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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 December 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 000-23084

Integrated Silicon Solution, Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0199971                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|1940 Zanker Road, San Jose, California   |  | 95112     
|(Address of principal executive offices) |  | (Zip Code)

(408) 969-6600

(Registrants telephone number, including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.  Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filerin Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   ̈    No  x

The number of outstanding shares
of the registrants Common Stock as of February 1, 2008 was 26,646,980.









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TABLE OF CONTENTS



|           |  |                                                                                                           |  |   
|---------- |  | --------------------------------------------------------------------------------------------------------- |  | --
|PART I     |  | Financial Information                                                                                     |  |   
|           |  |                                                                                                          
|Item 1.    |  | Financial Statements                                                                                      |  |   
|           |  |                                                                                                          
|           |  | Condensed Consolidated Statements of Operations Three months ended December 31, 2007 and 2006 (Unaudited) |  | 1 
|           |  |                                                                                                          
|           |  | Condensed Consolidated Balance Sheets December 31, 2007 (Unaudited) and September 30, 2007                |  | 2 
|           |  |                                                                                                          
|           |  | Condensed Consolidated Statements of Cash Flows Three months ended December 31, 2007 and 2006 (Unaudited) |  | 3 
|           |  |                                                                                                          
|           |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                          |  | 4 
|           |  |                                                                                                          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 13
|           |  |                                                                                                          
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 20
|           |  |                                                                                                          
|Item 4.    |  | Controls and Procedures                                                                                   |  | 21
|           |  |                                                                                                          
|PART II    |  | Other Information                                                                                         |  |   
|           |  |                                                                                                          
|Item 1.    |  | Legal Proceedings                                                                                         |  | 21
|           |  |                                                                                                          
|Item 1A.   |  | Risk Factors                                                                                              |  | 23
|           |  |                                                                                                          
|Item 1B.   |  | Unresolved Staff Matters                                                                                  |  | 32
|           |  |                                                                                                          
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                               |  | 33
|           |  |                                                                                                          
|Item 5.    |  | Other Information                                                                                         |  | 33
|           |  |                                                                                                          
|Item 6.    |  | Exhibits                                                                                                  |  | 34
|           | 
|Signatures |  | 35                                                                                                       

References in this Report on Form 10-Q to we, us, our and
ISSI mean Integrated Silicon Solution, Inc. and all entities controlled by Integrated Silicon Solution, Inc.



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##### Table of Contents

|Item 1. | Financial Statements
|------- | --------------------

Integrated Silicon Solution, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share
data)



|                                                                                             |  |                                |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                             |  | Three Months EndedDecember 31, |       
|                                                                                             |  | 2007                           |        |   | 2006 |  
|Net sales                                                                                    |  | $                              | 63,348 |   |      | $ | 62,144 |  
|Cost of sales                                                                                |  |                                | 50,147 |   |      |   | 49,599 |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Gross profit                                                                                 |  |                                | 13,201 |   |      |   | 12,545 |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Operating expenses:                                                                          |  |                                |        |   |      |   |        |  
|Research and development                                                                     |  |                                | 4,774  |   |      |   | 5,362  |  
|Selling, general and administrative                                                          |  |                                | 7,662  |   |      |   | 9,093  |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Total operating expenses                                                                     |  |                                | 12,436 |   |      |   | 14,455 |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Operating income (loss)                                                                      |  |                                | 765    |   |      |   | (1,910 | )
|Interest and other income (expense), net                                                     |  |                                | 2,074  |   |      |   | 1,552  |  
|Gain on sale of investments                                                                  |  |                                | 189    |   |      |   | 598    |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Income before income taxes, minority interest and equity in net loss of affiliated companies |  |                                | 3,028  |   |      |   | 240    |  
|Provision for income taxes                                                                   |  |                                | 60     |   |      |   | 10     |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Income before minority interest and equity in net loss of affiliated companies               |  |                                | 2,968  |   |      |   | 230    |  
|Minority interest in net income of consolidated subsidiary                                   |  |                                | (1     | ) |      |   | (8     | )
|Equity in net loss of affiliated companies                                                   |  |                                |       |   |      |   | (92    | )
|                                                                                             |  |                                |        |   |      |   |        |  
|Net income                                                                                   |  | $                              | 2,967  |   |      | $ | 130    |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Basic net income per share                                                                   |  | $                              | 0.08   |   |      | $ | 0.00   |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Shares used in basic per share calculation                                                   |  |                                | 36,588 |   |      |   | 37,612 |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Diluted net income per share                                                                 |  | $                              | 0.08   |   |      | $ | 0.00   |  
|                                                                                             |  |                                |        |   |      |   |        |  
|Shares used in diluted per share calculation                                                 |  |                                | 36,897 |   |      |   | 37,994 |  
|                                                                                             |  |                                |        |   |      |   |        |  

See accompanying notes to condensed consolidated financial statements.



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Integrated Silicon Solution, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



|                                                    |  |                  |          |   |                   |   |          |  
|--------------------------------------------------- |  | ---------------- | -------- | - | ----------------- | - | -------- | -
|                                                    |  | December 31,2007 |          |   | September 30,2007 |  
|                                                    |  | (unaudited)      |          |   | (1)               |  
|ASSETS                                              |  |                  |          |   |                   |   |          |  
|Current assets:                                     |  |                  |          |   |                   |   |          |  
|Cash and cash equivalents                           |  | $                | 95,895   |   |                   | $ | 53,722   |  
|Short-term investments                              |  |                  | 47,430   |   |                   |   | 80,093   |  
|Accounts receivable, net                            |  |                  | 39,639   |   |                   |   | 37,030   |  
|Inventories                                         |  |                  | 38,160   |   |                   |   | 32,056   |  
|Other current assets                                |  |                  | 4,606    |   |                   |   | 6,134    |  
|                                                    |  |                  |          |   |                   |   |          |  
|Total current assets                                |  |                  | 225,730  |   |                   |   | 209,035  |  
|Property, equipment and leasehold improvements, net |  |                  | 23,213   |   |                   |   | 23,284   |  
|Goodwill                                            |  |                  | 25,338   |   |                   |   | 25,338   |  
|Purchased intangible assets, net                    |  |                  | 3,051    |   |                   |   | 3,538    |  
|Other assets                                        |  |                  | 1,495    |   |                   |   | 1,520    |  
|                                                    |  |                  |          |   |                   |   |          |  
|Total assets                                        |  | $                | 278,827  |   |                   | $ | 262,715  |  
|                                                    |  |                  |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                |  |                  |          |   |                   |   |          |  
|Current liabilities:                                |  |                  |          |   |                   |   |          |  
|Short-term debt and notes                           |  | $                |         |   |                   | $ | 614      |  
|Accounts payable                                    |  |                  | 49,210   |   |                   |   | 36,509   |  
|Accrued compensation and benefits                   |  |                  | 3,914    |   |                   |   | 3,588    |  
|Accrued expenses                                    |  |                  | 7,727    |   |                   |   | 6,734    |  
|                                                    |  |                  |          |   |                   |   |          |  
|Total current liabilities                           |  |                  | 60,851   |   |                   |   | 47,445   |  
|Other long-term liabilities                         |  |                  | 871      |   |                   |   | 793      |  
|                                                    |  |                  |          |   |                   |   |          |  
|Total liabilities                                   |  |                  | 61,722   |   |                   |   | 48,238   |  
|Commitments and contingencies                       |  |                  |          |   |                   |   |          |  
|Minority interest                                   |  |                  | 727      |   |                   |   | 726      |  
|Stockholders equity:                               |  |                  |          |   |                   |   |          |  
|Common stock                                        |  |                  | 4        |   |                   |   | 4        |  
|Additional paid-in capital                          |  |                  | 376,997  |   |                   |   | 376,998  |  
|Accumulated deficit                                 |  |                  | (159,701 | ) |                   |   | (162,668 | )
|Accumulated comprehensive loss                      |  |                  | (922     | ) |                   |   | (583     | )
|                                                    |  |                  |          |   |                   |   |          |  
|Total stockholders equity                          |  |                  | 216,378  |   |                   |   | 213,751  |  
|                                                    |  |                  |          |   |                   |   |          |  
|Total liabilities and stockholders equity          |  | $                | 278,827  |   |                   | $ | 262,715  |  
|                                                    |  |                  |          |   |                   |   |          |  



|(1) | Derived from audited financial statements.
|--- | ------------------------------------------

See
accompanying notes to condensed consolidated financial statements.



2



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Integrated Silicon Solution, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                                            |  |                                |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Three Months EndedDecember 31, |        
|                                                                                            |  | 2007                           |         |   | 2006 |  
|Cash flows from operating activities                                                        |  |                                |         |   |      |   |         |  
|Net income                                                                                  |  | $                              | 2,967   |   |      | $ | 130     |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                                               |  |                                | 773     |   |      |   | 791     |  
|Stock-based compensation                                                                    |  |                                | 764     |   |      |   | 1,024   |  
|Amortization of intangibles                                                                 |  |                                | 487     |   |      |   | 485     |  
|Gain on sale of shares of Semiconductor Manufacturing International Corp. (SMIC)            |  |                                | (189    | ) |      |   | (339    | )
|Gain on sale of shares of Keystream Corporation (KSC)                                       |  |                                |        |   |      |   | (259    | )
|Net foreign currency transaction gains (losses)                                             |  |                                | 30      |   |      |   | (308    | )
|Other non-cash items                                                                        |  |                                | 27      |   |      |   |        |  
|Equity in net loss of affiliated companies                                                  |  |                                |        |   |      |   | 92      |  
|Minority interest in net loss of consolidated subsidiary                                    |  |                                | 1       |   |      |   | 8       |  
|Net effect of changes in current and other assets and current liabilities                   |  |                                | 6,868   |   |      |   | (5,497  | )
|                                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) operating activities                                         |  |                                | 11,728  |   |      |   | (3,873  | )
|Cash flows from investing activities                                                        |  |                                |         |   |      |   |         |  
|Acquisition of property, equipment and leasehold improvements                               |  |                                | (642    | ) |      |   | (652    | )
|Proceeds from sale of SMIC equity securities                                                |  |                                | 2,713   |   |      |   | 6,358   |  
|Proceeds from sale of KSC equity securities                                                 |  |                                |        |   |      |   | 1,237   |  
|Purchases of available-for-sale securities                                                  |  |                                | (41,752 | ) |      |   |        |  
|Proceeds from sales of available-for-sale securities                                        |  |                                | 71,419  |   |      |   | 362     |  
|                                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by investing activities                                                   |  |                                | 31,738  |   |      |   | 7,305   |  
|Cash flows from financing activities                                                        |  |                                |         |   |      |   |         |  
|Repurchases and retirements of common stock                                                 |  |                                | (858    | ) |      |   |        |  
|Proceeds from issuance of common stock                                                      |  |                                | 93      |   |      |   |        |  
|Proceeds from borrowings under short-term lines of credit                                   |  |                                | 2,916   |   |      |   | 13,784  |  
|Principal payments of under short-term lines of credit                                      |  |                                | (3,530  | ) |      |   | (13,452 | )
|                                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                         |  |                                | (1,379  | ) |      |   | 332     |  
|                                                                                            |  |                                |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                                |  |                                | 86      |   |      |   | 50      |  
|                                                                                            |  |                                |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                                   |  |                                | 42,173  |   |      |   | 3,814   |  
|Cash and cash equivalents at beginning of period                                            |  |                                | 53,722  |   |      |   | 37,318  |  
|                                                                                            |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                  |  | $                              | 95,895  |   |      | $ | 41,132  |  
|                                                                                            |  |                                |         |   |      |   |         |  

See accompanying notes to condensed consolidated financial statements.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited
condensed consolidated financial statements include the accounts of Integrated Silicon Solution, Inc. (the Company) and its consolidated majority owned subsidiaries, after elimination of all significant intercompany accounts and
transactions and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for fair presentation
have been included.

The Companys operating results for the three months ended December 31, 2007 are not necessarily indicative
of the results that may be expected for the fiscal year ending September 30, 2008 or for any other period. The financial statements included herein should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal
year ended September 30, 2007.



|2. | Use of Estimates
|-- | ----------------

The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the useful lives and fair value of fixed assets, the fair value of investments, allowances for doubtful
accounts and customer returns, inventory write-downs, potential reserves relating to litigation matters, accrued liabilities, and other reserves. The Company bases its estimates and judgments on its historical experience, knowledge of current
conditions and its beliefs of what could occur in the future, given available information. Actual results may differ from those estimates, and such difference, may be material to the financial statements.



|3. | Impact of Recently Issued Accounting Standards
|-- | ----------------------------------------------

In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS No. 157) which establishes a framework for measuring fair value and enhances disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The measurement and disclosure requirements are effective for the Company beginning in the first quarter of fiscal 2009. The Company is currently
evaluating whether SFAS No. 157 will result in a change to its fair value measurements.

In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159) which permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard
requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for the Company beginning in the first quarter of fiscal 2009, although earlier adoption is permitted.
The Company is currently evaluating the impact SFAS No. 159 will have on its consolidated financial statements.

In December 2007, the
FASB issued SFAS No. 141(R), Business Combinations. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the
acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination
or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to
business combinations for which the acquisition date is on or after Companys fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its
consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company has not yet determined the impact, if any, that SFAS No. 160 will have on its
consolidated financial statements. SFAS No. 160 is effective for the Companys fiscal year beginning October 1, 2009.



|4. | Stock-based Compensation
|-- | ------------------------

Stock-Based Benefit Plans

The Company grants options under the 2007 Incentive Compensation Plan (the 2007 Plan) which permits the grant of stock options,
stock appreciation rights, restricted stock awards, restricted stock units, performance shares and performance units. As of December 31, 2007, only stock options had been granted under the 2007 Plan. The Company has outstanding grants under
prior plans, though no further grants can be made under these prior plans. At December 31, 2007, 2,806,000 shares were available for future grant under the 2007 Plan. Options generally vest over a four-year period with a 6-month cliff vest and
then vest ratably over the remaining period. Options granted prior to September 30, 2005 expire ten years after the date of grant and options granted after October 1, 2005 expire seven years after the date of the grant. The Company issues
new shares of common stock upon exercise of stock options.

In addition, the Company has an Employee Stock Purchase Plan (ESPP) that is
available to employees. The ESPP permits eligible employees to purchase the Companys common stock through payroll deductions at 85% of the fair market value of the common stock at the end of each six-month offering period. The offering periods
under the ESPP commence on approximately February 1 and August 1 of each year. At December 31, 2007, 1,072,000 shares were available for future issuance under the ESPP.

Stock-Based Compensation

Effective October 1, 2005, the Company adopted the fair value
recognition provisions of SFAS No. 123R Share-Based Payment (SFAS 123R) using the modified prospective transition method.

The following table outlines the effects of total stock-based compensation.



|                                       |  |                                |      |      |   |      
|-------------------------------------- |  | ------------------------------ | ---- | ---- | - | -----
|                                       |  | Three-Months EndedDecember 31,
|                                       |  | 2007                           |      | 2006
|                                       |  | (In thousands)                
|Stock-based compensation               |  |                                |      |      |   |      
|Cost of sales                          |  | $                              | 48   |      | $ | 22   
|Research and development               |  |                                | 293  |      |   | 442  
|Selling, general and administrative    |  |                                | 423  |      |   | 560  
|                                       |  |                                |      |      |   |      
|Total stock-based compensation         |  | $                              | 764  |      | $ | 1,024
|Tax effect on stock-based compensation |  |                                |     |      |   |     
|                                       |  |                                |      |      |   |      
|Net effect on net income               |  | $                              | 764  |      | $ | 1,024
|                                       |  |                                |      |      |   |      
|Effect on earnings per share           |  |                                |      |      |   |      
|Basic                                  |  | $                              | 0.02 |      | $ | 0.03 
|                                       |  |                                |      |      |   |      
|Diluted                                |  | $                              | 0.02 |      | $ | 0.03 
|                                       |  |                                |      |      |   |      

As of December 31, 2007, there was approximately $7.3 million of total unrecognized
stock-based compensation expense under the Companys stock option plans that will be recognized over a weighted-average period of approximately 2.39 years. Future stock option grants will add to this total whereas quarterly amortization and the
vesting of the existing stock option grants will reduce this total. The Company also records compensation expense for its ESPP for the difference between the purchase price and the fair market value on the date of purchase.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



The Company uses the Black-Scholes option pricing model to estimate the fair value of the options
granted. The weighted average estimated fair values of stock option grants, as well as the weighted average assumptions used in calculating these values during the first quarter of fiscal 2008 and the first quarter of fiscal 2007, were based on
estimates at the date of grant as follows:



|                                      |  |                                    |      |   |                                    |   |      |  
|------------------------------------- |  | ---------------------------------- | ---- | - | ---------------------------------- | - | ---- | -
|                                      |  | Three Months EndedDecember 31,2007 |      |   | Three Months EndedDecember 31,2006 |  
|Weighted-average fair value of grants |  | $                                  | 2.86 |   |                                    | $ | 3.06 |  
|Expected term in years                |  |                                    | 4.54 |   |                                    |   | 4.53 |  
|Volatility                            |  |                                    | 48   | % |                                    |   | 64   | %
|Risk-free interest rate               |  |                                    | 3.70 | % |                                    |   | 4.65 | %
|Dividend yield                        |  |                                    | 0.00 | % |                                    |   | 0.00 | %

Estimated volatility ranged from 48% to 49% in the three months ended December 31, 2007 and
from 53% to 64% in the three months ended December 31, 2006.

Option activity as of December 31, 2007 and the changes during the
three months ended December 31, 2007 were as follows (stock option amounts and aggregate intrinsic value are presented in thousands):



|                                                    |  |                 |   |  |                                |      |                                           |      |                          |   |      
|--------------------------------------------------- |  | --------------- | - |  | ------------------------------ | ---- | ----------------------------------------- | ---- | ------------------------ | - | -----
|                                                    |  | Number ofShares |   |  | Weighted-AverageExercise Price |      | Weighted-AverageRemainingContractual Term |      | AggregateIntrinsic Value
|Outstanding at September 30, 2007                   |  | 5,153           |   |  | $                              | 7.22 |                                           |      |                          |   |      
|Granted                                             |  | 359             |   |  | $                              | 6.45 |                                           |      |                          |   |      
|Exercised                                           |  | (24             | ) |  | $                              | 3.88 |                                           |      |                          | $ | 63   
|Cancelled/forfeited                                 |  | (92             | ) |  | $                              | 6.25 |                                           |      |                          |   |      
|                                                    |  |                 |   |  |                                |      |                                           |      |                          |   |      
|Outstanding at December 31, 2007                    |  | 5,396           |   |  | $                              | 7.20 |                                           | 5.43 |                          | $ | 3,287
|                                                    |  |                 |   |  |                                |      |                                           |      |                          |   |      
|Vested and expected to vest after December 31, 2007 |  | 5,120           |   |  | $                              | 7.25 |                                           | 5.38 |                          | $ | 3,164
|Exercisable at September 30, 2007                   |  | 3,412           |   |  | $                              | 7.68 |                                           | 5.13 |                          | $ | 2,123
|Exercisable at December 31, 2007                    |  | 3,577           |   |  | $                              | 7.65 |                                           | 4.98 |                          | $ | 2,562



|5. | Concentrations
|-- | --------------

In the three months ended
December 31, 2007 and 2006, no single customer accounted for over 10% of net sales.



6



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



|6. | Cash and Cash Equivalents and Short-term Investments
|-- | ----------------------------------------------------

Cash and cash equivalents and short-term investments consisted of the following:



|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | -------
|December 31, 2007                           |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                                            |  | (In thousands)
|Cash                                        |  | $              | 20,036  |                      | $ |                      |  | $ |          |   |  | $ | 20,036 
|Money market instruments                    |  |                | 69,359  |                      |   |                      |  |   |          |   |  |   | 69,359 
|Commercial paper                            |  |                |        |                      |   |                      |  |   |          |   |  |   |       
|Certificates of deposit                     |  |                | 8,503   |                      |   |                      |  |   |          |   |  |   | 8,503  
|Municipal notes and bonds                   |  |                | 42,283  |                      |   |                      |  |   |          |   |  |   | 42,283 
|SMIC common stocksaleable within 12 months |  |                | 3,426   |                      |   |                      |  |   | (282      | ) |  |   | 3,144  
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                       |  | $              | 143,607 |                      | $ |                      |  | $ | (282      | ) |  | $ | 143,325
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Reported as:                                |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Cash and cash equivalents                   |  |                |         |                      |   |                       |  |   |           |   |  | $ | 95,895 
|Short-term investments                      |  |                |         |                      |   |                       |  |   |           |   |  |   | 47,430 
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                       |  |                |         |                      |   |                       |  |   |           |   |  | $ | 143,325
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        



|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | -------
|September 30, 2007                          |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                                            |  | (In thousands)
|Cash                                        |  | $              | 17,343  |                      | $ |                      |  | $ |          |   |  | $ | 17,373 
|Money market instruments                    |  |                | 21,740  |                      |   |                      |  |   |          |   |  |   | 21,740 
|Commercial paper                            |  |                | 10,644  |                      |   |                      |  |   | (5        | ) |  |   | 10,639 
|Certificates of deposit                     |  |                | 5,995   |                      |   |                      |  |   |          |   |  |   | 5,995  
|Municipal notes and bonds                   |  |                | 71,950  |                      |   |                      |  |   |          |   |  |   | 71,950 
|SMIC common stocksaleable within 12 months |  |                | 5,951   |                      |   | 197                   |  |   |          |   |  |   | 6,148  
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                       |  | $              | 133,623 |                      | $ | 197                   |  | $ | (5        | ) |  | $ | 133,815
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Reported as:                                |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Cash and cash equivalents                   |  |                |         |                      |   |                       |  |   |           |   |  | $ | 53,722 
|Short-term investments                      |  |                |         |                      |   |                       |  |   |           |   |  |   | 80,093 
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                       |  |                |         |                      |   |                       |  |   |           |   |  | $ | 133,815
|                                            |  |                |         |                      |   |                       |  |   |           |   |  |   |        

All debt securities held at December 31, 2007 are due in less than one year. As of
December 31, 2007, the Company had cash, cash equivalents and short-term investments of $22.3 million in foreign institutions.

In the
three months ended December 31, 2007, the Company sold 22.0 million shares of Semiconductor Manufacturing International Corp. (SMIC), a related party through July 2007, and recorded gross proceeds of approximately $2.7 million and a
pre-tax gain of approximately $0.2 million. In the three months ended December 31, 2006, the Company sold 52.5 million shares of SMIC and recorded gross proceeds of approximately $6.4 million and a pre-tax gain of approximately $0.3
million. The market value of SMIC shares is subject to fluctuations and the Companys carrying value will be subject to adjustments to reflect the current market value.



7



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



|7. | Inventories
|-- | -----------

The following is a summary of
inventories by major category:



|                     |  |                  |        |                   |   |       
|-------------------- |  | ---------------- | ------ | ----------------- | - | ------
|                     |  | December 31,2007 |        | September 30,2007
|                     |  | (In thousands)  
|Purchased components |  | $                | 6,696  |                   | $ | 4,583 
|Work-in-process      |  |                  | 10,902 |                   |   | 9,673 
|Finished goods       |  |                  | 20,562 |                   |   | 17,800
|                     |  |                  |        |                   |   |       
|                     |  | $                | 38,160 |                   | $ | 32,056
|                     |  |                  |        |                   |   |       

During the three months ended December 31, 2007 and 2006, the Company recorded inventory
write-downs of $2.5 million and $3.5 million, respectively. The inventory write-downs were predominately for lower of cost or market and excess and obsolescence issues on certain of the Companys products.



|8. | Comprehensive Income (Loss)
|-- | ---------------------------

Comprehensive income
(loss) includes the Companys net income as well as other comprehensive income (loss). The Companys other comprehensive income (loss) consists of changes in cumulative translation adjustment, changes in unrealized gains and losses on
investments and changes in minimum pension liability.

Comprehensive income (loss), net of taxes, was as follows:



|                                                   |  |                                |       |   |      |   |        |  
|-------------------------------------------------- |  | ------------------------------ | ----- | - | ---- | - | ------ | -
|                                                   |  | Three Months EndedDecember 31, |      
|                                                   |  | 2007                           |       |   | 2006 |  
|                                                   |  | (In thousands)                 |      
|Net income                                         |  | $                              | 2,967 |   |      | $ | 130    |  
|Other comprehensive income (loss), net of tax:     |  |                                |       |   |      |   |        |  
|Change in cumulative translation adjustment        |  |                                | 151   |   |      |   | 689    |  
|Change in unrealized gains/(losses) on investments |  |                                | (474  | ) |      |   | (1,447 | )
|Change in minimum pension liability                |  |                                | (16   | ) |      |   |       |  
|                                                   |  |                                |       |   |      |   |        |  
|Comprehensive income (loss)                        |  | $                              | 2,628 |   |      | $ | (628   | )
|                                                   |  |                                |       |   |      |   |        |  

The components of accumulated other comprehensive loss, net of tax, were as follows:



|                                                     |  |                  |        |   |                   |   |        |  
|---------------------------------------------------- |  | ---------------- | ------ | - | ----------------- | - | ------ | -
|                                                     |  | December 31,2007 |        |   | September 30,2007 |  
|                                                     |  | (In thousands)   |       
|Accumulated foreign currency translation adjustments |  | $                | (1,581 | ) |                   | $ | (1,732 | )
|Accumulated net unrealized gain (loss) on SMIC       |  |                  | (282   | ) |                   |   | 197    |  
|Accumulated net unrealized loss on other investments |  |                  |       |   |                   |   | (5     | )
|Accumulated net transition obligation                |  |                  | 1,010  |   |                   |   | 1,026  |  
|Accumulated net actuarial losses                     |  |                  | (69    | ) |                   |   | (69    | )
|                                                     |  |                  |        |   |                   |   |        |  
|Total accumulated other comprehensive loss           |  | $                | (922   | ) |                   | $ | (583   | )
|                                                     |  |                  |        |   |                   |   |        |  



8



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



|9. | Income Taxes
|-- | ------------

The Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), on October 1, 2007. As of the date of adoption of FIN 48, the Company had $3.0 million of
unrecognized tax benefits of which $2.9 million is currently offset by a full valuation allowance. The unrecognized tax benefit as of the date of adoption had no effect on the beginning balance of accumulated deficit or the net balance
sheet. The Company historically classified unrecognized tax benefits in current taxes payable and as a result of the adoption has reclassified $140,000 from current to long term liabilities. The unrealized tax benefit of $140,000, if
recognized, would favorably affect its effective tax rate in future periods. In addition, we do not expect any material changes to the estimated amount of liability associated with our uncertain tax positions within the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction, California and various state and foreign tax jurisdictions in
which we have a subsidiary or branch operation. The tax years 1998 to 2007 remain open to examination by the U.S. and state tax authorities, and the tax years 2002 to 2007 remain open to examination by the foreign tax authorities.

The Companys policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of
the date of adoption of FIN 48, the Company had approximately $25,000 of accrued interest or penalties associated with unrecognized tax benefits.

The income tax provision for the three months ended December 31, 2007 consists primarily of federal and state minimum taxes of $60,000. The income tax provision for the three months ended December 31, 2006
consists of foreign withholding taxes of $10,000.



|10. | Per Share Data
|--- | --------------

The following table sets forth the
computation of basic and diluted net income per share (in thousands, except per share amounts):



|                                                      |  |                                |        |      |   |       
|----------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------
|                                                      |  | Three Months EndedDecember 31,
|                                                      |  | 2007                           |        | 2006
|Numerator for basic and diluted net income per share: |  |                                |        |      |   |       
|Net income                                            |  | $                              | 2,967  |      | $ | 130   
|                                                      |  |                                |        |      |   |       
|Denominator for basic net income per share:           |  |                                |        |      |   |       
|Weighted average common shares outstanding            |  |                                | 36,588 |      |   | 37,612
|Dilutive stock options                                |  |                                | 309    |      |   | 382   
|                                                      |  |                                |        |      |   |       
|Denominator for diluted net income per share          |  |                                | 36,897 |      |   | 37,994
|                                                      |  |                                |        |      |   |       
|Basic net income per share                            |  | $                              | 0.08   |      | $ | 0.00  
|                                                      |  |                                |        |      |   |       
|Diluted net income per share                          |  | $                              | 0.08   |      | $ | 0.00  
|                                                      |  |                                |        |      |   |       

For the three months ended December 31, 2007, 4,538,000 stock options were excluded from
diluted earnings per share by the application of the treasury stock method. For the three months ended December 31, 2006, 5,397,000 stock options were excluded from diluted earnings per share by the application of the treasury stock method.



|11. | Common Stock Repurchase Program
|--- | -------------------------------

During the first
quarter of fiscal 2008, the Company repurchased 129,100 shares of common stock at a cost of approximately $0.9 million. The Company has repurchased and retired approximately 1,310,248 shares of common stock at a cost of approximately $8.3 million
since September 2007. As of December 31, 2007, $80.0 million remained available under the existing repurchase authorization. See Note 14 Subsequent Events.



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



|12. | Commitments and Contingencies
|--- | -----------------------------

Patents and
Licenses

In the semiconductor industry, it is not unusual for companies to receive notices alleging infringement of patents or other
intellectual property rights of others. The Company has been, and from time-to-time expects to be, notified of claims that it may be infringing patents, maskwork rights or copyrights owned by third parties. If it appears necessary or desirable, the
Company may seek licenses under patents that it is alleged to be infringing. Although patent holders commonly offer such licenses, licenses may not be offered and the terms of any offered licenses may not be acceptable to the Company. The failure to
obtain a license under a key patent or intellectual property right from a third party for technology used by the Company could cause it to incur substantial liabilities and to suspend the manufacture of the products utilizing the invention or to
attempt to develop non-infringing products, any of which could materially and adversely affect the Companys business and operating results. Furthermore, there can be no assurance that the Company will not become involved in protracted
litigation regarding its alleged infringement of third party intellectual property rights or litigation to assert and protect its patents or other intellectual property rights. Any litigation relating to patent infringement or other intellectual
property matters could result in substantial cost and diversion of the Companys resources that could materially and adversely affect the Companys business and operating results.

Legal Proceedings

Shareholder Derivative
Actions

On July 18, 2006 and July 26, 2006, two purported shareholder derivative actions were filed against certain
current and former directors and officers of ISSI in the United States District Court for the Northern District of California, entitled (1) Rick Tope v. Jimmy S.M. Lee, et al., Case No. C06-04387, and (2) Murray Donnelly v. Jimmy
S.M. Lee, et al., Case No. C06-04545. The complaints purport to assert claims against the individual defendants on behalf of ISSI for breach of fiduciary duty, violations of Section 10(b) of the Securities Exchange Act of 1934
(Exchange Act) and Rule 10b-5 promulgated thereunder, unjust enrichment, and restitution based upon our alleged stock option grant practices from 1995 through 2002. The Company is named solely as a nominal defendant. The complaints seek
damages in an unspecified amount against the individual defendants, disgorgement of stock options or proceeds, equitable relief, attorneys fees, and other unspecified relief. Pursuant to the parties stipulation, the Court consolidated
the two derivative actions on August 22, 2006, under the caption In re Integrated Silicon Solution, Inc. Shareholder Derivative Litigation, Master File No. C-06-04387 RMW. Plaintiffs filed a consolidated complaint on November 27,
2006, based upon the same underlying facts and circumstances alleged in the prior complaints. In addition to the claims asserted and the relief sought in the original complaints, the consolidated complaint purports to assert claims against the
individual defendants for aiding and abetting and violating Sections 14(a) and 20(a) of the Exchange Act and seeks an accounting. The Company is again named solely as a nominal defendant.

On October 31, 2006, another purported shareholder derivative action was filed against certain current and former directors and officers of ISSI in
the Superior Court of California for the County of Santa Clara, entitled Alex Chuzhoy v. Jimmy S.M. Lee, et al., Case No. 1:06-CV-074031. The complaint purports to assert claims against the individual defendants on behalf of ISSI for
insider trading in violation of California Corporations Code Sections 25402 / 25502.5, breach of fiduciary duty including in connection with the alleged insider selling and misappropriation, abuse of control, gross mismanagement, constructive fraud,
corporate waste, unjust enrichment, and rescission, based upon the Companys alleged stock option grant practices from 1995 through 2002. The Company is named solely as a nominal defendant. The complaint seeks damages in an unspecified amount
against the individual defendants, an accounting, certain corporate governance changes, a constructive trust over the defendants stock options or proceeds, punitive damages, attorneys fees, and other unspecified relief.

The parties in both the state and federal shareholder derivative litigation have agreed to enter into settlement discussions, and both Courts have issued
orders staying the litigation until such time as the discussions result in a settlement which would then be presented to each Court for approval, or until such negotiations are unsuccessful, at which time litigation would resume. If the settlement
negotiations are unsuccessful, plaintiffs in the state and federal derivative complaints are expected to amend their complaints. Defendants will move to dismiss both the state and federal complaints.



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



SRAM Antitrust Litigation

Thirty-two purported class action lawsuits were filed by U.S. Direct-Purchaser and U.S. Indirect-Purchaser Plaintiffs against the Company and other SRAM suppliers in various U.S. federal courts alleging violations of
the Sherman Act, violations of state unfair competition laws, and unjust enrichment relating to the sale and pricing of SRAM products. The U.S. lawsuits have been consolidated in a single federal court for coordinated pre-trail proceedings. The U.S.
lawsuits seek treble damages for the alleged damages sustained by purported class members, in addition to restitution, costs and attorneys fees, as well as an injunction against the allegedly unlawful conduct. As of August 30, 2007, the
Company was voluntarily dismissed from twenty-eight of the thirty-two pending lawsuits pursuant to a Tolling Agreement between the Company and the U.S. Indirect-Purchaser Plaintiffs. The U.S. Indirect-Purchaser Plaintiffs agreed not to name the
Company as a defendant unless the Tolling Agreement is terminated according to terms specified in that agreement. On January 9, 2008, the Company was voluntarily dismissed without prejudice from one of the lawsuits brought by the U.S.
Direct-Purchaser Plaintiffs. The Company remains a defendant in three lawsuits brought by the U.S. Direct-Purchaser Plaintiffs.

Three
purported class action lawsuits were filed against the Company and other SRAM suppliers in three Canadian courts alleging violation of the Canadian Competition Act and other unlawful conduct. The Canadian complaints seek compensatory and
punitive damages, in addition to declaratory relief, restitution, and costs.

The Company is committed to defending itself against these
claims and has instructed its counsel to contest these actions vigorously. Given the preliminary stage of these proceedings and the inherent uncertainty in litigation, the Company is unable to predict the outcome of these suits. The final resolution
of these alleged violations of federal or state antitrust laws could have a material adverse effect on the Companys business, results of operations, or financial condition.

SRAM Antitrust Civil Investigative Demand

In May 2007, the Company received a civil
investigative demand (CID) from the Attorney General of the State of Florida. The CID is issued pursuant to the Florida Antitrust Act in the course of an official investigation to determine whether there is, has been, or may be a
violation of state or federal antitrust laws. Although not alleging any wrongdoing, the CID seeks documents and data relating to the Companys business. As of January 14, 2008 and effective as of May 7, 2007, the Companys
obligation to respond to the CID was suspended pursuant to the terms of a Tolling Agreement between the Company and the Attorney General of Florida. The Company intends to cooperate fully with the Attorney General of Florida in this investigation.
Because the investigation is at an early stage, the Company cannot predict the outcome of the investigation and its effect, if any, on its business.

Other Legal Proceedings

In the ordinary course of its business, as is common in the semiconductor industry, the
Company has been involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, the
Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations. However, no assurances can be given with respect to the extent or outcome of any
such litigation in the future.

Commitments to Wafer Fabrication Facilities and Contract Manufacturers

The Company issues purchase orders for wafers to various wafer foundries. These purchase orders are generally considered to be cancelable. However, to the
degree that the wafers have entered into work-in-process at the foundry, as a matter of practice, it becomes increasingly difficult to cancel the purchase order. As of December 31, 2007, the Company had approximately $29.2 million of purchase
orders for which the related wafers had been entered into wafer work-in-process (i.e., manufacturing had begun).



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



|13. | Geographic and Segment Information
|--- | ----------------------------------

The Company has
one operating segment, which is to design, develop, and market high-performance SRAM, DRAM, and other memory and non-memory semiconductor products. The following table summarizes the Companys operations in different geographic areas:



|                             |  |                                |        |                   |   |       
|---------------------------- |  | ------------------------------ | ------ | ----------------- | - | ------
|                             |  | Three Months EndedDecember 31,
|                             |  | 2007                           |        | 2006             
|                             |  | (In thousands)                
|Net sales                    |  |                                |        |                   |   |       
|United States                |  | $                              | 8,982  |                   | $ | 12,552
|China                        |  |                                | 1,044  |                   |   | 3,556 
|Hong Kong                    |  |                                | 20,528 |                   |   | 14,125
|Taiwan                       |  |                                | 12,238 |                   |   | 12,156
|Japan                        |  |                                | 3,754  |                   |   | 3,935 
|Other Asia Pacific countries |  |                                | 6,438  |                   |   | 6,042 
|Europe                       |  |                                | 10,159 |                   |   | 9,365 
|Other                        |  |                                | 205    |                   |   | 413   
|                             |  |                                |        |                   |   |       
|Total net sales              |  | $                              | 63,348 |                   | $ | 62,144
|                             |  |                                |        |                   |   |       
|                             |  |                               
|                             |  | December 31,2007               |        | September 30,2007
|                             |  | (In thousands)                
|Long-lived assets            |  |                                |        |                   |   |       
|United States                |  | $                              | 3,448  |                   | $ | 3,247 
|Hong Kong                    |  |                                | 67     |                   |   | 72    
|China                        |  |                                | 1,036  |                   |   | 921   
|Taiwan                       |  |                                | 18,662 |                   |   | 19,044
|                             |  |                                |        |                   |   |       
|                             |  | $                              | 23,213 |                   | $ | 23,284
|                             |  |                                |        |                   |   |       



|14. | Subsequent Event
|--- | ----------------

On December 3, 2007, the
Company commenced an offer to purchase for cash up to 10 million shares of its common stock through a self-tender offer at a price of $7.00 per share (the Offer). The Offer expired on January 3, 2008 and on January 11,
2008, the Company announced the results of the Offer, stating that it accepted for payment 10 million shares of its common stock at a purchase price of $7.00 per share, resulting in aggregate payments of $70 million. These shares represented
approximately 27.4% of the Companys shares outstanding as of December 31, 2007. Based on the final count by the depositary for the tender offer, an aggregate of 24,838,228 shares were properly tendered and not withdrawn at the purchase
price of $7.00 per share, including 1,321,860 shares tendered through notice of guaranteed delivery. As the aggregate number of shares tendered exceeded the maximum purchase quantity, the actual shares purchased were prorated at the rate of
approximately 0.4026.



12



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##### Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this report that are subject to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of our operations. Also, when we use words such as believes, expects, anticipates or similar expressions, we are making forward-looking statements. You should note
that an investment in our securities involves certain risks and uncertainties that could affect our future financial results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in Risk Factors and elsewhere in this report.

We believe it is important to
communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risks described in Risk Factors included in this report, as well
as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Risk Factors and other
cautionary statements set forth in this report. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

On January 25, 2005, we announced our intention to acquire Integrated Circuit Solution, Inc. (ICSI). ICSI was a public company in Taiwan
and traded on the Gre Tai Securities Market (OTC). ICSI is a fabless semiconductor company whose principal products are DRAM and controller chips. Prior to this transaction, we owned approximately 29% of ICSI. In the nine months ended
September 30, 2005, we purchased additional shares of ICSI in the open market for approximately $52.5 million increasing our ownership percentage to approximately 83% at September 30, 2005. In fiscal 2006, we purchased additional shares of
ICSI for approximately $13.9 million increasing our ownership percentage to approximately 98% at September 30, 2006. In fiscal 2007, we purchased additional shares of ICSI for approximately $0.3 million. At December 31, 2007, we owned
approximately 98% of ICSI. Our financial results for fiscal 2008 and fiscal 2007 reflect accounting for ICSI on a consolidated basis.

In
December 2006, we sold our remaining investment in Key Stream Corp. (KSC), a semiconductor company. Our financial results for fiscal 2007, until our sale, reflect accounting for KSC on the equity basis.

Overview

We are a fabless semiconductor company that
designs and markets high performance integrated circuits for the following key markets: (i) digital consumer electronics, (ii) networking, (iii) mobile communications and (iv) automotive electronics. Our primary products are high
speed and low power SRAM and low and medium density DRAM. We also design and market EEPROMs, SmartCards, and selected non-memory products focused on our key markets. We were founded in October 1988 and initially focused on high performance, low cost
SRAM for PC cache memory applications. In 1997, we introduced our first low and medium density DRAM products. Prior to fiscal 2003, our SRAM product family generated a majority of our revenue. However, sales of our low and medium density DRAM
products have represented a majority of our net sales in each year since fiscal 2003.

In order to limit and control our operating
expenses, in recent years we reduced our headcount in the U.S. and transferred various functions to Taiwan and China. Our acquisition of ICSI was a key part of this strategy. We believe this strategy has enabled us to limit our operating expenses
while simultaneously locating these functions closer to our manufacturing partners and our customers. As a result of these efforts, we currently have significantly more employees in Asia than we do in the U.S. We intend to continue these strategies
going forward.

As a fabless semiconductor company, our business model is less capital intensive because we rely on third parties to
manufacture, assemble and test our products. Because of our dependence on third-party wafer foundries, our ability to increase our unit sales volumes depends on our ability to increase our wafer capacity allocation from current foundries, add
additional foundries and improve yields of good die per wafer.



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##### Table of Contents

The average selling prices of our SRAM and DRAM products are very sensitive to supply and demand
conditions in our target markets and have generally declined over time. We experienced declines in the average selling prices for many of our products in fiscal 2005, in fiscal 2006 and in fiscal 2007. We expect average selling prices for our
products to decline in the future, principally due to increased market competition and an increased supply of competitive products in the market. Any future decreases in our average selling prices could have an adverse impact on our revenues, gross
margins and operating margins. Our ability to maintain or increase revenues will be highly dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products in quantities sufficient to compensate
for the anticipated declines in average selling prices of existing products. Declining average selling prices will adversely affect our gross margins unless we are able to offset such declines with reductions in per unit costs or changes in product
mix in favor of higher margin products.

Revenue from product sales to our direct customers is recognized upon shipment provided that
persuasive evidence of a sales arrangement exists, the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements and there are no remaining
significant obligations. A portion of our sales is made to distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges. Given the uncertainties associated with credits that will be
issued to these distributors, we defer recognition of such sales until our products are sold by the distributors to their end customers. Revenue from sales to distributors who do not have sales price rebates or product return privileges is
recognized at the time our products are sold by us to the distributors.

We market and sell our products in Asia, the U.S., Europe and
other locations through our direct sales force, distributors and sales representatives. The percentage of our sales shipped outside the U.S. was approximately 86%, 80%, 82%, 83% and 85% in the first quarter of fiscal 2008, the first quarter of
fiscal 2007, and in fiscal 2007, fiscal 2006 and fiscal 2005, respectively. We measure sales location by the shipping destination, even if the customer is headquartered in the U.S. We anticipate that sales to international customers will continue to
represent a significant percentage of our net sales. The percentages of our net sales by region are set forth in the following table:



|       |  |                                |   |  |                                 |   |  |      |   |  |      |   |  |      |  
|------ |  | ------------------------------ | - |  | ------------------------------- | - |  | ---- | - |  | ---- | - |  | ---- | -
|       |  | Three Months EndedDecember 31, |   |  | Fiscal Years EndedSeptember 30, |  
|       |  | 2007                           |   |  | 2006                            |   |  | 2007 |   |  | 2006 |   |  | 2005 |  
|Asia   |  | 70                             | % |  | 64                              | % |  | 67   | % |  | 73   | % |  | 75   | %
|Europe |  | 16                             |   |  | 15                              |   |  | 15   |   |  | 10   |   |  | 9    |  
|U.S.   |  | 14                             |   |  | 20                              |   |  | 18   |   |  | 17   |   |  | 15   |  
|Other  |  |                               |   |  | 1                               |   |  |     |   |  |     |   |  | 1    |  
|       |  |                                |   |  |                                 |   |  |      |   |  |      |   |  |      |  
|Total  |  | 100                            | % |  | 100                             | % |  | 100  | % |  | 100  | % |  | 100  | %
|       |  |                                |   |  |                                 |   |  |      |   |  |      |   |  |      |  

Our sales are generally made by purchase orders. Because industry practice allows customers to
reschedule or cancel orders on relatively short notice, backlog is not a good indicator of our future sales. Cancellations of customer orders or changes in product specifications could result in the loss of anticipated sales without allowing us
sufficient time to reduce our inventory and operating expenses.

Since a portion of our revenue is from the digital consumer electronics
market, our business may be subject to seasonality, with increased revenues in the third and fourth calendar quarters of each year, when customers place orders to meet year-end holiday demand. However, due to the complex nature of the markets we
serve it is difficult for us to assess the impact of seasonal factors on our business.

We are subject to the risks of conducting business
internationally, including economic conditions in Asia, particularly Taiwan and China, changes in trade policy and regulatory requirements, duties, tariffs and other trade barriers and restrictions, the burdens of complying with foreign laws and,
possibly, political instability. All of our foundries and assembly and test subcontractors are located in Asia. Although our international sales are largely denominated in U.S. dollars, we do have sales



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transactions in New Taiwan dollars, in Hong Kong dollars and in Chinese Renminbi. In addition, we have foreign operations where expenses are generally
denominated in the local currency. Such transactions expose us to the risk of exchange rate fluctuations. We monitor our exposure to foreign currency fluctuations, but have not adopted any hedging strategies to date. There can be no assurance that
exchange rate fluctuations will not harm our business and operating results in the future.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make difficult and
subjective estimates, judgments and assumptions. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of revenue and expenses during the reporting period. The estimates and judgments that we use in applying our accounting policies have a significant impact on the results we report in our financial statements. We base our
estimates and judgments on our historical experience combined with knowledge of current conditions and our beliefs of what could occur in the future, considering the information available at the time. Actual results could differ from those estimates
and such differences may be material to our financial statements. We reevaluate our estimates and judgments on an ongoing basis.

Our
critical accounting policies which are impacted by our estimates are: (i) the valuation of our inventory, which impacts cost of goods sold and gross profit; (ii) the valuation of our allowance for sales returns and allowances, which
impacts net sales; (iii) the valuation of our allowance for doubtful accounts, which impacts general and administrative expense; (iv) accounting for acquisitions and goodwill, which impacts other expense when we record impairments;
(v) the valuation of our non-marketable equity securities, which impacts other expense when we record impairments and (vi) accounting for stock-based compensation which impacts costs of goods sold, research and development expense and
selling, general and administrative expense. Each of these policies is described in more detail below. We also have other key accounting policies that may not require us to make estimates and judgments that are as subjective or difficult. For
instance, our policies with regard to revenue recognition, including the deferral of revenues on sales to distributors with sales price rebates and product return privileges. These policies are described in the notes to our financial statements
contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

Valuation of inventory. Our
inventories are stated at the lower of cost or market value. Determining market value requires us to project unit prices and volumes for future periods in which we expect to sell inventory on hand as of the balance sheet date. As a result of these
estimates, we may record a charge to cost of goods sold, which decreases our gross profit, in advance of when the inventory is actually sold to reflect market values, net of sales commission costs, that are below our manufacturing costs. Conversely,
if we sell inventory that has previously been written down to the lower of cost or market at more favorable prices than we had forecasted at the time of the write-down, our gross profit may be higher. In addition to lower of cost or market
write-downs, we also analyze inventory to determine whether any of it is excess, obsolete or defective. We write down to zero dollars (which is a charge to cost of goods sold) the carrying value of inventory on hand that has aged over one year to
cover estimated excess and obsolete exposures, unless adjustments are made based on our judgments for newer products, end of life products, planned inventory increases or strategic customer supply. In making such judgments to write down inventory,
we take into account the product life cycles which can range from six to 30 months, the stage in the life cycle of the product, and the impact of competitors announcements and product introductions on our products. Once established, these
adjustments are considered permanent.

Valuation of allowance for sales returns and allowances. Net sales consist principally
of total product sales less estimated sales returns. To estimate sales returns and allowances, we analyze potential customer specific product application issues, potential quality and reliability issues and historical returns. We evaluate quarterly
the adequacy of the allowance for sales returns and allowances. This allowance is reflected as a reduction to accounts receivable in our consolidated balance sheets. Increases to the allowance are recorded as a reduction to net sales. Because the
allowance for sales returns and allowances is based on our judgments and estimates, particularly as to product application, quality and reliability issues, our allowances may not be adequate to cover actual sales returns and other allowances. If our
allowances are not adequate, our net sales could be adversely affected.

Valuation of allowance for doubtful accounts. We
maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers inability to make required payments for goods and services purchased from us. We make our estimates of the uncollectibility of our accounts
receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends. Once an account is deemed unlikely to be fully collected, we write down the carrying value of the receivable to the estimated recoverable
value, which results in a charge to general and administrative expense, which decreases our profitability.



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Accounting for acquisitions and goodwill. We account for acquisitions using the purchase
accounting method in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. Under this method, the total consideration paid, excluding, if any, the contingent consideration that has not
been earned, is allocated over the fair value of the net assets acquired, including in-process research and development, with any excess allocated to goodwill. Goodwill is defined as the excess of the purchase price over the fair value allocated to
the net assets. Our judgments as to fair value of the assets will, therefore, affect the amount of goodwill that we record. Management is responsible for the valuation of tangible and intangible assets. For tangible assets acquired in any
acquisition, such as plant and equipment, the useful lives are estimated by considering comparable lives of similar assets, past history, the intended use of the assets and their condition. In estimating the useful life of the acquired intangible
assets with definite lives, we consider the industry environment and unique factors relating to each product relative to our business strategy and the likelihood of technological obsolescence. Acquired intangible assets primarily include core and
current technology, customer relationships and customer contracts. We are currently amortizing our acquired intangible assets with definite lives over periods generally ranging from six months to six years.

We perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances where indicators of impairment may exist. For
instance, in response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of
tangible and intangible assets, including goodwill.

Valuation of non-marketable securities. Our ability to recover our
strategic investments in equity securities that are non-marketable and to earn a return on these investments is largely dependent on financial market conditions and the occurrence of liquidity events, such as initial public offerings, mergers or
acquisitions, and private equity transactions. The timing of when any of these events may occur is uncertain and very difficult to predict. In addition, under our accounting policy, we are required to periodically review all of our investments for
impairment. In the case of non-marketable equity securities, this requires significant judgment on our part, including an assessment of the investees financial condition, the existence of subsequent rounds of financing and the impact of any
relevant equity preferences, as well as the investees historical results of operations and projected results and cash flows. If the actual outcomes for the investees are significantly different from their forecasts, the carrying value of
our non-marketable equity securities may be above fair value, and we may incur additional charges in future periods, which will decrease our profitability. In fiscal 2006, we recorded an impairment loss of approximately $0.4 million related to one
of our non-marketable equity securities. At December 31, 2007, our strategic investments in non-marketable securities totaled $0.6 million.

Accounting for stock-based compensation. Effective October 1, 2005, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), using the modified
prospective transition method and therefore have not restated results for prior periods. Under SFAS 123R, stock option costs is calculated on the date of grant using the Black-Scholes valuation model. The compensation cost is then recognized on a
straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. We use the Black-Scholes valuation model to determine the fair value of our stock options at the date of grant. The
Black-Scholes valuation model requires us to estimate key assumptions such as expected term, volatility, dividend yield and risk free interest rates that determine the stock option fair value. In addition, SFAS 123R requires forfeitures to be
estimated at the time of grant. In subsequent periods, if actual forfeitures differ from the estimate, the forfeiture rate may be revised. We estimate our expected forfeitures rate based on our historical activity and judgment regarding trends.
Based upon the Securities and Exchange Commission (SEC) issuance of Staff Accounting Bulletin No. 107 (SAB 107) regarding the SECs interpretation of SFAS 123R, we use the simplified calculation of expected life. If we determined
that another method used to estimate expected life was more reasonable than our current method, or if another method for calculating these inputs assumptions was prescribed by authoritative guidance, the fair value calculated could change
materially.

Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157) which establishes a framework for measuring fair value and enhance disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The measurement and disclosure requirements are effective for us beginning in the first quarter of fiscal 2009. We are currently evaluating whether
SFAS No. 157 will result in a change to our fair value measurements.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159) which permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair
value option has been elected be reported in earnings. SFAS 159 is effective for us beginning in the first quarter of fiscal 2009, although earlier adoption is permitted. We are currently evaluating the impact SFAS No. 159 will have on our
consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Companys
fiscal year beginning October 1, 2009. While we have not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on our consolidated financial statements, we will be required to expense costs related to any
acquisitions after September 30, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We have not yet determined the impact, if any, that SFAS No. 160 will have
on our consolidated financial statements. SFAS No. 160 is effective for our fiscal year beginning October 1, 2009.

Three Months Ended
December 31, 2007 Compared to Three Months Ended December 31, 2006

Net Sales. Net sales consist principally of
total product sales less estimated sales returns. Net sales increased by 2% to $63.3 million in the three months ended December 31, 2007 from $62.1 million in the three months ended December 31, 2006. The increase in net sales of $1.2
million was principally due to an increase in unit shipments of our DRAM products and a shift in product mix in our SRAM products which was partially offset by a decline in unit shipments of our application specific standard products (ASSP) which
includes our EEPROM, Smart Card and logic products. In addition, the increase in unit shipments of our DRAM products in the three months ended December 31, 2007 compared to the three months ended December 31, 2006 more than offset the
decline in average selling prices of such products resulting in an overall increase in DRAM revenue. While unit shipments of our SRAM products decreased in the three months ended December 31, 2007 compared to the three months ended
December 31, 2006, a shift in product mix resulted in an overall increase in SRAM revenue. We anticipate that the average selling prices of our existing products will generally decline over time, although the rate of decline may fluctuate for
certain products. There can be no assurance that any future price declines will be offset by higher volumes or by higher prices on newer products.

In the three month periods ended December 31, 2007 and 2006, no single customer accounted for over 10% of net sales.

Gross profit. Cost of sales includes die cost from the wafers acquired from foundries, subcontracted package, assembly and test costs, costs associated with in-house product testing, quality assurance and import duties. Gross profit
increased by $0.7 million to $13.2 million in the three months ended December 31, 2007 from $12.5 million in the three months ended December 31, 2006. Our gross margin increased to 20.8% in the three months ended December 31, 2007
from 20.2% in the three months ended December 31, 2006. Our gross profit for the three months ended December 31, 2007 included inventory write-downs of $2.5 million compared to $3.5 million of inventory write-downs in the three months
ended December 31, 2006. The inventory write-downs were for lower of cost or market accounting and excess and obsolescence issues on certain of our products. Our gross profit for the three month periods ended December 31, 2007 and 2006,
benefited from the sale of



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$0.6 million and $1.5 million, respectively, of previously written down products. An increase in both our SRAM gross profit and gross margin in the three
months ended December 31, 2007 can be attributed to a shift in our SRAM product mix. DRAM gross profit declined in the three months ended December 31, 2007 compared to the three months ended December 31, 2006 as the impact of the
decline in average selling prices for our DRAM products more than offset the impact of an increase in unit shipments for such products. Declines in the average selling prices of our DRAM products more than offset declines in cost of our DRAM
products in the three months ended December 31, 2007 compared to three months ended December 31, 2006, resulting in a decrease in our DRAM gross margin. In addition, our gross profit for the three months ended December 31, 2007
benefited from approximately $0.4 million for a DRAM development project. We believe that the average selling prices of our products will decline over time and, unless we are able to reduce our cost per unit to the extent necessary to offset such
declines, the decline in average selling prices will result in a material decline in our gross margin. In addition, product costs could increase if our suppliers raise prices, which could result in a material decline in our gross margin. In the
past, foundries have raised wafer prices when demand for end products increases. Although we have product cost reduction programs in place that involve efforts to reduce internal costs and supplier costs, there can be no assurance that product costs
will be reduced or that such reductions will be sufficient to offset the expected declines in average selling prices. We do not believe that such cost reduction efforts are likely to have a material adverse impact on the quality of our products or
the level of service provided by us.

Research and Development. Research and development expenses decreased by 11% to $4.8 million
in the three months ended December 31, 2007 compared to $5.4 million in the three months ended December 31, 2006. As a percentage of net sales, research and development expenses decreased to 7.5% in the three months ended December 31,
2007 from 8.6% in the three months ended December 31, 2006. The decrease in research and development expenses of $0.6 million can be attributed to a decrease in expenditures for the development costs of our DRAM products in the three months
ended December 31, 2007 compared to the three months ended December 31, 2006. Our research and development expenses could increase in absolute dollars in future periods due to increased costs associated with the development of new
products.

Selling, General and Administrative. Selling, general and administrative expenses decreased by 16% to $7.7 million in the
three months ended December 31, 2007 from $9.1 million in the three months ended December 31, 2006. As a percentage of net sales, selling, general and administrative expenses decreased to 12.1% in the three months ended December 31,
2007 from 14.6% in the three months ended December 31, 2006. The decrease in selling, general and administrative expenses of $1.4 million was mainly attributable to approximately $1.8 million in legal expenses and accounting fees in the
December 2006 quarter attributable to our stock option backdating investigation offset by $0.5 million of expenses incurred in the December 2007 quarter related to our tender offer announced in November 2007. Our selling, general and administrative
expenses may increase in absolute dollars in future quarters and may fluctuate as a percentage of net sales.

Interest and other income
(expense), net. Interest and other income (expense), net was $2.1 million in the three months ended December 31, 2007 compared to $1.6 million in the three months ended December 31, 2006. The $2.1 million of interest and other income
(expense) in the three months ended December 31, 2007 is comprised primarily of interest income of $1.7 million and $0.4 million in rental income from the lease of excess space in our Taiwan facility. The $1.6 million of interest and other
income (expense) in the three months ended December 31, 2006 is comprised primarily of interest income of $0.9 million and foreign currency exchange gains of $0.3 million. The increase in interest income is primarily attributable to higher cash
balances in the three months ended December 31, 2007.

Gain on sale of investments. In the three months ended December 31,
2007, we sold 22.0 million shares of SMIC for approximately $2.7 million which resulted in a pre-tax gain of approximately $0.2 million. In the three months ended December 31, 2006, we sold 52.5 million shares of SMIC for
approximately $6.4 million which resulted in a pre-tax gain of approximately $0.3 million. In addition, in December 2006 we sold our remaining shares of KSC for approximately $1.2 million which resulted in a pre-tax gain of approximately $0.3
million.

Provision for income taxes. The income tax provision for the three months ended December 31, 2007 consists primarily
of federal and state minimum taxes of $60,000. The income tax provision for the three months ended December 31, 2006 consists of foreign withholding taxes of $10,000.

Minority interest in net income of consolidated subsidiaries.The minority interest in net income of consolidated subsidiaries was income of
$1,000 in the three months ended December 31, 2007 compared to $8,000 in the three months ended December 31, 2006. The minority interest in net income of consolidated subsidiaries for the three months ended December 31, 2007 and
December 31, 2006, represents the minority shareholders proportionate share of the net income of ICSI.



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Equity in net loss of affiliated companies.Equity in net loss of affiliated companies was a $0.1
million in the three months ended December 31, 2006. This related to our equity interest in KSC which we sold in December 2006.

Liquidity and
Capital Resources

As of December 31, 2007, our principal sources of liquidity included cash, cash equivalents and short-term
investments of approximately $143.3 million. During the three months ended December 31, 2007, operating activities provided cash of approximately $11.7 million compared to $3.9 million used in the three months ended December 31, 2006. The
cash provided by operations in the three months ended December 31, 2007 was primarily due to increases in accounts payable of $12.6 million, our net income of $3.0 million adjusted for non-cash items of $1.9 million, increases in accrued
liabilities of $1.4 million and decreases in other assets of $1.5 million. This was partially offset by increases in inventories of $6.1 million and increases in accounts receivable of $2.6 million. The cash used by operations in the three months
ended December 31, 2006 was primarily due to increases in inventories of $2.4 million, increases in accounts receivable of $1.9 million and decreases in accounts payable of $2.1 million. This was partially offset by our net income of $0.1
million adjusted for non-cash items of $1.5 million (stock-based compensation expense of $1.0 million, depreciation and amortization of $0.8 million, amortization of intangibles of $0.5 million, gain from the sale of SMIC and KSC equity
securities of $(0.6) million and other non-cash items of $(0.2) million) and increases in accrued liabilities of $0.7 million and decreases in other assets of $0.2 million.

In the three months ended December 31, 2007, we generated $31.7 million from investing activities compared to $7.3 million generated in the three
months ended December 31, 2006. In the three months ended December 31, 2007, we generated $29.7 from the net sales of available-for-sale securities. We also generated approximately $2.7 million from the sale of shares of SMIC, resulting in
a pre-tax gain of approximately $0.2 million. In the three months ended December 31, 2006, we generated approximately $6.4 million from the sale of shares of SMIC, resulting in a pre-tax gain of approximately $0.3 million and generated
approximately $1.2 million from our sale of shares of KCS, resulting in a pre-tax gain of approximately $0.3 million. We also generated $0.4 million from the sales of available-for-sale securities.

In both the three month periods ended December 31, 2007 and 2006, we made capital expenditures of approximately $0.7 million. The expenditures in
the three months ended December 31, 2006 were primarily for computer software and engineering tools. We expect to spend approximately $1.5 million to $3.0 million to purchase capital equipment during the next twelve months, principally for the
purchase of design and engineering tools, additional test equipment, and computer software and hardware. We expect to fund our capital expenditures from our existing cash and cash equivalent balances.

We used $1.4 million for financing activities during the three months ended December 31, 2007 compared to $0.3 million generated from financing
activities during the three months ended December 31, 2006. In the three months ended December 31, 2007, we used $3.5 million for the repayment of short-term borrowings and $0.9 million for the repurchase and retirement of our common
stock. Our sources of financing for the three months ended December 31, 2007 were borrowings of $2.9 million under ICSI lines of credit and proceeds from the issuance of common stock of $0.1 million from stock option exercises. In the three
months ended December 31, 2006, we used $13.5 million for the repayment of short-term borrowings. The source of financing for the three months ended December 31, 2006, was borrowings of $13.8 million under lines of credit in Taiwan.

We have $12.9 million available through a number of short-term lines of credit with various financial institutions in Taiwan. These lines
of credit expire at various times through August 2008. As of December 31, 2007, we had no outstanding borrowings under these short-term lines of credit.

In November 2006, we entered into a lease for approximately 30,000 square feet of office space in San Jose and relocated our headquarters there in February 2007. The lease on this building expires in June 2013.
Outside of the U.S., we have operations in leased sites in China and Hong Kong. In addition to these sites, we lease sales offices in the U.S., Europe and Asia. These leases expire at various dates through 2009. In Taiwan, we own and occupy the ICSI
building. The land upon which the ICSI building is situated is leased under an operating lease that expires in March 2016. Our outstanding commitments under these leases were approximately $4.1 million at December 31, 2007.



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We generally warrant our products against defects in materials and workmanship for a period of 12 months.
Liability for a stated warranty period is usually limited to the replacement of defective items or return of amounts paid. Warranty expense has historically been immaterial to our financial statements.

On November 28, 2007, we announced that our board of directors had approved the repurchase of up to $80 million of shares of our common stock. On
December 3, 2007, we commenced an offer to purchase for cash up to 10 million shares of our common stock through a self-tender offer at a price of $7.00 per share (the Offer). The Offer expired January 3, 2008 and on
January 11, 2008, we announced the results of the Offer, stating that we accepted for payment 10 million shares of our common stock at a purchase price of $7.00 per share, resulting in aggregate payments of $70 million. These shares
represented approximately 27.4% of our shares outstanding as of December 31, 2007.

We believe our existing funds will satisfy our
anticipated working capital and other cash requirements through at least the next 12 months. We may from time to time take actions to further increase our cash position through equity or debt financings, sales of shares of investments, bank
borrowings, or the disposition of certain assets. From time to time, we may also commit to acquisitions or equity investments, including strategic investments in wafer fabrication foundries or assembly and test subcontractors. To the extent we enter
into such transactions, we may need to seek additional equity or debt financing to fund such activities. There can be no assurance that any such additional financing could be obtained on terms acceptable to us, if at all.

Off-Balance Sheet Arrangements

As of
December 31, 2007, we did not have any off-balance sheet arrangements as defined in Item 303 (a)(4)(ii) of SEC Regulation S-K.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our financial market risk includes foreign currency transactions, exposure to changes in interest rates on our fixed rate debt, our investments in marketable equity securities and our investments in private companies.

We anticipate that international sales will continue to account for a significant portion of our consolidated revenue. Our international
sales are largely denominated in U.S. dollars and therefore are not subject to material foreign currency exchange risk. However, we have operations in China, Europe, Taiwan, Hong Kong, India, Japan, Korea and Singapore where our expenses are
denominated in each countrys local currency and are subject to foreign currency exchange risk. In the three months ended December 31, 2007 and in fiscal 2007, we recorded exchange gains of approximately $30,000 and $0.1 million,
respectively. While in recent periods, we have not experienced any significant negative impact on our operations as a result of fluctuations in foreign currency exchange rates, we could be negatively impacted by exchange rate fluctuations in the
future. We do not currently engage in any hedging activities.

We had cash, cash equivalents and short-term investments of $140.2 million
at December 31, 2007 excluding $3.1 million of SMIC stock included in short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without increasing risk. We
invest primarily in high-quality, short-term debt instruments such as municipal auction rate certificates and instruments issued by high quality financial institutions and companies, including money market instruments. As such, we have not
experienced any losses related to subprime-mortgage related investments. A hypothetical one percentage point decrease in interest rates would result in approximately a $1.4 million decrease in our interest income. As our portfolio consists mainly of
short-term investments whose interest rates reset, a hypothetical one percentage point change in interest rates would not have a material affect on the value of our investments.

We own ordinary shares in SMIC which has been a publicly traded company since March 2004. SMICs ordinary shares are traded on the Hong Kong Stock
Exchange and SMIC American Depository Receipts (ADR) are traded on the New York Stock Exchange. Each SMIC ADR represents fifty (50) ordinary shares. We use the weighted-average cost method to determine the cost basis of shares of
SMIC. In the three months ended December 31, 2007, we sold shares of SMIC and recorded gross proceeds of approximately $2.7 million and a pre-tax gain of approximately $0.2 million. Since SMICs IPO, we account for our shares in SMIC under
the provisions of FASB 115 and mark the shares to the market value with the offset



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recorded in accumulated other comprehensive income. The cost basis of our shares in SMIC is approximately $3.4 million and the market value at
December 31, 2007 was approximately $3.1 million. The market value of SMIC shares is subject to fluctuations and our carrying value will be subject to adjustments to reflect changes in SMICs market value in future periods. In the event
the decline in the market value of our SMIC shares below our cost basis, is determined to be other-than-temporary, we may be required to recognize a loss on our investment through operating results.

We have investments in equity securities of privately held companies of approximately $0.6 million at December 31, 2007. These investments are
generally in companies in the semiconductor industry. These investments are included in other assets and are accounted for using the equity or cost method. For investments in which no public market exists, our policy is to review the operating
performance, recent financing transactions and cash flow forecasts for such companies in assessing whether our investments in these companies are impaired below our cost basis. Impairment losses on equity investments are recorded when events and
circumstances indicate that such assets are impaired and the decline in value is other than temporary. In this regard, we recorded approximately a $0.4 million impairment loss on one of our equity positions in fiscal 2006.



|Item 4. | Controls and Procedures
|------- | -----------------------

Our Chief Executive
Officer and Chief Financial Officer, based on the evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or
Rule 15d-15, have concluded that, as of December 31, 2007, our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the three months ended December 31, 2007, there was no change in our internal control over
financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Shareholder Derivative Actions

On July 18, 2006 and July 26, 2006, two purported shareholder derivative actions were filed against certain current and former
directors and officers of ISSI in the United States District Court for the Northern District of California, entitled (1) Rick Tope v. Jimmy S.M. Lee, et al., Case No. C06-04387, and (2) Murray Donnelly v. Jimmy S.M. Lee, et
al., Case No. C06-04545. The complaints purport to assert claims against the individual defendants on behalf of ISSI for breach of fiduciary duty, violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act)
and Rule 10b-5 promulgated thereunder, unjust enrichment, and restitution based upon our alleged stock option grant practices from 1995 through 2002. ISSI is named solely as a nominal defendant. The complaints seek damages in an unspecified amount
against the individual defendants, disgorgement of stock options or proceeds, equitable relief, attorneys fees, and other unspecified relief. Pursuant to the parties stipulation, the Court consolidated the two derivative actions on
August 22, 2006, under the caption In re Integrated Silicon Solution, Inc. Shareholder Derivative Litigation, Master File No. C-06-04387 RMW. Plaintiffs filed a consolidated complaint on November 27, 2006, based upon the same
underlying facts and circumstances alleged in the prior complaints. In addition to the claims asserted and the relief sought in the original complaints, the consolidated complaint purports to assert claims against the individual defendants for
aiding and abetting and violating Sections 14(a) and 20(a) of the Exchange Act and seeks an accounting. ISSI is again named solely as a nominal defendant.

On October 31, 2006, another purported shareholder derivative action was filed against certain current and former directors and officers of ISSI in the Superior Court of California for the County of Santa Clara,
entitled Alex Chuzhoy v. Jimmy S.M. Lee, et al., Case No. 1:06-CV-074031. The complaint purports to assert claims against the individual defendants on behalf of ISSI for insider trading in violation of California Corporations Code
Sections 25402 / 25502.5, breach of fiduciary duty including in connection with the alleged insider selling and misappropriation, abuse of control, gross mismanagement, constructive fraud, corporate waste, unjust enrichment, and rescission, based
upon ISSI alleged stock option



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##### Table of Contents

grant practices from 1995 through 2002. ISSI is named solely as a nominal defendant. The complaint seeks damages in an unspecified amount against the
individual defendants, an accounting, certain corporate governance changes, a constructive trust over the defendants stock options or proceeds, punitive damages, attorneys fees, and other unspecified relief.

The parties in both the state and federal shareholder derivative litigation have agreed to enter into settlement discussions, and both Courts have issued
orders staying the litigation until such time as the discussions result in a settlement which would then be presented to each Court for approval, or until such negotiations are unsuccessful, at which time litigation would resume. If the settlement
negotiations are unsuccessful, plaintiffs in the state and federal derivative complaints are expected to amend their complaints. Defendants will move to dismiss both the state and federal complaints.

SRAM Antitrust Litigation

Thirty-two purported class
action lawsuits were filed by U.S. Direct-Purchaser and U.S. Indirect-Purchaser Plaintiffs against us and other SRAM suppliers in various U.S. federal courts alleging violations of the Sherman Act, violations of state unfair competition laws, and
unjust enrichment relating to the sale and pricing of SRAM products. The U.S. lawsuits have been consolidated in a single federal court for coordinated pre-trail proceedings. The U.S. lawsuits seek treble damages for the alleged damages sustained by
purported class members, in addition to restitution, costs and attorneys fees, as well as an injunction against the allegedly unlawful conduct. As of August 30, 2007, we were voluntarily dismissed from twenty-eight of the thirty-two
pending lawsuits pursuant to a Tolling Agreement between us and the U.S. Indirect-Purchaser Plaintiffs. The U.S. Indirect-Purchaser Plaintiffs agreed not to name us as a defendant unless the Tolling Agreement is terminated according to terms
specified in that agreement. On January 9, 2008, we were voluntarily dismissed without prejudice from one of the lawsuits brought by the U.S. Direct-Purchaser Plaintiffs. We remain a defendant in three lawsuits brought by the U.S.
Direct-Purchaser Plaintiffs.

Three purported class action lawsuits were filed against us and other SRAM suppliers in three Canadian courts
alleging violation of the Canadian Competition Act and other unlawful conduct. The Canadian complaints seek compensatory and punitive damages, in addition to declaratory relief, restitution, and costs.

We are committed to defending ourself against these claims and have instructed our counsel to contest these actions vigorously. Given the preliminary
stage of these proceedings and the inherent uncertainty in litigation, we are unable to predict the outcome of these suits. The final resolution of these alleged violations of federal or state antitrust laws could have a material adverse effect on
our business, results of operations, or financial condition.

SRAM Antitrust Civil Investigative Demand

In May 2007, we received a civil investigative demand (CID) from the Attorney General of the State of Florida. The CID is issued pursuant to
the Florida Antitrust Act in the course of an official investigation to determine whether there is, has been, or may be a violation of state or federal antitrust laws. Although not alleging any wrongdoing, the CID seeks documents and data relating
to our business. As of January 14, 2008 and effective as of May 7, 2007, our obligation to respond to the CID was suspended pursuant to the terms of a Tolling Agreement between us and the Attorney General of Florida. We intend to cooperate
fully with the Attorney General of Florida in this investigation. Because the investigation is at an early stage, we cannot predict the outcome of the investigation and its effect, if any, on its business.

Other Legal Proceedings

In the ordinary course of
our business, as is common in the semiconductor industry, we have been involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the outcome of
these actions is not presently determinable, we believe that the ultimate resolution of these matters will not have a material adverse effect on our financial position, cash flows or results of operations. However, no assurances can be given with
respect to the extent or outcome of any such litigation in the future.



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|Item 1A. | Risk Factors
|-------- | ------------

We have incurred significant losses in
certain recent periods, and there can be no assurance that we will be able to maintain profitability in the future.

We incurred losses
of $14.2 million in fiscal 2006, which included inventory write-downs of $16.5 million. We incurred losses of $39.8 million in fiscal 2005, which included inventory write-downs of $13.9 million, charges of $11.7 million related to our equity
interest in ICSI, charges on impairment of goodwill and investments of $4.7 million and charges for in-process R&D of $2.8 million. Though we were profitable in fiscal 2007, we incurred inventory write-downs of $10.3 million and we would
not have been profitable except that we achieved significant income from non-operating activities such as gains on the sale of investments and interest income in such fiscal year. There is no assurance that we will maintain profitability in future
periods. Our ability to maintain profitability on a quarterly or fiscal year basis in the future will depend on a variety of factors, including the need for future inventory write-downs, our ability to increase net sales, maintain or expand gross
margins, introduce new products on a timely basis, secure sufficient wafer fabrication capacity and control operating expenses, including stock-based compensation as required by SFAS 123R. Adverse developments with respect to these or other factors
could result in quarterly or annual operating losses in the future.

Our operating results are expected to continue to fluctuate and may not meet our
financial guidance or published analyst forecasts. This may cause the price of our common stock to decline significantly.

Our future
quarterly and annual operating results are subject to fluctuations due to a wide variety of factors, including:



| |  |  | the cyclicality of the semiconductor industry;
| | - |  | ----------------------------------------------



| |  |  | declines in average selling prices of our products;
| | - |  | ---------------------------------------------------



| |  |  | inventory write-downs for lower of cost or market or excess and obsolete;
| | - |  | -------------------------------------------------------------------------



| |  |  | excess inventory levels at our customers;
| | - |  | -----------------------------------------



| |  |  | decreases in the demand for our products;
| | - |  | -----------------------------------------



| |  |  | oversupply of memory products in the market;
| | - |  | --------------------------------------------



| |  |  | our ability to control or reduce our operating expenses;
| | - |  | --------------------------------------------------------



| |  |  | shortages in foundry, assembly or test capacity;
| | - |  | ------------------------------------------------



| |  |  | disruption in the supply of wafers, assembly or test services;
| | - |  | --------------------------------------------------------------



| |  |  | changes in our product mix which could reduce our gross margins;
| | - |  | ----------------------------------------------------------------



| |  |  | cancellation of existing orders or the failure to secure new orders;
| | - |  | --------------------------------------------------------------------



| |  |  | a failure to introduce new products and to implement technologies on a timely basis;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | market acceptance of ours and our customers products;
| | - |  | ------------------------------------------------------



| |  |  | economic slowness and low end-user demand;
| | - |  | ------------------------------------------



| |  |  | a failure to anticipate changing customer product requirements;
| | - |  | ---------------------------------------------------------------



| |  |  | fluctuations in manufacturing yields at our suppliers;
| | - |  | ------------------------------------------------------



| |  |  | fluctuations in product quality resulting in rework, replacement, or loss due to damages;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | a failure to deliver products to customers on a timely basis;
| | - |  | -------------------------------------------------------------



| |  |  | the timing of significant orders;
| | - |  | ---------------------------------



| |  |  | increased expenses associated with new product introductions, masks or process changes;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the ability of customers to make payments to us;
| | - |  | ------------------------------------------------



| |  |  | the outcome of any pending or future litigation; and
| | - |  | ----------------------------------------------------



| |  |  | the commencement of any future litigation or antidumping proceedings.
| | - |  | ---------------------------------------------------------------------



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Our sales depend on DRAM and SRAM products and reduced demand for these products or a decline in average selling
prices could harm our business.

In the first quarter of fiscal 2008 and in fiscal 2007, approximately 89% and 86%, respectively, of our
net sales were derived from the sale of DRAM and SRAM products, which are subject to unit volume fluctuations and declines in average selling prices that could harm our business. For example, we experienced a sequential decline in revenue from $62.1
million in our December 2006 quarter to $60.0 million in our March 2007 quarter. This decline in revenue was primarily the result of a decrease in unit shipments of our SRAM products. In addition, we experienced a sequential decline in revenue from
$61.5 million in our September 2005 quarter to $51.1 million in our December 2005 quarter. This decline in revenue was primarily the result of a decrease in unit shipments and the average selling prices of our DRAM products. From time to time, we
have turned down some orders for DRAM products that had unfavorable margins as a result of the decrease in the average selling prices in the market. We may not be able to offset any future price declines for our products by higher volumes or by
higher prices on newer products. Historically, average selling prices for semiconductor memory products have declined, and we expect that average selling prices for our products will decline in the future. Our ability to maintain or increase
revenues will depend upon our ability to increase unit sales volume of existing products and introduce and sell new products that compensate for the anticipated declines in the average selling prices of our existing products.

We are subject to pending legal proceedings related to the SRAM market.

We have been named as a defendant in a number of civil antirust complaints filed against semiconductor companies on behalf of purchasers of SRAM products throughout the United States. The complaints allege that the
defendants conspired to raise the price of SRAM in violation of Section 1 of the Sherman Act, the California Cartwright Act, and several other State antitrust, unfair competition and consumer protection statutes. We have also been named as a
defendant in several class action lawsuits filed in Canadian courts alleging violation of the Canadian Competition Act and other unlawful conduct. We believe that we have meritorious defenses to the allegations in the complaints, and we intend to
defend these lawsuits vigorously. However, the litigation is in the preliminary stage and we cannot predict its outcome. Multidistrict antitrust litigation is particularly complex and can extend for a protracted time, which can substantially
increase the cost of such litigation. The defense of these lawsuits is also expected to divert the efforts and attention of some of our key management and technical personnel. As a result, our defense of this litigation, regardless of its
eventual outcome, will likely be costly and time consuming. Should the outcome of the litigation be adverse to us, we could be required to pay significant monetary damages, which could adversely affect our business, financial condition, operating
results and cash flows.

We have been named as a party to several lawsuits related to our historical stock option practices and related accounting and
we may be named in additional litigation in the future, all of which could result in an unfavorable outcome and have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price for our
securities.

Several shareholder derivative lawsuits have been filed against certain of our current directors and officers and certain
former directors and officers relating to our historical stock option practices and related accounting. We are named as nominal defendant in such matters. See Item 1Legal Proceedings for a more detailed description of these
proceedings. We may become the subject of additional private or government actions regarding these matters in the future. These pending actions are in the preliminary stages, and their ultimate outcome could have a material adverse effect on our
business, financial condition, results of operations, cash flows and the trading price for our securities. Litigation may be time-consuming, expensive and disruptive to our normal business operations, and the outcome of litigation is difficult to
predict. The defense of these lawsuits has resulted and will continue to result in significant legal and accounting expenditures and the continued diversion of our managements time and attention from the operation of our business. All or a
portion of any amount we may be required to pay to satisfy a judgment or settlement of any or all of these claims may not be covered by insurance.

We have entered into indemnification agreements with each of our present and former directors and officers. Under those agreements, we are required to indemnify each such director or officer against expenses, including attorneys fees,
judgments, fines and settlements, paid by such individual in connection with the pending litigation subject to applicable Delaware law.



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We have used and plan to use a significant amount of our cash resources to repurchase shares of our common stock and
such repurchases present potential risks and disadvantages to ISSI and its continuing stockholders.

From September 2007
through January 3, 2008, we repurchased shares of our common stock in the open market under Rule 10b-18 and pursuant to our offer to purchase for cash up to $30 million in shares of our common stock at a price not greater than $6.30 nor less
than $5.70 per share. Under this tender offer, in September 2007, we repurchased 1,181,148 shares of our common stock at an aggregate price of approximately $7.4 million. On December 3, 2007, we announced an additional tender offer
for up to 10,000,000 shares of our common stock at a price of $7.00 per share. Under this offer, in January 2008, we repurchased 10,000,000 shares at an aggregate price of $70 million. At January 31, 2008, we had outstanding authorization
from our Board to purchase up to an additional $10.0 million of our common stock from time to time. Although our Board of Directors has determined that these repurchase programs are in the best interests of our stockholders, these repurchases expose
us to a number of risks including:



| |  |  | the use of a substantial portion of our existing cash reserves, which may reduce our ability to engage in significant cash acquisitions or to pursue other business
opportunities that could create significant value to our stockholders;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that we would not be able to replenish our cash reserves by raising debt or equity financing in the future on terms acceptable to us, or at all;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that these repurchases will reduce our public float, which is the number of our shares owned by non-affiliate stockholders and
available for trading in the securities markets, and is likely to reduce the number of our stockholders, which may reduce the volume of trading in our shares and may result in lower stock prices and reduced liquidity in the trading of
our shares; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that our stock price could decline and that we would be able to repurchase shares of our common stock at a lower price per share than the prices
we pay in our repurchase programs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any future downturn in the markets we serve would harm our business and financial results.

Substantially all of our products are incorporated into products for the digital consumer electronics, networking, mobile communications
and automotive electronics markets. Historically, these markets have experienced cyclical depressed business conditions, often in connection with, or in anticipation of, a decline in general economic conditions or due to adverse supply and demand
conditions in such markets. Industry downturns have resulted in reduced demand and declining average selling prices for our products which adversely affected our business. We expect that our industry will remain cyclical, and we are unable to
predict when any upturn or downturn will occur or how long it will last.

Shifts in industry-wide capacity may cause our results to fluctuate. These
shifts may occur quickly with little or no advance notice. Such shifts have historically resulted in significant inventory write-downs.

The semiconductor industry is highly cyclical and is subject to significant downturns resulting from excess capacity, overproduction, reduced demand or technological obsolescence. Shifts in industry-wide capacity from shortages to
oversupply or from oversupply to shortages may result in significant fluctuations in our quarterly or annual operating results. These shifts in industry conditions can occur quickly with little or no advance notice to us. Adverse changes in industry
conditions are likely to result in a decline in average selling prices and the stated value of inventory. In the first quarter of fiscal 2008, in fiscal 2007 and in fiscal 2006, we recorded inventory write-downs of $2.5 million, $10.3 million,
and $16.5 million, respectively. The inventory write-downs related to valuing our inventory at the lower-of-cost-or-market, and adjusting our inventory valuation for certain excess and obsolete products.

We write down to zero dollars the carrying value of inventory on hand that has aged over one year to cover estimated excess and obsolete exposures,
unless adjustments are made based on managements judgments for newer products, end of life products, planned inventory increases or strategic customer supply. In making such judgments to write down inventory, management takes into account the
product life cycles which can range from six to 30 months, the stage in the life cycle of the product, the impact of competitors announcements and product introductions on our products. Future additional inventory write-downs may occur due to
lower of cost or market accounting, excess inventory or inventory obsolescence.



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Our transition to lead-free parts may result in excess inventory of products packaged using traditional methods.

Customers are requiring that we offer our products in lead-free packages. Governmental regulations in certain countries and customers
intention to produce products that are less harmful to the environment has resulted in a requirement from many of our customers to purchase integrated circuits that do not contain lead. We have responded by offering our products in lead-free
versions. While the lead-free versions of our products are expected to be more friendly to the environment, the ultimate impact is uncertain. The transition to lead-free products may produce sudden changes in demand depending on the packaging method
used, which may result in excess inventory of products packaged using traditional methods. This may have an adverse effect on our results of operations. In addition, the quality, cost and manufacturing yields of the lead-free parts may be less
favorable to us than the products packaged using more traditional materials which may result in higher product costs.

If we are unable to obtain an
adequate supply of wafers, our business will be harmed.

If we are unable to obtain an adequate supply of wafers from our current
suppliers or any alternative sources in a timely manner, our business will be harmed. Our principal manufacturing relationships are with Powerchip Semiconductor, SMIC, TSMC, and Chartered Semiconductor Manufacturing. Each of our wafer foundries also
supplies wafers to other semiconductor companies, including certain of our competitors or for their own account. Although we are allocated specific wafer capacity from our suppliers, we may not be able to obtain such capacity in periods of tight
supply. If any of our suppliers experience manufacturing failures or yield shortfalls, choose to prioritize capacity for other uses, or reduce or eliminate deliveries to us, we may not be able to obtain enough wafers to meet the market demand for
our products which would adversely affect our revenues. Once a product is in production at a particular foundry, it is time consuming and costly to have such product manufactured at a different foundry. In addition, we may not be able to qualify
additional manufacturing sources for existing or new products in a timely manner and we cannot be certain that other manufacturing sources would be able to deliver an adequate supply of wafers to us or at the same cost.

Our gross margins may decline even in periods of increasing revenue.

Our gross margin is affected by a variety of factors, including our mix of products sold, average selling prices for our products and cost of wafers. Even when our revenues are increasing, our gross margin may be
adversely affected if such increased revenue is from products with lower margins or declining average selling prices. During periods of strong demand, wafer capacity is likely to be in short supply and we will likely have to pay higher prices for
wafers, which would adversely affect our gross margin unless we are able to increase our product prices to offset such costs. To maintain our gross margins when average selling prices are declining, we must introduce new products with higher margins
or reduce our cost per unit. There can be no assurance that we will be able to increase unit sales volumes, introduce and sell new products or reduce our cost per unit.

We may encounter difficulties in effectively integrating newly acquired businesses.

From time to
time, we may acquire other companies or assets that we believe to be complementary to our business. Acquisitions may result in use of our cash resources, potentially dilutive issuances of equity securities, incurrence of debt and contingent
liabilities, amortization expenses related to intangible assets, and the possible impairment of goodwill, which could harm our profitability. In addition, acquisitions involve numerous risks, including:



| |  |  | higher than estimated acquisition expenses;
| | - |  | -------------------------------------------



| |  |  | difficulties in successfully assimilating the operations, technologies and personnel of the acquired company;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in continuing to develop the new technologies and deliver products to market on time;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from other business concerns;
| | - |  | -----------------------------------------------------------------



| |  |  | risks of entering markets in which we have no, or limited, direct prior experience;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the risk that the markets for acquired products do not develop as expected; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | the potential loss of key employees and customers as a result of the acquisition.
| | - |  | ---------------------------------------------------------------------------------

There is no assurance that any future acquisitions will contribute positively to our business or operating results.



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We rely on third-party contractors to assemble and test our products and our failure to successfully manage our
relationships with these contractors could damage our relationships with our customers, decrease our sales and limit our growth.

We
rely on third-party contractors located in Asia to assemble and test our products. There are significant risks associated with our reliance on these third-party contractors, including:



| |  |  | reduced control over product quality;
| | - |  | -------------------------------------



| |  |  | potential price increases;
| | - |  | --------------------------



| |  |  | reduced control over delivery schedules;
| | - |  | ----------------------------------------



| |  |  | possible capacity shortages;
| | - |  | ----------------------------



| |  |  | their inability to increase production and achieve acceptable yields on a timely basis;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | absence of long-term agreements;
| | - |  | --------------------------------



| |  |  | limited warranties on products supplied to us; and
| | - |  | --------------------------------------------------



| |  |  | general risks related to conducting business internationally.
| | - |  | -------------------------------------------------------------

If any of these risks are realized, our business and results of operations could be adversely affected until our subcontractor is able to remedy the problem or until we are able to secure an alternative subcontractor.

The loss of a significant customer or a reduction in orders from one or more large customers could adversely affect our operating results.

As sales to our customers are executed pursuant to purchase orders and no purchasing contracts typically exist, our customers can cease
doing business with us at any time. We may not be able to retain our key customers, such customers may cancel or reschedule orders, and in the event of canceled orders, such orders may not be replaced by other sales. In addition, sales to any
particular customer may fluctuate significantly from quarter to quarter, and such fluctuating sales could harm our business and financial results.

We
have significant international sales and operations and risks related to our international activities could harm our operating results.

In the three months ended December 31, 2007, approximately 14% of our net sales was attributable to customers located in the U.S., 16% was attributable to customers located in Europe and 70% was attributable to customers located in
Asia. In fiscal 2007, approximately 18% of our net sales was attributable to customers located in the U.S., 15% was attributable to customers located in Europe and 67% was attributable to customers located in Asia. In fiscal 2006, approximately 17%
of our net sales was attributable to customers located in the U.S., 10% was attributable to customers located in Europe and 73% was attributable to customers located in Asia. We anticipate that sales to international sites will continue to represent
a significant percentage of our net sales. Although our international sales are largely denominated in U.S. dollars, we do have sales transactions in New Taiwan dollars, in Hong Kong dollars and in Chinese Renminbi. In addition, our wafer foundries
and assembly and test subcontractors are in primarily located in Taiwan and China. A substantial majority of our employees are located outside of the U.S and the expenses for our foreign operations are generally denominated in local currency. As a
result, a devaluation of the New Taiwan dollar or Chinese Renminbi could substantially increase the cost of our operations in Taiwan or China.

We are subject to the risks of conducting business internationally, including:



| |  |  | global economic conditions, particularly in Taiwan and China;
| | - |  | -------------------------------------------------------------



| |  |  | duties, tariffs and other trade barriers and restrictions;
| | - |  | ----------------------------------------------------------



| |  |  | foreign currency fluctuations;
| | - |  | ------------------------------



| |  |  | changes in trade policy and regulatory requirements;
| | - |  | ----------------------------------------------------



| |  |  | transportation delays;
| | - |  | ----------------------



| |  |  | the burdens of complying with foreign laws;
| | - |  | -------------------------------------------



| |  |  | imposition of foreign currency controls;
| | - |  | ----------------------------------------



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| |  |  | language barriers;
| | - |  | ------------------



| |  |  | difficulties in hiring and retaining experienced engineers in countries such as China and Taiwan;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | difficulties in collecting foreign accounts receivable;
| | - |  | -------------------------------------------------------



| |  |  | political instability, including any changes in relations between China and Taiwan;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | public health outbreaks such as SARS or avian flu; and
| | - |  | ------------------------------------------------------



| |  |  | earthquakes and other natural disasters.
| | - |  | ----------------------------------------

Strong
competition in the semiconductor memory market may harm our business.

The semiconductor memory market is intensely competitive and has
been characterized by an oversupply of product, price erosion, rapid technological change, short product life cycles, cyclical market patterns, and heightened foreign and domestic competition. Many of our competitors offer broader product lines and
have greater financial, technical, marketing, distribution and other resources than us. We may not be able to compete successfully against any of these competitors. Our ability to compete successfully in the memory market depends on factors both
within and outside of our control, including:



| |  |  | the pricing of our products;
| | - |  | ----------------------------



| |  |  | the supply and cost of wafers;
| | - |  | ------------------------------



| |  |  | product design, functionality, performance and reliability;
| | - |  | -----------------------------------------------------------



| |  |  | successful and timely product development;
| | - |  | ------------------------------------------



| |  |  | the performance of our competitors and their pricing policies;
| | - |  | --------------------------------------------------------------



| |  |  | wafer manufacturing over or under capacity;
| | - |  | -------------------------------------------



| |  |  | real or perceived imbalances in supply and demand for our products;
| | - |  | -------------------------------------------------------------------



| |  |  | the rate at which OEM customers incorporate our products into their systems;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the success of our customers products and end-user demand;
| | - |  | -----------------------------------------------------------



| |  |  | access to advanced process technologies at competitive prices;
| | - |  | --------------------------------------------------------------



| |  |  | achievement of acceptable yields of functional die;
| | - |  | ---------------------------------------------------



| |  |  | the capacity of our third-party contractors to assemble and test our products;
| | - |  | ------------------------------------------------------------------------------



| |  |  | the gain or loss of significant customers;
| | - |  | ------------------------------------------



| |  |  | the nature of our competitors; and
| | - |  | ----------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

In
addition, we are vulnerable to technology advances utilized by competitors to manufacture higher performance or lower cost products. In particular, a competitor with a materially smaller die size and lower cost could dramatically gain market share
in a short period of time. We may not be able to compete successfully in the future as to any of these factors. Our failure to compete successfully in these or other areas could harm our business and financial results.

Our revenues and business would be harmed if we are not able to successfully develop, introduce and sell new products and develop and implement new manufacturing
technologies in a timely manner. Our research and development expenses could increase and our business could be harmed if the implementation of these new manufacturing technologies is unsuccessful.

We operate in highly competitive, quickly changing markets which are characterized by rapid obsolescence of existing products. As a result, our future
success depends on our ability to develop and introduce new products that our customers choose to buy in significant quantities. If we fail to introduce new products in a timely manner or if our customers products do not achieve commercial
success, our business and results of operations could be seriously harmed. The design and introduction of new products is challenging as such products typically incorporate more functions and operate at faster speeds than prior products. Increasing
complexity generally requires smaller features on a chip. This makes developing new generations of products substantially more difficult than prior generations. The cost to develop products utilizing these new technologies is expensive and requires
significant research and development spending and, as a result, our research and



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development expenses could increase in the future. Further, new products may not work properly in our customers applications. If we are unable to
design, introduce, market and sell new products successfully, our business and financial results would be seriously harmed.

Our products are complex
and could contain defects, which could reduce sales of those products or result in claims against us.

We develop complex and evolving
products. Despite testing by us and our customers, errors may be found in existing or new products. This could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. The occurrence of
defects could also cause us to incur significant warranty, support and repair costs, could divert the attention of our engineering personnel from our product development efforts, and could harm our relationships with our customers. The occurrence of
these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. Defects, integration issues or other performance problems in our products could result in financial or other damages to our
customers. Our customers could also seek and obtain damages from us for their losses. From time to time, we have been involved in disputes regarding product warranty issues. Although we seek to limit our liability, a product liability claim brought
against us, even if unsuccessful, would likely be time consuming and could be costly to defend.

Potential intellectual property claims and litigation
could subject us to significant liability for damages and could invalidate our proprietary rights.

In the semiconductor industry, it is
not unusual for companies to receive notices alleging infringement of patents or other intellectual property rights. We have been, and from time-to-time expect to be, notified of claims that we may be infringing patents, maskwork rights or
copyrights owned by third-parties. If it appears necessary or desirable, we may seek licenses under patents that we are alleged to be infringing. However, licenses may not be offered and the terms of any offered licenses may not be acceptable to us.

The failure to obtain a license under a key patent or intellectual property right from a third party for technology used by us could cause
us to incur substantial liabilities and to suspend the manufacture of the products utilizing the invention or to attempt to develop non-infringing products, any of which could harm our business. Furthermore, we may become involved in protracted
litigation regarding the alleged infringement by us of third-party intellectual property rights or litigation to assert and protect our patents or other intellectual property rights. Any litigation relating to patent infringement or other
intellectual property matters could result in substantial cost and diversion of our resources, which could harm our business.

We may be unable to
effectively protect our intellectual property, which would negatively impact our ability to compete.

We believe that the protection of
our intellectual proprietary rights will continue to be important to the success of our business. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. Despite these efforts,
unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our
technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the U.S. Many U.S. companies have encountered substantial infringement problems in foreign countries, including countries
in which we design and sell our products. We cannot be certain that patents will be issued as a result of our pending applications nor can we be certain that any issued patents would protect or benefit us or give us adequate protection from
competing products. For example, issued patents may be circumvented or challenged and declared invalid or unenforceable. We also cannot be certain that others will not develop our unpatented proprietary technology or effective competing technologies
on their own.

We have acquired equity positions for strategic reasons in other companies which may significantly decrease in value.

Over the last several years, we have acquired equity positions for strategic reasons in other technology companies and we may make similar equity
purchases in the future. In this regard, we own shares in SMIC with a cost basis of approximately $3.4 million and a market value at December 31, 2007 of approximately $3.1 million. The market value of SMIC shares is subject to fluctuation and
our carrying value will be subject to adjustments to reflect the current market value. In the event the



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decline in the market value of our SMIC shares below our cost basis, is determined to be other-than-temporary, we may be required to recognize a loss on our
investment through operating results. At December 31, 2007, our strategic investments in non-marketable securities totaled $0.6 million. These equity investments may not increase in value and there is the possibility that they could decrease in
value over time, even to the point of becoming completely worthless. These equity securities are evaluated for impairment on a recurring basis and any reductions in the carrying value would lower our profitability. For example, we recorded
approximately a $0.4 million impairment loss on one of our equity positions in fiscal 2006.

Changes in securities laws and regulations are increasing
our costs.

The Sarbanes-Oxley Act of 2002 that became law in July 2002, as well as rules subsequently implemented by the Securities and
Exchange Commission and the Nasdaq Stock Market, have required changes to some of our accounting and corporate governance practices, including the report on our internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002.
These rules and regulations have increased our accounting, legal and other costs, and have made some activities more difficult, time consuming and/or costly. In particular, complying with the internal control requirements of Section 404 of the
Sarbanes-Oxley Act has resulted in increased internal efforts, significantly higher fees from our independent registered public accounting firm and significantly higher fees from third party contractors. These rules and regulations could also make
it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit committee.

We may experience difficulties in complying with Sarbanes-Oxley Section 404 in future periods.

We concluded that our internal control over financial reporting was effective at September 30, 2007. A key element of Section 404 compliance involves an analysis of management information systems (MIS). We are in the process of
implementing a new worldwide MIS system and we are continuing to use our current systems until the new system is fully implemented. If in the future we are unable to assert that our internal control over financial reporting is effective (or if our
auditors are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to
interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in
these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. For example, beginning in the first quarter of fiscal
2006, with the adoption of SFAS 123R, we now record a charge to earnings for employee stock option grants for all stock options unvested at and granted after October 1, 2005. This accounting pronouncement has and is expected to continue to
negatively impact our financial results. Technology companies generally, and our company specifically, rely on stock options as a major component of our employee compensation packages. Because we are required to expense options, we may be less
likely to sustain profitability or we may have to decrease or eliminate option grants. Decreasing or eliminating option grants may negatively impact our ability to attract and retain qualified employees.

Our results of operations could vary as a result of the methods, estimates, and judgments we use in applying our accounting policies.

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations (see
Critical Accounting Policies in Part I, Item 2 of this Form 10-Q). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead
us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations. In particular, the calculation of share-based compensation expense under SFAS 123R, requires
us to use valuation methodologies (which were not developed for use in valuing employee stock options and restricted stock units) and a number of assumptions, estimates, and conclusions regarding matters such as expected forfeitures, expected
volatility of our share price, the expected dividend rate with respect to our common stock, and the exercise behavior of our employees. Furthermore, there are no means, under applicable accounting principles, to compare and adjust our expense if and
when we learn about additional information that may affect the estimates that we previously made, with the



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exception of changes in expected forfeitures of share-based awards. Factors may arise over time that lead us to change our estimates and assumptions with
respect to future share-based compensation arrangements, resulting in variability in our share-based compensation expense over time. Changes in forecasted share-based compensation expense could impact our gross margin percentage; research and
development expenses; and selling, general and administrative expenses.

We depend on our ability to attract and retain our key technical and management
personnel.

Our success depends upon the continued service of our key technical and management personnel. Several of our important
manufacturing and other subcontractor relationships are based on personal relationships between our senior executive officers and such parties. In particular, our Chairman and Chief Executive Officer has long-term relationships with our key
foundries. If we were to lose the services of any key executives, it may negatively impact the related business relationships since we have no long-term contractual agreements with such parties. Our success also depends on our ability to continue to
attract, retain and motivate qualified technical personnel, particularly experienced circuit designers and process engineers. The competition for such employees is intense. We have no employment contracts or key person life insurance policies with
or for any of our employees. The loss of the service of one or more of our key personnel could harm our business.

Our stock price is expected to
continue to be volatile.

The trading price of our common stock has been and is expected to be subject to wide fluctuations in response
to:



| |  |  | quarter-to-quarter variations in our operating results;
| | - |  | -------------------------------------------------------



| |  |  | general conditions or cyclicality in the semiconductor industry or the end markets that we serve;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | new or revised earnings estimates or guidance by us or industry analysts;
| | - |  | -------------------------------------------------------------------------



| |  |  | comments or recommendations issued by analysts who follow us, our competitors or the semiconductor industry;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | aggregate valuations and movement of stocks in the broader semiconductor industry;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | announcements regarding our share repurchase program and the timing and amount of shares we purchase under such program;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of new products, strategic relationships or acquisitions by us or our competitors;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | increases or decreases in available wafer capacity;
| | - |  | ---------------------------------------------------



| |  |  | governmental regulations, trade laws and import duties;
| | - |  | -------------------------------------------------------



| |  |  | announcements related to future or existing litigation involving us or any of our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | announcements of technological innovations by us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | additions or departures of senior management; and
| | - |  | -------------------------------------------------



| |  |  | other events or factors, many of which are beyond our control.
| | - |  | --------------------------------------------------------------

In addition, stock markets have experienced extreme price and trading volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many technology companies for
reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.

Foundry capacity can be limited, and we may be required to enter into costly arrangements to secure foundry capacity.

If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and our future sales would be adversely impacted. In order to secure foundry capacity, we have
entered into in the past, and may enter into in the future, various arrangements with suppliers, which could include:



| |  |  | purchases of equity or debt securities in foundries;
| | - |  | ----------------------------------------------------



| |  |  | joint ventures;
| | - |  | ---------------



| |  |  | process development relationships with foundries;
| | - |  | -------------------------------------------------



| |  |  | contracts that commit us to purchase specified quantities of wafers over extended periods;
| | - |  | ------------------------------------------------------------------------------------------



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| |  |  | increased price for wafers;
| | - |  | ---------------------------



| |  |  | option payments or other prepayments to foundries; and
| | - |  | ------------------------------------------------------



| |  |  | nonrefundable deposits with, or loans to, foundries in exchange for capacity commitments.
| | - |  | -----------------------------------------------------------------------------------------

We may not be able to make any such arrangements in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us. Once
we make commitments to secure foundry capacity, we may incur significant financial penalties if we subsequently determine that we are not able to utilize all of that capacity. Such penalties may be substantial and could harm our financial results.

Our foundries may experience lower than expected yields which could adversely affect our business.

The manufacture of integrated circuits is a highly complex and technically demanding process. Production yields and device reliability can be affected by
a large number of factors. As is typical in the semiconductor industry, our outside foundries have from time to time experienced lower than anticipated manufacturing yields and device reliability problems, particularly in connection with the
introduction of new products and changes in such foundrys processing steps. There can be no assurance that our foundries will not experience lower than expected manufacturing yields or device reliability problems in the future, which could
materially and adversely affect our business and operating results.

Business disruptions could seriously harm our future revenue and financial
condition and increase our costs and expenses.

Our worldwide operations could be subject to natural disasters and other business
disruptions, which could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters, and a portion of our research and development activities, are located in California, and our other critical
business operations and many of our suppliers are located in Asia, near major earthquake faults. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults is unknown, but our
revenue, profitability and financial condition could suffer in the event of a major earthquake or other natural disaster. Losses and interruptions could also be caused by earthquakes, power shortages, telecommunications failures, water shortages,
tsunamis, floods, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters.

Terrorist attacks, threats of
further attacks, acts of war and threats of war may negatively impact all aspects of our operations, revenues, costs and stock price.

Terrorist acts, conflicts or wars, as well as future events occurring in response or connection to them, including future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies
(such as the war in Iraq), conflict between China and Taiwan, or trade disruptions impacting our domestic or foreign suppliers or our customers, may impact our operations and may, among other things, cause delays or losses in the delivery of wafers
or other products to us and decreased sales of our products. More generally, these events have affected, and are expected to continue to affect, the general economy and customer demand for products sold by our customers. Any of these occurrences
could have a significant impact on our operating results, revenues and costs, which in turn may result in increased volatility in our common stock price and a decline in the price of our common stock.



|Item 1B. | Unresolved Staff Matters
|-------- | ------------------------

None.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Purchases of Equity Securities by the Issuer and Affiliated Purchasers



|                                   |  |                               |  |                          |      |                                                               |         |                                                             |   |            |    
|---------------------------------- |  | ----------------------------- |  | ------------------------ | ---- | ------------------------------------------------------------- | ------- | ----------------------------------------------------------- | - | ---------- | ---
|Period                             |  | TotalNumberof SharesPurchased |  | AveragePricePaidPerShare |      | TotalNumber ofSharesPurchasedAs Part ofPubliclyAnnouncedPlans |         | Dollar Valueof SharesThat May YetBe PurchasedUnder thePlans |  
|October 1, 2007October 31, 2007   |  |                              |  | $                        |     |                                                               |        |                                                             | $ | 30,000,000 | (1)
|November 1, 2007November 30, 2007 |  | 129,100                       |  | $                        | 6.65 |                                                               | 129,100 |                                                             | $ | 29,141,964 | (1)
|December 1, 2007December 31, 2007 |  |                              |  | $                        |     |                                                               |        |                                                             | $ | 80,000,000 | (2)
|                                   |  |                               |  |                          |      |                                                               |         |                                                             |   |            |    
|Total                              |  | 129,100                       |  | $                        | 6.65 |                                                               | 129,100 |                                                             |   |            |    
|                                   |  |                               |  |                          |      |                                                               |         |                                                             |   |            |    



|(1) | On October 23, 2007, we announced that our board of directors had authorized us to repurchase up to $30 million of our shares of common stock pursuant to repurchases to
have been conducted under Rule 10b-18 under the Securities Exchange Act of 1934 through programs, including company stock purchase plans under Rule 10b5-1, through brokers or in privately-negotiated transactions with nonaffiliated
stockholders. In connection with the approval of our tender offer announced in November 2007, our board of directors terminated the repurchase program.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On November 28, 2007, we announced that our board of directors had approved the repurchase of up to $80 million of our shares of common stock. On December 3, 2007, we
commenced an offer to purchase for cash up to 10 million shares of our common stock through a self-tender offer at a price of $7.00 per share (the Offer). The Offer expired January 3, 2008 and on January 11, 2008, we
announced the results of the Offer, stating that we accepted for payment 10 million shares of our common stock at a purchase price of $7.00 per share, resulting in aggregate payments of $70 million. These shares represented approximately 27.4%
of our shares outstanding as of December 31, 2007. The additional $10 million will be used for the repurchase of additional shares, from time to time, through open-market transactions under Rule 10b-18.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 5. | Other Information
|------- | -----------------

As previously reported in
our proxy statement filed with the Securities and Exchange Commission on January 28, 2008, our annual meeting of stockholders will be held on March 7, 2008.



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|Item 6. | Exhibits
|------- | --------

(a) The following exhibits are
filed as a part of this report.



|             |  |                                                                                                                         
|------------ |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit 31.1 |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|             | 
|Exhibit 31.2 |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|             | 
|Exhibit 32   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                         |  |  |  |                                             
|------------------------ |  |  |  | --------------------------------------------
|                         |  |  |  | Integrated Silicon Solution, Inc.           
|                         |  |  |  | (Registrant)                                
|                         |  | 
|Dated: February 11, 2008 |  |  |  | /s/ Scott D. Howarth                        
|                         |  |  |  | Scott D. Howarth                            
|                         |  |  |  | President and Chief Financial Officer       
|                         |  |  |  | (Principal Financial and Accounting
Officer)



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