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 June 30, 2010.




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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[  ]  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 June 30, 2010 there were 37,093,626 shares of common stock, par value $0.001 per share, outstanding.




PLX TECHNOLOGY, INC.
 INDEX TO
 REPORT ON FORM 10-Q
 FOR QUARTER ENDED JUNE 30, 2010
 PART I. FINANCIAL INFORMATION
PageItem 1.
Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009
3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009
4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009
5Notes to Condensed Consolidated Financial Statements
6Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
17Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26Item 4.
Controls and Procedures
26PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
27Item 1A.
Risk Factors
27Item 6.
Exhibits
35Signature
36
  2
 PART I.   FINANCIAL INFORMATION
 
 ITEM 1.    FINANCIAL STATEMENTS
 
 
 PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in thousands)
  June 30,


December 31,2010


2009ASSETSCurrent Assets:Cash and cash equivalents

$
15,452


$
11,299Short-term marketable securities


27,742



27,060Accounts receivable, net


8,654



9,167Inventories


13,449



9,628Other current assets


3,082



3,712Total current assets


68,379



60,866Property and equipment, net


11,009



10,856Goodwill


1,367



1,367Other acquired intangible assets


4,343



5,640Long-term marketable securities


1,974



1,656Other assets


2,593



3,635Total assets

$
89,665


$
84,020LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable

$
7,935


$
6,489Accrued compensation and benefits


2,826



1,261Accrued commissions


478



740Short term capital lease obligation


1,163



776Other accrued expenses


822



1,657Total current liabilities


13,224



10,923Long term capital lease obligation


439



1,098Total liabilities


13,663



12,021Stockholders' Equity:Common stock, par value


37



37Additional paid-in capital


154,773



153,939Accumulated other comprehensive loss


(113
)


(87
)Accumulated deficit


(78,695
)


(81,890
)Total stockholders' equity


76,002



71,999Total liabilities and stockholders' equity

$
89,665


$
84,020
 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


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Net revenues

$
29,721


$
18,178


$
58,540


$
34,635Cost of revenues


12,232



8,076



24,703



15,587Gross margin


17,489



10,102



33,837



19,048Operating expenses:Research and development


8,234



8,570



15,787



16,473Selling, general and administrative


6,701



7,084



13,164



13,979Acquisition and restructuring related costs


-



99



-



2,729Amortization of acquired intangible assets


649



854



1,297



1,708Total operating expenses


15,584



16,607



30,248



34,889Income (loss) from operations


1,905



(6,505
)


3,589



(15,841
)Interest income and other, net


48



117



109



165Loss on fair value remeasurement


-



(2,652
)


-



(3,842
)Income (loss) before provision for income taxes


1,953



(9,040
)


3,698



(19,518
)Provision for income taxes


264



16



503



35Net income (loss)

$
1,689


$
(9,056
)

$
3,195


$
(19,553
)Basic net income (loss) per share

$
0.05


$
(0.26
)

$
0.09


$
(0.57
)Shares used to compute basic per share amounts


37,081



35,061



37,053



34,275Diluted net income (loss) per share

$
0.04


$
(0.26
)

$
0.08


$
(0.57
)Shares used to compute diluted per share amounts


37,884



35,061



37,846



34,275
 See accompanying notes to condensed consolidated financial statements.
  4
 PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in thousands)
 Six Months EndedJune 30,2010


2009Cash flows from operating activities:Net income (loss)

$
3,195


$
(19,553
)Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities,net of assets acquired and liabilities assumed:Depreciation and amortization


1,641



1,640Share-based compensation expense


632



2,225Amortization of acquired intangible assets


1,297



1,708Write-downs of inventories


180



250Fair value remeasurement of note payable


-



3,842Other non-cash items


117



32Changes in operating assets and liabilities:Accounts receivable


513



(1,126
)Inventories


(4,001
)


3,092Other current assets


630



706Other assets


475



(786
)Accounts payable


1,446



(488
)Accrued compensation and benefits


1,565



(1,218
)Other accrued expenses


(1,051
)


(1,052
)Net cash provided by (used in) operating activities


6,639



(10,728
)Cash flows from investing activities:Cash acquired in Oxford acquisition


-



4,392Purchases of marketable securities


(17,542
)


(12,002
)Sales and maturities of marketable securities


16,418



23,700Purchase of property and equipment


(1,227
)


(689
)Net cash provided by (used in) investing activities


(2,351
)


15,401Cash flows from financing activities:Proceeds from exercise of common stock options


202



-Tender Offer payments


-



(933
)Principal payments on capital lease obligations


(317
)


(252
)Net cash (used in) financing activities


(115
)


(1,185
)Effect of exchange rate fluctuations on cash and cash equivalents


(20
)


(22
)Net increase in cash and cash equivalents


4,153



3,466Cash and cash equivalents at beginning of period


11,299



6,865Cash and cash equivalents at end of period

$
15,452


$
10,331Supplemental disclosure of cash flow  information:Cash paid for income taxes

$
482


$
48Cash paid for interest

$
33


$
375Common stock issued in connection with acquisition

$
-


$
20,222Common stock issued in connection with acquisition after conversion of the note into shares

$
-


$
10,030
 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 June 30, 2010 and for the three and six month periods ended June 30, 2010 and 2009 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, 2009.
  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, acquired intangible assets, 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 (loss) for the three and six month periods ended June 30, 2010 and 2009 was as follows (in thousands):
  Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Net income (loss)

$
1,689


$
(9,056
)

$
3,195


$
(19,553
)Unrealized gain (loss) on marketable securities, net


12



(14
)


(8
)


(121
)Cumulative translation adjustments


(9
)


(10
)


(18
)


(22
)Comprehensive net income (loss)

$
1,692


$
(9,080
)

$
3,169


$
(19,696
)
  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.
 
 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
 
 As of June 30, 2010, 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. 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 three 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. The Company analyzes current stock rotation requests and past experience to determine the ending sales reserve required for this program.  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 when the rebate is in the form of cash consideration. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.
 
 Recent Accounting Pronouncement
  In January 2010, the FASB amended the guidance related to fair value disclosures. This amended guidance requires disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, this guidance requires presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations and the Company does not believe that it will have subsequent impact after the 2011 adoption of the guidance around fair value measurements using unobservable inputs.
 
 2.  Share-Based Compensation
 
 Stock Option Plans
 
 In May 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008 Plan”).  An amendment to the 2008 Plan was approved by the Company’s stockholders in May 2010 to increase the number shares by 1,500,000 units. Under the 2008 Plan, there is authorized for issuance and available for awards an aggregate of 2,700,000 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 were 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 such awards expire, 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 and have a term of seven years.  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


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Risk-free interest rate


1.62
%


2.43
%


1.84
%


2.36
%Expected volatility


0.61



0.62



0.61



0.62Expected life (years)


4.19



4.51



4.19



4.51
 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.
  7
 
 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 believes that historical volatility best represents expected volatility due to the lack of market data consistently available to calculate implied volatility. The historical volatility is based on the weekly closing prices of its common stock over a period equal to the expected term of the option and is a strong indicator of the expected future 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 six months ended June 30, 2010 and 2009 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are 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 June 30, 2010 and 2009 of 26% and 29%, respectively, was based on historical experience.
 
 The following table shows total share-based compensation and employee stock ownership plan expenses for the three and six months ended June 30, 2010 and 2009, included in the respective line items of the Condensed Consolidated Statements of Operations (in thousands):
 
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Cost of revenues

$
10


$
69


$
17


$
79Research and development


165



595



309



704Selling, general and administrative


288



1,456



483



1,677Total share-based compensation expense

$
463


$
2,120


$
809


$
2,460
 A summary of option activity under the Company’s stock equity plans during the first two quarters of 2010 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, 2009


870,810



2,825,796


$
4.36



5.14


$
1,794,310Granted


(830,500
)


830,500



4.92Exercised


-



(30,140
)


2.59Cancelled


32,605



(32,605
)


4.90Plan Termination


(625
)


-



-Outstanding at March 31, 2010


72,290



3,593,551


$
4.50



5.34


$
5,758,282Authorized


1,500,000



-



-Granted


(43,000
)


43,000



4.78Exercised


-



(51,283
)


2.41Cancelled


15,495



(15,495
)


8.96Plan Termination


(2,416
)


-



-Outstanding at June 30, 2010


1,542,369



3,569,773


$
4.51



5.17


$
3,241,577Exercisable at June 30, 2010






1,397,894


$
5.89



3.87


$
1,150,623
 The Black-Scholes weighted average fair values of options granted during the three months ended June 30, 2010 and 2009 were $2.36 and $1.71, respectively.
  8
 
 The Black-Scholes weighted average fair values of options granted during the six months ended June 30, 2010 and 2009 were $2.41 and $0.97, respectively.
 
 The following table summarizes ranges of outstanding and exercisable options as of June 30, 2010:
  Options Outstanding


Options ExercisableWeighted AverageRemaining


Weighted





WeightedContratual Term


Average





AverageRange of Exercise Prices


Number


(in years)


Exercise Price


Number


Exercise Price$1.25-$2.00



831,875



5.58


$
1.91



256,454


$
1.91$2.04-$3.76



722,277



4.85



2.45



386,607



2.73$3.87-$4.68



343,000



5.90



3.96



47,500



4.37$4.92-$4.92



818,840



6.67



4.92



-



-$4.95-$16.65



853,781



3.32



8.62



707,333



9.17Total



3,569,773



5.17


$
4.51



1,397,894


$
5.89
  The total intrinsic value of options exercised during the three and six months ended June 30, 2010 was $0.2 million and $0.2 million. There were no options exercised during the same period in 2009. The fair value of options vested during the three and six months ended June 30, 2010 was approximately $0.7 million and $1.7 million, respectively. As of June 30, 2010, total unrecognized compensation costs related to nonvested stock options including estimated forfeitures was $1.7 million which is expected to be recognized as expense over a weighted average period of approximately 1.52 years.
 
 Tender Offer
 
 On March 31, 2009, The Company commenced an offer to purchase for cash certain outstanding options held by its employees (including officers) and directors, and filed associated documents with the SEC under Schedule TO.  Options to purchase 3,262,809 shares of our common stock were eligible for purchase under the offer.  Eligible options must have had an exercise price of at least $5.50 and must have met other conditions set forth in the offer.  The amount of cash offered for eligible options was based on the Black-Scholes valuation of each eligible option, subject to a minimum of $0.05 per share, and ranged from $0.05 to $1.42 per share.
 
 On May 1, 2009, upon the closing of the offer, options to purchase 2,533,278 shares of the Company’s common stock were validly tendered and not withdrawn, and the Company accepted the repurchase of these options.  Each eligible optionee who validly tendered eligible options pursuant to the offer to purchase received a cash payment in the range of $0.05 to $1.42 per option for an aggregate amount of $0.9 million.  The Company recognized $1.6 million in share-based compensation expenses associated with the acceleration of unamortized compensation expenses on the previously unvested tendered options in the second quarter of 2009. The aggregate amount of the payments made in exchange for eligible options was charged to stockholders' equity to the extent that the amount did not exceed the fair value of the eligible options accepted for payment, as determined at the purchase date. The amount paid in excess of that fair value of $16,000, as determined at the purchase date, was also recorded as compensation expense.
 
 The Company returned to its 2008 Equity Incentive Plan the first 400,000 shares underlying options purchased pursuant to the offer that were originally issued under the 2008 plan or our 1999 Stock Incentive Plan.  These options have become available for future grant. The Company retired the remaining 2,133,278 tendered options.
 
 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):
 June 30,


December 31,2010


2009Work-in-process

$
4,848


$
2,242Finished goods


8,601



7,386Total

$
13,449


$
9,628
  9
 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 (Loss) Per Share
 
 The Company uses the treasury stock method to calculate the weighted average shares used in the diluted earnings per share.The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Net income (loss)

$
1,689


$
(9,056
)

$
3,195


$
(19,553
)Weighted average shares of common stock outstanding


37,081



35,061



37,053



34,275Net income (loss) per share - basic

$
0.05


$
(0.26
)

$
0.09


$
(0.57
)Shares used in computing basic net income (loss) per share


37,081



35,061



37,053



34,275Dilutive effect of stock options


803



-



793



-Shares used in computing diluted net income (loss) per share


37,884



35,061



37,846



34,275Net income (loss) per share - diluted

$
0.04


$
(0.26
)

$
0.08


$
(0.57
)
 Weighted average employee stock options to purchase approximately 1.7 million shares for the three and six month periods ended June 30, 2010 were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of stock options was greater than the average share price of the Company’s stock and, therefore, the effect would have been anti-dilutive.
 
 As the Company incurred a net loss for the three and six month periods ended June 30, 2009, the effect of dilutive securities, totaling 2.6 million shares has been excluded from the computation of diluted loss per share, as its impact would be anti-dilutive. Dilutive securities are comprised of options to purchase common stock.
 
 5.  Fair Value Measurements
 
 The accounting guidance for fair value measurements provided a framework for measuring fair value and expands related disclosures. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The guidance also established a hierarchy which requires an entity to maximize the use of observable inputs, when available.  The guidance 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.
 
 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 upon quoted prices in markets that are not active and incorporate available trade, bid and other market information.
 
 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.
  10
  The fair value of financial assets and liabilities measured on a recurring basis is as follows (in thousands):
  Fair Value Measurement as Reporting Date UsingQuoted Prices in Active Markets


Significant Other


Significantfor Identical Assets or Liabilities


Observable Inputs


Unobservable InputsJune 30, 2010


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
19


$
19


$
-


$
-Marketable securities


32,396



-



32,396



-Total

$
32,415


$
19


$
32,396


$
-Fair Value Measurement as Reporting Date UsingQuoted Prices in Active Markets


Significant Other


Significantfor Identical Assets or Liabilities


Observable Inputs


Unobservable InputsDecember 31, 2009


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
3,611


$
3,611


$
-


$
-Marketable securities


28,716



-



28,716



-Total

$
32,327


$
3,611


$
28,716


$
-
  6.  Investments
 
 As of June 30, 2010, 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 or prices quoted in markets that are not active, 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.
 
 The fair value of available-for-sale investments is as follows (in thousands):
  June 30, 2010Amortized


Unrealized


Unrealized


EstimatedCost


Gain


Loss


Fair ValueCertificate of deposit

$
2,868


$
-


$
-


$
2,868Corporate bonds and notes


2,219



-



(11
)


2,208Municipal bonds


537



-



(1
)


536US treasury and government agencies securities


26,752



32



-



26,784Total bonds, notes and equity securities

$
32,376


$
32


$
(12
)

$
32,396Less amounts classified as cash equivalents














(2,680
)Total short and long-term available-for-sale investments













$
29,716Contractual maturity dates for investments:Less than one year:














27,742One to two years:














1,974$
29,716
 11
 
 December 31, 2009Amortized


Unrealized


Unrealized


EstimatedCost


Gain


Loss


Fair ValueCertificate of deposit

$
1,726


$
-


$
-


$
1,726Corporate bonds and notes


1,937



8



(3
)


1,942Municipal bonds


106



-



-



106US treasury and government agencies securities


24,919



35



(12
)


24,942Total bonds, notes and equity securities

$
28,688


$
43


$
(15
)

$
28,716Contractual maturity dates for investments:Less than one year:














27,060One to two years:














1,656$
28,716
 The following tables show the gross unrealized losses and fair value for investments in an unrealized loss position as of June 30, 2010 and December 31, 2009, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
  June 30, 2010Less than 12 Months


12 months or Greater


TotalFair Value


Unrealized Loss


Fair Value


Unrealized Loss


Fair Value


Unrealized LossCorporate bonds and notes

$
2,208


$
(11
)

$
-


$
-


$
2,208


$
(11
)Municipal Bonds


326



(1
)


-



-



326



(1
)Total

$
2,534


$
(12
)

$
-


$
-


$
2,534


$
(12
)
  December 31, 2009Less than 12 Months


12 months or Greater


TotalFair Value


Unrealized Loss


Fair Value


Unrealized Loss


Fair Value


Unrealized LossCorporate bonds and notes

$
561


$
(3
)

$
-


$
-


$
561


$
(3
)US treasury and government agencies securities


13,292



(12
)


-



-



13,292



(12
)Total

$
13,853


$
(15
)

$
-


$
-


$
13,853


$
(15
)
 The Company reviews its available for sale investments for impairment at the end of each period.  Investments in debt securities, which make up the majority of the Company’s investments, are considered impaired when the fair value of the debt security is below its amortized cost. If an impairment exists and the Company determines it has intent to sell the debt security or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis, an other-than-temporary impairment loss is recognized in earnings to write the debt security down to its fair value. However, even if the Company does not expect to sell the debt security, it must evaluate expected cash flows to be received and determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recognized in other comprehensive income (loss). The Company did not record any other-than-temporary write-downs in the accompanying financial statements.
 
 7.  Acquisition of Oxford Semiconductor Inc.
 
 On January 2, 2009, the Company acquired all of the outstanding shares of capital stock of Oxford Semiconductor, Inc. (Oxford), a privately held fabless provider of industry-leading silicon and software for the consumer and small office/home office (SOHO) storage markets.
 
 Established in 1992, Oxford has been providing silicon and software solutions to interconnect digital systems, including PCIe, USB, 1394, Ethernet, Serial ATA and external Serial ATA.  Oxford’s corporate headquarters were located in Milpitas, California, with most of its employees based in Oxford’s design center in Abingdon, United Kingdom.  The consumer and SOHO external storage markets account for the majority of Oxford’s sales.  Oxford provides advanced system-on-chip solutions for both direct-attached storage (DAS) and network-attached storage (NAS) external drives.  Oxford’s customers include Seagate, Western Digital, LaCie, Hewlett Packard, and Macpower.
  12
 
 The Company believes that through this acquisition, it has a leadership position in two of the fastest-growing interconnect chip markets – PCI Express-based systems and consumer external storage.  Major synergies include common interconnect technologies and design flows, sales, marketing and support systems, and supply chains.  Most importantly, the Company can create innovative products that combine the considerable intellectual property and industry knowledge of Oxford and PLX.
  The total consideration paid for the transaction was $16.4 million, consisting of 5.6 million shares at $1.82 per share, the closing price on January 2, 2009, the date the transaction was closed, and the fair value of the contingently convertible debt liability as of January 2, 2009, of $6.2 million.
  As a part of the Merger Agreement, the Company acquired all of the outstanding shares of capital stock of Oxford in exchange for 5.6 million shares of common stock of PLX and a promissory note in the principal amount of $14.2 million (the “Note”) that was to be satisfied by either (i) the issuance of an additional 3.4 million shares of common stock of PLX upon approval of PLX’s stockholders, or (ii) the repayment of the principal amount of the Note if such stockholder approval was not obtained by June 30, 2009.  On May 22, 2009 at a special meeting of the shareholders, the shareholders approved the conversion of the $14.2 million note to 3.4 million shares of common stock of the Company.
 
 Under the revised business combinations guidance, which became effective for the Company on January 1, 2009, the contingently convertible promissory note was considered contingent consideration which was recorded at fair value as of the acquisition date, and changes to the fair value of contingent consideration were reflected through the statement of operations.  The fair value of the convertible note on the acquisition date was based on that day’s closing stock price of $1.82 per share.  On March 31, 2009, the convertible note was remeasured to fair value. Based on the closing stock price of $2.17 as of March 31, 2009, the fair value of the convertible note was $7.4 million. The change in fair value of $1.2 million was recognized as a loss in the quarter ended March 31, 2009. On May 22, 2009, the date of the conversion, the closing stock price was $2.95. The fair value of the 3.4 million shares was $10.0 million.  The change in fair value of $2.7 million was recognized as a loss in the second quarter of 2009.
 
 The following table summarizes the consideration paid for Oxford and the amounts of the assets acquired and liabilities assumed at the acquisition date.
 
 Fair value of consideration transferred:
 5,600,000 common shares of PLX

$
10,192Contingent consideration


6,188Fair value of total consideration

$
16,380
 Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
  Cash and cash equivalents

$
4,392Trade receivables


1,286Inventories


2,677Tax receivable


835Licensed IP


2,499Property, plant and equipment


1,357Identifiable intangible assets


9,056Other assets


482Trade and other payable


(3,163
)Accruals and other liabilities


(4,408
)Total indentifiable net assets

$
15,013Goodwill


1,367$
16,380
  13
 The fair value of assets acquired included trade receivables of $1.6 million.  The gross amount due under sales related contracts was $1.6 million, of which $0.3 million was expected to be uncollectible as a result of recognized credits due to distributors for the difference in the price they previously purchased products for from Oxford Semiconductor, Inc. and the authorized quote price based on the distributors’ sell through activity.  The gross amount under a prior intellectual property royalty arrangement was $0.3 million and the full amount was expected to be uncollectible.
 
 The identified intangible assets consist of core technology, trade name and customer relationships.  The valuation of the acquired intangibles was classified as a level 3 measurement under the fair value measurement guidance, because the valuation was based on significant unobservable inputs and involved management judgment and assumptions about market participants and pricing.   In determining fair value of the acquired intangible assets, the Company determined the appropriate unit of measure, the exit market and the highest and best use for the assets. The fair value was estimated using an incremental income approach.
 
 The goodwill that arose from the acquisition is largely attributable to the synergies expected to be realized after the Company’s acquisition and integration of Oxford.  The Company only has one operating segment, semiconductor products, so all of the goodwill was assigned to the one segment.  Goodwill is not expected to be deductible for tax purposes.
 
 Oxford contributed revenues and gross profit of $5.9 million and $3.1 million, respectively, to the Company for the quarter ended June 30, 2010, and $13.0 million and $6.9 million, respectively, for the six months ended June 30, 2010. In the three months ended June 30, 2009 Oxford contributed revenues and gross profit of $7.0 million and $3.5 million, respectively, and $11.7 million and $5.6 million, respectively, for the period from January 2, 2009 to June 30, 2009. Oxford operations were fully integrated as of the end of the first quarter of 2009 and it is therefore not practicable to identify earnings associated with Oxford’s contribution.
 
 Because the acquisition took place on January 2, 2009, which was in substance the beginning of the year, no pro forma data is presented for the quarter or  year to date ended June 30, 2009 as the Company’s historical statement of operations already includes the results of Oxford for the entire period.
 
 During the three and six months ended June 30, 2009, the Company incurred $0.1 million and $0.4 million, respectively, of third party acquisition related costs, primarily for outside legal and accounting costs.  These expenses were included in operating expenses under acquisition related costs in the Company’s consolidated statement of operations for the three and six months ended June 30, 2009.
 
 8.  Goodwill and Intangibles
 
 As discussed in Note 7, the acquisition of Oxford included the acquisition of $9.1 million of identifiable intangible assets.  All of these intangibles are subject to amortization.  There is no estimated residual value on any of the intangible assets.
 
 The following table summarizes the gross carrying amount and accumulated amortization for each major intangible class and the weighted average amortization period, in total and by major intangible asset class, as of June 30, 2010 (in thousands).
 EstimatedGross Carrying


Accumulated


Net

Amortization
UsefulValue


Amortization


Value

Method
LifeExisting and core technologyUSB and Serial Connectivity

$
4,600


$
(3,067
)

$
1,533

Accelerated
3 yearsNetwork Attached Storage Connectivity


3,800



(1,140
)


2,660

Straight-line
5 yearsTrade Name


600



(450
)


150

Straight-line
2 yearsCustomer Relationships


56



(56
)


-

Accelerated
1 yearTotals

$
9,056


$
(4,713
)

$
4,343


3.8 years
 The amortization expense for the three and six month periods ended June 30, 2010 was $0.6 million and $1.3 million respectively.  For the same periods in 2009 the amortization expense was $0.9 million and $1.7 million, respectively.
  14
  Estimated future amortization expense is as follows (in thousands):
 Remainder of 2010

$
1,2962011


1,5272012


7602013


760Total

$
4,343
 9.  Restructuring Costs
 
 Severance
 
 In the six months ended June 30, 2009, the Company recorded approximately $2.0 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Consolidated Statement of Operations, related to the termination of 53 employees as a result of the redundancy issue associated with the acquisition of Oxford. As of March 31, 2010, all of the $2.0 million severance and benefit related costs were paid.
 
 Lease Termination
 
 In January 2009, associated with the acquisition of Oxford, the Company assumed a building lease in Milpitas, California which was vacated upon acquisition. The Company did not believe it would be able to find a sublease for this property given the market conditions at the time and available space in the area. The future lease costs for the property were $0.3 million which extended through February 2010. The Company recorded the liability, included in other accrued expenses in the Consolidated Balance Sheet, for the costs to be incurred at the future cash payment amount of $0.3 million as the total cash payment was not materially different from the fair value. The lease accrual charge of $0.3 million was recorded in the Consolidated Statement of Operations in the first quarter of 2009. The accrued lease liability was paid in full in January 2010.
 
 10.  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


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Revenues:China

$
9,989


$
7,980


$
18,579


$
13,066United States


5,505



2,700



9,539



5,197Taiwan


5,050



1,544



10,868



3,258Singapore


3,422



2,311



7,943



4,392Other Asia Pacific


2,908



1,650



6,023



3,268Europe, Middle East and Africa


2,718



1,569



5,301



3,721The Americas - excluding United States


129



424



287



1,733Total

$
29,721


$
18,178


$
58,540


$
34,635
 15
 
 There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:
  Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Excelpoint Systems Pte Ltd


26
%


23
%


27
%


22
%Answer Technology, Inc.


19
%


*
%


19
%


*
%Promate Electronics Co., Ltd


11
%


17
%


12
%


16
%Avnet, Inc.


21
%


*
%


19
%


*
%
 *      Less than 10%
  The following distributors accounted for 10% or more of the total accounts receivable balance:
 June 30,2010


2009Excelpoint Systems Pte Ltd


28
%


25
%Answer Technology, Inc.


20
%


14
%Promate Electronics Co., Ltd


15
%


13
%Avnet, Inc.


20
%


*
%
  *      Less than 10%
  11. Contingencies
  On February 2, 2010, Internet Machines LLC ("Internet Machines") filed a complaint, which has been served on the Company, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, alleging infringement by the Company and the other defendants in the lawsuit of two patents held by Internet Machines.  The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of the Internet Machines patents.
 
 On May 14, 2010, the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit.  On July 26, 2010, Internet Machines, pursuant to an order from the court, filed a notice stating that all defendants had responded to the complaint, and that the case was ready to be set for a scheduling conference before the Court.  Accordingly, the Company anticipates that the Court will conduct such a conference within the next two months and issue a scheduling order in this matter that will contain pertinent dates and deadlines.  While it is not possible to determine the ultimate outcome of this litigation, the Company believes that it has meritorious defenses with respect to the claims asserted against it and it intends to vigorously defend its position.  The Company believes that any ultimate liability in this litigation will not have a material impact on its financial position or results of operations.
 
 12.  Income Taxes
  A provision for income tax of $0.5 million has been recorded for the six month period ended June 30, 2010, compared to a provision of $35,000 for the same period in 2009.  Income tax expense for the six months ended June 30, 2010 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur. We excluded from our calculation of the effective tax rate losses of a certain foreign jurisdiction since we cannot benefit those losses. For the same period in 2009, the income tax expense was result of applying the estimated annual effective tax rate to cumulative loss before taxes adjusted for certain discrete items.
  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.
  16
  As of June 30, 2010, the Company had unrecognized tax benefits of approximately $3.7 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 six months ended June 30, 2010. 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 1998 through 2009 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 future unrecognized tax benefits, our ability to meet our capital requirements for the next twelve months, our future capital requirements, current high turns fill requirements, that the Consumer/Small Office Home Office (SOHO) is a rapidly growing market 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, 2009.
 
 OVERVIEW
 
 PLX Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in 1986, designs, develops, manufactures, and sells integrated circuits for interconnect applications.  These interconnect products are a fundamental building block for standards-based subsystems.  We market our products to major customers that sell electronic systems in the server, enterprise storage, consumer storage, communications, PC peripheral, consumer and embedded markets.
 
 Products based on current serial interconnect technology standards such as PCI Express, USB, Serial ATA, and Ethernet provide capabilities to customers that previous parallel technologies did not.  They offer the ability for systems to scale in performance and capabilities, and allow for a standards-based building block approach that was not feasible in the past.  As these serial technologies have become mainstream, we have been able to offer differentiated products based on standard ports that provide scalability and performance at a high-volume price point.
 
 PLX is the market share leader in PCI Express switches and bridges.  We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors, and have deployed multiple generations of products to serve a general-purpose, horizontal market.  In addition to enabling customer differentiation through our product features, the breadth of our product offering is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to the specific subsystem requirements.  Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate under non-ideal real-world, system environments.
 
 PLX is building on our broad, general purpose interconnect success, and in particular our success in enterprise storage, by focusing on a rapidly growing vertical market: Consumer/SOHO storage.  On January 2, 2009, we completed the acquisition of Oxford Semiconductor, Inc. (Oxford), a leading supplier of semiconductor components for the consumer and SOHO markets. Oxford has brought to market several generations of leadership products that allow storage customers to attach their disk subsystems directly to a computer through USB direct-attached storage (DAS), or to attach them through local area network-attached storage (NAS).  We identified the shift from parallel to serial hard disk connectivity early, and benefited from this trend to become the leader in high performance consumer/SOHO storage connectivity.   Our products provide a rich variety of connectivity options, including USB, Serial ATA, external Serial ATA, 1394 and Ethernet, and offer capabilities such as RAID and data encryption at industry leading performance levels.
  17
 
 PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, operating system ports, and firmware solutions that enable added-value features in our products.  We differentiate our products by offering higher performance at lower power, by enabling a richer customer experience based on proprietary features that enable system-level customer advantages, and by providing capabilities that enable a customer to get to market more quickly.
  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, is that it 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 revenue 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 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
 
 Net Revenues
 
 The following table shows the revenue by product type (in thousands) and as a percentage of net revenues:
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009PCI Express products

$
13,586


$
6,012


$
27,370


$
12,208As a percentage of revenues


45.7
%


33.1
%


46.8
%


35.3
%Storage products

$
4,393


$
5,245


$
9,080


$
8,428As a percentage of revenues


14.8
%


28.8
%


15.5
%


24.3
%Connectivity products

$
11,742


$
6,921


$
22,090


$
13,999As a percentage of revenues


39.5
%


38.1
%


37.7
%


40.4
%
 Net revenues consist of product revenues generated principally by sales of our semiconductor devices.  Net revenues for the three months ended June 30, 2010 were $29.7 million, an increase of 63.5% from $18.2 million for the same period in 2009. The increase was due to overall higher sales as a result of increased enterprise and consumer spending as market conditions have improved compared to second quarter of 2009.
  18
  Net revenues for the six months ended June 30, 2010 were $58.5 million, an increase of 69.0% from $34.6 million for the same period in 2009. The increase was due to overall higher sales as a result of increased enterprise and consumer spending as market conditions have improved compared to the first two quarters of 2009.
  In the first half of 2010, increasing product demand throughout the semiconductor industry challenged the industry’s supply chain and we were not able to procure an adequate supply of product to fulfill our customers’ demand for our products. We expect these supplier capacity constraints to continue into the third quarter of 2010.
  There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:
  Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Excelpoint Systems Pte Ltd


26
%


23
%


27
%


22
%Answer Technology, Inc.


19
%


*
%


19
%


*
%Promate Electronics Co., Ltd


11
%


17
%


12
%


16
%Avnet, Inc.


21
%


*
%


19
%


*
%
 *      Less than 10%
 In the first quarter of 2009, we experienced a broad decrease in order rates across most product lines, markets and end customers due to the economic downturn that began in the later part of 2008. We began to see market conditions improve in the second half of 2009, which have continued in the first half of 2010. Future demand for our products is uncertain and is highly dependent 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.
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsGross profit

$
17,489


$
10,102


$
33,837


$
19,048Gross margin


58.8
%


55.6
%


57.8
%


55.0
%
 Gross profit for the three months ended June 30, 2010 increased by 73.1% compared to the same period in 2009. The increase in absolute dollars was due to the overall increase of product shipments, while the increase as a percentage was primarily due to a decrease in storage product revenue as a percentage of total revenue which generally have lower margins, as well as overall product and customer mix and cost reductions achieved during the later part of 2009 and into 2010.
  19
 
 Gross profit for the six months ended June 30, 2010 increased by 77.6% compared to the same period in 2009. The increase in absolute dollars was due to the overall increase of product shipments, while the increase as a percentage was primarily due to a decrease in storage product revenue as a percentage of total revenue which generally have lower margins, as well as overall product and customer mix and cost reductions achieved during the later part of 2009 and into 2010.
 
 We expect gross margin to slightly decrease in the third quarter of 2010 as a result of product mix. Future gross profit and gross margin are highly dependent on the product and customer mix, provisions and sales 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.
  Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsR&D expenses

$
8,234


$
8,570


$
15,787


$
16,473As a percentage of revenues


27.7
%


47.1
%


27.0
%


47.6
%
 R&D expenses decreased by $0.3 million or 3.9% in the three months ended June 30, 2010 compared to the same period in 2009. The decrease in R&D in absolute dollars was primarily due to decreased R&D spending on engineering tools of $0.4 million due to the timing of projects taped-out and share-based compensation expenses of $0.4 million related to the 2009 tender offer described in Note 2 of the condensed consolidated financial statements, partially offset by an increase in variable compensation expenses of $0.2 million which was a result of increased profitability in the current quarter and consulting expenses of $0.1 million. The decrease in R&D as a percentage was primarily due to increased revenues.
 
 R&D expenses decreased by $0.7 million or 4.2% in the six months ended June 30, 2010 compared to the same period in 2009. The decrease in R&D in absolute dollars was primarily due to decreased R&D spending on engineering tools of $0.7 million due to the timing of projects taped-out and share-based compensation expenses of $0.4 million related to the 2009 tender offer, partially offset by an increase in variable compensation expenses of $0.4 million, which was a result of increased profitability in the current year to date. The decrease in R&D as a percentage was primarily due to increased revenues.
  We believe continued spending on research and development to develop new products is critical to our success. We anticipate that R&D expenses over time will fluctuate due to the timing of projects and tape-out related activities.
 
 Selling, General and Administrative Expenses
 
 Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and related costs, including share-based compensation, commissions to manufactures’ representatives and professional fees, as well as trade show and other promotional expenses.
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsSG&A expenses

$
6,701


$
7,084


$
13,164


$
13,979As a percentage of revenues


22.5
%


39.0
%


22.5
%


40.4
%
 SG&A expenses decreased by $0.4 million or 5.4% in the three months ended June 30, 2010 compared to the same period in 2009. The decrease in SG&A in absolute dollars is due primarily to a decrease in share-based compensation expenses of $1.2 million related to the 2009 tender offer, partially offset by increases in variable compensation expenses of $0.5 million, which was a result of increased profitability in the current quarter and commissions to manufacturers’ representatives of $0.3 million resulting from increased revenues. The decrease in SG&A as a percentage was primarily due to increased revenues.
  20
 
 SG&A expenses decreased by $0.8 million or 5.8% in the six months ended June 30, 2010 compared to the same period in 2009. The decrease in SG&A in absolute dollars is due primarily to a decrease in share-based compensation expenses of $1.2 million related to the 2009 tender offer and salaries and related costs of $0.5 million as a result of the employee terminations in the first quarter of 2009 due to the redundancy issue associated with the acquisition of Oxford, partially offset by increases in variable compensation expenses of $0.6 million, which was a result of increased profitability in the current year to date, and commissions to manufacturers’ representatives of $0.6 million resulting from increased revenues. The decrease in SG&A as a percentage was primarily due to increased revenues.
 
 Acquisition and Restructuring Related Costs
  Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsDeal costs

$
-


$
106


$
-


$
439Severance costs


-



(7
)


-



2,013Lease commitment accrual


-



-



-



277$
-


$
99


$
-


$
2,729
 During the six months ended June 30, 2009 we recorded $2.7 million in acquisition related costs associated with the January 2, 2009 acquisition of Oxford. Deal costs related primarily to outside legal and accounting costs. Severance costs were the result of layoffs due to the redundancy issue that arose as a result of the acquisition. In addition, we assumed a building lease in Milpitas, California which was vacated upon the acquisition.  As a result, we recorded a lease commitment charge on the operating lease in the first quarter of 2009. See Note 9 of the condensed consolidated financial statements for additional information.
 
 Amortization of Acquired Intangible Assets
 
 Amortization of acquired intangible assets consists of amortization expense related to developed core technology, tradename and customer base acquired as a result of the Oxford acquisition in January 2009.
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsAmortization of acquired intangible assets

$
649


$
854


$
1,297


$
1,708As a percentage of revenues


2.2
%


4.7
%


2.2
%


4.9
%
 Amortization of acquired intangible assets decreased by $0.2 million or 24.0% in the three months ended June 30, 2010 compared to the same period in 2009. The decrease was due to the accelerated amortization of the developed core technology and the customer base becoming fully amortized in December 2009.
 
 Amortization of acquired intangible assets decreased by $0.4 million or 24.1% in the six months ended June 30, 2010 compared to the same period in 2009. The decrease was due to the accelerated amortization of the developed core technology and the customer base becoming fully amortized in December 2009.
  21
 
 Interest Income and Other, Net
 Three Months Ended


Six Months EndedJune 30,


June 30,2010


2009


2010


2009in thousandsInterest income

$
52


$
161


$
113


$
406Interest expense


(17
)


(147
)


(35
)


(399
)Other income


13



103



31



158$
48


$
117


$
109


$
165
 Interest income reflects interest earned on cash, cash equivalents and short-term and long-term investment balances. Interest income for the three months ended June 30, 2010 decreased by $0.1 million or 67.7%, compared to the same period in 2009. The decrease was primarily due to the maturity of higher yielding investments and decreased interest rates on new investments.
 
 Interest income for the six months ended June 30, 2010 decreased by $0.3 million or 72.2%, compared to the same period in 2009. The decrease was primarily due to the maturity of higher yielding investments and decreased interest rates on new investments.
 
 Interest expense for the three and six months ended June 30, 2010 of $17,000 and $35,000, respectively, consisted of interest recorded on our capital lease obligations. For the same periods in 2009, interest expense of $0.1 million and $0.4 million, respectively, primarily consisted of interest recorded on the $14.2 million note associated with the acquisition of Oxford.
 
 Other income includes foreign currency transaction gains and losses and other miscellaneous transactions. Other income may fluctuate significantly due to currency fluctuations.
 
 Loss on Fair Value Remeasurement of Contingently Convertible Note Payable
 
 As a part of the consideration for the Oxford acquisition, we recorded a liability for the contingent consideration due which was recorded at fair value as of the acquisition date. We are required to remeasure the liability to fair value until the contingency is resolved and record the change in fair value in earnings.  The fair value of the note payable was based on 3.4 million shares with a stock price of $1.82, or $6.2 million. As of March 31, 2009, the closing stock price was $2.17, or $7.4 million. The loss on the fair value of the note remeasurement is the increase in fair value of the liability of $1.2 million, which was recorded in the first quarter of 2009. On May 22, 2009, the date of conversion, the closing stock price was $2.95, or $10.0 million. The loss on the fair value of the note of $2.7 million was recorded in the second quarter of 2009. See Note 7 of the condensed consolidated financial statements for additional information on the contingent consideration arrangement.
  Provision for Income Taxes
 
 A provision for income tax of $0.5 million has been recorded for the six month period ended June 30, 2010, compared to a provision of $35,000 for the same period in 2009.  Income tax benefit for the six months ended June 30, 2010 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur. The Company excluded from its calculation of the effective tax rate losses of a certain foreign jurisdiction since the Company cannot benefit those losses. For the same period in 2009, the income tax expense is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items.
  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.
  As of June 30, 2010, we have unrecognized tax benefits of approximately $3.7 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 six months ended June 30, 2010.  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. We do not expect that the amount of our unrecognized tax benefits will significantly change within the next twelve months.
  22
 
 We are subject to taxation in the United States and various states and foreign jurisdictions.  The tax years 1998 through 2009 remain open to examination by the federal and most state tax authorities due to certain acquired net operating loss and overall credit carryforward positions.
 
 Liquidity and Capital Resources
 
 Cash and Investments
 
 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 June 30, 2010 cash, cash equivalents, short and long-term marketable securities were $45.2 million, an increase of $5.2 million from $40.0 million at December 31, 2009.
 
 Operating Activities
 
 Cash provided by (used in) operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation, amortization, share-based compensation expense, impairments, fair value remeasurements, provisions for excess and obsolete inventories, other non-cash items, and the effect of changes in working capital and other activities. Cash provided by operating activities for the six months ended June 30, 2010 was $6.6 million compared to cash used in operating activities of $10.7 million in the same period in 2009. The increase in cash flow provided by operations was primarily due to the 69% increase in revenues compared to the same period in 2009 and changes in our working capital. Our days sales outstanding decreased due to strong shipments early in the quarter which were collected by quarter end. The increase in inventory was primarily due to wafers purchased late in the quarter for our products in lower geometries. Our days payable outstanding decreased due to the timing of vendor payments.
 
 Investing Activities
 
 Our investing activities are primarily driven by investment of our excess cash, sales of investments, business acquisitions and capital expenditures. Capital expenditures have generally been comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures. The cash used in investing activities for the six months ended June 30, 2010 of $2.4 million was due to capital expenditures of $1.2 million and the purchase of investments (net of sales and maturities) of $1.1 million. Cash provided by investing activities for the six months ended June 30, 2009 of $15.4 million was due to sales and maturities of investments (net of purchases of investments) of $11.7 million and cash acquired through the acquisition of Oxford of $4.4 million, partially offset by capital expenditures of $0.7 million.
 
 Financing Activities
 
 Cash used in financing activities for the six months ended June 30, 2010 of $0.1 million was due to the payments made on capital lease obligations of $0.3 million, partially offset by proceeds from the exercise of stock options of $0.2 million. Cash used in financing activities for the six months ended June 30, 2009 of $1.2 million was due to the payments made as a result of the tender offer of $0.9 million and on capital lease obligations of $0.3 million.
  23
  Obligations
 
 As of June 30, 2010, we had the following significant contractual obligations and commercial commitments (in thousands):
 Payments due inLess than


1-3


More thanTotal


1 Year


Years


3 YearsOperating leases - facilities and equipment

$
2,378


$
599


$
1,368


$
411Capital leases - IP


1,875



1,425



450



-Software licenses


4,667



2,915



1,752



-Inventory purchase commitments


10,752



10,752



-



-Total cash obligations

$
19,672


$
15,691


$
3,570


$
411
 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.
 
 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.
 
 As of June 30, 2010, 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. 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 three 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. We analyze current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required for this program. 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 when the rebate is in the form of cash consideration. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.
  24
 
 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.
 
 Goodwill
 
 Our methodology for allocating the purchase price related to business acquisitions is determined through established valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the amounts assigned to identifiable tangible and intangible assets acquired less assumed liabilities. We have one operating segment and business reporting unit, the sales of semiconductor devices, and we perform goodwill impairment tests annually during the fourth quarter and between annual tests if indicators of potential impairment exist.
 
 Long-lived Assets
 
 We review long-lived assets, principally property and equipment and identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset.  If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
 Share-Based Compensation
 
 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 calculate expected volatility using the historical volatility of 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 June 30, 2010, 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.
  25
 
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Interest Rate Risk
 
 We have an investment portfolio of fixed income securities, including amounts classified as cash equivalents, short-term investments and long-term investments of $32.4 million at June 30, 2010.  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 $1,000 decrease (less than 1%) in the fair value of our available-for-sale securities.
 
 Foreign Currency Exchange Risk
 
 All of our revenue and a majority of our expense and capital purchasing activities are transacted in U.S. dollars. However, we have significant operating activities incurred in or exposed to other currencies, primarily the British Pound. Therefore, significant strengthening or weakening of the U.S. dollar relative to those foreign currencies could have a material impact on our results of operations. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change would have resulted in an adverse impact on income before taxes of $1.3 million as of June 30, 2010.
 
 ITEM 4.  CONTROLS AND PROCEDURES
 
 (a) Evaluation of disclosure controls and procedures.
 
 Based on their evaluation as of June 30, 2010, 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.
 
 (b) Changes in internal controls.
 
 There has been no 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.
 26
 PART II. OTHER INFORMATION
 
 ITEM 1.  LEGAL PROCEEDINGS
 
 On February 2, 2010, Internet Machines LLC ("Internet Machines") filed a complaint, which has been served on PLX, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, alleging infringement by PLX and the other defendants in the lawsuit of two patents held by Internet Machines.  The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of the Internet Machines patents.
 
 On May 14, 2010, we filed our answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit.  On July 26, 2010, Internet Machines, pursuant to an order from the court, filed a notice stating that all defendants had responded to the complaint, and that the case was ready to be set for a scheduling conference before the Court.  Accordingly, we anticipate that the Court will conduct such a conference within the next two months and issue a scheduling order in this matter that will contain pertinent dates and deadlines.  While it is not possible to determine the ultimate outcome of this litigation, we believe that we have meritorious defenses with respect to the claims asserted against us and we intend to vigorously defend our position.  We believe that any ultimate liability in this litigation will not have a material impact on our financial position or results of operations.
 
 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, 2009, and are restated in full.
 
 Global Economic Conditions May Continue to Have an Adverse Effect on Our Businesses and Results of Operations
 
 In late 2008 and 2009, the severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy contributed to slowdowns in the industries in which we operate.  Economic uncertainty exacerbated negative trends in spending and caused certain customers to push out, cancel, or refrain from placing orders, which reduced revenue. We have seen market conditions improve in the second half of 2009 and the first half of 2010; however, the outlook for 2010 remains uncertain. Difficulties in obtaining capital and uncertain market conditions may lead to the inability of some customers to obtain affordable financing, resulting in lower sales. Customers with liquidity issues may lead to additional bad debt expense. These conditions may also similarly affect key suppliers, which could affect their ability to deliver parts and result in delays in the availability of product.  Further, these conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations. In addition, we maintain an investment portfolio that is subject to general credit, liquidity, market and interest rate risks that may be exacerbated by deteriorating financial market conditions and, as a result, the value and liquidity of the investment portfolio could be negatively impacted and lead to impairment.  If the current improving economic conditions are not sustained or begin to deteriorate again, or if we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition or results of operations may be materially and adversely affected.
 
 Our Operating Results May Fluctuate Significantly Due To Factors Which Are Not Within Our Control
 
 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.
  27
  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 macroeconomic 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.  See Note 10 of the condensed consolidated financial statements for customer concentrations.
  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.
  28
  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, 2009.
 
 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 located in China, Japan, Korea, Malaysia, Singapore and Taiwan, 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.
 
 In the first half of 2010, increasing product demand throughout the semiconductor industry challenged the industry’s supply chain and we were not able to procure an adequate supply of product to fulfill our customers’ demand for our products. We expect these supplier capacity constraints to continue into the third quarter of 2010.
  Only a small number 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 our products 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.
  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 and consumer 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.
  29
  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.
 
 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.
  30
 
 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 six months ended June 30, 2010 and 2009, sales through distributors accounted for approximately 94% and 86%, 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.
 
 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, Serial ATA, Ethernet, 1394 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.
 
 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.
 
 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.
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 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.
 
 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.
 
 On February 2, 2010, Internet Machines LLC ("Internet Machines") filed a complaint, which has been served on PLX, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, alleging infringement by PLX and the other defendants in the lawsuit of two patents held by Internet Machines.  The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of the Internet Machines patents.
 
 On May 14, 2010, we filed our answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit.  On July 26, 2010, Internet Machines, pursuant to an order from the court, filed a notice stating that all defendants had responded to the complaint, and that the case was ready to be set for a scheduling conference before the Court.  Accordingly, we anticipate that the Court will conduct such a conference within the next two months and issue a scheduling order in this matter that will contain pertinent dates and deadlines.  While it is not possible to determine the ultimate outcome of this litigation, we believe that we have meritorious defenses with respect to the claims asserted against us and we intend to vigorously defend our position.  We believe that any ultimate liability in this litigation will not have a material impact on our financial position or results of operations.
 
 During the course of lawsuits, we may incur certain costs associated with defending or prosecuting these matters.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.
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  Acquisitions Could Adversely Affect Our Financial Condition And Could Expose Us To Unanticipated Liabilities
  As part of our business strategy, we expect to continue to review acquisition prospects that would complement our existing product offerings, improve market coverage or enhance our technological capabilities.   Potential future acquisitions could result in any or all of the following:
 
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potentially dilutive issuances of equity securities;
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large acquisition-related write-offs;
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potential patent and trademark infringement claims against the acquired company;
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the incurrence of debt and contingent liabilities or amortization expenses related to other intangible assets;
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difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies;
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the incurrence of additional operating losses and expenses of potential companies we may acquire;
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possible delay or failure to achieve expected synergies;
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diversion of management’s attention from other business concerns;
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risks of entering geographic and business markets in which we have limited or no prior experience; and
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potential loss of key employees.
  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 84% of our revenues for the six months ended June 30, 2010.  In 2009 and 2008, sales outside of the United States accounted for approximately 84% and 77% of our revenues, respectively.  Sales outside of the United States may fluctuate in future periods and are expected 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;
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difficulties in staffing and managing foreign subsidiary and branch operations;
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political and economic instability;
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foreign currency exchange fluctuations;
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difficulties in accounts receivable collections;
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potentially adverse tax consequences;
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timing and availability of export licenses;
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changes in regulatory requirements, tariffs and other barriers;
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difficulties in obtaining governmental approvals for telecommunications and other products; and
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the burden of complying with complex foreign laws and treaties.
  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.
  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 and long lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment annually, during the fourth quarter and between annual tests in certain circumstances.  Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill, amortizable intangible assets or other long lived 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 additional impairment of our goodwill, amortizable intangible assets or other long lived assets is determined, which would adversely impact our results of operations.
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 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.
 
 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.
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 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.
 35
  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: August 4, 2010
 
 By     /s/ Arthur O. Whipple
 Arthur O. Whipple
 Chief Financial Officer
 (Principal Financial Officer and duly authorized signatory)
 
 36
 
 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.
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