UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q/A


(Amendment
No. 1)




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





For the
quarterly period ended September 27, 2008





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





For the
Transition Period from _______ to _______





Commission
File Number 0-27026





Pericom
Semiconductor Corporation


(Exact
Name of Registrant as Specified in Its Charter)





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





3545
North First Street


San Jose,
California 95134


(408)
435-0800


(Address
of Principal Executive Offices and


Issuer’s
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No   ̈




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


Large
      accelerated filer  ̈
            
            Accelerated filer  xNon-accelerated filer    ̈  (Do not check if a smaller reporting company)
            
            Smaller reporting company   ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   ̈    No  x





As of
October 31, 2008, there were 25,561,528 shares of the registrant’s Common Stock
outstanding.





Explanatory
Note




This Form
10-Q/A amends Pericom Semiconductor Corporation’s (the Company) quarterly report
on Form 10-Q for the quarter ended September 27, 2008, which was originally
filed on November 6, 2008 (the “Original Form 10-Q”). The amendment is a result
of the restatement of the Company’s condensed consolidated financial statements
and related financial information for the quarterly period ended September 27,
2008.




The
Company is restating its previously filed financial statements and other
financial information for the above referenced period to correct errors related
to accounting for unrealized investment losses and errors in inventory. As a
result of these errors, net revenues were overstated by $98,000, cost of goods
sold were overstated by $109,000; gross profit and operating income were
understated by $11,000 and net income was overstated by $264,000 for the quarter
ended September 27, 2008, as previously reported.  In correcting these
errors, earnings per share on a fully diluted basis decreased $0.01 per share to
$0.14 for the quarter ended September 27, 2008.




Restated
balances have been identified with the notation “As Restated” where appropriate.
Throughout the financial statements, the term “as previously reported” will be
used to refer to balances from the fiscal 2009 condensed consolidated financial
statements as reported prior to restatement for the correction of
errors.




Because
this Form 10-Q/A sets forth the Original Form 10-Q in its entirety, it includes
items that have been changed as a result of the restatement and items that are
unchanged from the Original Form 10-Q. Other than the revising of the
disclosures relating to the restatement, this Form 10-Q/A speaks as of the
original filing date of the Original Form 10-Q and has not been updated to
reflect other events occurring subsequent to the original filing date. This
includes forward-looking statements and all other sections of this Form 10-Q/A
that were not directly impacted by the restatement, which should be read in
their historical context. However, the following items have been amended solely
as a result of, and to reflect, the restatement:




Part I,
Item 1 – Financial Statements




Part I,
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results
of Operations




Part I,
Item 4 – Controls and Procedures




Part II,
Item 6 – Exhibits




The
Company is including currently dated Sarbanes-Oxley Act Section 302 and Section
906 certifications of the Chief Executive Officer and Chief Financial Officer
that are attached to this Form 10-Q/A as Exhibits 31 and 32.




This
amended report should be read in conjunction with the two other amended Forms
10-Q and the Form 10-K for our fiscal year ended June 27, 2009, being filed on
or around the same date as this amended report.





Additional
information concerning the restatement and related matters is contained in the
following sections of the Form 10-K:  Part II, Item 9A, Controls and
Procedures, and Part I, Item 1A, Risk Factors, "We and our independent
registered public accounting firm determined that we had material weaknesses in
our internal control over financial reporting as of the end of our most recent
fiscal year, June 27, 2009.   There can be no
assurance that a material weakness will not arise in the future. As a result,
current and potential stockholders could lose confidence in our financial
reporting, which would harm our business and the trading price of our stock",
and "Our finance department has undergone, and continues to undergo, significant
changes."





Pericom
Semiconductor Corporation
 
 Form
10-Q/A for the Quarter Ended September 27, 2008




INDEX





PagePART
      I. FINANCIAL INFORMATIONItem
      1:
                      Condensed
      Consolidated Financial Statements (Unaudited)
                      3Condensed
      Consolidated Balance Sheets as of
                        September
      27, 2008 and June 28, 2008
                      3Condensed
      Consolidated Statements of Operations
                        for
      the three months ended September 27, 2008 and September 29,
      2007
                      4Condensed
      Consolidated Statements of Cash Flows
                        for
      the three months ended September 27, 2008 and September 29,
      2007
                      5Notes
      to Condensed Consolidated Financial Statements
                      6Item
      2:
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      22Item
      3:
                      Quantitative
      and Qualitative Disclosures about Market Risk
                      33Item
      4:
                      Controls
      and Procedures
                      33PART
      II. OTHER INFORMATIONItem
      1A:
                      Risk
      Factors
                      33Item
      2:
                      Unregistered
      Sale of Equity Securities and Use of Proceeds
                      43Item
      6:
                      Exhibits
                      44Signatures
                      
                      44


2


PART I.
FINANCIAL INFORMATION


Item 1:
Condensed Consolidated Financial Statements





Pericom
Semiconductor Corporation


Condensed
Consolidated Balance Sheets


(In
thousands, except share data)





September 27,
                                    
                                    
                                    June 28,2008
                                    
                                    
                                    2008(unaudited)
                                    
                                    
                                    
                                    (1)(As Restated -
                                      See Note 2)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    39,069
                                    
                                    
                                    $
                                    41,646Short-term
      investments in marketable securities
                                    
                                    
                                    45,589
                                    
                                    
                                    
                                    72,108Accounts
      receivable:Trade
      (net of allowances of $2,163 and $1,950)
                                    
                                    
                                    32,397
                                    
                                    
                                    
                                    29,002Other
      receivables
                                    
                                    
                                    1,817
                                    
                                    
                                    
                                    1,684Inventories
                                    
                                    
                                    18,751
                                    
                                    
                                    
                                    17,921Prepaid
      expenses and other current assets
                                    
                                    
                                    5,071
                                    
                                    
                                    
                                    5,943Deferred
      income taxes
                                    
                                    
                                    3,996
                                    
                                    
                                    
                                    3,344Total
      current assets
                                    
                                    
                                    146,690
                                    
                                    
                                    
                                    171,648Property,
      plant and equipment – net
                                    
                                    
                                    28,751
                                    
                                    
                                    
                                    29,173Investments
      in unconsolidated affiliates
                                    
                                    
                                    10,512
                                    
                                    
                                    
                                    10,392Deferred
      income taxes – non-current
                                    
                                    
                                    4,554
                                    
                                    
                                    
                                    4,543Long-term
      investments in marketable securities
                                    
                                    
                                    36,332
                                    
                                    
                                    
                                    10,171Goodwill
                                    
                                    
                                    1,325
                                    
                                    
                                    
                                    1,325Intangible
      assets (net of accumulated amortization of $806 and $772)
                                    
                                    
                                    1,090
                                    
                                    
                                    
                                    1,140Other
      assets
                                    
                                    
                                    3,283
                                    
                                    
                                    
                                    3,191Total
      assets
                                    
                                    $
                                    232,537
                                    
                                    
                                    $
                                    231,583LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                    
                                    $
                                    14,831
                                    
                                    
                                    $
                                    13,431Accrued
      liabilities
                                    
                                    
                                    7,911
                                    
                                    
                                    
                                    8,779Total
      current liabilities
                                    
                                    
                                    22,742
                                    
                                    
                                    
                                    22,210Deferred
      tax liabilities
                                    
                                    
                                    800
                                    
                                    
                                    
                                    800Income
      tax liability
                                    
                                    
                                    1,018
                                    
                                    
                                    
                                    -Minority
      interest in consolidated subsidiaries
                                    
                                    
                                    1,163
                                    
                                    
                                    
                                    1,118Total
      liabilities
                                    
                                    
                                    25,723
                                    
                                    
                                    
                                    24,128Shareholders’
      equity:Common
      stock and paid in capital - no par value, 60,000,000 shares authorized;
      shares issued and outstanding: September 27, 2008, 25,562,000; June 28,
      2008, 25,703,000.
                                    
                                    
                                    130,580
                                    
                                    
                                    
                                    132,028Retained
      earnings
                                    
                                    
                                    75,823
                                    
                                    
                                    
                                    72,162Accumulated
      other comprehensive income (loss), net of tax
                                    
                                    
                                    411
                                    
                                    
                                    
                                    3,265Total
      shareholders’ equity
                                    
                                    
                                    206,814
                                    
                                    
                                    
                                    207,455Total
      liabilities and shareholders' equity
                                    
                                    $
                                    232,537
                                    
                                    
                                    $
                                    231,583





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




See notes
to condensed consolidated financial statements.


3





Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Operations


(In
thousands, except per share amounts, unaudited)





Three Months EndedSeptember 27,
                                            
                                            
                                            September 29,2008
                                            
                                            
                                            2007(As Restated -
                                              See Note 2)Net
      revenues
                                            
                                            $
                                            43,798
                                            
                                            
                                            $
                                            38,468Cost
      of revenues
                                            
                                            
                                            27,805
                                            
                                            
                                            
                                            24,467Gross
      profit
                                            
                                            
                                            15,993
                                            
                                            
                                            
                                            14,001Operating
      expenses:Research
      and development
                                            
                                            
                                            4,221
                                            
                                            
                                            
                                            4,082Selling,
      general and administrative
                                            
                                            
                                            6,901
                                            
                                            
                                            
                                            5,839Total
                                            
                                            
                                            11,122
                                            
                                            
                                            
                                            9,921Income
      from operations
                                            
                                            
                                            4,871
                                            
                                            
                                            
                                            4,080Interest
      and other income, net
                                            
                                            
                                            1,106
                                            
                                            
                                            
                                            1,370Other
      than temporary decline in value of investments
                                            
                                            
                                            (458
                                            )
                                            
                                            
                                            -Income
      before income tax expense
                                            
                                            
                                            5,519
                                            
                                            
                                            
                                            5,450Income
      tax expense
                                            
                                            
                                            1,930
                                            
                                            
                                            
                                            1,691Minority
      interest in (income) loss of consolidated subsidiaries
                                            
                                            
                                            (45
                                            )
                                            
                                            
                                            3Equity
      in net income of unconsolidated affiliates
                                            
                                            
                                            117
                                            
                                            
                                            
                                            121Net
      income
                                            
                                            $
                                            3,661
                                            
                                            
                                            $
                                            3,883Basic income
      per share
                                            
                                            $
                                            0.14
                                            
                                            
                                            $
                                            0.15Diluted income
      per share
                                            
                                            $
                                            0.14
                                            
                                            
                                            $
                                            0.15Shares
      used in computing basic income per share
                                            
                                            
                                            25,679
                                            
                                            
                                            
                                            25,745Shares
      used in computing diluted income per share
                                            
                                            
                                            26,239
                                            
                                            
                                            
                                            26,379





See notes
to condensed consolidated financial statements.


4





Pericom
Semiconductor Corporation


Condensed
Consolidated Statements of Cash Flows


(In
thousands, unaudited)





Three Months EndedSeptember 27,
                                          
                                          
                                          September 29,2008
                                          
                                          
                                          2007(As Restated -
                                            See Note 2)CASH FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                          
                                          $
                                          3,661
                                          
                                          
                                          $
                                          3,883Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                          
                                          
                                          1,964
                                          
                                          
                                          
                                          1,178Share-based
      compensation
                                          
                                          
                                          795
                                          
                                          
                                          
                                          508Tax
      benefit related to share-based transactions
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (34
                                          )Excess
      tax benefit on share-based transactions
                                          
                                          
                                          (58
                                          )
                                          
                                          
                                          (55
                                          )Other
      than temporary decline in value of investments
                                          
                                          
                                          458
                                          
                                          
                                          
                                          -Gain
      on sale of investments
                                          
                                          
                                          (25
                                          )
                                          
                                          
                                          -Gain
      on disposal of assets
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (7
                                          )Equity
      in net income of unconsolidated affiliates
                                          
                                          
                                          (117
                                          )
                                          
                                          
                                          (121
                                          )Deferred
      taxes
                                          
                                          
                                          (643
                                          )
                                          
                                          
                                          (105
                                          )Minority
      interest in consolidated subsidiary income (loss)
                                          
                                          
                                          45
                                          
                                          
                                          
                                          (3
                                          )Changes
      in assets and liabilities:Accounts
      receivable
                                          
                                          
                                          (4,169
                                          )
                                          
                                          
                                          (1,758
                                          )Inventories
                                          
                                          
                                          (1,028
                                          )
                                          
                                          
                                          (1,271
                                          )Prepaid
      expenses and other current assets
                                          
                                          
                                          829
                                          
                                          
                                          
                                          18Other
      assets
                                          
                                          
                                          (248
                                          )
                                          
                                          
                                          (943
                                          )Accounts
      payable
                                          
                                          
                                          1,915
                                          
                                          
                                          
                                          1,875Other
      accrued liabilities
                                          
                                          
                                          344
                                          
                                          
                                          
                                          1,476Other
      long term liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (8
                                          )Net
      cash provided by operating activities
                                          
                                          
                                          3,723
                                          
                                          
                                          
                                          4,633CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                                          
                                          
                                          (2,468
                                          )
                                          
                                          
                                          (1,439
                                          )Purchase
      of available for sale investments
                                          
                                          
                                          (29,458
                                          )
                                          
                                          
                                          (63,888
                                          )Maturities
      and sales of available for sale investments
                                          
                                          
                                          28,470
                                          
                                          
                                          
                                          42,453Net
      cash used in investing activities
                                          
                                          
                                          (3,456
                                          )
                                          
                                          
                                          (22,874
                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Sale
      of common stock
                                          
                                          
                                          426
                                          
                                          
                                          
                                          667Excess
      tax benefit on share-based compensation
                                          
                                          
                                          58
                                          
                                          
                                          
                                          55Payments
      on debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (98
                                          )Repurchase
      of common stock
                                          
                                          
                                          (2,668
                                          )
                                          
                                          
                                          (4,958
                                          )Net
      cash used in financing activities
                                          
                                          
                                          (2,184
                                          )
                                          
                                          
                                          (4,334
                                          )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
                                          
                                          
                                          (660
                                          )
                                          
                                          
                                          212NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                                          
                                          
                                          (2,577
                                          )
                                          
                                          
                                          (22,363
                                          )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                                          
                                          
                                          41,646
                                          
                                          
                                          
                                          29,173End
      of period
                                          
                                          $
                                          39,069
                                          
                                          
                                          $
                                          6,810





See notes
to condensed consolidated financial statements.


5





Pericom
Semiconductor Corporation


Notes To
Condensed Consolidated Financial Statements


(Unaudited)





1.
BASIS OF PRESENTATION





The
condensed consolidated financial statements have been prepared by Pericom
Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, these accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, necessary for a fair presentation of the Company’s
financial position as of September 27, 2008, the results of operations for the
three months ended September 27, 2008 and September 29, 2007, and cash flows for
the three months ended September 27, 2008 and September 29, 2007. Each period
presented had 13 weeks. The condensed consolidated balance sheet at June 28,
2008 was derived from audited financial statements as of that date but does not
include all disclosures required by U.S. generally accepted accounting
principles for complete financial statements. These unaudited quarterly
information should be read in conjunction with the audited consolidated
financial statements of Pericom and the notes thereto incorporated by reference
in the Company’s Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on September 11, 2008.





The
Company was incorporated in June 1990 in the state of California. The Company
designs, manufactures and markets high performance digital, analog and
mixed-signal integrated circuits (“IC”s) and frequency control products (“FCP”s)
used for the transfer, routing, and timing of digital and analog signals within
and between computer, networking, datacom and telecom systems.





The
preparation of these 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, liabilities, revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
Company’s results of operations for the three month periods ended September 27,
2008 and September 29, 2007 are not necessarily indicative of the results to be
expected for the entire year.





These
interim condensed consolidated financial statements include the accounts of
Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom
Semiconductor (HK) Limited and Pericom Asia Limited (“PAL”) as well as its two
majority owned subsidiaries, SaRonix-eCERA Corporation (“SRe”) and Pericom
Taiwan Limited Corporation (“PTL”). In January 2008, we initiated a project to
build a factory in China for the development and manufacture of FCPs. The
factory will be located in the Jinan Development Zone in Shandong Province. It
is expected that our total investment will be approximately $35 million over the
next two years. We have land use rights for 75 acres, and the factory is being
designed for 13 surface mount device (“SMD”) production lines, with Phase I
expected to be completed late in fiscal 2009. We have established PSE Technology
(Shandong) Corporation ("PSE") in China to develop and operate the factory. PSE
is a wholly-owned subsidiary of PAL. The Company eliminates all significant
intercompany balances and transactions in consolidation.





Recently
Issued Accounting Standards





Updates
to recent accounting standards as disclosed in Pericom’s Annual Report on
Form 10-K for the fiscal year ended June 28, 2008 are as
follows:





In
May 2008, the Company adopted Statement of Financial Accounting Standards,
or “SFAS”, (“SFAS No. 162”), “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 was intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with generally accepted accounting principles in the
United States for non-governmental entities. SFAS No. 162 is effective
November 15, 2008. The adoption of SFAS No. 162 did not have an impact on
the Company’s consolidated financial position or results of
operation.


6


On June
29, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS
157") for financial assets and liabilities, which clarifies the meaning of fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements.  Fair value is defined under SFAS No.
157 as the exchange price that would be received for an asset or paid to
transfer a liability in the principal or most advantageous market for the assets
or liabilities in an orderly transaction between market participants on the
measurement date.  Subsequent changes in fair value of these financial
assets and liabilities are recognized in earnings or other comprehensive income
when they occur. The effective date of the provisions of SFAS No.157 for
non-financial assets and liabilities is the fiscal year beginning June 28, 2009,
except for items recognized at fair value on a recurring basis.  The
Company is currently evaluating the impact of the provisions for non-financial
assets and liabilities.  The adoption of SFAS No. 157 for financial
assets and liabilities did not have an impact on the Company's consolidated
financial position or results of operations.  For additional
information on the fair value of financial assets and liabilities, see Note 13,
Fair Value Measurements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards, SFAS
No. 141 (Revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS
No. 141(R) establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS No. 141(R) also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The provisions of
SFAS No.141(R) are effective for the fiscal year beginning June 28,
2009.  The Company is currently evaluating the impact of the
provisions of SFAS No. 141(R).




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of ARB No. 51” (“SFAS
No. 160”). SFAS No. 160 establishes new accounting and reporting
standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as equity in the
consolidated financial statements separate from the parent’s equity. The amount
of net income attributable to the non-controlling interest will be included in
consolidated net income on the face of the income statement. SFAS No. 160
clarifies that changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. SFAS No. 160
also includes expanded disclosure requirements regarding the interests of the
parent and its non-controlling interest. The provisions of SFAS No. 160 are
effective for the fiscal year beginning June 28, 2009 and the presentation
and disclosure requirements must be applied retrospectively for all periods
presented at that date. We are currently evaluating the impact that SFAS
No. 160 will have on our financial statements.


7


2.
RESTATEMENT OF CONSOLIDATED
FINANCIAL STATEMENTS




On August
4, 2009, management and the Audit Committee of our Board of Directors had
determined the Company’s financial statements included in our Quarterly Report
on Form 10-Q for the quarter ended September 27, 2008 contained errors. As a
result, the Audit Committee concluded that those Financial Statements should be
restated and that investors should not rely upon those Financial
Statements.




Correction of an error related to
unrealized gains or losses of investments




A previously reported unrealized loss on
an investment has been corrected to present it as an other-than-temporary
decline in value of investments in the amount of $414,000 atSeptember
27, 2008.




Correction of errors in accounting for
inventory




Previously reported inventories net of
reserves have been adjusted for an overstatement of reserves for certain leaded
parts and oscillator products, thus increasing net inventory by $109,000 with a
corresponding decrease in cost of revenues. In addition, previously reported
inventories have been adjusted to correct an improperly recorded intercompany
transaction, thus reducing inventory by $98,000 with a corresponding decrease in
net revenue.




The following table presents the effect
of the restatement on the consolidated balance sheet (in
thousands):


8





September 27, 2008(As previouslyReported)
                  
                  
                  (Adjustments)
                  
                  
                  (As Restated)ASSETSCurrent
      Assets:Cash
      & cash equivalents
                  
                  $
                  39,069
                  
                  
                  $
                  -
                  
                  
                  $
                  39,069Short-term
      investments
                  
                  
                  45,589
                  
                  
                  
                  -
                  
                  
                  
                  45,589Accounts
      receivableTrade
      (net of allowances of $2,163)
                  
                  
                  32,397
                  
                  
                  
                  -
                  
                  
                  
                  32,397Other
      receivables
                  
                  
                  1,817
                  
                  
                  
                  -
                  
                  
                  
                  1,817Inventories
                  
                  
                  18,740
                  
                  
                  
                  11
                  
                  
                  
                  18,751Prepaid
      expenses and other current assets
                  
                  
                  4,895
                  
                  
                  
                  176
                  
                  
                  
                  5,071Deferred
      income taxes
                  
                  
                  3,996
                  
                  
                  
                  -
                  
                  
                  
                  3,996Total
      current assets
                  
                  
                  146,503
                  
                  
                  
                  187
                  
                  
                  
                  146,690Property
      and equipment, net
                  
                  
                  28,751
                  
                  
                  
                  -
                  
                  
                  
                  28,751Investments
      in unconsolidated affiliates
                  
                  
                  10,512
                  
                  
                  
                  -
                  
                  
                  
                  10,512Deferred
      income taxes-non current
                  
                  
                  4,554
                  
                  
                  
                  -
                  
                  
                  
                  4,554Long-term
      investments in marketable securities
                  
                  
                  36,332
                  
                  
                  
                  -
                  
                  
                  
                  36,332Goodwill
                  
                  
                  1,325
                  
                  
                  
                  -
                  
                  
                  
                  1,325Intangible
      assets (net of accumulated amortization of $806)
                  
                  
                  1,090
                  
                  
                  
                  -
                  
                  
                  
                  1,090Other
      assets
                  
                  
                  3,283
                  
                  
                  
                  -
                  
                  
                  
                  3,283Total
      assets
                  
                  $
                  232,350
                  
                  
                  $
                  187
                  
                  
                  $
                  232,537LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                  
                  $
                  14,831
                  
                  
                  
                  -
                  
                  
                  
                  14,831Accrued
      liabilities
                  
                  
                  7,874
                  
                  
                  
                  37
                  
                  
                  
                  7,911Total
      current liabilities
                  
                  
                  22,705
                  
                  
                  
                  37
                  
                  
                  
                  22,742Deferred
      tax liabilities
                  
                  
                  800
                  
                  
                  
                  -
                  
                  
                  
                  800Income
      tax liability
                  
                  
                  1,018
                  
                  
                  
                  -
                  
                  
                  
                  1,018Minority
      interest in consolidated subsidiaries
                  
                  
                  1,163
                  
                  
                  
                  -
                  
                  
                  
                  1,163Total
      liabilities
                  
                  
                  25,686
                  
                  
                  
                  37
                  
                  
                  
                  25,723Shareholders'
      equity:Common
      stock
                  
                  
                  130,580
                  
                  
                  
                  -
                  
                  
                  
                  130,580Retained
      earnings
                  
                  
                  76,087
                  
                  
                  
                  (264
                  )
                  
                  
                  75,823Accumulated
      other comprehensive income (loss), net of tax
                  
                  
                  (3
                  )
                  
                  
                  414
                  
                  
                  
                  411Total
      shareholders' equity
                  
                  
                  206,664
                  
                  
                  
                  150
                  
                  
                  
                  206,814Total
      liabilities and shareholders' equity
                  
                  $
                  232,350
                  
                  
                  $
                  187
                  
                  
                  $
                  232,537





The following table presents the effect
of the restatement on the consolidated statement of operations (in thousands,
except per share amounts):


9





Three Months EndedSeptember 27, 2008(As previouslyReported)
                    
                    
                    (Adjustments)
                    
                    
                    (As Restated)Net
      revenues
                    
                    $
                    43,896
                    
                    
                    $
                    (98
                    )
                    
                    $
                    43,798Cost
      of revenues
                    
                    
                    27,914
                    
                    
                    
                    (109
                    )
                    
                    
                    27,805Gross
      profit
                    
                    
                    15,982
                    
                    
                    
                    11
                    
                    
                    
                    15,993Operating
      expenses:Research
      and development
                    
                    
                    4,221
                    
                    
                    
                    -
                    
                    
                    
                    4,221Selling,
      general and administrative
                    
                    
                    6,901
                    
                    
                    
                    -
                    
                    
                    
                    6,901Total
                    
                    
                    11,122
                    
                    
                    
                    -
                    
                    
                    
                    11,122Income
      from operations
                    
                    
                    4,860
                    
                    
                    
                    11
                    
                    
                    
                    4,871Interest
      and  other income
                    
                    
                    1,106
                    
                    
                    
                    -
                    
                    
                    
                    1,106Other
      than temporary decline in value of investment
                    
                    
                    (44
                    )
                    
                    
                    (414
                    )
                    
                    
                    (458
                    )Income  before
      income taxes
                    
                    
                    5,922
                    
                    
                    
                    (403
                    )
                    
                    
                    5,519Income
      tax expense
                    
                    
                    2,069
                    
                    
                    
                    (139
                    )
                    
                    
                    1,930Minority
      interest in income of consolidated subsidiaries
                    
                    
                    (45
                    )
                    
                    
                    -
                    
                    
                    
                    (45
                    )Equity
      in net income (loss) of unconsolidated affiliates
                    
                    
                    117
                    
                    
                    
                    -
                    
                    
                    
                    117Net
      income
                    
                    $
                    3,925
                    
                    
                    
                    (264
                    )
                    
                    $
                    3,661Basic
      income per share
                    
                    $
                    0.15
                    
                    
                    $
                    (0.01
                    )
                    
                    $
                    0.14Diluted
      income per share
                    
                    $
                    0.15
                    
                    
                    $
                    (0.01
                    )
                    
                    $
                    0.14Shares
      used in computing basic income per share
                    
                    
                    25,679
                    
                    
                    
                    
                    
                    
                    
                    25,679Shares
      used in computing diluted income  per share
                    
                    
                    26,239
                    
                    
                    
                    
                    
                    
                    
                    26,239





The following table presents the effect
of the restatement on the consolidated statement of cash flows (in
thousands):


10





Three Months
      EndedSeptember 27,
      2008(As previouslyReported)
                                        
                                        
                                        (Adjustments)
                                        
                                        
                                        (As Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                        
                                        $
                                        3,925
                                        
                                        
                                        $
                                        (264
                                        )
                                        
                                        $
                                        3,661Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                        
                                        
                                        1,964
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,964Stock
      based compensation
                                        
                                        
                                        795
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        795Tax
      benefit resulting from stock option transactions
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Excess
      tax benefit resulting from stock option transactions
                                        
                                        
                                        (58
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (58
                                        )Other
      than temporary decline in the value of investments
                                        
                                        
                                        44
                                        
                                        
                                        
                                        414
                                        
                                        
                                        
                                        458Gain
      on sale of investments
                                        
                                        
                                        (25
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (25
                                        )(Gain)
      loss on disposal of assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Equity
      in net income of unconsolidated affiliates
                                        
                                        
                                        (117
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (117
                                        )Minority
      interest in consolidated subsidiary’s net income (loss)
                                        
                                        
                                        45
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        45Deferred
      taxes
                                        
                                        
                                        (643
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (643
                                        )Changes
      in assets and liabilities net of effects of entities
    acquired:Accounts
      receivable
                                        
                                        
                                        (4,169
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (4,169
                                        )Inventories
                                        
                                        
                                        (1,017
                                        )
                                        
                                        
                                        (11
                                        )
                                        
                                        
                                        (1,028
                                        )Prepaid
      expenses and other current assets
                                        
                                        
                                        1,005
                                        
                                        
                                        
                                        (176
                                        )
                                        
                                        
                                        829Other
      assets
                                        
                                        
                                        (248
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (248
                                        )Accounts
      payable
                                        
                                        
                                        1,915
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,915Accrued
      liabilities
                                        
                                        
                                        307
                                        
                                        
                                        
                                        37
                                        
                                        
                                        
                                        344Other
      long term liabilities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      cash provided by operating activities
                                        
                                        
                                        3,723
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,723CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                                        
                                        
                                        (2,468
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,468
                                        )Purchase
      of available for sale investments
                                        
                                        
                                        (29,458
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (29,458
                                        )Maturities
      and sales of available for sale investments
                                        
                                        
                                        28,470
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        28,470Net
      cash used in investing activities
                                        
                                        
                                        (3,456
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (3,456
                                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issuance under stock plans
                                        
                                        
                                        426
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        426Excess
      tax benefit on stock based compensation
                                        
                                        
                                        58
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        58Repurchase
      of common stock
                                        
                                        
                                        (2,668
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,668
                                        )Net
      cash provided by (used in) financing activities
                                        
                                        
                                        (2,184
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,184
                                        )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                                        
                                        
                                        (660
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (660
                                        )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                                        
                                        
                                        (2,577
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,577
                                        )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                                        
                                        
                                        41,646
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        41,646End
      of period
                                        
                                        $
                                        39,069
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        39,069


11





3.
INTANGIBLE ASSETS




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





(in thousands)
                                    
                                    September 27, 2008
                                    
                                    
                                    June 28, 2008Accumulated
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    AccumulatedGross
                                    
                                    
                                    Amortization
                                    
                                    
                                    Net
                                    
                                    
                                    Gross
                                    
                                    
                                    Amortization
                                    
                                    
                                    NeteCERAcustomer relationships
                                    
                                    $
                                    112
                                    
                                    
                                    $
                                    (112
                                    )
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    117
                                    
                                    
                                    $
                                    (111
                                    )
                                    
                                    $
                                    6eCERA
      trade name
                                    
                                    
                                    41
                                    
                                    
                                    
                                    (18
                                    )
                                    
                                    
                                    23
                                    
                                    
                                    
                                    43
                                    
                                    
                                    
                                    (17
                                    )
                                    
                                    
                                    26Core
      developed technology
                                    
                                    
                                    931
                                    
                                    
                                    
                                    (582
                                    )
                                    
                                    
                                    349
                                    
                                    
                                    
                                    939
                                    
                                    
                                    
                                    (566
                                    )
                                    
                                    
                                    373SaRonix
      supplier relationship
                                    
                                    
                                    397
                                    
                                    
                                    
                                    (94
                                    )
                                    
                                    
                                    303
                                    
                                    
                                    
                                    398
                                    
                                    
                                    
                                    (78
                                    )
                                    
                                    
                                    320Total
      amortizable purchased intangible assets
                                    
                                    
                                    1,481
                                    
                                    
                                    
                                    (806
                                    )
                                    
                                    
                                    675
                                    
                                    
                                    
                                    1,497
                                    
                                    
                                    
                                    (772
                                    )
                                    
                                    
                                    725SaRonix
      trade name
                                    
                                    
                                    415
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    415
                                    
                                    
                                    
                                    415
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    415Total
      purchased intangible assets
                                    
                                    $
                                    1,896
                                    
                                    
                                    $
                                    (806
                                    )
                                    
                                    $
                                    1,090
                                    
                                    
                                    $
                                    1,912
                                    
                                    
                                    $
                                    (772
                                    )
                                    
                                    $
                                    1,140





Amortization
expense related to finite-lived purchased intangible assets was approximately
$42,000 and $44,000 for the three month periods ended September 27, 2008 and
September 29, 2007, respectively.




The
Company performs an impairment review of its intangible assets at least
annually, in conformity with SFAS No. 142, Goodwill and Other Intangible Assets(“SFAS No. 142”). Based on the results of its most recent impairment
review, the Company determined that no impairment of its intangible assets
existed as of June 28, 2008. However, future impairment reviews could result in
a charge to earnings.





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





Next 12
                                          
                                          
                                          
                                          13-24
                                          
                                          
                                          
                                          25-36
                                          
                                          
                                          
                                          37-48
                                          
                                          
                                          
                                          49-60(in thousands)
                                          
                                          Months
                                          
                                          
                                          Months
                                          
                                          
                                          Months
                                          
                                          
                                          Months
                                          
                                          
                                          MonthsExpected
      amortization-eCERA
                                          
                                          $
                                          29
                                          
                                          
                                          $
                                          29
                                          
                                          
                                          $
                                          29
                                          
                                          
                                          $
                                          27
                                          
                                          
                                          $
                                          -Expected
      amortization-SaRonix
                                          
                                          
                                          117
                                          
                                          
                                          
                                          117
                                          
                                          
                                          
                                          117
                                          
                                          
                                          
                                          117
                                          
                                          
                                          
                                          94$
                                          146
                                          
                                          
                                          $
                                          146
                                          
                                          
                                          $
                                          146
                                          
                                          
                                          $
                                          144
                                          
                                          
                                          $
                                          94




12




4.
INCOME PER SHARE





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





Basic and
diluted income per share for the three month periods ended September 27, 2008
and September 29, 2007 are computed as follows:





(in thousands, except per share data)
                                    
                                    Three Months EndedSeptember 27,2008
                                    
                                    
                                    September 29,(As Restated)
                                    
                                    
                                    2007Net
      income
                                    
                                    $
                                    3,661
                                    
                                    
                                    $
                                    3,883Computation
      of common shares outstanding – basic earnings per
    share:Weighted
      average shares of common stock
                                    
                                    
                                    25,679
                                    
                                    
                                    
                                    25,745Computation
      of common shares outstanding – diluted earnings per
      share:Weighted
      average shares of common stock
                                    
                                    
                                    25,679
                                    
                                    
                                    
                                    25,745Assumed
      conversion of dilutive stock options and awards
                                    
                                    
                                    600
                                    
                                    
                                    
                                    634Shares
      used in computing diluted earnings per share
                                    
                                    
                                    26,239
                                    
                                    
                                    
                                    26,379Basic
      and diluted earnings per share
                                    
                                    $
                                    0.14
                                    
                                    
                                    $
                                    0.15





Options
to purchase 1,828,185 and 2,676,189 shares of common stock and restricted stock
units of 60,181 and 0 were outstanding as of September 27, 2008, and September
29, 2007 for the three months ended respectively, but not included in the
computation of diluted earnings per share because the awards would be
anti-dilutive.





5.
INVENTORIES





Inventories
consist of:





(in thousands)
                        September 27,
                        
                        June 28,2008(As Restated)
                        
                        2008Raw
      materials
                        
                        $
                        7,866
                        
                        
                        $
                        6,326Work
      in process
                        
                        
                        5,204
                        
                        
                        
                        4,472Finished
      goods
                        
                        
                        5,681
                        
                        
                        
                        7,123$
                        18,751
                        
                        
                        $
                        17,921




The
Company considers raw material inventory obsolete and writes it off if the raw
material has not moved in 365 days. The Company reviews its assembled devices
for excess and writes them off if the quantity of assembled devices in inventory
is in excess of the greater of the quantity shipped in the previous twelve
months, the quantity in backlog or the quantity forecasted to be shipped in
the upcoming twelve months. In certain circumstances, management will
determine, based on expected usage or other factors, that inventory considered
excess by these guidelines should not be written off. As of September 27, 2008,
the Company had $4.3 million of written-off inventory as compared to $5.0
million at June 28, 2008. The Company attributes this reduction of approximately
$0.7 million in written-off inventory between September 27, 2008 and June 28,
2008 to physically scrapping a portion as well as selling some of the previously
written off inventory.


13


6.
ACCRUED LIABILITIES





Accrued
liabilities consist of:





(in thousands)
                        September 27,
                        
                        June 28,2008(As Restated)
                        
                        2008Accrued
      compensation
                        
                        $
                        5,700
                        
                        
                        $
                        6,089Other
      accrued expenses
                        
                        
                        2,211
                        
                        
                        
                        2,690$
                        7,911
                        
                        
                        $
                        8,779




7.
INDUSTRY AND SEGMENT INFORMATION





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




Percentage of Net Revenues
                                            Three months endedSeptember 27, 2008
                                          
                                          
                                          
                                          September 29, 2007Customer A
                                          
                                          
                                          18
                                          %
                                          
                                          
                                          14
                                          %Customer B
                                          
                                          
                                          14
                                          
                                          
                                          
                                          7Customer
      C
                                          
                                          
                                          *
                                          
                                          
                                          
                                          *All
      others
                                          
                                          
                                          68
                                          
                                          
                                          
                                          79100
                                          %
                                          
                                          
                                          100
                                          %





Percentage of Trade Accounts ReceivableSeptember 27, 2008
                            
                            
                            June 28, 2008Customer A
                            
                            
                            16
                            %
                            
                            
                            16
                            %Customer
      B
                            
                            
                            *
                            
                            
                            
                            *Customer
      C
                            
                            
                            10
                            
                            
                            
                            *All
      others
                            
                            
                            74
                            
                            
                            
                            84100
                            %
                            
                            
                            100
                            %




* less
than 10% of total net revenues and accounts receivable





For
geographical reporting, we attribute net sales to the country where customers
are located (the “bill to” location). We neither conduct business in nor sell to
persons in Iran, Syria, Sudan, or North Korea, countries located in the
referenced regions that are identified as state sponsors of terrorism by the
U.S. Department of State, and are subject to U.S. economic sanctions and export
controls. Long-lived assets consist of all non-monetary assets, excluding
non-current deferred tax assets, goodwill and intangible assets. We attribute
long-lived assets to the country where they are located. The following tables
reflects our net sales for the three month periods ended September 27, 2008 and
September 29, 2007, and net book values of long-lived assets as of September 27,
2008 and June 28, 2008 by geographical segment:





(in thousands)
                          
                          Net RevenuesSeptember 27, 2008
                          
                          
                          September 29, 2007(As Restated)China (including Hong Kong)
                          
                          $
                          15,433
                          
                          
                          $
                          15,387United States
                          
                          
                          2,504
                          
                          
                          
                          3,847Taiwan
                          
                          
                          18,323
                          
                          
                          
                          11,156Singapore
                          
                          
                          2,069
                          
                          
                          
                          1,923Others
      (less than 10% each)
                          
                          
                          5,469
                          
                          
                          
                          6,155Total
      net sales
                          
                          $
                          43,798
                          
                          
                          $
                          38,468


14




(in thousands)
                              
                              Total Long-Lived AssetsSeptember 27, 2008
                              
                              
                              June 28, 2008China
      (including Hong Kong)
                              
                              $
                              522
                              
                              
                              $
                              345United
      States
                              
                              
                              5,071
                              
                              
                              
                              6,622Taiwan
                              
                              
                              21,723
                              
                              
                              
                              23,402Korea
                              
                              
                              1,011
                              
                              
                              
                              856Singapore
                              
                              
                              324
                              
                              
                              
                              353Others
      (less than 10% each)
                              
                              
                              100
                              
                              
                              
                              60Total
      long-lived assets
                              
                              $
                              28,751
                              
                              
                              $
                              31,638





8.
STOCK REPURCHASE PROGRAM




On April
26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0
million shares and on April 29, 2008, our Board of Directors authorized the
repurchase of an additional $30 million of our common stock. Pursuant to the
2007 authority, the Company repurchased 139,190 shares in the three months ended
September 27, 2008 for an aggregate cost of $1.9 million and completed the
repurchase of 2,000,000 shares at a cost of approximately $25.2 million.
Pursuant to the 2008 authority, the Company repurchased 60,810 shares in the
three months ended September 27, 2008 for an aggregate cost of $0.8 million.
During the same period in fiscal 2008, the Company repurchased approximately
454,000 shares for an aggregate cost of $5.0 million.





Repurchases
may be made from time to time in the open market or through private transactions
at the discretion of Company management. Current cash balances and the proceeds
from stock option exercises and purchases in the stock purchase plan have funded
stock repurchases in the past, and the Company expects to fund future stock
repurchases from these same sources.





Repurchase
activity is summarized as follows:




Three Months EndedSeptember 27, 2008
                                
                                September 29, 2007Shares repurchased
                                
                                200,000
                                
                                
                                454,000Average price
      per share
                                $
                                13.34
                                
                                $
                                10.93Aggregate
      purchase price of shares repurchased including commissions
                                $
                                2.7
      million
                                
                                $
                                5.0
      million





9.
MINORITY INTEREST





The
Company consolidates its subsidiaries Pericom Taiwan Limited (PTL) and SRe, each
of which has a minority interest. During the three months ended December 31,
2004, the Company sold 6.82% of PTL to its employees for $315,000 in cash. This
minority interest was approximately 7.86% of the outstanding shares at September
27, 2008, and as of this date the value of the minority interest in PTL was
negligible. Parties other than the Company own approximately 2.71% of the
outstanding shares of SRe at September 27, 2008, and as of this date the
minority interest in SRe was valued at $1.2 million.




10.
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION





Preferred Stock:The Company’s
shareholders have authorized the Board of Directors to issue 5,000,000 shares of
preferred stock from time to time in one or more series and to fix the rights,
privileges and restrictions of each series. As of September 27, 2008, the
Company has issued no shares of preferred stock.





Option Plans: At
September 27, 2008, the Company had four stock option plans, consisting of the
1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix Acquisition Stock Option
Plan, and the 2004 Stock Incentive Plan. Under these plans, the Company has
reserved an aggregate of 5.1 million shares of common stock as of September 27,
2008 for issuance to employees, officers, non-employee board members and
non-employee service providers of the Company in the form of incentive or
nonqualified stock options, or grants of restricted stock. The Company may grant
options at the fair value and not less than 85% of the fair value on the grant
date for incentive stock options and nonqualified stock options, respectively.
Options vest over periods of up to 72 months as determined by the Board of
Directors. Options granted under the Plans expire 10 years from the grant
date.


15


Employee Stock Purchase Plan:
The Company’s 2000 Employee Stock Purchase Plan, or “ESPP”, allows eligible
employees of the Company to purchase shares of Common Stock through payroll
deductions. The Company reserved 2.1 million shares of the Company’s Common
Stock for issuance under this Plan, of which 519,366 remain available at
September 27, 2008. Under this plan, eligible employees may purchase Common
Stock at a discount through payroll deductions, during 24-month purchase
periods. The Company divides each purchase period into eight consecutive
three-month accrual periods. Participants in this Plan may purchase stock at 85%
of the lower of the stock’s fair market value on the first day of the purchase
period or the last day of the accrual period. The maximum number of shares of
Common Stock that any employee may purchase under this Plan during any accrual
period is 1,000 shares. During the first quarter of fiscal years 2009 and 2008,
the Company issued 24,956 and 34,726 shares of common stock at weighted
average prices of $10.76 and $6.96.





The
following table summarizes activity in the Company’s employee stock purchase
plan during the three months ended September 27, 2008:




WeightedAverage PurchaseShares
                          
                          PriceBeginning available
                          
                          
                          544,323Purchases
                          
                          
                          (24,956
                          )
                          
                          $
                          10.76Ending
      available
                          
                          
                          519,367





SHARE-BASED
COMPENSATION





Valuation Assumptions:The
fair value of the Company’s stock options granted to employees, officers,
non-employee board members, non-employee service providers and ESPP shares
granted to employees for the three months ended September 27, 2008 and September
29, 2007 was estimated using the following weighted average
assumptions:





September 27, 2008
                  
                  
                  September 29, 2007Option PlanDividend
      yield
                  
                  None
                  
                  
                  NoneExpected
      volatility
                  
                  
                  46
                  %
                  
                  
                  44
                  %Risk
      free interest rate
                  
                  
                  3.29
                  %
                  
                  
                  4.60
                  %Expected
      life
                  
                  5.22
      years
                  
                  
                  4.98
      yearsWeighted
      average fair value at grant date
                  
                  $
                  6.64
                  
                  
                  $
                  4.79Employee
      Stock Purchase PlanDividend
      yield
                  
                  None
                  
                  
                  NoneExpected
      volatility
                  
                  
                  61
                  %
                  
                  
                  40
                  %Risk
      free interest rate
                  
                  
                  2.19
                  %
                  
                  
                  4.95
                  %Expected
      life
                  
                  1.13
      years
                  
                  
                  1.13
      yearsWeighted
      average fair value for grant period
                  
                  $
                  4.31
                  
                  
                  $
                  3.35


16





Share-Based Compensation Plan
Activities





Stock Options:A
summary of option activity during the three months ended September 27, 2008 is
presented below:





WeightedAverageWeighted
                            
                            
                            Remaining
                            
                            
                            AggregateShares
                            
                            
                            Average
                            
                            
                            Contractual Term
                            
                            
                            Intrinsic Value(in thousands)
                            
                            
                            Exercise Price
                            
                            
                            (Years)
                            
                            
                            (in millions)Options outstanding at June 28, 2008
                            
                            
                            3,874
                            
                            
                            $
                            13.42
                            
                            
                            
                            5.20
                            
                            
                            $
                            16.7Granted
                            
                            
                            274
                            
                            
                            $
                            15.12Exercised
                            
                            
                            (34
                            )
                            
                            $
                            5.00
                            
                            
                            
                            
                            
                            
                            $
                            
                            *Cancelled
      or Expired
                            
                            
                            (26
                            )
                            
                            $
                            15.54Options
      outstanding at September 27, 2008
                            
                            
                            4,088
                            
                            
                            $
                            13.59
                            
                            
                            
                            5.27
                            
                            
                            $
                            5.5Options
      vested and expected to vest after September 27, 2008, net of
      forfeitures
                            
                            
                            3,782
                            
                            
                            $
                            13.74
                            
                            
                            
                            5.00
                            
                            
                            $
                            5.1Options
      exercisable at September 27, 2008
                            
                            
                            2,914
                            
                            
                            $
                            14.16
                            
                            
                            
                            3.88
                            
                            
                            $
                            4.2




* less
than $1.0 million





At
September 27, 2008, expected future compensation expense relating to options
outstanding on September 27, 2008 is $5.3 million over a weighted-average period
of 2.75 years.





Restricted Stock Units:Restricted
stock units (“RSUs”) are converted into shares of the Company’s common stock
upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to
the employee’s continuing service to the Company. RSUs, generally vest over a
period of 4 years and are expensed ratably on a straight-line basis over their
respective vesting period net of estimate forfeitures.  The fair value of
RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan, is the product
of the number of shares granted and the grant date fair value of our common
stock as calculated under the 2004 Stock Incentive Plan. Expected future
compensation expense relating to RSUs outstanding on September 27, 2008 is $1.3
million over a weighted-average period of 3.9 years.  A summary of activity
of RSUs as of September 27, 2008 is presented below:





Weighted
                                                              
                                                              
                                                              AggregateAverage Grant
                                                              
                                                              
                                                              Intrinsic ValueShares
                                                              
                                                              
                                                              Date Fair Value
                                                              
                                                              
                                                              (in thousands)Non-vested share units at June 28, 2008
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -Granted
                                                              
                                                              
                                                              118,320
                                                              
                                                              
                                                              $
                                                              15.06Vested
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -Forfeited
                                                              
                                                              
                                                              (1,300
                                                              )
                                                              
                                                              $
                                                              15.06Non-vested
      share units at September 27, 2008
                                                              
                                                              
                                                              117,020
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              1,360




Employee Stock Purchase
Plan:At
September 27, 2008, there was $0.5 million of unrecognized compensation
cost related to ESPP is expected to be recognized over a period of approximately
1 year.





Share-based Compensation
Expense:


We value
our option plan shares and our employee stock purchase plan shares using the
Black-Scholes-Merton option-pricing model. The Company recorded $795,000 and
$508,000 of share-based compensation expense for the three months ended
September 27, 2008 and September 29, 2007, respectively, that included the
following:


17




(in thousands)
                  
                  Three months endedSeptember 27, 2008
                  
                  
                  September 29, 2007Share-based compensation expense by caption:Cost
      of revenues
                  
                  $
                  51
                  
                  
                  $
                  29Research
      and development
                  
                  
                  307
                  
                  
                  
                  150Selling,
      general and administrative
                  
                  
                  437
                  
                  
                  
                  329Pre-tax
      share-based compensation expense
                  
                  
                  795
                  
                  
                  
                  508Income
      tax impact
                  
                  
                  278
                  
                  
                  
                  134Net
      share-based compensation expense
                  
                  $
                  517
                  
                  
                  $
                  374Share-based
      compensation expense by type of award:Stock
      options
                  
                  $
                  573
                  
                  
                  $
                  402Restricted
      stock units
                  
                  
                  51
                  
                  
                  
                  -ESPP
                  
                  
                  171
                  
                  
                  
                  106Total
      share-based compensation expense
                  
                  $
                  795
                  
                  
                  $
                  508





The
amount of share-based compensation expense in inventory at September 27, 2008
and June 28, 2008 is immaterial.





11.
INCOME TAXES




Accounting
for Uncertainty in Income Taxes




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




As a
result of the implementation of FIN No. 48, the Company recognized no change in
the liability for unrecognized tax benefits related to tax positions taken in
prior periods. All positions taken in its US and foreign returns with respect to
any book-tax adjustments were highly certain, and accordingly the Company did
not record any valuation adjustments against those positions. Upon adoption of
FIN No. 48, the Company’s policy to include interest and penalties related to
unrecognized tax benefits within the Company’s provision for income taxes did
not change. As of September 27, 2008, the Company had accrued interest and
penalties of $120,000 related to unrecognized tax benefits. The Company’s total
amount of unrecognized tax benefits as of September 27, 2008 was $898,000. All
of this amount would affect the corporation’s tax rate if recognized. The tax
years 2003 to 2007 remain open in the United States.




Income
Tax Expense




Income
tax expense for the three months ended September 27, 2008 and September 29, 2007
was $1.9 million and $1.7 million, respectively, and was comprised of domestic,
federal and state income tax, foreign income tax and withholding
tax.


18





12.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES





Our
investment in unconsolidated affiliates is comprised of the
following:





September 27,
                                                    
                                                    
                                                    June 28,(in thousands)
                                                    
                                                    2008
                                                    
                                                    
                                                    2008Pericom Technology, Inc.
                                                    
                                                    $
                                                    8,565
                                                    
                                                    
                                                    $
                                                    8,505Jiyuan
      Crystal Photoelectric Frequency Technology Ltd.
                                                    
                                                    
                                                    1,947
                                                    
                                                    
                                                    
                                                    1,887Total
                                                    
                                                    $
                                                    10,512
                                                    
                                                    
                                                    $
                                                    10,392




The
Company has an approximate 44.1% ownership interest in Pericom Technology, Inc.
(“PTI”). Pericom accounts for its investment in PTI using the equity method due
to the Company’s significant influence over its operations. In addition, certain
of the directors of the Company are directors of PTI, and certain shareholders
of the Company are shareholders of PTI. At September 27, 2008 and June 28, 2008,
the Company's carrying value of the investment in PTI exceeded the Company’s
underlying equity in the net assets of PTI by $482,000 and $550,000,
respectively. PTI was incorporated in 1994, and in 1995 established a design
center and sales office to pursue opportunities and participate in joint
ventures in the People’s Republic of China (“China”). The Company purchased
$19,000 and $6,000 in goods and services from PTI during the three months ended
September 27, 2008 and September 29, 2007, respectively. PTI owed the Company
$54,000 and $123,000 at September 27, 2008 and June 28, 2008, respectively for
reimbursement of certain administrative expenses incurred by the Company on
behalf of PTI and for advances made to PTI by the Company.




SRe has a
49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd.
(“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City,
Henan Province, China. JCP is a key manufacturing partner of SRe. For the first
quarter fiscal 2009 and 2008, the Company’s allocated portion of JCP’s results
was income of $57,000 and $38,000, respectively.




13.
COMPREHENSIVE INCOME




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





(in thousands)
                    
                    Three months endedSeptember 27, 2008
                      (As Restated)
                    
                    
                    September 29, 2007Net Income
                    
                    $
                    3,661
                    
                    
                    $
                    3,883Change
      in unrealized gain on investments,net
                    
                    
                    (937
                    )
                    
                    
                    656Change
      in translation gain, net
                    
                    
                    (1,917
                    )
                    
                    
                    202Comprehensive
      income
                    
                    $
                    807
                    
                    
                    $
                    4,741


19





14.
FAIR VALUE MEASUREMENTS





Effective
June 29, 2008, we adopted SFAS No. 157, Fair Value Measurements, or
SFAS No. 157. In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2, Effective Date of FASB Statement No. 157, which
provides a one year deferral of the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually (fair value of reporting units for goodwill impairment tests,
non-financial assets and liabilities acquired in a business combination).
Therefore, we adopted the provisions of SFAS No. 157 with respect to our
financial assets and liabilities only. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value measurements.
Fair value is defined under SFAS No. 157 as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation
techniques used to measure fair value under SFAS No. 157 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value which are the following:





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


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


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





The
adoption of this statement with respect to our financial assets and liabilities,
did not impact our consolidated results of operations and financial condition,
but required additional disclosure for assets and liabilities measured at fair
value.  In accordance with SFAS No. 157, the following table
represents our fair value hierarchy for our financial assets (cash equivalents
and investments) measured at fair value on a recurring basis as of June 29,
2008.  Level 1 available-for-sale investments are primarily comprised of
investments in U.S. Treasury securities.  These securities are valued using
market prices on active markets.  Level 2 instrument valuations are
obtained from readily-available pricing sources for comparable instruments. The
Company had no material level three measurements for the quarter ending
September 27, 2008.





Assets
measured at fair value as of September 27, 2008 are summarized as
follows:





(In
      thousands)
                
                Level 1
                
                
                Level 2
                
                
                TotalCash
      equivalents (1):Money
      market funds
                
                $
                3,197
                
                
                $
                -
                
                
                $
                3,197Corporate
      bonds and notes
                
                
                -
                
                
                
                4,395
                
                
                
                4,395Government
      agency
                
                
                -
                
                
                
                11,689
                
                
                
                11,689Investments
      (2):Treasury
      Bills
                
                
                10,858
                
                
                
                
                
                
                
                10,858Corporate
      bonds and notes
                
                
                -
                
                
                
                12,838
                
                
                
                12,838Government
      agency
                
                
                
                
                
                
                33,787
                
                
                
                33,787Asset/mortgage
      backed securities
                
                
                -
                
                
                
                24,444
                
                
                
                24,444Total
                
                $
                14,055
                
                
                $
                87,153
                
                
                $
                101,208





(1)
            Included
      in cash and cash equivalents on our condensed consolidated balance
      sheet.





(2)
            Fair
      value is included in investments and related interest income earned
      thereon is included in accounts receivable on our condensed consolidated
      balance sheet.


20





Effective
June 29, 2008, we adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”, or “SFAS No. 159”. SFAS No. 159
allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for specified financial assets and liabilities on a
contract-by-contract basis. We did not elect to adopt the fair value option
under SFAS No. 159.





The
Company’s investment in debt securities includes government securities,
commercial paper, corporate debt securities and mortgage-backed and asset-backed
securities. Most of our mortgage-backed securities are collateralized by prime
residential mortgages, primarily from Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Corporation. In addition, we have the ability and intent to hold these
investments until maturity when the obligors are required to redeem them at
their full face value, and we believe the obligors have the financial resources
to redeem those debt securities. Accordingly, we do not consider our investments
to be other-than-temporarily impaired at September 27, 2008.


21





Item 2:
Management’s Discussion and Analysis


of
Financial Condition and Results of Operations





Pericom
Semiconductor Corporation





The
discussion below reflects the impact of our restatement as described in Note 2
of the Notes to the condensed consolidated financial statements.





The
following information should be read in conjunction with the unaudited financial
statements and notes thereto included in Part 1 - Item 1 of this Quarterly
Report and the audited financial statements and notes thereto and Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company’s Annual Report on Form 10-K for the year ended June
28, 2008 (“Form 10-K”).




This
Quarterly Report on Form 10-Q includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical fact are
“forward-looking statements” for purposes of these provisions, including any
statements regarding the Company’s total investment in the Jinan Hi-Tech
Industries Development Zone, the continuation of a high level of turns orders,
higher levels of inventory, future gross profit and gross margin; the plans and
objectives of management for future operations; the Company’s tax rate; the
adequacy of allowances for returns, price protection and other concessions; the
sufficiency of cash generated from operations and cash balances; the Company’s
exposure to interest rate risk; expectations regarding our R&D and SG&A
expenses; and our possible future acquisitions and assumptions underlying any of
the foregoing. In some cases, forward-looking statements can be identified by
the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“estimates,” “potential,” or “continue,” or the negative thereof or other
comparable terminology. Although the Company believes that the expectations
reflected in the forward-looking statements contained herein are reasonable,
there can be no assurance that such expectations or any of the forward-looking
statements will prove to be correct, and actual results could differ materially
from those projected or assumed in the forward-looking statements. The Company’s
future financial condition and results of operations, as well as any
forward-looking statements, are subject to risks and uncertainties, including
but not limited to the factors set forth (i) in Item 1A, Risk Factors, of Part
II of this Form 10-Q, (ii) in Item 1A, Risk Factors, of Part I of the Company’s
Form 10-K for the year ended June 28, 2008, 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.




Results
of Operations





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





Three Months EndedSeptember 27,
                      
                      
                      September 29,2008
                      
                      
                      2007(unaudited)
                      
                      (As
      Restated)Net
      revenues
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %Cost
      of revenues
                      
                      
                      63.5
                      %
                      
                      
                      63.6
                      %Gross
      profit
                      
                      
                      36.5
                      %
                      
                      
                      36.4
                      %Operating
      expenses:Research
      and development
                      
                      
                      9.6
                      %
                      
                      
                      10.6
                      %Selling,
      general and administrative
                      
                      
                      15.8
                      %
                      
                      
                      15.2
                      %Total
                      
                      
                      25.4
                      %
                      
                      
                      25.8
                      %Income
      from operations
                      
                      
                      11.1
                      %
                      
                      
                      10.6
                      %Interest
      and other income
                      
                      
                      2.5
                      %
                      
                      
                      3.6
                      %Other
      than temporary decline in value of investment
                      
                      
                      (1.0
                      )%
                      
                      
                      -
                      %Income
      before income taxes
                      
                      
                      12.6
                      %
                      
                      
                      14.2
                      %Income
      taxes
                      
                      
                      4.4
                      %
                      
                      
                      4.4
                      %Minority
      interest in (income) loss of consolidated subsidiaries
                      
                      
                      (0.1
                      )%
                      
                      
                      —
                      %Equity
      in net income of investees
                      
                      
                      0.3
                      %
                      
                      
                      0.3
                      %Net
      income
                      
                      
                      8.4
                      %
                      
                      
                      10.1
                      %


22




Net
Revenues





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




Three Months EndedSeptember 27,
                      
                      
                      September 29,
                      
                      
                      %(in thousands, unaudited)
                      
                      2008
                      
                      
                      2007
                      
                      
                      Change(As Restated)Net revenues
                      
                      $
                      43,798
                      
                      
                      $
                      38,468
                      
                      
                      
                      13.9
                      %%
      of net sales accounted for by top 5 direct customers (1)
                      
                      
                      49.5
                      %
                      
                      
                      36.3
                      %Number
      of direct customers that each account for more than 10% of net
      sales
                      
                      
                      2
                      
                      
                      
                      1%
      of net sales accounted for by top 5 end customers (2)
                      
                      
                      29.5
                      %
                      
                      
                      22.2
                      %Number
      of end customers that each account for more than 10% of net
      sales
                      
                      
                      1
                      
                      
                      None





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





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





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





Net
revenues consist of product sales, which are recognized upon shipment, less an
estimate for returns and allowances. Net revenue increased $5.3 million or 13.9%
in the first quarter of fiscal 2009 versus the first quarter of fiscal 2008
primarily as the result of:


·
            a
      157.3% increase in the sales of connect IC products to $6.2 million, an
      increase of $3.8 million;


·
            an
      increase of $2.9 million or 18.9% in sales of our FCP products to $18.2
      million, and


·
            an
      offsetting decline of sales in analog, digital switch, clock, and
      interface IC products to $19.4 million, for a $1.4 million sales
      decrease.


23





We
currently have a cautious outlook on our fiscal second quarter ending December
27, 2008, due to the challenging business environment and limited visibility on
end-market demands. We have also announced our expectation that fiscal second
quarter revenues will decline from the amount reported for the fiscal first
quarter.





The
following table sets forth net revenues by country as a percentage of total net
revenues for the three month periods ended September 27, 2008 and September 29,
2007:





(in
      thousands,
                                unaudited)
                              
                              Three Months EndedSeptember 27,
                                2008
                                (As
    Restated)
                              
                              
                              As a
                                Percentage of
                                Net Revenue
                              
                              
                              September 29,
                                2007
                              
                              
                              As a
                                Percentage of
                                Net RevenueNet
      sales tocountries:China
      (including Hong Kong)
                              
                              $
                              15,433
                              
                              
                              
                              35
                              %
                              
                              $
                              15,387
                              
                              
                              
                              40
                              %United
      States
                              
                              
                              2,504
                              
                              
                              
                              6
                              
                              
                              
                              3,847
                              
                              
                              
                              10Taiwan
                              
                              
                              18,323
                              
                              
                              
                              42
                              
                              
                              
                              11,156
                              
                              
                              
                              29Singapore
                              
                              
                              2,069
                              
                              
                              
                              5
                              
                              
                              
                              1,923
                              
                              
                              
                              5Others
      (less than 10% each)
                              
                              
                              5,469
                              
                              
                              
                              12
                              
                              
                              
                              6,155
                              
                              
                              
                              16Total
      net sales
                              
                              $
                              43,798
                              
                              
                              
                              100
                              %
                              
                              $
                              38,468
                              
                              
                              
                              100
                              %





For the
three months ended September 27, 2008, as compared with the same period of the
prior year, the percentage of our net revenues derived from sales to Asian
countries increased as a result of an increasing demand for technological
devices and a continuing concentration of contract manufacturing in those
regions. We expect our future sales to continue to grow, as a percentage of net
revenues, in Asian countries. As the migration of assembly operations to Asia
continues, we expect our fiscal 2009 net revenues from sales in North America to
decline, as they have during fiscal 2008.




Gross
Profit





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




Three Months Ended(In
      thousands, unaudited)
                              
                              September 27,
                              
                              
                              September 29,
                              
                              %2008
                                (As Restated)
                              
                              
                              2007
                              
                              ChangeNet
      revenues
                              
                              $
                              43,798
                              
                              
                              $
                              38,468
                              
                              
                              
                              13.9
                              %Gross
      profit
                              
                              
                              15,993
                              
                              
                              
                              14,001
                              
                              
                              
                              14.2
                              %Gross
      profit as a percentage of net revenues (gross margin)
                              
                              
                              36.5
                              %
                              
                              
                              36.4
                              %





The
absolute increase in gross profit for the three month period ended September 27,
2008 compared with the same period of the prior year was primarily due to rising
sales of silicon connect IC products and to the consistency in sales of analog
switches. Silicon connect IC products carried larger profit margins in the three
month period ended September 27, 2008 as compared with the same period of the
prior year. In addition, analog switches continue to carry above average margins
over lower margin FCP products; however those margins have decreased in the
three month period ended September 27, 2008 as compared with the same period of
the prior year. Gross margin for the first fiscal quarter in fiscal 2009
increased slightly to 36.5% as compared with 36.4% for the first quarter of
fiscal 2008.


24





With
respect to the increase in gross profit in the first quarter of fiscal 2009 as
compared to the first quarter of fiscal 2008 of $2.0 million, the increase is
primarily the result of:


·
            Sales
      growth in silicon connect IC products, which generated $1.8 million
      increased gross profit;


·
            increased
      sales of the FCP product family, which contributed $0.8 million of
      increased gross profit,


·
            increased
      sales of digital, clock and silicon interface products, which contributed
      $0.8 million of increased gross profit, which was offset
  by


·
            a
      decrease of $0.8 million in gross profit from sales of analog
      switches.





During
the three months ended September 27, 2008 and September 29, 2007, gross profits
and gross margins benefited from the sale of inventory, previously valued at
$63,000 and $262,000, respectively, that we had previously identified as excess
and written off.





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





Research
and Development





Three Months Ended(In thousands, unaudited)
                                
                                September 27,
                                
                                
                                September 29,
                                
                                %2008
                                  (As Restated)
                                
                                
                                2007
                                
                                ChangeNet
      revenues
                                
                                $
                                43,798
                                
                                
                                $
                                38,468
                                
                                
                                
                                13.9
                                %Research
      and development
                                
                                
                                4,221
                                
                                
                                
                                4,082
                                
                                
                                
                                3.4
                                %R&D
      as a percentage of net revenues
                                
                                
                                9.6
                                %
                                
                                
                                10.6
                                %





Research
and development expenses consist primarily of costs related to personnel and
overhead, non-recurring engineering charges, and other costs associated with the
design, prototyping, testing, manufacturing process design support, and
technical customer applications support of our products. The $139,000 expense
increase for the three month period ended September 27, 2008 as compared to the
same period of the prior year is primarily attributable to a $154,000 increase
in salaries and wages due to the merit awards and headcount increases and a
$157,000 increase in share-based compensation expense offset by a $176,000
decrease in bonus expense.




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





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





Three Months Ended(In thousands, unaudited)
                        
                        September 27,
                        
                        
                        September 29,
                        
                        %2008
                          (As Restated)
                        
                        
                        2007
                        
                        ChangeNet
      revenues
                        
                        $
                        43,798
                        
                        
                        $
                        38,468
                        
                        
                        
                        13.9
                        %Selling,
      general and administration
                        
                        
                        6,901
                        
                        
                        
                        5,839
                        
                        
                        
                        18.2
                        %SG&A
      as a percentage of net revenues
                        
                        
                        15.8
                        %
                        
                        
                        15.2
                        %


25





Selling,
general and administrative expenses consist primarily of personnel and related
overhead costs for sales, marketing, finance, administration, human resources
and general management. The $1.1 million expense increase for the three month
period ended September 27, 2008 as compared to the same period of the prior year
is attributable to a $299,000 increase in salaries and wages due to merit awards
and headcount increases, a $230,000 increase in temporary labor primarily
related to the implementation of information technology infrastructure,
increases of $75,000 in legal fees, $106,000 in accounting services,
a $108,000 increase in share-based compensation expense, and an
increase of $111,000 increase in commission expenses in support of increased
sales. These were partially offset by a decrease of $77,000 in the Company’s bad
debt expense.




The
Company anticipates that selling, general and administrative expenses in
absolute dollars 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 as a function of supporting higher sales levels.
The Company intends to continue its focus on controlling costs. If business
conditions deteriorate or the rate of improvement does not meet our
expectations, the Company may implement cost-cutting actions.




Interest
and Other Income, net





Three Months Ended(In thousands, unaudited)
                      
                      September 27,
                      
                      
                      September 29,
                      
                      %2008
                        (As Restated)
                      
                      
                      2007
                      
                      ChangeInterest
      and other income, net
                      
                      $
                      1,106
                      
                      
                      $
                      1,370
                      
                      
                      
                      (19.3
                      )%





Net
interest and other income declined 19.3% for the three months ended September
27, 2008 as compared with the same period of the prior year primarily due to a
$528,000 reduction in the interest earned on investments in marketable
securities and cash and cash equivalents balances offset by a $319,000 exchange
gain primarily due to the U.S. Dollar strengthening against the New Taiwan
Dollar.




Income
Tax Expense





Three Months Ended(In thousands, unaudited)
                          
                          September 27,
                          
                          
                          September 29,
                          
                          
                          %2008
                            (As Restated)
                          
                          
                          2007
                          
                          
                          ChangeIncome
      before income tax expense
                          
                          $
                          5,519
                          
                          
                          $
                          5,450
                          
                          
                          
                          1.3
                          %Income
      tax
                          
                          
                          1,930
                          
                          
                          
                          1,691
                          
                          
                          
                          14.1
                          %Effective
      tax rate
                          
                          
                          35.0
                          %
                          
                          
                          31.0
                          %





The
increase in income tax expense for the three months ended September 27, 2008
over the same period of the prior year is due to the increase in income before
income taxes as well as an increase in the effective tax rate. The increased
effective tax rate is due primarily to the mix of earnings between tax
jurisdictions as well as a decrease in the anticipated benefit the Company
receives from the Federal research and development credit due to the expiration
of the credit as of December 31, 2007.





During
the quarter ended September 27, 2008, our effective tax rate did not
significantly differ from the federal statutory tax rate.


26





Equity
in Net Income of Unconsolidated Affiliates




Three Months EndedSeptember 27,
                        
                        
                        September 29,
                        
                        
                        %(In thousands,
      unaudited)
                        
                        2008
                        
                        
                        2007
                        
                        
                        ChangeEquity in net income of PTI
                        
                        $
                        60
                        
                        
                        $
                        54
                        
                        
                        
                        11.1
                        %Equity in net income of JCP
                        
                        
                        57
                        
                        
                        
                        72
                        
                        
                        
                        (20.8
                        )%Equity in net losses of other investees
                        
                        
                        —
                        
                        
                        
                        (5
                        )
                        
                        
                        —Total
                        
                        $
                        117
                        
                        
                        $
                        121
                        
                        
                        
                        (3.3
                        )%




Equity in
net income of unconsolidated affiliates includes our allocated portion of the
net income of Pericom Technology, Inc. (“PTI”), a British Virgin Islands
corporation based in Shanghai, People’s Republic of China and Hong Kong. Our
allocated portion of PTI’s results was $60,000 and $54,000 for the three months
ended September 27, 2008 and September 29, 2007, respectively.





Equity in
net income of unconsolidated affiliates also includes the Company’s allocated
portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology
Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan
City, Henan Province, China. JCP is a key manufacturing partner of SRe, and SRe
has acquired a 49% equity interest in JCP. For the three month period ended
September 27, 2008, the Company’s allocated portion of JCP’s results were income
of $57,000 as compared with income of $72,000 for the same period of the prior
year.





Liquidity
and Capital Resources





As of
September 27, 2008, the Company’s principal sources of liquidity included cash,
cash equivalents and short-term and long-term investments of approximately
$121.0 million as compared with $123.9 million on June 28, 2008.





As of
September 27, 2008, $39.1 million was classified as cash and cash equivalents
compared with $41.6 million as of June 28, 2008. The maturities of the Company’s
short term investments are staggered throughout the year so that cash
requirements are met. Because the Company is a fabless semiconductor
manufacturer, it has lower capital equipment requirements than other
semiconductor manufacturers that own wafer fabrication facilities. For the three
month period ended September 27, 2008, the Company spent approximately $2.5
million on property and equipment compared to $1.4 million for the three month
period ended September 29, 2007. The Company generated approximately $1.1
million of interest and other income, net for the three month period ended
September 27, 2008, an approximate $264,000 decrease over the $1.4 million
interest and other income, net for the three month period ended September 29,
2007. The decrease in interest and other income, net was in primarily due to
reduction in interest rates earned on investments in marketable securities and
cash balances offset by exchange gains from the U.S. Dollar strengthening
against the New Taiwan Dollar.





The
Company’s net cash provided by operating activities of $3.7 million for the
three months ended September 27, 2008 was primarily the result of net income of
$3.7 million and non-cash expenses of $2.0 million depreciation and
amortization, $795,000 share-based compensation expense and $458,000 of other
than temporary decline in value of investments, which was partially offset by a
$643,000 increase in net deferred taxes and $117,000 equity in the net
income of unconsolidated affiliates. Additional contributions to cash included a
$1.9 million increase in accounts payable, a $344,000 increase in other accrued
liabilities and an $829,000 decrease in prepaid and other current assets.
Partially offsetting these were a $4.2 million increase in accounts receivable,
a $1.0 million increase in inventory and a $248,000 increase in other assets.
The Company’s net cash provided by operating activities was $4.6 million in
the three months ended September 29, 2007.


27





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





The
Company’s cash used in investing activities of $3.5 million for the three months
ended September 27, 2008 was primarily due to additions to property and
equipment of approximately $2.5 million partially offset by maturities
of investments exceeding purchases of investments by approximately $1.0
million. The Company used $22.9 million in investing activities for the
three months ended September 29, 2007.




The
Company’s cash used in financing activities for the three months ended September
27, 2008 of $2.2 million was the result of repurchases of the Company’s common
stock at a cost of $2.7 million, partially offset by $426,000 in proceeds
generated from the issuance of common stock in the Company’s employee stock
plans and $58,000 in excess tax benefits on share-based compensation. The
Company used $4.3 million in financing activities in the three months ended
September 29, 2007.




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





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




Contractual
Obligations and Commitments





The
Company 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 September 27, 2008 are as
follows:





(in
      thousands)
                  
                  Payments Due by PeriodTotal
                  
                  
                  1 Year
                    or Less
                  
                  
                  2 -
                    3 Years
                  
                  4 -
                    5 Years
                  
                  There-
                    afterOperating
      leases and operating expense commitments
                  
                  $
                  6,068
                  
                  
                  $
                  1,355
                  
                  
                  $
                  2,214
                  
                  
                  $
                  2,216
                  
                  
                  $
                  283Capital
      equipment purchase commitments
                  
                  $
                  3,421
                  
                  
                  $
                  3,421
                  
                  
                  $
                  1,003
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  9,489
                  
                  
                  $
                  4,776
                  
                  
                  $
                  3,217
                  
                  
                  $
                  2,216
                  
                  
                  $
                  283





Jinan
Cooperation Agreement





On
January 26, 2008, the Company entered into a Cooperation Agreement with the
Jinan Hi-Tech Industries Development Zone Commission (the “Commission”) in the
People’s Republic of China (the “PRC”) for the Company’s investment in the Jinan
Hi-Tech Industries Development Zone (the “Zone”) that is located in Shandong
Province, PRC. Under the Cooperation Agreement, the Company will, through a
wholly-owned Hong Kong subsidiary, Pericom Asia Ltd., build a factory in the
Zone for the development and manufacturing of frequency control products. It is
expected that the Company’s total gross investment, over a period of years, will
be approximately $35 million.




Off-Balance
Sheet Arrangements





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





Critical
Accounting Policies





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


28





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





REVENUE
RECOGNITION. We
recognize revenue from the sale of our products in conformity with the SEC Staff
Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, (“SAB
No. 104”). Accordingly, the Company recognizes revenue when:





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred;





·
            The
      sales price is fixed or determinable;
and


·
            Collectibility
      is reasonably assured.





Generally,
the Company meets these conditions upon shipment because, in most cases, title
and risk of loss passes to the customer at that time. In addition, the Company
estimates and records provisions for future returns and other charges against
revenue at the time of shipment in accordance with SFAS No. 48, Revenue Recognition when Right of
Return Exists (“SFAS No. 48”).





For some
of our products, notably our FCPs that we manufacture in Taiwan, we recognize
revenue upon delivery for Taiwan sales and for foreign sales, 3 days after
shipment. Our sales terms for FCP are usually FOB shipping point and we use
Federal Express (“FedEx”) for all of our deliveries. FedEx delivers shipments
within one day to Taiwanese customers and within 3 days for foreign
customers.





We sell
products to both large domestic and international distributors. We sell our
products to domestic distributors at the price listed in our price book for that
distributor. At the time of shipment, we book a sales reserve for the entire
amount if the customer has the right to return the product. In addition, at the
time of sale we book a sales reserve for ship from stock and debits (“SSD”s),
stock rotation amounts expected to be returned, return material authorizations
(“RMA”s), authorized price protection programs, and any special programs
approved by management. These sales reserves offset revenues, which produces the
net revenues amount we report in our consolidated financial
statements.





The
market price for our products can be significantly different from the book price
at which we sold the product 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, we negotiate a ship from stock and debit with the distributor. We
analyze our SSD history and use the history to develop SSD rates that form the
basis of the SSD sales reserve we record each period. We use historical SSD
rates 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. 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 typically grant Asian
distributors stock rotation privileges between 1% and 5% even though we are not
contractually obligated to do so. Each month we record a sales reserve for the
estimated stock rotation privilege anticipated to be utilized by our
distributors that month.


29





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. Our management reviews these requests and, if
approved, we establish a RMA. 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, we record a
sales reserve for the approved RMAs that have not yet been returned. In the
past, we have not kept 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 frequently we can resell parts to
other customers for use in other applications. We monitor and assess RMA
activity and overall materiality to assess whether a general warranty reserve
has become appropriate.





We grant
price protection solely at the discretion of our management. The purpose of
price protection is to reduce our distributors’ cost of inventory as market
prices fall, which reduces our SSD rates. Our sales management team prepares
price protection proposals for individual products located at individual
distributors. Our general management reviews these proposals and if a particular
price protection arrangement is approved, we estimate the dollar impact 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. We record a sales
reserve in that period for the estimated amount in accordance with Issue 4 of
Emerging Issues Task Force Issue No. 01-09, Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products).





At the
discretion of our management, we may offer rebates on specific products sold to
specific end customers. The purpose of the rebates is to allow for pricing
adjustments for large programs without affecting the pricing we charge our
distributor customers. We record the customer’s rebate at the time of
shipment.





Customers
are typically granted payment terms of between 30 and 60 days and they generally
pay within those terms. We grant relatively few customers any sales terms that
include cash discounts. We invoice our distributors for shipments at our listed
book price. When our distributors pay those invoices, they may claim debits for
SSDs, stock rotations, cash discounts, RMAs and price protection when
appropriate. Once claimed, we confirm these debits are in line with our
management’s prior authorizations and reduce the reserve we previously
established for that customer.





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. We base our estimates 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.





CASH AND CASH
EQUIVALENTS.Cash and cash
equivalents consist of cash on hand and in banks and all highly liquid debt
investments with a time to maturity of three months or less at the time of
purchase.





SHORT- AND
LONG-TERM INVESTMENTS.Our policy is to invest excess funds in
instruments with investment grade credit ratings. We classify our investments as
“available-for-sale”, “trading” or “held-to-maturity” in conformity with SFAS
No. 115, Accounting for
Certain Investments in Debt and Equity Securities (“SFAS No. 115”).
Further, we classify our trading securities as current assets and our
available-for-sale securities as either current or non-current based on the
specific attributes of each security. We recognize unrealized gains and losses
in our trading securities in current earnings, and unrealized gains and losses
in our available-for sale securities as an increase or reduction in
shareholders’ equity. We report our trading and available-for-sale securities at
their fair values. We evaluate our available-for-sale securities for impairment
quarterly. SFAS No. 115 defines impairment as a loss in value that is other than
temporary. We recognize impairment losses in our consolidated statement of
operations in the period in which we discover the impairment.





We have
also made other investments including loans, bridge loans convertible to equity
or asset purchases as well as direct equity investments. We make these loans and
investments with strategic intentions and, historically, are in privately held
technology companies, which by their nature are high risk. These investments are
included in other assets in the balance sheet and we carry them 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 we deem a decline in value is other than
temporary.


30





ALLOWANCE FOR
DOUBTFUL ACCOUNTS. We evaluate our allowance for doubtful accounts using
a combination of factors. We record a specific allowance in cases where we
become aware of circumstances that may impair a specific customer’s ability to
pay fully their financial obligation to us. For all other customers, we
recognize an allowance based on the length of time the receivable balances are
past due, based on the current economic environment and our historical
experience.





INVENTORIES.
For our IC and certain FCP families of products we record inventories 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. The semiconductor markets that
we serve are volatile and actual results may vary from our forecast or other
assumptions, potentially affecting our assessment of excess and obsolete
inventory resulting in material effects on our gross margin.





We record
the inventories of the remainder of our FCP products at the lower of
weighted-average cost (which approximates actual cost) or market value. Weighted
average cost is comprised of average manufacturing costs weighted by the volume
produced in each production run. We define market value as the net realizable
value for our finished goods and replacement cost for raw materials and work in
process.





We
consider raw material inventory slow moving and we write it down to zero if it
has not moved in 365 days. For assembled devices, we disaggregate the inventory
by part number. We compare the quantities on hand in each part number category
to the quantity we shipped in the previous twelve months, the quantity in
backlog and to the quantity we expect to ship in the next twelve months. We
write down to zero the value of each quantity on hand that is in excess of the
lesser of the three comparisons. We believe our method of evaluating our
inventory fairly represents market conditions.





We
consider the material written-off to be available for sale. We do not revalue
the written off inventory should market conditions change or if a market
develops for the obsolete inventory. In the past, we have sold obsolete
inventory that we have previously written off as worthless. Refer to the Gross
Profit discussion in Item 7 of our annual report on Form 10K for further
discussion of sales of our obsolete inventory.





PROPERTY, PLANT
AND EQUIPMENT. We record our property, plant and equipment at cost and
depreciate the cost over the estimated useful lives of each asset
classification, ranging between 3 and 35 years. Cost includes purchase cost,
applicable taxes, freight, installation costs and interest incurred in the
acquisition of any asset that requires a period of time to make it ready for
use. In addition, we capitalize the cost of major replacements, improvements and
betterments, while we expense normal maintenance and repair.





INVESTMENTS IN
UNCONSOLIDATED AFFILIATES. We hold ownership interests
in various investees. Our ownership in these affiliates varies from 20% to
approximately 49%, which we classify as investments in unconsolidated affiliates
in our consolidated balance sheets. We account for long-term investments in
companies in which we have an ownership share larger than 20% and in which we
have significant influence over the activities of the investee using the equity
method. We recognize our proportionate share of each investee’s income or loss
in the period in which the investee reports the income or loss. We eliminate all
intercompany transactions in accounting for our equity method
investments.





IMPAIRMENT OF
GOODWILL AND OTHER INTANGIBLE ASSETS. The Company performs an impairment
review of its intangible assets at least annually, in conformity with SFAS No.
142, Goodwill and Other
Intangible Assets(“SFAS No. 142”). Based on the results of its most
recent impairment review, the Company determined that no impairment of its
intangible assets existed as of June 28, 2008. However, future impairment
reviews could result in a charge to earnings.


31




INCOME
TAXES. We account for income taxes using SFAS No. 109, “Accounting for
Income Taxes”, which requires an asset and liability approach to recording
deferred taxes. 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 carry forwards. 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. If, in the future, we experiences losses for a sustained period of
time, 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 the
valuation allowance against the deferred tax assets resulting in additional
income tax expense.





During
the three months ended September 27, 2008, there were no significant changes in
our critical accounting policies and estimates.





Adoption
of New Pronouncements





In
May 2008, the Company adopted Statement of Financial Accounting Standards,
SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”.
SFAS No. 162 is intended to improve financial reporting by identifying a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
generally accepted accounting principles in the United States for
non-governmental entities. SFAS No. 162 is effective 60 days following
approval by the SEC of the Public Company Accounting Oversight Board’s
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The adoption of
SFAS No. 162 did not have an impact on the Company’s consolidated financial
positon or results of operation.





On June
29, 2008, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 157, "Fair Value Measurements" ("FAS 157") for financial assets and
liabilities, which clarifies the meaning of fair value, establishes a framework
for measuring fair value and expands disclosures about fair value
measurements.  Fair value is defined under SFAS 157 as the exchange
price that would be received for an asset or paid to transfer a liability in the
principal or most advantageous market for the assets or liabilities in an
orderly transaction between market participants on the measurement
date.  Subsequent changes in fair value of these financial assets and
liabilities are recognized in earnings or other comprehensive income when they
occur. The effective date of the provisions of SFAS 157 for non-financial assets
and liabilities, except for items recognized at fair value on a recurring basis,
was deferred by Financial Accounting Standards Board ("FASB") Staff Position FAS
157-2 (FSP FAS 157-2) and are effective for the fiscal year beginning June 28,
2009.  The Company is currently evaluating the impact of the
provisions for non-financial assets and liabilities.  The adoption of
SFAS 157 for financial assets and liabilities did not have an impact on the
Company's consolidated financial position or results of
operations.  For additional information on the fair value of financial
assets and liabilities, see Note 14, Fair Value Measurements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards, SFAS
No. 141 (Revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS
No. 141(R) establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS No. 141(R) also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The provisions of
SFAS No.141(R) are effective for the fiscal year beginning June 28,
2009.  The Company is currently evaluating the impact of the
provisions of SFAS 141(R).




In
December, 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of ARB No. 51” (“SFAS
No. 160”). SFAS No. 160 establishes new accounting and reporting
standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as equity in the
consolidated financial statements separate from the parent’s equity. The amount
of net income attributable to the non-controlling interest will be included in
consolidated net income on the face of the income statement. SFAS No. 160
clarifies that changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. SFAS No. 160
also includes expanded disclosure requirements regarding the interests of the
parent and its non-controlling interest. The provisions of SFAS No. 160 are
effective for the fiscal year beginning June 28, 2009 except for the
presentation and disclosure requirements, which must be applied retrospectively
for all periods presented. We are currently evaluating the impact that SFAS
No. 160 will have on our financial statements.


32


ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





At
September 27, 2008 our investment portfolio consisted of investment-grade fixed
income securities, excluding those classified as cash and cash equivalents, of
$81.9 million. These securities are subject to interest rate risk and will
decline in value if market interest rates increase. However, we do not believe
that such a decrease would have a material effect on our results of operations
over the next fiscal year. Due to the short duration and conservative nature of
these instruments, we do not believe that we have a material exposure to
interest rate risk.





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




ITEM
4. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





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





At the
time that our Quarterly Report on Form 10-Q for the quarterly period ended
September 27, 2008 was originally filed, our principal executive officer and
principal financial officer evaluated the effectiveness of our disclosure
controls and procedures and concluded that as of the end of such period, our
disclosure controls and procedures were effective.





In
connection with the restatement discussed above in Note 2 to our consolidated
financial statements in Item 1 of this amended report, our management, with
the participation of our principal executive officer and principal financial
officer reevaluated our disclosure controls and procedures. Based on that
reevaluation and solely as a result of the material weaknesses in our internal
control over financial reporting described below, our principal executive
officer and principal financial officer have now concluded that our disclosure
controls and procedures were not effective as of September 27,
2008.





Notwithstanding
the material weaknesses that existed at September 27, 2008, management believes,
based on its knowledge, that our restated consolidated financial statements and
other financial information included in this report, fairly present, in all
material respects in accordance with GAAP, our financial condition, results of
operations and cash flows as of and for the periods presented in this
report.





Material
Weakness





In
connection with the matters described above, our company’s management identified
and reported to our Audit Committee the following control deficiencies, each of
which constitutes a material weakness in our internal control over financial
reporting as of September 27, 2008:





·
            The
      Company concluded that certain controls over period-end inventory
      accounting did not operate with sufficient precision. Misstatements were
      detected relating to inventory valuation and inventory
      reserves.





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




As a
result of these misstatements, we have concluded that we did not maintain
effective controls as of September 27, 2008 over financial reporting. Our
processes, procedures and controls were not effective to ensure that the these
amounts were accurately reflected in our consolidated financial statements as of
and for the period ended September 27, 2008 as previously reported. This control
deficiency resulted in the restatement of our September 27, 2008 financial
statements by a material amount. Therefore, we concluded that this control
deficiency, as of September 27, 2008, constitutes a material
weakness.




We intend
to remediate these material weaknesses by making a number of improvements to our
finance department, including the implementation of improved processes and
systems, as well as additions to and upgrades of key finance personnel. We also
plan to review our training and oversight policies and re-examine our
documentation and review procedures as soon as is reasonably practical. We also
intend to engage the help of outside consultants to revamp the processes in the
cost module of the ERP system. We may also consider implementing other
remediation measures.


Changes
in Internal Control Over Financial Reporting





Other
than as noted above in this Item 4, there has been no change in our
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





PART II.
OTHER INFORMATION




Item 1.Legal
Proceedings





None.




Item
1A: Risk Factors




This
quarterly report on Form 10-Q contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward-looking statement as a result of various factors,
including those set forth below. The listing below includes any material changes
to and supersedes the description of the risk factors affecting our business
previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual
Report on Form 10-K for the fiscal year ended June 28, 2008.


33


FACTORS
THAT MAY AFFECT OPERATING RESULTS





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





We
currently have a cautious outlook on our fiscal second quarter ending December
27, 2008, due to the challenging business environment and limited visibility on
end-market demands. We have also announced our expectation that fiscal second
quarter revenues will decline from the amount reported for the fiscal first
quarter.





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





·
            changes
      in the quantity of our products
sold;


·
            changes
      in the average selling price of our
products;


·
            general
      conditions in the semiconductor
industry;


·
            changes
      in our product mix;


·
            a
      change in the gross margins of our
products;


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


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


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


·
            customer
      acceptance of new products introduced by
us;


·
            delay
      or decline in orders received from
distributors;


·
            growth
      or reduction in the size of the markets 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 FCPs 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.


34


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





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





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





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





·
            product
      performance and functionality;


·
            customer
      acceptance;


·
            competitive
      cost structure and pricing;


·
            successful
      and timely completion of product
development;


·
            sufficient
      wafer fabrication capacity; and


·
            achievement
      of acceptable manufacturing yields by our wafer
  suppliers.





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





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





The
semiconductor industry is intensely competitive. Our competitors include Analog
Devices, Cypress Semiconductor Corporation, Fairchild Semiconductor, Int'l.,
Hitachi, Integrated Device Technology, Inc., Intel Corp., Maxim Integrated
Products, Inc., Motorola, On Semiconductor Corp., NXP, Tundra Semiconductor
Corp., Parade Technologies, 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.


35


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





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





Our
results of operations have been adversely affected by global economic slowdowns
in the past and face current challenges from turmoil in financial and other
markets.





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.





Currently
there appears to be a general slow down in the global economy that may last for
an unpredictable period with adverse impacts on credit availability, ability of
our company and our customers to maintain or grow revenues and profits, and
purchasing demand across our customer base





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





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





Our
potential future acquisitions may not be successful.





Our
potential future acquisitions could result in the following:





·
            large
      one-time write-offs;


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


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


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


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


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


·
            potentially
      dilutive issuances of equity
securities;


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


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


36





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





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





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





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





·
            general
      conditions in the semiconductor and electronic systems
      industries;


·
            quarter-to-quarter
      variations in operating results;


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


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





Implementation
of Financial Accounting Standards Board (“FASB”) rules for the accounting of
equity instruments and the issuance of new laws or other accounting regulations,
or reinterpretation of existing laws or regulations, could materially impact our
business or stated results.





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





We
and our independent registered public accounting firm previously determined that
we had material weaknesses in our internal control over financial reporting,
that have since been remediated. There can be no assurance that a material
weakness will not arise in the future. As a result, current and potential
stockholders could lose confidence in our financial reporting, which would harm
our business and the trading price of our stock.




Under
Section 404 of the Sarbanes-Oxley Act of 2002 SEC rules, we are required to
evaluate and determine the effectiveness of our internal control over financial
reporting. In our annual reports on Form 10-K for the years ended June 30, 2007
and July 2, 2005 we reported material weaknesses in our internal control over
financial reporting. We have since remediated these deficiencies and continue to
spend a significant amount of time and resources to ensure compliance with
Section 404 of the Sarbanes-Oxley Act of 2002 maintain internal control over
financial reporting. As reported in Item 9A of the Company’s Form 10-K for the
year ended June 28, 2008, our management does not believe we had any material
weakness in our internal control over financial reporting as of June 28, 2008,
and management has determined that as of June 28, 2008, our internal control
over financial reporting was effective. However, considering we have and will as
we continue to evolve our business in a changing marketplace and will continue
to make corresponding changes in our internal control in financial reporting,
there can be no assurance that material weaknesses or significant deficiencies
will not arise in the future. Should we or our independent registered public
accounting firm determine in future periods that we have a material weakness in
our internal control over financial reporting, the reliability of our financial
reports may be impacted or impaired, and investors could lose confidence in the
accuracy and completeness of our financial reports, which could have an adverse
effect on our stock price.


37


Customer
demand for our 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 our products. The
volatility of customer demand limits our 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 products relative to demand. In this
event, our operating results might be adversely affected as a result of charges
to reduce the carrying value of inventory to the estimated demand level or
market price.





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





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





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





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





·
            lack
      of adequate capacity;


·
            lack
      of available manufactured products;


·
            lack
      of control over delivery schedules;
and


·
            unanticipated
      changes in wafer prices.





Any
inability or unwillingness of our wafer suppliers generally, and Chartered and
MagnaChip in particular, to provide adequate quantities of finished wafers to
meet our needs in a timely manner would delay our production and product
shipments and seriously harm our business. In March 2004, Chartered shut down
one of their production facilities that was used to manufacture our products. We
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.


38


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.


39


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





Our
success depends in part on our ability to obtain patents and licenses and
preserve other intellectual property rights covering our products and
development and testing tools. In the United States, we currently hold 111
patents covering certain aspects of our product designs and have 11 additional
patent applications pending. Copyrights, mask work protection, trade secrets and
confidential technological know-how are also key to our business. Additional
patents may not be issued to us or our patents or other intellectual property
may not provide meaningful protection. We may be subject to, or initiate,
interference proceedings in the U.S. Patent and Trademark Office. These
proceedings can consume significant financial and management resources. We may
become involved in litigation relating to alleged infringement by us of others'
patents or other intellectual property rights. This type of litigation is
frequently expensive to both the winning party and the losing party and takes up
significant amounts of management's time and attention. In addition, if we lose
such a lawsuit, a court could require us to pay substantial damages and/or
royalties or prohibit us from using essential technologies. For these and other
reasons, this type of litigation could seriously harm our business. Also,
although we may seek to obtain a license under a third party's intellectual
property rights in order to bring an end to certain claims or actions asserted
against us, we may not be able to obtain such a license on reasonable terms or
at all.





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





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





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





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





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





We
are subject to risks related to taxes.





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


40


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





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





·
            the
      level of contaminants in the manufacturing
  environment;


·
            impurities
      in the materials used; and


·
            the
      performance of manufacturing personnel and production
      equipment.





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





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





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





A
relatively small number of customers have accounted for a significant portion of
our net revenues in each of the past several fiscal years. In general we expect
this to continue for the foreseeable future. With the addition of SRe, the
concentration of our largest customers has been reduced, as the largest
customers of SRe are somewhat different from those of our core integrated
circuit business and previously existing FCP business. We had one Asian
distributor that individually accounted for 18% and 14% of our net revenues
during the first quarter ended September 27, 2008 and the fiscal year ended June
28, 2008, respectively. A second additional Asian distributor individually
accounted for an additional 14% our net revenue during the first quarter ended
September 27, 2008. We had one Asian distributor that individually accounted for
13% of our net revenues during the fiscal year ended June 30, 2007. During the
fiscal year ended July 1, 2006, we had one Asian distributor that accounted for
11% of our net revenues. As a percentage of net revenues, sales to our top five
direct customers totaled 49% in the quarter ended September 27, 2008, 40% in
fiscal year ended June 28, 2008, 35% in the fiscal year ended June 30, 2007 and
36% in the fiscal year ended July 1, 2006.





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 quarter ended September 27, 2008 and the fiscal year ended June
28, 2008, sales to our distributors were approximately 52% and 49% of net
revenues, respectively as compared to approximately 40% of net revenues in the
fiscal year ended June 30, 2007, and 39% for the fiscal year ended July 1, 2006.
The increase in the percentage of sales to our distributors as compared with the
prior periods was due to growth in sales to Asian distributor customers. The
loss of one or more significant customers, or the decision by a significant
distributor to carry additional product lines of our competitors could decrease
our revenues.


41


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





Risks
associated with international business operations include the
following:





·
            disruptions
      or delays in shipments;


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


·
            currency
      fluctuations;


·
            changes
      in political conditions;


·
            potentially
      reduced protection for intellectual
property;


·
            foreign
      governmental regulations;


·
            import
      and export controls; and


·
            changes
      in tax laws, tariffs and freight
rates.





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





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





In the
quarter ended September 27, 2008, we derived approximately 91% of our net
revenues from sales in Asia and approximately 3% from sales outside of Asia and
the United States. In fiscal year 2008, we derived approximately 88% of our net
revenues from sales in Asia and approximately 3% from sales outside of Asia and
the United States. In fiscal year 2007, we derived approximately 82% of our net
revenues from sales in Asia and approximately 4% from sales outside of Asia and
the United States. In fiscal year 2006, we generated approximately 64% of our
net revenues from sales in Asia and approximately 17% from sales outside of Asia
and the United States. We expect that export sales will continue to represent a
significant portion of net revenues. We intend to continue the expansion of our
sales efforts outside the United States. This expansion will require significant
management attention and financial resources and further subject us to
international operating risks. These risks include:





·
            tariffs
      and other barriers and
restrictions;


·
            unexpected
      changes in regulatory requirements;


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


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





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





Our
shareholder rights plan may adversely affect existing shareholders.





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





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


42


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





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





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





On April
26, 2007, the Company’s Board of Directors authorized the repurchase of an
additional 2.0 million shares under a program disclosed in our previous periodic
reports and on April 29, 2008, our Board of Directors authorized the repurchase
of an additional $30 million of our common stock, which was announced May 1,
2008.





Pursuant
to the 2007 authority, the Company repurchased 139,190 shares in the three
months ended September 27, 2008 for an aggregate cost of $1.9 million and
thereby completed the repurchase of 2,000,000 shares at an aggregate cumulative
cost of approximately $25.2 million after April 26, 2007. Pursuant to the 2008
authority, the Company repurchased 60,810 shares in the three months ended
September 27, 2008 for an aggregate cost of $0.8 million. During the same period
in fiscal 2008, the Company
repurchased approximately 0.5 million shares for an aggregate cost of $5.0
million. The average price per share of repurchases under the 2007 and 2008
authority during the first quarter of fiscal 2009 was $13.34.





The
repurchases may be made from time to time in the open market or through private
transactions at the discretion of Company management. Current cash balances and
the proceeds from stock option exercises and employee stock purchase plan
purchases have funded stock repurchases in the past, and we expect to fund
future stock repurchases from these same sources.





The
following table describes the shares repurchased under the authorizations
described above on a month by month basis during the fiscal first
quarter:




Period
                                    
                                    Total Number of
                                      Shares
                                      Purchased
                                    
                                    Average
                                      Price Paid
                                      per Share
                                    
                                    Total Number of
                                      Shares Purchased
                                      as Part of Publicly
                                      Announced Plans
                                      or Programs
                                    
                                    Maximum Number
                                      (or Approximate
                                      Dollar Value) of
                                      Shares
                                      that May Yet Be
                                      Purchased Under the
                                      Plans or Programs63,124
      shares plusAugust
      28, 2008 -
                                      August
      29, 2008
                                    
                                    76,066
                                    
                                    $
                                    13.72
                                    
                                    1,936,876
                                    
                                    $
                                    30.0
      millionSeptember
      3, 2008 -
                                      September
      10, 2008
                                    
                                    123,934
                                    
                                    $
                                    13.11
                                    
                                    2,060,810
                                    
                                    $
                                    29.2
      million200,000
                                    
                                    $
                                    13.34
                                    
                                    2,060,810
                                    
                                    $
                                    29.2
      million




43


Item 6. Exhibits.





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





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:
      September 25, 2009
              
              By:
              /s/ Alex C. HuiAlex
      C. HuiChief
      Executive OfficerBy:
              /s/ Angela ChenAngela
      ChenChief
      Financial Officer


44