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, 2008.
  OR
  [   ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
  Commission file number
000-25699
   
  PLX Technology, Inc.
  (Exact
name of Registrant as Specified in its Charter)
  Delaware
                94-3008334(State
      or Other Jurisdiction of Incorporation or
    Organization)
                (I.R.S.
      Employer Identification Number)
 870 W. Maude Avenue
 Sunnyvale, California  94085
 (408) 774-9060
  (Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes[X] No[ ]
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a small reporting company. See
definition of “large accelerated filer”, "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act (Check One):
 
 Large
accelerated filer [ ] Accelerated
filer [X] Non-accelerated
filer [ ]  Small Reporting
Company [ ]
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes [  ]    No
[X]
  As
of July
31, 2008 there
were 27,997,928 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, 2008
  
 PART I. FINANCIAL INFORMATION
                PageItem 1.
                Financial Statements
      (Unaudited)Condensed Consolidated Balance Sheets at June 30,
      2008 and December 31, 2007
                3Condensed Consolidated Statements of
      Operations for the three and six months ended June 30, 2008 and
      2007
                4Condensed Consolidated Statements of Cash Flows for the
      six months ended June 30, 2008 and 2007
                5Notes to Condensed Consolidated
      Financial Statements
                6Item 2.
                Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                14Item 3.
                Quantitative and Qualitative Disclosures About Market
      Risk
                21Item 4.
                Controls and Procedures
                21PART II. OTHER INFORMATIONItem 1A.
                Risk Factors
                22Item 2.
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                29Item 4.
                Submission of Matters to a Vote of Security
      Holders
                29Item 6.
                Exhibits
                30Signature
                
                31
  2
  PART I.   FINANCIAL INFORMATION
 
 ITEM 1.    FINANCIAL
STATEMENTS
 
 
 PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in
thousands)
 
  June
      30,
                
                
                December
      31,2008
                
                
                2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                7,276
                
                
                $
                19,175Short-term
      marketable securities
                
                
                30,370
                
                
                
                17,142Accounts
      receivable, net
                
                
                10,466
                
                
                
                10,534Inventories
                
                
                8,708
                
                
                
                7,422Other
      current assets
                
                
                4,932
                
                
                
                3,788Total
      current assets
                
                
                61,752
                
                
                
                58,061Property
      and equipment, net
                
                
                29,846
                
                
                
                29,798Goodwill
                
                
                34,692
                
                
                
                34,541Other
      purchased intangible assets
                
                
                1,134
                
                
                
                1,577Long-term
      marketable securities
                
                
                4,876
                
                
                
                10,246Other
      assets
                
                
                2,611
                
                
                
                1,577Total
      assets
                
                $
                134,911
                
                
                $
                135,800LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                5,639
                
                
                $
                4,447Accrued
      compensation and benefits
                
                
                2,347
                
                
                
                2,237Accrued
      commissions
                
                
                540
                
                
                
                652Other
      accrued expenses
                
                
                894
                
                
                
                572Total
      current liabilities
                
                
                9,420
                
                
                
                7,908Commitment
      and contingenciesStockholders'
      Equity:Common
      stock, par value
                
                
                28
                
                
                
                29Additional
      paid-in capital
                
                
                131,184
                
                
                
                134,503Accumulated
      other comprehensive loss
                
                
                (150
                )
                
                
                (82
                )Accumulated
      deficit
                
                
                (5,571
                )
                
                
                (6,558
                )Total
      stockholders' equity
                
                
                125,491
                
                
                
                127,892Total
      liabilities and stockholders' equity
                
                $
                134,911
                
                
                $
                135,800
  See
accompanying notes to condensed consolidated financial statements.
  3
 
 PLX
TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
 (Unaudited)
 (in
thousands, except per share amounts)
  Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      revenues
                
                $
                23,350
                
                
                $
                19,764
                
                
                $
                46,105
                
                
                $
                38,404Cost
      of revenues
                
                
                9,492
                
                
                
                8,118
                
                
                
                18,404
                
                
                
                15,381Gross
      margin
                
                
                13,858
                
                
                
                11,646
                
                
                
                27,701
                
                
                
                23,023Operating
      expenses:Research
      and development
                
                
                7,791
                
                
                
                6,143
                
                
                
                14,289
                
                
                
                11,885Selling,
      general and administrative
                
                
                6,063
                
                
                
                6,061
                
                
                
                12,516
                
                
                
                12,231Amortization
      of purchased intangible assets
                
                
                202
                
                
                
                357
                
                
                
                443
                
                
                
                797Total
      operating expenses
                
                
                14,056
                
                
                
                12,561
                
                
                
                27,248
                
                
                
                24,913Income
      (loss) from operations
                
                
                (198
                )
                
                
                (915
                )
                
                
                453
                
                
                
                (1,890
                )Interest
      income and other, net
                
                
                376
                
                
                
                607
                
                
                
                864
                
                
                
                1,181Income
      (loss) before provision (benefit) for income taxes
                
                
                178
                
                
                
                (308
                )
                
                
                1,317
                
                
                
                (709
                )Provision
      (benefit) for income taxes
                
                
                253
                
                
                
                (226
                )
                
                
                330
                
                
                
                (355
                )Net
      income (loss)
                
                $
                (75
                )
                
                $
                (82
                )
                
                $
                987
                
                
                $
                (354
                )Basic
      net income (loss) per share
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                0.03
                
                
                $
                (0.01
                )Shares
      used to compute basic per share amounts
                
                
                28,213
                
                
                
                28,674
                
                
                
                28,402
                
                
                
                28,660Diluted
      net income (loss) per share
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                0.03
                
                
                $
                (0.01
                )Shares
      used to compute diluted per share amounts
                
                
                28,213
                
                
                
                28,674
                
                
                
                28,561
                
                
                
                28,660
 See
accompanying notes to condensed consolidated financial statements.
  4
  PLX TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in
thousands)
 Six
      Months EndedJune
      30,2008
                
                
                2007Cash
      flows from operating activities:Net
      income (loss)
                
                $
                987
                
                
                $
                (354
                )Adjustments
      to reconcile net income (loss) to net cash flows provided by operating
      activities:Depreciation
      and amortization
                
                
                1,131
                
                
                
                960Share-based
      compensation expense
                
                
                1,846
                
                
                
                2,364Amortization
      of purchased intangible assets
                
                
                443
                
                
                
                797Write-downs
      of inventories
                
                
                189
                
                
                
                572Changes
      in pre-acquisition deferred tax balances
                
                
                (151
                )
                
                
                -Other
      non-cash items
                
                
                (119
                )
                
                
                (91
                )Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                68
                
                
                
                162Inventories
                
                
                (1,475
                )
                
                
                766Other
      current assets
                
                
                (1,143
                )
                
                
                (2,840
                )Other
      assets
                
                
                (1,034
                )
                
                
                903Accounts
      payable
                
                
                1,192
                
                
                
                2,699Accrued
      compensation and benefits
                
                
                (2
                )
                
                
                (936
                )Other
      accrued expenses
                
                
                322
                
                
                
                -Net
      cash provided by operating activities
                
                
                2,254
                
                
                
                5,002Cash
      flows used in investing activities:Purchases
      of marketable securities
                
                
                (26,817
                )
                
                
                (16,213
                )Sales
      and maturities of marketable securities
                
                
                19,035
                
                
                
                6,600Purchase
      of property and equipment
                
                
                (1,179
                )
                
                
                (348
                )Repurchase
      of common stock
                
                
                (5,980
                )
                
                
                -Net
      cash used in investing activities
                
                
                (14,941
                )
                
                
                (9,961
                )Cash
      flows provided by financing activities:Proceeds
      from exercise of common stock options
                
                
                814
                
                
                
                440Net
      cash provided by financing activities
                
                
                814
                
                
                
                440Effect
      of exchange rate fluctuations on cash and cash equivalents
                
                
                (26
                )
                
                
                (26
                )Net
      decrease in cash and cash equivalents
                
                
                (11,899
                )
                
                
                (4,545
                )Cash
      and cash equivalents at beginning of period
                
                
                19,175
                
                
                
                32,804Cash
      and cash equivalents at end of period
                
                $
                7,276
                
                
                $
                28,259Supplemental
      disclosure of cash flow  information:Cash
      paid for income taxes
                
                $
                39
                
                
                $
                45
 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, 2008 and for the three and six month periods ended
June 30, 2008 and 2007 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.  In the
opinion of management, the unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring accruals) that
management considers necessary for a fair presentation of the Company’s
financial position, operating results and cash flows for the interim periods
presented. Operating results and cash flows for interim periods are not
necessarily indicative of results for the entire year.
  The
unaudited condensed consolidated financial statements include all of the
accounts of the Company and those of its wholly-owned
subsidiaries.  All intercompany accounts and transactions have been
eliminated.
  This
financial data should be read in conjunction with the audited consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
  Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect various accounts, including but not limited to
goodwill, income taxes, inventories, revenue recognition and related sales
reserves, allowance for doubtful accounts, share-based compensation and warranty
reserves as reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates and such
differences may be material to the financial statements.
  Comprehensive
Net Income (Loss)
  The
Company’s comprehensive net income (loss) for the three and six month period
ended June 30, 2008 and 2007 was as follows (in thousands):
 Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      income (loss)
                
                $
                (75
                )
                
                $
                (82
                )
                
                $
                987
                
                
                $
                (354
                )Unrealized
      gain (loss) on marketable securities, net
                
                
                (2
                )
                
                
                (34
                )
                
                
                (42
                )
                
                
                (32
                )Cumulative
      translation adjustments
                
                
                (7
                )
                
                
                (12
                )
                
                
                (26
                )
                
                
                (26
                )Comprehensive
      net income (loss)
                
                $
                (84
                )
                
                $
                (128
                )
                
                $
                919
                
                
                $
                (412
                )
  Revenue
Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery or customer acceptance, where applicable, has occurred, the fee is
fixed or determinable, and collection is reasonably assured.
  The
Company recognizes revenue in accordance with Statements of Financial Accounting
Standards (“SFAS”) No. 48, Revenue Recognition When Right of
Return Exists. Revenue from product sales to direct customers and
distributors is recognized upon shipment and transfer of risk of loss, if the
Company believes collection is reasonably assured and all other revenue
recognition criteria are met. The Company assesses the probability of collection
based on a number of factors, including past transaction history and the
customer’s creditworthiness.  At the end of each reporting period, the
sufficiency of allowances for doubtful accounts is assessed based on the age of
the receivable and the individual customer’s creditworthiness.
  6
  The
Company offers pricing protection to two distributors whereby the Company
supports the distributor’s resale product margin on certain products held in the
distributor’s inventory. In general, the Company analyzes current requests for
credit in process, also known as ship and debits, inventory at the distributor
and credit expectations to determine the ending sales reserve required for this
program.  The Company also offers stock rotation rights to two
distributors such that they can return up to a total of 5% of products purchased
every six months in exchange for other PLX products of equal value. In general,
the Company analyzes current stock rotation requests and past experience, which
has historically been insignificant, to determine the ending sales reserve
required for this program.  Reserves are reduced directly from revenue
and recorded as a reduction to accounts receivable.  In addition, the
Company has arrangements with a small number of customers offering a rebate
program on various products. The Company records rebates as a reduction of
revenue under the guidelines of Emerging Issues Task Force
(“EITF’) 01-9, Accounting for Consideration Given
to a Customer (Including a Reseller of the Vendor’s
Product).
 
 Recent
Accounting Pronouncements
  In
September 2006, FASB issued SFAS No. 157, Fair Value
Measurements.  SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (“GAAP”)
and expands disclosures about fair value measurements. For financial assets and
liabilities, this statement is effective for fiscal periods beginning after
November 15, 2007 and does not require any new fair value
measures.  In February 2008, the FASB Staff Position No. 157-2 was
issued which delayed the effective date of SFAS 157 to fiscal years ending after
November 15, 2008 for non-financial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.  The adoption of SFAS 157 for financial assets and
liabilities did not have a material impact on the Company’s financial position
or results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment of FASB Statement No.
115. SFAS 159 permits entities to choose to measure many financial
instruments and certain other items that are not currently required to be
measured at fair value, with unrealized gains and losses related to these
financial instruments reported in earnings at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 did not have an effect on the
Company’s financial position or results of operations as the Company did not
elect this fair value option.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations – Revised
2007, which replaces FASB Statement No. 141, Business Combinations. SFAS
141(R) establishes principles and requirements intending to improve the
relevance, representational faithfulness and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008. The Company does not believe that the adoption of SFAS 141(R)
will have a material impact on its financial position or results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards to improve the relevance,
comparability and transparency of financial information that a reporting entity
provides in its consolidated financial statements. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company does not believe
that the adoption of SFAS 160 will have a material impact on its financial
position or results of operations.
 
 In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy).  SFAS 162 will become
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The
Company does not believe that the adoption of SFAS 162 will have a material
impact on its financial position or results of operations.
  7
  2.  Share-Based
Compensation
 
 Stock
Option Plans
 
 In May
2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008
Plan”).  Under the 2008 Plan, there is authorized for issuance and
available for awards an aggregate of 1,200,000 shares of the Company’s common
stock, plus the number of shares of the Company’s common stock available for
issuance under the Company’s prior incentive plan, its 1999 Stock Incentive
Plan, that are not subject to outstanding awards as of May 27,
2008.  In addition, the share reserve under the 2008 Plan will be
increased by the number of shares issuable pursuant to awards outstanding under
the prior plan that would have otherwise reverted to the prior plan because it
expires, are canceled or otherwise terminated without being exercised. Awards
under the 2008 Plan may include stock options, restricted stock, stock
appreciation rights, performance awards, restricted stock units and other
awards, provided that with respect to full value awards, such as restricted
stock or restricted stock units, no more than 300,000 shares may be awarded
during the term of the 2008 Plan.  Awards under the 2008 Plan may be
made to the Company’s officers and other employees, its board members and
consultants that it hires.  The 2008 Plan has a term of ten
years.
  Share-Based
Compensation Expense
 
 The fair
value of share-based awards to employees is calculated using the Black-Scholes
option pricing model, which requires subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values.
 
 The
weighted-average fair value of share-based compensation to employees is based on
the multiple option valuation approach. Forfeitures are estimated and it is
assumed no dividends will be declared. The estimated fair value of share-based
compensation awards to employees is amortized using the straight-line method
over the vesting period of the options. The weighted-average fair value
calculations are based on the following weighted average
assumptions:
  Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Risk-free
      interest rate
                
                
                3.39
                %
                
                
                4.96
                %
                
                
                2.92
                %
                
                
                4.71
                %Expected
      volatility
                
                
                0.57
                
                
                
                0.58
                
                
                
                0.53
                
                
                
                0.60Expected
      life (years)
                
                
                4.47
                
                
                
                4.35
                
                
                
                4.47
                
                
                
                4.35
 Risk-Free Interest Rate: The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of the option.
 
 Expected Term: The Company’s
expected term represents the weighted-average period that the Company’s stock
options are expected to be outstanding. The expected term is based on the
observed and expected time to post-vesting exercise of options by employees. The
Company uses historical exercise patterns of previously granted options in
relation to stock price movements to derive an employee behavioral pattern used
to forecast expected exercise patterns.
 
 Expected Volatility: The
Company calculates its expected volatility assumption required in the
Black-Scholes model by blending the historical volatility with the market-based
implied volatility.  The Company uses a 50/50 blend of historical
volatility and market-based volatility.
 
 These
factors could change in the future, which would affect the share-based
compensation expense in future periods.
 
 As
share-based compensation expense recognized in the unaudited Condensed
Consolidated Statements of Operations for the three and six months ended June
30, 2008 and 2007 is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Our estimated forfeiture rate
at June 30, 2008 and 2007 of 26% and 27%, respectively, was based on
historical experience.
  8
  The
following table shows total share-based compensation expense for the three and
six months ended June 30, 2008 and 2007, included in the respective line items
of the Condensed Consolidated Statements of Operations (in
thousands):
  Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Cost
      of revenues
                
                $
                15
                
                
                $
                13
                
                
                $
                33
                
                
                $
                31Research
      and development
                
                
                351
                
                
                
                422
                
                
                
                754
                
                
                
                954Selling,
      general and administrative
                
                
                595
                
                
                
                777
                
                
                
                1,059
                
                
                
                1,379Total
      share-based compensation expense
                
                $
                961
                
                
                $
                1,212
                
                
                $
                1,846
                
                
                $
                2,364
 A summary
of option activity under the Company’s stock equity plans during the three and
six months ended June 30, 2008 is as follows:
 Weighted
      AverageRemaining
                
                
                AggregateOptions
      Available
                
                
                Number
      of
                
                
                Weighted
      Average
                
                
                Contratual
      Term
                
                
                IntrinsicOptions
                
                for
      Grant
                
                
                Shares
                
                
                Exercise
      Price
                
                
                (in
      years)
                
                
                ValueOutstanding
      at December 31, 2007
                
                
                1,142,597
                
                
                
                3,999,473
                
                
                $
                11.38
                
                
                
                4.79
                
                
                $
                2,663,803Granted
                
                
                (680,500
                )
                
                
                680,500
                
                
                
                7.04Exercised
                
                
                -
                
                
                
                (2,000
                )
                
                
                5.00Cancelled
                
                
                6,770
                
                
                
                (6,770
                )
                
                
                9.94Outstanding
      at March 31, 2008
                
                
                468,867
                
                
                
                4,671,203
                
                
                $
                10.75
                
                
                
                4.87
                
                
                $
                928,805Authorized
                
                
                1,200,000
                
                
                
                -Granted
                
                
                (59,000
                )
                
                
                59,000
                
                
                
                8.26Exercised
                
                
                -
                
                
                
                (110,895
                )
                
                
                7.25Cancelled
                
                
                301,041
                
                
                
                (301,041
                )
                
                
                9.42Outstanding
      at June 30, 2008
                
                
                1,910,908
                
                
                
                4,318,267
                
                
                $
                10.90
                
                
                
                4.65
                
                
                $
                1,566,277Exercisable
      at June 30, 2008
                
                
                
                
                
                
                2,780,946
                
                
                $
                11.84
                
                
                
                3.99
                
                
                $
                1,188,640
 The
Black-Scholes weighted average fair values of options granted during the three
months ended June 30, 2008 and 2007 were $4.05 and $5.32,
respectively.
 
 The
Black-Scholes weighted average fair values of options granted during the six
months ended June 30, 2008 and 2007 were $3.10 and $5.34,
respectively.
 
 The
following table summarizes ranges of outstanding and exercisable options as of
June 30, 2008:
  Options
      Outstanding
              
              
              Options
      ExercisableWeighted
      AverageRemaining
              
              
              Weighted
              
              
              
              
              
              WeightedContratual
      Term
              
              
              Average
              
              
              
              
              
              AverageRange
      of Exercise Prices
              
              
              Number
              
              
              (in
      years)
              
              
              Exercise
      Price
              
              
              Number
              
              
              Exercise
      Price$0.88-$7.03
              
              
              
              928,329
              
              
              
              5.75
              
              
              $
              5.95
              
              
              
              302,329
              
              
              $
              3.71$7.22-$9.00
              
              
              
              897,830
              
              
              
              3.33
              
              
              
              8.52
              
              
              
              784,393
              
              
              
              8.51$9.12-$10.21
              
              
              
              1,059,425
              
              
              
              5.74
              
              
              
              9.82
              
              
              
              616,265
              
              
              
              9.64$10.29-$16.65
              
              
              
              1,046,500
              
              
              
              4.76
              
              
              
              13.58
              
              
              
              691,776
              
              
              
              14.34$19.38-$25.94
              
              
              
              386,183
              
              
              
              1.79
              
              
              
              24.03
              
              
              
              386,183
              
              
              
              24.03Total
              
              
              
              4,318,267
              
              
              
              4.65
              
              
              $
              10.90
              
              
              
              2,780,946
              
              
              $
              11.84
  The total
intrinsic value of options exercised during the three and six months ended June
30, 2008 was approximately $0.2 million for each period. For the same periods in
2007 the total intrinsic value of option exercised was $0.2 million and $0.4
million, respectively. The fair value of options vested during the three and six
months ended June 30, 2008 was approximately $1.6 million and $4.6 million,
respectively. As of June 30, 2008, total unrecognized compensation costs related
to nonvested stock options including estimated forfeitures was $2.5 million
which is expected to be recognized as expense over a weighted average period of
approximately 1.39 years.
  9
 
 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
      31,2008
                  
                  
                  2007Work-in-process
                  
                  $
                  3,126
                  
                  
                  $
                  2,000Finished
      goods
                  
                  
                  5,582
                  
                  
                  
                  5,422Total
                  
                  $
                  8,708
                  
                  
                  $
                  7,422
 The
Company evaluates the need for potential inventory provisions by considering a
combination of factors. Based on the life of the product, sales history,
obsolescence and sales forecast, the Company may record provisions for inventory
ranging from 0% to 100%.
 
 4.  Net
Income Per Share
 
 The
Company uses the treasury stock method to calculate the weighted average shares
used in the diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.The
following table sets forth the computation of basic and diluted net income
(loss) per share (in thousands, except per share data):
  Three
      Months Ended
                  
                  
                  Six
      Months EndedJune
      30,
                  
                  
                  June
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      income (loss)
                  
                  $
                  (75
                  )
                  
                  $
                  (82
                  )
                  
                  $
                  987
                  
                  
                  $
                  (354
                  )Weighted
      average shares of common stock outstanding
                  
                  
                  28,213
                  
                  
                  
                  28,674
                  
                  
                  
                  28,402
                  
                  
                  
                  28,660Net
      income (loss) per share - basic
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.03
                  
                  
                  $
                  (0.01
                  )Shares
      used in computing basic net income per share
                  
                  
                  28,213
                  
                  
                  
                  28,674
                  
                  
                  
                  28,402
                  
                  
                  
                  28,660Dilutive
      effect of stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  159
                  
                  
                  
                  -Shares
      used in computing diluted net income per share
                  
                  
                  28,213
                  
                  
                  
                  28,674
                  
                  
                  
                  28,561
                  
                  
                  
                  28,660Net
      income (loss) per share - diluted
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.03
                  
                  
                  $
                  (0.01
                  )
 The
Company incurred a net loss for the three month period ended June 30, 2008.
Therefore, the effect of diluted securities of approximately 4.3
million equivalent shares was excluded from the computation of diluted loss
per share as its impact would be anti-dilutive. Weighted average employee stock
options to purchase approximately 4.2 million for the six month period ended
June 30, 2008 were outstanding, but were not included in the computation of
diluted earnings per share because the exercise price of the stock options was
greater than the average share price of the Company’s common stock and,
therefore, the effect would have been anti-dilutive.
 
 The
Company incurred a net loss for the three and six month periods ended June 30,
2007. Therefore, the effect of diluted securities of approximately 4.2 million
equivalent shares for each of the three and six month periods ended June 30,
2007 was excluded from the computation of diluted loss per share as its impact
would be anti-dilutive.
  10
 
 5.  Financial
Instruments
 
 Fair
Value Measurements
 
 The
Company adopted SFAS No. 157, “Fair Value Measurements”, effective January 1,
2008, for financial assets and liabilities measured on a recurring
basis.  SFAS 157 applies to all financial assets and financial
liabilities that are being measured on a recurring basis.  SFAS 157
established a framework for measuring fair value and expands related
disclosures.  The statement requires fair value measurement be
classified and disclosed in one of the following three categories:
 
 Level 1:
Valuations based on quoted prices in active markets for identical assets and
liabilities.  The fair value of available-for-sale securities included
in the level 1 category is based on quoted prices that are readily and regularly
available in an active market.  The Level 1 category includes money
market funds of $1.7 million, which are included in cash and cash equivalents in
the condensed consolidated balance sheet.
 
 Level 2:Valuations based on
observable inputs (other than Level 1 prices), such as quoted prices for similar
assets at the measurement date; quoted prices in markets that are not active; or
other inputs that are observable, either directly or indirectly. The fair value
of available-for-sale securities included in the Level 2 category is based on
the market values obtained from an independent pricing service that were
evaluated using pricing models that vary by asset class and may incorporate
available trade, bid and other market information and price quotes from well
established independent pricing vendors and broker-dealers. The Level 2 category
includes short-term investments of $35.2 million, which are comprised of
corporate debt securities and government and agency securities.
 
 Level 3:
Valuations based on inputs that
are unobservable and involve management judgment and the reporting entity’s own
assumptions about market participants and pricing. The Company has no Level 3
financial assets measured at fair value on the condensed consolidated balance
sheets as of June 30, 2008.
 
 Investments
 
 The
Company accounts for its investments in accordance with SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities”.  As of June 30, 2008, the Company’s securities consisted
of debt securities and were designated as available-for-sale. Available-for-sale
securities are carried at fair value, based on quoted market prices, with
unrealized gains and losses reported in a separate component of stockholders’
equity.  The amortized cost of debt securities is adjusted for the
amortization of premiums and the accretion of discounts to maturity, both of
which are included in interest income.  Realized gains and losses are
recorded on the specific identification method.
 
 The fair
value of available-for-sale investments as of June 30, 2008 was as follows (in
thousands):
 Amortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  EstimatedCost
                  
                  
                  Gain
                  
                  
                  Loss
                  
                  
                  Fair
      ValueCommercial
      paper
                  
                  $
                  5,091
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  5,091Medium
      term notes
                  
                  
                  1,554
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,554Corporate
      bonds and notes
                  
                  
                  8,493
                  
                  
                  
                  69
                  
                  
                  
                  (68
                  )
                  
                  
                  8,494Foreign
      debt securities
                  
                  
                  1,408
                  
                  
                  
                  -
                  
                  
                  
                  (3
                  )
                  
                  
                  1,405Government
      bonds and notes
                  
                  
                  20,377
                  
                  
                  
                  44
                  
                  
                  
                  (21
                  )
                  
                  
                  20,400Total
      bonds, notes and equity securities
                  
                  $
                  36,923
                  
                  
                  $
                  113
                  
                  
                  $
                  (92
                  )
                  
                  $
                  36,944Less
      amounts classified as cash equivalents
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,698
                  )Total
      short and long-term available-for-sale investments
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  35,246Contractual
      maturity dates for investments:Less
      than one year:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  32,068One
      to two years:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,876$
                  36,944
 11
  The fair
value of available-for-sale investments as of December 31, 2007 was as follows
(in thousands):
 Amortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  EstimatedCost
                  
                  
                  Gain
                  
                  
                  Loss
                  
                  
                  Fair
      ValueCommercial
      paper
                  
                  $
                  21,453
                  
                  
                  $
                  1
                  
                  
                  $
                  (2
                  )
                  
                  
                  21,452Medium
      term notes
                  
                  
                  2,539
                  
                  
                  
                  -
                  
                  
                  
                  (6
                  )
                  
                  
                  2,533Corporate
      bonds and notes
                  
                  
                  9,568
                  
                  
                  
                  63
                  
                  
                  
                  (24
                  )
                  
                  
                  9,607Government
      Agencies
                  
                  
                  10,135
                  
                  
                  
                  31
                  
                  
                  
                  (1
                  )
                  
                  
                  10,165Total
      bonds, notes and equity securities
                  
                  $
                  43,695
                  
                  
                  $
                  95
                  
                  
                  $
                  (33
                  )
                  
                  $
                  43,757Less
      amounts classified as cash equivalents
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (16,369
                  )Total
      short and long-term available-for-sale investments
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  27,388Contractual
      maturity dates for investments:Less
      than one year:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  33,511One
      to two years:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,246$
                  43,757
 We
compare the carrying value of our available for sale investments with their
quoted market prices at the end of each period.  If the quoted price
of a marketable security has dropped significantly during a period or has been
below our carrying value for an extended period of time, we review the
investment to determine whether the decline is other than
temporary.  If we determine that the decline is other than temporary,
the investment is written down to its market value as measured at the end of the
period.  Any resulting charge is included in our statement of
operations in the related period.
 
 6.  Stock
Repurchase
 
 In
September 2002, the Company’s Board of Directors authorized the repurchase of up
to 2,000,000 shares of the Company’s common stock. In July 2008, the
Company’s Board of Directors authorized an additional 2,000,000 shares under the
repurchase program.  At the discretion of the management, the Company can
repurchase the shares from time to time in the open market or in privately
negotiated transactions.  Approximately 774,000 shares were repurchased for
approximately $1.9 million in cash in 2002 and 2003. We did not repurchase any
additional shares from January 1, 2004 through December 31, 2007. In the three
and six months ended June 30, 2008 the Company repurchased 256,000 and 883,000
shares, respectively, for approximately $2.1 million and $6.0 million,
respectively.  From July 1, 2008 through July 31, 2008, the company
repurchased an additional 74,000 shares for approximately $512,000 and
anticipates that repurchases will continue throughout 2008.
 
 7.  Segments
of an Enterprise and Related Information
 
 The
Company has one operating segment, the sale of semiconductor devices. The Chief
Executive Officer has been identified as the Chief Operating Decision Maker
(“CODM”) because he has final authority over resource allocation decisions and
performance assessment. The CODM does not receive discrete financial information
about individual components of the Company’s business. The majority of the
Company’s assets are located in the United States.
  12
  Revenues
by geographic region based on customer location were as follows (in
thousands):
 Three
      Months Ended
                  
                  
                  Six
      Months EndedJune
      30,
                  
                  
                  June
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:United
      States
                  
                  $
                  5,648
                  
                  
                  $
                  5,233
                  
                  
                  $
                  10,849
                  
                  
                  $
                  11,002Singapore
                  
                  
                  4,069
                  
                  
                  
                  3,583
                  
                  
                  
                  8,315
                  
                  
                  
                  6,303Taiwan
                  
                  
                  3,203
                  
                  
                  
                  2,338
                  
                  
                  
                  5,920
                  
                  
                  
                  4,381China
                  
                  
                  2,685
                  
                  
                  
                  3,102
                  
                  
                  
                  6,459
                  
                  
                  
                  6,104Other
      Asia Pacific
                  
                  
                  2,668
                  
                  
                  
                  2,943
                  
                  
                  
                  5,444
                  
                  
                  
                  5,355The
      Americas - excluding United States
                  
                  
                  2,539
                  
                  
                  
                  573
                  
                  
                  
                  3,695
                  
                  
                  
                  931Europe,
      Middle East and Africa
                  
                  
                  2,538
                  
                  
                  
                  1,992
                  
                  
                  
                  5,423
                  
                  
                  
                  4,328Total
                  
                  $
                  23,350
                  
                  
                  $
                  19,764
                  
                  
                  $
                  46,105
                  
                  
                  $
                  38,404
 For the
three months ended June 30, 2008, sales to Excelpoint Systems Pte Ltd and Answer
Technology, Inc. accounted for 28% and 14%, respectively, of net revenues. As of
June 30, 2008, the same distributors accounted for 21% and 15%, respectively, of
the total accounts receivable balance. For the same period in 2007, Metatech
accounted for 31% of net revenues. As of June 30, 2007, the same distributors
accounted for 25% of the total accounts receivable balance. For both of these
periods, no other individual direct customer or distributor represented greater
than 10% of net revenues.
  For the
six months ended June 30, 2008, sales to Excelpoint Systems Pte Ltd , Answer
Technology, Inc. and Avnet, Inc. accounted for 29%, 13% and 10%, respectively,
of net revenues. For the same period in 2007, Metatech accounted for 31% of net
revenues. For both of these periods, no other individual direct customer or
distributor represented greater than 10% of net revenues.
  8.  Income
Taxes
  A
provision for income tax of $330,000 has been recorded for the six month period
ended June 30, 2008, compared to income tax benefit of $355,000 for the same
period in 2007.  Income tax expense for the six months ended June 30,
2008 is a result of applying the estimated annual effective tax rate to
cumulative income before taxes adjusted for certain discrete items which are
fully recognized in the period they occur. For the same period in 2007, the
income tax benefit was a result of applying the estimated annual effective tax
rate to cumulative loss before taxes.
  The
Company has determined that negative evidence supports the need for a full
valuation allowance against its net deferred tax assets at this time. The
Company will maintain a full valuation allowance until sufficient positive
evidence exists to support a reversal of the valuation allowance.
  The
Company adopted FIN 48, regarding accounting for uncertain tax benefits, at the
beginning of calendar year 2007. As of June 30, 2008, the Company had
unrecognized tax benefits of approximately $1.9 million of which none, if
recognized, would result in a reduction of the Company’s effective tax
rate.  There were no material changes in the amount of unrecognized
tax benefits during the six months ended June 30, 2008. Future changes in the
balance of unrecognized tax benefits will have no impact on the effective tax
rate as they are subject to a full valuation allowance. The Company does not
believe the amount of its unrecognized tax benefits will significantly change
within the next twelve months.
 
 The
Company is subject to taxation in the United States and various states and
foreign jurisdictions.  The tax years 1997-2007 remain open to
examination by the federal and most state tax authorities due to certain
acquired net operating loss and overall credit carryforward
positions.
  13
  ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 This
Report on Form 10-Q contains forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
including statements regarding our expectations, hopes, intentions, beliefs or
strategies regarding the future.  Such forward-looking statements also
include statements regarding our future gross margin, our future research and
development expenses, our future selling, general and administrative expenses,
our ability to meet our capital requirements for the next twelve months, our
future capital requirements, current high turns fill requirements and our
anticipation that sales to a small number of customers will account for a
significant portion of our sales.  Actual results could differ
materially from those projected in such forward-looking
statements.  Factors that could cause actual results to differ include
unexpected changes in the mix of our product sales, unexpected pricing
pressures, unexpected capital requirements that may arise due to other possible
acquisitions or other events, unanticipated changes in the businesses of our
suppliers, and unanticipated cash shortfalls.  Actual results could
also differ for the reasons noted under the sub-heading “Factors That May Affect
Future Operating Results” in Item 1A, Risk Factors in Part II of this report on
Form 10-Q and in other sections of this report on Form 10-Q.  All
forward-looking statements included in this Form 10-Q are based on
information available to us on the date of this report on Form 10-Q, and we
assume no obligation to update the forward-looking statements, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
 
 The
following discussion should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007.
 
 OVERVIEW
 
 PLX
Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in
1986, develops and supplies semiconductor devices that accelerate and manage the
transfer of data in microprocessor-based systems including networking and
telecommunications, enterprise storage, servers, personal computers (PCs), PC
peripherals, consumer electronics, imaging and industrial products. We offer a
complete solution consisting of three related types of products: semiconductor
devices, software development kits and hardware design kits. Our semiconductor
devices manage fast and reliable transfer of data in microprocessor based
systems. Our software development kits and hardware design kits  have
been designed with the goal of promoting sales of our semiconductor devices by
lowering customers' development costs and by accelerating their ability to bring
new products to market.
 
 PLX
products shipping today provide I/O connectivity solutions mainly for the PCI
Express, PCI, PCI-X, and USB standards. As new I/O standards evolve, we expect
to support them where appropriate.  More than 1,000 electronic
equipment manufacturers use PLX semiconductor devices in a wide variety of
applications.
 
 Historically,
PLX supplied bridges, controllers, and accelerators to the PCI, PCI-X and USB
markets, which we refer to as our Legacy products.  Today, PLX’s main
focus is supplying the needs of the growing demand for PCI Express
Switches.  PCI Express is a serial point to point technology that
requires switches to route the traffic similar to Ethernet.  PCI and
PCI-X did not require these devices.  This has opened up a new market
for suppliers like PLX.
  We
utilize a “fabless” semiconductor business model whereby we purchase wafers or
packaged and tested semiconductor devices from independent manufacturing
foundries.  The advantage of this approach, in our opinion, allows us
to focus on defining, developing and marketing our products and eliminates the
need for us to invest large amounts of capital in manufacturing facilities and
work-in-process inventory.
  We rely
on a combination of direct sales personnel, distributors and manufacturers’
representatives throughout the world to sell a significant portion of our
products.  We pay manufacturers’ representatives a commission on sales
while we sell products to distributors at a discount from the selling
price.
  The time
period between initial customer evaluation and design completion can range from
six to twelve months or more.  Furthermore, there is typically an
additional six to twelve month or greater period after design completion before
a customer orders volume production of our products.  Due to the
variability and length of these design cycles and variable demand from
customers, we may experience significant fluctuations in new orders from month
to month.  In addition, we typically make inventory purchases prior to
receiving customer orders.  Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, expenses and inventory
levels could be disproportionately high, and our results for that quarter and
potentially future quarters would be materially and adversely
affected.
  14
  Our
long-term success will depend on our ability to successfully introduce new
products.  While new products typically generate little or no revenues
during the first twelve months following their introduction, our revenues in
subsequent periods depend upon these new products.  Due to the lengthy
sales cycle and additional time before our customers request volume production,
significant revenues from our new products typically occur twelve to twenty-four
months after product introduction.  As a result, revenues from newly
introduced products have, in the past, produced a small percentage of our total
revenues in the year the product was introduced.  See –“Our Lengthy
Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected
Revenues” in Item 1A, Risk Factors, in Part II of this report on Form
10-Q.
 
 RESULTS
OF OPERATIONS
 
 The
following table summarizes historical results of operations as a percentage of
net revenues for the periods shown.
 Three
      Months Ended
                  
                  
                  Six
      Months EndedJune
      30,
                  
                  
                  June
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      revenues
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %Cost
      of revenues
                  
                  
                  40.7
                  
                  
                  
                  41.1
                  
                  
                  
                  39.9
                  
                  
                  
                  40.1Gross
      margin
                  
                  
                  59.3
                  
                  
                  
                  58.9
                  
                  
                  
                  60.1
                  
                  
                  
                  59.9Operating
      expenses:Research
      and development
                  
                  
                  33.4
                  
                  
                  
                  31.1
                  
                  
                  
                  31.0
                  
                  
                  
                  30.9Selling,
      general and administrative
                  
                  
                  26.0
                  
                  
                  
                  30.7
                  
                  
                  
                  27.1
                  
                  
                  
                  31.8Amortization
      of purchased intangible assets
                  
                  
                  0.9
                  
                  
                  
                  1.8
                  
                  
                  
                  1.0
                  
                  
                  
                  2.1Total
      operating expenses
                  
                  
                  60.3
                  
                  
                  
                  63.6
                  
                  
                  
                  59.1
                  
                  
                  
                  64.8Income
      (loss) from operations
                  
                  
                  (1.0
                  )
                  
                  
                  (4.7
                  )
                  
                  
                  1.0
                  
                  
                  
                  (4.9
                  )Interest
      income and other, net
                  
                  
                  1.6
                  
                  
                  
                  3.1
                  
                  
                  
                  1.9
                  
                  
                  
                  3.1Income
      (loss) before provision (benefit) for income taxes
                  
                  
                  0.6
                  
                  
                  
                  (1.6
                  )
                  
                  
                  2.9
                  
                  
                  
                  (1.8
                  )Provision
      (benefit) for income taxes
                  
                  
                  1.1
                  
                  
                  
                  (1.1
                  )
                  
                  
                  0.7
                  
                  
                  
                  (0.9
                  )Net
      income (loss)
                  
                  
                  (0.5
                  )
      %
                  
                  
                  (0.5
                  )
      %
                  
                  
                  2.2
                  %
                  
                  
                  (0.9
                  )
      %
 Net
Revenues
 
 The
following table shows the revenue by product type as a percentage of net
revenues:
 Three
      Months Ended
                  
                  
                  Six
      Months EndedJune
      30,
                  
                  
                  June
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:Legacy
      Products
                  
                  
                  49.1
                  %
                  
                  
                  67.5
                  %
                  
                  
                  51.3
                  %
                  
                  
                  70.2
                  %PCI
      Express
                  
                  
                  50.9
                  %
                  
                  
                  32.5
                  %
                  
                  
                  48.7
                  %
                  
                  
                  29.8
                  %
 Net
revenues consist of product revenues generated principally by sales of our
semiconductor devices.  Net revenues for the three months ended June
30, 2008 were $23.4 million, an increase of 18.1% from $19.8 million for the
three months ended June 30, 2007. The increase was due primarily to increased
sales of our PCI Express products due to an increase of customers in volume
production, partially offset by the decreased sales of our Legacy products due
to customer migration to PCI Express and general demand
fluctuations.
  15
  For the
three months ended June 30, 2008, sales to Excelpoint Systems Pte Ltd and Answer
Technology, Inc. accounted for 28% and 14%, respectively, of net revenues. For
the same period in 2007, Metatech accounted for 31% of net revenues. For both of
these periods, no other individual direct customer or distributor represented
greater than 10% of net revenues.
  Net
revenues for the six months ended June 30, 2008 were $46.1 million, an increase
of 20.0% from $38.4 million for the six months ended June 30, 2007. The increase
was due primarily to increased sales of our PCI Express products due to an
increase of customers in volume production, partially offset by the decreased
sales of our Legacy products due to customer migration to PCI Express and
general demand fluctuations.
  For the
six months ended June 30, 2008, sales to Excelpoint Systems Pte Ltd, Answer
Technology, Inc. and Avnet, Inc. accounted for 29%, 13% and 10%, respectively,
of net revenues. For the same period in 2007, Metatech accounted for 31% of net
revenues. For both of these periods, no other individual direct customer or
distributor represented greater than 10% of net revenues.
  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 sustainability of improved customer demand is
uncertain and highly dependent on economic conditions.  The high turns fill
orders requirement, 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.
 
 Gross
margin for the three months ended June 30, 2008 was 59.3%, as compared to 58.9%
for the same period in 2007.  In absolute dollars, gross margin
increased by $2.2 million or 19.0% to $13.9 million for the three months ended
June 30, 2008 from $11.7 million for the same period in 2007. The increase in
absolute dollars is due primarily to increased product shipments while the
increase as a percentage was primarily due to improved production yields and
other cost reduction efforts to our PCI Express products.
 
 Gross
margin for the six months ended June 30, 2008 was 60.1%, as compared to 59.9%
for the same period in 2007.  In absolute dollars, gross margin
increased by $4.7 million or 20.3% to $27.7 million for the six months ended
June 30, 2008 from $23.0 million for the same period in 2007. The increase in
absolute dollars is due primarily to increased product shipments while the
increase as a percentage was primarily due to product and customer mix of our
PCI Express products.
 
 Future
gross profit and gross margin are highly dependent on the product and customer
mix, provisions and recoveries of excess or obsolete inventory, the position of
our products in their respective life cycles and specific manufacturing
costs.  Accordingly, we are not able to predict future gross profit
levels or gross margins with certainty.
 
 Research
and Development Expenses
 
 Research
and development (“R&D”) expenses consist primarily of tape-out costs at our
independent foundries, salaries and related costs, including share-based
compensation and expenses for outside engineering consultants.
 
 R&D
as a percentage of net revenues increased to 33.4% for the three months ended
June 30, 2008, as compared to 31.1% for the same period in 2007. In absolute
dollars, R&D expenses increased by $1.7 million or 26.8% to $7.8 million for
the three months ended June 30, 2008 from $6.1 million for the same period in
2007. The increase in R&D as a percentage of revenue as well as the increase
in absolute dollars is due primarily to increases in R&D spending on
tape-out related costs of $0.5 million, engineering tools of $0.4 million and
consulting fees of $0.4 million associated with new product designs and salary
and related expenses of $0.3 million resulting from higher headcount and annual
rate increases.
  16
 
 R&D
as a percentage of net revenues increased to 31.0% for the six months ended June
30, 2008, as compared to 30.9% for the same period in 2007. In absolute dollars,
R&D expenses increased by $2.4 million or 20.2% to $14.3 million for the six
months ended June 30, 2008 from $11.9 million for the same period in 2007. The
increase in R&D as a percentage of revenue as well as the increase in
absolute dollars is due primarily to increases in R&D spending on
engineering tools of $0.8 million and consulting fees of $0.9 million associated
with new product designs and salary and related expenses of $0.7 million
resulting from higher headcount and annual rate increases.
 
 We
believe continued spending on research and development to develop new products
is critical to our success and, consequently, expect research and development
expenses to increase in absolute dollars in future periods.
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative (“SG&A”) expenses consist primarily of salaries
and related costs, share-based compensation and commissions to manufactures’
representatives, as well as professional fees, trade show and other promotional
expenses.
 
 SG&A
as a percentage of net revenues decreased to 26.0% for the three months ended
June 30, 2008, as compared to 30.7% for the same period in 2007.  In
absolute dollars, SG&A expenses remained flat at $6.1 million  for
the three months ended June 30, 2008 compared to the same period in 2007. The
decrease in SG&A as a percentage of revenue was primarily due to an increase
in revenues.
 
 SG&A
as a percentage of net revenues decreased to 27.1% for the six months ended June
30, 2008, as compared to 31.8% for the same period in 2007.  In
absolute dollars, SG&A expenses increased $0.3 million or 2.3% to $12.5
million for the six months ended June 30, 2008 from $12.2 million for the same
period in 2007. The decrease in SG&A as a percentage of revenue was
primarily due to an increase in revenues. The increase in SG&A is absolute
dollars is due primarily to increases in travel expenses to promote new products
of $0.1 million and commission expenses to manufacturers’ representatives of
$0.1 million due to higher revenues.
 
 We expect
SG&A expenses in absolute dollars to likely increase in future periods to
support increased revenue expectations.
 
 Amortization
of Purchased Intangible Assets
 
 Amortization
of purchased intangible assets consists of amortization expense related to
developed/core technology and customer base acquired as a result of the HiNT
Corporation acquisition in May 2003 and NetChip Technology, Inc. acquisition in
May 2004.  Amortization of purchased intangible assets decreased by
$0.2 million or 43.4% to $0.2 million for the three months ended June 30, 2008
from $0.4 million for the same period in 2007.  The decrease is due to
the customer base acquired as a result of the NetChip Technology, Inc.
acquisition in May 2004 becoming fully amortized in May 2007 and the developed
core technology acquired as a result of the HiNT Corporation acquisition in May
2003 becoming fully amortized in May 2008.
 
 Amortization
of purchased intangible assets decreased by $0.4 million or 44.4% to $0.4
million for the six months ended June 30, 2008 from $0.8 million for the same
period in 2007.  The decrease is due to the customer base acquired as
a result of the NetChip Technology, Inc. acquisition in May 2004 becoming fully
amortized in May 2007 and the developed core technology acquired as a result of
the HiNT Corporation acquisition in May 2003 becoming fully amortized in May
2008.
 
 Interest
Income and Other, Net
 
 Interest
income reflects interest earned on cash, cash equivalents and short-term and
long-term investment balances. Interest income and other decreased by $0.2
million to $0.4 million for the three months ended June 30, 2008 from $0.6
million from the same period in 2007. The decrease was primarily due to lower
cash balances as a result of the stock repurchases.
 
 Interest
income and other decreased by $0.3 million to $0.9 million for the six months
ended June 30, 2008 from $1.2 million from the same period in 2007. The decrease
was primarily due to lower cash balances as a result of the stock
repurchases.
  17
  Provision
for Income Taxes
 
 Income
tax expense of $330,000 has been recorded for the six month period ended June
30, 2008, compared to income tax benefit of $355,000 for the same period in
2007.  Income tax expense for the six months ended June 30, 2008 is a
result of applying the estimated annual effective tax rate to cumulative income
before taxes adjusted for certain discrete items which are fully recognized in
the period they occur. For the same period in 2007, the income tax benefit was a
result of applying the estimated annual effective tax rate to cumulative loss
before taxes.
  We have
determined that negative evidence supports the need for a full valuation
allowance against our net deferred tax assets at this time. We will maintain a
full valuation allowance until sufficient positive evidence exists to support a
reversal of the valuation allowance.
  We
adopted FIN 48, regarding accounting for uncertain tax benefits, at the
beginning of calendar year 2007. As of June 30, 2008, we have unrecognized tax
benefits of approximately $1.9 million of which none, if recognized, would
result in a reduction of our effective tax rate.  There were no
material changes in the amount of unrecognized tax benefits during the six
months ended June 30, 2008.  Future changes in the remaining balance
of unrecognized tax benefits will have no impact on the effective tax rate as
they are subject to a full valuation allowance. We do not expect that the amount
of our unrecognized tax benefits will significantly change within the next
twelve months.
 
 We are
subject to taxation in the United States and various states and foreign
jurisdictions.  The tax years 1997-2007 remain open to examination by
the federal and most state tax authorities due to certain acquired net operating
loss and overall credit carryforward positions.
 
 Liquidity
and Capital Resources
 
 In
summary, our cash flows were (in thousands):
 Six
      Months EndedJune
      30,2008
                  
                  
                  2007Net
      cash provided by operating activities
                  
                  $
                  2,254
                  
                  
                  $
                  5,002Net
      cash used in investing activities
                  
                  
                  (14,941
                  )
                  
                  
                  (9,961
                  )Net
      cash provided by financing activities
                  
                  
                  814
                  
                  
                  
                  440Effect
      of exchange rate fluctuations on cash and cash equivalents
                  
                  
                  (26
                  )
                  
                  
                  (26
                  )
 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, 2008 cash, cash equivalents, short and long-term
marketable securities were $42.5 million, a decrease of $4.1 million from $46.6
million at December 31, 2007.
 
 Cash
provided by operating activities primarily consists of net income (loss)
adjusted for certain non-cash items including depreciation, amortization,
share-based compensation expense, provisions for excess and obsolete
inventories, changes in pre-acquisition deferred tax balances, other non-cash
items, and the effect of changes in working capital and other activities. Cash
provided by operating activities for the six months ended June 30, 2008 of
$2.3 million consisted primarily of net income of $1.0 million
adjusted for non-cash items of $3.3 and an increase in accounts payable of $1.2
million partially offset by increases in inventories of $1.5 million and other
current assets of $1.1 million and other assets of $1.0 million due to an
increase in software and IP licenses. Cash provided by operating activities for
the six months ended June 30, 2007 of $5.0 million consisted primarily of a
net loss of $0.4 million adjusted for non-cash items of $4.6 million, an
increase in accounts payable of $2.7 million partially offset by an increase in
other current assets of $2.8 million due to an increase in software and IP
licenses.
 
 Cash used
in investing activities for the six months ended June 30, 2008 of
$14.9 million was due to cash used in purchases of marketable securities
(net of sales and maturities of investments) of $7.8 million, common stock
repurchases of $6.0 million and capital expenditures of $1.2 million
primarily to provide infrastructure for new product designs. Cash used in
investing activities for the six months ended June 30, 2007 of
$10.0 million was due primarily to purchases of marketable securities (net
of sales and maturities of investments) of $9.6 million and capital expenditures
of $0.3 million.  Capital expenditures have generally been comprised
of purchases of engineering equipment, computer hardware, software, server
equipment and furniture and fixtures.
  18
 
 Cash
provided by financing activities for the six months ended June 30, 2008 and 2007
of $0.8 million and $0.4 million, respectively, were due to proceeds from the
exercise of stock options.
 
 The
negative effect of exchange rates on cash and cash equivalents for the six
months ended June 30, 2008 and 2007 was due to the weakening of the U.S. dollar
against other foreign currencies.
 
 As of
June 30, 2008, we had the following significant contractual obligations and
commercial commitments (in thousands):
 Payments
      due inLess
      than
                  
                  
                  1-3Total
                  
                  
                  1
      Year
                  
                  
                  YearsOperating
      leases - facilities and equipment
                  
                  $
                  176
                  
                  
                  $
                  132
                  
                  
                  $
                  44Software
      licenses
                  
                  
                  1,741
                  
                  
                  
                  1,716
                  
                  
                  
                  25Inventory
      purchase commitments
                  
                  
                  3,702
                  
                  
                  
                  3,702
                  
                  
                  
                  -Total
      cash obligations
                  
                  $
                  5,619
                  
                  
                  $
                  5,550
                  
                  
                  $
                  69
 We
believe that our existing resources, together with cash generated from our
operations will be sufficient to meet our capital requirements for at least the
next twelve months.  Our future capital requirements will depend on
many factors, including the inventory levels we maintain, the level of
investment we make in new technologies and improvements to existing technologies
and the levels of monthly expenses required to launch new
products.  From time to time, we may also evaluate potential
acquisitions and equity investments complementary to our technologies and market
strategies.  To the extent that existing resources and future earnings
are insufficient to fund our future activities, we may need to raise additional
funds through public or private financings.  Additional funds may not
be available or, if available, we may not be able to obtain them on terms
favorable to us and our stockholders.
 
 Critical
Accounting Policies
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements and accompanying
notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a
company’s critical accounting policies as the ones that are most important to
the portrayal of the company’s financial condition and results of operations,
and which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.  Based on this definition, we have identified
the critical accounting policies and judgments addressed below.  We
also have other key accounting policies which involve the use of estimates,
judgments and assumptions that are significant to understanding our
results.  Although we believe that our estimates, assumptions and
judgments are reasonable, they are based upon information presently
available.  Actual results may differ significantly from these
estimates under different assumptions, judgments or conditions.
 
 Revenue
Recognition
 
 We
recognize revenue when persuasive evidence of an arrangement exists, delivery or
customer acceptance, where applicable, has occurred, the fee is fixed or
determinable, and collection is reasonably assured.
  We
recognize revenue in accordance with Statements of Financial Accounting
Standards (“SFAS”) No. 48, Revenue Recognition When Right of
Return Exists. Revenue from product sales to direct customers and
distributors is recognized upon shipment and transfer of risk of loss, if we
believe collection is reasonably assured and all other revenue recognition
criteria are met. We assess the probability of collection based on a number of
factors, including past transaction history and the customer’s
creditworthiness.  At the end of each reporting period, the sufficiency of
allowances for doubtful accounts is assessed based on the age of the receivable
and the individual customer’s creditworthiness.
  19
 
 We
offer pricing protection to two distributors whereby the Company supports the
distributor’s resale product margin on certain products held in the
distributor’s inventory. In general, we analyze current requests for credit in
process, also known as ship and debits, inventory at the distributor and credit
expectations to determine the ending sales reserve required for this
program.  We also offer stock rotation rights to two distributors such
that they can return up to a total of 5% of products purchased every six months
in exchange for other PLX products of equal value. In general, we analyze
current stock rotation requests and past experience, which has historically been
insignificant, to determine the ending sales reserve required for this program.
Reserves are reduced directly from revenue and recorded as a reduction to
accounts receivable.  In addition, we have arrangements with a small
number of customers offering a rebate program on various products.  We
record rebates as a reduction of revenue under the guidelines of Emerging Issues Task Force
(“EITF’) 01-9, Accounting for Consideration Given
to a Customer (Including a Reseller of the Vendor’s
Product).
 
 Inventory
Valuation
 
 We
evaluate the need for potential inventory provisions by considering a
combination of factors.  Based on the life of the product, sales
history, obsolescence, and sales forecast, we may record a provision for
inventory ranging from 0% to 100%.  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 thirty 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 affect on our results of
operations in the period in which such changes or events occur. Historically,
our write-offs have been insignificant.
 
 Share-Based
Compensation
 
 We
recognize share-based compensation expense in accordance with SFAS No. 123(R),
Share-Based Payment. We
estimate the value of employee stock options on the date of grant using the
Black-Scholes model. The determination of fair value of share-based payment
awards on the date of grant using an option-pricing model is affected by our
stock price as well as assumptions regarding a number of highly complex and
subjective variables.  These variables include, but are not limited to
the expected stock price volatility over the term of the awards and the actual
and projected employee stock option exercise behaviors. The expected term of
options granted is derived from historical data on employee exercises and
post-vesting employment termination behavior.  We calculated our
expected volatility assumption required in the Black-Scholes model by blending
the historical volatility of our stock with the implied volatility for traded
options on our stock. We estimate the amount of forfeitures at the time of grant
and revise, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
 
 Taxes
  We
account for income taxes using the asset and liability
method.  Deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. As of June
30, 2008, we carried a valuation allowance for the entire deferred tax asset as
a result of uncertainties regarding the realization of the asset balance. We
will maintain a full valuation allowance against our deferred tax assets until
sufficient positive evidence exists to support a reversal of the valuation
allowance.
  Future
taxable income and/or tax planning strategies may eliminate all or a portion of
the need for the valuation allowance. In the event we determine we are able to
realize our deferred tax asset, an adjustment to the valuation allowance may
increase income in the period such determination is made.
  20
 
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
  We have
an investment portfolio of fixed income securities, including amounts classified
as cash equivalents, short-term investments and long-term investments of $38.5
million at June 30, 2008.  These securities are subject to interest
rate fluctuations and will decrease in market value if interest rates
increase.
 
 The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing
risk.  We invest primarily in high quality, short-term and long-term
debt instruments. A hypothetical 100 basis point increase in interest rates
would result in less than a $0.3 million decrease (less than 1%) in the fair
value of our available-for-sale securities.
  ITEM 4.  CONTROLS AND PROCEDURES
  (a)
Evaluation of disclosure controls and procedures.
  Based on
their evaluation as of June 30, 2008, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) were effective to ensure that the information required to
be disclosed by us in this Quarterly Report on Form 10-Q was recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and instructions for Form 10-Q and that such disclosure
controls and procedures were also effective to ensure that information required
to be disclosed in the reports we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
  (b) Changes
in internal controls.
  There has
been no significant change in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected or
is reasonably likely to materially affect our internal control over financial
reporting.
  21
  PART II. OTHER INFORMATION
 
 ITEM 1A.  RISK FACTORS
 
 FACTORS
THAT MAY AFFECT FUTURE OPERATING RESULTS
 
 This
quarterly report on Form 10-Q contains forward-looking statements which involve
risks and uncertainties.  Our actual results could differ materially
from those anticipated by such forward-looking statements as a result of certain
factors, including those set forth below.  The following risk factors
have been updated from those set forth in Item 1A. of Part I of our Annual
Report on Form 10-K for the year ended December 31, 2007, and are restated in
full.
 
 Our
Operating Results May Fluctuate Significantly Due To Factors Which Are Not
Within Our Control
 
 Our
quarterly operating results have fluctuated significantly in the past and are
expected to fluctuate significantly in the future based on a number of factors,
many of which are not under our control.  Our operating expenses,
which include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term.  If our revenues are
lower than we expect because we sell fewer semiconductor devices, delay the
release of new products or the announcement of new features, or for other
reasons, we may not be able to quickly reduce our spending in
response.
 Other
      circumstances that can affect our operating results
    include:
  ·
                  the
      timing of significant orders, order cancellations and
      reschedulings;
 ·
                  the
      loss of one or more significant
customers;
 ·
                  introduction
      of products and technologies by our
competitors;
 ·
                  the
      availability of production capacity at the fabrication facilities that
      manufacture our products;
 ·
                  our
      significant customers could lose market share that may affect our
      business;
 ·
                  integration
      of our product functionality into our customers’
  products;
 ·
                  our
      ability to develop, introduce and market new products and technologies on
      a timely basis;
 ·
                  unexpected
      issues that may arise with devices in
  production;
 ·
                  shifts
      in our product mix toward lower margin
products;
 ·
                  changes
      in our pricing policies or those of our competitors or suppliers,
      including decreases in unit average selling prices of our
      products;
 ·
                  the
      availability and cost of materials to our
  suppliers;
 ·
                  general
      economic conditions; and
 ·
                  political
      climate.
 These
factors are difficult to forecast, and these or other factors could adversely
affect our business.  Any shortfall in our revenues would have a
direct impact on our business.  In addition, fluctuations in our
quarterly results could adversely affect the market price of our common stock in
a manner unrelated to our long-term operating performance.
 
 The
Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances
In The Demand For Our Products
 
 In the
past, the semiconductor industry has been characterized by significant downturns
and wide fluctuations in supply and demand.  Also, during this time,
the industry has experienced significant fluctuations in anticipation of changes
in general economic conditions.  This cyclicality has led to
significant variances in product demand and production capacity.  It
has also accelerated erosion of average selling prices per unit.  We
may experience periodic fluctuations in our future financial results because of
industry-wide conditions.
 
 Because
A Substantial Portion Of Our Net Sales Is Generated By A Small Number Of Large
Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net
Revenues And Earnings Will Be Harmed
 
 Historically,
a relatively small number of customers have accounted for a significant portion
of our net revenues in any particular period.  For the three months
ended June 30, 2008, Excelpoint Systems Pte Ltd and Answer Technology, Inc.
accounted for 28% and 14%, respectively, of net revenues. For the same period in
2007, Metatech accounted for 31% of net revenues. For the six months ended June
30, 2008, Excelpoint Systems Pte Ltd, Answer Technology, Inc. and Avnet, Inc.
accounted for 29%, 13% and 10%, respectively, of net revenues. For the same
period in 2007, Metatech accounted for 31% of net revenues. For both periods, no
other individual direct customer or distributor represented greater than 10% of
net revenues in any period presented.
  22
 
 During
2007 we terminated our relationship with our largest distributor and
transitioned in a new replacement distributor. If this new distributor is not
able to sustain the same volume support it could have a material adverse effect
on our business, as we may not be successful in servicing our customers directly
or through manufacturers’ representatives.
 
 We have
no long-term volume purchase commitments from any of our significant customers.
We cannot be certain that our current customers will continue to place orders
with us, that orders by existing customers will continue at the levels of
previous periods or that we will be able to obtain orders from new customers. In
addition, some of our customers supply products to end-market purchasers and any
of these end-market purchasers could choose to reduce or eliminate orders for
our customers' products. This would in turn lower our customers' orders for our
products.
 
 We
anticipate that sales of our products to a relatively small number of customers
will continue to account for a significant portion of our net
sales.  Due to these factors, the following have in the past and may
in the future reduce our net sales or earnings:
  ·
                the
      reduction, delay or cancellation of orders from one or more of our
      significant customers;
 ·
                the
      selection of competing products or in-house design by one or more of our
      current customers;
 ·
                the
      loss of one or more of our current customers;
or
 ·
                a
      failure of one or more of our current customers to pay our
      invoices.
  Intense
Competition In The Markets In Which We Operate May Reduce The Demand For Or
Prices Of Our Products
  Competition
in the semiconductor industry is intense.  If our main target market,
the microprocessor-based systems market, continues to grow, the number of
competitors may increase significantly.  In addition, new
semiconductor technology may lead to new products that can perform similar
functions as our products.  Some of our competitors and other
semiconductor companies may develop and introduce products that integrate into a
single semiconductor device the functions performed by our semiconductor
devices.  This would eliminate the need for our products in some
applications.
  In
addition, competition in our markets comes from companies of various sizes, many
of which are significantly larger and have greater financial and other resources
than we do and thus can better withstand adverse economic or market conditions.
Therefore, we cannot assure you that we will be able to compete successfully in
the future against existing or new competitors, and increased competition may
adversely affect our business.  See “Business -- Products,” and “--
Competition” in Part I of Item I of our Form 10-K for the year ended December
31, 2007.
 
 Our
Independent Manufacturers May Not Be Able To Meet Our Manufacturing
Requirements
 
 We do not
manufacture any of our semiconductor devices.  Therefore, we are
referred to in the semiconductor industry as a “fabless” producer of
semiconductors. Consequently, we depend upon third party manufacturers to
produce semiconductors that meet our specifications.  We currently
have third party manufacturers principally located in Japan, Korea, Taiwan,
Singapore and Malaysia, that can produce semiconductors which meet our
needs.  However, as the semiconductor industry continues to progress
towards smaller manufacturing and design geometries, the complexities of
producing semiconductors will increase.  Decreasing geometries may
introduce new problems and delays that may affect product development and
deliveries.  Due to the nature of the semiconductor industry and our
status as a “fabless” semiconductor company, we could encounter
fabrication-related problems that may affect the availability of our
semiconductor devices, delay our shipments or may increase our
costs.
 
 None of
our semiconductor devices are currently manufactured by more than one
supplier.  We place our orders on a purchase order basis and do not
have a long term purchase agreement with any of our existing
suppliers.  In the event that the supplier of a semiconductor device
was unable or unwilling to continue to manufacture this product in the required
volume, we would have to identify and qualify a substitute
supplier.  Introducing new products or transferring existing products
to a new third party manufacturer or process may result in unforeseen device
specification and operating problems.  These problems may affect
product shipments and may be costly to correct.  Silicon fabrication
capacity may also change, or the costs per silicon wafer may
increase.  Manufacturing-related problems may have a material adverse
effect on our business.
  23
  Customers
Are Requiring That We Offer Our Products In Lead-Free Packages
 
 Governmental
regulations in certain countries and customers' intention to produce products
that are less harmful to the environment has resulted in a requirement from many
of our customers to purchase integrated circuits that do not contain
lead.  We have responded by offering our products in lead-free
versions. While the lead-free versions of our products are expected to be
friendlier to the environment, the ultimate impact is uncertain. The transition
to lead-free products may produce sudden changes in demand depending on the
packaging method used, which may result in excess inventory of products packaged
using traditional methods. This may have an adverse affect on our results of
operations.  In addition, the cost of manufacturing the lead-free
products is higher compared to the products packaged using more traditional
materials which would result in higher costs to us if additional changes in
demand occur.
 
 Lower
Demand For Our Customers’ Products Will Result In Lower Demand For Our
Products
 
 Demand
for our products depends in large part on the development and expansion of the
high-performance microprocessor-based systems markets including networking and
telecommunications, enterprise storage, imaging and industrial
applications.  The size and rate of growth of these
microprocessor-based systems markets may in the future fluctuate significantly
based on numerous factors.  These factors include the adoption of
alternative technologies, capital spending levels and general economic
conditions. Demand for products that incorporate high-performance
microprocessor-based systems may not grow.
 
 Our
Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our
Expected Revenues
  Our
customers typically perform numerous tests and extensively evaluate our products
before incorporating them into their systems.  The time required for
test, evaluation and design of our products into a customer’s equipment can
range from six to twelve months or more.  It can take an additional
six to twelve months or more before a customer commences volume shipments of
equipment that incorporates our products.  Because of this lengthy
sales cycle, we may experience a delay between the time when we increase
expenses for research and development and sales and marketing efforts and the
time when we generate higher revenues, if any, from these
expenditures.
  In
addition, the delays inherent in our lengthy sales cycle raise additional risks
of customer decisions to cancel or change product plans.  When we
achieve a design win, there can be no assurance that the customer will
ultimately ship products incorporating our products.  Our business
could be materially adversely affected if a significant customer curtails,
reduces or delays orders during our sales cycle or chooses not to release
products incorporating our products.
 
 Failure
To Have Our Products Designed Into The Products Of Electronic Equipment
Manufacturers Will Result In Reduced Sales
 
 Our
future success depends on electronic equipment manufacturers that design our
semiconductor devices into their systems.  We must anticipate market
trends and the price, performance and functionality requirements of current and
potential future electronic equipment manufacturers and must successfully
develop and manufacture products that meet these requirements.  In
addition, we must meet the timing requirements of these electronic equipment
manufacturers and must make products available to them in sufficient
quantities.  These electronic equipment manufacturers could develop
products that provide the same or similar functionality as one or more of our
products and render these products obsolete in their applications.
 
 We do not
have purchase agreements with our customers that contain minimum purchase
requirements.  Instead, electronic equipment manufacturers purchase
our products pursuant to short-term purchase orders that may be canceled without
charge. We believe that in order to obtain broad penetration in the markets for
our products, we must maintain and cultivate relationships, directly or through
our distributors, with electronic equipment manufacturers that are leaders in
the embedded systems markets.  Accordingly, we will incur significant
expenditures in order to build relationships with electronic equipment
manufacturers prior to volume sales of new products. If we fail to develop
relationships with additional electronic equipment manufacturers to have our
products designed into new microprocessor-based systems or to develop sufficient
new products to replace products that have become obsolete, our business would
be materially adversely affected.
  24
 Defects
In Our Products Could Increase Our Costs And Delay Our Product
Shipments
 
 Our
products are complex. While we test our products, these products may still have
errors, defects or bugs that we find only after commercial production has begun.
We have experienced errors, defects and bugs in the past in connection with new
products.
 
 Our
customers may not purchase our products if the products have reliability,
quality or compatibility problems. This delay in acceptance could make it more
difficult to retain our existing customers and to attract new
customers.  Moreover, product errors, defects or bugs could result in
additional development costs, diversion of technical and other resources from
our other development efforts, claims by our customers or others against us, or
the loss of credibility with our current and prospective customers. In the past,
the additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. We may have to spend significant
amounts of capital and resources to address and fix problems in new
products.
  We must
continuously develop our products using new process technology with smaller
geometries to remain competitive on a cost and performance
basis.  Migrating to new technologies is a challenging task requiring
new design skills, methods and tools and is difficult to achieve.
 
 Failure
Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial
Condition
 
 We
believe that our growth prospects depend upon our ability to gain customer
acceptance of our products and technology.  Market acceptance of
products depends upon numerous factors, including compatibility with other
products, adoption of relevant interconnect standards, perceived advantages over
competing products and the level of customer service available to support such
products.  There can be no assurance that growth in sales of new
products will continue or that we will be successful in obtaining broad market
acceptance of our products and technology.
 
 We expect
to spend a significant amount of time and resources to develop new products and
refine existing products. In light of the long product development cycles
inherent in our industry, these expenditures will be made well in advance of the
prospect of deriving revenues from the sale of any new products. Our ability to
commercially introduce and successfully market any new products is subject to a
wide variety of challenges during this development cycle, including start-up
bugs, design defects and other matters that could delay introduction of these
products to the marketplace. In addition, since our customers are not obligated
by long-term contracts to purchase our products, our anticipated product orders
may not materialize, or orders that do materialize may be cancelled. As a
result, if we do not achieve market acceptance of new products, we may not be
able to realize sufficient sales of our products in order to recoup research and
development expenditures. The failure of any of our new products to achieve
market acceptance would harm our business, financial condition, results of
operation and cash flows.
 
 A
Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors
Who May Terminate Their Relationships With Us At Any Time
 
 We depend
on distributors to sell a significant portion of our products. For the six
months ended June 30, 2008 and 2007, sales through distributors accounted for
approximately 76% and 74%, respectively, of our net revenues. Some of our
distributors also market and sell competing products.  Distributors
may terminate their relationships with us at any time.  Our future
performance will depend in part on our ability to attract additional
distributors that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
We may lose one or more of our current distributors or may not be able to
recruit additional or replacement distributors. The loss of one or more of our
major distributors could have a material adverse effect on our business, as we
may not be successful in servicing our customers directly or through
manufacturers’ representatives.
 
 During
2007 we terminated our relationship with our largest distributor and
transitioned in a new replacement distributor. If this new distributor is not
able to sustain the same volume support it could have a material adverse effect
on our business, as we may not be successful in servicing our customers directly
or through manufacturers’ representatives.
  25
  The
Demand For Our Products Depends Upon Our Ability To Support Evolving Industry
Standards
 
 A
majority of our revenues are derived from sales of products, which rely on the
PCI Express, PCI, PCI-X and USB standards.  If markets move away from
these standards and begin using new standards, we may not be able to
successfully design and manufacture new products that use these new
standards.  There is also the risk that new products we develop in
response to new standards may not be accepted in the market.  In
addition, these standards are continuously evolving, and we may not be able to
modify our products to address new specifications.  Any of these
events would have a material adverse effect on our business.
 
 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.
 
 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.
  26
 
 We may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by third
parties.  While there is currently no intellectual property litigation
pending against us, litigation could result in significant expenses to us and
adversely affect sales of the challenged product or technology.  This
litigation could also divert the efforts of our technical and management
personnel, whether or not the litigation is determined in our
favor.  In addition, we may not be able to develop or acquire
non-infringing technology or procure licenses to the infringing technology under
reasonable terms.  This could require expenditures by us of
substantial time and other resources.  Any of these developments would
have a material adverse effect on our business.
 
 Our
Potential Future Acquisitions May Not Be Successful Because Of Our Limited
Experience With Acquisitions In The Past
  As part
of our business strategy, we expect to review acquisition prospects that would
complement our existing product offerings, improve market coverage or enhance
our technological capabilities.  Future acquisitions could result in
any or all of the following:
  ·
                potentially
      dilutive issuances of equity
securities;
 ·
                large
      acquisition-related write-offs;
 ·
                the
      incurrence of debt and contingent liabilities or amortization expenses
      related to other intangible assets;
 ·
                difficulties
      in the assimilation of operations, personnel, technologies, products and
      the information systems of the acquired
  companies;
 ·
                diversion
      of management’s attention from other business
  concerns;
 ·
                risks
      of entering geographic and business markets in which we have no or limited
      prior experience; and
 ·
                potential
      loss of key employees of acquired
organizations.
  We have
had limited experience with acquisitions in the past and may not be able to
successfully integrate any businesses, products, technologies or personnel that
may be acquired in the future.  Our failure to do so could have a
material adverse effect on our business.
 
 Because
We Sell Our Products To Customers Outside Of The United States And Because Our
Products Are Incorporated With Products Of Others That Are Sold Outside Of The
United States We Face Foreign Business, Political And Economic
Risks
 
 Sales
outside of the United States accounted for approximately 77% of our revenues for
the six months ended June 30, 2008.  In 2007 and 2006, sales outside
of the United States accounted for approximately 71% and 75% of our revenues,
respectively.  Sales outside of the United States may fluctuate in
future periods and may continue to account for a large portion of our
revenues.  In addition, equipment manufacturers who incorporate our
products into their products sell their products outside of the United States,
thereby exposing us indirectly to foreign risks.  Further, most of our
semiconductor products are manufactured outside of the United
States.  Accordingly, we are subject to international risks,
including:
  ·
                difficulties
      in managing distributors;
 ·
                difficulties
      in staffing and managing foreign subsidiary and branch
      operations;
 ·
                political
      and economic instability;
 ·
                foreign
      currency exchange fluctuations;
 ·
                difficulties
      in accounts receivable collections;
 ·
                potentially
      adverse tax consequences;
 ·
                timing
      and availability of export
licenses;
 ·
                changes
      in regulatory requirements, tariffs and other
  barriers;
 ·
                difficulties
      in obtaining governmental approvals for telecommunications and other
      products; and
 ·
                the
      burden of complying with complex foreign laws and
  treaties.
  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.
  27
  A
Downturn In The Global Economy May Adversely Affect Our Revenues, Results Of
Operations And Financial Condition
  Demand
for semiconductor components is increasingly dependent upon the rate of growth
in the global economy.  If the rate of global economic growth slows,
or contracts, customer demand for products could be adversely affected, which in
turn could adversely affect revenues, results of operations and financial
condition.  Many factors could adversely affect regional or global
economic growth.  Some of the factors that could slow global economic
growth include:
 
 ·
                rising
      interest rates in the United
States,
 ·
                a
      slowdown in the rate of growth of the United States
    economy,
 ·
                a
      slowdown in the rate of growth of the Chinese
  economy,
 ·
                a
      significant act of terrorism which disrupts global trade or consumer
      confidence,
 ·
                geopolitical
      tensions including war and civil
unrest,
 ·
                reduced
      levels of economic activity or
 ·
                disruption
      of international transportation.
  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.
  28
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  In
September 2002, our Board of Directors authorized the repurchase of up
to 2,000,000 shares of common stock.  In July 2008, our Board of
Directors authorized an additional 2,000,000 shares under the repurchase
program. At the discretion of the management, we can repurchase the shares from
time to time in the open market or in privately negotiated transactions. 
Approximately 774,000 shares were repurchased for approximately $1.9 million in
cash in  2002 and 2003. We did not repurchase any additional shares
from January 1, 2004 through December 31, 2007. In the three and six months
ended June 30, 2008 we repurchased 256,000 and 883,000 shares, respectively, for
approximately $2.1 million and $6.0 million, respectively, and anticipate that
repurchases will continue throughout 2008.
 
 The stock
repurchase activity under the stock repurchase program during the three months
ended June 30, 2008 is summarized as follows (in thousands, except per share
amounts):
 Total
      Number of
                  
                  
                  Maximum
      Number OfShares
      Purchased
                  
                  
                  Shares
      That MayTotal
      Number of
                  
                  
                  Average
      Price
                  
                  
                  As
      Part of Publicly
                  
                  
                  Yet
      Be PurchasedPeriod
                  
                  Shares
      Purchased
                  
                  Paid
      Per Share
                  
                  
                  Announced
      Plan
                  
                  
                  Under
      The PlanApril
      1, 2008 - April 30, 2008
                  
                  
                  71
                  
                  
                  
                  7.11
                  
                  
                  
                  71
                  
                  
                  
                  528May
      1, 2008 - May 31, 2008
                  
                  
                  150
                  
                  
                  
                  8.42
                  
                  
                  
                  150
                  
                  
                  
                  378June
      1, 2008 - June 30, 2008
                  
                  
                  35
                  
                  
                  
                  8.76
                  
                  
                  
                  35
                  
                  
                  
                  343Total
                  
                  
                  256
                  
                  
                  
                  
                  
                  
                  
                  256
                  
                  
                  
                  343
 ITEM 4.  SUMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  At the
Company’s Annual Meeting of Stockholders held on May 27, 2008, the following
proposals were submitted to a vote of stockholders:
 
 Proposal
No 1: Election of Directors
 
 The
following votes were cast for each director nominee and each such nominee was
reelected to the Company’s Board of Directors:
 Name
                  
                  Votes
      For
                  
                  Votes
      WithheldMichael
      J. Salameh
                  
                  23,248,887
                  
                  291,983D.
      James Guzy
                  
                  21,146,423
                  
                  2,394,447John
      H. Hart
                  
                  23,171,180
                  
                  369,690Robert
      H. Smith
                  
                  23,173,616
                  
                  367,254Thomas
      Riordan
                  
                  23,177,146
                  
                  363,724Patrick
      Verderico
                  
                  23,250,887
                  
                  289,983
 Proposal
No 2: Approval of the 2008 Equity Incentive Plan, which was
approved:
  For
                  
                  
                  14,567,842Against
                  
                  
                  2,563,874Abstain
                  
                  
                  13,875Total
      Shares Voted
                  
                  
                  17,145,591
  29
  Proposal
No 3: Ratification of Independent Registered Public Accountants, which was
approved:
 For
                  
                  
                  23,316,966Against
                  
                  
                  221,127Abstain
                  
                  
                  2,777Total
      Shares Voted
                  
                  
                  23,540,870
 ITEM 6.  EXHIBITS
 
 ExhibitNumber
                
                Description10.1
                
                PLX
      Technology, Inc. 2008 Equity Incentive Plan (incorporated by reference to
      Appendix A of the PLX Technology, Inc., Definitive Proxy Statement filed
      with the Securities and Exchange Commission on April 18,
    2008)31.1
                
                Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                
                Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                
                Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                
                Certification
      of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
 30
  SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 
 PLX
TECHNOLOGY, INC.
 
 
 Date:
August 7, 2008
 
 By     /s/ Arthur O.
Whipple
 
 Arthur
O. Whipple
 Chief
Financial Officer
 (Principal Financial
Officer)
  31
  EXHIBIT
INDEX
  ExhibitNumber
                  
                  Description10.1
                  
                  PLX
      Technology, Inc. 2008 Equity Incentive Plan (incorporated by reference to
      Appendix A of the PLX Technology, Inc., Definitive Proxy Statement filed
      with the Securities and Exchange Commission on April 18,
    2008)31.1
                  
                  Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                  
                  Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                  
                  Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                  
                  Certification
      of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63
      of Title 18, United States Code, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
  32