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 September 30, 2008.
  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
000-25699
   
  PLX Technology, Inc.
  (Exact
name of Registrant as Specified in its Charter)
  Delaware
                94-3008334(State
      or Other Jurisdiction of Incorporation or
    Organization)
                (I.R.S.
      Employer Identification Number)
 870 W. Maude Avenue
 Sunnyvale, California  94085
 (408) 774-9060
  (Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)
  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 small reporting company. See
definition of “large accelerated filer”, "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act (Check One):
 
 Large
accelerated filer [ ] Accelerated
filer [X] Non-accelerated
filer [ ]  Small 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 September
30, 2008 there
were 28,004,262 shares of common
stock, par value $0.001 per share,
outstanding.







PLX
TECHNOLOGY, INC.
 INDEX
TO
 REPORT
ON FORM 10-Q
 FOR
QUARTER ENDED SEPTEMBER 30, 2008
 
 PART I. FINANCIAL INFORMATION
                  PageItem 1.
                  Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September
      30, 2008 and December 31, 2007
                  3Condensed Consolidated Statements of Operations for the three
      and nine months ended September 30, 2008 and 2007
                  4Condensed Consolidated Statements of Cash Flows for the
      nine months ended September 30, 2008 and 2007
                  5Notes to Condensed Consolidated Financial
      Statements
                  6Item 2.
                  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                  14Item 3.
                  Quantitative and Qualitative Disclosures About Market
      Risk
                  21Item 4.
                  Controls and Procedures
                  21PART II. OTHER INFORMATIONItem 1A.
                  Risk Factors
                  23Item 2.
                  Unregistered Sales of Equity Securities and Use of
      Proceeds
                  30Item 6.
                  Exhibits
                  30Signature
                  
                  31
 2
 PART I.   FINANCIAL INFORMATION
 
 ITEM 1.    FINANCIAL STATEMENTS
 
 
 PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in
thousands)
  September
      30,
                  
                  
                  December
      31,2008
                  
                  
                  2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  15,534
                  
                  
                  $
                  19,175Short-term
      marketable securities
                  
                  
                  27,087
                  
                  
                  
                  17,142Accounts
      receivable, net
                  
                  
                  9,804
                  
                  
                  
                  10,534Inventories
                  
                  
                  7,370
                  
                  
                  
                  7,422Other
      current assets
                  
                  
                  4,634
                  
                  
                  
                  3,788Total
      current assets
                  
                  
                  64,429
                  
                  
                  
                  58,061Property
      and equipment, net
                  
                  
                  29,753
                  
                  
                  
                  29,798Goodwill
                  
                  
                  34,692
                  
                  
                  
                  34,541Other
      purchased intangible assets
                  
                  
                  984
                  
                  
                  
                  1,577Long-term
      marketable securities
                  
                  
                  1,394
                  
                  
                  
                  10,246Other
      assets
                  
                  
                  2,293
                  
                  
                  
                  1,577Total
      assets
                  
                  $
                  133,545
                  
                  
                  $
                  135,800LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                  
                  $
                  3,545
                  
                  
                  $
                  4,447Accrued
      compensation and benefits
                  
                  
                  2,366
                  
                  
                  
                  2,237Accrued
      commissions
                  
                  
                  483
                  
                  
                  
                  652Other
      accrued expenses
                  
                  
                  791
                  
                  
                  
                  572Total
      current liabilities
                  
                  
                  7,185
                  
                  
                  
                  7,908Commitment
      and contingenciesStockholders'
      Equity:Common
      stock, par value
                  
                  
                  28
                  
                  
                  
                  29Additional
      paid-in capital
                  
                  
                  131,392
                  
                  
                  
                  134,503Accumulated
      other comprehensive loss
                  
                  
                  (287
                  )
                  
                  
                  (82
                  )Accumulated
      deficit
                  
                  
                  (4,773
                  )
                  
                  
                  (6,558
                  )Total
      stockholders' equity
                  
                  
                  126,360
                  
                  
                  
                  127,892Total
      liabilities and stockholders' equity
                  
                  $
                  133,545
                  
                  
                  $
                  135,800
 See
accompanying notes to condensed consolidated financial statements.
  3
 
 PLX
TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in
thousands, except per share amounts)
 
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      revenues
                  
                  $
                  20,790
                  
                  
                  $
                  21,216
                  
                  
                  $
                  66,895
                  
                  
                  $
                  59,620Cost
      of revenues
                  
                  
                  8,630
                  
                  
                  
                  8,108
                  
                  
                  
                  27,034
                  
                  
                  
                  23,489Gross
      margin
                  
                  
                  12,160
                  
                  
                  
                  13,108
                  
                  
                  
                  39,861
                  
                  
                  
                  36,131Operating
      expenses:Research
      and development
                  
                  
                  6,000
                  
                  
                  
                  5,870
                  
                  
                  
                  20,289
                  
                  
                  
                  17,755Selling,
      general and administrative
                  
                  
                  5,436
                  
                  
                  
                  5,912
                  
                  
                  
                  17,952
                  
                  
                  
                  18,143Amortization
      of purchased intangible assets
                  
                  
                  150
                  
                  
                  
                  241
                  
                  
                  
                  593
                  
                  
                  
                  1,038Total
      operating expenses
                  
                  
                  11,586
                  
                  
                  
                  12,023
                  
                  
                  
                  38,834
                  
                  
                  
                  36,936Income
      (loss) from operations
                  
                  
                  574
                  
                  
                  
                  1,085
                  
                  
                  
                  1,027
                  
                  
                  
                  (805
                  )Interest
      income and other, net
                  
                  
                  336
                  
                  
                  
                  624
                  
                  
                  
                  1,200
                  
                  
                  
                  1,805Income
      before provision for income taxes
                  
                  
                  910
                  
                  
                  
                  1,709
                  
                  
                  
                  2,227
                  
                  
                  
                  1,000Provision
      for income taxes
                  
                  
                  112
                  
                  
                  
                  712
                  
                  
                  
                  442
                  
                  
                  
                  357Net
      income
                  
                  $
                  798
                  
                  
                  $
                  997
                  
                  
                  $
                  1,785
                  
                  
                  $
                  643Basic
      net income per share
                  
                  $
                  0.03
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.02Shares
      used to compute basic per share amounts
                  
                  
                  28,009
                  
                  
                  
                  28,748
                  
                  
                  
                  28,270
                  
                  
                  
                  28,689Diluted
      net income per share
                  
                  $
                  0.03
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.02Shares
      used to compute diluted per share amounts
                  
                  
                  28,122
                  
                  
                  
                  29,257
                  
                  
                  
                  28,415
                  
                  
                  
                  29,148
 See
accompanying notes to condensed consolidated financial statements.
 
 4
  PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in
thousands)
 
 Nine
      Months EndedSeptember
      30,2008
                  
                  
                  2007Cash
      flows from operating activities:Net
      income
                  
                  $
                  1,785
                  
                  
                  $
                  643Adjustments
      to reconcile net income to net cash flows provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  1,684
                  
                  
                  
                  1,480Share-based
      compensation expense
                  
                  
                  2,533
                  
                  
                  
                  3,375Amortization
      of purchased intangible assets
                  
                  
                  593
                  
                  
                  
                  1,038Write-downs
      of inventories
                  
                  
                  465
                  
                  
                  
                  643Changes
      in pre-acquisition deferred tax balances
                  
                  
                  (151
                  )
                  
                  
                  -Other
      non-cash items
                  
                  
                  (155
                  )
                  
                  
                  (142
                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  730
                  
                  
                  
                  (359
                  )Inventories
                  
                  
                  (413
                  )
                  
                  
                  (608
                  )Other
      current assets
                  
                  
                  (846
                  )
                  
                  
                  (2,256
                  )Other
      assets
                  
                  
                  (716
                  )
                  
                  
                  855Accounts
      payable
                  
                  
                  (902
                  )
                  
                  
                  4,086Accrued
      compensation and benefits
                  
                  
                  (40
                  )
                  
                  
                  (810
                  )Other
      accrued expenses
                  
                  
                  219
                  
                  
                  
                  315Net
      cash provided by operating activities
                  
                  
                  4,786
                  
                  
                  
                  8,260Cash
      flows from investing activities:Purchases
      of marketable securities
                  
                  
                  (28,500
                  )
                  
                  
                  (26,228
                  )Sales
      and maturities of marketable securities
                  
                  
                  27,390
                  
                  
                  
                  10,300Purchase
      of property and equipment
                  
                  
                  (1,639
                  )
                  
                  
                  (2,258
                  )Net
      cash (used in) investing activities
                  
                  
                  (2,749
                  )
                  
                  
                  (18,186
                  )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
                  
                  
                  846
                  
                  
                  
                  917Repurchase
      of common stock
                  
                  
                  (6,491
                  )
                  
                  
                  -Net
      cash provided by (used in) financing activities
                  
                  
                  (5,645
                  )
                  
                  
                  917Effect
      of exchange rate fluctuations on cash and cash equivalents
                  
                  
                  (33
                  )
                  
                  
                  (35
                  )Net
      decrease in cash and cash equivalents
                  
                  
                  (3,641
                  )
                  
                  
                  (9,044
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  19,175
                  
                  
                  
                  32,804Cash
      and cash equivalents at end of period
                  
                  $
                  15,534
                  
                  
                  $
                  23,760Supplemental
      disclosure of cash flow  information:Cash
      paid for income taxes
                  
                  $
                  199
                  
                  
                  $
                  138
 See
accompanying notes to condensed consolidated financial statements.
  5
 
 PLX TECHNOLOGY, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
 (Unaudited)
 
  1.  Basis
of Presentation
  The
accompanying unaudited condensed consolidated financial statements of PLX
Technology, Inc. and its wholly-owned subsidiaries (collectively, “PLX” or the
“Company”) as of September 30, 2008 and for the three and nine month periods
ended September 30, 2008 and 2007 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  In the opinion of management, the unaudited condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) that management considers necessary for a fair
presentation of the Company’s financial position, operating results and cash
flows for the interim periods presented. Operating results and cash flows for
interim periods are not necessarily indicative of results for the entire
year.
  The
unaudited condensed consolidated financial statements include all of the
accounts of the Company and those of its wholly-owned
subsidiaries.  All intercompany accounts and transactions have been
eliminated.
  This
financial data should be read in conjunction with the audited consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
  Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect various accounts, including but not limited to
goodwill, income taxes, inventories, revenue recognition and related sales
reserves, allowance for doubtful accounts, share-based compensation and warranty
reserves as reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates and such
differences may be material to the financial statements.
  Comprehensive
Net Income (Loss)
  The
Company’s comprehensive net income for the three and nine month period ended
September 30, 2008 and 2007 was as follows (in thousands):
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      income
                  
                  $
                  798
                  
                  
                  $
                  997
                  
                  
                  $
                  1,785
                  
                  
                  $
                  643Unrealized
      gain (loss) on marketable securities, net
                  
                  
                  (130
                  )
                  
                  
                  4
                  
                  
                  
                  (172
                  )
                  
                  
                  (28
                  )Cumulative
      translation adjustments
                  
                  
                  (7
                  )
                  
                  
                  (9
                  )
                  
                  
                  (33
                  )
                  
                  
                  (35
                  )Comprehensive
      net income
                  
                  $
                  661
                  
                  
                  $
                  992
                  
                  
                  $
                  1,580
                  
                  
                  $
                  580
 Revenue
Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery or customer acceptance, where applicable, has occurred, the fee is
fixed or determinable, and collection is reasonably assured.
  The
Company recognizes revenue in accordance with Statements of Financial Accounting
Standards (“SFAS”) No. 48, Revenue Recognition When Right of
Return Exists. Revenue from product sales to direct customers and
distributors is recognized upon shipment and transfer of risk of loss, if the
Company believes collection is reasonably assured and all other revenue
recognition criteria are met. The Company assesses the probability of collection
based on a number of factors, including past transaction history and the
customer’s creditworthiness.  At the end of each reporting period, the
sufficiency of allowances for doubtful accounts is assessed based on the age of
the receivable and the individual customer’s creditworthiness.
  6
  The
Company offers pricing protection to two distributors whereby the Company
supports the distributor’s resale product margin on certain products held in the
distributor’s inventory. In general, the Company analyzes current requests for
credit in process, also known as ship and debits and inventory at the
distributor to determine the ending sales reserve required for this
program.  The Company also offers stock rotation rights to two
distributors such that they can return up to a total of 5% of products purchased
every six months in exchange for other PLX products of equal value. In general,
the Company analyzes current stock rotation requests and past experience, which
has historically been insignificant, to determine the ending sales reserve
required for this program.  Reserves are reduced directly from revenue
and recorded as a reduction to accounts receivable.  In addition, the
Company has arrangements with a small number of customers offering a rebate
program on various products. The Company records rebates as a reduction of
revenue under the guidelines of Emerging Issues Task Force
(“EITF’) 01-9, Accounting for Consideration Given
to a Customer (Including a Reseller of the Vendor’s
Product).
 
 Recent
Accounting Pronouncements
  In
September 2006, FASB issued SFAS No. 157, Fair Value
Measurements.  SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (“GAAP”)
and expands disclosures about fair value measurements. For financial assets and
liabilities, this statement is effective for fiscal periods beginning after
November 15, 2007 and does not require any new fair value
measures.  In February 2008, the FASB Staff Position No. 157-2 was
issued which delayed the effective date of SFAS 157 to fiscal years ending after
November 15, 2008 for non-financial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.  The adoption of SFAS 157 for financial assets and
liabilities did not have a material impact on the Company’s financial position
or results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment of FASB Statement No.
115. SFAS 159 permits entities to choose to measure many financial
instruments and certain other items that are not currently required to be
measured at fair value, with unrealized gains and losses related to these
financial instruments reported in earnings at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 did not have an effect on the
Company’s financial position or results of operations as the Company did not
elect this fair value option.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations – Revised
2007, which replaces FASB Statement No. 141, Business Combinations. SFAS
141(R) establishes principles and requirements intending to improve the
relevance, representational faithfulness and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008. The impact of the adoption of SFAS 141(R) on the
Company’s financial position or results of operations will depend on the nature
and extent of business combinations that the Company completes, if any, in or
after fiscal 2009.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards to improve the relevance,
comparability and transparency of financial information that a reporting entity
provides in its consolidated financial statements. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company does not believe
that the adoption of SFAS 160 will have a material impact on its financial
position or results of operations.
 
 In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS 142, Goodwill
and Other Intangible Assests, and adds certain disclosures for an
entity’s accounting policy of the treatment of the costs, period of extension,
and total costs incurred.  FSP 143-3 must be applied prospectively to
intangible assets acquired after January 1, 2009.  The Company is
currently evaluating the impact that FSP 142-3 will have on its financial
position or results of operations.
  In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy).  SFAS 162 will become
effective November 15, 2008. The Company does not believe that the adoption of
SFAS 162 will have a material impact on its financial position or results of
operations.
  7
  2.  Share-Based
Compensation
 
 Stock
Option Plans
 
 In May
2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008
Plan”).  Under the 2008 Plan, there is authorized for issuance and
available for awards an aggregate of 1,200,000 shares of the Company’s common
stock, plus the number of shares of the Company’s common stock available for
issuance under the Company’s prior incentive plan, its 1999 Stock Incentive
Plan, that are not subject to outstanding awards as of May 27,
2008.  In addition, the share reserve under the 2008 Plan will be
increased by the number of shares issuable pursuant to awards outstanding under
the prior plan that would have otherwise reverted to the prior plan because it
expires, are canceled or otherwise terminated without being exercised. Awards
under the 2008 Plan may include stock options, restricted stock, stock
appreciation rights, performance awards, restricted stock units and other
awards, provided that with respect to full value awards, such as restricted
stock or restricted stock units, no more than 300,000 shares may be issued in
the form of full value awards during the term of the 2008
Plan.  Awards under the 2008 Plan may be made to the Company’s
officers and other employees, its board members and consultants that it
hires.  The 2008 Plan has a term of ten years.
 
 Share-Based
Compensation Expense
 
 The fair
value of share-based awards to employees is calculated using the Black-Scholes
option pricing model, which requires subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values.
 
 The
weighted-average fair value of share-based compensation to employees is based on
the multiple option valuation approach. Forfeitures are estimated and it is
assumed no dividends will be declared. The estimated fair value of share-based
compensation awards to employees is amortized using the straight-line method
over the vesting period of the options. The weighted-average fair value
calculations are based on the following weighted average
assumptions:
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Risk-free
      interest rate
                  
                  
                  2.85
                  %
                  
                  
                  4.20
                  %
                  
                  
                  2.90
                  %
                  
                  
                  4.56
                  %Expected
      volatility
                  
                  
                  0.55
                  
                  
                  
                  0.57
                  
                  
                  
                  0.54
                  
                  
                  
                  0.59Expected
      life (years)
                  
                  
                  4.47
                  
                  
                  
                  4.35
                  
                  
                  
                  4.47
                  
                  
                  
                  4.35
 Risk-Free Interest Rate: The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of the option.
 
 Expected Term: The Company’s
expected term represents the weighted-average period that the Company’s stock
options are expected to be outstanding. The expected term is based on the
observed and expected time to post-vesting exercise of options by employees. The
Company uses historical exercise patterns of previously granted options in
relation to stock price movements to derive an employee behavioral pattern used
to forecast expected exercise patterns.
 
 Expected Volatility: The
Company calculates its expected volatility assumption required in the
Black-Scholes model by blending the historical and implied volatility. The
historical volatility is based on the weekly closing prices of our common stock
over a period equal to the expected term of the option. Market based implied
volatility is based on utilizing market data of actively traded options on our
stock, from options at- or near-the-money traded options, at a point in time as
close to the grant of the employee options as reasonably practical and with
similar terms to the employee share option, or a remaining maturity of at least
six months if no similar terms are available. The historical volatility of the
price of our common stock over the expected term of the option is a strong
indicator of the expected future volatility. In addition, implied volatility
takes into consideration market expectations of how future volatility will
differ from historical volatility.  The Company does not believe that
one estimate is more reliable than the other so the Company uses a 50/50 blend
of historical volatility and market-based volatility.
 
 These
factors could change in the future, which would affect the share-based
compensation expense in future periods.
 
 As
share-based compensation expense recognized in the unaudited Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2008 and 2007 is based on awards ultimately expected to vest, it
has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The Company’s
estimated forfeiture rate at September 30, 2008 and 2007 of 26% and 27%,
respectively, was based on historical experience.
  8
 
 The
following table shows total share-based compensation expense for the three and
nine months ended September 30, 2008 and 2007, included in the respective line
items of the Condensed Consolidated Statements of Operations (in
thousands):
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Cost
      of revenues
                  
                  $
                  14
                  
                  
                  $
                  12
                  
                  
                  $
                  47
                  
                  
                  $
                  43Research
      and development
                  
                  
                  273
                  
                  
                  
                  377
                  
                  
                  
                  1,027
                  
                  
                  
                  1,331Selling,
      general and administrative
                  
                  
                  400
                  
                  
                  
                  622
                  
                  
                  
                  1,459
                  
                  
                  
                  2,001Total
      share-based compensation expense
                  
                  $
                  687
                  
                  
                  $
                  1,011
                  
                  
                  $
                  2,533
                  
                  
                  $
                  3,375
 A summary
of option activity under the Company’s stock equity plans during the three and
nine months ended September 30, 2008 is as follows:
  Weighted
      AverageRemaining
                  
                  
                  AggregateOptions
      Available
                  
                  
                  Number
      of
                  
                  
                  Weighted
      Average
                  
                  
                  Contratual
      Term
                  
                  
                  IntrinsicOptions
                  
                  for
      Grant
                  
                  
                  Shares
                  
                  
                  Exercise
      Price
                  
                  
                  (in
      years)
                  
                  
                  ValueOutstanding
      at December 31, 2007
                  
                  
                  1,142,597
                  
                  
                  
                  3,999,473
                  
                  
                  $
                  11.38
                  
                  
                  
                  4.79
                  
                  
                  $
                  2,663,803Granted
                  
                  
                  (680,500
                  )
                  
                  
                  680,500
                  
                  
                  
                  7.04Exercised
                  
                  
                  -
                  
                  
                  
                  (2,000
                  )
                  
                  
                  5.00Cancelled
                  
                  
                  6,770
                  
                  
                  
                  (6,770
                  )
                  
                  
                  9.94Outstanding
      at March 31, 2008
                  
                  
                  468,867
                  
                  
                  
                  4,671,203
                  
                  
                  $
                  10.75
                  
                  
                  
                  4.87
                  
                  
                  $
                  928,805Authorized
                  
                  
                  1,200,000
                  
                  
                  
                  -Granted
                  
                  
                  (59,000
                  )
                  
                  
                  59,000
                  
                  
                  
                  8.26Exercised
                  
                  
                  -
                  
                  
                  
                  (110,895
                  )
                  
                  
                  7.25Cancelled
                  
                  
                  301,041
                  
                  
                  
                  (301,041
                  )
                  
                  
                  9.42Outstanding
      at June 30, 2008
                  
                  
                  1,910,908
                  
                  
                  
                  4,318,267
                  
                  
                  $
                  10.90
                  
                  
                  
                  4.65
                  
                  
                  $
                  1,566,277Authorized
                  
                  
                  -
                  
                  
                  
                  -Granted
                  
                  
                  (139,000
                  )
                  
                  
                  139,000
                  
                  
                  
                  5.69Exercised
                  
                  
                  -
                  
                  
                  
                  (6,334
                  )
                  
                  
                  5.00Cancelled
                  
                  
                  309,731
                  
                  
                  
                  (309,731
                  )
                  
                  
                  8.42Outstanding
      at September 30, 2008
                  
                  
                  2,081,639
                  
                  
                  
                  4,141,202
                  
                  
                  $
                  10.92
                  
                  
                  
                  4.37
                  
                  
                  $
                  464,206Exercisable
      at September 30, 2008
                  
                  
                  
                  
                  
                  
                  2,840,643
                  
                  
                  $
                  11.83
                  
                  
                  
                  3.76
                  
                  
                  $
                  464,206
 The
Black-Scholes weighted average fair values of options granted during the three
months ended September 30, 2008 and 2007 were $2.67 and $5.52,
respectively.
 
 The
Black-Scholes weighted average fair values of options granted during the nine
months ended September 30, 2008 and 2007 were $3.03 and $5.36,
respectively.
  9
  The
following table summarizes ranges of outstanding and exercisable options as of
September 30, 2008:
  Options
      Outstanding
                  
                  
                  Options
      ExercisableWeighted
      AverageRemaining
                  
                  
                  Weighted
                  
                  
                  
                  
                  
                  WeightedContratual
      Term
                  
                  
                  Average
                  
                  
                  
                  
                  
                  AverageRange
      of Exercise Prices
                  
                  
                  Number
                  
                  
                  (in
      years)
                  
                  
                  Exercise
      Price
                  
                  
                  Number
                  
                  
                  Exercise
      Price$1.25-$7.03
                  
                  
                  
                  849,461
                  
                  
                  
                  5.60
                  
                  
                  $
                  5.66
                  
                  
                  
                  289,461
                  
                  
                  $
                  3.68$7.21-$9.00
                  
                  
                  
                  893,205
                  
                  
                  
                  3.09
                  
                  
                  
                  8.50
                  
                  
                  
                  804,378
                  
                  
                  
                  8.51$9.12-$10.21
                  
                  
                  
                  1,016,666
                  
                  
                  
                  5.43
                  
                  
                  
                  9.81
                  
                  
                  
                  641,767
                  
                  
                  
                  9.65$10.29-$16.65
                  
                  
                  
                  995,687
                  
                  
                  
                  4.50
                  
                  
                  
                  13.62
                  
                  
                  
                  718,854
                  
                  
                  
                  14.22$19.38-$25.94
                  
                  
                  
                  386,183
                  
                  
                  
                  1.54
                  
                  
                  
                  24.03
                  
                  
                  
                  386,183
                  
                  
                  
                  24.03Total
                  
                  
                  
                  4,141,202
                  
                  
                  
                  4.37
                  
                  
                  $
                  10.92
                  
                  
                  
                  2,840,643
                  
                  
                  $
                  11.83
  The total
intrinsic value of options exercised during the three and nine months ended
September 30, 2008 was approximately $2,000 and $0.2 million, respectively. For
the same periods in 2007 the total intrinsic value of options exercised was $0.4
million and $0.8 million, respectively. The fair value of options vested during
the three and nine months ended September 30, 2008 was approximately $0.9
million and $5.5 million, respectively. As of September 30, 2008, total
unrecognized compensation costs related to nonvested stock options including
estimated forfeitures was $1.8 million which is expected to be recognized as
expense over a weighted average period of approximately 1.32 years.
 
 3.  Inventories
 
 Inventories
are valued at the lower of cost (first-in, first-out method) or market (net
realizable value).  Inventories were as follows (in
thousands):
  September
      30,
                  
                  
                  December
      31,2008
                  
                  
                  2007Work-in-process
                  
                  $
                  2,172
                  
                  
                  $
                  2,000Finished
      goods
                  
                  
                  5,198
                  
                  
                  
                  5,422Total
                  
                  $
                  7,370
                  
                  
                  $
                  7,422
 The
Company evaluates the need for potential inventory provisions by considering a
combination of factors including the life of the product, sales history,
obsolescence and sales forecasts.
 
 4.  Net
Income Per Share
 
 The
Company uses the treasury stock method to calculate the weighted average shares
used in the diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.The
following table sets forth the computation of basic and diluted net income per
share (in thousands, except per share data):
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      income
                  
                  $
                  798
                  
                  
                  $
                  997
                  
                  
                  $
                  1,785
                  
                  
                  $
                  643Weighted
      average shares of common stock outstanding
                  
                  
                  28,009
                  
                  
                  
                  28,748
                  
                  
                  
                  28,270
                  
                  
                  
                  28,689Net
      income per share - basic
                  
                  $
                  0.03
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.02Shares
      used in computing basic net income per share
                  
                  
                  28,009
                  
                  
                  
                  28,748
                  
                  
                  
                  28,270
                  
                  
                  
                  28,689Dilutive
      effect of stock options
                  
                  
                  113
                  
                  
                  
                  509
                  
                  
                  
                  145
                  
                  
                  
                  459Shares
      used in computing diluted net income per share
                  
                  
                  28,122
                  
                  
                  
                  29,257
                  
                  
                  
                  28,415
                  
                  
                  
                  29,148Net
      income per share - diluted
                  
                  $
                  0.03
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.02
 10
  Weighted
average employee stock options to purchase approximately 4.0 million and 4.1
million shares for the three and nine month periods ended September 30, 2008,
respectively, were outstanding, but were not included in the computation of
diluted earnings per share because the exercise price of the stock options was
greater than the average share price of the Company’s common stock and,
therefore, the effect would have been anti-dilutive.
 
 Weighted
average employee stock options to purchase approximately 2.3 million shares for
the three and nine month periods ended September 30, 2007 were outstanding, but
were not included in the computation of diluted earnings per share because the
exercise price of the stock options was greater than the average share price of
the Company’s common stock and, therefore, the effect would have been
anti-dilutive.
 
 5.  Financial
Instruments
 
 Fair
Value Measurements
 
 The
Company adopted SFAS No. 157, Fair Value Measurements,
effective January 1, 2008, for financial assets and liabilities measured on a
recurring basis.  SFAS 157 applies to all financial assets and
financial liabilities that are being measured on a recurring
basis.  SFAS 157 established a framework for measuring fair value and
expands related disclosures.  The statement requires fair value
measurement be classified and disclosed in one of the following three
categories:
 
 Level 1:
Valuations based on quoted prices in active markets for identical assets and
liabilities.  The fair value of available-for-sale securities included
in the level 1 category is based on quoted prices that are readily and regularly
available in an active market.  The Level 1 category includes money
market funds of $6.9 million, which are included in cash and cash equivalents in
the condensed consolidated balance sheet.
 
 Level 2: Valuations based on observable
inputs (other than Level 1 prices), such as quoted prices for similar assets at
the measurement date; quoted prices in markets that are not active; or other
inputs that are observable, either directly or indirectly. The fair value of
available-for-sale securities included in the Level 2 category is based on the
market values obtained from an independent pricing service that were evaluated
using pricing models that vary by asset class and may incorporate available
trade, bid and other market information and price quotes from well established
independent pricing vendors and broker-dealers. The Level 2 category includes
short-term and long-term investments of $32.9 million, which are comprised of
corporate debt securities and government and agency
securities.
 
 Level 3:
Valuations based on inputs that are unobservable and involve management judgment
and the reporting entity’s own assumptions about market participants and
pricing. The Company has no Level 3 financial assets measured at fair value on
the condensed consolidated balance sheet as of September 30, 2008.
 
 Investments
 
 The
Company accounts for its investments in accordance with SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities.  As of September 30, 2008, the
Company’s securities consisted of debt securities and were designated as
available-for-sale. Available-for-sale securities are carried at fair value,
based on quoted market prices, with unrealized gains and losses reported in a
separate component of stockholders’ equity.  The amortized cost of
debt securities is adjusted for the amortization of premiums and the accretion
of discounts to maturity, both of which are included in interest
income.  Realized gains and losses are recorded on the specific
identification method.
 
 11
  The fair
value of available-for-sale investments as of September 30, 2008 was as follows
(in thousands):
  Amortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  EstimatedCost
                  
                  
                  Gain
                  
                  
                  Loss
                  
                  
                  Fair
      ValueCommercial
      paper
                  
                  $
                  1,699
                  
                  
                  $
                  -
                  
                  
                  $
                  (1
                  )
                  
                  $
                  1,698Corporate
      bonds and notes
                  
                  
                  9,899
                  
                  
                  
                  34
                  
                  
                  
                  (134
                  )
                  
                  
                  9,799Municipal
      bonds
                  
                  
                  1,000
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  1,002US
      treasury and government agencies securities
                  
                  
                  20,390
                  
                  
                  
                  16
                  
                  
                  
                  (26
                  )
                  
                  
                  20,380Total
      bonds, notes and equity securities
                  
                  $
                  32,988
                  
                  
                  $
                  52
                  
                  
                  $
                  (161
                  )
                  
                  $
                  32,879Less
      amounts classified as cash equivalents
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,398
                  )Total
      short and long-term available-for-sale investments
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  28,481Contractual
      maturity dates for investments:Less
      than one year:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  31,485One
      to two years:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,394$
                  32,879
 The fair
value of available-for-sale investments as of December 31, 2007 was as follows
(in thousands):
  Amortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  EstimatedCost
                  
                  
                  Gain
                  
                  
                  Loss
                  
                  
                  Fair
      ValueCommercial
      paper
                  
                  $
                  21,453
                  
                  
                  $
                  1
                  
                  
                  $
                  (2
                  )
                  
                  $
                  21,452Medium
      term notes
                  
                  
                  2,539
                  
                  
                  
                  -
                  
                  
                  
                  (6
                  )
                  
                  
                  2,533Corporate
      bonds and notes
                  
                  
                  9,568
                  
                  
                  
                  63
                  
                  
                  
                  (24
                  )
                  
                  
                  9,607US
      treasury and government agencies secutites
                  
                  
                  10,135
                  
                  
                  
                  31
                  
                  
                  
                  (1
                  )
                  
                  
                  10,165Total
      bonds, notes and equity securities
                  
                  $
                  43,695
                  
                  
                  $
                  95
                  
                  
                  $
                  (33
                  )
                  
                  $
                  43,757Less
      amounts classified as cash equivalents
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (16,369
                  )Total
      short and long-term available-for-sale investments
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  27,388Contractual
      maturity dates for investments:Less
      than one year:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  33,511One
      to two years:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,246$
                  43,757
 The
Company compares the carrying value of its available for sale investments with
their quoted market prices at the end of each period.  If the quoted
price of a marketable security has dropped significantly during a period or has
been below our carrying value for an extended period of time, the Company
reviews the investment to determine whether the decline is other than
temporary.  If the Company determines that the decline is other than
temporary, the investment is written down to its market value as measured at the
end of the period.  Any resulting charge is included in the Company’s
statement of operations in the related period.
 
 6.  Stock
Repurchase
 
 In
September 2002, the Company’s Board of Directors authorized the repurchase of up
to 2,000,000 shares of the Company’s common stock. In July 2008, the
Company’s Board of Directors authorized an additional 2,000,000 shares under the
repurchase program.  At the discretion of the management, the Company can
repurchase the shares from time to time in the open market or in privately
negotiated transactions.  Approximately 774,000 shares were repurchased for
approximately $1.9 million in cash in 2002 and 2003. The Company did not
repurchase any additional shares from January 1, 2004 through December 31, 2007.
In the three and nine months ended September 30, 2008 the Company repurchased
74,000 and 956,000 shares, respectively, for approximately $0.5 million and $6.5
million, respectively.
  12
  7.  Segments
of an Enterprise and Related Information
 
 The
Company has one operating segment, the sale of semiconductor devices. The Chief
Executive Officer has been identified as the Chief Operating Decision Maker
(“CODM”) because he has final authority over resource allocation decisions and
performance assessment. The CODM does not receive discrete financial information
about individual components of the Company’s business. The majority of the
Company’s assets are located in the United States.
 
 Revenues
by geographic region based on customer location were as follows (in
thousands):
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:United
      States
                  
                  $
                  4,900
                  
                  
                  $
                  5,317
                  
                  
                  $
                  15,749
                  
                  
                  $
                  16,320Singapore
                  
                  
                  3,737
                  
                  
                  
                  3,406
                  
                  
                  
                  12,052
                  
                  
                  
                  9,709Europe,
      Middle East and Africa
                  
                  
                  3,139
                  
                  
                  
                  2,438
                  
                  
                  
                  8,562
                  
                  
                  
                  6,766Taiwan
                  
                  
                  2,459
                  
                  
                  
                  2,618
                  
                  
                  
                  8,379
                  
                  
                  
                  6,999China
                  
                  
                  2,449
                  
                  
                  
                  2,895
                  
                  
                  
                  8,908
                  
                  
                  
                  8,999Other
      Asia Pacific
                  
                  
                  2,330
                  
                  
                  
                  3,851
                  
                  
                  
                  7,774
                  
                  
                  
                  9,205The
      Americas - excluding United States
                  
                  
                  1,776
                  
                  
                  
                  691
                  
                  
                  
                  5,471
                  
                  
                  
                  1,622Total
                  
                  $
                  20,790
                  
                  
                  $
                  21,216
                  
                  
                  $
                  66,895
                  
                  
                  $
                  59,620
 For the
three months ended September 30, 2008, sales to Excelpoint Systems Pte Ltd,
Avnet, Inc. and Answer Technology, Inc. accounted for 29%, 14% and 12%,
respectively, of net revenues. As of September 30, 2008, the same distributors
accounted for 36%, 8% and 13%, respectively, of the total accounts receivable
balance. For the same period in 2007, Excelpoint Systems Pte Ltd and Answer
Technology, Inc. accounted for 24% and 11%, respectively, of net revenues. As of
September 30, 2007, the same distributors accounted for 20% and 16%,
respectively, of the total accounts receivable balance. For both of these
periods, no other individual direct customer or distributor represented greater
than 10% of net revenues.
  For the
nine months ended September 30, 2008, sales to Excelpoint Systems Pte Ltd,
Answer Technology, Inc. and Avnet, Inc. accounted for 29%, 12% and 12%,
respectively, of net revenues. For the same period in 2007, Metatech and
Excelpoint Systems Pte Ltd accounted for 23% and 11%, respectively, of net
revenues. For both of these periods, no other individual direct customer or
distributor represented greater than 10% of net revenues.
  In the
third quarter of 2007, the Company terminated Metatech and transitioned in
Excelpoint Systems. The significant terms of the Company’s arrangement with
Excelpoint are substantially similar to its prior arrangement with
Metatech.  Excelpoint is and Metatech was a stocking representative
that could purchase PLX product and resell it or earn a commission on sales
directly made by PLX to customers in its territory.  Historically,
commissions under this arrangement have never been material. Excelpoint is
granted standard payment terms (between 30 and 45 days) without any price
concessions or right of return. Excelpoint is covered under a standard warranty
program which the Company offers to all of its customers. Revenue is recognized
when the product is shipped to Excelpoint, as was the case with Metatech, and
the change to Excelpoint did not change the Company’s revenue recognition policy
for the relevant sales.
  8.  Income
Taxes
  A
provision for income tax of $442,000 has been recorded for the nine month period
ended September 30, 2008, compared to a provision of $357,000 for the same
period in 2007.  Income tax expense for the nine months ended
September 30, 2008 relates to federal taxes, miscellaneous state income taxes
and foreign income taxes currently payable adjusted for certain discrete items
which are fully recognized in the period they occur. Income
tax expense was calculated on a year-to-date discrete basis due to the
uncertainty of fourth quarter operating estimates and the large variability to
the annual effective rate based on small changes to ordinary income for the
year. For the same period in 2007, the income tax expense was a result of
applying the estimated annual effective tax rate to cumulative income before
taxes.
  13
  The
Company has determined that negative evidence supports the need for a full
valuation allowance against its net deferred tax assets at this time. The
Company will maintain a full valuation allowance until sufficient positive
evidence exists to support a reversal of the valuation
allowance.
  The
Company adopted FIN 48, regarding accounting for uncertain tax benefits, at the
beginning of calendar year 2007. As of September 30, 2008, the Company had
unrecognized tax benefits of approximately $1.9 million of which none, if
recognized, would result in a reduction of the Company’s effective tax
rate.  There were no material changes in the amount of unrecognized
tax benefits during the nine months ended September 30, 2008. Future changes in
the balance of unrecognized tax benefits will have no impact on the effective
tax rate as they are subject to a full valuation allowance. The Company does not
believe the amount of its unrecognized tax benefits will significantly change
within the next twelve months.
 
 The
Company is subject to taxation in the United States and various states and
foreign jurisdictions.  The tax years 1997 through 2007 remain open to
examination by the federal and most state tax authorities due to certain
acquired net operating loss and overall credit carryforward
positions.
 
 ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 This
Report on Form 10-Q contains forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
including statements regarding our expectations, hopes, intentions, beliefs or
strategies regarding the future.  Such forward-looking statements also
include statements regarding our future gross margin, our future research and
development expenses, our future selling, general and administrative expenses,
our ability to meet our capital requirements for the next twelve months, our
future capital requirements, current high turns fill requirements and our
anticipation that sales to a small number of customers will account for a
significant portion of our sales.  Actual results could differ
materially from those projected in such forward-looking
statements.  Factors that could cause actual results to differ include
unexpected changes in the mix of our product sales, unexpected pricing
pressures, unexpected capital requirements that may arise due to other possible
acquisitions or other events, unanticipated changes in the businesses of our
suppliers, and unanticipated cash shortfalls.  Actual results could
also differ for the reasons noted under the sub-heading “Factors That May Affect
Future Operating Results” in Item 1A, Risk Factors in Part II of this report on
Form 10-Q and in other sections of this report on Form 10-Q.  All
forward-looking statements included in this Form 10-Q are based on
information available to us on the date of this report on Form 10-Q, and we
assume no obligation to update the forward-looking statements, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
 
 The
following discussion should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
 
 OVERVIEW
 
 PLX
Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in
1986, develops and supplies semiconductor devices that accelerate and manage the
transfer of data in microprocessor-based systems including networking and
telecommunications, enterprise storage, servers, personal computers (PCs), PC
peripherals, consumer electronics, imaging and industrial products. We offer a
complete solution consisting of three related types of products: semiconductor
devices, software development kits and hardware design kits. Our semiconductor
devices manage fast and reliable transfer of data in microprocessor based
systems. Our software development kits and hardware design kits have been
designed with the goal of promoting sales of our semiconductor devices by
lowering customers' development costs and by accelerating their ability to bring
new products to market.
 
 PLX
products shipping today provide I/O connectivity solutions mainly for the PCI
Express, PCI, PCI-X, and USB standards. As new I/O standards evolve, we expect
to support them where appropriate.  More than 1,000 electronic
equipment manufacturers use PLX semiconductor devices in a wide variety of
applications.
 
 Historically,
PLX supplied bridges, controllers, and accelerators to the PCI, PCI-X and USB
markets, which we refer to as our Legacy products.  Today, PLX’s main
focus is supplying the needs of the growing demand for PCI Express
Switches.  PCI Express is a serial point to point technology that
requires switches to route the traffic similar to Ethernet.  PCI and
PCI-X did not require these devices.  This has opened up a new market
for suppliers like PLX.
  14
  We
utilize a “fabless” semiconductor business model whereby we purchase wafers or
packaged and tested semiconductor devices from independent manufacturing
foundries.  The advantage of this approach, in our opinion, allows us
to focus on defining, developing and marketing our products and eliminates the
need for us to invest large amounts of capital in manufacturing facilities and
work-in-process inventory.
 We rely
on a combination of direct sales personnel, distributors and manufacturers’
representatives throughout the world to sell a significant portion of our
products.  We pay manufacturers’ representatives a commission on sales
while we sell products to distributors at a discount from the selling
price.
  The time
period between initial customer evaluation and design completion can range from
six to twelve months or more.  Furthermore, there is typically an
additional six to twelve month or greater period after design completion before
a customer orders volume production of our products.  Due to the
variability and length of these design cycles and variable demand from
customers, we may experience significant fluctuations in new orders from month
to month.  In addition, we typically make inventory purchases prior to
receiving customer orders.  Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, expenses and inventory
levels could be disproportionately high, and our results for that quarter and
potentially future quarters would be materially and adversely
affected.
 
 Our
long-term success will depend on our ability to successfully introduce new
products.  While new products typically generate little or no revenues
during the first twelve months following their introduction, our revenues in
subsequent periods depend upon these new products.  Due to the lengthy
sales cycle and additional time before our customers request volume production,
significant revenues from our new products typically occur twelve to twenty-four
months after product introduction.  As a result, revenues from newly
introduced products have, in the past, produced a small percentage of our total
revenues in the year the product was introduced.  See –“Our Lengthy
Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected
Revenues” in Item 1A, Risk Factors, in Part II of this report on Form
10-Q.
 
 RESULTS
OF OPERATIONS
 
 The
following table summarizes historical results of operations as a percentage of
net revenues for the periods shown.
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      revenues
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %Cost
      of revenues
                  
                  
                  41.5
                  
                  
                  
                  38.2
                  
                  
                  
                  40.4
                  
                  
                  
                  39.4Gross
      margin
                  
                  
                  58.5
                  
                  
                  
                  61.8
                  
                  
                  
                  59.6
                  
                  
                  
                  60.6Operating
      expenses:Research
      and development
                  
                  
                  28.9
                  
                  
                  
                  27.7
                  
                  
                  
                  30.3
                  
                  
                  
                  29.8Selling,
      general and administrative
                  
                  
                  26.1
                  
                  
                  
                  27.9
                  
                  
                  
                  26.8
                  
                  
                  
                  30.4Amortization
      of purchased intangible assets
                  
                  
                  0.7
                  
                  
                  
                  1.1
                  
                  
                  
                  0.9
                  
                  
                  
                  1.7Total
      operating expenses
                  
                  
                  55.7
                  
                  
                  
                  56.7
                  
                  
                  
                  58.0
                  
                  
                  
                  61.9Income
      (loss) from operations
                  
                  
                  2.8
                  
                  
                  
                  5.1
                  
                  
                  
                  1.6
                  
                  
                  
                  (1.3
                  )Interest
      income and other, net
                  
                  
                  1.6
                  
                  
                  
                  2.9
                  
                  
                  
                  1.8
                  
                  
                  
                  3.0Income
      before provision for income taxes
                  
                  
                  4.4
                  
                  
                  
                  8.0
                  
                  
                  
                  3.4
                  
                  
                  
                  1.7Provision
      for income taxes
                  
                  
                  0.5
                  
                  
                  
                  3.4
                  
                  
                  
                  0.7
                  
                  
                  
                  0.6Net
      income
                  
                  
                  3.9
                  %
                  
                  
                  4.6
                  %
                  
                  
                  2.7
                  %
                  
                  
                  1.1
                  %
 15
  Net
Revenues
 
 The
following table shows the revenue by product type as a percentage of net
revenues:
  Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:Legacy
      Products
                  
                  
                  55.6
                  %
                  
                  
                  63.5
                  %
                  
                  
                  52.7
                  %
                  
                  
                  67.8
                  %PCI
      Express
                  
                  
                  44.4
                  %
                  
                  
                  36.5
                  %
                  
                  
                  47.3
                  %
                  
                  
                  32.2
                  %
  Net
revenues consist of product revenues generated principally by sales of our
semiconductor devices.  Net revenues for the three months ended
September 30, 2008 were $20.8 million, a decrease of 2.0% from $21.2 million for
the three months ended September 30, 2007. The decrease was due primarily to
decreased sales of our Legacy products due to customer migration to PCI Express,
end of life of customers’ products and general demand fluctuations, partially
offset by the increase sales of our PCI Express products due to an increase of
customers in volume production.
  For the
three months ended September 30, 2008, sales to Excelpoint Systems Pte Ltd,
Avnet, Inc. and Answer Technology, Inc. accounted for 29%, 14% and 12%,
respectively, of net revenues. For the same period in 2007, Excelpoint Systems
Pte Ltd and Answer Technology, Inc. accounted for 24% and 11%, respectively, of
net revenues. For both of these periods, no other individual direct customer or
distributor represented greater than 10% of net revenues.
 
 Net
revenues for the nine months ended September 30, 2008 were $66.9 million, an
increase of 12.2% from $59.6 million for the nine months ended September 30,
2007. The increase was due primarily to increased sales of our PCI Express
products due to an increase of customers in volume production, partially offset
by the decreased sales of our Legacy products due to customer migration to PCI
Express, end of life of customers’ products and general demand
fluctuations.
  For the
nine months ended September 30, 2008, sales to Excelpoint Systems Pte Ltd,
Answer Technology, Inc. and Avnet, Inc. accounted for 29%, 12% and 12%,
respectively, of net revenues. For the same period in 2007, Metatech and
Excelpoint Systems Pte Ltd accounted for 23% and 11%, respectively, of net
revenues. For both of these periods, no other individual direct customer or
distributor represented greater than 10% of net revenues.
  In the
third quarter of 2007, we terminated Metatech and transitioned in Excelpoint
Systems. The significant terms of our arrangement with Excelpoint are
substantially similar to our prior arrangement with Metatech. Excelpoint is and
Metatech was a stocking representative that could purchase PLX product and
resell it or earn a commission on sales directly made by PLX to customers in its
territory. Historically, commissions under this arrangement have never been
material.  Excelpoint is granted standard payment terms (between 30
and 45 days) without any price concessions or right of
return.  Excelpoint is covered under a standard warranty program which
we offer to all of our customers. Revenue is recognized when the product is
shipped to Excelpoint, as was the case with Metatech, and the change to
Excelpoint did not change our revenue recognition policy for the relevant
sales.
  We have
recently experienced a broad decrease in order rates across most product lines,
markets and end customers, and therefore expect a decrease in fourth quarter
sales. Future demand for our products is uncertain and is highly dependant on
general economic conditions and the demand for products that contain our chips.
Customer demand for semiconductors can change quickly and unexpectedly.
 Our revenue levels have been highly dependent on the amount of new orders
that are received for products to be delivered to the customer within the same
quarter, also called “turns fill” orders.  Because of the long cycle time
to build our products and our lack of visibility into demand when turns fill
orders are high, it is difficult to predict which products to build to match
future demand.  We believe the current high turns fill requirements will
continue indefinitely.  The high turns fill orders pattern, together
with the uncertainty of product mix and pricing, makes it difficult to predict
future levels of sales and profitability and may require us to carry higher
levels of inventory.
 
 Gross
Margin
 
 Gross
margin represents net revenues less the cost of revenues.  Cost of
revenues includes the cost of (1) purchasing semiconductor devices or wafers
from our independent foundries, (2) package, assembly and test services from our
independent foundries, assembly contractors and test contractors and (3) our
operating costs associated with the procurement, storage, and shipment of
products as allocated to production.
 
 16
 
 Gross
margin for the three months ended September 30, 2008 was 58.5%, as compared to
61.8% for the same period in 2007. In absolute dollars, gross margin decreased
by $0.9 million or 7.2% to $12.2 million for the three months ended September
30, 2008 from $13.1 million for the same period in 2007. The decrease in
absolute dollars as well as a percentage is due primarily to the decreased
Legacy product shipments, increased product and customer mix of our PCI Express
products and a provision for inventory of $0.2 million recorded against a single
Legacy product.
 
 Gross
margin for the nine months ended September 30, 2008 was 59.6%, as compared to
60.6% for the same period in 2007.  In absolute dollars, gross margin
increased by $3.8 million or 10.4% to $39.9 million for the nine months ended
September 30, 2008 from $36.1 million for the same period in 2007. The increase
in absolute dollars is due primarily to increased PCI Express product shipments
while the decrease as a percentage was primarily due to increased product and
customer mix of our PCI Express products.
 Future
gross profit and gross margin are highly dependent on the product and customer
mix, provisions and recoveries of excess or obsolete inventory, the position of
our products in their respective life cycles and specific manufacturing
costs.  Accordingly, we are not able to predict future gross profit
levels or gross margins with certainty.
 
 Research
and Development Expenses
 
 Research
and development (“R&D”) expenses consist primarily of tape-out costs at our
independent foundries, salaries and related costs, including share-based
compensation and expenses for outside engineering consultants.
 
 R&D
as a percentage of net revenues increased to 28.9% for the three months ended
September 30, 2008, as compared to 27.7% for the same period in 2007. In
absolute dollars, R&D expenses increased by $0.1 million or 2.2% to $6.0
million for the three months ended September 30, 2008 from $5.9 million for the
same period in 2007. The increase in R&D as a percentage of revenue as well
as the increase in absolute dollars is due primarily to an increase in R&D
spending on engineering tools of $0.5 million partially offset by decreases in
tape-out related costs of $0.2 million and share-based compensation and bonus
expenses of $0.2 million.
 
 R&D
as a percentage of net revenues increased to 30.3% for the nine months ended
September 30, 2008, as compared to 29.8% for the same period in 2007. In
absolute dollars, R&D expenses increased by $2.5 million or 14.3% to $20.3
million for the nine months ended September 30, 2008 from $17.8 million for the
same period in 2007. The increase in R&D as a percentage of revenue as well
as the increase in absolute dollars is due primarily to increases in R&D
spending on engineering tools of $1.1 million and consulting fees of $1.0
million associated with new product designs and salary and related expenses of
$0.9 million resulting from higher headcount and annual rate increases partially
offset by a decrease in share-based compensation expense of $0.3
million.
 
 We
believe continued spending on research and development to develop new products
is critical to our success and, consequently, expect research and development
expenses to increase in absolute dollars in future periods.
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative (“SG&A”) expenses consist primarily of salaries
and related costs, share-based compensation and commissions to manufactures’
representatives, as well as professional fees, trade show and other promotional
expenses.
 
 SG&A
as a percentage of net revenues decreased to 26.1% for the three months ended
September 30, 2008, as compared to 27.9% for the same period in
2007.  In absolute dollars, SG&A expenses decreased $0.5 million
or 8.1% to $5.4 million for the three months ended September 30, 2008 from $5.9
million for the same period in 2007. The decrease in SG&A as a percentage as
well as the decrease in absolute dollars is due primarily to decreases in
share-based compensation expense of $0.2 million, travel expenses of $0.1
million and commission expenses to manufacturers’ representatives of $0.1
million due to lower revenues and commission rates.
 
 SG&A
as a percentage of net revenues decreased to 26.8% for the nine months ended
September 30, 2008, as compared to 30.4% for the same period in
2007.  In absolute dollars, SG&A expenses decreased $0.1 million
or 1.1% to $18.0 million for the nine months ended September 30, 2008 from $18.1
million for the same period in 2007. The decrease in SG&A as a percentage of
revenue as well as the decrease in absolute dollars is due primarily to a
decrease in share-based compensation expense.
  17
 
 Amortization of Purchased Intangible
Assets
  Amortization
of purchased intangible assets consists of amortization expense related to
developed/core technology and customer base acquired as a result of the HiNT
Corporation acquisition in May 2003 and NetChip Technology, Inc. acquisition in
May 2004.  Amortization of purchased intangible remained flat at $0.2
million for the three months ended September 30, 2008 compared to the same
period in 2007.
  Amortization
of purchased intangible assets decreased by $0.4 million or 42.9% to $0.6
million for the nine months ended September 30, 2008 from $1.0 million for the
same period in 2007.  The decrease is due to the customer base
acquired as a result of the NetChip Technology, Inc. acquisition in May 2004
becoming fully amortized in May 2007 and the developed core technology acquired
as a result of the HiNT Corporation acquisition in May 2003 becoming fully
amortized in May 2008.
  Interest
Income and Other, Net
 
 Interest
income reflects interest earned on cash, cash equivalents and short-term and
long-term investment balances. Interest income and other decreased by $0.3
million to $0.3 million for the three months ended September 30, 2008 from $0.6
million from the same period in 2007. The decrease was primarily due to lower
cash balances as a result of the stock repurchases and interest rate
fluctuations.
 
 Interest
income and other decreased by $0.6 million to $1.2 million for the nine months
ended September 30, 2008 from $1.8 million from the same period in 2007. The
decrease was primarily due to lower cash balances as a result of the stock
repurchases and interest rate fluctuations.
 
 Provision
for Income Taxes
 
 Income
tax expense of $442,000 has been recorded for the nine month period ended
September 30, 2008, compared to provision of $357,000 for the same period in
2007.  Income tax expense for the nine months ended September 30, 2008
relates to federal taxes, miscellaneous state income taxes and foreign income
taxes currently payable adjusted for certain discrete items which are fully
recognized in the period they occur. Income
tax expense was calculated on a year-to-date discrete basis due to the
uncertainty of fourth quarter operating estimates and the large variability to
the annual effective rate based on small changes to ordinary income for the
year.For the same period in 2007, the income tax expense was a result of
applying the estimated annual effective tax rate to cumulative income before
taxes.
  We have
determined that negative evidence supports the need for a full valuation
allowance against our net deferred tax assets at this time. We will maintain a
full valuation allowance until sufficient positive evidence exists to support a
reversal of the valuation allowance.
  We
adopted FIN 48, regarding accounting for uncertain tax benefits, at the
beginning of calendar year 2007. As of September 30, 2008, we have unrecognized
tax benefits of approximately $1.9 million of which none, if recognized, would
result in a reduction of our effective tax rate.  There were no
material changes in the amount of unrecognized tax benefits during the nine
months ended September 30, 2008.  Future changes in the remaining
balance of unrecognized tax benefits will have no impact on the effective tax
rate as they are subject to a full valuation allowance. We do not expect that
the amount of our unrecognized tax benefits will significantly change within the
next twelve months.
 
 We are
subject to taxation in the United States and various states and foreign
jurisdictions.  The tax years 1997 through 2007 remain open to
examination by the federal and most state tax authorities due to certain
acquired net operating loss and overall credit carryforward
positions.
  18
  Liquidity
and Capital Resources
 
 In
summary, our cash flows were (in thousands):
  Nine
      Months EndedSeptember
      30,2008
                  
                  
                  2007Net
      cash provided by operating activities
                  
                  $
                  4,786
                  
                  
                  $
                  8,260Net
      cash (used in) investing activities
                  
                  
                  (2,749
                  )
                  
                  
                  (18,186
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  (5,645
                  )
                  
                  
                  917Effect
      of exchange rate fluctuations on cash and cash equivalents
                  
                  
                  (33
                  )
                  
                  
                  (35
                  )
 We invest
excess cash predominantly in debt instruments that are highly liquid, of
high-quality investment grade, and predominantly have maturities of less than
one year with the intent to make such funds readily available for operating
purposes. As of September 30, 2008 cash, cash equivalents, short and long-term
marketable securities were $44.0 million, a decrease of $2.6 million from $46.6
million at December 31, 2007.
 
 Cash
provided by operating activities primarily consists of net income adjusted for
certain non-cash items including depreciation, amortization, share-based
compensation expense, provisions for excess and obsolete inventories, changes in
pre-acquisition deferred tax balances, other non-cash items, and the effect of
changes in working capital and other activities. Cash provided by operating
activities for the nine months ended September 30, 2008 of $4.8 million
consisted primarily of net income of $1.8 million adjusted for non-cash
items of $5.0 and a decrease in accounts receivable of $0.7 million partially
offset by increases in current assets of $0.8 million and other assets of $0.7
million due to an increase in software and IP licenses and a decrease in
accounts payable of $0.9 million. Cash provided by operating activities for the
nine months ended September 30, 2007 of $8.3 million consisted primarily of
net income of $0.6 million adjusted for non-cash items of $6.4 million and
an increase in accounts payable of $4.1 million partially offset by an increase
in other current assets of $2.3 million due to an increase in software and IP
licenses.
 
 Cash used
in investing activities for the nine months ended September 30, 2008 of
$2.7 million was due to capital expenditures of $1.6 million primarily
to provide infrastructure for new product designs and purchases of marketable
securities (net of sales and maturities of investments) of $1.1 million.
Cash used in investing activities for the nine months ended September 30, 2007
of $18.2 million was due to purchases of marketable securities (net of
sales and maturities of investments) of $15.9 million and capital expenditures
of $2.3 million. Capital expenditures have generally been comprised of purchases
of engineering equipment, computer hardware, software, server equipment and
furniture and fixtures.
 
 Cash used
in financing activities for the nine months ended September 30, 2008 of $5.6
million was due to common stock repurchases of $6.5 million partially offset by
proceeds from the exercise of stock options of $0.9 million. Cash provided by
financing for the nine months ended September 30, 2007 of $0.9 million was due
to proceeds from the exercise of stock options.
 
 The
negative effect of exchange rates on cash and cash equivalents for the nine
months ended September 30, 2008 and 2007 was due to the weakening of the U.S.
dollar against other foreign currencies.
 
 As of
September 30, 2008, we had the following significant contractual obligations and
commercial commitments (in thousands):
  Payments
      due inLess
      than
                  
                  
                  1-3Total
                  
                  
                  1
      Year
                  
                  
                  YearsOperating
      leases - facilities and equipment
                  
                  $
                  137
                  
                  
                  $
                  109
                  
                  
                  $
                  28Software
      licenses
                  
                  
                  1,500
                  
                  
                  
                  862
                  
                  
                  
                  638Inventory
      purchase commitments
                  
                  
                  3,343
                  
                  
                  
                  3,343
                  
                  
                  
                  -Total
      cash obligations
                  
                  $
                  4,980
                  
                  
                  $
                  4,314
                  
                  
                  $
                  666
 19
  We
believe that our existing resources, together with cash generated from our
operations will be sufficient to meet our capital requirements for at least the
next twelve months.  Our future capital requirements will depend on
many factors, including the inventory levels we maintain, the level of
investment we make in new technologies and improvements to existing technologies
and the levels of monthly expenses required to launch new
products.  From time to time, we may also evaluate potential
acquisitions and equity investments complementary to our technologies and market
strategies.  To the extent that existing resources and future earnings
are insufficient to fund our future activities, we may need to raise additional
funds through public or private financings.  Additional funds may not
be available or, if available, we may not be able to obtain them on terms
favorable to us and our stockholders.
 
 Critical
Accounting Policies
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements and accompanying
notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a
company’s critical accounting policies as the ones that are most important to
the portrayal of the company’s financial condition and results of operations,
and which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.  Based on this definition, we have identified
the critical accounting policies and judgments addressed below.  We
also have other key accounting policies which involve the use of estimates,
judgments and assumptions that are significant to understanding our results.
Although we believe that our estimates, assumptions and judgments are
reasonable, they are based upon information presently
available.  Actual results may differ significantly from these
estimates under different assumptions, judgments or conditions.
  Revenue
Recognition
 
 We
recognize revenue when persuasive evidence of an arrangement exists, delivery or
customer acceptance, where applicable, has occurred, the fee is fixed or
determinable, and collection is reasonably assured.
  We
recognize revenue in accordance with Statements of Financial Accounting
Standards (“SFAS”) No. 48, Revenue Recognition When Right of
Return Exists. Revenue from product sales to direct customers and
distributors is recognized upon shipment and transfer of risk of loss, if we
believe collection is reasonably assured and all other revenue recognition
criteria are met. We assess the probability of collection based on a number of
factors, including past transaction history and the customer’s
creditworthiness.  At the end of each reporting period, the sufficiency of
allowances for doubtful accounts is assessed based on the age of the receivable
and the individual customer’s creditworthiness.
 
 We offer
pricing protection to two distributors whereby the Company supports the
distributor’s resale product margin on certain products held in the
distributor’s inventory. In general, we analyze current requests for credit in
process, also known as ship and debits and inventory at the distributor to
determine the ending sales reserve required for this program.  We also
offer stock rotation rights to two distributors such that they can return up to
a total of 5% of products purchased every six months in exchange for other PLX
products of equal value. In general, we analyze current stock rotation requests
and past experience, which has historically been insignificant, to determine the
ending sales reserve required for this program. Reserves are reduced directly
from revenue and recorded as a reduction to accounts receivable.  In
addition, we have arrangements with a small number of customers offering a
rebate program on various products.  We record rebates as a reduction
of revenue under the guidelines of Emerging Issues Task Force
(“EITF’) 01-9, Accounting for Consideration Given
to a Customer (Including a Reseller of the Vendor’s
Product).
 
 Inventory
Valuation
 
 We
evaluate the need for potential inventory provisions by considering a
combination of factors, including the life of the product, sales history,
obsolescence, and sales forecasts. Any adverse changes to our future product
demand may result in increased provisions, resulting in decreased gross
margin.  In addition, future sales on any of our previously written
down inventory may result in increased gross margin in the period of
sale.
 
 Allowance
for Doubtful Accounts
 
 We
evaluate the collectibility of our accounts receivable based on length of time
the receivables are past due. Generally, our customers have between thirty to
forty five days to remit payment of invoices. We record reserves for bad debts
against amounts due to reduce the net recognized receivable to the amount we
reasonably believe will be collected.  Once we have exhausted
collection efforts, we will reduce the related accounts receivable against the
allowance established for that receivable. We have certain customers with
individually large amounts due at any given balance sheet date.  Any
unanticipated change in one of those customers’ creditworthiness or other
matters affecting the collectibility of amounts due from such customers could
have a material adverse affect on our results of operations in the period in
which such changes or events occur. Historically, our write-offs have been
insignificant.
  20
  Share-Based
Compensation
 
 We
recognize share-based compensation expense in accordance with SFAS No. 123(R),
Share-Based Payment. We
estimate the value of employee stock options on the date of grant using the
Black-Scholes model. The determination of fair value of share-based payment
awards on the date of grant using an option-pricing model is affected by our
stock price as well as assumptions regarding a number of highly complex and
subjective variables.  These variables include, but are not limited to
the expected stock price volatility over the term of the awards and the actual
and projected employee stock option exercise behaviors. The expected term of
options granted is derived from historical data on employee exercises and
post-vesting employment termination behavior.  We calculated our
expected volatility assumption required in the Black-Scholes model by blending
the historical volatility of our stock with the implied volatility for traded
options on our stock. We estimate the amount of forfeitures at the time of grant
and revise, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
 
 Taxes
  We
account for income taxes using the asset and liability
method.  Deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. As of
September 30, 2008, we carried a valuation allowance for the entire deferred tax
asset as a result of uncertainties regarding the realization of the asset
balance. We will maintain a full valuation allowance against our deferred tax
assets until sufficient positive evidence exists to support a reversal of the
valuation allowance.
  Future
taxable income and/or tax planning strategies may eliminate all or a portion of
the need for the valuation allowance. In the event we determine we are able to
realize our deferred tax asset, an adjustment to the valuation allowance may
increase income in the period such determination is made.
  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
  We have
an investment portfolio of fixed income securities, including amounts classified
as cash equivalents, short-term investments and long-term investments of $39.8
million at September 30, 2008.  These securities are subject to
interest rate fluctuations and will decrease in market value if interest rates
increase.
 
 The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing
risk.  We invest primarily in high quality, short-term and long-term
debt instruments. A hypothetical 100 basis point increase in interest rates
would result in less than a $6,000 decrease (less than 1%) in the fair value of
our available-for-sale securities.
  ITEM 4.  CONTROLS AND PROCEDURES
  (a)
Evaluation of disclosure controls and procedures.
  Based on
their evaluation as of September 30, 2008, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) were effective to ensure that the information required to
be disclosed by us in this Quarterly Report on Form 10-Q was recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and instructions for Form 10-Q and that such disclosure
controls and procedures were also effective to ensure that information required
to be disclosed in the reports we file or submit under the Exchange Act 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.
  21
  (b) Changes
in internal controls.
  There has
been no significant change in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected or
is reasonably likely to materially affect our internal control over financial
reporting.
  22
 
 PART II. OTHER INFORMATION
 
 ITEM 1A.  RISK FACTORS
 
 FACTORS
THAT MAY AFFECT FUTURE OPERATING RESULTS
 
 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 statements as a result of certain
factors, including those set forth below.  The following risk factors
have been updated from those set forth in Item 1A. of Part I of our Annual
Report on Form 10-K for the year ended December 31, 2007, and are restated in
full.
 
 Our
Operating Results May Fluctuate Significantly Due To Factors Which Are Not
Within Our Control
 
 We have
recently experienced a broad decrease in order rates across most product lines,
markets and end customers, and expect a decrease in fourth quarter
sales.
 
 Our
quarterly operating results have fluctuated significantly in the past and are
expected to fluctuate significantly in the future based on a number of factors,
many of which are not under our control.  Our operating expenses,
which include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term.  If our revenues are
lower than we expect because we sell fewer semiconductor devices, delay the
release of new products or the announcement of new features, or for other
reasons, we may not be able to quickly reduce our spending in
response.
  Other
      circumstances that can affect our operating results
    include:
  ·
                the
      timing of significant orders, order cancellations and
      reschedulings;
 ·
                the
      loss of one or more significant
customers;
 ·
                introduction
      of products and technologies by our
competitors;
 ·
                the
      availability of production capacity at the fabrication facilities that
      manufacture our products;
 ·
                our
      significant customers could lose market share that may affect our
      business;
 ·
                integration
      of our product functionality into our customers’
  products;
 ·
                our
      ability to develop, introduce and market new products and technologies on
      a timely basis;
 ·
                unexpected
      issues that may arise with devices in
  production;
 ·
                shifts
      in our product mix toward lower margin
products;
 ·
                changes
      in our pricing policies or those of our competitors or suppliers,
      including decreases in unit average selling prices of our
      products;
 ·
                the
      availability and cost of materials to our
  suppliers;
 ·
                general
      macro economic conditions; and
 ·
                political
      climate.
  These
factors are difficult to forecast, and these or other factors could adversely
affect our business.  Any shortfall in our revenues would have a
direct impact on our business.  In addition, fluctuations in our
quarterly results could adversely affect the market price of our common stock in
a manner unrelated to our long-term operating performance.
 
 The
Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances
In The Demand For Our Products
 
 In the
past, the semiconductor industry has been characterized by significant downturns
and wide fluctuations in supply and demand.  Also, during this time,
the industry has experienced significant fluctuations in anticipation of changes
in general economic conditions.  This cyclicality has led to
significant variances in product demand and production capacity.  It
has also accelerated erosion of average selling prices per unit on some of our
products.  We may experience periodic fluctuations in our future
financial results because of industry-wide conditions.
 
 Because
A Substantial Portion Of Our Net Sales Is Generated By A Small Number Of Large
Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net
Revenues And Earnings Will Be Harmed
 
 Historically,
a relatively small number of customers have accounted for a significant portion
of our net revenues in any particular period.  For the three months
ended September 30, 2008, Excelpoint Systems Pte Ltd, Avnet, Inc. and Answer
Technology, Inc. accounted for 29%, 14% and 12%, respectively, of net revenues.
For the same period in 2007, Excelpoint Systems Pte Ltd and Answer Technology,
Inc. accounted for 24% and 11%, respectively, of net revenues. For the nine
months ended September 30, 2008, Excelpoint Systems Pte Ltd, Answer Technology,
Inc. and Avnet, Inc. accounted for 29%, 12% and 12%, respectively, of net
revenues. For the same period in 2007, Metatech and Excelpoint Systems Pte Ltd
accounted for 23% and 11%, respectively, of net revenues. For both periods, no
other individual direct customer or distributor represented greater than 10% of
net revenues in any period presented.
  23
 
 During
2007 we terminated our relationship with our largest distributor and
transitioned in a new replacement distributor. If this new distributor is not
able to sustain the same volume support it could have a material adverse effect
on our business, as we may not be successful in servicing our customers directly
or through manufacturers’ representatives.
 
 We have
no long-term volume purchase commitments from any of our significant customers.
We cannot be certain that our current customers will continue to place orders
with us, that orders by existing customers will continue at the levels of
previous periods or that we will be able to obtain orders from new customers. In
addition, some of our customers supply products to end-market purchasers and any
of these end-market purchasers could choose to reduce or eliminate orders for
our customers' products. This would in turn lower our customers' orders for our
products.
 
 We
anticipate that sales of our products to a relatively small number of customers
will continue to account for a significant portion of our net
sales.  Due to these factors, the following have in the past and may
in the future reduce our net sales or earnings:
  ·
                the
      reduction, delay or cancellation of orders from one or more of our
      significant customers;
 ·
                the
      selection of competing products or in-house design by one or more of our
      current customers;
 ·
                the
      loss of one or more of our current customers;
or
 ·
                a
      failure of one or more of our current customers to pay our
      invoices.
  Intense
Competition In The Markets In Which We Operate May Reduce The Demand For Or
Prices Of Our Products
  Competition
in the semiconductor industry is intense.  If our main target market,
the microprocessor-based systems market, continues to grow, the number of
competitors may increase significantly.  In addition, new
semiconductor technology may lead to new products that can perform similar
functions as our products.  Some of our competitors and other
semiconductor companies may develop and introduce products that integrate into a
single semiconductor device the functions performed by our semiconductor
devices.  This would eliminate the need for our products in some
applications.
  In
addition, competition in our markets comes from companies of various sizes, many
of which are significantly larger and have greater financial and other resources
than we do and thus can better withstand adverse economic or market conditions.
Therefore, we cannot assure you that we will be able to compete successfully in
the future against existing or new competitors, and increased competition may
adversely affect our business.  See “Business -- Products,” and “--
Competition” in Part I of Item I of our Form 10-K for the year ended December
31, 2007.
 
 Our
Independent Manufacturers May Not Be Able To Meet Our Manufacturing
Requirements
 
 We do not
manufacture any of our semiconductor devices.  Therefore, we are
referred to in the semiconductor industry as a “fabless” producer of
semiconductors. Consequently, we depend upon third party manufacturers to
produce semiconductors that meet our specifications.  We currently
have third party manufacturers principally located in Japan, Korea, Taiwan,
Singapore and Malaysia, that can produce semiconductors which meet our
needs.  However, as the semiconductor industry continues to progress
towards 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 semiconductor industry and our
status as a “fabless” semiconductor company, we could encounter
fabrication-related problems that may affect the availability of our
semiconductor devices, delay our shipments or may increase our
costs.
 
 None of
our semiconductor devices are currently manufactured by more than one
supplier.  We place our orders on a purchase order basis and do not
have a long term purchase agreement with any of our existing
suppliers.  In the event that the supplier of a semiconductor device
was unable or unwilling to continue to manufacture this product in the required
volume, we would have to identify and qualify a substitute
supplier.  Introducing new products or transferring existing products
to a new third party manufacturer or process may result in unforeseen device
specification and operating problems.  These problems may affect
product shipments and may be costly to correct.  Silicon fabrication
capacity may also change, or the costs per silicon wafer may
increase.  Manufacturing-related problems may have a material adverse
effect on our business.
  24
 
 Customers
Are Requiring That We Offer Our Products In Lead-Free Packages
 
 Governmental
regulations in certain countries and customers' intention to produce products
that are less harmful to the environment has resulted in a requirement from many
of our customers to purchase integrated circuits that do not contain
lead.  We have responded by offering our products in lead-free
versions. While the lead-free versions of our products are expected to be
friendlier to the environment, the ultimate impact is uncertain. The transition
to lead-free products may produce sudden changes in demand depending on the
packaging method used, which may result in excess inventory of products packaged
using traditional methods. This may have an adverse affect on our results of
operations.  In addition, the cost of manufacturing the lead-free
products is higher compared to the products packaged using more traditional
materials which would result in higher costs to us if additional changes in
demand occur.
 
 Lower
Demand For Our Customers’ Products Will Result In Lower Demand For Our
Products
 
 Demand
for our products depends in large part on the development and expansion of the
high-performance microprocessor-based systems markets including networking and
telecommunications, enterprise storage, imaging and industrial
applications.  The size and rate of growth of these
microprocessor-based systems markets may in the future fluctuate significantly
based on numerous factors.  These factors include the adoption of
alternative technologies, capital spending levels and general economic
conditions. Demand for products that incorporate high-performance
microprocessor-based systems may not grow.
 
 Our
Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our
Expected Revenues
  Our
customers typically perform numerous tests and extensively evaluate our products
before incorporating them into their systems.  The time required for
test, evaluation and design of our products into a customer’s equipment can
range from six to twelve months or more.  It can take an additional
six to twelve months or more before a customer commences volume shipments of
equipment that incorporates our products.  Because of this lengthy
sales cycle, we may experience a delay between the time when we increase
expenses for research and development and sales and marketing efforts and the
time when we generate higher revenues, if any, from these
expenditures.
  In
addition, the delays inherent in our lengthy sales cycle raise additional risks
of customer decisions to cancel or change product plans.  When we
achieve a design win, there can be no assurance that the customer will
ultimately ship products incorporating our products.  Our business
could be materially adversely affected if a significant customer curtails,
reduces or delays orders during our sales cycle or chooses not to release
products incorporating our products.
 
 Failure
To Have Our Products Designed Into The Products Of Electronic Equipment
Manufacturers Will Result In Reduced Sales
 
 Our
future success depends on electronic equipment manufacturers that design our
semiconductor devices into their systems.  We must anticipate market
trends and the price, performance and functionality requirements of current and
potential future electronic equipment manufacturers and must successfully
develop and manufacture products that meet these requirements.  In
addition, we must meet the timing requirements of these electronic equipment
manufacturers and must make products available to them in sufficient
quantities.  These electronic equipment manufacturers could develop
products that provide the same or similar functionality as one or more of our
products and render these products obsolete in their applications.
 
 We do not
have purchase agreements with our customers that contain minimum purchase
requirements.  Instead, electronic equipment manufacturers purchase
our products pursuant to short-term purchase orders that may be canceled without
charge. We believe that in order to obtain broad penetration in the markets for
our products, we must maintain and cultivate relationships, directly or through
our distributors, with electronic equipment manufacturers that are leaders in
the embedded systems markets.  Accordingly, we will incur significant
expenditures in order to build relationships with electronic equipment
manufacturers prior to volume sales of new products. If we fail to develop
relationships with additional electronic equipment manufacturers to have our
products designed into new microprocessor-based systems or to develop sufficient
new products to replace products that have become obsolete, our business would
be materially adversely affected.
  25
 
 Defects
In Our Products Could Increase Our Costs And Delay Our Product
Shipments
 
 Our
products are complex. While we test our products, these products may still have
errors, defects or bugs that we find only after commercial production has begun.
We have experienced errors, defects and bugs in the past in connection with new
products.
 
 Our
customers may not purchase our products if the products have reliability,
quality or compatibility problems. This delay in acceptance could make it more
difficult to retain our existing customers and to attract new
customers.  Moreover, product errors, defects or bugs could result in
additional development costs, diversion of technical and other resources from
our other development efforts, claims by our customers or others against us, or
the loss of credibility with our current and prospective customers. In the past,
the additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. We may have to spend significant
amounts of capital and resources to address and fix problems in new
products.
  We must
continuously develop our products using new process technology with smaller
geometries to remain competitive on a cost and performance
basis.  Migrating to new technologies is a challenging task requiring
new design skills, methods and tools and is difficult to achieve.
 
 Failure
Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial
Condition
 
 We
believe that our growth prospects depend upon our ability to gain customer
acceptance of our products and technology.  Market acceptance of
products depends upon numerous factors, including compatibility with other
products, adoption of relevant interconnect standards, perceived advantages over
competing products and the level of customer service available to support such
products.  There can be no assurance that growth in sales of new
products will continue or that we will be successful in obtaining broad market
acceptance of our products and technology.
 
 We expect
to spend a significant amount of time and resources to develop new products and
refine existing products. In light of the long product development cycles
inherent in our industry, these expenditures will be made well in advance of the
prospect of deriving revenues from the sale of any new products. Our ability to
commercially introduce and successfully market any new products is subject to a
wide variety of challenges during this development cycle, including start-up
bugs, design defects and other matters that could delay introduction of these
products to the marketplace. In addition, since our customers are not obligated
by long-term contracts to purchase our products, our anticipated product orders
may not materialize, or orders that do materialize may be cancelled. As a
result, if we do not achieve market acceptance of new products, we may not be
able to realize sufficient sales of our products in order to recoup research and
development expenditures. The failure of any of our new products to achieve
market acceptance would harm our business, financial condition, results of
operation and cash flows.
 
 A
Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors
Who May Terminate Their Relationships With Us At Any Time
 
 We depend
on distributors to sell a significant portion of our products. For the nine
months ended September 30, 2008 and 2007, sales through distributors accounted
for approximately 78% and 76%, respectively, of our net revenues. Some of our
distributors also market and sell competing products.  Distributors
may terminate their relationships with us at any time.  Our future
performance will depend in part on our ability to attract additional
distributors that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
We may lose one or more of our current distributors or may not be able to
recruit additional or replacement distributors. The loss of one or more of our
major distributors could have a material adverse effect on our business, as we
may not be successful in servicing our customers directly or through
manufacturers’ representatives.
 
 During
2007 we terminated our relationship with our largest distributor and
transitioned in a new replacement distributor. If this new distributor is not
able to sustain the same volume support it could have a material adverse effect
on our business, as we may not be successful in servicing our customers directly
or through manufacturers’ representatives.
 
 The
Demand For Our Products Depends Upon Our Ability To Support Evolving Industry
Standards
 
 A
majority of our revenues are derived from sales of products, which rely on the
PCI Express, PCI, PCI-X and USB standards.  If markets move away from
these standards and begin using new standards, we may not be able to
successfully design and manufacture new products that use these new
standards.  There is also the risk that new products we develop in
response to new standards may not be accepted in the market.  In
addition, these standards are continuously evolving, and we may not be able to
modify our products to address new specifications.  Any of these
events would have a material adverse effect on our business.
  26
 
 We
Must Make Significant Research And Development Expenditures Prior To Generating
Revenues From Products
 
 To
establish market acceptance of a new semiconductor device, we must dedicate
significant resources to research and development, production and sales and
marketing.  We incur substantial costs in developing, manufacturing
and selling a new product, which often significantly precede meaningful revenues
from the sale of this product.  Consequently, new products can require
significant time and investment to achieve profitability.  Investors
should understand that our efforts to introduce new semiconductor devices or
other products or services may not be successful or profitable.  In
addition, products or technologies developed by others may render our products
or technologies obsolete or noncompetitive.
 
 We record
as expenses the costs related to the development of new semiconductor devices
and other products as these expenses are incurred.  As a result, our
profitability from quarter to quarter and from year to year may be adversely
affected by the number and timing of our new product launches in any period and
the level of acceptance gained by these products.
 
 Our Transition To A New Chief
Executive Officer May Not Be Successful
 
 Our board
of directors appointed Ralph Schmitt as our Chief Executive Officer and as a
member of our Board of Directors, effective November 3, 2008.  Mike
Salameh, who is retiring as chief executive officer, will continue as a
full-time employee for a short transition period and then continue to serve as a
member of the board of directors.  While we have planned carefully for
this transition, there are no assurances that we will be able to implement a
smooth transition to our new Chief Executive Officer. Any failure to effectively
transition the Chief Executive Officer position could have a material adverse
effect on our business, results of operations or financial
condition.
 
 We
Could Lose Key Personnel Due To Competitive Market Conditions And
Attrition
 
 Our
success depends to a significant extent upon our senior management and key
technical and sales personnel.  The loss of one or more of these
employees could have a material adverse effect on our business.  We do
not have employment contracts with any of our executive officers.
 
 Our
success also depends on our ability to attract and retain qualified technical,
sales and marketing, customer support, financial and accounting, and managerial
personnel.  Competition for such personnel in the semiconductor
industry is intense, and we may not be able to retain our key personnel or to
attract, assimilate or retain other highly qualified personnel in the
future.  In addition, we may lose key personnel due to attrition,
including health, family and other reasons.  We have experienced, and
may continue to experience, difficulty in hiring and retaining candidates with
appropriate qualifications.  If we do not succeed in hiring and
retaining candidates with appropriate qualifications, our business could be
materially adversely affected.
 
 The
Successful Marketing And Sales Of Our Products Depend Upon Our Third Party
Relationships, Which Are Not Supported By Written Agreements
 
 When
marketing and selling our semiconductor devices, we believe we enjoy a
competitive advantage based on the availability of development tools offered by
third parties.  These development tools are used principally for the
design of other parts of the microprocessor-based system but also work with our
products.  We will lose this advantage if these third party tool
vendors cease to provide these tools for existing products or do not offer them
for our future products.  This event could have a material adverse
effect on our business.  We have no written agreements with these
third parties, and these parties could choose to stop providing these tools at
any time.
  Our
Limited Ability To Protect Our Intellectual Property And Proprietary Rights
Could Adversely Affect Our Competitive Position
  Our
future success and competitive position depend upon our ability to obtain and
maintain proprietary technology used in our principal
products.  Currently, we have limited protection of our intellectual
property in the form of patents and rely instead on trade secret
protection.  Our existing or future patents may be invalidated,
circumvented, challenged or licensed to others.  The rights granted
there under may not provide competitive advantages to us.  In
addition, our future patent applications may not be issued with the scope of the
claims sought by us, if at all.  Furthermore, others may develop
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned or licensed by us.  In
addition, effective patent, trademark, copyright and trade secret protection may
be unavailable or limited in foreign countries where we may need
protection.  We cannot be sure that steps taken by us to protect our
technology will prevent misappropriation of the technology.
  27
 
 We may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by third
parties.  While there is currently no intellectual property litigation
pending against us, litigation could result in significant expenses to us and
adversely affect sales of the challenged product or technology.  This
litigation could also divert the efforts of our technical and management
personnel, whether or not the litigation is determined in our
favor.  In addition, we may not be able to develop or acquire
non-infringing technology or procure licenses to the infringing technology under
reasonable terms.  This could require expenditures by us of
substantial time and other resources.  Any of these developments would
have a material adverse effect on our business.
 
 Our
Potential Future Acquisitions May Not Be Successful Because Of Our Limited
Experience With Acquisitions In The Past
  As part
of our business strategy, we expect to review acquisition prospects that would
complement our existing product offerings, improve market coverage or enhance
our technological capabilities.  Future acquisitions could result in
any or all of the following:
  ·
                potentially
      dilutive issuances of equity
securities;
 ·
                large
      acquisition-related write-offs;
 ·
                the
      incurrence of debt and contingent liabilities or amortization expenses
      related to other intangible assets;
 ·
                difficulties
      in the assimilation of operations, personnel, technologies, products and
      the information systems of the acquired
  companies;
 ·
                diversion
      of management’s attention from other business
  concerns;
 ·
                risks
      of entering geographic and business markets in which we have no or limited
      prior experience; and
 ·
                potential
      loss of key employees of acquired
organizations.
  We have
had limited experience with acquisitions in the past and may not be able to
successfully integrate any businesses, products, technologies or personnel that
may be acquired in the future.  Our failure to do so could have a
material adverse effect on our business.
 
 Because
We Sell Our Products To Customers Outside Of The United States And Because Our
Products Are Incorporated With Products Of Others That Are Sold Outside Of The
United States We Face Foreign Business, Political And Economic
Risks
 
 Sales
outside of the United States accounted for approximately 77% of our revenues for
the nine months ended September 30, 2008.  In 2007 and 2006, sales
outside of the United States accounted for approximately 71% and 75% of our
revenues, respectively.  Sales outside of the United States may
fluctuate in future periods and may continue to account for a large portion of
our revenues.  In addition, equipment manufacturers who incorporate
our products into their products sell their products outside of the United
States, thereby exposing us indirectly to foreign risks.  Further,
most of our semiconductor products are manufactured outside of the United
States.  Accordingly, we are subject to international risks,
including:
  ·
                difficulties
      in managing distributors;
 ·
                difficulties
      in staffing and managing foreign subsidiary and branch
      operations;
 ·
                political
      and economic instability;
 ·
                foreign
      currency exchange fluctuations;
 ·
                difficulties
      in accounts receivable collections;
 ·
                potentially
      adverse tax consequences;
 ·
                timing
      and availability of export
licenses;
 ·
                changes
      in regulatory requirements, tariffs and other
  barriers;
 ·
                difficulties
      in obtaining governmental approvals for telecommunications and other
      products; and
 ·
                the
      burden of complying with complex foreign laws and
  treaties.
  28
  Because
sales of our products have been denominated to date exclusively in United States
dollars, increases in the value of the United States dollar will increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, which could lead to a reduction
in sales and profitability in that country.
  A
Downturn In The Global Economy May Adversely Affect Our Revenues, Results Of
Operations And Financial Condition
  Demand
for semiconductor components is increasingly dependent upon the rate of growth
in the global economy.  If the rate of global economic growth slows,
or contracts, customer demand for products could be adversely affected, which in
turn could adversely affect revenues, results of operations and financial
condition.  Many factors could adversely affect regional or global
economic growth.  Some of the factors that could slow global economic
growth include:
 
 ·
                rising
      interest rates and poor availability of
credit,
 ·
                a
      slowdown in the rate of growth of the United States
    economy,
 ·
                a
      slowdown in the rate of growth of other developed nation
      economies,
 ·
                a
      significant act of terrorism which disrupts global trade or consumer
      confidence,
 ·
                geopolitical
      tensions including war and civil
unrest,
 ·
                reduced
      levels of economic activity or
 ·
                disruption
      of international transportation.
  The
recent challenging economic conditions also may impair the ability of our
customers to pay for products and services they have purchased or would like to
purchase. As a result, revenues may decline and reserves for doubtful accounts
and write-offs of accounts receivable may increase. We maintain an investment
portfolio of various holdings, types, and maturities. These investments are
subject to general credit, liquidity, market, and interest rate
risks.  If the global credit market continues to deteriorate, our
investment portfolio may be impacted and we could determine that some of our
investments have experienced an other-than-temporary decline in fair value,
requiring an impairment charge which could adversely impact our financial
results.
 
 We
May Be Required To Record A Significant Charge To Earnings If Our Goodwill Or
Amortizable Intangible Assets Become Impaired
 
 Under
generally accepted accounting principles, we review our amortizable intangible
assets for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. Goodwill is tested for impairment at
least annually. Factors that may be considered a change in circumstances,
indicating that the carrying value of our goodwill or amortizable intangible
assets may not be recoverable, include a persistent decline in stock price and
market capitalization, reduced future cash flow estimates, and slower growth
rates in our industry. We may be required to record a significant charge in our
financial statements during the period in which any impairment of our goodwill
or amortizable intangible assets is determined, which would adversely impact our
results of operations.
 
 Our
Principal Stockholders Have Significant Voting Power And May Take Actions That
May Not Be In The Best Interests Of Our Other Stockholders
 
 Our
executive officers, directors and other principal stockholders, in the
aggregate, beneficially own a substantial amount of our outstanding common
stock. Although these stockholders do not have majority control, they currently
have, and likely will continue to have, significant influence with respect to
the election of our directors and approval or disapproval of our significant
corporate actions.  This influence over our affairs might be adverse
to the interests of other stockholders.  In addition, the voting power
of these stockholders could have the effect of delaying or preventing a change
in control of PLX.
 
 The
Anti-Takeover Provisions In Our Certificate of Incorporation Could Adversely
Affect The Rights Of The Holders Of Our Common Stock
 
 Anti-takeover
provisions of Delaware law and our Certificate of Incorporation may make a
change in control of PLX more difficult, even if a change in control would be
beneficial to the stockholders.  These provisions may allow the Board
of Directors to prevent changes in the management and control of
PLX.
  29
 
 As part
of our anti-takeover devices, our Board of Directors has the ability to
determine the terms of preferred stock and issue preferred stock without the
approval of the holders of the common stock.  Our Certificate of
Incorporation allows the issuance of up to 5,000,000 shares of preferred
stock.  There are no shares of preferred stock
outstanding.  However, because the rights and preferences of any
series of preferred stock may be set by the Board of Directors in its sole
discretion without approval of the holders of the common stock, the rights and
preferences of this preferred stock may be superior to those of the common
stock.  Accordingly, the rights of the holders of common stock may be
adversely affected.  Consistent with Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the
future.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  In
September 2002, our Board of Directors authorized the repurchase of up
to 2,000,000 shares of common stock.  In July 2008, our Board of
Directors authorized an additional 2,000,000 shares under the repurchase
program. At the discretion of the management, we can repurchase the shares from
time to time in the open market or in privately negotiated transactions. 
Approximately 774,000 shares were repurchased for approximately $1.9 million in
cash in 2002 and 2003. We did not repurchase any additional shares from January
1, 2004 through December 31, 2007. In the three and nine months ended September
30, 2008 we repurchased 74,000 and 956,000 shares, respectively, for
approximately $0.5 million and $6.5 million, respectively.
 
 The stock
repurchase activity under the stock repurchase program during the three months
ended September 30, 2008 is summarized as follows (in thousands, except per
share amounts):
  Total
      Number of
                  
                  
                  Maximum
      Number OfShares
      Purchased
                  
                  
                  Shares
      That MayTotal
      Number of
                  
                  
                  Average
      Price
                  
                  
                  As
      Part of Publicly
                  
                  
                  Yet
      Be PurchasedPeriod
                  
                  Shares
      Purchased
                  
                  Paid
      Per Share
                  
                  
                  Announced
      Plan
                  
                  
                  Under
      The PlanJuly
      1, 2008 - July 31, 2008
                  
                  
                  74
                  
                  
                  
                  6.91
                  
                  
                  
                  74
                  
                  
                  
                  2,269August
      1, 2008 - August 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,269September
      1, 2008 - September 30, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,269Total
                  
                  
                  74
                  
                  
                  
                  
                  
                  
                  
                  74
                  
                  
                  
                  2,269
 ITEM 6.  EXHIBITS
  ExhibitNumber
                  
                  Description31.1
                  
                  Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                  
                  Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                  
                  Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                  
                  Certification
      of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
  30
  SIGNATURE
 
 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.
 
 
 
 PLX
TECHNOLOGY, INC.
 
 
 Date:
October 30, 2008
 
 By     /s/ Arthur O.
Whipple
 
 Arthur
O. Whipple
 Chief
Financial Officer
 (Principal Financial Officer and duly
authorized signatory)
  31
  EXHIBIT
INDEX
 ExhibitNumber
                  
                  Description31.1
                  
                  Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                  
                  Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                  
                  Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                  
                  Certification
      of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
  32