UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 Washington,
        D.C. 20549
 
 FORM
        10-Q
  x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF
                  THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        quarterly period ended March 29, 2008
 
 o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF
                  THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        Transition Period from _______ to _______
 
 Commission
        File Number 0-27026
 
 Pericom
        Semiconductor Corporation
 (Exact
        Name of Registrant as Specified in Its Charter)
 
 California
              
              77-0254621(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              
              Identification
                  No.)
 
 3545
        North First Street
 San
        Jose,
        California 95134
 (408)
        435-0800
 (Address
        of Principal Executive Offices and
 Issuer’s
        Telephone Number, Including Area Code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
        12 months (or for such shorter period that the Registrant was required to
        file
        such reports), and (2) has been subject to such filing requirements for the
        past
        90 days.
 Yes
x No
o
 
 Indicate
        by check mark whether the Registrant is a large accelerated filer, an
        accelerated filer, 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 o
              
              Accelerated
                  Filer xNon-accelerated
                  Filer o
              
              Smaller
                  Reporting Company o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)
 
 Yes
o No
x
  As
        o f
        May 6,
        2008 the Registrant had outstanding 25,328,899 shares of Common
        Stock.







Pericom
      Semiconductor Corporation





Form
      10-Q
      for the Quarter Ended March 29, 2008





INDEX


PagePART
                  I. FINANCIAL INFORMATIONItem
                  1:
              Condensed
                  Consolidated Financial Statements (Unaudited)Condensed
                  Consolidated Balance Sheets as of
                March
                  29, 2008 and June 30, 2007
              3Condensed
                    Consolidated Statements of Operationsfor
                  the three and nine months ended March 29, 2008 and March 31,
                  2007
              4Condensed
                    Consolidated Statements of Cash Flowsfor
                  the nine months ended March 29, 2008 and March 31, 2007
              5Notes
                  to Condensed Consolidated Financial Statements
              6Item
                  2:
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              18Item
                  3:
              Quantitative
                  and Qualitative Disclosures about Market Risk
              27Item
                  4:
              Controls
                  and Procedures
              28PART
                  II. OTHER INFORMATIONItem
                  1A:
              Risk
                  Factors
              29Item
                  2:
              Unregistered
                  Sale of Equity Securities and Use of Proceeds
              38Item
                  6:
              Exhibits
              39Signatures
              
              40




2


PART
      I.
      FINANCIAL INFORMATION


Item
      1:
      Condensed Consolidated Financial Statements





Pericom
      Semiconductor Corporation


Condensed
      Consolidated Balance Sheets


(In
      thousands, except share data)




March 29,
            
            June 30,2008
            
            2007(Unaudited)
            
            (1)ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            17,334
            
            $
            29,173Short-term
                investments
            
            
            92,741
            
            
            42,268Accounts
                receivable
            
            
            28,533
            
            
            19,621Inventories
            
            
            18,988
            
            
            14,787Prepaid
                expenses and other current assets
            
            
            967
            
            
            669Deferred
                income taxes
            
            
            3,967
            
            
            4,280Total
                current assets
            
            
            162,530
            
            
            110,798Property
                and equipment – net
            
            
            28,941
            
            
            23,940Investments
                in unconsolidated affiliates
            
            
            10,192
            
            
            9,619Deferred
                income taxes – non-current
            
            
            5,434
            
            
            5,572Long-term
                investments in marketable securities
            
            
            8,020
            
            
            59,574Goodwill
            
            
            1,325
            
            
            1,348Intangible
                assets
            
            
            1,186
            
            
            1,311Other
                assets
            
            
            2,820
            
            
            2,073Total
                assets
            
            $
            220,448
            
            $
            214,235LIABILITIES
                AND SHAREHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            12,160
            
            $
            12,553Accrued
                liabilities
            
            
            9,789
            
            
            8,718Current
                portion of long-term debt
            
            
            -
            
            
            392Total
                current liabilities
            
            
            21,949
            
            
            21,663Long-term
                debt
            
            
            -
            
            
            388Deferred
                tax liabilities
            
            
            797
            
            
            797Other
                long term liabilities
            
            
            -
            
            
            3Minority
                interest in consolidated subsidiaries
            
            
            1,064
            
            
            906Total
                liabilities
            
            
            23,810
            
            
            23,757Shareholders’
                equity:Common
                stock and paid in capital - no par value, 60,000,000 sharesauthorized;
                shares issued and outstanding: March 29, 2008,(25,292,000);
                June 30, 2007, (25,838,000)
            
            
            125,238
            
            
            135,887Retained
                earnings
            
            
            67,569
            
            
            55,149Accumulated
                other comprehensive income (loss)
            
            
            3,831
            
            
            (558
            )Total
                shareholders’ equity
            
            
            196,638
            
            
            190,478Total
                liabilities and shareholders' equity
            
            $
            220,448
            
            $
            214,235




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





See
      notes
      to condensed consolidated financial statements.


3




Pericom
      Semiconductor Corporation


Condensed
      Consolidated Statements of Operations


(In
      thousands, except per share amounts)


(Unaudited)




Three Months Ended
            
            Nine Months EndedMarch
                29,
              2008
            
            March
                31,
              2007
            
            March
                29,
              2008
            
            March
                31, 2007Net
                revenues
            
            $
            41,177
            
            $
            30,182
            
            $
            120,371
            
            $
            91,850Cost
                of revenues
            
            
            25,709
            
            
            19,960
            
            
            75,870
            
            
            60,530Gross
                profit
            
            
            15,468
            
            
            10,222
            
            
            44,501
            
            
            31,320Operating
                expenses:Research
                and development
            
            
            4,503
            
            
            4,048
            
            
            12,863
            
            
            12,030Selling,
                general and administrative
            
            
            5,705
            
            
            5,342
            
            
            17,330
            
            
            16,056Total
            
            
            10,208
            
            
            9,390
            
            
            30,193
            
            
            28,086Income
                from operations
            
            
            5,260
            
            
            832
            
            
            14,308
            
            
            3,234Interest
                and other income
            
            
            903
            
            
            2,496
            
            
            3,895
            
            
            4,927Other
                than temporary decline in value of investment
            
            
            (52
            )
            
            (5
            )
            
            (52
            )
            
            (6
            )Income
                before income taxes
            
            
            6,111
            
            
            3,323
            
            
            18,151
            
            
            8,155Income
                tax expense
            
            
            2,054
            
            
            788
            
            
            6,089
            
            
            2,099Minority
                interest in income of consolidated subsidiaries
            
            
            (47
            )
            
            (7
            )
            
            (63
            )
            
            (37
            )Equity
                in net income of unconsolidated affiliates
            
            
            131
            
            
            86
            
            
            421
            
            
            476Net
                income
            
            $
            4,141
            
            $
            2,614
            
            $
            12,420
            
            $
            6,495Basic
                income per share
            
            $
            0.16
            
            $
            0.10
            
            $
            0.48
            
            $
            0.25Diluted
                income per share
            
            $
            0.16
            
            $
            0.10
            
            $
            0.47
            
            $
            0.24Shares
                used in computing basic income per share
            
            
            25,835
            
            
            26,109
            
            
            25,823
            
            
            26,118Shares
                used in computing diluted income per share
            
            
            26,633
            
            
            26,702
            
            
            26,657
            
            
            26,725




See
      notes
      to condensed consolidated financial statements.


4


Pericom
      Semiconductor Corporation


Condensed
      Consolidated Statements of Cash Flows


(In
      thousands)


(Unaudited)





Nine
                Months EndedMarch
                29,
              2008
            
            March
                31,
              2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            12,420
            
            $
            6,495Adjustments
                to reconcile net income to net cash provided by operating activities:Depreciation
                and amortization
            
            
            4,126
            
            
            4,661Stock
                based compensation
            
            
            1,743
            
            
            1,519Tax
                benefit related to stock based compensation plan
            
            
            2,312
            
            
            -Excess
                tax benefit on stock based compensation
            
            
            (1,287
            )
            
            (111
            )Loss
                on sale of short-term investments
            
            
            -
            
            
            47Other
                than temporary decline in investment
            
            
            -
            
            
            6Gain
                on disposal of assets
            
            
            -
            
            
            (73
            )Equity
                in net income of unconsolidated affiliates
            
            
            (421
            )
            
            (476
            )Deferred
                income taxes
            
            
            531
            
            
            517Minority
                interest in subsidiary’s net income
            
            
            158
            
            
            37Gain
                on sale of investment
            
            
            -
            
            
            (1,002
            )Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (8,167
            )
            
            2,468Inventories
            
            
            (3,551
            )
            
            2,583Prepaid
                expenses and other current assets
            
            
            (281
            )
            
            (193
            )Other
                assets
            
            
            (728
            )
            
            (50
            )Long
                term investment
            
            
            -
            
            
            (17
            )Accounts
                payable
            
            
            (841
            )
            
            1,215Other
                accrued liabilities
            
            
            (1,577
            )
            
            (105
            )Other
                long term liabilities
            
            
            (3
            )
            
            (393
            )Net
                cash provided by operating activities
            
            
            4,434
            
            
            17,128CASH
                FLOWS FROM INVESTING ACTIVITIES:Additions
                to property and equipment
            
            
            (7,482
            )
            
            (3,620
            )Net
                proceeds from sales of property and equipment
            
            
            -
            
            
            248Net
                proceeds from sale of investment
            
            
            -
            
            
            2,004Purchase
                of investments
            
            
            (66,242
            )
            
            (339,777
            )Maturities
                of investments
            
            
            68,901
            
            
            329,598Change
                in restricted cash balance
            
            
            -
            
            
            648Net
                cash used in investing activities
            
            
            (4,823
            )
            
            (10,899
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Sale
                of common stock
            
            
            7,730
            
            
            2,998Excess
                tax benefit on stock based compensation
            
            
            1,287
            
            
            111Proceeds
                from short-term and long-term debts
            
            
            -
            
            
            2,738Principal
                payments on long-term debt and capital leases
            
            
            (784
            )
            
            (9,821
            )Repurchase
                of common stock
            
            
            (20,122
            )
            
            (6,045
            )Net
                cash used in financing activities
            
            
            (11,889
            )
            
            (10,019
            )EFFECT
              OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            439
            
            
            (243
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (11,839
            )
            
            (4,033
            )CASH
                AND CASH EQUIVALENTS:Beginning
                of period
            
            
            29,173
            
            
            12,577End
                of period
            
            $
            17,334
            
            $
            8,544SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the period for:Income
                taxes
            
            $
            4,875
            
            $
            791Interest
            
            $
            11
            
            $
            140




See
      notes
      to condensed consolidated financial statements.


5





Pericom
      Semiconductor Corporation


Notes
      To
      Condensed Consolidated Financial Statements


(Unaudited)





**1.
      BASIS OF PRESENTATION**





The
      condensed consolidated financial statements have been prepared by Pericom
      Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and
      regulations of the Securities and Exchange Commission. In the opinion of
      management, these unaudited condensed consolidated financial statements include
      all adjustments, consisting only of normal recurring adjustments and accruals,
      necessary for a fair presentation of the Company’s financial position as of
      March 29, 2008, the results of operations for the three and nine months ended
      March 29, 2008 and March 31, 2007 and cash flows for the nine months ended
      March
      29, 2008 and March 31, 2007. This unaudited quarterly information should be
      read
      in conjunction with the audited consolidated financial statements of Pericom
      and
      the notes thereto incorporated by reference in the Company’s Annual Report on
      Form 10-K as filed with the Securities and Exchange Commission.





The
      preparation of the interim condensed consolidated financial statements in
      conformity with accounting principles generally accepted in the United States
      of
      America requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent assets
      and liabilities as of the date of the interim condensed consolidated financial
      statements and the reported amounts of revenue and expenses during the period.
      Actual amounts could differ from these estimates. The results of operations
      for
      the three and nine month periods ended March 29, 2008 and March 31, 2007 are
      not
      necessarily indicative of the results to be expected for the entire year. The
      three and nine month periods ended March 29, 2008 and March 31, 2007 each had
      13
      and 39 week periods, respectively.





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





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




**2.
      BUSINESS COMBINATIONS**





***Acquisition
      of SaRonix, LLC***





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




6




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





***Acquisition
      of eCERA Comtek Corporation***





On
      September 7, 2005 the Company purchased a 99.9% share of eCERA Comtek
      Corporation. The Company purchased eCERA and its fifty percent-owned subsidiary,
      Azer, to ensure availability of frequency control products to meet customer
      demand as well as to drive cost efficiencies. The purchase price for eCERA,
      including net cash consideration of $14.7 million and assumed liabilities of
      approximately $19.7 million, totaled approximately $34.4 million including
      transaction costs. The Company also had the right through March 7, 2006 to
      purchase the remaining fifty percent of eCERA’s crystal blank manufacturing
      subsidiary, Azer. The Company exercised this right for cash consideration of
      approximately $1.6 million and assumed debt of approximately $1.8 million on
      February 6, 2006. eCERA and Azer subsequently merged and eCERA was the surviving
      entity. eCERA wrote off Azer-related goodwill of $23,000 in the quarter ended
      December 29, 2007. eCERA changed its name to SaRonix-eCERA (hereafter referred
      to as “eCERA”) after the Company combined the operations of eCERA and SaRonix.
      eCERA has been a key supplier of quartz crystal blanks and crystal oscillator
      products for the Company’s frequency control product line.





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




7




**Purchase
                Price Allocation****(in
                thousands)**
            
            **Revised**
            
            **Deferred**
              **Tax**
              **Adjustment**
            
            **Original**Current
                assets
            
            $
            16,846
            
            $
            998
            
            $
            15,848Property
                and equipment
            
            
            14,646
            
            
            
            
            
            14,646Other
                assets
            
            
            2,594
            
            
            1,407
            
            
            1,187Goodwill
            
            
            -
            
            
            (566
            )
            
            566Other
                intangible assets subject to amortization :Trade
                name
            
            
            40
            
            
            (238
            )
            
            278Core
                developed technology
            
            
            160
            
            
            (950
            )
            
            1,110Customer
                relations
            
            
            111
            
            
            (651
            )
            
            762Total
                assets acquired
            
            
            34,397
            
            
            -
            
            
            34,397Current
                liabilities
            
            
            (12,269
            )
            
            -
            
            
            (12,269
            )Long-term
                liabilities
            
            
            (7,414
            )
            
            -
            
            
            (7,414
            )Total
                liabilities assumed
            
            
            (19,683
            )
            
            -
            
            
            (19,683
            )Minority
                interest
            
            
            (10
            )
            
            -
            
            
            (10
            )Net
                assets acquired
            
            $
            14,704
            
            $
            -
            
            $
            14,704




***Jinan
      Cooperation Agreement***





On
      January 26, 2008, the Company entered into a Cooperation Agreement with the
      Jinan Hi-Tech Industries Development Zone Commission (the “Commission”) in the
      People’s Republic of China (the “PRC”) for the Company’s investment in the Jinan
      Hi-Tech Industries Development Zone (the “Zone”) that is located in Shandong
      Province, PRC. Under the Cooperation Agreement, the Company will, through a
      wholly-owned Hong Kong subsidiary, Pericom Asia Ltd., build a factory in the
      Zone for the development and manufacturing of frequency control products. It
      is
      expected that the Company’s total investment, over a period of years, will be
      approximately $35 million. The Company will acquire land use rights for 75
      acres
      of land in the Zone and will construct a factory with an anticipated 13 surface
      mount device production lines. In support of the Company’s investment, the
      Commission has agreed to assist the Company to acquire tax incentives and
      preferential policies to the maximum extent permitted under PRC national and
      provincial laws and regulations. The Commission also will provide financial
      support to the Company based on the Company’s achievement of specified
      milestones, such as the completion of the factory’s construction and achievement
      of certain sales volumes. The Commission has also agreed to assist the Company
      with obtaining various governmental approvals, such as those relating to the
      establishment of the subsidiary and the construction and operation of the
      subsidiary. The foregoing description of the Cooperation Agreement is qualified
      in its entirety by reference to the full text of the Cooperation Agreement,
      which is an exhibit to a Form 8-K/A, filed on May 5, 2008. As of March 29,
      2008,
      the Company has established PSE Technology (Shandong) Corporation to develop
      and
      operate the factory.




8




**3.
      INTANGIBLE ASSETS**




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




**March
                29, 2008**
            
            **June
                30, 2007****(in
                thousands)**
            
            **Gross**
            
            **Accumulated**
              **Amortization**
            
            **Net**
            
            **Gross**
            
            **Accumulated**
              **Amortization**
            
            **Net**eCERA
                customer relationships
            
            $
            118
            
            $
            (101
            )
            $
            17
            
            $
            111
            
            $
            (67
            )
            $
            44eCERA
                trade name
            
            
            43
            
            
            (16
            )
            
            27
            
            
            40
            
            
            (10
            )
            
            30Core
                developed technology
            
            
            939
            
            
            (548
            )
            
            391
            
            
            925
            
            
            (489
            )
            
            436SaRonix
                supplier relationship
            
            
            397
            
            
            (61
            )
            
            336
            
            
            399
            
            
            (13
            )
            
            386Total
                amortizable purchased intangible assets
            
            
            1,497
            
            
            (726
            )
            
            771
            
            
            1,475
            
            
            (579
            )
            
            896SaRonix
                trade name
            
            
            415
            
            
            -
            
            
            415
            
            
            415
            
            
            -
            
            
            415Total
                purchased intangible assets
            
            $
            1,912
            
            $
            (726
            )
            $
            1,186
            
            $
            1,890
            
            $
            (579
            )
            $
            1,311




Amortization
      expense related to finite-lived purchased intangible assets was approximately
      $58,000 and $147,000 for the three and nine month periods ended March 29, 2008
      and $46,000 and $138,000 for the three and nine month periods ended March 31,
      2007, respectively.





The
      Company performs an impairment review of its intangible assets at least
      annually, in conformity with SFAS No. 142,*Goodwill
      and Other Intangible Assets*(“SFAS
      No. 142”). Based on the results of its most recent impairment review, the
      Company determined that no impairment of its intangible assets existed as of
      March 29, 2008. However, future impairment reviews could result in a charge
      to
      earnings.





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




**(in
                thousands)**
            
            **Next
                12**
              **Months**
            
            **13-24**
              **Months**
            
            **25-36**
              **Months**
            
            **37-48**
              **Months**
            
            **49-60**
              **Months**Expected
                amortization-eCERA
            
            $
            47
            
            $
            31
            
            $
            31
            
            $
            31
            
            $
            12Expected
                amortization-SaRonix
            
            
            117
            
            
            117
            
            
            117
            
            
            117
            
            
            117$
            164
            
            $
            148
            
            $
            148
            
            $
            148
            
            $
            129




**4.
      INCOME PER SHARE**





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





9




Basic
      and
      diluted income per share for the three and nine month periods ended March 29,
      2008 and March 31, 2007 are computed as follows (in thousands, except for per
      share data):





**Three
                Months Ended**
            
            **Nine
                Months Ended****March
                29,**
              **2008**
            
            **March
                31,**
              **2007**
            
            **March
                29,**
              **2008**
            
            **March
                31,**
              **2007**Net
                income
            
            $
            4,141
            
            $
            2,614
            
            $
            12,420
            
            $
            6,495Computation
                  of common shares outstanding – basicearnings
                per share:Weighted
                average shares of common stock
            
            
            25,835
            
            
            26,109
            
            
            25,823
            
            
            26,118Basic
                earnings per share
            
            $
            0.16
            
            $
            0.10
            
            $
            0.48
            
            $
            0.25Computation
                  of common shares outstanding – dilutedearnings
                per share:Weighted
                average shares of common stock
            
            
            25,835
            
            
            26,109
            
            
            25,823
            
            
            26,118Dilutive
                options using the treasury stock method
            
            
            798
            
            
            593
            
            
            834
            
            
            607Shares
              used in computing diluted earnings per share
            
            
            26,633
            
            
            26,702
            
            
            26,657
            
            
            26,725Diluted
                earnings per share
            
            $
            0.16
            
            $
            0.10
            
            $
            0.47
            
            $
            0.24




Options
      to purchase 1,706,000 and 1,805,000 shares of common stock were outstanding
      as
      of March 29, 2008, for the three and nine months ended respectively, but not
      included in the computation of diluted earnings per share because the options
      would be anti-dilutive under the treasury stock method. Likewise, for the three
      and nine month periods ended March 31, 2007, 3,287,000 and 3,273,000 options
      to
      purchase common stock were outstanding respectively, but not included in the
      computation of diluted earnings per share because the options would be
      anti-dilutive under the treasury stock method.




**5.
      INVENTORIES**





Inventories
      consist of:


**March
                  29,**
              
              **June
                  30,****(in
                  thousands)**
              
              **2008**
              
              **2007**Raw
                  materials
              
              $
              6,652
              
              $
              4,570Work
                  in process
              
              
              4,483
              
              
              4,057Finished
                  goods
              
              
              7,853
              
              
              6,160$
              18,988
              
              $
              14,787




The
      increased inventory levels are primarily the result of growth in sales, which
      were 31% higher in the third quarter of fiscal 2008 compared to sales in the
      fourth quarter of fiscal 2007, and cost-of-sales days in inventory are unchanged
      at 67 as of both March 29, 2008 and June 30, 2007. The Company considers raw
      material inventory obsolete and writes it off if the raw material has not moved
      in 365 days. The Company reviews its assembled devices for excess and writes
      them off if the quantity of assembled devices in inventory is in excess of
      the
      greater of the quantity shipped in the previous twelve months, the quantity
      in
      backlog or the quantity forecasted to be shipped in the following twelve months.
      In certain circumstances, management will determine, based on expected usage
      or
      other factors, that inventory considered excess by these guidelines should
      not
      be written off. As of March 29, 2008, the Company had $5.2 million of
      written-off inventory as compared to $8.3 million at June 30, 2007. The Company
      attributes this reduction of approximately $3.1 million in written-off inventory
      between March 29, 2008 and June 30, 2007 to physically scrapping a portion
      of
      the written-off inventory as well as selling of some of the previously written
      off inventory.





During
      the three months ended March 29, 2008 and March 31, 2007, gross profit benefited
      as a result of the sale of inventory of $364,000 and $356,000, respectively,
      that had been previously identified as excess and written down to zero. In
      addition, during nine month periods ended March 29, 2008 and March 31, 2007
      gross profit benefited as a result from the sale of inventory of $954,000 and
      $1.2 million, respectively, that had been previously identified as excess and
      written down to zero.


10




**6.
      ACCRUED LIABILITIES**





Accrued
      liabilities consist of:





**March 29,**
            
            **June 30,****(in thousands)**
            
            **2008**
            
            **2007**Accrued
                compensation
            
            $
            5,102
            
            $
            4,515Accrued
                income tax
            
            
            2,645
            
            
            2,159External
                sales representative commissions
            
            
            440
            
            
            832Other
                accrued expenses
            
            
            1,602
            
            
            1,212$
            9,789
            
            $
            8,718




**7.
      INDUSTRY AND SEGMENT INFORMATION**




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





There
      were no end customers who accounted for 10% or more of net revenues and one
      direct customer, a distributor, who accounted for 16% and 14% of net revenues
      in
      the three and nine months ended March 29, 2008, respectively. There were no
      end
      customers who accounted for 10% or more of net revenues, and one direct
      customer, a distributor, who accounted for 15% of net revenues in the three
      months ended March 31, 2007. There was one end customer, a manufacturer, who
      accounted for 10% of net revenues, and one direct customer, a distributor,
      who
      accounted for 13% of net revenues in the nine months ended March 31, 2007.
      At
      March 29, 2008, one customer accounted for 12% of accounts receivable, whereas
      at March 31, 2007, no customers individually accounted for 10% or greater of
      accounts receivable.





The
      following table sets forth the Company’s long-lived assets by country of
      location as a percentage of total long-lived assets as of March 31, 2008 and
      June 30, 2007:





**March 29,**
            
            **June 30,****2008**
            
            **2007**Taiwan
            
            
            75
            %
            
            68
            %United
                States
            
            
            20
            %
            
            24
            %Other
                countries
            
            
            5
            %
            
            8
            %Total
            
            
            100
            %
            
            100
            %





The
      following table sets forth net revenues by country as a percentage of total
      net
      revenues for the three and nine month periods ended March 29, 2008 and March
      31,
      2007:




**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****2008**
            
            **2007**
            
            **2008**
            
            **2007**China
                (including Hong Kong)
            
            
            38.4
            %
            
            40.5
            %
            
            38.6
            %
            
            35.4
            %Taiwan
            
            
            32.4
            %
            
            24.8
            %
            
            30.4
            %
            
            23.8
            %United
                States
            
            
            9.2
            %
            
            12.8
            %
            
            9.4
            %
            
            14.0
            %Singapore
            
            
            4.4
            %
            
            5.8
            %
            
            5.0
            %
            
            6.6
            %Other
                (less than 10% each)
            
            
            15.6
            %
            
            16.1
            %
            
            16.6
            %
            
            20.2
            %Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %







**8.
      STOCK REPURCHASE PROGRAM**





In
      October 2001, the Board of Directors authorized the repurchase of up to
      2,000,000 shares of the Company’s 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 began
      repurchasing shares in July 2002. In fiscal year 2007, the Company repurchased
      628,000 shares and by March 30, 2007, the Company had fulfilled the Board of
      Directors original authorization of the repurchase of 2,000,000 shares at a
      cost
      of approximately $17.8 million.




11




On
      April
      26, 2007, the Company’s Board of Directors authorized the repurchase of an
      additional 2.0 million shares. Under the currently active authority, the Company
      repurchased 1,559,000 shares in the nine months ended March 29, 2008 for an
      aggregate cost of $20.1 million. The Company has purchased a total of 1,861,000
      shares under the current authority.




On
      April
      29, 2008 the Company’s Board of Directors authorized the repurchase of an
      additional $30 million of its common stock. The repurchases may be made from
      time to time in the open market or through private transactions at the
      discretion of Company management. Current cash balances and the proceeds from
      stock option exercises and 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.




**9.
      MINORITY INTEREST**





The
      Company consolidates its subsidiaries Pericom Taiwan Limited (PTL) and eCERA,
      each of which have a minority interest. During the three months ended December
      31, 2004, the Company sold 6.82% of PTL to its employees for $315,000 in cash.
      This minority interest was approximately 7.86% of the outstanding shares at
      March 29, 2008, and as of this date the value of the minority interest in PTL
      was negligible. Parties other than the Company own approximately 2.71% of the
      outstanding shares of eCERA at March 29, 2008, and as of this date the minority
      interest in eCERA was valued at $1,064,000.




**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 March 29, 2008, the
      Company has issued no shares of preferred stock.





***STOCK
      OPTION PLANS***




At
      March
      29, 2008, the Company had four stock option plans, consisting of the 1995 Stock
      Option Plan, 2001 Stock Option Plan, SaRonix Acquisition Stock Option Plan,
      and
      the 2004 Stock Incentive Plan.





Under
      the
      four stock option plans, the Company has reserved an aggregate of 5.6 million
      shares of common stock as of March 29, 2008 for issuance to employees, officers,
      directors, independent contractors and consultants of the Company in the form
      of
      incentive or nonqualified stock options, or grants of restricted
      stock.




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





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




12




The
      value
      of the Company’s stock options granted under its stock option plans during the
      three months ended March 29, 2008 and March 31, 2007 was estimated at the date
      of grant using the following weighted average assumptions:




**Three Months Ended****March 29,**
            
            **March 31,****2008**
            
            **2007**Expected
                Life
            
            
            5.1
                years
            
            
            4.9
                yearsRisk-free
                interest rate
            
            
            3.05
            %
            
            4.79
            %Volatility
            
            
            45
            %
            
            47
            %Dividend
                Yield
            
            
            -
            
            
            -





The
      weighted average fair value of options granted during the three months ended
      March 29, 2008 and March 31, 2007 were $6.70 and $4.97,
      respectively.




The
      following table summarizes the Company’s stock option plans as of July 1, 2006
      and changes during the following fiscal year and the nine months ended March
      29,
      2008:





**Outstanding
                Options****Weighted****Average**
            
            **Aggregate****Exercise**
            
            **Intrinsic****Options**
            
            **Shares**
            
            **Price**
            
            **Value**(in thousands)
            
            
            
            
            
            (in
                millions)Options
                outstanding at July 1, 2006
            
            
            5,277
            
            $
            11.43
            
            $
            16.5Options
                granted (weighted average grant date fair value of $4.40)
            
            
            516
            
            
            9.43Options
                exercised
            
            
            (561
            )
            
            5.62Options
                forfeited or expired
            
            
            (414
            )
            
            11.97Options
                outstanding at June 30, 2007
            
            
            4,818
            
            
            11.84
            
            $
            10.2Options
                granted (weighted average grant date fair value of $5.94)
            
            
            616
            
            
            13.39Options
                exercised
            
            
            (918
            )
            
            7.61Options
                forfeited or expired
            
            
            (279
            )
            
            13.68Options
                outstanding at March 29, 2008
            
            
            4,237
            
            $
            12.86
            
            $
            14.8





At
      March
      29, 2008, 1,226,000 shares were available for future issuance under the option
      plans. The aggregate intrinsic value of options exercised during the three
      and
      nine months ended March 29, 2008 was $1.2 million and $7.0 million,
      respectively. The status of options vested and expected to vest and options
      that
      are currently exercisable as of March 29, 2008 is as follows:





**Options****Vested****and**
            
            **Options****Expected**
            
            **Currently****to
                Vest**
            
            **Exercisable**Shares
                (million)
            
            
            3.9
            
            
            3.1Aggregate
                Intrinsic Value (million $)
            
            $
            13.5
            
            $
            10.5Wtd.
                Avg. Contractual Term (years)
            
            
            4.9
            
            
            3.9Wtd.
                Avg. Exercise Price
            
            $
            13.04
            
            $
            13.56





At
      March
      29, 2008 the Company has unamortized stock-based compensation expense related
      to
      options of $4.5 million, which will be amortized to expense over a weighted
      average period of 2.8 years.





Additional
      information regarding options outstanding and exercisable as of March 29, 2008
      is as follows:




13




**Options Outstanding**
            
            **Exercisable Options****Weighted****Ave.**
            
            **Weighted**
            
            
            
            **Weighted****Number**
            
            **Remaining**
            
            **Average**
            
            **Number**
            
            **Average****Range of Exercise**
            
            **Outstanding**
            
            **Contractual**
            
            **Exercise**
            
            **Exercisable**
            
            **Exercise****Prices**
            
            **as of 3/29/08**
            
            **Term, years**
            
            **Price**
            
            **as of 3/29/08**
            
            **Price**$
            2.34
            
            $
            5.25
            
            
            380,000
            
            
            0.84
            
            $
            4.27
            
            
            380,000
            
            $
            4.275.50
            
            
            7.87
            
            
            264,000
            
            
            6.63
            
            
            7.49
            
            
            136,000
            
            
            7.147.88
            
            
            10.50
            
            
            1,155,000
            
            
            6.88
            
            
            8.84
            
            
            765,000
            
            
            8.8510.53
            
            
            13.40
            
            
            847,000
            
            
            6.80
            
            
            11.26
            
            
            472,000
            
            
            11.5713.44
            
            
            14.20
            
            
            448,000
            
            
            3.47
            
            
            13.96
            
            
            434,000
            
            
            13.9714.40
            
            
            37.22
            
            
            1,143,000
            
            
            4.17
            
            
            21.78
            
            
            903,000
            
            
            23.29$
            2.34
            
            $
            37.22
            
            
            4,237,000
            
            
            5.22
            
            $
            12.86
            
            
            3,090,000
            
            $
            13.56





***2000
      EMPLOYEE STOCK PURCHASE PLAN***





The
      Company approved the 2000 Employee Stock Purchase Plan (the “Stock Purchase
      Plan”) to replace the earlier 1997 Employee Stock Purchase Plan (together, “the
      Plans”). The Stock Purchase Plan allows eligible employees of the Company to
      purchase shares of Common Stock through payroll deductions. The Company reserved
      2.1 million shares of the Company’s Common Stock for issuance under the Plans,
      of which 569,000 remain available at March 29, 2008 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 fiscal years 2007 and 2006, the Company issued 146,000
      and
      141,000 shares of common stock under the Stock Purchase Plan at weighted average
      prices of $6.83 and $6.79, respectively. The weighted average fair value of
      the
      fiscal 2007 and 2006 awards were $2.49 and $2.11 per share, respectively.





The
      Company estimates the fair value of stock purchase rights granted under the
      Company’s Stock Purchase Plan on the date of grant using the Black-Scholes
      option valuation model. The Company bases volatility on the expected volatility
      of the Company’s stock during the accrual period. The Company uses historical
      data to estimate the expected holding period and expected forfeitures and the
      U.S. Treasury yield for the risk-free interest rate for the contractual
      period.





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





**Three Months Ended****March 29,**
            
            **March 31,****2008**
            
            **2007**Expected
                Life
            
            
            13.5
                months
            
            
            13.5
                monthsRisk-free
                interest rate
            
            
            2.12
            %
            
            5.07
            %Volatility
            
            
            55
            %
            
            42
            %Dividend
                Yield
            
            
            -
            
            
            -





The
      following table summarizes activity in the Company’s employee stock purchase
      plan during the nine months ended March 29, 2008:





14





**Shares**
            
            **Weighted**
              **Average**
              **Purchase**
              **Price**Beginning
                Available
            
            
            663,910Purchases
            
            
            (94,587
            )
            $
            7.88Ending
                Available
            
            
            569,323





At
      March
      29, 2008, the Company had $616,000 in unamortized stock-based compensation
      related to its employee stock purchase plan. The Company estimates this expense
      will be amortized and recognized in the consolidated statement of operations
      over the next 1.2 years.





***SHARE-BASED
      COMPENSATION***





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




***REPORTING
      STOCK-BASED COMPENSATION***





The
      following table shows total stock-based compensation expense classified by
      the
      Condensed Consolidated Statement of Operations reporting caption for the three
      and nine months ended March 29, 2008 and March 31, 2007 generated from the
      plans
      mentioned above:





**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****(In Thousands)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Cost
                of revenues
            
            $
            42
            
            $
            33
            
            $
            115
            
            $
            101Research
                and development
            
            
            231
            
            
            183
            
            
            582
            
            
            644Selling,
                general and administrative
            
            
            312
            
            
            227
            
            
            1046
            
            
            774Pre-tax
                stock-based compensation expense
            
            
            585
            
            
            443
            
            
            1,743
            
            
            1,519Income
                tax
            
            
            160
            
            
            96
            
            
            511
            
            
            294Net
              stock-based compensation expense
            
            $
            425
            
            $
            347
            
            $
            1,232
            
            $
            1,225





The
      amount of share-based compensation expense in inventory at March 29, 2008 and
      June 30, 2007 is immaterial.





15




**11.
      INCOME TAXES**




**Accounting
      for Uncertainty in Income Taxes**




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




As
      a
      result of the implementation of FIN No. 48, the Company recognized no change
      in
      the liability for unrecognized tax benefits related to tax positions taken
      in
      prior periods. All positions taken in its US and foreign returns with respect
      to
      any book-tax adjustments were highly certain, and accordingly the Company did
      not record any valuation adjustments against those positions. Upon adoption
      of
      FIN No. 48, the Company’s policy to include interest and penalties related to
      unrecognized tax benefits within the Company’s provision for income taxes did
      not change. As of March 29, 2008, the Company had not accrued any reserve for
      payment of interest and penalties related to unrecognized tax benefits as any
      adjustments would be offset by additional credits and unused net operating
      loss
      carryforwards. The Company’s total amount of unrecognized tax benefits as of
      March 29, 2008 was $1,039,000. All of this amount would affect the corporation’s
      tax rate if recognized. The tax years 2002 to 2006 remain open in the United
      States.




**Income
      Tax Expense**




Income
      tax expense for the nine months ended March 29, 2008 and March 31, 2007 was
      $6.1
      million and $2.1 million, respectively, and was comprised of domestic federal
      and state income tax and foreign income and withholding tax.




**12.
      INVESTMENT IN AFFILIATES**




The
      Company has an approximate 44% 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 (“China”).
      Condensed operating results of PTI were as follows:





**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****(in
                thousands)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
            
            $
            2,301
            
            $
            2,542
            
            $
            8,623
            
            $
            8,543Gross
                profit
            
            
            1,202
            
            
            1,554
            
            
            4,290
            
            
            4,621Operating
                income
            
            
            169
            
            
            239
            
            
            736
            
            
            1,178Net
              income
            
            
            199
            
            
            277
            
            
            910
            
            
            1,874





The
      Company also holds interests in various other privately held
      companies.




16




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




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





**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****(In
                thousands)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income
            
            $
            4,141
            
            $
            2,614
            
            $
            12,420
            
            $
            6,495Change
                  in unrealized gain (loss) on securities available
                  for sale
            
            
            742
            
            
            542
            
            
            1,856
            
            
            1,700Income
                tax effect
            
            
            (422
            )
            
            (156
            )
            
            (422
            )
            
            (595
            )Reclassification
                adjustment for gains on available
            
            
            -
            
            
            
            
            
            -for
                sale securities included in net income
            
            
            -
            
            
            3
            
            
            -
            
            
            15Income
                tax effect
            
            
            -
            
            
            (1
            )
            
            -
            
            
            (5
            )Translation
                (loss)
            
            
            2,588
            
            
            (283
            )
            
            2,955
            
            
            (392
            )Comprehensive
                income
            
            $
            7,049
            
            $
            2,719
            
            $
            16,809
            
            $
            7,218




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




In
      December 2007, the FASB issued SFAS 141 (R), *Business
      Combinations.* This
      statement replaces SFAS 141, “Business Combinations.” This statement retains the
      fundamental requirements in Statement 141 that the acquisition method of
      accounting (which Statement 141 called the *purchase
      method* )
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. This statement also establishes principles and
      requirements for how the acquirer: a) recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed, and any
      noncontrolling interest in the acquiree; b) recognizes and measures the goodwill
      acquired in the business combination or a gain from a bargain purchase; and
      c)
      determines what information to disclose to enable users of the financial
      statements to evaluate the nature and financial effects of the business
      combination. SFAS 141 (R) will apply prospectively to business combinations
      for which the acquisition date is on or after the Company’s fiscal year
      beginning June 28, 2009. The Company has not yet evaluated this statement for
      the impact, if any, that SFAS 141 (R) will have on its consolidated
      financial statements.





In
      December 2007, the FASB issued SFAS 160, *Noncontrolling
      Interest in Consolidated Financial Statements* (“SFAS
      160”) *.* This
      Statement amends Accounting Research Bulletin 51 to establish accounting and
      reporting standards for the noncontrolling (minority) interest in a
      subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. The Company has not yet determined the impact that SFAS
      160 will have on its consolidated financial statements. SFAS 160 is effective
      for the Company’s fiscal year beginning June 28, 2009.





In
      February 2007, the FASB issued SFAS 159 *,
      The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“SFAS
      159”). SFAS 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value. The standard requires that
      unrealized gains and losses on items for which the Company elects the fair
      value
      option be reported in earnings. The Company is required to adopt the provision
      of SFAS 159 for the Company’s fiscal year beginning June 29, 2008, although the
      FASB permits earlier adoption. The Company’s management is currently evaluating
      the impact that SFAS 159 will have on the consolidated balance sheet and the
      consolidated statements of operations and cash flows.





In
      September 2006, the FASB issued SFAS 157, *Fair
      Value Measurements* (“SFAS
      157”) which is effective for the Company’s fiscal year beginning June 29, 2008
      and for interim periods within that year. SFAS 157 defines fair value,
      establishes a framework for measuring fair value and expands the related
      disclosure requirements. The Company is currently evaluating the potential
      impact that SFAS 157 will have on its financial position, results of operations
      and liquidity.




17




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





Pericom
      Semiconductor Corporation





The
      following information should be read in conjunction with the unaudited financial
      statements and notes thereto included in Part 1 - Item 1 of this Quarterly
      Report and the audited financial statements and notes thereto and Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      contained in the Company’s Annual Report on Form 10-K for the year ended June
      30, 2007 (“Form 10-K”).




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 total investment in the Jinan Hi-Tech
      Industries Development Zone, the continuation of a high level of turns orders,
      higher levels of inventory, future gross profit and gross margin; 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;
      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, (ii) in Item 1A, Risk Factors, of Part I of the Company’s
      Form 10-K for the year ended June
      30,
      2007, and (iii) in Note 1 to the Notes to Condensed Consolidated Financial
      Statements. All forward-looking statements and reasons why results may differ
      included in this Quarterly Report are made as of the date hereof, and the
      Company assumes no obligation to update any such forward-looking statement
      or
      reason why actual results may differ.




18




**Results
      of Operations**





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




**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****(unaudited)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            62.4
            %
            
            66.1
            %
            
            63.0
            %
            
            65.9
            %Gross
                profit
            
            
            37.6
            %
            
            33.9
            %
            
            37.0
            %
            
            34.1
            %Operating
                expenses:Research
                and development
            
            
            10.9
            %
            
            13.4
            %
            
            10.7
            %
            
            13.1
            %Selling,
                general and administrative
            
            
            13.9
            %
            
            17.7
            %
            
            14.4
            %
            
            17.5
            %Total
            
            
            24.8
            %
            
            31.1
            %
            
            25.1
            %
            
            30.6
            %Income
                from operations
            
            
            12.8
            %
            
            2.8
            %
            
            11.9
            %
            
            3.5
            %Interest
                and other income
            
            
            2.2
            %
            
            8.2
            %
            
            3.2
            %
            
            5.4
            %Other
                than temporary decline in value of investment
            
            
            (0.1
            )%
            
            (0.1
            )%
            
            0.0
            %
            
            0.0
            %Income
                before income taxes
            
            
            14.9
            %
            
            10.9
            %
            
            15.1
            %
            
            8.9
            %Income
                taxes
            
            
            5.0
            %
            
            2.6
            %
            
            5.1
            %
            
            2.3
            %Minority
                interest in (income) loss of consolidated subsidiaries
            
            
            (0.1
            )%
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Equity
                in net income of investees
            
            
            0.3
            %
            
            0.3
            %
            
            0.3
            %
            
            0.5
            %Net
                income
            
            
            10.1
            %
            
            8.6
            %
            
            10.3
            %
            
            7.1
            %





***Net
      Revenues***





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




**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **%**
            
            **March 29,**
            
            **March 31,**
            
            **%****(in
                thousands)**
            
            **2008**
            
            **2007**
            
            **Change**
            
            **2008**
            
            **2007**
            
            **Change****(unaudited)**Net
                revenues
            
            $
            41,177
            
            $
            30,182
            
            
            36.4
            %
            $
            120,371
            
            $
            91,850
            
            
            31.1
            %%
                        of net sales accounted for by top 5 direct customers
                        (1)
            
            
            41.6
            %
            
            37.5
            %
            
            
            
            
            38.1
            %
            
            35.3
            %Number
                      of direct customers that each account for more than 10% of
                      net
                      sales
            
            
            1
            
            
            1
            
            
            
            
            
            1
            
            
            1%
                      of net sales accounted for by top 5 end customers
                      (2)
            
            
            22.2
            %
            
            23.4
            %
            
            
            
            
            21.8
            %
            
            24.0
            %Number
                      of end customers that each account for more than 10% of gross
                      sales
            
            
            0
            
            
            0
            
            
            
            
            
            0
            
            
            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.





Net
      revenues consist of product sales, which are recognized upon shipment, less
      an
      estimate for returns and allowances. The 36.4% increase in net revenues for
      the
      three month period ended March 29, 2008 compared with the same period of the
      prior year was primarily due to a 68% increase in the sales of analog switch
      products to $10.9 million and a 31% increase in sales of our FCP product family
      to $16.7 million. The 31.1% increase in net revenues for the nine month period
      ended March 29, 2008 compared with the same period of the prior year follows
      a
      similar pattern, with analog switch sales increasing 85% to $33.4 million and
      FCP product family sales increasing 25% to $48.7 million. Pricing for our higher
      margin analog switch, clock and connect products, many of which include
      proprietary technology, is more stable and we can generally offset price
      declines by introducing new products and reducing manufacturing costs.




19




The
      following table sets forth net revenues by country as a percentage of total
      net
      revenues for the three and nine month periods ended March 29, 2008 and March
      31,
      2007:





**Three Months Ended**
            
            **Nine Months Ended****March 29,**
            
            **March 31,**
            
            **March 29,**
            
            **March 31,****(unaudited)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**China
                (including Hong Kong)
            
            
            38.4
            %
            
            40.5
            %
            
            38.6
            %
            
            35.4
            %Taiwan
            
            
            32.4
            %
            
            24.8
            %
            
            30.4
            %
            
            23.8
            %United
                States
            
            
            9.2
            %
            
            12.8
            %
            
            9.4
            %
            
            14.0
            %Singapore
            
            
            4.4
            %
            
            5.8
            %
            
            5.0
            %
            
            6.6
            %Other
                (less than 10% each)
            
            
            15.6
            %
            
            16.1
            %
            
            16.6
            %
            
            20.2
            %Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %




For
      the
      three and nine months ended March 29, 2008, as compared with the same periods
      of
      the prior year, the percentage of our net revenues derived from sales to China
      (including Hong Kong) and Taiwan increased as a result of an increasing demand
      for technological devices and a continuing concentration of contract
      manufacturing in those regions.





The
      semiconductor industry experienced a softening in demand for its products during
      the seasonally slower quarter ended March 29, 2008, and customer
      demand for semiconductors can change quickly and unexpectedly. Our net revenue
      levels have been highly dependent on the number of new orders that are received
      for products to be delivered to the customer within the same quarter, also
      called “turns” orders.  When turns orders predominate, it is difficult to
      predict which products to build to match future demand.  We believe the
      current high level of turns orders will continue indefinitely.  The
      sustainability of customer demand is uncertain and our markets are highly
      dependent on worldwide economic conditions.  The high level of turns orders
      together with the uncertainty of product mix and pricing makes it difficult
      to
      predict future levels of sales and may require us to carry higher levels of
      inventory.




***Gross
      Profit***





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





**Three Months Ended**
            
            **Nine Months Ended****(In
                thousands)**
            
            **March 29,**
            
            **March
                31,**
            
            **%**
            
            **March 29,**
            
            **March
                31,**
            
            **%****(unaudited)**
            
            **2008**
            
            **2007**
            
            **Change**
            
            **2008**
            
            **2007**
            
            **Change**Net
                revenues
            
            $
            41,177
            
            $
            30,182
            
            
            36.4
            %
            $
            120,371
            
            $
            91,850
            
            
            31.1
            %Gross
                profit
            
            
            15,468
            
            
            10,222
            
            
            51.3
            %
            
            44,501
            
            
            31,320
            
            
            42.1
            %Gross
                    profit as a percentage of net revenues (gross
                    margin)
            
            
            37.6
            %
            
            33.9
            %
            
            
            
            
            37.0
            %
            
            34.1
            %





The
      increase in gross profit for the three and nine month periods ended March 29,
      2008 compared with the same periods of the prior year was primarily due to
      significant increases in our sales of analog switches which carry above average
      margins. Sales of analog switches increased 68% and 85% for the three and nine
      month periods ended March 29, 2008, respectively, from the same periods of
      the
      prior year. The increase in gross margin for the three and nine month periods
      ended March 29, 2008 compared with the same periods of the prior year can be
      primarily attributable to greater rates of growth in sales of the Company’s
      higher margin focus IC products as compared with lower sales growth rates in
      the
      relatively lower margin FCP products.





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





During
      the three and nine months ended March 29, 2008, gross profit and gross margin
      benefited as a result of the sale of inventory of $364,000 and $954,000,
      respectively, that we had previously identified as excess and written down
      to
      zero value, as compared with $356,000 and $1.2 million, respectively, for the
      same periods of the prior year.




20




***Research
      and Development***





**Three Months Ended**
            
            
            
            **Nine Months Ended****(In
                thousands)**
            ****
            **March 29,**
            ****
            **March
                31,**
            ****
            **%**
            ****
            **March 29,**
            ****
            **March
                31,**
            ****
            **%**
            ******(unaudited)**
            
            **2008**
            
            **2007**
            
            **Change**
            
            **2008**
            
            **2007**
            
            **Change**Net
                revenues
            
            $
            41,177
            
            $
            30,182
            
            
            36.4
            %
            $
            120,371
            
            $
            91,850
            
            
            31.1
            %Research
                and development
            
            
            4,503
            
            
            4,048
            
            
            11.2
            %
            
            12,863
            
            
            12,030
            
            
            6.9
            %R&D
                as a percentage of net revenues
            
            
            10.9
            %
            
            13.4
            %
            
            
            
            
            10.7
            %
            
            13.1
            %





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 $455,000 expense
      increase for the three month period ended March 29, 2008 as compared to the
      same
      period of the prior year is primarily attributable to increased fabrication,
      board, and mask costs of $209,000 and increased design and other consultant
      costs of $127,000. The $833,000 expense increase for the nine month period
      ended
      March 29, 2008 as compared to the same period of the prior year is attributable
      to increases of $499,000 in salary costs, $144,000 in fabrication and assembly,
      and $134,000 in design and other consultants. As a result of cost control in
      R&D expenses coupled with strong revenue growth, R&D expenses have
      declined to 10.7% of revenues for the first nine months of fiscal 2008 as
      compared with 13.1% for the same period of fiscal 2007.





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 while business conditions improve. If business
      conditions deteriorate or the rate of improvement does not meet our
      expectations, the Company may implement cost-cutting actions.





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





****
            **Three Months Ended**
            ****
            ****
            ****
            **Nine Months Ended**
            ****
            ****
            ******(In thousands)**
            ****
            **March 29,**
            ****
            **March
                31,**
            ****
            **%**
            ****
            **March 29,**
            ****
            **March
                31,**
            ****
            **%**
            ******(Unaudited)**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**Net
                revenues
            
            $
            41,177
            
            $
            30,182
            
            
            36.4
            %
            $
            120,371
            
            $
            91,850
            
            
            31.1
            %Selling,
                general and administration
            
            
            5,705
            
            
            5,342
            
            
            6.8
            %
            
            17,330
            
            
            16,056
            
            
            7.9
            %SG&A
                as a percentage of net revenues
            
            
            13.9
            %
            
            17.7
            %
            
            
            
            
            14.4
            %
            
            17.5
            %





Selling,
      general and administrative expenses consist primarily of personnel and related
      overhead costs for sales, marketing, finance, administration, human resources
      and general management. The $363,000 expense increase for the three month period
      ended March 29, 2008 as compared to the same period of the prior year is
      attributable to increased sales commissions of $193,000, increased stock
      compensation expense of $85,000, increased recruiting costs of $65,000,
      temporary labor increases of $62,000, and $144,000 of increased freight costs,
      partially offset by a $196,000 reduction in professional services fees. The
      expense increase of $1.3 million for the nine month period ended March 29,
      2008
      as compared to the same period of the prior year is attributable to increased
      salary, bonus and commissions of $740,000, increased stock compensation expense
      of $272,000, and a temporary labor increase of $260,000. As a partial offset,
      professional service fees decreased $354,000 from the same period of fiscal
      2007. The increases for the three and nine month periods of fiscal 2008 are
      primarily related to increased personnel and related expenses to support
      increased sales levels and to support the Company’s efforts to improve its
      accounting systems. The reduction in professional service fees primarily
      reflects the cost of work performed for Section 404 of the Sarbanes Oxley Act
      in
      fiscal 2007.




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 cost-cutting actions.




21




***Interest
      and Other Income***





**Three Months Ended**
            
            
            
            **Nine Months Ended****(In thousands)**
            ****
            **March 29,**
            ****
            **March 31,**
            ****
            **%**
            ****
            **March 29,**
            ****
            **March 31,**
            ****
            **%**
            ******(Unaudited)**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**Interest
                income, net
            
            $
            1,322
            
            $
            1,367
            
            
            -3.3
            %
            $
            4,328
            
            $
            3,665
            
            
            18.1
            %Exchange
                gain (loss)
            
            
            (419
            )
            
            138
            
            
            
            
            
            (350
            )
            
            271Other
                income (expense)
            
            
            -
            
            
            991
            
            
            
            
            
            (83
            )
            
            991
            
            
            -Interest
                and other income
            
            $
            903
            
            $
            2,496
            
            
            -63.8
            %
            $
            3,895
            
            $
            4,927
            
            
            -20.9
            %





Net
      interest income declined 3.3% for the three months ended March 29, 2008 as
      compared with the same period of the prior year due to a reduction in invested
      balances, primarily as a result of stock repurchase activity. For the nine
      months ended March 29, 2008 as compared with the same period of the prior year
      net interest income increased primarily as a result of higher rates of interest
      available for invested funds during fiscal 2008. The Company experienced an
      exchange loss for the three and nine month periods of fiscal 2008 as the U.S.
      dollar weakened approximately 7% against the New Taiwan Dollar. Other income
      for
      the three and nine month periods of fiscal 2007 reflect a gain of $1.0 million
      resulting from the sale of 50% of an investment in a privately-held
      semiconductor company.




***Income
      Tax Expense***





**Three Months Ended**
            
            
            
            **Nine Months Ended****(In thousands)**
            ****
            **March 29,**
            ****
            **March 31,**
            ****
            **%**
            ****
            **March 29,**
            ****
            **March 31,**
            ****
            **%**
            ******(Unaudited)**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**
            ****
            **2008**
            ****
            **2007**
            ****
            **Change**Pre-tax
                income
            
            $
            6,111
            
            $
            3,323
            
            
            83.9
            %
            $
            18,154
            
            $
            8,155
            
            
            122.6
            %Income
                tax
            
            
            2,054
            
            
            788
            
            
            160.7
            %
            
            6,089
            
            
            2,099
            
            
            190.1
            %Effective
                tax rate
            
            
            34
            %
            
            24
            %
            
            
            
            
            34
            %
            
            26
            %





The
      increase in income tax expense for the three and nine months ended March 29,
      2008 over the same periods of the prior year is due to the significant increases
      in income before income taxes as well as an increase in the effective tax rate.
      The increased effective tax rate is due primarily to the mix of earnings between
      tax jurisdictions as well as a decrease in the anticipated benefit the Company
      receives from the Federal research and development credit due to the expiration
      of the credit as of December 31, 2007.





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





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





**Three Months Ended**
            
            
            
            **Nine Months Ended****(In thousands)**
            
            **March 29,**
            
            **March 31,**
            
            
            
            **March 29,**
            
            **March 31,****(Unaudited)**
            
            **2008**
            
            **2007**
            
            **Change**
            
            **2008**
            
            **2007**
            
            **Change**Equity
                in net income of unconsolidated affiliates
            
            $
            131
            
            $
            86
            
            $
            45
            
            $
            421
            
            $
            476
            
            $
            (55
            )





Equity
      in
      net income of unconsolidated affiliates includes the Company’s allocated portion
      of the net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
      corporation based in Shanghai, People’s Republic of China, as well as income or
      losses realized from other investments accounted for under the equity method
      of
      accounting. PTI was formed by Pericom and certain Pericom shareholders in 1994
      to develop and market semiconductors in China and certain other Asian countries.
      The Company adopted Emerging Issue Task Force (“EITF”) Issue No. 02-14, *Whether
      an Investor Should Apply the Equity Method of Accounting to Investments Other
      Than Common Stock,* (“EITF
      02-14”) in the quarter ended December 31, 2004. EITF 02-14 requires us to
      account for our investment in securities, other than common stock, of PTI using
      the equity method of accounting. We have invested in PTI using several different
      transactions over a period of years. Initially, PTI generated losses which
      were
      attributable to each of the various rounds of financing and we accounted for
      those losses using our percentage of each round of financing until our
      investment was exhausted. Until recently, we accounted for our equity in PTI
      following our 25% ownership of PTI’s Series A Preferred Stock. During the
      current quarter, all losses attributable to the Series A Preferred Stock round
      of financing were recouped, and late in the quarter we began to realize our
      share of PTI’s earnings at the Company’s overall percentage ownership of PTI. As
      of March 29, 2008 that percentage ownership is 44.2%. The Company’s allocated
      portion of PTI’s results decreased slightly to income of $54,000 for the three
      months ended March 29, 2008 from $69,000 for the comparable period of the prior
      year. For the nine months ended March 29, 2008 , the Company’s allocated portion
      of PTI’s results decreased to income of $232,000 as compared with $468,000 for
      the same period of the prior year, with the decrease due primarily to reduced
      sales and net income at PTI in the first quarter of fiscal 2008.




22




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 eCERA, and
      eCERA has acquired a 49% equity interest in JCP. For the three and nine month
      periods ended March 29, 2008, the Company’s allocated portion of JCP’s results
      were income of $78,000 and $218,000, respectively, as compared with income
      of
      $20,000 and $12,000 for the same periods of the prior year.





***Liquidity
      and Capital Resources***





As
      of
      March 29, 2008, the Company’s principal sources of liquidity included cash, cash
      equivalents and short-term and long-term investments of approximately $118.1
      million as compared with $131.0 million on June 30, 2007.





As
      of
      March 29, 2008, $17.3 million was classified as cash and cash equivalents
      compared with $29.2 million as of June 30, 2007. The maturities of the Company’s
      short term investments are staggered throughout the year so that cash
      requirements are met. Because the Company is a fabless semiconductor
      manufacturer, it has lower capital equipment requirements than other
      semiconductor manufacturers that own wafer fabrication facilities. For the
      nine
      month period ended March 29, 2008, the Company spent approximately $7.5 million
      on property and equipment compared to $3.6 million for the nine month period
      ended March 31, 2007. The Company generated approximately $4.3 million of net
      interest income for the nine month period ended March 29, 2008, an approximate
      $663,000 increase over the $3.7 million of net interest income for the nine
      month period ended March 31, 2007. The increase in interest income was in part
      due to higher invested balances for a portion of the year, but primarily the
      result of higher rates of interest available for invested funds in the first
      half of fiscal 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 $4.4 million for the nine
      months ended March 29, 2008 was primarily the result of net income of $12.4
      million and non-cash expenses of $8.1 million, including depreciation and
      amortization of approximately $4.1 million, stock-based compensation expense
      of
      $1.7 million, and tax benefit related to stock-based compensation of $2.3
      million. These contributions to cash were partially offset by increases of
      accounts receivable and inventory of $8.2 million and $3.6 million, respectively
      and decreases in accounts payable and other accrued liabilities of $841,000
      and
      $1.6 million, respectively. The Company’s net cash provided by operating
      activities of $17.1 million in the nine months ended March 31, 2007 was
      primarily a result of net income of $6.5 million, a reduction in net inventories
      of $2.6 million, accounts receivable of $2.5 million and non-cash expenses
      of
      $4.6 million, including depreciation and amortization of approximately $4.7
      million and stock-based compensation expense of $1.5 million, which were
      partially offset by gain on sale of investment of $1.0 million and equity in
      net
      income of unconsolidated affiliates of $476,000.





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





The
      Company’s cash used in investing activities of $4.8 million for the nine months
      ended March 29, 2008 was primarily due to additions to property and equipment
      of
      approximately $7.5 million partially offset by maturities of investments
      exceeding purchases of investments by approximately $2.7 million. The Company’s
      cash used in investing activities of $10.9 million for the nine months ended
      March 31, 2007 was primarily due to the Company’s purchase of investments
      exceeding maturities of investments by approximately $10.2 million as well
      as
      additions of property and equipment of approximately $3.6 million. This cash
      usage was partially offset by net proceeds from the sale of 50% of an investment
      in a privately-held semiconductor company, which yielded proceeds of
      approximately $2.0 million, and the reduction in restricted cash balances of
      $648,000.




23




The
      Company’s cash used in financing activities for the nine months ended March 29,
      2008 of $11.9 million was the result of repurchases of the Company’s common
      stock at a cost of $20.1 million and $784,000 of principal payments on
      short-term and long-term debt, partially offset by $7.7 million in proceeds
      generated from the issuance of common stock in the Company’s employee stock
      plans and $1.3 million excess tax benefit on stock-based compensation. The
      Company’s cash used in financing activities in the nine months ended March 31,
      2007 of $10.0 million was primarily due to principal payments on short-term,
      long-term debts and capital leases of eCERA of approximately $9.8 million as
      well as repurchases of common stock of $6.0 million, which were offset in part
      by $2.7 million in proceeds from short and long term debt and approximately
      $3.0
      million in proceeds generated from the sale of common stock from the Company’s
      employee stock plans.





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





On
      April
      26, 2007, the Company’s Board of Directors authorized the repurchase of an
      additional 2,000,000 shares. Under this authority, the Company repurchased
      1,559,000 shares in the nine months ended March 29, 2008 for an aggregate cost
      of $20.1 million. The Company has purchased a total of 1,861,000 shares under
      the current authority. Current cash balances and the proceeds from stock option
      exercises and purchases in the employee stock purchase plan have funded stock
      repurchases in the past, and the Company expects to fund future stock
      repurchases from these same sources.





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





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




**Contractual
      Obligations and Commitments**





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





The
      Company’s contractual obligations and commitments at March 29, 2008 are as
      follows (in thousands):




**Payments Due by Period****(In
                  thousands)**
              
              
              
              **Less than 1**
              
              **1 – 3**
              
              **3 – 5****(Unaudited)**
              
              **Total**
              
              **Year**
              
              **Years**
              
              **Years**
              
              **Thereafter**Operating
                  leases
              
              $
              6,560
              
              $
              1,279
              
              $
              2,247
              
              $
              2,184
              
              $
              850Total
                  obligations
              
              $
              6,560
              
              $
              1,279
              
              $
              2,247
              
              $
              2,184
              
              $
              850




24







**Off-Balance
      Sheet Arrangements**





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





**Critical
      Accounting Policies**





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





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





***REVENUE
      RECOGNITION*** –The
      Company
      recognizes revenue from the sale of its products upon shipment, provided title
      and risk of loss has passed to the customer, the price is fixed or determinable
      and collection of the revenue is reasonably assured. A provision for estimated
      future returns and other charges against revenue is recorded at the time of
      shipment. For the nine months ended March 29, 2008 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.





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
      earned by the distributors that month. This reserve is the sum of product of
      each distributor’s net sales for the month and their stock rotation
      percentage.





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


25





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





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





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





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





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





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





***INVENTORIES*** .
      Inventories are recorded at the lower of standard cost (which generally
      approximates actual cost on a first-in, first-out basis) or market value. We
      adjust the carrying value of inventory for excess and obsolete inventory based
      on inventory age, shipment history and our forecast of demand over a specific
      future period of time. Raw material inventory is considered obsolete and written
      off if it has not moved in 365 days. The Company reviews its assembled devices
      for excess and writes them off if the quantity of assembled devices in inventory
      is in excess of the greater of the quantity shipped in the previous twelve
      months, the quantity in backlog or the quantity forecasted to be shipped in
      the
      following twelve months.  In
      certain circumstances, management will determine, based on expected usage or
      other factors, that inventory considered obsolete by these guidelines should
      not
      be written off. The 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.


26





***IMPAIRMENT
      OF INTANGIBLE ASSETS.*** **** As
      required by Statement of Financial Accounting Standards (“SFAS”) 142, *Goodwill
      and Other Intangible Assets* ,
      which
      the Company adopted in fiscal 2002, the Company ceased amortizing its
      indefinite-lived intangible assets acquired in the acquisition of Saronix which
      consists of the SaRonix trade name. Accordingly, SFAS 142 requires that
      indefinite-lived intangible assets be tested for impairment annually or more
      frequently if events or changes in circumstances indicate that the asset might
      be impaired. The Company also reviews other intangible assets for impairment
      when events or changes in circumstances indicate that the assets might be
      impaired. The Company determined that no impairment of goodwill other intangible
      assets existed in the three month period ended March 29, 2008.





***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.





***STOCK
      BASED COMPENSATION*** **.**  Effective
      July 3, 2005, the Company adopted the provisions of SFAS 123(R), *Share-Based
      Payment* (“SFAS
      123(R)”).  SFAS 123(R) establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity’s equity instruments or that may be settled by the issuance of those
      equity instruments. Accordingly, stock-based compensation cost is measured
      at
      grant date, based on the fair value of the award, and is recognized as expense
      over the employee’s requisite service period.  The measurement of stock
      based compensation cost is based on several criteria including, but not limited
      to, the valuation model used and associated input factors such as expected
      term
      of the award, stock price volatility, dividend rate, risk free interest rate,
      and award cancellation or forfeiture rate. The input factors to use in the
      valuation model are based on subjective future expectations combined with
      management judgment. If there is a difference between, for example, the
      forfeiture assumptions used in determining stock based compensation costs and
      the actual forfeitures which become known over time, the Company may change
      the
      input factors used in determining stock based compensation costs. These changes
      may materially impact the Company’s results of operations in the period such
      changes are made.





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





At
      March
      29, 2008 our investment portfolio consisted of investment-grade fixed income
      securities, excluding those classified as cash equivalents, of $101 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 March
      29,
      2008, 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.


27




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




**ITEM
      4. CONTROLS AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**




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





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures pursuant
      to
      Exchange Act Rule 13a-15 of the Exchange Act as of March 29, 2008. Based on
      that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures have been improved as a result
      of
      the completion of the corrective actions discussed below. Our Chief Executive
      Officer and Chief Financial Officer were not able, however, to conclude
      that our disclosure controls and procedures were effective as of March 29,
      2008
      because the testing of the effectiveness of such corrective actions has not
      yet
      been completed. We expect that the testing of the effectiveness of such
      corrective actions will be substantially completed during the quarter ending
      June 28, 2008 and following the end of such quarter in connection with
      management’s assessment of the effectiveness of our internal control over
      financial reporting as of June 28, 2008.




**Changes
      in Internal Control over Financial Reporting**





As
      disclosed in our annual report on Form 10-K for the year ended June 30, 2007,
      we
      previously determined that there was a material weakness in our internal control
      over financial reporting as of June 30, 2007 as the result of our not
      maintaining a sufficient complement of personnel with an appropriate level
      of
      accounting knowledge, experience and training in the application of generally
      accepted accounting principles commensurate with our financial reporting
      requirements. Because of this lack of sufficient staff, we identified a number
      of significant internal control deficiencies, the number and nature of which,
      when aggregated, led us to conclude that we had a material weakness in internal
      control over financial reporting as of June 30, 2007.





During
      the quarter ended March 29, 2008, we completed the implementation of corrective
      actions that we felt were necessary to remediate the internal control
      deficiencies. Over the past several quarters we undertook a review of our
      processes and procedures and changed or supplemented such processes and
      procedures as appropriate to remediate the internal control deficiencies. We
      have also hired additional staff, either on a permanent or consulting basis,
      with the appropriate level of depth and skill in the application of generally
      accepted accounting principles. We expect that the testing of the effectiveness
      of such corrective actions to determine whether the internal control
      deficiencies have been remediated will be substantially completed during the
      quarter ending June 28, 2008 and following the end of such quarter in connection
      with management’s assessment of the effectiveness of our internal control over
      financial reporting as of June 28, 2008.





Except
      for the changes described above, there have been no changes during the Company’s
      fiscal quarter ended March 29, 2008 in our internal control over financial
      reporting that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.


28





PART
      II.
      OTHER INFORMATION





**Item
      1A: Risk Factors**




This
      quarterly report on Form 10-Q contains forward-looking statements which involve
      risks and uncertainties. Our actual results could differ materially from those
      anticipated by such forward-looking statement as a result of various factors,
      including those set forth below. 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 30, 2007.




FACTORS
      THAT MAY AFFECT OPERATING RESULTS`





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


·
              changes
                  in the quantity of our products
                  sold;
 ·
              changes
                  in the average selling price of our
                  products;
 ·
              general
                  conditions in the semiconductor
                  industry;
 ·
              currency
                  fluctuations that effect our foreign subsidiaries;
 ·
              changes
                  in our product mix;
 ·
              a
                  decline in the gross margins of our
                  products;
 ·
              the
                  operating results of the FCP product line, which normally has a
                  lower
                  profit margin than IC products;
 ·
              expenses
                  incurred in obtaining, enforcing, and defending intellectual property
                  rights;
 ·
              the
                  timing of new product introductions and announcements by us and
                  by our
                  competitors;
 ·
              customer
                  acceptance of new products introduced by
                  us;
 ·
              delay
                  or decline in orders received from
                  distributors;
 ·
              growth
                  or reduction in the size of the market for interface
                  ICs;
 ·
              the
                  availability of manufacturing capacity with our wafer
                  suppliers;
 ·
              changes
                  in manufacturing costs;
 ·
              fluctuations
                  in manufacturing yields;
 ·
              disqualification
                  by our customers for quality or performance related
                  issues;
 ·
              the
                  ability of customers to pay us; and
 ·
              increased
                  research and development expenses associated with new product
                  introductions or process changes.




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





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





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





·
            computers
                and computer related peripherals;


·
            data
                communications and telecommunications
                equipment;


·
            electronic
                commerce and the Internet; and


·
            consumer
                electronics equipment.




29




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




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





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





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





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





·
            product
                performance and functionality;


·
            customer
                acceptance;


·
            competitive
                cost structure and pricing;


·
            successful
                and timely completion of product
                development;


·
            sufficient
                wafer fabrication capacity; and


·
            achievement
                of acceptable manufacturing yields by our wafer suppliers.





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





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





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





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


30





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





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





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





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





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





**Our
      potential future acquisitions may not be successful.**





Our
      potential future acquisitions could result in the following:





·
            large
                one-time write-offs;


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


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


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


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


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


·
            potentially
                dilutive issuances of equity
                securities;


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


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


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





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


31





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





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





·
            general
                conditions in the semiconductor and electronic systems
                industries;


·
            quarter-to-quarter
                variations in operating results;


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


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





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





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





**We
      determined that we had a material weakness in our internal control over
      financial reporting as of June 30, 2007. During the quarter ended March 29,
      2008, we completed the implementation of corrective actions. However, the
      testing of the effectiveness of such corrective actions has not yet been
      completed. There is no guarantee that the corrective actions we have taken
      will
      remediate the material weakness and this**  **could
      result in a loss of investor confidence in our financial reports and have an
      adverse impact on our stock price.**





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





We
      have
      performed the system and process documentation and evaluation needed to comply
      with section 404 of the Sarbanes-Oxley Act of 2002, which is both costly and
      challenging. Through such evaluation the Company has previously identified
      material weaknesses in its internal control over financial reporting. As of
      June
      30, 2007, the Company identified it did not maintain a sufficient complement
      of
      personnel with an appropriate level of accounting knowledge, experience and
      training in the application of generally accepted accounting principles
      commensurate with our financial reporting requirements. Because of this lack
      of
      sufficient staff, there were a number of internal control deficiencies. In
      addition, our external auditors proposed audit adjustments. Because of the
      number and nature of these significant deficiencies, when aggregated, we
      concluded we had a material weakness in internal control over financial
      reporting at June 30, 2007. In the aggregate, these control deficiencies could
      result in a misstatement in our account balances or disclosures which could
      cause a material misstatement in the consolidated financial statements that
      would not be prevented or detected. During the quarter ended March 29, 2008,
      we
      completed the implementation of corrective actions that we felt were necessary
      to remediate the internal control deficiencies. Over the past several quarters
      we undertook a review of our processes and procedures and changed or
      supplemented such processes and procedures as appropriate to remediate the
      internal control deficiencies. We have also hired additional staff, either
      on a
      permanent or consulting basis, with the appropriate level of depth and skill
      in
      the application of generally accepted accounting principles. We expect that
      the
      testing of the effectiveness of such corrective actions to determine whether
      the
      internal control deficiencies have been remediated will be substantially
      completed during the quarter ending June 28, 2008 and following the end of
      such
      quarter in connection with management’s assessment of the effectiveness of our
      internal control over financial reporting as of June 28, 2008.


32





There
      is
      no guarantee, however, that upon completion of testing of the effectiveness
      of
      the corrective actions that we will conclude our internal control over financial
      reporting is effective. Furthermore, there is no assurance that other material
      weaknesses will not be identified in the future.





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





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





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





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





The
      implementation of new environmental regulatory legal requirements, such as
      lead
      free initiatives, could impact our product designs and manufacturing processes.
      The impact of such regulations on our product designs and manufacturing
      processes could affect the timing of compliant product introductions as well
      as
      their commercial success. Redesigning our products to comply with new
      regulations may result in increased research and development and manufacturing
      and quality control costs. In addition, the products 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
      fiscal
      2007, 2006 and 2005 we purchased approximately 52%, 41% and 43%, respectively,
      of our wafers from MagnaChip. In addition, in fiscal 2007, 2006 and 2005 we
      purchased approximately 39%, 43% and 43% respectively, of our wafers from
      Chartered. In fiscal 2007, six other suppliers manufactured the remainder of
      our
      wafers. In fiscal 2006, three other suppliers manufactured the remainder of
      our
      wafers. In fiscal 2005, five other suppliers manufactured the remainder of
      our
      wafers. Our reliance on independent wafer suppliers to fabricate our wafers
      at
      their production facilities subjects us to possible risks such as:





·
            lack
                of adequate capacity;


·
            lack
                of available manufactured products;


·
            lack
                of control over delivery schedules;
                and


·
            unanticipated
                changes in wafer prices.


33





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





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





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





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





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





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





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





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





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


34





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





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





Our
      success depends in part on our ability to obtain patents and licenses and
      preserve other intellectual property rights covering our products and
      development and testing tools. In the United States, we currently hold 114
      patents covering certain aspects of our product designs and have 10 additional
      patent applications pending. Copyrights, mask work protection, trade secrets
      and
      confidential technological know-how are also key to our business. Additional
      patents may not be issued to us or our patents or other intellectual property
      may not provide meaningful protection. We may be subject to, or initiate,
      interference proceedings in the U.S. Patent and Trademark Office. These
      proceedings can consume significant financial and management resources. We
      may
      become involved in litigation relating to alleged infringement by us of others'
      patents or other intellectual property rights. This type of litigation is
      frequently expensive to both the winning party and the losing party and takes
      up
      significant amounts of management's time and attention. In addition, if we
      lose
      such a lawsuit, a court could require us to pay substantial damages and/or
      royalties or prohibit us from using essential technologies. For these and other
      reasons, this type of litigation could seriously harm our business. Also,
      although we may seek to obtain a license under a third party's intellectual
      property rights in order to bring an end to certain claims or actions asserted
      against us, we may not be able to obtain such a license on reasonable terms
      or
      at all.





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





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





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





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





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





**We
      are subject to risks related to taxes** **.**





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


35





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





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





·
            the
                level of contaminants in the manufacturing
                environment;


·
            impurities
                in the materials used; and


·
            the
                performance of manufacturing personnel and production equipment.





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





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





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





A
      relatively small number of customers have accounted for a significant portion
      of
      our net revenues in each of the past several fiscal years. In general we expect
      this to continue for the foreseeable future. With the addition of eCERA, the
      concentration of our largest customers has been reduced, as the largest
      customers of eCERA are somewhat different than those of our core integrated
      circuit business and existing FCP business. We had one direct customer that
      accounted for more than 10% of net revenues during the nine months ended March
      29,
      2008 .
      As a
      percentage of gross revenues, sales to our top five direct customers during
      the
      nine months ended March 29, 2008 totaled 38%.





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


36


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





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





·
            disruptions
                or delays in shipments;


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


·
            currency
                fluctuations;


·
            changes
                in political conditions;


·
            potentially
                reduced protection for intellectual
                property;


·
            foreign
                governmental regulations;


·
            import
                and export controls; and


·
            changes
                in tax laws, tariffs and freight rates.





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





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





In
      fiscal
      year 2007, we derived approximately 82% of our net revenues from sales in Asia
      and approximately 4% from net sales outside of Asia and the United States.
      In
      fiscal year 2006, we generated approximately 64% of our net revenues from sales
      in Asia and approximately 17% from net sales outside of Asia and the United
      States. In fiscal year 2005, approximately 68% of our net revenues derived
      from
      sales in Asia and approximately 6% from net sales in Europe. We expect that
      export sales will continue to represent a significant portion of net revenues.
      We intend to expand our sales efforts outside the United States. This expansion
      will require significant management attention and financial resources and
      further subject us to international operating risks. These risks
      include:





·
            tariffs
                and other barriers and
                restrictions;


·
            unexpected
                changes in regulatory requirements;


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


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





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





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





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





In
      general, the share purchase rights become exercisable when a person or group
      acquires 15% or more of our common stock or a tender offer 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.


37





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





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





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





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





On
      April
      26, 2007, our Board of Directors approved the repurchase of an additional
      2,000,000 shares. Current cash balances and the proceeds from stock option
      exercises and employee stock purchase plan purchases have funded stock
      repurchases in the past, and we expect to fund future stock repurchases from
      these same sources. Pursuant to the 2007 Board of Directors’ authorization, we
      repurchased 1,559,000 shares in the nine months ended March 29, 2008, at an
      approximate cost of $20.1 million. We have purchased a total of 1,861,000 shares
      under the current authority.





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


Period
              
              Total
                Number of
                Shares
                Purchased
              
              Average Price
                Paid per Share
              
              Cumulative
                Number of Shares
                Purchased
                  as Part
                of Publicly
                Announced Plan or
                Program
              
              Maximum Number of
                Shares that May Yet
                be Purchased Under
                the Plan or ProgramAugust
                  10 to August 16, 2007
              
              
              174,000
              
              $
              10.52
              
              
              475,832
              
              
              1,524,168August
                  29 to September 14, 2007
              
              
              280,000
              
              
              11.18
              
              
              755,832
              
              
              1,244,168November
                  27 to December 7, 2007
              
              
              17,334
              
              
              16.14
              
              
              773,166
              
              
              1,226,834February
                  5 to March 10, 2008
              
              
              1,087,644
              
              
              13.68
              
              
              1,860,810
              
              
              139,190Total
              
              
              1,558,978
              
              $
              12.91
              
              
              1,860,810
              
              
              139,190





On
      April
      29, 2008 the Company’s Board of Directors authorized the repurchase of an
      additional $30 million of its common stock. The repurchases may be made from
      time to time in the open market or through private transactions at the
      discretion of Company management.


38


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





Exhibit
              Number
            
            Exhibit
              Description10.1
            
            English
                translation of Cooperation Agreement between Pericom Semiconductor
                Corporation and the Jinan Hi-Tech Industries Development Zone Commission,
                dated as of January 26, 2008, attached as Exhibit 10.1 to the Company’s
                Form 8-K/A, filed May 5, 2008, and incorporated herein by
                reference.10.2
            
            Forms
                of restricted stock award agreements under Pericom 2001 and 2004
                stock
                incentive plans31.1
            
            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


39


SIGNATURES





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




Pericom
        Semiconductor Corporation
 (Registrant)




Date:
                May 7, 2008
            By:
            /s/
                Alex C. HuiAlex
                C. HuiChief
                Executive OfficerBy:
            /s/
                Angela ChenAngela
                ChenChief
                Financial Officer


40