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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended December 31, 2004



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



For the Transition Period from  to



Commission File Number 0-27026



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Pericom Semiconductor Corporation

(Exact Name of Registrant as Specified in Its Charter)



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



3545 North First
Street

San Jose, California 95134

(408) 435-0800

(Address of Principal Executive Offices and

Issuers Telephone Number, Including Area Code)



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



Indicate by check mark whether the Registrant
is an accelerated filer (as defined in Exchange Act Rule 12b-2):    Yes  x    No ̈



As of
February 1, 2005 the Registrant had outstanding 26,517,480 shares of Common Stock.



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##### Table of Contents

Pericom Semiconductor Corporation



Form 10-Q
for the Quarter Ended December 31, 2004



INDEX



|     |  |                              |  |                                                                                                                            |  |     
|---- |  | ---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | ----
|     |  |                              |  |                                                                                                                            |  | Page
|PART |  | I.    
FINANCIAL INFORMATION |  |                                                                                                                           
|     |  |                              | 
|     |  | Item 1:                      |  | Condensed Consolidated Financial Statements (Unaudited)                                                                    |  |     
|     |  |                              | 
|     |  |                              |  | Condensed Consolidated Balance Sheets as of December 31, 2004 and June 30, 2004                                            |  | 3   
|     |  |                              | 
|     |  |                              |  | Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2004 and December 31, 2003 |  | 4   
|     |  |                              | 
|     |  |                              |  | Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2004 and December 31, 2003           |  | 5   
|     |  |                              | 
|     |  |                              |  | Notes to Condensed Consolidated Financial Statements                                                                       |  | 6   
|     |  |                              | 
|     |  | Item 2:                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 14  
|     |  |                              | 
|     |  | Item 3:                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 33  
|     |  |                              | 
|     |  | Item 4:                      |  | Controls and Procedures                                                                                                    |  | 33  
|     |  |                             
|PART |  | II.    
OTHER INFORMATION    |  |                                                                                                                           
|     |  |                              | 
|     |  | Item 2:                      |  | Changes in Securities, Use of Proceeds and issuer purchases of equity securities                                           |  | 35  
|     |  |                              | 
|     |  | Item 4:                      |  | Submission of Matters to Vote of Security Holders                                                                          |  | 35  
|     |  |                              | 
|     |  | Item 6:                      |  | Exhibits and Reports on Form 8-K                                                                                           |  | 36  
|     |  |                             
|     |  | Signatures                   |  | 37                                                                                                                        



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements



Pericom Semiconductor Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)



|                                                                               |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                               |  | December 31,2004 |         |   | June 30,2004 |  
|ASSETS                                                                         |  |                  |         |   |              |   |         |  
|Current assets:                                                                |  |                  |         |   |              |   |         |  
|Cash and cash equivalents                                                      |  | $                | 8,338   |   |              | $ | 13,965  |  
|Short-term investments                                                         |  |                  | 134,768 |   |              |   | 130,412 |  
|Accounts receivable:                                                           |  |                  |         |   |              |   |         |  
|Trade (net of allowances of $2,899, and $4,128)                                |  |                  | 6,452   |   |              |   | 5,308   |  
|Other receivables                                                              |  |                  | 2,327   |   |              |   | 2,241   |  
|Inventories                                                                    |  |                  | 14,552  |   |              |   | 15,980  |  
|Prepaid expenses and other current assets                                      |  |                  | 627     |   |              |   | 664     |  
|Deferred income taxes                                                          |  |                  | 5,377   |   |              |   | 5,564   |  
|                                                                               |  |                  |         |   |              |   |         |  
|Total current assets                                                           |  |                  | 172,441 |   |              |   | 174,134 |  
|Property and equipment  net                                                   |  |                  | 6,168   |   |              |   | 6,442   |  
|Investment in and advances to Pericom Technology, Inc.                         |  |                  | 5,571   |   |              |   | 5,694   |  
|Goodwill (net of accumulated amortization of $366)                             |  |                  | 1,325   |   |              |   | 1,325   |  
|Deferred income taxes  non-current                                            |  |                  | 1,478   |   |              |   | 1,419   |  
|Building held for sale                                                         |  |                  |        |   |              |   | 1,532   |  
|Intangible assets (net of accumulated amortization of $149 and $89)            |  |                  | 2,899   |   |              |   | 2,958   |  
|Other assets                                                                   |  |                  | 3,762   |   |              |   | 3,948   |  
|                                                                               |  |                  |         |   |              |   |         |  
|Total                                                                          |  | $                | 193,644 |   |              | $ | 197,452 |  
|                                                                               |  |                  |         |   |              |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                           |  |                  |         |   |              |   |         |  
|Current liabilities:                                                           |  |                  |         |   |              |   |         |  
|Accounts payable                                                               |  | $                | 5,955   |   |              | $ | 8,153   |  
|Accrued liabilities                                                            |  |                  | 5,450   |   |              |   | 5,972   |  
|Current portion of long-term debt                                              |  |                  |        |   |              |   | 1,291   |  
|Total current liabilities                                                      |  |                  | 11,405  |   |              |   | 15,416  |  
|                                                                               |  |                  |         |   |              |   |         |  
|Other long term liabilities                                                    |  |                  |        |   |              |   | 139     |  
|Minority interest in consolidated subsidiary                                   |  |                  | 305     |   |              |   |        |  
|Shareholders equity:                                                          |  |                  |         |   |              |   |         |  
|Common stock and paid in capital - no par value, 60,000,000 shares authorized; |  |                  |         |   |              |   |         |  
|Shares outstanding: December 31, 2004, 26,532,559; June 30, 2004, 26,474,381   |  |                  | 142,771 |   |              |   | 142,607 |  
|Accumulated other comprehensive income (loss)                                  |  |                  | (368    | ) |              |   | (393    | )
|Retained earnings                                                              |  |                  | 39,531  |   |              |   | 39,683  |  
|                                                                               |  |                  |         |   |              |   |         |  
|Total shareholders equity                                                     |  |                  | 181,934 |   |              |   | 181,897 |  
|                                                                               |  |                  |         |   |              |   |         |  
|Total                                                                          |  | $                | 193,644 |   |              | $ | 197,452 |  
|                                                                               |  |                  |         |   |              |   |         |  



See notes to condensed
consolidated financial statements.





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##### Table of Contents

Pericom Semiconductor Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                         |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                         |  | 2004                           |        |   | 2003                         |   |        | 2004 |  |   | 2003   |  
|Net revenues                                             |  | $                              | 19,217 |   |                              | $ | 16,850 |      |  | $ | 39,003 |   |  | $ | 27,922 |  
|Cost of revenues                                         |  |                                | 13,219 |   |                              |   | 12,262 |      |  |   | 26,025 |   |  |   | 20,116 |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                             |  |                                | 5,998  |   |                              |   | 4,588  |      |  |   | 12,978 |   |  |   | 7,806  |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                      |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Research and development                                 |  |                                | 3,485  |   |                              |   | 3,987  |      |  |   | 7,201  |   |  |   | 7,197  |  
|Selling, general and administrative                      |  |                                | 3,707  |   |                              |   | 4,292  |      |  |   | 7,539  |   |  |   | 6,807  |  
|Restructuring charge                                     |  |                                |       |   |                              |   | 784    |      |  |   |       |   |  |   | 784    |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Total                                                    |  |                                | 7,192  |   |                              |   | 9,063  |      |  |   | 14,740 |   |  |   | 14,788 |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations                            |  |                                | (1,194 | ) |                              |   | (4,475 | )    |  |   | (1,762 | ) |  |   | (6,982 | )
|Equity in net income (loss) of Pericom Technology, Inc.  |  |                                |       |   |                              |   | 68     |      |  |   | (123   | ) |  |   | 137    |  
|Interest income                                          |  |                                | 885    |   |                              |   | 996    |      |  |   | 1,816  |   |  |   | 1,988  |  
|Other-than-temporary recovery (decline) in investments   |  |                                | (96    | ) |                              |   |       |      |  |   | (96    | ) |  |   | (9     | )
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                        |  |                                | (405   | ) |                              |   | (3,411 | )    |  |   | (165   | ) |  |   | (4,866 | )
|Income tax (benefit)                                     |  |                                | (102   | ) |                              |   | (1,536 | )    |  |   | (13    | ) |  |   | (2,191 | )
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                        |  | $                              | (303   | ) |                              | $ | (1,875 | )    |  | $ | (152   | ) |  | $ | (2,675 | )
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Basic income (loss) per share                            |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Diluted income (loss) per share                          |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing basic income (loss) per share   |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing diluted income (loss) per share |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|                                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



See notes to condensed
consolidated financial statements.



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Pericom Semiconductor Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                                   |  |                              |          |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                                   |  | Six Months EndedDecember 31, |         
|                                                                                                   |  | 2004                         |          |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |  |                              |          |   |      |   |         |  
|Net income (loss)                                                                                  |  | $                            | (152     | ) |      | $ | (2,675  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                              |          |   |      |   |         |  
|Depreciation and amortization                                                                      |  |                              | 2,079    |   |      |   | 2,262   |  
|Purchased in-process technology                                                                    |  |                              |         |   |      |   | 360     |  
|Other-than-temporary decline in investment                                                         |  |                              | 96       |   |      |   | 9       |  
|Gain on short-term investments                                                                     |  |                              | (40      | ) |      |   |        |  
|(Gain) loss on sale or disposal of assets                                                          |  |                              | (407     | ) |      |   | 88      |  
|Equity in net (income) loss of investee                                                            |  |                              | 123      |   |      |   | (137    | )
|Deferred income taxes                                                                              |  |                              | 51       |   |      |   | (409    | )
|Minority interest in subsidiarys net income (loss)                                                |  |                              | (10      | ) |      |   |        |  
|Changes in assets and liabilities net of effects of purchase of SaRonix LLC:                       |  |                              |          |   |      |   |         |  
|Accounts receivable                                                                                |  |                              | (1,230   | ) |      |   | (1,091  | )
|Inventories                                                                                        |  |                              | 1,428    |   |      |   | 464     |  
|Prepaid expenses and other current assets                                                          |  |                              | 37       |   |      |   | (2,227  | )
|Accounts payable                                                                                   |  |                              | (2,198   | ) |      |   | 2,745   |  
|Accrued liabilities                                                                                |  |                              | (661     | ) |      |   | (381    | )
|                                                                                                   |  |                              |          |   |      |   |         |  
|Net cash provided by (used in) operating activities                                                |  |                              | (884     | ) |      |   | (992    | )
|                                                                                                   |  |                              |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |  |                              |          |   |      |   |         |  
|Additions to property and equipment                                                                |  |                              | (1,752   | ) |      |   | (1,527  | )
|Net proceeds from sale of property and equipment                                                   |  |                              | 1,945    |   |      |   | 81      |  
|Purchase of short-term investments                                                                 |  |                              | (148,815 | ) |      |   | (70,872 | )
|Maturities of short-term investments                                                               |  |                              | 144,505  |   |      |   | 74,672  |  
|Cash received from SaRonix acquisition, net of transaction costs                                   |  |                              |         |   |      |   | 349     |  
|Loan to SaRonix                                                                                    |  |                              |         |   |      |   | (1,197  | )
|Sale of minority interest                                                                          |  |                              | 315      |   |      |   |        |  
|Decrease (increase) in other assets                                                                |  |                              | 90       |   |      |   | 38      |  
|Payment of bank loan                                                                               |  |                              | (1,251   | ) |      |   |        |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|Net cash provided by (used in) investing activities                                                |  |                              | (4,963   | ) |      |   | 1,544   |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |  |                              |          |   |      |   |         |  
|Sale of common stock                                                                               |  |                              | 651      |   |      |   | 987     |  
|Principal payments on long-term debts and capital leases                                           |  |                              | (40      | ) |      |   | (30     | )
|Repurchase of common stock                                                                         |  |                              | (487     | ) |      |   |        |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|Net cash provided by (used in) financing activities                                                |  |                              | 124      |   |      |   | 957     |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                       |  |                              | 96       |   |      |   | 25      |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               |  |                              | (5,627   | ) |      |   | 1,534   |  
|CASH AND CASH EQUIVALENTS:                                                                         |  |                              |          |   |      |   |         |  
|Beginning of period                                                                                |  |                              | 13,965   |   |      |   | 9,705   |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|End of period                                                                                      |  | $                            | 8,338    |   |      | $ | 11,239  |  
|                                                                                                   |  |                              |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                  |  |                              |          |   |      |   |         |  
|Cash paid during the period for:                                                                   |  |                              |          |   |      |   |         |  
|Income taxes                                                                                       |  | $                            | (3       | ) |      | $ | (6      | )
|                                                                                                   |  |                              |          |   |      |   |         |  
|Interest                                                                                           |  | $                            | (1       | ) |      | $ | (42     | )
|                                                                                                   |  |                              |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                             |  |                              |          |   |      |   |         |  
|Fair Value of SaRonix, LLC assets acquired                                                         |  |                              |         |   |      | $ | 14,053  |  
|Acquisition related costs                                                                          |  |                              |         |   |      |   | (1,731  | )
|Loans forgiven                                                                                     |  |                              |         |   |      |   | (7,900  | )
|                                                                                                   |  |                              |          |   |      |   |         |  
|Liabilities assumed                                                                                |  |                              |         |   |      | $ | 4,422   |  
|                                                                                                   |  |                              |          |   |      |   |         |  



See notes to condensed
consolidated financial statements.





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Pericom Semiconductor Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)



1. Basis of Presentation



The financial
statements have been prepared by Pericom Semiconductor Corporation (Pericom or the Company) pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited
financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of the Companys financial position as of December 31, 2004, the results of operations for the
three-month and six-month periods ended December 31, 2004 and 2003 and cash flows for the six months ended December 31, 2004 and 2003. This unaudited quarterly information should be read in conjunction with the audited financial statements of
Pericom and the notes thereto incorporated by reference in the Companys Annual Report on Form 10-K/A 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 six-month periods ended December 31, 2004 are not necessarily indicative of the results to be
expected for the entire year.



The Companys fiscal periods in the
accompanying financial statements have been shown as ending on June 30 and December 31. The Companys fiscal year 2004 ended on June 26, 2004. The three and six-month periods in fiscal years 2004 and 2003 ended on December 25, 2004 and December
27, 2003, respectively, and each period included 13 weeks and 26 weeks, 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 subsidiaries,
SaRonix, Inc., Pericom Semiconductor (HK) Limited and Pericom Taiwan Limited Corporation. SaRonix, Inc. was formed in September, 2003 to purchase substantially all the assets and related liabilities of SaRonix, LLC effective October 1, 2003. (see
Note 2) All significant intercompany balances and transactions are eliminated in consolidation.



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##### Table of Contents

Stock Based Compensation



Had the Company amortized to expense the computed fair values of the awards under the 1990 Stock Option Plan, 1995 Stock Option Plan, 2001
Stock Option Plan, SaRonix acquisition stock option plan, and 2000 Employee Stock Purchase Plan, for the three-month and six-month periods ended December 31, 2004 and 2003, the Companys net income (loss) and income (loss) per share would have
been as follows (in thousands, except per share data):



|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                                                                |  | 2004                           |        |   | 2003                         |   |        | 2004 |  |   | 2003   |  
|Net income (loss), as reported                                                                                  |  | $                              | (303   | ) |                              | $ | (1,875 | )    |  | $ | (152   | ) |  | $ | (2,675 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                                | (1,418 | ) |                              |   | (1,128 | )    |  |   | (2,783 | ) |  |   | (2,328 | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                     |  | $                              | (1,721 | ) |                              | $ | (3,003 | )    |  | $ | (2,935 | ) |  | $ | (5,003 | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) per share:                                                                                        |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings (loss) per share, as reported                                                                    |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings (loss) per share, as reported                                                                  |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings (loss) per share, pro forma                                                                      |  | $                              | (0.06  | ) |                              | $ | (0.12  | )    |  | $ | (0.11  | ) |  | $ | (0.19  | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings (loss) per share, pro forma                                                                    |  | $                              | (0.06  | ) |                              | $ | (0.12  | )    |  | $ | (0.11  | ) |  | $ | (0.19  | )
|                                                                                                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



Recent Accounting Pronouncements



In November 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS
No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS No. 151 will have a material impact on our financial statements.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which
eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. We do not believe the adoption of SFAS No. 153 will have a material impact on our financial statements.



In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity
exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for interim or annual reporting periods beginning on or after June 15, 2005. We are
assessing the potential impact that the adoption of SFAS No. 123(R) will have on our financial statements.



2. Business Combination



Acquisition of
Assets of SaRonix, LLC.



On October 1, 2003 the Company, acting through its
wholly-owned subsidiary SaRonix, Inc., exercised its option to acquire substantially all the assets and related liabilities of privately-held SaRonix, LLC (SaRonix). Total consideration paid was approximately $7,900,000 in the form of the
cancellation of previously advanced loans pursuant to the terms of a Secured Loan Agreement. The Company also incurred approximately $1,731,000 in acquisition related costs, for a total purchase price of approximately $9,631,000. SaRonix designs,
manufactures and distributes industry-standard and custom frequency control products (FCP) including Crystal and Surface Acoustic Wave Oscillators, Quartz Crystals, and Timing Modules. The Company acquired SaRonix for this complementary portfolio of
timing solutions.



The results of operations of SaRonix, Inc. from the date of
acquisition have been included in the Companys consolidated financial statements. The assets acquired and liabilities assumed at the date of the acquisition were recorded at estimated fair values as determined by management. Fair values of
intangible assets acquired are based on appropriate application of the income, market, and cost approaches and the fair value of tangible assets acquired and liabilities assumed were determined using estimates of current replacement



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cost, present value of amounts to be collected in the future, and other techniques. The purchase price has been allocated as follows (in thousands):



|                                                  |  |   |        |  
|------------------------------------------------- |  | - | ------ | -
|Current assets                                    |  | $ | 7,005  |  
|Property and equipment                            |  |   | 1,173  |  
|Building held for sale                            |  |   | 1,532  |  
|Other assets                                      |  |   | 616    |  
|Other intangible assets subject to amortization : |  |   |        |  
|Customer backlog                                  |  |   | 320    |  
|Core developed technology                         |  |   | 1,189  |  
|In-process research and development               |  |   | 360    |  
|Supplier relationship                             |  |   | 901    |  
|Trade name                                        |  |   | 957    |  
|                                                  |  |   |        |  
|Total assets acquired                             |  |   | 14,053 |  
|                                                  | 
|Current liabilities                               |  |   | (4,422 | )
|                                                  |  |   |        |  
|Total liabilities assumed                         |  |   | (4,422 | )
|                                                  |  |   |        |  
|                                                  | 
|Net assets acquired                               |  | $ | 9,631  |  
|                                                  |  |   |        |  



The Company amortized customer backlog
over the three months ended December 31, 2003. Supplier relationship and trade name will not be amortized, but will be reviewed at least annually for impairment. Core developed technology will be amortized over its estimated useful life of ten
years. Amortization expense for the three and six-month periods ended December 31, 2004 was $30,000 and $60,000, respectively. Amortization for the remainder of fiscal 2005 will be approximately $59,000, and amortization for each fiscal year through
2013 will be $119,000 per year and amortization for 2014 will be $30,000.



The
following table sets forth the cost, accumulated amortization, and net value of the core developed technology intangible asset as of June 30, 2004 and December 31, 2004 (in thousands):



|                         |  |                   |       |   |              |   |       |  
|------------------------ |  | ----------------- | ----- | - | ------------ | - | ----- | -
|                         |  | December 31, 2004 |       |   | June 30,2004 |  
|Cost                     |  | $                 | 1,189 |   |              | $ | 1,189 |  
|Accumulated amortization |  |                   | (149  | ) |              |   | (89   | )
|                         |  |                   |       |   |              |   |       |  
|Net value                |  | $                 | 1,040 |   |              | $ | 1,100 |  
|                         |  |                   |       |   |              |   |       |  



Approximately $360,000 of the purchase
price was allocated to the estimated fair value of in-process research and development projects. The estimated future costs to complete these projects was approximately $300,000. At the date of acquisition, these projects had not reached
technological feasibility and had no future alternative minimum use. Accordingly, the value allocated to these projects was immediately expensed in research and development on the acquisition date. As of December 31, 2004 all of these projects had
either been completed or cancelled.





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3. Income (Loss) Per Share



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



Basic and diluted income (loss) per share for the three and six-month periods ended December 31, 2004 and 2003 are computed as follows (in
thousands, except for per share data):



|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                            |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                            |  | 2004                           |        |   | 2003                         |   |        | 2004 |  |   | 2003   |  
|Net income (loss)                                                           |  | $                              | (303   | ) |                              | $ | (1,875 | )    |  | $ | (152   | ) |  | $ | (2,675 | )
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Computation of common shares outstanding  basic income (loss) per share:   |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Weighted average shares of common stock                                     |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing basic income (loss) per share                      |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Basic income (loss) per share                                               |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Computation of common shares outstanding  diluted income (loss) per share: |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Weighted average shares of common stock                                     |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|Dilutive options using the treasury stock method                            |  |                                |       |   |                              |   |       |      |  |   |       |   |  |   |       |  
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing diluted income (loss) per share                    |  |                                | 26,554 |   |                              |   | 25,928 |      |  |   | 26,534 |   |  |   | 25,872 |  
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Diluted income (loss) per share                                             |  | $                              | (0.01  | ) |                              | $ | (0.07  | )    |  | $ | (0.01  | ) |  | $ | (0.10  | )
|                                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



Options to purchase 5,454,799 shares
of common stock were outstanding as of December 31, 2004, but not included in the computation of diluted net loss per share for the three and six-month periods ended December 31, 2004 because the Company had a net loss for these periods and those
options would be anti-dilutive. For the three and six-month periods ended December 31, 2003, options to purchase 5,678,714 shares of common stock were not included in the computation of diluted net loss per share because the Company had a net loss
for these periods and those options would be anti-dilutive.



4. Inventories



Inventories consist of (in thousands):



|                |  |                  |        |              |   |       
|--------------- |  | ---------------- | ------ | ------------ | - | ------
|                |  | December 31,2004 |        | June 30,2004
|Raw materials   |  | $                | 5,313  |              | $ | 4,968 
|Work in process |  |                  | 3,175  |              |   | 3,588 
|Finished goods  |  |                  | 6,064  |              |   | 7,424 
|                |  |                  |        |              |   |       
|                |  | $                | 14,552 |              | $ | 15,980
|                |  |                  |        |              |   |       



Raw material inventory is considered
obsolete and written off if it has not moved in 270 days. By part number, the quantity of assembled devices in inventory that is in excess of the greater of the quantity shipped in the previous twelve months or the quantity in backlog are considered
obsolete and written off. In certain circumstances, management will determine, based on expected usage or other factors, that inventory



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considered obsolete by these guidelines should not be written off. At December 31, 2004 $9,804,000 of inventory on hand had been written off as compared with
$8,110,000 at June 30, 2004. During the three months ended December 31, 2004 the Company wrote off $1,044,000 of inventory related to a product end-of-life program.



During the three months ended December 31, 2004, and December 31, 2003, gross profit and gross margin benefited as a result of the sale of
inventory of $778,000 and $460,000, respectively, that had been previously identified as excess and written down to zero. During the six months ended December 31, 2004, and December 31, 2003, gross profit and gross margin benefited as a result of
the sale of inventory of $931,000 and $1,149,000, respectively, that had been previously identified as excess and written down to zero.



5. Accrued Liabilities



Accrued liabilities consist of (in thousands):



|                                          |  |                   |       |              |   |      
|----------------------------------------- |  | ----------------- | ----- | ------------ | - | -----
|                                          |  | December 31, 2004 |       | June 30,2004
|Accrued compensation                      |  | $                 | 2,144 |              | $ | 2,202
|Accrued income tax                        |  |                   | 1,050 |              |   | 1,117
|External sales representative commissions |  |                   | 882   |              |   | 785  
|Restructuring accrual                     |  |                   | 281   |              |   | 733  
|Other accrued expenses                    |  |                   | 1,093 |              |   | 1,135
|                                          |  |                   |       |              |   |      
|                                          |  | $                 | 5,450 |              | $ | 5,972
|                                          |  |                   |       |              |   |      



6. Long Term Debt



Bank Loan



As part of the acquisition of SaRonix (see Note 2), the Company assumed a loan from a bank. The loan had a variable interest rate of 2.5%
over the 30 day LIBOR rate and was payable in monthly installments of principal and interest in Irish Pounds for ten years. This loan was amended twice, with the latest amendment effective in September 2003, to modify the payment terms to require
interest only payments until October 31, 2004. This loan was secured by a building owned by the Company in Ireland, and was paid off in November 2004 concurrent with the sale of this building.



7. Restructuring



In the quarter ended June 30, 2001, the Company recorded a restructuring charge of $522,000 related to an unused leased facility that was
subleased at a lower rate than what the Company was leasing the facility for. During the quarter ended December 31, 2002, the Company revised its estimate of this restructuring and recorded an additional restructuring charge of $1,431,000 which was
also related to this facility. This charge represents the future lease payments and estimated utility and maintenance costs for the remainder of the lease, which expires in May 2005. The Company received notice that a sublessee would move from this
facility and the Company estimated that it would not be able to sublease the facility due to the excess available real estate in the San Jose, California area. Due to the continued downturn in the Companys business, the Company determined that
this portion of the facility will not be utilized over the remaining lease term.



During the quarter ended December 31, 2003, the Company recorded an additional restructuring charge of $784,000 to cover seven months of remaining costs on its existing corporate headquarters lease after signing a new lease for a new
corporate headquarters. The move to the new corporate headquarters resulted in an approximate $50,000 per month savings. There were no restructuring charges recorded in the quarter ended December 31, 2004.



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These restructuring charges were not deemed to have a significant impact on the Companys future financial position.
The Companys future operating results will improve as a result of these restructuring charges, however, due to the costs associated with these idle facilities being recorded at the time they became idle. No employee positions were eliminated
as part of these restructurings.



The following table sets forth the activity
of the restructuring accrual as of December 31, 2004 (in thousands):



|                                                    |  |   |        |  
|--------------------------------------------------- |  | - | ------ | -
|Initial charge in the fourth quarter of fiscal 2001 |  | $ | 522    |  
|Cash payments                                       |  |   | (562   | )
|Sublease cash receipts                              |  |   | 237    |  
|                                                    |  |   |        |  
|Balance at June 30, 2002                            |  |   | 197    |  
|Additional reserves                                 |  |   | 1,431  |  
|Cash payments                                       |  |   | (598   | )
|Sublease cash receipts                              |  |   | 242    |  
|                                                    |  |   |        |  
|Balance at June 30, 2003                            |  |   | 1,272  |  
|Additional reserves                                 |  |   | 784    |  
|Cash payments                                       |  |   | (1,337 | )
|Non-cash adjustment                                 |  |   | 14     |  
|                                                    |  |   |        |  
|Balance at June 30, 2004                            |  |   | 733    |  
|Cash payments                                       |  |   | (452   | )
|                                                    |  |   |        |  
|Balance at December 31, 2004                        |  | $ | 281    |  
|                                                    |  |   |        |  



The Company has classified the entire
balance of this accrual in current accrued liabilities in the accompanying balance sheets as of December 31, 2004 because it is expected that this amount will be paid within twelve months.



8. Industry and Segment Information



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



There were two direct customers, both Asian distributors, that individually accounted for 13%
and 12% of net sales in the three months ended December 31, 2004. In the six months ended December 31, 2004 these same two direct customers each individually accounted for 12% of net sales. In the three months ended December 31, 2003, there were two
direct customers, both Asian distributors that individually accounted for more than 11% and 10% of net sales. In the six months ended December 31, 2003 these same two direct customers individually accounted for 13% and 10% of net sales. At December
31, 2004, three customers individually accounted for 12%, 11% and 10% of accounts receivable. At December 31, 2003, there were no customers that individually accounted for more than 10% of accounts receivable.



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The following table sets forth the Companys net property and equipment by country of location as a percentage of
total net property and equipment as of December 31, 2004 and 2003.



|                           |  |                    |   |  |       |  
|-------------------------- |  | ------------------ | - |  | ----- | -
|                           |  | As of December 31, |  
|                           |  | 2004               |   |  | 2003  |  
|United States              |  | 51.9               | % |  | 61.9  | %
|Singapore                  |  | 26.7               | % |  | 18.4  | %
|Other (less than 10% each) |  | 21.4               | % |  | 19.7  | %
|                           |  |                    |   |  |       |  
|Total                      |  | 100.0              | % |  | 100.0 | %
|                           |  |                    |   |  |       |  



The following table sets forth net
revenues by country as a percentage of total net revenues for the three and six-month periods ended December 31, 2004 and 2003.



|                           |  |                                 |   |  |                               |   |  |       |   |  |       |  
|-------------------------- |  | ------------------------------- | - |  | ----------------------------- | - |  | ----- | - |  | ----- | -
|                           |  | Three Months Ended December 31, |   |  | Six Months Ended December 31, |  
|                           |  | 2004                            |   |  | 2003                          |   |  | 2004  |   |  | 2003  |  
|United States              |  | 23.9                            | % |  | 29.0                          | % |  | 22.7  | % |  | 27.8  | %
|China                      |  | 22.5                            | % |  | 20.1                          | % |  | 21.9  | % |  | 19.6  | %
|Taiwan                     |  | 15.2                            | % |  | 18.2                          | % |  | 16.4  | % |  | 20.9  | %
|Singapore                  |  | 12.3                            | % |  | 8.9                           | % |  | 13.0  | % |  | 10.8  | %
|Other (less than 10% each) |  | 26.1                            | % |  | 23.8                          | % |  | 26.0  | % |  | 20.9  | %
|                           |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Total                      |  | 100.0                           | % |  | 100.0                         | % |  | 100.0 | % |  | 100.0 | %
|                           |  |                                 |   |  |                               |   |  |       |   |  |       |  



9. Comprehensive Income



SFAS No. 130, Reporting Comprehensive Income requires an
enterprise to report, by major components and as a single total, the change in net assets during the period from non-owner sources. For the three and six-month periods ended December 31, 2004 and 2003, comprehensive income (loss), which was
comprised of the Companys net income (loss) for the periods, changes in cumulative unrealized gain (loss) on short-term investments net of tax and translation gain (loss) was as follows (in thousands):



|                                     |  |                                |      |   |                              |   |        |      |  |   |      |   |  |   |        |  
|------------------------------------ |  | ------------------------------ | ---- | - | ---------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ------ | -
|                                     |  | Three Months EndedDecember 31, |      |   | Six Months EndedDecember 31, |  
|                                     |  | 2004                           |      |   | 2003                         |   |        | 2004 |  |   | 2003 |  
|Net income (loss)                    |  | $                              | (303 | ) |                              | $ | (1,875 | )    |  | $ | (152 | ) |  | $ | (2,675 | )
|Unrealized gain (loss) on investment |  |                                | (332 | ) |                              |   | (240   | )    |  |   | (70  | ) |  |   | (657   | )
|Translation gain (loss)              |  |                                | 120  |   |                              |   | (21    | )    |  |   | 95   |   |  |   | 25     |  
|                                     |  |                                |      |   |                              |   |        |      |  |   |      |   |  |   |        |  
|Comprehensive income (loss)          |  | $                              | (515 | ) |                              | $ | (2,136 | )    |  | $ | (127 | ) |  | $ | (3,307 | )
|                                     |  |                                |      |   |                              |   |        |      |  |   |      |   |  |   |        |  



10. Stock Repurchase Program



On October 22, 2001 the Companys Board of Directors authorized a
stock repurchase program to repurchase up to 2,000,000 shares of Pericom common stock. Purchases may be made in the open market or in privately negotiated transactions from time to time at managements discretion. The Company began repurchasing
shares of Pericom stock on July 23, 2002. 18,675 shares were repurchased in the three months ended December 31, 2004 at a cost of approximately $168,000. During the six months ended December 31, 2004, 52,275 shares have been repurchased at an
approximate cost of $487,000. The Company has purchased a total of 326,775 shares at a total cost of approximately $2.7 million as of December 31, 2004. Stock repurchases have been funded by current cash balances and the proceeds from stock option
exercises and employee stock purchase plan purchases. The Company expects to fund future stock repurchases from these same sources.





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11. Minority Interest



The Company consolidates its investment in Pericom Taiwan Limited (PTL). During the three months ended December 31, 2004 the Company sold 6.82% of PTL to its employees
for $315,000 in cash. At December 31, 2004, the minority interest in PTL was $305,000.





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Item 2: Managements Discussion and Analysis

of Financial Condition and Results of Operations



Pericom Semiconductor Corporation



The following information should be read in conjunction with the unaudited financial
statements and notes thereto included in Part 1 - Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in the
Companys Annual Report on Form 10-K/A for the year ended June 26, 2004 (the Form 10-K/A).



Significant Events



On October 1, 2003,
Pericom Semiconductor Corporation, acting through its wholly-owned subsidiary SaRonix, Inc. (SaRonix), exercised its option to acquire substantially all of the assets and related liabilities of SaRonix, LLC (see Note 2 to the condensed
consolidated financial statements). Beginning with the three months ended December 31, 2003, the Companys operating results include the operations of SaRonix.



Critical Accounting Policies



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



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



Revenue
Recognition.We recognize revenue from the sale of our products upon shipment, provided title and risk of loss has passed to the customer, the fee is fixed and determinable and collection of the revenue is reasonably assured. A provision for
estimated future returns and other charges against revenue is recorded at the time of shipment. For the six months ended December 31, 2004 the majority of our sales were to distributors.



We sell products to large, domestic distributors at the price listed in our price book for that distributor. We recognize revenue at the
time of shipment. At the time of sale we book 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 we report.



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



Our 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.



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Asian distributors typically buy our 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 our benefit as well as theirs, we grant Asian distributors stock rotation privileges between 1% and 5% even though we are not contractually obligated to do so. Each month
a sales reserve is recorded for the estimated stock rotation privilege earned by our 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 set up in our computer system. We are only obligated to accept returns of defective parts. For customer convenience, we may approve a particular return request, even though
we are not obligated to do so. Each month a sales reserve is recorded for the approved RMAs that have not yet been returned. We do not keep a general warranty reserve because historically valid warranty returns, which are the result of a part not
meeting specifications or being non-functional, have been immaterial and parts can frequently be re-sold to other customers for use in other applications.



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



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 in our computer system.



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



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. The semiconductor markets that we serve are volatile and actual results may vary from our forecast or other assumptions, potentially impacting our inventory valuation and resulting in material effects on our gross margin.



Impairment of Goodwill.As required by SFAS No. 142, Goodwill and Other
Intangible Assets, which we adopted in fiscal 2002, we ceased amortizing goodwill with a net carrying value of $1.3 million that resulted from our investment in Pericom Technology, Inc. The carrying value is net of $366,000 accumulated
amortization. SFAS No. 142 also requires that goodwill be tested for impairment at least annually. We determined that no impairment of this goodwill existed in fiscal 2004, and we will continue to evaluate such goodwill at least annually.



Investments.We have also made other investments including loans,
bridge loans convertible to equity or asset purchases as well as direct equity investments. These loans and investments are made with strategic



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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. Our 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 we 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. In particular, we have experienced losses before income taxes in each of the three prior years and for the six months ended
December 31, 2004. If we continue to experience losses, we may not be able to conclude that it is more likely than not that we will be able to generate sufficient future taxable income to realize our deferred tax assets. If this occurs, we may be
required to increase our valuation allowance against the deferred tax assets resulting in additional income tax expense.



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 EndedDecember 31, |    |  | Six Months EndedDecember 31, |   
|                                                        |  | 2004                           |    |  | 2003                         |    |  | 2004  |    |  | 2003  |   
|Net revenues                                            |  | 100.0                          | %  |  | 100.0                        | %  |  | 100.0 | %  |  | 100.0 | % 
|Cost of revenues                                        |  | 68.8                           | %  |  | 72.8                         | %  |  | 66.7  | %  |  | 72.0  | % 
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Gross profit                                            |  | 31.2                           | %  |  | 27.2                         | %  |  | 33.3  | %  |  | 28.0  | % 
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Operating expenses:                                     |  |                                |    |  |                              |    |  |       |    |  |       |   
|Research and development                                |  | 18.1                           | %  |  | 23.7                         | %  |  | 18.5  | %  |  | 25.8  | % 
|Selling, general and administrative                     |  | 19.3                           | %  |  | 25.4                         | %  |  | 19.3  | %  |  | 24.4  | % 
|Restructuring charge                                    |  | 0.0                            | %  |  | 4.7                          | %  |  | 0.0   | %  |  | 2.8   | % 
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Total                                                   |  | 37.4                           | %  |  | 53.8                         | %  |  | 37.8  | %  |  | 53.0  | % 
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Income (loss) from operations                           |  | (6.2                           | )% |  | (26.6                        | )% |  | (4.5  | )% |  | (25.0 | )%
|Equity in net income (loss) of Pericom Technology, Inc. |  | 0.0                            | %  |  | 0.4                          | %  |  | (0.3  | )% |  | 0.5   | % 
|Interest income                                         |  | 4.6                            | %  |  | 6.0                          | %  |  | 4.6   | %  |  | 7.1   | % 
|Other-than-temporary decline in investment              |  | (0.5                           | )% |  | 0.0                          | %  |  | (0.2  | )% |  | 0.0   | % 
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Income (loss) before income taxes                       |  | (2.1                           | )% |  | (20.2                        | )% |  | (0.4  | )% |  | (17.4 | )%
|Income tax (benefit)                                    |  | (0.5                           | )% |  | (9.1                         | )% |  | 0.0   | %  |  | (7.8  | )%
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   
|Net income (loss)                                       |  | (1.6                           | )% |  | (11.1                        | )% |  | (0.4  | )% |  | (9.6  | )%
|                                                        |  |                                |    |  |                              |    |  |       |    |  |       |   





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Net Revenues



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



|                                                                            |  |                                 |        |   |                               |   |        |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | ------- |  | ---- | ---- |  | - | ------ | - |  | ------- | ------ | - |  | ---- | -
|                                                                            |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |  
|(In thousands)                                                              |  | 2004                            |        |   | 2003                          |   |        | %Change |  |      | 2004 |  |   | 2003   |   |  | %Change |       
|Net revenues                                                                |  | $                               | 19,217 |   |                               | $ | 16,850 |         |  | 14.0 | %    |  | $ | 39,003 |   |  | $       | 27,922 |   |  | 39.7 | %
|Percentage of net sales accounted for by top 5 direct customers (1)         |  |                                 | 41.9   | % |                               |   | 36.8   | %       |  |      |      |  |   | 41.4   | % |  |         | 42.8   | % |  |      |  
|                                                                            |  |                                 |        |   |                               |   |        |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|Number of direct customers that each account for more than 10% of net sales |  |                                 | 2      |   |                               |   | 2      |         |  |      |      |  |   | 2      |   |  |         | 2      |   |  |      |  
|                                                                            |  |                                 |        |   |                               |   |        |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|Percentage of gross sales accounted for by top 5 end customers (2)          |  |                                 | 36.8   | % |                               |   | 29.9   | %       |  |      |      |  |   | 37.5   | % |  |         | 31.1   | % |  |      |  
|                                                                            |  |                                 |        |   |                               |   |        |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|Number of end customers that each account for more than 10% of gross sales  |  |                                 | 0      |   |                               |   | 0      |         |  |      |      |  |   | 1      |   |  |         | 0      |   |  |      |  

---

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

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



On October 1, 2003, the Company exercised its option to acquire SaRonix, LLC of Menlo Park, California. Beginning with the quarter ended December 31, 2003, the
Companys revenues included revenues from SaRonix. For the three months ended December 31, 2003, revenues of $4.7 million were generated from the sales of SaRonix products. For the three and six-month periods ended December 31, 2004 revenues of
$5.1 million and $10.0 million, respectively, were generated from sales of SaRonix products.



The rapid semiconductor industry downturn that began in fiscal 2001 caused an over-supply of inventories in the global distribution and contract manufacturing channels. This inventory imbalance pushed order rates
down, caused a corresponding drop in backlog, and caused the percentage of net sales represented by orders placed and shipped in the same quarter to grow. These orders are called turns orders. During much of fiscal 2004 business
conditions in the semiconductor industry improved and the percentage of the companys revenue represented by turns orders declined. In late fiscal 2004 order rates again slowed in response to an imbalance of inventory as compared with
end-demand, and the percentage of turns orders again increased although not to the levels of 2000-2003. The increased reliance on turns orders, the Companys lower backlog level and the uncertain growth rate of the world economy make it
difficult to predict near term demand.



Net revenues consist of product sales,
which are recognized upon shipment, less an estimate for returns and allowances. The increase in revenues for the three-month period ended December 31, 2004 as compared with the same period in the prior year is primarily attributable to increased
volume of products shipped as a result of relative improvements in year over year end-market demand. The increase in revenues is also attributable to customer acceptance of the Companys new product offerings. Also, the pricing environment for
the Companys Digital Switches and Interface Logic products improved during the 2004 calendar year. However, with the recent slowdown in orders, the pricing environment could again become more difficult as other companies compete more
aggressively for business. Pricing for the Companys higher margin Analog Switch, Clock and Connect products, many of which are proprietary, is more stable and price declines are generally offset by new product introductions and cost
reductions. The increase in revenues for the six-month period ended December 31, 2004 as compared with the same period last year is attributable to the same factors described above, plus the addition of $4.9 million in SaRonix product revenue in the
three



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months ended September 30, 2004 as compared to zero in the three month period ended September 30, 2003. In the three and six-month periods ended December 31,
2004 net revenues include price protection in the amount of $30,000 and $105,000, respectively. In the three and six-month periods ended December 31, 2003 net revenues include price protection in the amount of $76,000 and $145,000 respectively.



The following table sets forth net revenues by country as a percentage of
total net revenues for the three and six-month periods ended December 31, 2004 and 2003.



|                           |  |                                |   |  |                              |   |  |       |   |  |       |  
|-------------------------- |  | ------------------------------ | - |  | ---------------------------- | - |  | ----- | - |  | ----- | -
|                           |  | Three Months EndedDecember 31, |   |  | Six Months EndedDecember 31, |  
|                           |  | 2004                           |   |  | 2003                         |   |  | 2004  |   |  | 2003  |  
|United States              |  | 23.9                           | % |  | 29.0                         | % |  | 22.7  | % |  | 27.8  | %
|China                      |  | 22.5                           | % |  | 20.1                         | % |  | 21.9  | % |  | 19.6  | %
|Taiwan                     |  | 15.2                           | % |  | 18.2                         | % |  | 16.4  | % |  | 20.9  | %
|Singapore                  |  | 12.3                           | % |  | 8.9                          | % |  | 13.0  | % |  | 10.8  | %
|Other (less than 10% each) |  | 26.1                           | % |  | 23.8                         | % |  | 26.0  | % |  | 20.9  | %
|                           |  |                                |   |  |                              |   |  |       |   |  |       |  
|Total                      |  | 100.0                          | % |  | 100.0                        | % |  | 100.0 | % |  | 100.0 | %
|                           |  |                                |   |  |                              |   |  |       |   |  |       |  



For the three and six months ended
December 31, 2004, as compared with the same periods in the prior year, the percentage of our net revenues derived from sales to the United States decreased and the percentage of our net revenues derived from sales to countries that individually
account for less than 10% of our net revenues increased. These changes were primarily the result of the significant growth of our sales into Korea to two key cell phone customers.



Gross Profit



|                                                            |  |                                 |        |   |                               |   |        |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|----------------------------------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | ------- |  | ---- | ---- |  | - | ------ | - |  | ------- | ------ | - |  | ---- | -
|                                                            |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |  
|(In thousands)                                              |  | 2004                            |        |   | 2003                          |   |        | %Change |  |      | 2004 |  |   | 2003   |   |  | %Change |       
|Net revenues                                                |  | $                               | 19,217 |   |                               | $ | 16,850 |         |  | 14.0 | %    |  | $ | 39,003 |   |  | $       | 27,922 |   |  | 39.7 | %
|Gross profit                                                |  |                                 | 5,998  |   |                               |   | 4,588  |         |  | 30.7 | %    |  |   | 12,978 |   |  |         | 7,806  |   |  | 66.3 | %
|Gross profit as a percentage of net revenues (gross margin) |  |                                 | 31.2   | % |                               |   | 27.2   | %       |  |      |      |  |   | 33.3   | % |  |         | 28.0   | % |  |      |  



The increase in gross profit in the
three month period ended December 31, 2004, as compared with the same period in the prior year was primarily due to an increase in the unit sales volume of our core integrated circuit products that resulted from improved end-market demand, higher
gross margin on sales because of a favorable product mix change resulting in a higher percentage of sales of our newer, higher margin products, and the additional gross profit dollars provided by increased revenues of SaRonix frequency control
products sold through the Companys SaRonix subsidiary offset in part by $1,044,000 of additional inventory written down in December 2004 due to a product end-of-life program. In addition, gross profit in the quarter ended December 31, 2003
included SaRonix acquisition-related inventory and reduction in force costs of $680,000; there were no comparable costs in the quarter ended December 31, 2004. The improvement in gross margin for the three months ended December 31, 2004,
as compared with the same period in the prior year, was driven by the factors noted above. The increase in gross profit for the six-month period ended December 31, 2004, compared with the same period in the prior year, is attributed to the
same factors noted above. In addition, the current years six-month period had six months of SaRonix revenues and gross profit while the previous year had only three months revenue and gross profit contribution from SaRonix. The improvement in
gross margin for the six months ended December 31, 2004, as compared with the same period in the prior year, is also due to the same factors noted above.



The results for the six months ended December 31, 2004 include six months of results of the FCP product lines acquired from SaRonix which have lower gross margins than
our core integrated circuit products lines.





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The results for the six months ended December 31, 2003 only include the results of the FCP product lines acquired from
SaRonix for three months. The inclusion of six months of lower-margin SaRonix results this year partially offsets a year over year gain in integrated circuit margins of 980 basis points.



Future gross profit and gross margin are highly dependent on the level and product mix of net revenues. This includes the mix of sales
between lower margin SaRonix products and our higher margin integrated circuit products. Also, within our integrated circuit products, the Company has been executing a program to migrate revenues to new, higher margin products in certain new markets
such as cell phones and digital video media. Although we have been successful at favorably improving our integrated circuit product mix and penetrating new end markets, there can be no assurance that this will continue. Accordingly, we are not able
to predict future gross profit levels or gross margins with certainty.



During
the three months ended December 31, 2004, and December 31, 2003, gross profit and gross margin benefited as a result of the sale of inventory of $778,000 and $460,000, respectively, that had been previously identified as excess and written down to
zero. During the six months ended December 31, 2004, and December 31, 2003, gross profit and gross margin benefited as a result of the sale of inventory of $1,195,000 and $1,149,000, respectively, that had been previously identified as excess and
written down to zero.



Research and Development



|                                    |  |                                 |        |   |                               |   |        |         |  |       |      |  |   |        |   |  |         |        |   |  |      |  
|----------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | ------- |  | ----- | ---- |  | - | ------ | - |  | ------- | ------ | - |  | ---- | -
|                                    |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |  
|(In thousands)                      |  | 2004                            |        |   | 2003                          |   |        | %Change |  |       | 2004 |  |   | 2003   |   |  | %Change |       
|Net revenues                        |  | $                               | 19,217 |   |                               | $ | 16,850 |         |  | 14.0  | %    |  | $ | 39,003 |   |  | $       | 27,922 |   |  | 39.7 | %
|Research and development            |  |                                 | 3,485  |   |                               |   | 3,987  |         |  | (12.6 | )%   |  |   | 7,201  |   |  |         | 7,197  |   |  | 0.1  | %
|R&D as a percentage of net revenues |  |                                 | 18.1   | % |                               |   | 23.7   | %       |  |       |      |  |   | 18.5   | % |  |         | 25.8   | % |  |      |  



Research and development expenses
consist primarily of costs related to personnel and overhead, non-recurring engineering charges, and other costs associated with the design, prototyping, testing, manufacturing process support and customer applications support of our products. The
expense decrease in the three-month period ended December 31, 2004 as compared to the same period in the previous year was primarily due to the write off in the three month period ended December 31, 2003 of $360,000 of in-process research and
development that had been acquired from SaRonix. No such write off occurred in the three-month or six-month periods ended December 31, 2004. This $360,000 write off also offset the amount by which research and development increased in the six-month
period ended December 31, 2004 from the amount for the comparable period in the prior year.



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



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##### Table of Contents

Selling, General and Administrative



|                                      |  |                                 |        |   |                               |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |      |  
|------------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | -------- |  | ----- | ---- |  | - | ------ | - |  | -------- | ------ | - |  | ---- | -
|                                      |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |  
|(In thousands)                        |  | 2004                            |        |   | 2003                          |   |        | % Change |  |       | 2004 |  |   | 2003   |   |  | % Change |       
|Net revenues                          |  | $                               | 19,217 |   |                               | $ | 16,850 |          |  | 14.0  | %    |  | $ | 39,003 |   |  | $        | 27,922 |   |  | 39.7 | %
|Selling, general and administrative   |  |                                 | 3,707  |   |                               |   | 4,292  |          |  | (13.6 | )%   |  |   | 7,539  |   |  |          | 6,807  |   |  | 10.8 | %
|S,G&A as a percentage of net revenues |  |                                 | 19.3   | % |                               |   | 25.5   | %        |  |       |      |  |   | 19.3   | % |  |          | 24.4   | % |  |      |  



Selling, general and administrative
expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management. The expense decrease in selling, general and administrative expenses in the three-month period
ended December 31, 2004 as compared to the same period in the prior year was primarily due to a gain of $413,000 resulting from the November 2004 sale of a building held by the Company in Ireland. The expense increase in selling, general and
administrative expenses for the six months ended December 31, 2004 as compared with the same period in the prior year was due in part to there being no selling, general and administrative expenses related to SaRonix or Pericom Taiwan Limited in the
three months ended September 30, 2003, as offset by the $413,000 gain from the sale of the building in Ireland and a $320,000 write off of SaRonix customer backlog in the three months ended December 31, 2003.



The Company anticipates that selling, general and administrative expenses will increase in
future periods over the long term due to increased staffing levels, particularly in sales and marketing, as well as increased commission expense to the extent the Company achieves higher sales levels. In the short term, costs associated with
Sarbanes-Oxley section 404 compliance will increase selling, general and administrative expenses. The Company intends to continue to focus on controlling costs until business conditions improve. If business conditions deteriorate or the rate of
improvement does not meet our expectations, the Company may implement further cost-cutting actions.



Restructuring Charge



In the
three months ended December 31, 2002 the Company recorded a $1.4 million restructuring charge related to an unused portion of a leased facility. This facility had originally been leased to accommodate future expansion. As a result of the
semiconductor industry downturn then underway, the Company revised its expansion plans and this facility was subleased. At the time of the sublease, a $522,000 restructuring charge was recorded that represented the difference between the sublease
rate and the rate the Company was paying. The $1.4 million restructuring charge was recorded when the Company received notice that the tenant would move from this facility and the Company estimated that it would not be able to sublease the facility
due to the excess available real estate in San Jose, California. Due to the continued downturn in the Companys business, the Company determined that this portion of the facility would not be utilized over the remaining lease term. The
restructuring charge represents the future lease payments and estimated utility and maintenance costs for the remainder of the lease. The restructuring accrual is expected to be fully depleted in the fourth quarter of fiscal 2005, when the lease
terminates. On December 31, 2004, the remaining balance of the restructuring accrual was $281,000.



In the three months ended December 31, 2003 a $784,000 restructuring charge related to another leased facility was recorded when the Company vacated that facility completely and moved to a new corporate headquarters.
This restructuring accrual became fully depleted in the first quarter of fiscal 2005, when the lease terminated. No employee positions were eliminated as part of these restructurings.



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Equity in Net Income (Loss) of Pericom Technology, Inc.



|                                        |  |                                |  |      |                               |        |   |     |      |  |   |      |   |        |   |     |  |   |      |  
|--------------------------------------- |  | ------------------------------ |  | ---- | ----------------------------- | ------ | - | --- | ---- |  | - | ---- | - | ------ | - | --- |  | - | ---- | -
|                                        |  | Three Months EndedDecember 31, |  |      | Six Months Ended December 31, |       
|(In thousands)                          |  | 2004                           |  | 2003 |                               | Change |   |     | 2004 |  |   | 2003 |   | Change |  
|Equity in net income (loss) of investee |  |                               |  | $    | 68                            |        | $ | (68 | )    |  | $ | (123 | ) |        | $ | 137 |  | $ | (260 | )



Equity in net income (loss) of
investee is the Companys allocated portion of the net income or losses of Pericom Technology, Inc. (PTI), a British Virgin Islands corporation based in Shanghai, Peoples Republic of China. PTI was formed by Pericom and
certain Pericom shareholders in 1994 to develop and market semiconductors in China and certain other Asian countries. The Company adopted EITF 02-14 in the quarter ended December 31, 2004. This adoption did not cause the Company to cease recognizing
its allocated portion of the net income or losses of Pericom Technology, Inc. The Companys allocated portion of PTIs results declined to zero for the three month period ended December 31, 2004 from a gain for the comparable period in the
prior year due to the ongoing slowdown in the China telecommunications and consumer product markets that PTI serves. The Companys allocated portion of PTIs results declined to a loss of $123,000 for the six month period ended December
31, 2004 from a gain of $137,000 for the comparable period in the prior year also due to the ongoing slowdown in the China telecommunications and consumer product markets that PTI serves.



Interest Income



|                |  |                                 |     |      |                               |         |  |       |      |  |      |       |         |   |       |  |      |   
|--------------- |  | ------------------------------- | --- | ---- | ----------------------------- | ------- |  | ----- | ---- |  | ---- | ----- | ------- | - | ----- |  | ---- | --
|                |  | Three Months Ended December 31, |     |      | Six Months Ended December 31, |        
|(In thousands)  |  | 2004                            |     | 2003 |                               | %Change |  |       | 2004 |  | 2003 |       | %Change |  
|Interest income |  | $                               | 885 |      | $                             | 996     |  | (11.1 | )%   |  | $    | 1,816 |         | $ | 1,988 |  | (8.7 | )%



The decrease in interest income for
the three and six-month periods ended December 31, 2004 as compared to the comparable prior year period was due to a combination of less invested capital and lower interest rates as older higher yielding investments matured and were reinvested at
current, lower rates.



Provision for Income Taxes



|                      |  |                                |      |   |                              |   |        |      |  |   |      |   |  |   |        |  
|--------------------- |  | ------------------------------ | ---- | - | ---------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ------ | -
|                      |  | Three Months EndedDecember 31, |      |   | Six Months EndedDecember 31, |  
|(In thousands)        |  | 2004                           |      |   | 2003                         |   |        | 2004 |  |   | 2003 |  
|Pre-tax income (loss) |  | $                              | (405 | ) |                              | $ | (3,411 | )    |  | $ | (165 | ) |  | $ | (4,866 | )
|Income tax (benefit)  |  |                                | (102 | ) |                              |   | (1,536 | )    |  |   | (13  | ) |  |   | (2,191 | )
|Effective tax rate    |  |                                | 25.2 | % |                              |   | 45.0   | %    |  |   | 7.9  | % |  |   | 45.0   | %



The R&D tax credit extension
became effective in October 2004. Excluding the R&D tax credit, our first quarter effective tax rate was 37%. Because this extension was not considered in the development of the tax rate for the fiscal first quarter ended September 30, 2004, the
effect of the extension is a reduction in the expected tax rate for the full year and a resulting reversal of a portion of the tax expense accrual from the first quarter. Currently, our expected tax rate for the current fiscal year is approximately
8%. The difference between the full-year 8% rate and the 37% rate used in our fiscal first quarter results in a reduction to the tax rate used in the quarter ended December 31, 2004 to a 25% rate versus the 8% rate that is expected for the full
year. The income tax benefit in fiscal 2005 is the result of a deferred tax asset being



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recorded for the write down of inventory and the tax credit carry forward. The provision for income taxes differed from the federal statutory rate primarily
due to state income taxes, the utilization of research and development tax credits and a change in the deferred tax asset valuation allowance.



Liquidity and Capital Resources



As of December 31, 2004, the Companys principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $143.1 million as
compared with $144.4 million as of June 30, 2004. The Company does not expect this balance to change significantly in the short term. As of December 31, 2004, $8.3 million of this was liquid and classified as cash and equivalents. The maturities of
the Companys short term investments are staggered throughout the year so that cash requirements are met. Since the Company is a fabless semiconductor manufacturer, it has lower capital equipment requirements than other semiconductor
manufacturers that own fabs. In the six months ended December 31, 2004, the Company spent $1.8 million on capital equipment. Interest rates are at a historically low level. The Company generated $1.8 million of interest income in the six months
ended December 31, 2004. In the longer term the Company will generate at least comparable interest income if interest rates rise.



The Companys net cash used in operating activities of $884,000 in the six months ended December 31, 2004 was primarily due to a net loss of $152,000 for the period,
a $2,198,000 decrease in accounts payable due in part to payments made in advance of the Companys holiday shutdown, a decrease in accrued liabilities of $661,000, and a $1,230,000 increase in accounts receivable due in part to payment terms
being extended offset by improved collections, which were partially offset by depreciation and amortization of $2,079,000.



The Companys cash used in operating activities of $992,000 in the six months ended December 31, 2003 was primarily due to net losses of $2,675,000, a $2,227,000
increase to prepaid expenses and other current assets and a $1,091,000 increase to accounts receivable due to increased sales which were offset in part by a $2,745,000 increase to accounts payable due to increased purchases of inventory to support
the expected increase in sales and depreciation and amortization of $2,262,000.



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 $5.0 million for the
six months ended December 31, 2004 was primarily due to purchases of short-term investments exceeding maturities by $4.3 million, purchases of property and equipment of $1.8 million and payment of a bank loan of $1.3 million, which were offset, in
part, by proceeds from the sale of property and equipment of $1.9 million. The Companys cash provided by investing activities of $1.5 million for the six months ended December 31, 2003 was primarily due to maturities of short term investments
exceeding purchases by $3.8 million which was offset in part by $1.5 million of purchases of property and equipment and loans provided to SaRonix of $1.2 million.



The Companys cash provided by financing activities in the six months ended December 31, 2004 of $124,000 was primarily due to proceeds
of $651,000 from the sale of common stock from the Companys employee stock plans which was largely offset by repurchases of common stock of $487,000. The Companys cash provided in financing activities in the six months ended December 31,
2003 of $957,000 was primarily due to the sale of common stock from the Companys employee stock plans.



The Companys Board of Directors has approved the repurchase of up to 2,000,000 shares of the Companys common stock. As of December 31, 2004, the Company has repurchased an aggregate of 326,775 shares at a
cost of approximately $2.7 million. The Company repurchased 52,275 shares during the six months ended December 31, 2004 at an approximate cost of $487,000. The Company intends to continue repurchasing shares under this program over time depending
upon price and share availability. Stock repurchases have been funded by current cash balances and the proceeds from stock option exercises and employee stock purchase plan purchases. The Company expects to fund future stock repurchases from these
same sources.



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



The Company believes that existing cash balances and cash generated from operations will be sufficient to fund necessary purchases of
capital equipment and to provide working capital at least through the next twelve months. However, future events may require the Company to seek additional capital sooner. If the Company determines that it needs to seek additional capital, the
Company may not be able to obtain such additional capital on terms acceptable to it.



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 June 30,
2004 are as follows (in thousands):



|                            |  |                        |        |                 |   |            |  |            |       |            |   |       |  |   |      
|--------------------------- |  | ---------------------- | ------ | --------------- | - | ---------- |  | ---------- | ----- | ---------- | - | ----- |  | - | -----
|                            |  | Payments Due by Period
|Fiscal Year                 |  | Total                  |        | Less than 1Year |   | 1  3Years |  | 3  5Years |       | Thereafter
|Operating lease obligations |  | $                      | 10,989 |                 | $ | 1,906      |  | $          | 2,289 |            | $ | 1,955 |  | $ | 4,839
|                            |  |                        |        |                 |   |            |  |            |       |            |   |       |  |   |      



As part of the acquisition of SaRonix
(see Note 2), the Company assumed a loan from a bank. This loan was secured by a building owned by the Company in Ireland, and was paid off in November 2004 concurrent with the sale of this building. This loan is not included in the above table.



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.



Factors That May Affect Operating Results



This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are forward-looking statements for purposes of these provisions,
including any statements regarding: projections of revenues, expenses, gross profit, gross margin, or other financial items; the plans and objectives of management for future operations; the Companys tax rate; the adequacy of allowances for
returns, price protection and other concessions; proposed new products or services; the sufficiency of cash generated from operations and cash balances; the Companys exposure to interest rate risk; future economic conditions or performance;
plans to focus on cost control; plans to seek intellectual property protection for the Companys technologies; expectations regarding export sales and net revenues; the expansion of sales efforts; acquisition prospects; the results of our
acquisition of SaRonix and our other possible future acquisitions and assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as may, will,
expects, plans, anticipates, estimates, potential, or continue, or the negative thereof or other comparable terminology. Although the Company believes that the expectations
reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements. The Companys future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the
factors set forth (i) below, (ii) in the Companys Form 10-K/A under the heading Risk Factors; Factors That May Affect Future Results, and (iii) in Note 1 to the Notes to Condensed Consolidated Financial Statements. All
forward-looking statements and reasons why results may differ included in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update any such forward-looking statement or reason why actual results may
differ.



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



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



| |  | changes in the quantity of our products sold
|- |  | --------------------------------------------



| |  | changes in the average selling price of our products
|- |  | ----------------------------------------------------



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



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



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



| |  | the operating results of SaRonix, LLC, which we acquired on October 1, 2003;
|- |  | ----------------------------------------------------------------------------



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



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.



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



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



The 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 Circuit Systems, Inc., 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



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have developed and marketed products that function similarly or identically to ours. If our products do not achieve performance, price, size or other
advantages over products offered by our competitors, our products may lose market share. Competitive pressures could also reduce market acceptance of our products, reduce our prices and increase our expenses.



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



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



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



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



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



Our acquisition of SaRonix, and other
potential future acquisitions may not be successful because we have not made acquisitions in the past.



On October 1, 2003 we exercised our option to acquire substantially all the assets and related liabilities of SaRonix LLC of Menlo Park, CA. This was our first acquisition. Prior to this, we have depended on internal
growth and not made any acquisitions.



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



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



| |  | diversion of managements attention 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



We continue to integrate SaRonix into our company. This integration is subject to risks
commonly encountered in making such acquisitions, including, among others, loss of key personnel of the acquired company, loss of key customers and business relationships of the acquired company, the difficulty associated with assimilating and
integrating the ongoing business, and the maintenance of uniform standards, controls, procedures, employees and clients. There can be no assurance that we will be successful in overcoming these risks or any other problems encountered in connection
with our acquisition of SaRonix. If this continued integration is not successful, it could negatively affect our business results.



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As part of our business strategy, we expect to seek other acquisition prospects, in addition to SaRonix, 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. For example, we
previously made a bridge loan investment to a start up, high technology company, and we subsequently had to write off this loan in light of the financial condition of that company.



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.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Reports of management on internal controls could
cause a decrease in value of the Companys common stock.



As directed
by Section 404 of the Sarbanes-Oxley act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the Companys internal controls over financial reporting in their annual
reports on Form 10-K. If the Company is unable to complete its assessment as to the adequacy of its internal controls over financial reporting as of July 2, 2005 and future year-ends as required by section 404 of the Sarbanes-Oxley act of 2002, or
in the course of such assessments identify and report in Form 10-K material weaknesses in controls, investors could lose confidence in the reliability of the Companys internal controls over financial reporting, which could result in a decrease
in the value of its common stock.



The Company may not be able to comply
with Sarbanes-Oxley Section 404.



This report is required to contain an
assessment by management of the effectiveness of the Companys internal controls over financial reporting. In addition, the public accounting firm auditing a public companys financial statements must attest to and report on
managements assessment of the effectiveness of a companys internal control over financial reporting. This requirement will first apply to Pericom for the year ending July 2, 2005. Although the Company intends to diligently and vigorously
review internal controls over financial reporting in order to ensure compliance with the Section 404 requirements, and has been expending significant resources in developing the necessary documentation and testing procedures required by Section 404,
there is a risk that the Company may not comply with all of the requirements imposed by Section 404. If the Company fails to complete its assessment of internal controls in a timely manner, or fails to meet the requirements of Section 404, the
Companys independent registered public accounting firm may issue an adverse opinion on the Companys internal controls over financial reporting. In addition, the limited size of the Company could lead to conditions that could be
considered material weaknesses, such as those related to segregation of duties that is possible in larger organizations but more difficult in smaller organizations. Also, controls related to general information technology infrastructure may not be
as comprehensive as in the case of a larger organization with more sophisticated capabilities. If the Company fails to implement required new or improved controls, it may be unable to comply with the requirements of Section 404 in a timely manner.



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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. Should this occur the Companys operating results may 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.



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



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



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



Typically Chartered Semiconductor Manufacturing Ltd. produces more than 50% of our wafer requirements. In the first six months of fiscal
2005 only five other suppliers manufactured the remainder of our wafers. In fiscal 2004 only four other suppliers manufactured the remainder of our wafers. Our reliance on independent wafer suppliers to fabricate our wafers at their production
facilities subjects us to possible risks such as:



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



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



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



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



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



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



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



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



We may have difficulty accurately predicting revenues for future periods.



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



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



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



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



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



Our success depends in part on our ability to obtain patents and licenses
and preserve other intellectual property rights covering our products and development and testing tools. In the United States, we hold 86 patents covering certain aspects of our product designs and have at least 22 additional patent applications
pending. Copyrights, mask work protection, trade secrets and confidential technological know-how are also key to our business. Additional patents may not be issued to us or our patents or other intellectual property may not provide meaningful
protection. We may be subject to, or initiate, interference proceedings in the U.S. Patent and Trademark Office. These proceedings can consume significant financial and management resources. We may become involved in litigation relating to alleged
infringement by us of others patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and takes up significant amounts of managements time and
attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our
business. Also, although we may seek to obtain a license under a third partys intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable
terms or at all.



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



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



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



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



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



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



The
manufacture and assembly of our 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



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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 for our products. These conditions could reduce our net revenues and gross margin and harm our customer relations.



We do not manufacture any of our products. Therefore, we are referred to in the semiconductor
industry as a fabless producer. Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers that can produce semiconductors that meet our
needs. However, as the industry continues to progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product
development and deliveries. Due to the nature of the industry and our status as a fabless semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or
increase our costs.



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



A
relatively small number of customers have accounted for a significant portion of our net revenues in each of the past several fiscal years. In general we expect this to continue for the foreseeable future. With the addition of SaRonix, Inc. the
concentration of top customers has been reduced as the top customers of SaRonix, Inc. are somewhat different than those of our core integrated circuit business. There were two direct customers, both Asian distributors, that individually accounted
for more than 10% of net revenues during the three month period ended December 31, 2004. In the three month period ended December 31, 2003 there were two direct customers, also Asian distributors, that individually accounted for more than 10% of net
revenues. As a percentage of net revenues, sales to our top five direct customers for the three month period ended December 31, 2004 increased from the same period in the prior year primarily due to the continuing integration of SaRonix, Inc.s
FCP product portfolio. There were no end-user customers that individually accounted for more than 10% of our gross revenues in the three months ended December 31, 2004. There also were no end-user customers that individually accounted for more than
10% of our gross revenues in the three months ended December 31, 2003. In general, we expect this trend of less concentration in our sales to end-user customers to continue as a result of the SaRonix acquisition.



We do not have long-term sales agreements with any of our customers. Our customers are not
subject to minimum purchase requirements, may reduce or delay orders periodically due to excess inventory and may discontinue purchasing our products at any time. Our distributors typically offer competing products in addition to ours. For the three
months ended December 31, 2004 sales to our distributors were approximately 57% of net revenues as compared to approximately 53% of net revenues in the three months ended September 30, 2004. The increase in the percentage of sales to our
distributors in the three months ended September 30, 2004 was due in part to relatively flat sales to our OEM 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.



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.
|- |  | -----------------------------------------------



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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 the three months ended December 31, 2004,
approximately 65% of our net revenues derived from sales in Asia and approximately 7% from 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 newly created Series D Junior Participating Preferred Share.



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



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



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



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Item 3. Quantitative and Qualitative Disclosures about Market Risk



At December 31, 2004, our investment portfolio consisted of investment-grade fixed income securities, excluding those classified as cash equivalents, of $134.8 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 December 31, 2004, the fair market value of the portfolio would
decrease. However, we do not believe that such a decrease would have a material effect on our results of operations over the next fiscal year. Due to the short duration and conservative nature of these instruments, we do not believe that we have a
material exposure to interest rate risk.



Item 4. Controls and Procedures.



Evaluation of
Disclosure Controls and Procedures



We maintain disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the Evaluation), under the supervision and with the participation of our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (Disclosure Controls) as of the end of the period covered by this report. Based
on the Evaluation, our CEO and CFO identified a deficiency in our disclosure controls and procedures as of December 31, 2004, due to a product end-of-life inventory charge that is discussed below.



Changes in Internal Controls



Our audit committee was advised by Deloitte & Touche LLP, our independent registered public accounting firm, that during their
performance of review procedures related to our unaudited interim financial statements for the quarter ended December 31, 2004 they identified a material weakness in our internal controls over financial reporting, as defined in Public
Company Accounting Oversight Board (PCAOB), Auditing Standard No. 2. As defined by the PCAOB, a material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The material weakness related to material obsolescence inventory charges for a product end-of-life program. Although that
program had concluded in December 2004, an estimated amount for such inventory charges had not been updated to reflect the actual results of the end-of-life program. After this was detected, the inventory charges were updated and included in our
unaudited interim financial statements for the quarter ended December 31, 2004.



Under the direction of our Audit Committee and with the participation of our senior management, we are subsequently remediating this material weakness by establishing approval procedures and documentation standards for management estimates
or adjustments either made to the financial records underlying our financial statements. All financial entries will include documented written support that will satisfy internal control processes and audit review requirements. We will quantify the
impact of any customer or product-related decisions and record substantiated financial entries as required at the time of their occurrence. We are additionally strengthening our disclosure control procedures to ensure that all information relevant
to our financial reporting resulting from actions that affect our customer relationships and related required reserves are communicated to our Chief Financial Officer and Corporate Controller, or other financial personnel with a sufficient
understanding of accounting principles generally accepted in the United States of America to ascertain any potential effect on our financial statements in the appropriate reporting period. The analytical results and recommendations as a result of
these communications will be reviewed and approved by the Chief Financial Officer and, if material or prepared by the Chief Financial Officer, the Chief Executive Officer.



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We believe that the corrective steps taken to improve our disclosure controls and procedures described above have enabled
our Chief Executive Officer and Chief Financial Officer to conclude that our disclosure controls and procedures are now effective in timely alerting them to material information required to be included in this Quarterly Report on Form 10-Q for the
quarter ended December 31, 2004. Other than as described above, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.



CEO and CFO
Certifications



In Exhibits 31.1 and 31.2 of this report there are
Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information
concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.



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PART II. OTHER INFORMATION



Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.



Issuer Purchases of Equity Securities



|              |  |                               |  |                            |      |                                                                              |        |                                                                            |          
|------------- |  | ----------------------------- |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | ------ | -------------------------------------------------------------------------- | ---------
|Period        |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |      | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |        | Maximum Numberof Shares that mayYet be PurchasedUnder the Plans orPrograms
|October 2004  |  |                              |  |                            |     |                                                                              |       |                                                                            | 1,691,900
|November 2004 |  |                              |  |                            |     |                                                                              |       |                                                                            | 1,691,900
|December 2004 |  | 18,675                        |  | $                          | 9.01 |                                                                              | 18,675 |                                                                            | 1,673,225
|              |  |                               |  |                            |      |                                                                              |        |                                                                            |          
|Total         |  | 18,675                        |  | $                          | 9.01 |                                                                              | 18,675 |                                                                            |          
|              |  |                               |  |                            |      |                                                                              |        |                                                                            |          



In October, 2001, the Companys
Board of Directors has approved the repurchase of up to 2,000,000 shares of the Companys common stock. As of December 31, 2004, the Company has repurchased an aggregate of 326,775 shares at a cost of approximately $2.7 million. The Company
repurchased 18,675 shares during the three months ended December 31, 2004 at an approximate cost of $168,000.



Item 4. Submission of Matters to Vote of Security Holders



The Annual Meeting of Shareholders was held on December 15, 2004 in San Jose, California. The proposals presented at the meeting were all approved by the Companys shareholders and the results were as follows:



|   |  |                                                                                                                                                     |  |            |  |                |  |                |  |                
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | -------------- |  | -------------- |  | ---------------
|1. |  | Election of five directors of the Company to serve for the ensuing year and until their successors are elected and qualified.                       |  |            |  |                |  |                |  |                
|   |  |                                                                                                                                                     |  |            | 
|   |  | Name of Director                                                                                                                                    |  | Votes For  |  | Votes Withheld |  |                |  |                
|   |  | Alex Chi-Ming Hui                                                                                                                                   |  | 22,776,954 |  | 1,645,277      |  |                |  |                
|   |  | Chi-Hung (John) Hui, Ph.D.                                                                                                                          |  | 21,529,146 |  | 2,893,085      |  |                |  |                
|   |  | Hau L. Lee, Ph.D.                                                                                                                                   |  | 21,776,220 |  | 2,646,011      |  |                |  |                
|   |  | Millard (Mel) Phelps                                                                                                                                |  | 21,787,561 |  | 2,634,670      |  |                |  |                
|   |  | Tay Thiam Song                                                                                                                                      |  | 22,349,902 |  | 2,072,329      |  |                |  |                
|   |  |                                                                                                                                                     |  |            | 
|   |  |                                                                                                                                                     |  | Votes For  |  | Votes Against  |  | VotesAbstained |  | BrokerNon-Votes
|2. |  | To approve the Pericom Semiconductor Corporation 2004 Stock Incentive Plan.                                                                         |  | 11,489,970 |  | 8,402,849      |  | 1,019,886      |  | 3,509,527      
|   |  |                                                                                                                                                     |  |            | 
|   |  |                                                                                                                                                     |  | Votes For  |  | VotesAgainst   |  | VotesAbstained |  |                
|3. |  | To ratify and approve the appointment of Deloitte & Touche LLP as the independent auditors for the Company for the fiscal year ending July 2, 2005. |  | 24,069,957 |  | 346,305        |  | 5,969          |  |                



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



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



|               |  |                                                                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|Exhibit Number |  | Description                                                                                                                                                                                        
|10.1           |  | 2004 Stock Incentive Plan, filed as Appendix B to the Companys proxy statement for its 2004 annual meeting, filed on October 22, 2004 and incorporated herein by
reference.                       
|               | 
|10.2           |  | Amended and Restated 2001 Stock Incentive Plan and form of agreement thereunder, attached as Exhibit 10.2 to the Companys Form 8-K, filed December 21, 2004, and incorporated herein by
reference.
|               | 
|10.3           |  | Amended and Restated 2004 Stock Incentive Plan and form of agreement thereunder, attached as Exhibit 10.1 to the Companys Form 8-K, filed January 27, 2005, and incorporated herein by
reference. 
|               | 
|31.1           |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                   
|               | 
|31.2           |  | Certification of Michael D. Craighead, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                          
|               | 
|32.1           |  | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                   
|               | 
|32.2           |  | Certification of Michael D. Craighead, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                          



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



|   |  |                                                                                                                                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) |  | On October 8, 2004 Pericom filed a report on Form 8-K regarding a director not standing for reelection.                                                                                                                                                 
|   | 
|2) |  | On October 19, 2004 Pericom filed a report on Form 8-K regarding the quarterly results press release issued the same day.                                                                                                                               
|   | 
|3) |  | On December 21, 2004 Pericom filed a report on Form 8-K regarding the Pericom Semiconductor Corporation 2004 Stock Incentive Plan that was approved by shareholders and the termination of the
Pericom Semiconductor Corporation 1995 Stock Option Plan.

|
|





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SIGNATURES



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



|                       |  |                                   |  |                           
|---------------------- |  | --------------------------------- |  | --------------------------
|                       |  | Pericom Semiconductor Corporation
|                       |  | (Registrant)                     
|                       |  |                                  
|Date: February 8, 2005 |  | By:                               |  | /s/ Alex C. Hui           
|                       |  |                                   |  | Alex C. Hui               
|                       |  |                                   |  | Chief Executive Officer   
|                       |  |                                  
|Date: February 8, 2005 |  | By:                               |  | /s/ Michael D. Craighead  
|                       |  |                                   |  | Michael D. Craighead      
|                       |  |                                   |  | Chief Financial Officer   
|                       |  |                                   |  | (Chief Accounting Officer)



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