##### Table of Contents



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

FORM 10-Q

|           |  |                                                                                                                                                       |  | 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(Mark One)
|[X]        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002.            |  | 
|          
|           |  | or                                                                                                                                                    |  | 
|          
|[    ]     |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to_____________. |  | 
|          
|           |  | Commission File Number 0-25699                                                                                                                        |  | 

PLX TECHNOLOGY, INC.

(Exact name of Registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |  | 94-3008334
(I.R.S. Employer Identification No.)

870 Maude Avenue, Sunnyvale, CA 94085
(Address of Principal Executive Offices) (Zip Code)

Registrants Telephone Number, Including Area Code: (408) 774-9060

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 [   ]

As of October 31, 2002, there were 21,156,598 shares of common stock, par value
$0.001 per share, outstanding.

This Report on Form 10-Q includes 26 pages with the Index to Exhibits located on page 23





---

TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM I. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 99.1                 
|EXHIBTI 99.2                 



---



##### Table of Contents



PLX TECHNOLOGY, INC.
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2002

|                              |  |                                                                                                                 |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                 |  | Page
|                              |  |                                                                                                                 |  |     
|PART I. FINANCIAL INFORMATION
|                             
|Item 1.                       |  | Financial Statements (Unaudited):                                                                               |  |     
|                              |  | Condensed Consolidated Balance Sheets at September 30, 2002 and
December 31, 2001                               |  | 3   
|                              |  | Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2002 and 2001 |  | 4   
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001           |  | 5   
|                              |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 6   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                           |  | 10  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 22  
|Item 4.                       |  | Controls and Procedures                                                                                         |  | 22  
|PART II. OTHER INFORMATION   
|                             
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                |  | 23  

2



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM I. FINANCIAL STATEMENTS




PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                           |                                               |   |               |        |              |   |        |        |  
|------------------------------------------ | --------------------------------------------- | - | ------------- | ------ | ------------ | - | ------ | ------ | -
|                                           |                                               |   | September 30, |        | December 31,
|                                           |                                               |   | 2002          |        | 2001        
|                                           |                                               |   |               |        |             
|                                           |                                               |   | (unaudited)   |        |              |   |       
|ASSETS                                     |                                               |   |               |        |              |   |        |       
|Current assets:                            |                                               |   |               |        |              |   |        |       
|                                           | Cash and cash equivalents                     |   | $             | 1,233  |              |   | $      | 9,631  |  
|                                           | Short-term investments                        |   |               | 11,043 |              |   |        | 6,000  |  
|                                           | Accounts receivable, net                      |   |               | 3,742  |              |   |        | 4,073  |  
|                                           | Inventories, net                              |   |               | 1,991  |              |   |        | 4,586  |  
|                                           | Deferred tax assets                           |   |               | 1,557  |              |   |        | 1,557  |  
|                                           | Other current assets                          |   |               | 1,160  |              |   |        | 688    |  
|                                           |                                               |   |               |        |              |   |        |       
|Total current assets                       |                                               |   | 20,726        |        |              |   | 26,535 |       
|                                           | Property and equipment, net                   |   |               | 32,327 |              |   |        | 33,579 |  
|                                           | Long-term investments                         |   |               | 8,152  |              |   |        | 3,089  |  
|                                           | Goodwill                                      |   |               | 8,592  |              |   |        | 7,998  |  
|                                           | Other intangible assets                       |   |               | 1,103  |              |   |        | 2,097  |  
|                                           | Deferred tax assets                           |   |               | 1,637  |              |   |        | 1,637  |  
|                                           | Other assets                                  |   |               | 146    |              |   |        | 294    |  
|                                           |                                               |   |               |        |              |   |        |       
|Total assets                               |                                               | $ | 72,683        |        |              | $ | 75,229 |       
|                                           |                                               |   |               |        |              |   |        |       
|LIABILITIES                                |                                               |   |               |        |              |   |        |       
|Current liabilities:                       |                                               |   |               |        |              |   |        |       
|                                           | Accounts payable                              |   | $             | 1,288  |              |   | $      | 1,855  |  
|                                           | Accrued compensation and benefits             |   |               | 849    |              |   |        | 808    |  
|                                           | Other accrued expenses                        |   |               | 822    |              |   |        | 902    |  
|                                           | Deferred revenues                             |   |               | 741    |              |   |        | 281    |  
|                                           | Deferred tax liability                        |   |               | 1,267  |              |   |        | 830    |  
|                                           |                                               |   |               |        |              |   |        |       
|Total current liabilities                  |                                               |   | 4,967         |        |              |   | 4,676  |       
|STOCKHOLDERS EQUITY                       |                                               |   |               |        |              |   |        |       
|                                           | Common stock, par value                       |   |               | 22     |              |   |        | 23     |  
|                                           | Additional paid-in capital                    |   |               | 74,949 |              |   |        | 78,328 |  
|                                           | Deferred compensation                         |   |               | (1,358 | )            |   |        | (3,929 | )
|                                           | Notes receivable for employee stock purchases |   |               | (66    | )            |   |        | (63    | )
|                                           | Accumulated other comprehensive income (loss) |   |               | 57     |              |   |        | (37    | )
|                                           | Accumulated deficit                           |   |               | (5,888 | )            |   |        | (3,769 | )
|                                           |                                               |   |               |        |              |   |        |       
|Total stockholders equity                 |                                               |   | 67,716        |        |              |   | 70,553 |       
|                                           |                                               |   |               |        |              |   |        |       
|Total liabilities and stockholders equity |                                               | $ | 72,683        |        |              | $ | 75,229 |       
|                                           |                                               |   |               |        |              |   |        |       

See accompanying notes to condensed consolidated financial statements.

3



---



##### Table of Contents






PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |        | 
|------------------------------------------------ | -------------------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                 |                                                          |   | Three Months Ended |       | Nine Months Ended
|                                                 |                                                          |   | September 30,      |       | September 30,    
|                                                 |                                                          |   |                    |       |                  
|                                                 |                                                          |   | 2002               |       | 2001              |   | 2002   |       | 2001
|                                                 |                                                          |   |                    |       |                   |   |        |       |     
|Net revenues                                     |                                                          | $ | 8,339              |       |                   | $ | 10,513 |       |      | $ | 26,254 |        |  | $ | 32,405 |       
|Cost of revenues                                 |                                                          |   | 2,435              |       |                   |   | 3,667  |       |      |   | 8,177  |        |  |   | 12,123 |       
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Gross margin                                     |                                                          |   | 5,904              |       |                   |   | 6,846  |       |      |   | 18,077 |        |  |   | 20,282 |       
|Operating expenses:                              |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|                                                 | Research and development                                 |   |                    | 3,565 |                   |   |        | 4,009 |      |   |        | 10,742 |  |   |        | 14,511 | 
|                                                 | Selling, general and administrative                      |   |                    | 3,151 |                   |   |        | 3,380 |      |   |        | 9,787  |  |   |        | 11,176 | 
|                                                 | Amortization of goodwill and purchased intangible assets |   |                    | 134   |                   |   |        | 1,044 |      |   |        | 400    |  |   |        | 3,132  | 
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Total operating expenses                         |                                                          |   | 6,850              |       |                   |   | 8,433  |       |      |   | 20,929 |        |  |   | 28,819 |       
|Loss from operations                             |                                                          |   | (946               | )     |                   |   | (1,587 | )     |      |   | (2,852 | )      |  |   | (8,537 | )     
|Interest income and other, net                   |                                                          |   | 258                |       |                   |   | 252    |       |      |   | 744    |        |  |   | 550    |       
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Loss before provision (benefit) for income taxes |                                                          |   | (688               | )     |                   |   | (1,335 | )     |      |   | (2,108 | )      |  |   | (7,987 | )     
|Provision (benefit) for income taxes             |                                                          |   |                   |       |                   |   | (203   | )     |      |   | 11     |        |  |   | (2,007 | )     
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Net loss                                         |                                                          | $ | (688               | )     |                   | $ | (1,132 | )     |      | $ | (2,119 | )      |  | $ | (5,980 | )     
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Basic net loss per share                         |                                                          | $ | (0.03              | )     |                   | $ | (0.05  | )     |      | $ | (0.09  | )      |  | $ | (0.26  | )     
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Shares used to compute basic per share amounts   |                                                          |   | 22,986             |       |                   |   | 23,236 |       |      |   | 23,316 |        |  |   | 23,215 |       
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Diluted net loss per share                       |                                                          | $ | (0.03              | )     |                   | $ | (0.05  | )     |      | $ | (0.09  | )      |  | $ | (0.26  | )     
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Shares used to compute diluted per share amounts |                                                          |   | 22,986             |       |                   |   | 23,236 |       |      |   | 23,316 |        |  |   | 23,215 |       
|                                                 |                                                          |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       

See accompanying notes to condensed consolidated financial statements.

4



---



##### Table of Contents






PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

|                                                                                          |                                                                |                                   |         |                   |       |      |         |       |        |  
|----------------------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------- | ------- | ----------------- | ----- | ---- | ------- | ----- | ------ | -
|                                                                                          |                                                                |                                   |         | Nine Months Ended
|                                                                                          |                                                                |                                   |         | September 30,    
|                                                                                          |                                                                |                                   |         |                  
|                                                                                          |                                                                |                                   |         | 2002              |       | 2001
|                                                                                          |                                                                |                                   |         |                   |       |     
|Cash flows from operating activities                                                      |                                                                |                                   |         |                   |       |      |         |      
|Net loss                                                                                  |                                                                | $                                 | (2,119  | )                 |       | $    | (5,980  | )    
|Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                                |                                   |         |                   |       |      |         |      
|                                                                                          | Depreciation and other non-cash items                          |                                   |         | 1,954             |       |      |         | 2,114 |       
|                                                                                          | Amortization of deferred compensation                          |                                   |         | 1,662             |       |      |         | 2,237 |       
|                                                                                          | Amortization of goodwill and other purchased intangible assets |                                   |         | 400               |       |      |         | 3,133 |       
|                                                                                          | Compensation expense recognized                                |                                   |         |                  |       |      |         | 17    |       
|                                                                                          | Loss on disposition of fixed assets                            |                                   |         | 5                 |       |      |         |      |       
|                                                                                          | Interest on notes receivable for employee stock purchases      |                                   |         | (3                | )     |      |         | (12   | )     
|                                                                                          | Changes in operating assets and liabilities:                   |                                   |         |                   |       |      |         |       |       
|                                                                                          |                                                                | Accounts receivable               |         |                   | 331   |      |         |       | (1,202 | )
|                                                                                          |                                                                | Inventories                       |         |                   | 2,595 |      |         |       | (1,706 | )
|                                                                                          |                                                                | Other current assets              |         |                   | (462  | )    |         |       | (568   | )
|                                                                                          |                                                                | Other assets                      |         |                   | 149   |      |         |       | (56    | )
|                                                                                          |                                                                | Accounts payable                  |         |                   | (567  | )    |         |       | (2,574 | )
|                                                                                          |                                                                | Accrued compensation and benefits |         |                   | 41    |      |         |       | (637   | )
|                                                                                          |                                                                | Accrued commissions               |         |                   | (118  | )    |         |       | 81     |  
|                                                                                          |                                                                | Deferred tax liability            |         |                   | 425   |      |         |       | (833   | )
|                                                                                          |                                                                | Deferred revenues                 |         |                   | 460   |      |         |       | (801   | )
|                                                                                          |                                                                | Other accrued expenses            |         |                   | 40    |      |         |       | (555   | )
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Net cash provided by (used in) operating activities                                       |                                                                |                                   | 4,793   |                   |       |      | (7,342  | )    
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Investing Activities                                                                      |                                                                |                                   |         |                   |       |      |         |      
|Purchases of investments                                                                  |                                                                |                                   | (13,150 | )                 |       |      | (13,296 | )    
|Sales and maturities of investments                                                       |                                                                |                                   | 3,020   |                   |       |      | 44,190  |      
|Realized gain on investments                                                              |                                                                |                                   |        |                   |       |      | (198    | )    
|Purchases of property and equipment                                                       |                                                                |                                   | (587    | )                 |       |      | (4,696  | )    
|Proceeds from sales of property and equipment                                             |                                                                |                                   | 2       |                   |       |      |        |      
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Net cash provided by (used in) investing activities                                       |                                                                |                                   | (10,715 | )                 |       |      | 26,000  |      
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Financing
Activities                                                                      |                                                                |                                   |         |                   |       |      |         |      
|Proceeds from sales of common stock                                                       |                                                                |                                   | 1,281   |                   |       |      | 414     |      
|Repurchases of common stock                                                               |                                                                |                                   | (3,754  | )                 |       |      | (83     | )    
|Repayment of note payable                                                                 |                                                                |                                   |        |                   |       |      | (28,500 | )    
|Decrease in restricted cash and investments                                               |                                                                |                                   |        |                   |       |      | 4,025   |      
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Net cash used in financing activities                                                     |                                                                |                                   | (2,473  | )                 |       |      | (24,144 | )    
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Effect of exchange rate fluctuations on cash and cash equivalents                         |                                                                |                                   | (3      | )                 |       |      | (22     | )    
|Decrease in cash and cash equivalents                                                     |                                                                |                                   | (8,398  | )                 |       |      | (5,508  | )    
|Cash and cash equivalents at beginning of year                                            |                                                                |                                   | 9,631   |                   |       |      | 16,621  |      
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      
|Cash and cash equivalents at end of period                                                |                                                                | $                                 | 1,233   |                   |       | $    | 11,113  |      
|                                                                                          |                                                                |                                   |         |                   |       |      |         |      

See accompanying notes to condensed consolidated financial statements.

5



---



##### Table of Contents






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 subsidiary (collectively, PLX or
the Company) as of September 30, 2002 and for the three-month and
nine-month periods ended September 30, 2002 and 2001 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 condensed consolidated
financial statements include all adjustments (consisting only of normal
recurring accruals) that management considers necessary for a fair
presentation of our 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.
|  
|   |  | 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, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | 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 the amounts 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 Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. The Companys comprehensive net loss for
the three and nine months ended September 30, 2002 and September 30, 2001
was as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                         |  |                    |      |                   |  |      |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three Months Ended |      | Nine Months Ended
|                                         |  | September 30,      |      | September 30,    
|                                         |  |                    |      |                  
|                                         |  | 2002               |      | 2001              |  | 2002 |        | 2001
|                                         |  |                    |      |                   |  |      |        |     
|                                         |  | (unaudited)       
|Net loss                                 |  | $                  | (688 | )                 |  | $    | (1,132 | )    |  | $ | (2,119 | ) |  | $ | (5,980 | )
|Unrealized gains (losses) on investments |  |                    | 49   |                   |  |      | (143   | )    |  |   | 95     |   |  |   | (54    | )
|Cumulative translation adjustment        |  |                    | 1    |                   |  |      | (22    | )    |  |   | (1     | ) |  |   | (22    | )
|                                         |  |                    |      |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                       |  | $                  | (638 | )                 |  | $    | (1,297 | )    |  | $ | (2,025 | ) |  | $ | (6,056 | )
|                                         |  |                    |      |                   |  |      |        |      |  |   |        |   |  |   |        |  



| |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires all business combinations to be accounted for using
the purchase method of accounting and is effective for all business
combinations initiated after June 30, 2001. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. The Company has adopted
SFAS No. 142 as of January 1, 2002. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives are no longer amortized,
but rather are reviewed for impairment annually, or more frequently if
certain indicators arise. Other intangibles will continue to be amortized
over their useful lives. The Company recharacterized

6



---



##### Table of Contents





| |  | acquired workforce, which is no longer defined as an acquired intangible
asset under SFAS 141, as goodwill as of January 1, 2002. As of September
30, 2002, no impairment of goodwill has been recognized.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The impact of SFAS No. 142 is summarized below (in thousands, except per
share data):                                                                                                                     

|                         |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |        |  
|------------------------ | --------------------------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | ----- | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                         |                                                                 |   | Three Months Ended |       | Nine Months Ended
|                         |                                                                 |   | September 30,      |       | September 30,    
|                         |                                                                 |   |                    |       |                  
|                         |                                                                 |   | 2002               |       | 2001              |   | 2002   |       | 2001
|                         |                                                                 |   |                    |       |                   |   |        |       |     
|                         |                                                                 |   | (unaudited)       
|Reported net loss        |                                                                 | $ | (688               | )     |                   | $ | (1,132 | )     |      | $ | (2,119 | )      |   | $ | (5,980 | )     
|                         | Add back: Goodwill and purchased intangible assets amortization |   |                    |      |                   |   |        | 911   |      |   |        |       |   |   |        | 2,733  |  
|                         |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |       
|                         | Adjusted net loss                                               |   | $                  | (688  | )                 |   | $      | (221  | )    |   | $      | (2,119 | ) |   | $      | (3,247 | )
|                         |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |       
|Basic net loss per share |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |       
|                         | Reported net loss per share                                     |   | $                  | (0.03 | )                 |   | $      | (0.05 | )    |   | $      | (0.09  | ) |   | $      | (0.26  | )
|                         | Add back: Goodwill and purchased intangible assets amortization |   |                    |      |                   |   |        | 0.04  |      |   |        |       |   |   |        | 0.12   |  
|                         |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |       
|                         | Adjusted net loss per share                                     |   | $                  | (0.03 | )                 |   | $      | (0.01 | )    |   | $      | (0.09  | ) |   | $      | (0.14  | )
|                         |                                                                 |   |                    |       |                   |   |        |       |      |   |        |        |   |   |        |       



|   |  | In October 2001, FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and addresses financial accounting and reporting
for the impairment and disposal of long-lived assets. The Company adopted
SFAS No. 144 as of January 1, 2002. Adoption of this statement did not have
a material impact on the Companys financial position or results of
operations.                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). It requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company does not believe
that the adoption of this statement will have a material impact on its
consolidated financial statements.
|  
|   |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Certain previously reported amounts have been reclassified to conform to the
current year presentation format with no impact on net income. All
financial information has been restated to conform to this presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|2. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Inventories are valued at the lower of cost (first-in, first-out method) or
market (net realizable value). Inventories are shown net of applicable
reserves and allowances. Inventories consist of the following (in
thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                |       |   |               |       |              |   |       |       | 
|--------------- | ----- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                |       |   | September 30, |       | December 31,
|                |       |   | 2002          |       | 2001        
|                |       |   |               |       |             
|                |       |   | (unaudited)   |       |              |   |      
|Work in process |       | $ | 632           |       |              | $ | 506   |      
|Finished goods  |       |   | 1,359         |       |              |   | 4,080 |      
|                |       |   |               |       |              |   |       |      
|                | Total |   | $             | 1,991 |              |   | $     | 4,586 | 
|                |       |   |               |       |              |   |       |      

7



---



##### Table of Contents





|3. |  | Net Loss Per Share                                                                                                           
|-- |  | -----------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following table sets forth the computation of basic and diluted net loss
per share (in thousands, except per share data):

|                                                                   |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                   |  | Three Months Ended |        | Nine Months Ended
|                                                                   |  | September 30,      |        | September 30,    
|                                                                   |  |                    |        |                  
|                                                                   |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                   |  |                    |        |                   |  |      |        |     
|                                                                   |  | (unaudited)       
|Net loss                                                           |  | $                  | (688   | )                 |  | $    | (1,132 | )    |  | $ | (2,119 | ) |  | $ | (5,980 | )
|                                                                   |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average shares of common stock outstanding                |  |                    | 22,986 |                   |  |      | 23,241 |      |  |   | 23,316 |   |  |   | 23,220 |  
|Less weighted average shares of common stock subject to repurchase |  |                    |       |                   |  |      | 5      |      |  |   |       |   |  |   | 5      |  
|                                                                   |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Shares used in computing basic net loss per share                  |  |                    | 22,986 |                   |  |      | 23,236 |      |  |   | 23,316 |   |  |   | 23,215 |  
|                                                                   |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Net loss per share  basic and diluted                             |  | $                  | (0.03  | )                 |  | $    | (0.05  | )    |  | $ | (0.09  | ) |  | $ | (0.26  | )
|                                                                   |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  



|   |  | As the Company incurred a loss for the three-month periods ended September
30, 2002 and 2001, the effect of dilutive securities, totaling 3.4 million
and 3.6 million equivalent shares, respectively, have been excluded from the
computation of diluted loss per share, as their impact would be
anti-dilutive. For the nine-month periods ended September 30, 2002 and
2001, the effect of dilutive securities, totaling 3.4 million and 3.6
million equivalent shares, respectively, have been excluded from the
computation of diluted loss per share, as their impact would be
anti-dilutive.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Segments of an Enterprise and Related Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company has one operating segment, the sale of semiconductor devices.
The President 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.                                                                                                                                                                                                                             
|  
|   |  | Revenues by geographic region based on customer location were as follows
(in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|          |                            |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |        | 
|--------- | -------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|          |                            |   | Three Months Ended |       | Nine Months Ended
|          |                            |   | September 30,      |       | September 30,    
|          |                            |   |                    |       |                  
|          |                            |   | 2002               |       | 2001              |   | 2002   |       | 2001
|          |                            |   |                    |       |                   |   |        |       |     
|          |                            |   | (unaudited)       
|Revenues: |                            |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|          | United States              |   | $                  | 3,481 |                   |   | $      | 6,046 |      |   | $      | 11,055 |  |   | $      | 18,073 | 
|          | France                     |   |                    | 1,127 |                   |   |        | 1,700 |      |   |        | 3,505  |  |   |        | 4,447  | 
|          | Europe  excluding France  |   |                    | 1,188 |                   |   |        | 1,160 |      |   |        | 3,704  |  |   |        | 4,287  | 
|          | Singapore                  |   |                    | 850   |                   |   |        | 423   |      |   |        | 2,186  |  |   |        | 871    | 
|          | Asia  excluding Singapore |   |                    | 1,693 |                   |   |        | 1,184 |      |   |        | 5,804  |  |   |        | 4,727  | 
|          |                            |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       
|Total     |                            | $ | 8,339              |       |                   | $ | 10,513 |       |      | $ | 26,254 |        |  | $ | 32,405 |       
|          |                            |   |                    |       |                   |   |        |       |      |   |        |        |  |   |        |       



| |  | For the three months ended September 30, 2002, approximately 24% of net
revenue was derived from sales to two significant distributors, each of whom
individually accounted for 10% or more of net revenue during this period.
For the same period in 2001, approximately 16% of net revenue was derived
from sales to one significant distributor.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the nine months ended September 30, 2002, approximately 13% of net
revenue was derived from sales to one significant distributor. For the same
period in 2001, approximately 29% of net revenue was derived from sales to
two significant distributors, each of whom individually accounted for 10% or
more of net revenue during this period. 

8



---



##### Table of Contents





|5. |  | Other Intangible Assets                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------
|  
|   |  | Information regarding the Companys other intangible assets subject to
amortization is as follows (in thousands):

|                                |  |               |       |              |  |   |       | 
|------------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|                                |  | September 30, |       | December 31,
|                                |  | 2002          |       | 2001        
|                                |  |               |       |             
|                                |  | (unaudited)   |       |              |  |  
|Gross carrying amount  patents |  | $             | 2,132 |              |  | $ | 2,132 | 
|Accumulated amortization        |  |               | 1,244 |              |  |   | 844   | 
|                                |  |               |       |              |  |   |       | 
|Net                             |  | $             | 888   |              |  | $ | 1,288 | 
|                                |  |               |       |              |  |   |       | 



| |  | Estimated amortization expenses for the fiscal years ending December 31
are as follows:
| |  | ---------------------------------------------------------------------------------------

|     |  |              |  | 
|---- |  | ------------ |  | 
|2002 |  | $0.5 million
|2003 |  | $0.5 million
|2004 |  | $0.2 million



|   |  | The carrying amount of indefinite lived intangibles (Tradename) as of
September 30, 2002 and December 31, 2001 was approximately $0.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | Stock Repurchase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | In January 2001, the Board of Directors of the Company approved a stock
repurchase program whereby up to 2,000,000 shares of the Companys Common
Stock may be purchased in the open market or in privately negotiated
transactions. As of September 30, 2002, all 2,000,000 shares had been
repurchased at a cost of approximately $3.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | On September 30, 2002, the Board of Directors of the Company approved a
second stock repurchase program whereby an additional 2,000,000 shares of
the Companys Common Stock may be purchased in the open market or in
privately negotiated transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|7. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | There was no income tax provision or benefit for the three months ended
September 30, 2002 on a pretax loss of $0.7 million, compared to income tax
benefit of $0.2 million on a pretax loss of $1.3 million for the three
months ended September 30, 2001. The income tax provision for the nine
months ended September 30, 2002 was $11,000 on a pretax loss of $2.1
million, compared to an income tax benefit of $2.0 million on a pretax loss
of $8.0 million for the nine months ended September 30, 2001. The 2002
income tax expense differs from the expected benefit derived by applying the
applicable U.S. federal statutory rate to the loss from operations primarily
due to non-deductible acquisition-related items. The 2001 income tax
benefit differs from the expected benefit derived by applying the applicable
U.S. federal statutory rate to the loss from operations primarily due to
non-deductible acquisition-related items partially offset by the benefit of
tax exempt interest and research and development tax credits.
|  
|8. |  | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Under the Companys stock repurchase program approved by the Board of
Directors of the Company on September 30, 2002, approximately 401,000
shares of the Companys common stock has been repurchased at a cost of
approximately $844,000 since September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

9



---



##### Table of Contents






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 include, but
are not limited to, (i) fluctuation of our gross margins under the sub-heading
Overview, which is subject to the risk, among other risks, that there are
changes in product and customer mix, the position of our products in their
respective life cycles, and specific product manufacturing costs; (ii) the
length of our sales cycle, under the sub-heading Overview, which is subject
to the risk, among other risks, that anticipated sales and shipments in any
quarter do not occur when expected; (iii) our anticipated expense levels for
amortization of goodwill and purchased intangible assets and deferred
compensation, under the sub-heading Results of Operations, which is subject
to various uncertainties, among them the impact of statements of financial
accounting standards that we may be required to adopt in the future; and (iv)
the sufficiency of our existing resources and cash generated from operations to
meet our capital requirements under the sub-heading Results of Operations,
which is subject to the risk, among other risks, that a decrease in our
inventory levels, an increase in our level of investment in new technologies or
an increase in the levels of monthly expenses required to launch new products
may require that we raise additional funds. Actual results could differ
materially from those projected in any forward-looking statements for the
reasons detailed above, as well as the reasons noted under the sub-heading
Factors That May Affect Future Operating Results 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. See Factors That May Affect
Future Operating Results below, as well as such other risks and uncertainties
as are detailed in our Securities and Exchange Commission reports and filings
for a discussion of the factors that could cause actual results to differ
materially from 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, 2001.

OVERVIEW

PLX was founded in 1986, and since 1994 we have focused on development of I/O
interface semiconductors and related software and development tools that are
used in systems incorporating the PCI standard. In 1994 and 1995, a
significant portion of our revenues was from the sale of semiconductor devices
that perform functions similar to those performed by our current products,
except these devices were based on a variety of industry standards. Our
revenues since 1996 have been derived predominantly from the sale of
semiconductor devices based on the PCI standard to a large number of customers
in a variety of applications including networking and telecommunications,
enterprise storage, imaging, industrial and other embedded applications as well
as in related adapter cards. We generate a small portion of our revenues from
sales of our software and development tools.

We utilize a fabless semiconductor business model whereby we purchase
packaged and tested semiconductor devices from independent manufacturing
foundries. This approach 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.

In May 2002, we entered into an agreement with Advanced Micro Devices related
to HyperTransport and PCI-X technologies pursuant to which we are marketing
semiconductor devices that are based on these standards.

We rely on a combination of direct sales personnel and 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. We generally recognize revenue at the time of title passage.
Recognition of sales to distributors, including international distributors, is
deferred until the product is resold by the distributors to end users. See
Certain Factors That May Affect Future Operating Results  A Large Portion of
Our Revenues Is Derived From Sales to Third-Party Distributors Who May
Terminate Their Relationships with Us at Any Time.

10



---



##### Table of Contents



Our gross margins have fluctuated in the past and are expected to fluctuate in
the future due to changes in product and customer mix, the position of our
products in their respective life cycles, and specific product manufacturing
costs.

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 commences volume production of equipment incorporating our products.
Due to these lengthy sales cycles, 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 for future quarters would be materially and adversely
affected.

Our long-term success will depend on our ability to 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 for customers to commence volume production, significant revenues from our
new products typically occur only 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 Certain Factors That May Affect Future Operating
Results  Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with
Regard to Our Expected Revenues.

RESULTS OF OPERATIONS

The following table summarizes historical results of operations as a percentage
of net revenues for the periods shown.

|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |      |  
|------------------------------------------------ | -------------------------------------------------------- |  | ------------------ | ---- | ----------------- |  | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                 |                                                          |  | Three Months Ended |      | Nine Months Ended
|                                                 |                                                          |  | September 30,      |      | September 30,    
|                                                 |                                                          |  |                    |      |                  
|                                                 |                                                          |  | 2002               |      | 2001              |  | 2002  |      | 2001
|                                                 |                                                          |  |                    |      |                   |  |       |      |     
|                                                 |                                                          |  | (unaudited)       
|Net revenues                                     |                                                          |  | 100.0              | %    |                   |  | 100.0 | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|Cost of revenues                                 |                                                          |  | 29.2               | %    |                   |  | 34.9  | %    |      |  | 31.2  | %    |   |  | 37.4  | %   
|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     
|Gross margin                                     |                                                          |  | 70.8               | %    |                   |  | 65.1  | %    |      |  | 68.8  | %    |   |  | 62.6  | %   
|Operating expenses:                              |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     
|                                                 | Research and development                                 |  |                    | 42.7 | %                 |  |       | 38.1 | %    |  |       | 40.9 | % |  |       | 44.8 | %
|                                                 | Selling, general and administrative                      |  |                    | 37.8 | %                 |  |       | 32.2 | %    |  |       | 37.3 | % |  |       | 34.5 | %
|                                                 | Amortization of goodwill and purchased intangible assets |  |                    | 1.6  | %                 |  |       | 9.9  | %    |  |       | 1.5  | % |  |       | 9.6  | %
|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     
|Total operating expenses                         |                                                          |  | 82.1               | %    |                   |  | 80.2  | %    |      |  | 79.7  | %    |   |  | 88.9  | %   
|Loss from operations                             |                                                          |  | (11.3              | %)   |                   |  | (15.1 | %)   |      |  | (10.9 | %)   |   |  | (26.3 | %)  
|Interest income and other, net                   |                                                          |  | 3.1                | %    |                   |  | 2.4   | %    |      |  | 2.8   | %    |   |  | 1.7   | %   
|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     
|Loss before provision (benefit) for income taxes |                                                          |  | (8.2               | %)   |                   |  | (12.7 | %)   |      |  | (8.1  | %)   |   |  | (24.6 | %)  
|Provision (benefit) for income taxes             |                                                          |  | 0.0                | %    |                   |  | (1.9  | %)   |      |  | 0.0   | %    |   |  | (6.2  | %)  
|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     
|Net loss                                         |                                                          |  | (8.2               | %)   |                   |  | (10.8 | %)   |      |  | (8.1  | %)   |   |  | (18.4 | %)  
|                                                 |                                                          |  |                    |      |                   |  |       |      |      |  |       |      |   |  |       |     

Net Revenues

Net revenues for the three months ended September 30, 2002 were $8.3 million, a
decrease of 20.7% from $10.5 million for the three months ended September 30,
2001. For the nine months ended September 30, 2002, net revenues were $26.3
million, a decrease of 19.0% from $32.4 million for the nine months ended
September 30, 2001. The decrease was primarily due to lower unit shipments
resulting from the economic slowdown in the technology sector.

11



---



##### Table of Contents



For the three months ended September 30, 2002, approximately 24% of net revenue
was derived from sales to two significant distributors, each of whom
individually accounted for 10% or more of net revenue during this period. For
the same period in 2001, approximately 16% of net revenue was derived from
sales to one significant distributor.

For the nine months ended September 30, 2002, approximately 13% of net revenue
was derived from sales to one significant distributor. For the same period in
2001, approximately 29% of net revenue was derived from sales to two
significant distributors, each of whom individually accounted for 10% or more
of net revenue during this period.

Gross Margin

Gross margin represents net revenues less the cost of revenues. Cost of
revenues includes the cost of purchasing packaged semiconductor devices from
our independent foundries and our operating costs associated with the
procurement, storage, and shipment of products.

The increase in gross margin to 70.8% for the three months ended September 30,
2002 from 65.1% for the same period in 2001 was primarily related to a benefit
of approximately $0.3 million from selling previously written-down inventory.
Excluding this excess inventory benefit, gross margin was 67.4% for the three
months ended September 30, 2002, compared with 65.1% for the same period in
2001. The increase in gross margin was due to shifts in our product and
customer mix.

The increase in gross margin to 68.8% for the nine months ended September 30,
2002 from 62.6% for the same period in 2001 was primarily related to the effect
of a charge for additional excess inventory of $1.3 million recorded in the
second quarter of 2001 and benefits of $0.3 million recognized in the current
quarter. Excluding the additional excess inventory charge and the subsequent
benefits, gross margin was 67.8% for the nine months ended September 30, 2002,
compared with 66.6% for the same period in 2001. The increase in gross margin
was primarily due to shifts in our product and customer mix.

Research and Development Expenses

Research and development (R&D) expenses consist primarily of salaries and
related costs of employees engaged in research, design, and development
activities. In addition, expenses for outside engineering consultants and
non-recurring engineering at our independent foundries are included in research
and development expenses.

The increase in R&D as a percent of net revenues to 42.7% for the three months
ended September 30, 2002, as compared to 38.1% for the same period in 2001 was
due primarily to a decline in revenues. In absolute dollars, R&D expenses
decreased by $0.4 million or 11.1% to $3.6 million for the three months ended
September 30, 2002 from $4.0 million for the same period in 2001. The decrease
was primarily due to lower headcount and deferred compensation expense. This
was partially offset by an increase in non-recurring engineering costs.

R&D as a percent of net revenues decreased to 40.9% for the nine months ended
September 30, 2002, as compared to 44.8% for the same period in 2001. In
absolute dollars, R&D expenses decreased by $3.8 million or 26.0% to $10.7
million for the nine months ended September 30, 2002 from $14.5 million for the
same period in 2001. The decrease was primarily due to lower headcount,
deferred compensation expense, and non-recurring engineering costs.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses consist primarily of
employee-related expenses, professional fees, trade show and other promotional
expenses, and sales commissions to manufacturers representatives.

The increase in SG&A as a percent of net revenues to 37.8% for the three months
ended September 30, 2002, as compared to 32.2% for the same period in 2001 was
due primarily to a decline in revenues. In absolute dollars, SG&A expenses
decreased by $0.2 million or 6.8% to $3.2 million for the three months ended
September 30, 2002 from $3.4 million for the same period in 2001. The decrease
was primarily due to lower headcount and sales commissions to manufacturers
representatives as a result of lower revenues.

The increase in SG&A as a percent of net revenues to 37.3% for the nine months
ended September 30, 2002, as compared to 34.5% for the same period in 2001 was
due primarily to a decline in revenues. In absolute dollars,

12



---



##### Table of Contents



SG&A expenses decreased by $1.4 million or 12.4% to $9.8 million for the nine
months ended September 30, 2002 from $11.2 million for the same period in 2001.
The decrease was primarily due to lower headcount, discretionary spending, and sales commissions to manufacturers
representatives as a result of lower revenues.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of goodwill and purchased intangible assets was $0.1 million for
the three months ended September 30, 2002, a decrease of 87.2% from $1.0
million for the three months ended September 30, 2001. Amortization of
goodwill and purchased intangible assets was $0.4 million for the nine months
ended September 30, 2002, a decrease of 87.2% from $3.1 million for the nine
months ended September 30, 2001. The decrease was due to the impact of SFAS
No. 142, whereby we discontinued the amortization of goodwill and indefinite
lived intangibles beginning January 1, 2002. Amortization of goodwill and
purchased intangible assets includes the amortization of goodwill and other
purchased intangible assets relating to the May 2000 acquisition of Sebring
Systems. Effective January 1, 2002, in accordance with SFAS No. 142, we ceased
amortization of goodwill and indefinite lived intangibles. We will continue to
amortize patents through May 2004. For a more detailed description of SFAS No.
142 and its effect on us, see Note 1 of Notes to Condensed Consolidated
Financial Statements.

Deferred Compensation

In connection with the grant of restricted stock and stock options to our
employees during 1997 and 1998, we recorded aggregate deferred compensation of
$0.4 million, representing the difference between the deemed value of our
common stock for accounting purposes and the restricted stock purchase price or
stock option exercise price at the date of grant. The amount of deferred
compensation is presented as a reduction of stockholders equity and amortized
ratably over the vesting period of the applicable stock grants. We also
recorded deferred compensation of $12.3 million related to stock options
granted below fair market value to employees in connection with the acquisition
of Sebring Systems in May 2000. Additionally, we recorded deferred
compensation of $3.5 million in connection with the grant of stock options
below fair market value to our employees in September 2000. Amortization of
deferred compensation was approximately $0.5 million and $0.7 million for each
of the three months ended September 30, 2002 and 2001, respectively,
substantially all of which has been included in research and development
expenses in our results of operations. For the nine months ended September 30,
2002 and 2001, amortization of deferred compensation was approximately $1.7
million and $2.2 million, respectively. The amount of deferred compensation is
amortized ratably over the vesting period of the applicable stock grants. We
expect to record compensation expense related to deferred compensation of
approximately $0.5 million per quarter through September 30, 2003.

Interest Income and Other, Net

Interest income and other, net consist of interest earned on average cash, cash
equivalents, short-term and long-term investment balances as well as rental
income from a tenant in our facility. Interest income and other, net remained
relatively flat at $0.3 million for the three months ended September 30, 2002
and 2001. For the nine months ended September 30, 2002, interest income and
other, net increased to $0.7 million from $0.6 million in the nine months ended
September 30, 2001. The increase was primarily due to interest earned on
higher cash and investment balances and rental income.

Provision (Benefit) for Income Taxes

There was no income tax provision or benefit for the three months ended
September 30, 2002 on a pretax loss of $0.7 million, compared to income tax
benefit of $0.2 million on a pretax loss of $1.3 million for the three months
ended September 30, 2001. The income tax provision for the nine months ended
September 30, 2002 was $11,000 on a pretax loss of $2.1 million, compared to an
income tax benefit of $2.0 million on a pretax loss of $8.0 million for the
nine months ended September 30, 2001. The 2002 income tax expense differs from
the expected benefit derived by applying the applicable U.S. federal statutory
rate to the loss from operations primarily due to non-deductible
acquisition-related items. The 2001 income tax benefit differs from the
expected benefit derived by applying the applicable U.S. federal statutory rate
to the loss from operations primarily due to non-deductible acquisition-related
items partially offset by the benefit of tax exempt interest and research and
development tax credits.

13



---



##### Table of Contents



Critical Accounting Policies

Inventory Write-downs.We evaluate the write-downs for inventory based on a
combination of factors. Based on the life of the product, sales history,
obsolescence, and sales forecast, we record write-downs ranging from 0% to
100%.

Allowance for Doubtful Accounts.We evaluate the collectibility of our accounts
receivable based on length of time the receivables are past due. We record
reserves for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected.

Goodwill.As discussed in Note 1 to our Condensed Consolidated Financial
Statements, we adopted Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets on January 1, 2002. This standard
requires that goodwill and intangible assets deemed to have indefinite lives
are no longer being amortized, but rather are reviewed for impairment annually,
or more frequently if certain indicators arise. At September 30, 2002, no
impairment of goodwill has been recognized.

Taxes.We account for income taxes using the 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.

Liquidity and Capital Resources

Cash and cash equivalents and short and long-term investments were $20.4
million at September 30, 2002, an increase of $1.7 million from $18.7 million
at December 31, 2001. The increase was primarily a result of cash provided by
operating activities of $4.8 million and cash received from the exercise of
stock options totaling $1.3 million partially offset by cash used of $3.8
million in repurchasing 1,990,000 shares of our common stock in accordance with
our stock repurchase program. Cash provided by operating activities of $4.8
million was primarily attributable to a net loss of $2.1 million adjusted for
non-cash expenses of $4.0 million as well as a decrease in inventories of $2.6
million partially offset by a decrease in accounts payable of $0.6 million.

In January 2001, our Board of Directors approved a stock repurchase program
whereby up to 2,000,000 shares of our common stock may be purchased in the open
market or in privately negotiated transactions. As of September 30, 2002, all
2,000,000 shares had been repurchased.

In September 2002, our Board of Directors approved a second stock repurchase
program whereby an additional 2,000,000 shares of our common stock may be
purchased in the open market or in privately negotiated transactions.
Approximately 401,000 shares of our common stock has been repurchased at a
cost of approximately $844,000 since September 30, 2002.

As of September 30, 2002, we had no material commitments related to the
purchase of capital expenditures or the leasing of facilities.

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. 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.

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.

14



---



##### Table of Contents



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 or 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,                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | general economic conditions,                                                                                                                 
|
| |  |  | our ability to develop, introduce, and market new products and technologies on a timely basis,                                               
|
| |  |  | changes in our pricing policies or those of our competitors
or suppliers, including decreases in unit average selling prices of
our products,
|
| |  |  | introduction of products and technologies by our competitors,                                                                                
|
| |  |  | shifts in our product mix toward lower margin products,                                                                                      
|
| |  |  | the availability of production capacity at the fabrication facilities that manufacture our products,                                         
|
| |  |  | the availability and cost of materials to our suppliers, and                                                                                 
|
| |  |  | the 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.

We Are Exposed To General Economic And Market Conditions

Our business is subject to the effects of general economic conditions in the
United States and globally, and, in particular, market conditions in the
communications and networking industries. In recent quarters, our operating
results have been adversely affected due to unfavorable economic conditions and
reduced capital spending in the United States, Europe, and Asia. If the
economic conditions in the United States and globally do not improve, or if we
experience a worsening in the global economic slowdown, we may continue to
experience material adverse impacts on our business, operating results, and
financial condition, including reduced revenue.

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.

15



---



##### Table of Contents



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.

Rapid Technological Change Could Make Our Products Obsolete

We operate in an industry that is subject to evolving industry standards, rapid
technological changes, rapid changes in customer demands, and the rapid
introduction of new, higher performance products with shorter product life
cycles. As a result, we expect to continue to make significant investments in
research and development. However, we may not have adequate funds from
operations or otherwise to devote to research and development, forcing us to
reduce our research and development efforts. Also, we must manage product
transitions successfully, because announcements or introductions of new
products by us or our competitors could adversely affect sales of our existing
products since these existing products can become obsolete or unmarketable for
specific purposes. There can be no assurance that we will be able to develop
and introduce new products or enhancements to our existing products on a timely
basis or in a manner which satisfies customer needs or achieves widespread
market acceptance. Any significant delay in releasing new products could
adversely affect our reputation, give a competitor a first-to-market advantage
or allow a competitor to achieve greater market share. Failure to adjust to
rapid technological change could harm our business, financial condition,
results of operations, and cash flows.

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 existing
manufacturing processes and products, perceived advantages over competing
products, and the level of customer service available to support such products.
Moreover, manufacturers often rely on a limited number of equipment vendors to
meet their manufacturing equipment needs. As a result, market acceptance of
our products may be adversely affected to the extent potential customers
utilize a competitors manufacturing equipment. 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 operations, and cash flows.

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
note 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.

16



---



##### Table of Contents



We record as expenses the costs related to the development of new semiconductor
devices and other products as these expenses are incurred. As a result, our
profitability from quarter to quarter and from year to year may be adversely
affected by the number and timing of our new product launches in any period and
the level of acceptance gained by these products.

Our 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 that can produce semiconductors which meet our needs.
However, as the semiconductor industry continues to progress to smaller
manufacturing and design geometries, the complexities of producing
semiconductors will increase. Decreasing geometries may introduce new problems
and delays that may affect product development and deliveries. Due to the
nature of the 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, may delay our shipments,
or may increase our costs.

Our Reliance On Single Source Manufacturers Of Our Semiconductor Devices Could
Delay Shipments And Increase Our Costs

None of our semiconductor devices is 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 is unable or unwilling to continue to
manufacture a product in the required volume, we would have to identify and
qualify a substitute supplier or discontinue the product. For example, in
October 2002, we discontinued production of our I/O Processors, in part because
our supplier discontinued the process on which the I/O Processors were built.
We expect that this discontinuation will have no material impact on our
revenues.

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.

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 embedded 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.

17



---



##### Table of Contents



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 often
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 embedded systems or to develop sufficient
new products to replace products that have become obsolete, our business would
be materially adversely affected.

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 embedded systems markets including networking and
telecommunications, enterprise storage, imaging, and industrial applications.
The size and rate of growth of these embedded 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
embedded systems may not grow.

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 Sales And Earnings Will Be Harmed

Historically, a relatively small number of customers have accounted for a
significant portion of our net sales in any particular period. 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.                         

18



---



##### Table of Contents



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 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.

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 for 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.

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. In
the nine months ended September 30, 2002 and 2001, net revenues through
distributors accounted for approximately 54% and 59%, respectively, of our net
revenues. Some of our distributors also market and sell competing products.
Distributors may terminate their relationships with us at any time. Our future
performance will depend in part on our ability to attract additional
distributors that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
We may lose one or more of our current distributors or may not be able to
recruit additional or replacement distributors. The loss of one or more of our
major distributors could have a material adverse effect on our business, as we
may not be successful in servicing our customers directly or through
manufacturers representatives.

The Demand For Our Products Depends Upon Our Ability To Support Evolving
Industry Standards

Substantially all of our revenues are derived from sales of products, which
rely on the PCI standard. If the embedded systems markets move away from this
standard 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, the PCI standard is continuously
evolving, and we may not be able to modify our products to address new PCI
specifications. Any of these events would have a material adverse effect on
our business.

19



---



##### Table of Contents



The Successful Marketing And Sales Of Our Products Depend Upon Our Third Party
Relationships, Most Of 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 embedded 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 most of 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 thereunder may not provide competitive advantages to us. In
addition, our future patent applications may not be issued with the scope of
the claims sought by us, if at all. Furthermore, others may develop
technologies that are similar or superior to our technology, duplicate our
technology, or design around the patents owned or licensed by us. In addition,
effective patent, trademark, copyright, and trade secret protection may be
unavailable or limited in foreign countries where we may need protection. We
cannot be sure that steps taken by us to protect our technology will prevent
misappropriation of the technology.

We may from time to time receive notifications of claims that we may be
infringing patents or other intellectual property rights owned by third
parties. While there is currently no intellectual property litigation pending
against us, litigation could result in significant expense to us and adversely
affect sales of the challenged product or technology. Intellectual property
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.

The Cyclical Nature Of The Semiconductor Industry May Lead To Significant
Variances In The Demand For Our Products

In the last two years, 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, including economic
conditions in Asia. 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 We Sell Our Products To Customers Outside Of North America And Because
Our Products Are Incorporated With Products Of Others That Are Sold Outside Of
North America We Face Foreign Business, Political And Economic Risks

Sales outside of North America accounted for 58% of our revenues for the nine
months ended September 30, 2002. In 2001, 2000 and 1999, sales outside of
North America accounted for 44%, 39% and 35% of our revenues, respectively.
Sales outside of North America 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 North America, thereby exposing us indirectly to foreign
risks. Further, most of our semiconductor products are manufactured outside of
North America. Accordingly, we are subject to international risks, including:

20



---



##### Table of Contents





| |  |  | 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.

Our Potential Future Acquisitions May Not Be Successful Because Of Our Limited
Experience With Acquisitions In The Past

There have been a significant number of mergers and acquisitions in the
semiconductor industry 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. In May 2000, we acquired Sebring Systems. We have no current
agreements or negotiations underway with respect to any acquisitions, and we
may not be able to locate suitable acquisition opportunities. Future
acquisitions could result in any or all of the following:



| |  |  | potentially dilutive issuances of equity securities,                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | large one-time write-offs,                                                                                                           
|
| |  |  | the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible
assets,          
|
| |  |  | difficulties in the assimilation of operations, personnel,
technologies, products, and 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.

21



---



##### Table of Contents



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, substantial 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 the preferred stock may be superior to
those of the common stock. Accordingly, the rights of the holders of common
stock may be adversely affected. Consistent with Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the future.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have an investment portfolio of fixed income securities, including those
classified as cash equivalents, of approximately $20.3 million at September 30,
2002. 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

Within 90 days prior to the filing date of this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our President and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended.
Based upon that evaluation, the President and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
management to material information relating to the Company that is required to
be included in our periodic filings with the Securities and Exchange
Commission. There have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls subsequent
to the date we carried out our evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

22



---



##### Table of Contents






PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------

|        |  |                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                             
|        |  |                                                                                                                                                                         
|2.1(1)  |  | Agreement and Plan of Merger dated April 19, 2000 by and among
PLX Technology, Inc., OKW Technology Acquisition Corporation
and Sebring Systems, Inc.                   
|99.1    |  | Certification of President dated November 1, 2002 in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.              
|99.2    |  | Certification of Chief Financial Officer dated November 1, 2002
in accordance with 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.



---

|(1) |  | Incorporated by reference to Exhibit 2.1 to Form 8-K as filed on June 2, 2000.
|--- |  | ------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the quarter ended September 30, 2002.
| | --- |  | ------------------------------------------------------------------------------------------------------------------

23



---



##### Table of Contents






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: November 1, 2002 | By                                                                                                                     | /s/ Rafael Torres
|                       |                                                                                                                       
|                       | Rafael Torres
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)

24



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                             
|        |  |                                                                                                                                                                         
|2.1(1)  |  | Agreement and Plan of Merger dated April 19, 2000 by and among
PLX Technology, Inc., OKW Technology Acquisition Corporation
and Sebring Systems, Inc.                   
|99.1    |  | Certification of President dated November 1, 2002 in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.              
|99.2    |  | Certification of Chief Financial Officer dated November 1, 2002
in accordance with 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.



---

|(1) |  | Incorporated by reference to Exhibit 2.1 to Form 8-K as filed on June 2, 2000.
|--- |  | ------------------------------------------------------------------------------