other current assets


(749
)


(6
)Accounts payable


(371
)


406Accrued liabilities


255



(211
)Net cash provided by (used in) operating activities


(210
)


3,674CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment


(727
)


(805
)Purchase of short-term investments


(89,124
)


(10,489
)Maturities of short-term investments


89,586



6,690Decrease (increase) in other assets


507



(2,511
)Advances to investee






(196
)Net cash provided by (used in) investing activities


242



(7,311
)CASH FLOWS FROM FINANCING ACTIVITIES:Sale of common stock, net


484



455Repurchase of common stock


(515
)


Net cash provided by (used for) financing activities


(31
)


455NET DECREASE IN CASH AND CASH EQUIVALENTS


1



(3,182
)CASH AND CASH EQUIVALENTS:Beginning of period


12,656



89,076End of period

$
12,657


$
85,894SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid (received) during the period for:Income taxes

($
32
)

$
37





See notes to condensed consolidated financial statements.




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Pericom Semiconductor Corporation





Notes To Condensed Consolidated Financial Statements


(Unaudited)





1.    Basis of Presentation





The 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 financial statements include all adjustments,
consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of the Companys financial position as of September 30, 2002 and the results of operations and cash flows for the three month period ended September
30, 2002 and 2001. This unaudited quarterly information should be read in conjunction with the audited financial statements of Pericom and the notes thereto incorporated by reference in the Companys Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.





The preparation of the interim condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the
date of the interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual amounts could differ from these estimates. The results of operations for the three-month period ended
September 30, 2002 are not necessarily indicative of the results to be expected for the entire year.





The Companys fiscal periods
in the accompanying financial statements have been shown as ending on June 30 and September 30. The Companys fiscal year 2002 ended on June 29, 2002. The three month periods in fiscal years 2003 and 2002 ended on September 28, 2002 and
September 29, 2001, respectively and each period included thirteen 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 and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent,
product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; availability of necessary components; and the Companys ability to attract and retain
employees necessary to support its growth.





These condensed consolidated financial statements include the accounts of Pericom
Semiconductor Corporation and its wholly owned subsidiary, Pericom Semiconductor (HK) Limited. Pericom Semiconductor (HK) Limited was incorporated in Hong Kong on May 31, 2000 and is engaged in circuit design services solely for Pericom
Semiconductor Corporation. All significant intercompany balances and transactions are eliminated in consolidation.





2.    Earnings (Loss) Per Share





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




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Basic and diluted earnings (loss) per share for the three month periods ended September 30, 2002 and
2001 are computed as follows (in thousands, except for per share data):





Three Months Ended September 30,2002


2001Net income (loss)

$
(922
)

$
71Computation of common shares outstandingbasic earnings (loss) per share:Weighted average shares of common stock


25,730



25,189Basic earnings (loss) per share

$
(0.04
)

$
0.00Computation of common shares outstandingdiluted earnings (loss) per share:Weighted average shares of common stock


25,730



25,189Dilutive options using the treasury stock method






1,925Shares used in computing diluted earnings (loss) per share


25,730



27,114Diluted earnings (loss) per share

$
(0.04
)

$
0.00





Options to purchase 2,395,192 shares of Common stock at prices ranging from $14.50 to
$42.75 were outstanding as of September 30, 2001, but not included in the computation of diluted net income per share because the options exercise prices were greater than the average market price of the common shares as of such dates and
therefore, would be anti-dilutive under the treasury stock method. For the three-month period ended September 30, 2002, options to purchase 5,451,615 shares of Common stock were not included in the computation of diluted net loss per share because
the Company had net losses for those periods and those options would be anti-dilutive.





3.    Inventories





Inventories consist of (in thousands):





September 30, 2002

June 30, 2002Raw materials

$
2,713

$
2,523Work in process


3,217


3,921Finished goods


3,668


2,895$
9,598

$
9,339




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4.    Accrued Liabilities





Accrued liabilities consist of (in thousands):





September 30, 2002

June 30, 2002Accrued compensation

$
1,505

$
1,132External sales representative commissions


722


727Other accrued expenses


868


981$
3,095

$
2,840





5.    Other Investments





The Company has investments in certain privately held companies, which it accounts for under the cost method. The carrying amount of such investments was
approximately $2.1 million and $2.7 million at September 30, 2002 and June 30, 2002, respectively, and these amounts are recorded in other assets. The Company recorded a partial write off of an investment in the three months ended September 30, 2002
totaling approximately $52,000, as the Company determined that the investment had experienced an other-than-temporary decline in value.





6.    Industry and Segment Information





Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information established annual and interim reporting standards for an enterprises business segments and related disclosures about its products,
services, geographical areas and major customers. The Company operates and tracks its results in one reportable segment. The Company designs, develops, manufactures and markets a broad range of interface integrated circuits.





7.    Comprehensive Income





SFAS No. 130, Reporting Comprehensive Income requires an enterprise to report, by major components and as a single total, the change in net assets during the period from non-owner sources. For the three-month periods
ended September 30, 2002 and 2001, comprehensive income, which was comprised of the Companys net income for the periods and changes in cumulative unrealized gain/(loss) on short-term investments was as follows:





Three Months Ended September 30,2002


2001Net income (loss)

$
(922
)

$
71Unrealized gain on investment


1,214



391Comprehensive income

$
292


$
462





8.    Recently Issued Accounting Pronouncements





On July 1, 2001 the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets which addresses the financial accounting and
reporting standards for the acquisition of intangible assets outside a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from
other intangible assets in the statements of financial position, and no longer be amortized but tested for impairment on a periodic basis.





In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal




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of long-lived assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, and the accounting and reporting provisions of Accounting Principles Board No. 30, Reporting the results of OperationsReporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions for the disposal of a segment of a business. The Company adopted SFAS No. 144 on July 1, 2002. The Company has determined that the adoption of SFAS No. 144 will not have an impact on its results
of operations, financial position or liquidity.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 requires that any gains or losses on extinguishment of debt that were classified as an extraordinary item in prior periods that are not unusual in nature and infrequent in
occurrence be reclassified to other income (expense), beginning in fiscal 2003, with early adoption encouraged. The Company adopted SFAS No. 145 on July 1, 2002. Adoption of SFAS No. 145 had no impact on the Companys financial position,
results of operations or cash flows.





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost
was recognized at the date of the Companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing
future restructuring costs as well as the amounts recognized. The Company is required to adopt SFAS No. 146 on January 1, 2003. The Company is currently in the process of determining the impact that the adoption of SFAS No. 146 will have on its
results of operations or financial position.





9.    Shareholder Rights Plan





Pericom has adopted a Shareholder Rights Plan and declared a dividend distribution of one right for each outstanding share of the Companys common stock.
The record date for the distribution was March 21, 2002. The plan is designed to protect the long-term value of the company for its shareholders during any future unsolicited acquisition attempt. Adoption of the plan was not made in response to any
specific attempt to acquire Pericom or its shares and the company is not aware of any current efforts to do so. These rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15%
of Pericoms outstanding common stock by a person or group. After a person or group acquires 15% or more of the outstanding common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of
15% or more of the outstanding common stock, the rights will become exercisable by persons other than the acquiring person, unless the Board of Directors has approved the transaction in advance. Each right entitles the holder, other than an
acquiring person, to acquire shares of Pericoms common stock (or, in the event that there are insufficient authorized common stock shares, substitute consideration such as cash, property, or other securities of the Company, such as Preferred
Stock) at a 50% discount to the then prevailing market price. Prior to the acquisition by a person or group of 15% or more of the outstanding common stock, the rights are redeemable for $0.001 per right at the option of the Board of Directors. The
rights will expire on March 6, 2012. As of September 30, 2002, there were 25,740,083 rights outstanding.





10.    Stock Repurchase Program





On October 22, 2001 the Companys Board of Directors
authorized a stock repurchase program to repurchase up to 2,000,000 shares of Pericoms common stock. Purchases may be made in the open market or in privately negotiated transactions from time to time at managements discretion. The
Company began repurchasing shares of Pericoms stock on July 23, 2002. The Company purchased 57,000 shares at a total cost of approximately $515,000 as of September 30, 2002. The Company purchased an additional 40,000 shares at a total cost of
approximately $289,000 subsequent to September 30, 2002.




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11.    Subsequent Event





On October 21, 2002 Pericom made a $2,000,000 bridge loan to GCT Semiconductor, Inc. (GCT). For the purpose of facilitating the loan transaction, Pericom received a security
interest in the fixed assets of GCT that was convertible to preferred stock. On November 4, 2002 the conversion took place. After the conversion, Pericom owns approximately 3% GCT.




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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 (the Form 10-K).





Critical Accounting
Policies





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





We consider the following accounting policies are critical as defined by the Securities and Exchange Commission, in that they are both highly
important to the portrayal of our financial condition and results, and require us to make difficult judgements and assumptions about matters that are inherently uncertain. We also have other important policies that are discussed in Note 1 to the
Consolidated Financial Statements in our Form 10-K.





Revenue Recognition.We recognize revenue from the
sale of our products upon shipment, provided title and risk of loss has passed to the customer, the fee is fixed and 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. Approximately 50% of our sales are to distributors. We have agreements for price adjustment and stock rotation programs with our distributors. The revenue we record for sales to our distributors is net of
estimated provisions for these programs. When determining this net revenue, we must make significant judgements and estimates. Our estimates are based on historical experience rates, inventory levels in the distribution channel, current trends and
other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results depend on our ability to
make reliable estimates and we believe that our estimates are reasonable. We also may choose, at our discretion, to expand our price protection or stock rotation programs beyond our contractual obligations or previous estimates. For example, in the
quarter ended December 31, 2001, we recorded a charge of approximately $3.2 million against revenue to address inventory and pricing issues in our distribution channel that were due to the significant drop off in business activity that we had
experienced.





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 record reserves for excess and obsolete inventory based on inventory age, shipment history and our forecast of demand over a specific future period of time. The reserve is
reduced when product is sold or otherwise disposed of. Actual market conditions in the volatile semiconductor markets that we serve may vary from our forecast or other assumptions, potentially impacting our inventory reserves and resulting in
material effects on our gross margin.





Investments.As required by SFAS No. 142, Goodwill and Other
Intangible Assets, which we adopted in fiscal 2002 we ceased amortizing Goodwill with a net carrying value of $1,323,000 and annual amortization of $338,000 that resulted from business combinations initialed prior to the adoption of SFAS No. 141,
Business Combinations. SFAS No. 142 also requires that goodwill be tested for impairment at least




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annually. We determined that no impairment of this goodwill existed in fiscal 2002, and we will continue to evaluate such goodwill at least
annually.





We also made other investments including bridge loans convertible to equity as well as direct equity investments. These
investments are included in other long-term 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.





Results of Operations





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





Three Months Ended September 30,2002


2001Net revenues

100.0
%

100.0
%Cost of revenues

69.8
%

65.8
%Gross profit

30.2
%

34.2
%Operating expenses:Research and development

26.9
%

19.7
%Selling, general and administrative

29.2
%

22.4
%Total

56.1
%

42.1
%Income (loss) from operations

(25.9
%)

(7.9
%)Other income, net

10.6
%

8.7
%Other-than-temporary decline in investment

(0.5
%)

Income (loss) before income taxes

(15.8
%)

0.8
%Income tax provision (benefit)

(7.3
%)

0.3
%Net income (loss)

(8.5
%)

0.5
%





Net Revenues





Net revenues consist primarily of product sales, which are recognized upon shipment, less an estimate for returns and allowances. Net revenues decreased 17.6% from $13.1 million for the
quarter ended September 30, 2001 to $10.8 million for the quarter ended September 30, 2002. The decrease in net revenues resulted from weakness in notebook and memory module demand and significant declines in the weighted average selling price of
certain products due to the ongoing worldwide reduction in semiconductor demand which creates increased competitive price pressure. Sales to our top five direct customers accounted for approximately 46.8% of net revenues in the three months ended
September 30, 2002 and direct sales to one of them, a global contract manufacturer, accounted for more than 10% of net revenues in the same period. In the three months ended September 30, 2001, sales to our top five direct customers accounted for
approximately 51.4% of net revenues and sales to two of them, one a global contract manufacturer and the other an international distributor, each accounted for more than 10% of net revenues in the same period. Two of our end-user customers each
accounted for more than 10% of our gross revenues in the three months ended September 30, 2002 and sales to our top five end-user customers accounted for approximately 45.4% of gross revenues in the three months ended September 30, 2002 compared
with 44.2% in the three months ended September 30, 2001.




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Net revenues by major geography as a percentage of total net revenues for the three months ended
September 30, 2002 and 2001.





Three Months Ended September 30,2002


2001Asia (Excluding Japan)

54.7
%

46.0
%Japan

3.2
%

4.5
%Europe

8.6
%

6.8
%North America

33.5
%

42.7
%Total

100.0
%

100.0
%





In the three months ended September 30, 2002, as compared with the three months ended
September 30, 2001 the increase in the percentage of our net revenues derived from sales in Asia, excluding Japan, and the decrease in the percentage derived from sales in North America were primarily driven by the ongoing shift of contract
manufacturing production from North America to Asia.





Gross Profit





Gross profit decreased 26.7% from $4.5 million for the quarter ended September 30, 2001 to $3.3 million for the quarter ended September 30, 2002. Gross profit as a percentage of net
revenues, or gross margin, decreased from 34.2% in the quarter ended September 30, 2001 to 30.2% in the quarter ended September 30, 2002. The decrease in gross margin resulted from what we believe to be a temporary product mix change toward lower
margin products due to weakness in certain markets and customers and pricing pressure resulting in lower average selling prices and reduced manufacturing volumes which resulted in a higher fixed cost per unit. These factors were partially offset by
ongoing cost reduction efforts including reduced costs from our wafer and assembly suppliers and internal programs to reduce product cost.





Research and Development





Research and development expenses increased 11.5% from $2.6 million in the
quarter ended September 30, 2001 to $2.9 million in the quarter ended September 30, 2002, and increased as a percentage of net revenues from 19.7% to 26.9%. The expense increase was primarily due to costs associated with the development of new
products. The increase in expenses as a percentage of sales is primarily due to the decline in sales.





The Company believes that
continued spending on research and development to develop new products and improve manufacturing processes is critical to the Companys success and, consequently, expects to increase research and development expenses in future periods over the
long term. In the short term, the Company intends to continue our emphasis on cost control during the current industry slowdown.





Selling, General and Administrative





Selling, general and administrative expenses consist primarily of
personnel and related overhead costs for sales, marketing, finance, human resources and general management. Such costs also include advertising, sales materials, sales commissions and other marketing and promotional expenses. Selling, general and
administrative expenses increased 10.3% from $2.9 million for the quarter ended September 30, 2001 to $3.2 million for the quarter ended September 30, 2002, and increased as a percentage of net revenues from 22.4% to 29.2%. The increase in expense
was due to personnel related costs and professional fees for legal and tax matters. The increase in expenses as a percentage of net sales in each period is primarily due to the decline in sales.




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The Company anticipates that selling, general and administrative expenses will increase in future
periods over the long term due to increased staffing levels, particularly in sales and marketing, as well as increased commission expense to the extent the Company achieves higher sales levels. In the short term, the Company intends to continue our
focus on cost control until business conditions improve.





Other Income, Net





Other income, net, includes interest income, the Companys allocated portion of the net income or losses of Pericom Technology, Inc. (PTI) and
the write off of a portion of an investment deemed to be other than temporarily impaired in the quarter ended September 30, 2002. Other income, net, decreased from $1.2 million for the quarter ended September 30, 2001 to $1.1 million for the quarter
ended September 30, 2002. From the quarter ended September 30, 2001 to the quarter ended September 30, 2002, the Companys share of the net losses of PTI increased from a loss of $206,000 to a loss of $347,000 as a result of the slowdown in the
China markets PTI serves. Interest and other income increased from $1.4 million for the quarter ended September 30, 2001 to $1.5 million for the quarter ended September 30, 2002 primarily due to $302,000 of realized gains on sale of short term
investments which was partially offset by lower returns on invested funds. In the quarter ended September 30, 2002 the Company wrote off approximately $52,000 of an investment because of an other than temporary decline in the value of the
investment.





Provision for Income Taxes





The provision for income taxes decreased from a provision of $39,000 for the quarter ended September 30, 2001 to a benefit of $786,000 for the quarter ended September 30, 2002. The decrease in the
provision for income taxes for the current fiscal quarter is due primarily to the decrease in taxable income. The effective tax rate of 46.0% in the quarter ended September 30, 2002 has increased from the 35.5% rate used in the comparable period in
the prior year. The increase in effective tax rate is due primarily to decisions made during the quarter ended September 30, 2002 to delay certain international business infrastructure changes that were planned for the current fiscal year. This
resulted in a recapture of tax deductions, thereby increasing our tax loss and effective tax rate, which is a benefit, for the current fiscal year. The tax rate is expected to be 46%, subject to adjustment for revisions to estimates that are
subjective in nature. The provision for income taxes also differed from the federal statutory rate due to state income taxes.





Liquidity and Capital Resources





Net cash used in operating activities was $210,000 during the three months ended
September 30, 2002 and $3.7 million of cash during the three months ended September 30, 2001. Net cash used in investing activities in the quarter ended September 30, 2001 was $7.3 million compared to net cash provided by investing activities of
$242,000 for the three months ended September 30, 2002. The Company made capital expenditures of approximately $727,000 during the three months ended September 30, 2002 compared with $805,000 in the comparable period of the previous year. The
Company had net purchases of short-term investments of $3.8 million in the quarter ended September 30, 2001 compared to net proceeds of $462,000 from the sale of investments in the quarter ended September 30, 2002.





As of September 30, 2002, the Companys principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $156.6
million. Management believes that existing cash balances and cash generated from operations will be sufficient to fund necessary purchases of capital equipment and to provide working capital at least through the next twelve months. However, future
events may require the Company to seek additional capital sooner. If the Company determines that it needs to seek additional capital, the Company may not be able to obtain such additional capital on terms acceptable to it.





The Companys Board of Directors has approved the repurchase of up to 2,000,000 shares of common stock. As of September 30, 2002, the Company has
repurchased 57,000 shares at a cost of approximately $515,000.




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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.





Factors That May Affect Operating Results





This Quarterly Report
on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are forward-looking
statements for purposes of these provisions, including any statements regarding: projections of revenues, expenses or other financial items; the plans and objectives of management for future operations; the Companys tax rate; the
adequacy of allowances for returns, price protection and other concessions; proposed new products or services; the sufficiency of cash generated from operations and cash balances; the Companys exposure to interest rate risk; future economic
conditions or performance; plans to focus on cost control; plans to seek intellectual property protection for the Companys technologies; expectations regarding export sales and net revenues; the expansion of sales efforts; acquisition
prospects; the effect of the adoption of SFAS No. 141 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) below, (ii) in the Companys Form 10-K under the heading Risk Factors; Factors That May Affect Future Results, and (iii) in Note 1 to the Notes to Condensed Consolidated Financial Statements. All
forward-looking statements and reasons why results may differ included in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update any such forward-looking statement or reason why actual results may
differ.





Our results of operations have been adversely affected by the continuing slowdown in the global economy.





For over a year and a half, the global economy has been experiencing a slowdown due to many factors, including decreased consumer confidence and
reduced corporate profits and capital spending. As a result of these unfavorable economic conditions, our new customer order rates have stabilized at a much lower level than in fiscal 2001. If these weak economic conditions in the United States
continue or worsen or if a wider or global economic slowdown occurs, our business, financial condition and results of operations may be materially and adversely affected.





Downturns in the semiconductor industry, rapidly changing technology 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. We believe that the semiconductor industry is currently in such a downturn. Our net revenues may continue to be adversely affected if this
downturn continues. In general, we may in the future 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.




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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s or end-users product and on the extent to which the systems design accommodates components manufactured by our competitors. If we fail to achieve design wins or if the design wins fail to result in
significant future revenues, our operating results would be harmed. If we have problems developing or maintaining our relationships with our customers and end-users, our ability to develop well-accepted new products may be impaired.





The 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;
|- |  | ------------------------------------------------------------------------------------

| |  | 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.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In the past, our quarterly operating results have varied significantly and are
likely to fluctuate in the future. A wide variety of factors affect our operating results. These factors might include the following:





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

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

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

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

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

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

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

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

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

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

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

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

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

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




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




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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 over 700 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 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 Cypress Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated Device Technology, Inc., Maxim Integrated Products, Inc., Fairchild Semiconductor, Intl., Intel Corp., On Semiconductor Corp., Motorola,
STMicroelectronics, Toshiba, Hitachi, and Texas Instruments, Inc. 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.




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Product price declines and fluctuations may cause our future financial results to vary.





Historically, selling prices in the semiconductor industry generally, as well as for our products, have decreased significantly over
the life of each product. We expect that selling prices for our existing products will continue to decline over time and that average selling prices for our new products will decline significantly over the lives of these products. Declines in
selling prices for our products, if not offset by reductions in the costs of producing these products or by sales of new products with higher gross margins, would reduce our overall gross margins and could seriously harm our business.





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





In fiscal 2002, 2001 and 2000 we purchased approximately 68%, 59% and 75%, respectively, of
our wafers from Chartered Semiconductor Manufacturing Ltd., and in the first three months of fiscal 2003 we purchased 69% of our wafers from Chartered. In the first three months of fiscal 2003 and in fiscal 2000, only four other suppliers
manufactured the remainder of our wafers. In fiscal 2002 and 2001, only five other suppliers manufactured the remainder of our wafers. Our reliance on independent wafer suppliers to fabricate our wafers at their production facilities subjects us to
possible risks such as:





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

| |  | lack of available manufactured products;
|- |  | ----------------------------------------

| |  | lack of control over delivery schedules; and
|- |  | --------------------------------------------

| |  | unanticipated changes in wafer prices.
|- |  | --------------------------------------




Any inability or unwillingness of our wafer suppliers generally, and Chartered 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.





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




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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.





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





Our success depends in part on our ability to obtain patents and licenses and preserve other intellectual property rights covering
our products and development and testing tools. In the United States, we hold 46




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patents covering certain aspects of our product designs and have at least 27 additional patent applications pending. Copyrights, mask work
protection, trade secrets and confidential technological know-how are also key to our business. Additional patents may not be issued to us or our patents or other intellectual property may not provide meaningful protection. We may be subject to, or
initiate, interference proceedings in the U.S. Patent and Trademark Office. These proceedings can consume significant financial and management resources. We may become involved in litigation relating to alleged infringement by us of others
patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and takes up significant amounts of managements time and attention. In addition, if we lose such a
lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business. Also, although we may seek to
obtain a license under a third partys intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all.





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





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





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





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





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





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





The manufacture and assembly of our over 700 products are highly complex and
sensitive to a wide variety of factors, including:





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

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

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




In a typical semiconductor manufacturing process, silicon wafers produced by a foundry are cut into individual die. These die are assembled into individual packages and tested for performance. Our
wafer fabrication suppliers have from time to time experienced lower than anticipated yields of suitable die. In the event of such decreased yields, we would incur additional costs to sort wafers, an increase in average




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cost per usable die and an increase in the time to market for our products. These conditions could reduce our net revenues and gross margin and
harm our customer relations.





We do not manufacture any of our 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 semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or increase our costs.





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. We expect this trend to continue for the foreseeable future. One direct customer, a global contract manufacturer, accounted for more than 10% of net revenues during the first three months of fiscal 2003. Sales to our top five direct
customers accounted for approximately 46.8% of net revenues in the first three months of fiscal 2003. Two of our end-user customers each accounted for more than 10% of our gross revenues in the first three months of fiscal 2003 and sales to our top
five end-user customers accounted for approximately 45.4% of gross revenues in the same period.





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 selling our products at any time. Our distributors typically
offer competing products in addition to ours. For the three months ended September 30, 2002 sales to our distributors were 47.0% of net revenues. The loss of one or more significant customers, or the decision by a significant distributor to carry
the product lines of our competitors, could decrease our revenues.





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





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





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

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

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

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

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

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

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

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




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




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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 30, 2002, approximately 55% of our
net revenues derived from sales in Asia excluding Japan, approximately 9% from sales in Europe and approximately 3% from sales in Japan. We expect that export sales will continue to represent a significant portion of net revenues. We intend to
expand our sales efforts outside the United States. This expansion will require significant management attention and financial resources and further subject us to international operating risks. These risks include:





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

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

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

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




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





Our potential future acquisitions, or acquisition related investments, may not be successful because we have not made acquisitions in the past.





We have depended on internal growth in the past and have not made any acquisitions. As part of our business strategy, we expect to
seek acquisition prospects that would complement our existing product offerings, improve market coverage or enhance our technological capabilities. Future acquisitions could result in the following:





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

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

| |  | the incurrence of debt and contingent liabilities;
|- |  | --------------------------------------------------

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

| |  | diversion of managements attention from other business concerns; and
|- |  | ---------------------------------------------------------------------

| |  | 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------




We are not certain that we will be able to successfully integrate any businesses, products, technologies or personnel
that may be acquired in the future. Our failure to do so could seriously harm our business. 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. For example, we have previously had to write off all or portions of investments due to an other than temporary decline in value.





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





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




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Item 3.    Quantitative and Qualitative Disclosures about Market Risk





At September 30,
2002, our investment portfolio consisted of investment-grade fixed income securities, excluding those classified as cash equivalents, of $143.9 million. These securities are subject to interest rate risk and will decline in value if market interest
rates increase. For example, if market interest rates were to increase immediately and uniformly by 10% per annum from levels as of September 30, 2002, the fair market value of the portfolio would decrease. However, we do not believe that such a
decrease would have a material effect on our results of operations over the next fiscal year. Due to the short duration and conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk.





Item 4.    Controls and Procedures.





Within 90 days of the filing date of this quarterly
report, an evaluation was performed under the supervision of the Companys Chief Executive Officer and Chief Financial Officer, and with the participation of the Companys executive management, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective
in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission. There were no significant changes in the Companys internal controls or, to the knowledge of
the management of the Company, in other factors that could significantly affect these controls subsequent to the evaluation date.




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PART II.    OTHER INFORMATION





Item 6.    Exhibits and Reports on Form 8-K.





| | a. |  | Exhibits
| | -- |  | --------




Exhibit Number

Description99.1

Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification of Michael D. Craighead, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





| | b. |  | Reports on Form 8-K.
| | -- |  | --------------------




| |  |  | No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2002.
| |  |  | --------------------------------------------------------------------------------------------------------------------------



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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.





PERICOM SEMICONDUCTOR CORPORATION (Registrant)Date:    November 12, 2002



By:

/s/    ALEX C. HUIAlex C. Hui Chief Executive
OfficerDate:    November 12, 2002



By:

/s/    MICHAEL D.
CRAIGHEADMichael D. Craighead Chief Financial
Officer (Chief Accounting Officer)




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CERTIFICATION





I, Alex C. Hui, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Pericom Semiconductor Corporation;
|-- |  | ----------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 12, 2002



By:

/s/    ALEX C. HUIAlex C. Hui Chief Executive
Officer




26




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##### Table of Contents

CERTIFICATION





I, Michael D. Craighead, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Pericom Semiconductor Corporation;
|-- |  | ----------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 12, 2002



By:

/s/    MICHAEL D.
CRAIGHEADMichael D. Craighead Chief Financial
Officer




27