<PAGE>
 
==============================================================================


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)

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

                  For the quarterly period ended March 31, 1998

                                       OR

[ ]   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: 0-23023

                               MMC NETWORKS, INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                                 77-0319809
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)


                              1134 E. Arques Avenue
                               Sunnyvale, CA 94086
                         (Address of principal offices)
                                   (zip code)

                                 (408) 731-1600
              (Registrant'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 [ ]
                                        
The number of shares  outstanding  of the issuer's  common stock as of April 27,
1998 was 29,523,567.

================================================================================
<PAGE>
  
                               MMC NETWORKS, INC.
                         QUARTERLY REPORT ON FORM 10-Q
                                     INDEX

<TABLE>
<CAPTION>
<S>       <C>                                                               <C> 

PART I.   FINANCIAL INFORMATION

     Item 1.  Financial Statements

        Condensed Balance Sheets at March 31, 1998 and 1997.................  3
                                                                         
        Condensed Statements of Operations for the three months          
                     ended March 31, 1998 and 1997..........................  4
                                                                         
        Condensed Statements of Cash Flows for the three                 
                months ended March 31, 1998 and 1997........................  5
                                                                         
        Notes to the Condensed Financial Statements.........................  6
                                                                         
     Item 2.  Management's Discussion and Analysis of Financial Condition
                      and Results of Operations.............................  8
                                                                         
                                                                         
                                                                         
PART II.  OTHER INFORMATION                                              
                                                                         
     Item 1.  Legal Proceedings............................................. 14
                                                                         
     Item 2.  Changes in Securities......................................... 14
                                                                     
     Item 3.  Defaults Upon Senior Notes.................................... 15
                                                                         
     Item 4.  Submission of Matters to a Vote of Security Holders........... 15
                                                                         
     Item 5.  Other Information............................................. 15
                                                                         
     Item 6.  Exhibits and Reports on Form 8-K.............................. 15
                                                                         
SIGNATURES ................................................................. 16

</TABLE>


                                       2



<PAGE>
 
                               MMC NETWORKS, INC.
                            CONDENSED BALANCE SHEETS
                      (in thousands, except per share data)
                                   (unaudited)
                                                   


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                          March 31,    December 31,
                                                                                            1998          1997
                                                                                          --------      --------
<S>                                                                                       <C>           <C>           
ASSETS
Current assets:
     Cash and cash equivalents .........................................................  $ 11,742      $ 45,401      
     Short-term investments ............................................................    34,319            --       
     Accounts receivable, net of allowance of $181 .....................................     5,113         4,526     
     Finished goods inventories ........................................................       620           570     
     Prepaid expenses and other current assets .........................................       401           382     
                                                                                          --------      --------
         Total current assets ..........................................................    52,195        50,879     
Property and equipment, net ............................................................     4,114         3,631     
Other assets ...........................................................................       213           213     
                                                                                          --------      --------
                                                                                          $ 56,522      $ 54,723
                                                                                          ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ..................................................................  $  2,451      $  2,626      
     Accrued expenses ..................................................................     2,510         1,744      
     Current portion of capital lease obligations ......................................       347           350      
                                                                                          --------      --------
         Total current liabilities .....................................................     5,308         4,720      
                                                                                          --------      --------
Capital lease obligations, net of current portion ......................................       200           286      
                                                                                          --------      --------

Stockholders' equity:
     Series A Convertible Preferred Stock: $0.001 par value; 0 and 9,378 shares
          authorized; no shares issued or outstanding ..................................        --            --        
     Series B Convertible Preferred Stock: $0.001 par value; 0 and 4,121 shares
          authorized; no shares issued or outstanding ..................................        --            --        
     Preferred Stock: $0.001 par value; 10,000 and 0 shares authorized; no
          shares issued or outstanding .................................................        --            --        
     Common Stock: $0.001 par value; 100,000 shares authorized; 29,303
          and 29,198 shares issued and outstanding .....................................        25            25      
     Additional paid-in capital ........................................................    50,810        50,778      
     Notes receivable from stockholders ................................................      (172)         (181)     
     Retained earnings (Accumulated deficit) ...........................................       351          (905)     
                                                                                          --------      --------
         Total stockholders' equity ....................................................    51,014        49,717      
                                                                                          --------      --------
                                                                                          $ 56,522      $ 54,723
                                                                                          ========      ========
</TABLE>

                                       3

   The accompanying notes are an integral part of these condensed financial 
                                  statements.
<PAGE>
 
                               MMC NETWORKS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)



<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                           March 31,
                                                    ----------------------
                                                      1998          1997
                                                    --------      --------
<S>                                                <C>           <C>  
Revenues ......................................     $  9,623      $  3,421
Cost of revenues ..............................        2,936         1,118
                                                    --------      --------
                 Gross profit .................        6,687         2,303
                                                    --------      --------
Operating expenses:
         Research and development, net ........        3,144         1,096
         Selling, general and administrative ..        2,097         1,062
                                                    --------      --------
                 Total operating expenses .....        5,241         2,158
                                                    --------      --------
Operating income ..............................        1,446           145
                                                    --------      --------
Other income (expense):
         Interest income ......................          529            78
         Interest expense .....................          (19)          (33)
                                                    --------      --------
                 Total other income ...........          510            45
                                                    --------      --------

Income before income taxes ....................        1,956           190
Provision for income taxes ....................          700             4
                                                    --------      --------
Net income ....................................     $  1,256      $    186
                                                    ========      ========

Basic income per share ........................     $   0.04      $   0.02
                                                    ========      ========
Shares used to compute basic income per share .       29,276        11,281
                                                    ========      ========

Diluted income per share ......................     $   0.04      $   0.01
                                                    ========      ========
Shares used to compute diluted income per share       33,717        27,076
                                                    ========      ========
</TABLE>

                                       4


   The accompanying notes are an integral part of these condensed financial 
                                  statements.
<PAGE>
 
                               MMC NETWORKS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)


<TABLE> 
<CAPTION>

                                            Three Months
                                           Ended March 31, 
                                        -----------------------
                                          1998            1997
                                        --------         ------
<S>                                     <C>              <C> 
Cash flows from operating activities:
  Net income..........................  $  1,256         $  186
  Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
    Depreciation and amortization.....       462            155
    Issuance of Common Stock in 
     exchange for services............       --              30
    Changes in assets and liabilities:
      Accounts receivable.............      (587)          (594)
      Inventories.....................       (50)           288
      Prepaid expenses and other
       assets.........................       (19)          (191)
      Accounts payable................      (175)          (255)
      Accrued expenses................       766            177
                                         -------         ------
        Net cash provided by (used in)
         operating activities.........     1,653           (204)
                                         -------         ------
Cash flows from investing activities:
  Sale (purchase) of short-term
   investments........................   (34,319)           232
  Acquisition of property and
   equipment..........................      (945)          (404)
                                         -------         ------

        Net cash used in investing
         activities...................   (35,264)          (172)
                                         -------         ------

Cash flows from financing activities:
  Proceeds from exercise of stock 
   options and other.................         32             35
  Proceeds from the repayment of notes
   receivable from stockholders.......         9           --
  Principal payments on capital lease
   obligations........................       (89)           (64)
                                         -------         ------
        Net cash used in financing
         activities...................       (48)           (29)
                                         -------         ------
Net increase (decrease) in cash and
 cash equivalents.....................   (33,659)          (405)
Cash and cash equivalents at beginning
 of period............................    45,401          4,809
                                         -------         ------

Cash and cash equivalents at end of 
 period...............................   $11,742         $4,404
                                         =======         ======

Supplemental disclosure:
  Cash paid for interest..............   $    19         $   33
  Cash paid for income taxes..........   $   233         $   10


</TABLE> 


         The accompanying notes are an integral part of
              these condensed financial statements.




                                  5
<PAGE>
 
                               MMC NETWORKS, INC.

                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

In the opinion of management,  the accompanying  unaudited financial information
reflects all adjustments including only normal recurring adjustments,  necessary
for the fair presentation of the financial  position,  results of operations and
cash flows for MMC Networks,  Inc.  ("the  Company") for the periods  presented.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been omitted  pursuant to the rules and  regulations  of the Securities and
Exchange  Commission.  These financial  statements should be read in conjunction
with  the  audited  financial  statements  and  notes  thereto  included  in the
Company's  Annual  Report on Form 10-K filed with the  Securities  and  Exchange
Commission for the year ended December 31, 1997. Results for the interim periods
are not necessarily indicative of results for the entire year.

NOTE 2 - EARNINGS PER SHARE

The following  table  reconciles the numerator and  denominator of the basic and
diluted EPS computations for the three months ended March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                           Three Months Ended March 31,
                                     ----------------------------------------------------------------------
                                                1998                                  1997
                                     ------------------------------     -----------------------------------
                                                           Per Share                             Per Share
                                     Income    Shares       Amount       Income      Shares        Amount
                                    -------    -------     --------     --------     -------     ----------
                                                       (in thousands, except per share data)
<S>                               <C>         <C>        <C>          <C>           <C>        <C>       
Basic income per share:
Net income available to
     common stockholders .....      $1,256      29,276     $   0.04     $    186      11,281     $     0.02
                                                           ========                              ==========
Effect of dilutive securities:
Convertible Preferred Stock ..          --          --                        --      13,342
Warrants .....................          --          30                        --         112
Stock options ................          --       4,411                        --       2,341
                                   --------    -------                  --------     -------

Diluted income per share:
Net income available to
     common stockholders and
     assumed conversions .....     $ 1,256      33,717     $   0.04     $    186      27,076     $     0.01
                                   =======     =======     ========     ========     =======     ==========
</TABLE>

At March 31,  1998 and 1997,  options  to  purchase a total of 51,000 and 69,000
shares of common  stock  with  average  exercise  prices  of $18.69  and  $2.67,
respectively,  are considered anti-dilutive because the options' exercise prices
were greater than the average  fair market value of the  Company's  common stock
for the three months then ended and, as such, are excluded from the  calculation
of  diluted  net income per share.  Each share of  Convertible  Preferred  Stock
outstanding  at March 31, 1997 was converted into one share of Common Stock upon
the completion of the Company's  initial public offering  effective  October 28,
1998.

NOTE 3 - EQUITY

On January 13, 1998, the Company  amended its  Certificate of  Incorporation  to
authorize  10,000,000  shares  of  undesignated  Preferred  Stock.  The Board of
Directors will have the authority to issue the  undesignated  Preferred Stock in
one  or  more  series  and  to  fix  the  rights,  preferences,  privileges  and
restrictions thereof.

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in the first quarter of 1998. SFAS
130  establishes  standards  for the reporting of  comprehensive  income and its
components in a financial  statement that is displayed with the same  prominence
as other financial statements.  Comprehensive  income, as defined,  includes all
changes in equity (net assets) during a period from non-owner sources.  Examples
of items to be included in








                                       6

<PAGE>
 
                               MMC NETWORKS, INC.
                  NOTES TO THE CONDENSED FINANCIAL STATEMENTS

comprehensive  income,  which are  excluded  from net  income,  include  foreign
currency translation  adjustments and unrealized gain/loss on available-for-sale
securities.  For the three months  ended March 31, 1998 and 1997,  comprehensive
income approximated net income.

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 131,
"Disclosures  About  Segments of an Enterprise and Related  Information"  ("SFAS
131").  This  statement  establishes  standards  for  the way  companies  report
information  about  operating   segments  in  financial   statements.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  The adoption of SFAS 131 has not resulted
in a change in the way the Company reports information and related disclosures.

NOTE 5 - FINANCING AGREEMENTS

In February 1998, the Company entered into a non-recourse  receivables  purchase
agreement  with a bank.  The  agreement  expires in February 1999 and allows the
Company  to sell up to $2 million of its  accounts  receivable  to the bank at a
discount rate of 9.5%,  less an  administrative  fee equal to 0.20% of the total
purchased  receivable  balance.  The agreement  also provides for the Company to
grant to the bank a continuing  lien on and security  interest in all  purchased
receivables  and  related  property.  To  date,  the  Company  has not  sold any
receivables under this agreement.

The  Company  had two lines of credit,  a $5.0  million  revolving  bank  credit
facility under which borrowings  accrued interest at the bank's prime rate and a
$3.0  million  bank lease line under which  borrowings  accrued  interest at the
bank's prime rate plus 0.5%.  These  lines-of-credit  expired in April 1998. The
Company had not borrowed  any funds under either  facility as of March 31, 1998.
In conjunction with the expiration of these lines, the Company obtained a letter
of  commitment  from a bank to  enter  into a new $8  million  revolving  credit
facility for which borrowings will bear interest at the bank's prime rate.










                                       7
<PAGE>
 
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The  following  information  should  be read in  conjunction  with  the  interim
condensed financial  statements and the notes thereto included in Part I, Item 1
of this  Quarterly  Report on Form 10-Q and the financial  statements  and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  contains  forward-looking  statements  which  reflect the  Company's
current  views with  respect  to future  events  which may impact the  Company's
results  of  operations  and  financial  condition.  In this  report,  the words
"anticipates", "believes", "expects", "intends" and similar expressions identify
forward-looking  statements.  These  forward-looking  statements  are subject to
risks and uncertainties and other factors, including those set forth below under
the caption "Factors  Affecting  Future  Results",  which could cause the actual
future results to differ  materially from historical  results or those described
in the  forward-looking  statements.  Readers are urged to carefully  review the
disclosures  made by the  Company  in this  Report and in the  section  entitled
"Management's  Discussion  and Analysis of Results of  Operations  and Financial
Condition - Factors  Affecting Future Results" of the Company's Annual Report on
Form 10-K  previously  filed with the  Securities and Exchange  Commission  that
describe  certain risks and factors that may affect the  Company's  business and
not to place undue  reliance on these  forward-looking  statements,  which speak
only as of the date hereof.

BACKGROUND

The  Company  is a leading  developer  and  supplier  of network  processors  --
high-performance, open-architecture,  software-programmable processors optimized
for network applications. The Company's network processors form the core silicon
"engines" of LAN and WAN switches and routers and are designed to allow  network
equipment   vendors   to   rapidly   develop   high-performance,   feature-rich,
cost-effective  products supporting a broad range of networking  functions.  MMC
Networks'  customers  employ the  Company's  network  processors  to develop and
market  multi-gigabit,  wire-speed  switches and routers with advanced  features
such as Layer 3 switching,  internetworking of LANs and WANs, security, class of
service, quality of service and network management.

The Company's  current  products,  the PS1000,  ATMS2000 and AF5000  families of
network  processors,  provide the core  functionality of  high-performance  Fast
Ethernet and  Asynchronous  Transfer  Mode  ("ATM")  networking  equipment.  The
Company  believes that network  equipment  vendors are able to reduce design and
development costs and accelerate product development cycles for high-performance
routers  and  switches by using the  Company's  products.  All of the  Company's
products are based on the Company's proprietary ViX(TM) architecture, which
enables network equipment vendors to easily and cost-effectively implement high-
performance, value-added features in their switch and router products.

The Company was incorporated in California in September 1992 and  reincorporated
in Delaware in October 1997.







                                       8
<PAGE>
 
RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data expressed as
a percentage of the Company's revenue for the interim periods presented.

<TABLE>
<CAPTION>
                                                    Three Months Ended March 31,
                                                    ---------------------------
                                                        1998         1997
                                                      ---------    ---------
<S>                                                    <C>        <C>   
Statement of Operations Data:
Revenues .........................................     100.0%     100.0%
Cost of revenues .................................      30.5%      32.7%
                                                      ------     ------
                          Gross profit ...........      69.5%      67.3%
                                                      ------     ------
Operating expenses:
              Research and development, net ......      32.7%      32.1%
              Selling, general and administrative       21.8%      31.0%
                                                      ------     ------
                          Total operating expenses      54.5%      63.1%
                                                      ------     ------

Operating income .................................      15.0%       4.2%
              Interest income, net ...............       5.3%       1.4%
                                                      ------     ------
Income before income taxes .......................      20.3%       5.6%
Provision for income taxes .......................       7.2%       0.1%
                                                      ======     ======
Net income .......................................      13.1%       5.5%
                                                      ======     ======
</TABLE>

Revenues

Revenues  increased  by 181% to $9.6  million in the first  quarter of 1998 from
$3.4 million in the first quarter of 1997. The majority of the revenue growth is
due to increased  sales of both the ATMS2000 and PS1000 product  families to new
and existing customers. In addition, the first quarter of 1998 included revenues
generated  from  engineering  samples of the company's  newest  product  family,
AnyFlow 5000.

Cost of Revenues; Gross Profit

Cost of  revenues  increased  to $2.9  million  in the first  quarter of 1998 as
compared to $1.1 million in the first  quarter of 1997.  The increase in cost of
revenues  reflects the increased  volume of shipments from period to period and,
as such,  gross  profit as a  percentage  of total  revenues  stayed  relatively
constant; 69.5% for the first quarter of 1998 and 67.3% for the first quarter of
1997.

Research and Development Expenses, net

Research and development expenses, net, increased by 187% to $3.1 million in the
first  quarter of 1998 as compared to $1.1 million in the first quarter of 1997.
Research and  development  expenses as a percentage of total  revenues  remained
relatively constant;  32.7% in the first quarter of 1998 as compared to 32.1% in
the first quarter of 1997.  This increase in research and  development  expenses
from period to period was due to increased expenditures for the development of
new products. Research and development expenses are expected to continue to
increase in absolute dollars over the remainder of 1998.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 97% to $2.1 million in
the first  quarter of 1998 as compared to $1.1  million in the first  quarter of
1997. The increase in selling, general and administrative expenses was comprised
of increased sales commissions resulting from higher revenues, increased selling
and  marketing  costs  associated  with new products,  additional  personnel and
additional  costs  related  to  being a public  Company.  Selling,  general  and
administrative  expenses  decreased as a percentage  of revenues to 21.8% in the
first quarter of 1998 from 31.0% in the first quarter of 1997 as revenue  growth

                                       9




<PAGE>
 
surpassed the increase in selling, general and administrative expenses. The
Company expects selling, general and administrative expenses to increase in
absolute dollars over the remainder of 1998.

Interest Income, net

The increase in net interest income is due to increased cash and investment
balances from period to period.

Provision for Income Taxes

The provision for income taxes increased to $700,000 in the first quarter of
1998 from $4,000 in the first quarter of 1997 reflecting effective tax rates
of  35.8%  and 2.1%, respectively. Management expects the effective tax rate 
for the  remainder  of 1998 to decrease as the Company utilizes research and
development tax credit carryforwards and deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1998,  the  Company's  cash,  cash  equivalents  and  short-term
investments  totaled  $46.1  million  and  the  Company's  working  capital  was
approximately  $46.9  million.  Net cash  totaling  $1.7 million was provided by
operating activities during the three months ended March 31, 1998. This increase
was primarily due to net income adjusted for  depreciation  and  amortization of
$1.7 million.  Cash used in investing  activities of $35.3 million for the three
months  ended  March  31,  1998 was  comprised  of the  purchase  of  short-term
investments  of $34.3 million and the  acquisition  of property and equipment of
$945,000.

In February 1998, the Company entered into a non-recourse  receivables  purchase
agreement  with a bank.  The  agreement  expires in February 1999 and allows the
Company  to sell up to $2 million of its  accounts  receivable  to the bank at a
discount rate of 9.5%,  less an  administrative  fee equal to 0.20% of the total
purchased  receivable balance. To date, the Company has not sold any receivables
under this agreement.

The  Company  had two lines of credit,  a $5.0  million  revolving  bank  credit
facility under which borrowings  accrued interest at the bank's prime rate and a
$3.0  million  bank lease line under which  borrowings  accrued  interest at the
bank's prime rate plus 0.5%.  These  lines-of-credit  expired in April 1998. The
Company had not borrowed  any funds under either  facility as of March 31, 1998.
In conjunction with the expiration of these lines, the Company obtained a letter
of  commitment  from a bank to  enter  into a new $8  million  revolving  credit
facility for which borrowings will bear interest at the bank's prime rate.

The Company believes that its existing cash balances together with its available
line of credit,  related financing  agreement and cash flow expected from future
operations will be sufficient to meet the Company's capital requirements through
the next twelve months,  although the Company could be required, or could elect,
to seek to raise additional  capital before such time. This is a forward-looking
statement and the actual period of time for which the Company's  resources  will
be sufficient will depend on many factors, including the rate of revenue growth,
if any, the timing and extent of spending to support product development efforts
and the  expansion  of sales  and  marketing  efforts,  the  timing  and size of
business or technology acquisitions, the timing of introductions of new products
and  enhancements  to existing  products and market  acceptance of the Company's
products. There can be no assurance that additional equity or debt financing, if
required, will be available on acceptable terms or at all.

FACTORS AFFECTING FUTURE RESULTS

As described by the following factors,  past financial performance should not be
considered a reliable  indicator of future  performance and investors should not
use historical trends to anticipate results or trends in future periods.

Fluctuations  in Operating  Results.  Fluctuations  in the  Company's  operating
results have occurred in the past and are likely to occur in the future due to a
variety  of  factors,  any of which may have a  material  adverse  effect on the
Company's operating results.  In particular,  the Company's quarterly results of

                                      10




<PAGE>
 
operations  may vary  significantly  due to general  business  conditions in the
networking  equipment and  semiconductor  industries,  changes in demand for the
network equipment products of the Company's customers,  the timing and amount of
orders from the Company's network  equipment vendor customers,  cancellations or
delays of customer product orders,  new product  introductions by the Company or
its competitors,  cancellations,  changes or delays of deliveries of products to
the  Company  by its  suppliers,  increases  in the costs of  products  from the
Company's  suppliers,  fluctuations  in  product  life  cycles,  price  erosion,
competition, changes in the mix of products sold by the Company, availability of
semiconductor   foundry  capacity,   variances  in  the  timing  and  amount  of
nonrecurring  engineering funding and operating expenses,  seasonal fluctuations
in demand,  intellectual  property disputes and general economic conditions.  In
addition,  in the past the Company has  recognized a substantial  portion of its
revenues in the last month of a quarter.  Since a large portion of the Company's
operating  expenses,  including rent,  salaries and capital lease  expenses,  is
fixed and difficult to reduce or modify,  if revenue does not meet the Company's
expectations,  the  material  adverse  effect of any revenue  shortfall  will be
magnified  by the fixed  nature of these  operating  expenses.  All of the above
factors are difficult  for the Company to forecast,  and these and other factors
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

Customer  Concentration.  The percentage of total revenues  accounted for by the
Company's  significant  customers  (significant  customers  are those  customers
accounting  for more than 10% of the  Company's  total  revenues)  for the three
months ended March 31, 1998 and 1997 are as follows: Cisco, Mitsui Comtek Corp.,
a non-stocking sales  representative for Japan,  Cabletron and the U.S. Computer
Division of Hitachi accounted for 30%, 27%, 11% and 10%, respectively,  of total
revenues  during the first  quarter of 1998 and 26%,  19%, less than 1% and 25%,
respectively, of total revenues during the first quarter of 1997.

The Company's customer base is highly concentrated. A relatively small number of
customers has accounted for a significant  portion of the Company's  revenues to
date, and the Company  expects that this trend will continue for the foreseeable
future.  Each of the Company's  network  equipment vendor  customers,  including
Cisco,  Mitsui,  Cabletron  and Hitachi can cease  incorporating  the  Company's
products with limited  notice to the Company and with little or no penalty.  The
Company's  agreements  with network  equipment  vendor  customers do not require
minimum purchases.

The  Company's  longstanding  relationship  with Cisco may inhibit other leading
network equipment vendors from adopting the Company's network processors.  Cisco
faces  intense  competition  from  vendors  such  as Bay  Networks,  Inc.,  3Com
Corporation  and  FORE,  none of  which  currently  uses the  Company's  network
processors.   Accordingly,   the  Company's  future  operating  results  may  be
substantially  dependent  on  Cisco's  competitive  position  in the  networking
equipment  market.  The loss of one or more of the  Company's  customers  or the
inability of the Company to successfully  develop  relationships with additional
significant  network  equipment  vendors could have a material adverse effect on
the Company's business, financial condition and results of operations.

New Product  Development  and  Technological  Change.  The data  networking  and
semiconductor  industries  are  characterized  by rapidly  changing  technology,
frequent  product  introductions,  rapid erosion of average  selling  prices and
evolving  industry  standards.  Accordingly,  the Company's  future  performance
depends on a number of factors,  including the acceptance of network  processors
as an  alternative  to  the  Application-Specific  Integrated  Circuit  ("ASIC")
components  and general  purpose  processors and the acceptance by the Company's
customers of third party  sourcing for network  processors as an  alternative to
in-house  development  as well as the  Company's  ability to  identify  emerging
technological  trends in its target  markets,  develop and maintain  competitive
products,  enhance its products by adding innovative features that differentiate
its products  from those of  competitors,  bring  products to market on a timely
basis at  competitive  prices,  properly  identify  target  markets  and respond
effectively to new technological changes or new product announcements by others.
Products as complex as those offered by the Company  frequently  contain errors,
defects and bugs when first  introduced  or as new  versions are  released.  The
Company has in the past experienced such errors,  defects and bugs.  Delivery of
products  with  production  defects or  reliability,  quality  or  compatibility
problems could significantly delay or hinder market acceptance of such 

                                      11



<PAGE>
 
products,  which could damage the Company's  reputation and adversely affect the
Company's ability to retain its existing customers and to attract new customers.
In  addition,   the  Company  must  generally  incur  substantial  research  and
development costs before the technical feasibility and commercial viability of a
product line can be  ascertained.  There can be no assurance  that revenues from
future  products  or product  enhancements  will be  sufficient  to recover  the
development  costs  associated with such products or  enhancements,  or that the
Company will be able to secure the financial  resources necessary to fund future
development.  The  inability of the Company and its  products to achieve  market
acceptance from network equipment  vendors and to adequately  address any of the
factors  discussed  above could have a material  adverse effect on the Company's
business, financial condition and results of operations.

Dependence on Independent  Manufacturers.  Currently, the Company outsources all
manufacturing,  assembly  and  test of its  network  processors.  The  Company's
suppliers  currently  deliver fully  assembled and tested  products on a turnkey
basis. Only one of the Company's products is currently manufactured by more than
one  supplier.  The  Company  depends on its  suppliers  to  deliver  sufficient
quantities  of  finished  product to the Company in a timely  manner.  Since the
Company  places  its  orders  on a  purchase  order  basis  and  does not have a
long-term volume purchase  agreement with any of its existing  suppliers,  these
suppliers  may  allocate,  and in  the  past  have  allocated,  capacity  to the
production of other products  while reducing  deliveries to the Company on short
notice. Given that the Company must place orders approximately 12 to 14 weeks in
advance  of  expected  delivery,  any sudden  increase  in  customer  demand not
anticipated  by the Company in advance  could result in the inability to deliver
product  on a timely  basis and,  as such,  may  reduce  the  Company's  product
revenues or increase  the  Company's  cost of revenues and could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Competition.  The data  networking  and  semiconductor  industries are intensely
competitive and are characterized by constant  technological change, rapid rates
of product  obsolescence and price erosion.  The Company's PS1000,  ATMS2000 and
AF5000  product  families  compete with  products from  companies  such as Texas
Instruments Incorporated,  Lucent Technologies, Inc., PMC-Sierra Inc./Integrated
Technology  Ltd.,  Galileo  Technology  Ltd. and I-Cube,  Inc. In addition,  the
Company  expects  significant  competition in the future from major domestic and
international  semiconductor  suppliers.  The Company also may face  competition
from  suppliers  of products  based on new or emerging  technologies.  Moreover,
several  established  electronics  and  semiconductor  suppliers  have  recently
entered or  indicated  an intent to enter the  switching  and routing  equipment
market.  In addition,  many of the Company's  existing and  potential  customers
internally  develop ASICs,  general purpose  processors,  network processors and
other  devices  which  attempt  to  perform  all or a portion  of the  functions
performed  by  the  Company's  products.  Many  of  the  Company's  current  and
prospective  competitors  offer  broader  product  lines and have  significantly
greater  financial,  technical,  manufacturing and marketing  resources than the
Company.  Failure of the Company to compete  successfully  could have a material
adverse effect on its operating results.

Protection  of  Intellectual   Property.  The  Company  relies  primarily  on  a
combination of nondisclosure agreements and other contractual provisions as well
as patent, trademark,  trade secret and copyright law to protect its proprietary
rights.  There can be no assurance  that any patents will issue  pursuant to the
Company's current or future patent  applications or that patents issued pursuant
to such  applications  will  not be  invalidated,  circumvented,  challenged  or
licensed  to others.  In  addition,  there can be no  assurance  that the rights
granted  under any such  patents  will  provide  competitive  advantages  to the
Company or be adequate to  safeguard  and  maintain  the  Company's  proprietary
rights. From time to time, third parties,  including competitors of the Company,
may  assert  patent,   copyright  and  other  intellectual  property  rights  to
technologies  that are important to the Company.  There can be no assurance that
third  parties will not assert  infringement  claims  against the Company in the
future, that assertions by third parties will not result in costly litigation or
that the Company would prevail in any such  litigation or be able to license any
valid and infringed patents from third parties on commercially reasonable terms,
if at all.  Failure of the  Company  to enforce  and  protect  its  intellectual
property rights could have a material adverse effect on the Company's  business,
financial condition and results of operations.


                                      12

<PAGE>
 
On October 27, 1997,  FORE filed a complaint in the United States District Court
for the Western  District of  Pennsylvania  alleging that the Company  willfully
infringed two of FORE's  patents.  The complaint  seeks both a preliminary and a
permanent  injunction  against the Company,  as well as recovery of damages.  On
December 17, 1997, FORE filed an amended complaint alleging patent  infringement
of an additional  patent,  seeking identical relief on all three patents and, in
addition,  FORE  alleged  trade  secret  misappropriation  against  MMC  seeking
preliminary and permanent  injunctive relief as well as recovery of damages.  On
January 9, 1998,  MMC filed a motion to dismiss  or  transfer  the  Pennsylvania
action and to transfer the case to the  Northern  District of  California.  This
motion is currently pending. At present time litigation has been stayed by joint
stipulation of the parties. The results of litigation are inherently uncertain,
and there can be no assurance  that the Company  will prevail in any  litigation
with FORE. An adverse result in the FORE litigation could have a material effect
on the Company's business, financial condition and results of operations.

Risks Associated with Expansion of International Business Activities.
Substantially all of the Company's sales to date have been to customers located
in the United States, including sales to U.S.-based affiliates of non-U.S.
network equipment vendors. If the Company's international sales increase, the
Company will be subject to additional risks inherent in international
operations. All of the Company's international sales to date are U.S. dollar-
denominated. As a result, an increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products less competitive in
international markets. In addition, the Company procures a portion of its
manufacturing, assembly and test services from suppliers located outside the
United States. International business activities may be limited or disrupted by
the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions and changes in tariffs.
Demand for the Company's products could also be adversely affected by
seasonality of international sales and economic conditions in the Company's
primary overseas markets. These international factors could have a material
adverse effect on future sales of the Company's products to international
customers and, consequently, on the Company's business, financial condition and
results of operations. While the Company has not experienced any revenue
shortfall to date as a result of recent financial difficulties of Asian
economies, any decrease in demand by Company customers for the Company's
products caused by decreased sales by such customers in Asia could have an
adverse effect on the Company's revenues in the future.

Expected Volatility of Stock Price. In recent years the stock market in general,
and the market for shares of high technology, data networking and semiconductor
companies in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. The
trading price of the Company's Common Stock is expected to be subject to extreme
fluctuations in response to both business-related issues, such as quarterly
variations in operating results, announcements of new products by the Company or
its competitors, the gain or loss of significant network equipment vendor
customers, and stock market-related influences, such as changes in analysts'
estimates, the presence or absence of short-selling of the Company's Common
Stock and events affecting other companies that the market deems to be
comparable to the Company. In addition, technology stocks have from time to time
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of these companies. Trading
prices of many high technology, data networking and semiconductor stocks,
including the Common Stock of the Company, are at or near their historical highs
and reflect price/earnings ratios substantially above historical norms. There
can be no assurance that the trading price of the Company's Common Stock will
remain at or near its current level.

                                      13


<PAGE>
 
PART II.  OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS
Not Applicable.

ITEM 2.  CHANGES IN SECURITIES
The  following  table lists the amount of expenses  incurred  for the  Company's
account in connection with the issuance and  distribution of 4,025,000 shares of
the Common  Stock issued in the  Company's  initial  public  offering on October
28, 1998.
[CAPTION] 
<TABLE> 
                                                Direct or indirect payments to directors
                                                or officers of the Company or their associates;
                                                to persons owning ten percent or more of
                                                any class of equity securities of the                  Direct or indirect
                                                Company; and to affiliates of the Company              payments to others
                                                -----------------------------------------------        --------------------
<S>                                                              <C>                                      <C> 
Underwriting discounts and commissions.....                         $0                                     $3,099,250
Finders' fees..............................                         $0                                         $0     
Expenses paid to or for underwriters.......                         $0                                         $0
Other expenses through March 31, 1998......                         $0                                     $1,189,811
                                                                                                         ---------------       
Total expenses.............................                         $0                                     $4,289,061

Gross proceeds of IPO .....................                         $0                                     $44,275,000
     Less total expenses...................                         $0                                      $4,289,061
                                                                                                         ----------------
Net proceeds of IPO........................                         $0                                     $39,985,939
                                                                                                         ================
</TABLE> 
The  following  table lists the amount of net  offering  proceeds to the Company
used for each of the purposes listed below for the period from December 31, 1997
through March 31, 1998.
<TABLE> 
                                                Direct or indirect payments to directors
                                                or officers of the Company or their associates;
                                                to persons owning ten percent or more of any
                                                class of equity securities of the Company;             Direct or indirect
                                                and to affiliates of the Company                       payments to others
                                                -----------------------------------------------        ------------------
<S>                                                            <C>                                         <C> 
Construction of plants, building and
  facilities..........................                           $0                                              $0
Purchase and installation of machinery
  and equipment.......................                           $0                                              $0
Purchase of real estate...............                           $0                                              $0
Acquisition of other business(es).....                           $0                                              $0
Repayment of indebtedness.............                           $0                                              $0
Working Capital.......................                           $0                                          $39,985,939    
Temporary investment
Asset-backed securities...............                           $0                                              $0
Municipal bonds.......................                           $0                                              $0
Commercial paper.......................                          $0                                              $0
Other purposes
Acquisition of minority equity
  interests in other corporations.....                           $0                                              $0
</TABLE> 

                                      14




<PAGE>
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.

ITEM 5.  OTHER INFORMATION
Not Applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

       Exhibit No.            Description of Exhibit
       -----------            ----------------------
         10.1       Non-Recourse  Receivables  Purchase Agreement dated February
                    9, 1998, by and between Silicon Valley Financial Services, a
                    division of Silicon  Valley  Bank,  and the  Registrant.  27
                    Financial  Data  Schedule as of March 31, 1998 and for the 3
                    months then ended.

         27         Financial  Data Schedule as of March 31, 1998 and for the 3 
                    months then ended.

         27.1       Restated  Financial  Data  Schedule as  of December 31, 1997
                    and 1996 and for the 12 months then ended.

         27.2       Restated  Financial  Data  Schedule as of September 30, 1997
                    and for the 9 months then ended.

         27.3       Restated Financial Data Schedule as of June 30, 1997 and for
                    the 6 months then ended.

         (b)  Reports on Form 8-K

              The Company  filed no reports on Form 8-K during the three  months
ended March 31, 1998.


                                      15




<PAGE>
 
                                   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.


      Dated: May 1, 1998                          MMC NETWORKS, INC.


                                                  By: /s/ Prabhat K. Dubey
                                                     --------------------------
                                                     Prabhat K. Dubey
                                                     President, Chief Executive 
                                                       Officer and Director


                                                  By: /s/ Uday Bellary
                                                     ---------------------------
                                                     Uday Bellary
                                                     Vice President, Finance,
                                                     Chief Financial Officer and
                                                     Assistant Secretary
                                                     (Principal Financial and
                                                      Accounting Officer)

                                      16