FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended: September 28, 1997

                                      OR

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

Commission file number: 0-22068

                    LEVEL ONE COMMUNICATIONS, INCORPORATED

State: California I.R.S. Employer ID No.:  33-0128224

Address: 9750 Goethe Road, Sacramento, CA 95827

Telephone: (916) 855-5000



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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                         Yes     <radical>  No _______

The number of Common Shares of the registrant outstanding on September 28,
1997, was 20,294,318.



<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                                         PAGE
<S>               <C>      <C>                                <C>                 <C>
</TABLE>

[CAPTION]
Part I.             FINANCIAL INFORMATION

<TABLE>
<CAPTION>

<CAPTION>
Item 1.             Financial Statements

<CAPTION>
<S>               <C>      <C>                                <C>                 <C>
                           Consolidated Balance Sheets as of
                           September 28, 1997, and December
                           29, 1996                           . . . . . . . . . .          3
                                                              . . .
                           Consolidated Statements of
                           Operations for the Three and Nine
                           Months Ended September 28, 1997,
                           and September 29, 1996             . . . . . . . . . .          4
                                                              . . .
                           Consolidated Statements of Cash
                           Flows for the Nine Months Ended
                           September 28, 1997, and September
                           29, 1996                           . . . . . . . . . .          5
                                                              . . .
                           Notes to Financial Statements      . . . . . . . . . .          6
                                                              . . .
</TABLE>
<TABLE>
<CAPTION>
Item 2.                Management's Discussion and Analysis of Financial
<S>                    <C>                                                   <C>
                       Condition and Results of Operations                 .            8
                       . . . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>

<CAPTION>
PART II.            OTHER INFORMATION
<S>                 <C>                                    <C>                  <C>
Item 1.             Litigation                             . . . . . . . . . .           14
                                                           . . .
Item 2.             Changes in Securities                  . . . . . . . . . .           14
                                                           . . .
Item 4.             Submission of Matters to a Vote of
            Shareholders                                   . . . . . . . . . .           14
                                                           . . .
Item 6.             Exhibits and Reports on Form 8-K       . . . . . . . . . .           15
                                                           . . .
</TABLE>

[CAPTION]

[CAPTION]
                    Signatures                   S-1














<PAGE>

<TABLE>
<CAPTION>
                          LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>  <C>  <C>  <C>  <C>                                   <C>            <C>   <C>
                                CONSOLIDATED BALANCE SHEETS
                         September 28, 1997, and December 29, 1996
</TABLE>
<TABLE>
<CAPTION>
<S>                                                 <C>                  <C>       <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                   Sept. 28, 1997                 Dec. 29, 1996
</TABLE>
<TABLE>
<CAPTION>
                                                                  (unaudited)
<S>   <C>   <C>  <C>  <C>                                       <C>             <C>   <C>
                                                         ASSETS
                                                Current Assets:
                                      Cash and cash equivalents       $ 117,849            $  20,251
                                                                                             $20,251
                                         Short-term investments          21,053               10,211
             Accounts receivable, net of allowance for doubtful          28,991               18,279
                                                       accounts
                               of $256 and $156 for 1997 and 1996, respectively
                                                    Inventories          23,115                9,990
                                   Deferred income tax benefits           2,990                2,504
                                               Prepaid expenses           2,293                2,351
                      Total current assets                              196,291               63,586
                                    Property and equipment, net          30,379               23,676
                                          Long-term investments          10,897               12,440
                                         Note acquisition costs           3,120                  ---
                                               Foundry deposits          14,000                8,000
                                                   Other assets           4,169                4,400
                      Total assets                                   $  258,856          $   112,102
                                                                       $258,856
                           LIABILITIES AND SHAREHOLDERS' EQUITY
                                           Current Liabilities:
                   Current portion of capital lease obligations    $      1,199        $       1,129
                                               Accounts payable          14,882                4,778
                                                                         14,882
                                          Accrued payroll costs           2,772                1,985
                                           Income taxes payable           2,240                1,338
                                   Deferred distributor revenue           1,687                  864
                                      Other accrued liabilities           5,400                2,621
                      Total current liabilities                          28,180               12,715
                                                 Long-term debt         115,000                  ---
                Capital lease obligations, less current portion           2,444                3,194
                                         Deferred lease expense             340                  612
                      Total liabilities                                 145,964               16,521
                                          Shareholders' Equity:
                                     Common Stock, no par value          85,780               83,203
                      Authorized - 157,500,000 shares
                      Outstanding - 20,356,030 and 19,674,341
                           shares for 1997 and 1996,
                      respectively
                          Unrealized gain on available-for-sale
                      securities, net of tax                                 12                   12
                                              Retained earnings          27,100               12,366
                      Total shareholders' equity                        112,892               95,581
                     Total liabilities and shareholders' equity        $258,856             $112,102
</TABLE>


<TABLE>
<CAPTION>
                                              LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>    <C>                                <C>               <C>   <C>              <C>    <C>               <C>   <C>
                                                 CONSOLIDATED STATEMENTS OF INCOME
                                            SEPTEMBER 28, 1997, AND SEPTEMBER 29, 1996
                                                            (unaudited)
         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                     Three Months Ended                               Nine Months Ended
                                           SEPT. 28, 1997          SEPT. 29, 1996          SEPT. 28, 1997          SEPT. 29, 1996
                                 Revenues        $   42,437              $  27,363               $  105,187             $    82,384
                           Cost  of sales            17,653                 11,756                   44,120                  34,865
       Gross margin                                  24,784                 15,607                   61,067                  47,519
                   Research & development             8,135                  5,249                   21,214                  16,663
                        Sales & marketing             6,470                  4,219                   15,523                  12,209
                 General & administrative             2,826                  1,595                    6,849                   5,126
       Total operating expenses                      17,431                 11,063                   43,586                  33,998
                         Operating income             7,353                  4,544                   17,481                  13,521
                          Interest income             1,129                    363                    2,082                   1,228
                         Interest expense             (514)                  (127)                    (685)                   (318)
                        Other income, net                93                    848                      169                     915
 Income before provision for income taxes
                                                      8,061                  5,628                   19,047                  15,346
               Provision for income taxes             2,660                  1,857                    6,266                   5,065
                               Net income           $ 5,401              $   3,771               $   12,781                $ 10,281
                       Earnings per Share         $     .25             $     0.18             $       0.60              $     0.50
                  Weighted average common
   shares outstanding                                21,819                 20,705                   21,458                  20,585
</TABLE>






<PAGE>

<TABLE>
<CAPTION>
                                           LEVEL ONE COMMUNICATIONS, INCORPORATED
<S>       <C>       <C>                                                   <C>                 <C>       <C>
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                         For Nine Months Ended
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                      Sept. 28, 1997                        Sept. 29, 1996

<CAPTION>
<S>     <C>     <C>                                         <C>              <C>    <C>
                      Cash flows from operating activities:
                                                 Net income         $ 12,781                $ 10,281
            Adjustments to reconcile net income to net cash
           provided by operating activities:
                  Depreciation and amortization                        6,976                   4,805
        Changes in assets and liabilities:
                  Accounts receivable                               (10,712)                 (1,614)
                  Inventories                                       (13,125)                   3,583
                  Deferred tax assets                                  (486)                     ---
                  Prepaid expenses                                        58                     186
                  Accounts payable and accrued liabilities            15,395                 (3,298)
                  Deferred liabilities                                   ---                   1,652
                  Deferred lease expense                               (272)                   (280)
        Net cash provided by operating activities                     10,515                  15,315
                      Cash flows from investing activities:
                         Purchase of short-term investments         (46,793)                (10,325)
           Proceeds from sales and maturities of short term
                     investments                                      35,953                   2,340
                          Purchase of long-term investments         (19,024)                 (8,670)
            Proceeds from sales and maturities of long term
                     investments                                      20,567                   3,026
                                       Capital expenditures         (13,269)                 (4,288)
                Payments for related party notes receivable              ---                 (1,600)
             Payments for foundry deposits and other assets          (6,078)                 (5,593)
                     Net cash used in investing activities          (28,644)                (25,110)
                      Cash flows from financing activities:
                 Net principal payments under capital lease            (680)                     ---
                                                obligations
         Proceeds from issuance of convertible subordinated
                notes, net of issuance costs                         111,880                     ---
                    Proceeds from issuance of stock, net of
           repurchases and costs of issuance                           4,529                   1,915
                     Net cash provided by financing                  115,729                   1,915
                activities
       Net increase (decrease) in cash and cash equivalents           97,600                 (7,880)
           Cash and cash equivalents at beginning of period           20,251                  21,628
                 Cash and cash equivalents at end of period        $ 117,851                $ 13,748
                   SUPPLEMENTARY DISCLOSURE OF CASH AND NONCASH TRANSACTIONS
                Cash payments for:
                     Interest                                            248
                                                                                                 300
                     Income taxes
                                                                          42                   2,103
</TABLE>


                    LEVEL ONE COMMUNICATIONS, INCORPORATED
                                  ___________

                   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)



NOTE 1 - BASIS OF PRESENTATION

The   accompanying   unaudited  financial  statements  have  been  prepared  in
accordance with generally  accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not  include  all  of  the information and footnotes
required  by generally accepted accounting principles  for  complete  financial
statements.   In  the  opinion  of  management,  all adjustments (consisting of
normal recurring accruals) considered necessary for  a  fair  presentation have
been  included.  Operating results for the three and nine month  periods  ended
September  28,  1997, are not necessarily indicative of the results that may be
expected for the  year  ending  December 28, 1997.  The information reported in
this Form 10-Q should be read in  conjunction with the financial statements and
footnotes contained in the Company's  Form  10-K  filed with the Securities and
Exchange  Commission  for  the  year ended December 29,  1996,  and  subsequent
filings with the Securities and Exchange Commission.

All shares and per share numbers in this Report reflect the effect of a 3-for-2
stock split to shareholders of record  on  August  5, 1997, effective on August
26, 1997.

NOTE 2 - NET INCOME PER SHARE

Net income per share is computed using the weighted average number of shares of
common stock outstanding, and the dilutive common equivalent shares outstanding
from  stock  options  and  warrants  (using  the  treasury  stock  method)  and
convertible subordinated notes.  Effective December  28,  1997,  the Company is
required  to  adopt Financial Accounting Standards Board No. 128, EARNINGS  PER
SHARE.  Among other  things,  the  new  standard  will  require  replacement of
primary  EPS with basic EPS.  Basic EPS would be computed by dividing  reported
earnings  available   to   common   stockholders  by  weighted  average  shares
outstanding.   No dilution for any potentially  dilutive  securities  would  be
included.  Fully diluted EPS would be called diluted EPS under the new standard
and would still  be  required.   Additional  disclosure  will  be  required  by
Statement  128,  but the Company does not expect the effect of Statement 128 to
be material.












                    LEVEL ONE COMMUNICATIONS, INCORPORATED
                                  __________

NOTE 3 - INVENTORIES

Inventories, stated at the lower of cost (first in, first out) or market,
consist of:

<TABLE>
<CAPTION>
               (IN THOUSANDS)             September 28, 1997         December 29, 1996
<S>            <C>                        <C>                   <C>
               Raw materials                            $ 6,414             $       32
               Work-in-process                           13,555                  7,948
               Finished goods                     3,146                          2,010
                                                        $23,115               $  9,990
</TABLE>

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following:



<TABLE>
<CAPTION>
            (IN THOUSANDS)                        September 28, 1997      December 29, 1996
<S>         <C>                              <C>                     <C>
            Machinery & equipment                            $28,686                $25,254
            Furniture & fixtures                              21,838                 11,899
            Leasehold improvements                             3,383                  3,485
                                                             $53,907                $40,638
            Less - accumulated depreciation             (23,528)                   (16,962)
                                                             $30,379                $23,676
</TABLE>

NOTE 5 - LONG-TERM DEBT

   During the third  quarter  of  1997  the  Company  raised $115 million (less
discounts,  commissions  and  expenses of approximately $3.1  million)  from  a
private placement to qualified  investors of subordinated convertible notes due
2004 with a 4% coupon (the "Notes").   The  Notes  are convertible to shares of
the Company's Common Stock at a price of $40 per share.






<PAGE>


                    LEVEL ONE COMMUNICATIONS, INCORPORATED
                                     _____


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

The  following  information should be read in conjunction  with  the  unaudited
interim financial  statements  and the notes thereto included in Item 1 of this
Quarterly Report on Form 10-Q, the  Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of Operations contained in the Company's Form
10-K filed with the Securities  and  Exchange Commission on March 31, 1997, and
subsequent filings  with the Securities and Exchange Commission.

This report contains forward-looking statements  within  the meaning of Section
27A  of  the  Securities  Act  of  1933,  as amended, and Section  21E  of  the
Securities  Exchange  Act  of  1934, as amended  Actual  results  could  differ
materially from those projected  in  the forward-looking statements as a result
of  the  factors set forth in "Factors that  May  Affect  Future  Results"  and
elsewhere in this Report.

REVENUES

Revenues increased  55%  to $42.4 million in the third quarter of 1997 compared
to revenues of $27.4 million  for  the same quarter of 1996. Revenues increased
28%  to $105.2 million in the first nine  months  of  1997  compared  to  $82.4
million  for  the  first  nine  months  of 1996. The increases during the third
quarter and first nine months of 1997 reflect the substantial unit sales growth
due to the continued market acceptance of  the  Company's  products in both the
networking  and  transmission markets, and increases in the Company's  customer
base.

International sales  were  $14.4  million  or  34% and $9.7 million or 35.4% of
sales, respectively, for the third quarter of 1997  and 1996, and $36.1 million
or 34.5% and $31.0 million or 37.6% of sales for the  first nine months of 1997
and  1996,  respectively.  All sales are denominated in U.S.  dollars,  thereby
eliminating the  impact  of  foreign  currency  exchange  rate  fluctuations on
revenues.

GROSS MARGIN

Gross margin is affected by several factors, including average selling  prices,
the  mix  between older and newer products, test equipment utilization, foundry
manufacturing  yields, timing of cost reductions and the mix between direct and
distributor sales.   Margin  on  domestic  and  international sales is similar.
Gross  margin as a percentage of revenues in the third  quarter  of  1997   was
58.4%  versus  57.0%  in  the  third  quarter  of  1996 and 58.4% in the second
quarter of 1997.  Gross margin as a percentage of revenues  in  the  first nine
months of 1997 was 58.1% versus 57.7% in the first nine months of 1996.





<PAGE>
RESEARCH AND DEVELOPMENT

Research and development expenses were $8.1 million or 19.2% of revenues in the
third  quarter of 1997 versus $5.2 million, or 19.2% of  revenues in the  third
quarter  of  1996.  For the first nine months of 1997, research and development
expenses were  $21.2 million or 20.2% of revenues versus $16.7 million or 20.2%
of  revenues in  the  same period of 1996. The research and development expense
increase in each period  in  1997  is  due to additions to the Company's design
engineering staff and related new product design expenses.

SALES AND MARKETING

Sales and marketing expenses were $6.5 million  or  15.2%  of  revenues  in the
third  quarter  of  1997 versus $4.2 million or 15.4% of revenues  in the third
quarter of 1996. For  the  first  nine  months  of  1997,  sales  and marketing
expenses were $15.5 million or 14.8% of revenues compared to $12.2  million  or
14.8%   of  revenues  in  the  first  nine  months  of   1996.   The  increased
expenditures  are  primarily  attributable to sales commissions associated with
increased revenues and the expansion  of  the  Company's  sales  and  marketing
staffs.

GENERAL AND ADMINISTRATIVE

In  the  third  quarter of 1997, general and administrative expenses were  $2.8
million or 6.7% of revenues versus $1.6 million or 5.8% of revenues in the same
period of 1996.   For the first nine months general and administrative expenses
were $6.8 million or  6.5%  of  revenues in 1997 versus $5.1 million or 6.2% of
revenues  in  1996.   The increased  expenses  are  primarily  attributable  to
additional headcount associated with the Company's growth.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's principal  sources  of  liquidity  as  of  September  28,  1997,
consisted   of   $138.9  million  of  cash,  cash  equivalents  and  short-term
investments, and $10  million  available  under the Company's revolving line of
credit.  At September 28, 1997, the Company  had  no  outstanding balance under
this  line  of credit.  Working capital as of September 28,  1997,  was  $168.2
million.

During the first  nine  months  of 1997, the Company generated $10.5 million of
cash from operating activities, as compared to $15.3 million in the same period
in 1996. In both years, net cash  generated  from  operations during the period
was primarily due to net income before depreciation  and  amortization expense.
In  the  first  nine  months  of  1997,  cash generated from net income  before
depreciation  and  amortization was $19.8 million.   This  cash  generated  was
offset  by  $8.4  million  due  to  the  net  changes  during  the  period  for
inventories, accounts receivable, and accounts payable. The changes in accounts
receivable, accounts  payable,  and  inventories  are  due  to expansion of the
Company's business, and do not reflect material changes in the  way the Company
conducts operations.

During  the  third  quarter  of  1997, the Company raised $115 million  from  a
private placement to qualified investors  of subordinated convertible notes due
2004 with a 4% coupon (the "Notes").  The company expects that the net proceeds
from the sale of the Notes, together with existing  sources  of liquidity, will
provide  the Company with capital required for its continued expansion  in  the
rapidly growing segments of the telecom and networking markets.



FACTORS THAT MAY AFFECT FUTURE RESULTS

MANUFACTURING RISKS

   The Company  does  not  manufacture  the  wafers  used for its products. The
Company's wafers are manufactured by foundries located  in  the  United States,
Europe and Asia. The Company depends upon these suppliers to produce  wafers at
acceptable yields and to deliver them in a timely manner at competitive prices.
The  Company  may  sustain an adverse impact on operating results from problems
with  the  cost,  timeliness,  yield  and  quality  of  wafer  deliveries  from
suppliers. From time  to time, the available industry-wide foundry capacity can
fluctuate significantly.  During periods of constrained supply, the Company may
experience difficulty in securing  an  adequate  supply  of  wafers, and/or its
suppliers may increase wafer prices. The Company's operating results  depend in
substantial  part on its ability to maintain or increase the capacity available
from its existing or new foundries. In prior years, the Company has experienced
increased costs  and  delays  in  customer  shipments  as a result of a foundry
reducing shipments to the Company without prior notice,  requiring  the Company
to  transfer products to a new foundry. Although the Company believes  that  it
has planned to meet customer demand, there can be no assurances that unforeseen
demand,  current  supplier  interruptions  or  other  changes  will  not have a
material impact on the Company's business.

Manufacturing process technologies are subject to rapid change. Other companies
in  the  industry have experienced difficulty in migrating to new manufacturing
processes,  and,  consequently, have suffered reduced yields, delays in product
deliveries and increased  expense  levels.  The  Company's  business, financial
condition and results of operations could be materially adversely  affected  if
any such transition is substantially delayed or inefficiently implemented.

The  Company is also dependent upon third-party assembly companies that package
the semiconductor  die.  The  Company  depends  upon these suppliers to produce
products in a timely manner and at competitive prices.  The Company may sustain
an adverse financial impact from problems with the cost,  timeliness, yield and
quality of product deliveries from these suppliers.

FACTORS AFFECTING ANNUAL AND QUARTERLY OPERATING RESULTS

   The  semiconductor industry is characterized by rapid technological  change,
intense competitive  pressure  and  cyclical  market  patterns.  The  Company's
results  of  operations  are  affected  by a wide variety of factors, including
general economic conditions, semiconductor  industry  environment,  changes  in
average selling prices, the timing of new product introductions (by the Company
and  its  customers), use of new technologies, the ability to safeguard patents
and intellectual  property,  and rapid change of demand for products. The level
of net revenues in any specific  quarter  can  also be affected by the level of
orders placed during that quarter. The Company attempts  to  respond to changes
in market conditions as soon as possible; however, the rapidity  of their onset
may  make  prediction  of  and  reaction to such events difficult. Due  to  the
foregoing and other factors, past  results,  such  as  those  described in this
Prospectus, may not be predictive of future performance.

DEPENDENCE ON NEW PRODUCTS

   The  Company's future success depends on its ability to timely  develop  and
introduce  new products which compete effectively. Because of the complexity of
its products,  the  Company may experience delays in completing development and
introduction of new products,  and,  as  a result, not achieve the market share
anticipated for such products. The Company's  strategy  is  to develop products
for  the  fastest  growing segments of the communications market.  The  Company
conducts  its  own  analysis   of  market  trends  and  reviews  forecasts  and
information provided by industry analysts. Market conditions may change rapidly
as  technology,  economic,  or  user-preference   conditions   cause  different
communications  technologies to experience growth other than that  forecast  by
the Company or others.  There  can  be  no  assurance  that  the  Company  will
successfully  identify  new  product  opportunities  and  bring new products to
market  in a timely manner, that products or technologies developed  by  others
will  not   render   the   Company's   products  or  technologies  obsolete  or
noncompetitive, or that the Company's products will be selected for design into
the products of its targeted customers.  In addition, the average selling price
for any particular product tends to decrease over the product's life. To offset
such  price  decreases,  the  Company  relies  primarily   on  obtaining  yield
improvements and corresponding cost reductions in the manufacture  of  existing
products  and  on  introducing new products which incorporate advanced features
and other price/performance factors such that higher average selling prices and
higher margins are achievable relative to existing product lines. To the extent
that cost reductions  and  new product introductions with higher margins do not
occur in a timely manner, or  the  Company's  products  do  not  achieve market
acceptance, the Company's operating results could be adversely affected.

MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL

   The  Company is currently experiencing a period of significant growth  which
has placed,  and could continue to place, a significant strain on the Company's
personnel and  other  resources.  The  Company's  ability  to manage its growth
effectively will require continued expansion and refinement  of  the  Company's
operational,  financial  and  management  and  control  systems  as  well  as a
significant  increase  in  the Company's development, testing, quality control,
marketing, logistics and service  capabilities,  any  of  which  could  place a
significant  strain  on  the  Company's  resources.  The Company's success also
depends  to  a  significant  extent  upon  the continued services  of  its  key
personnel  and  its  ability to attract and retain  key  technical,  sales  and
management personnel in  the  future. Competition for such personnel is intense
and there can be no assurance that  the  Company  will  be  able to attract and
retain  key  technical,  sales and management personnel in the future.  If  the
Company's management is unable  to  manage  growth  effectively,  maintain  the
quality  and  marketability  of  the  Company's  products  and retain, hire and
integrate  key  personnel,  the  Company's  business,  financial condition  and
results of operations could be materially adversely affected.

INTELLECTUAL PROPERTY

   The Company relies upon patent, trademark, trade secret and copyright law to
protect  its  intellectual  property.  There  can  be  no assurance  that  such
intellectual  property  rights  can be successfully asserted  or  will  not  be
invalidated, circumvented or challenged. Litigation, regardless of its outcome,
could result in substantial cost  and  diversion  of resources for the Company.
Any infringement claim or other litigation against or by the Company could have
a  material  effect  on  the  Company's  financial  condition  and  results  of
operations.  In  November  1995  the Company commenced infringement  litigation
against a competitor.






<PAGE>

SEMICONDUCTOR INDUSTRY

   The semiconductor industry has  historically  been  cyclical  and subject to
significant  economic  downturns  at  various times. The Company may experience
substantial period-to-period fluctuations  in  operating results due to general
semiconductor  industry  conditions,  overall  economic   conditions  or  other
factors.

In addition, the securities of many high technology companies have historically
been subject to extreme price and volume fluctuations, factors which may affect
the  market  price  of  the  Company's  Common  Stock.  As  is  common  in  the
semiconductor industry, the Company frequently ships more product  in the third
month  of a quarter than in the other months. If a disruption in the  Company's
production or shipping occurs near the end of a quarter, the Company's revenues
for that quarter could be adversely affected.

The Company  must  order  wafers  and  build  inventory  in  advance of product
shipments. There is risk that the Company could produce excess  or insufficient
inventories of particular products because the Company's markets  are  volatile
and  subject  to  rapid  technology  and  price changes. This inventory risk is
heightened because certain of the Company's  customers  place  orders with long
lead  times  which  may  be  subject  to cancellation or rescheduling  by  that
customer. To the extent the Company produces excess or insufficient inventories
of particular products, the Company's revenues  and earnings could be adversely
affected.

Increased demand for semiconductor products may result  in  a  reduction in the
availability of wafers from foundries. Such capacity limitations  may adversely
affect the Company's ability to deliver products on a timely basis  and  affect
the  Company's  margins. Additionally, the Company believes that during periods
of strong demand and/or restricted semiconductor capacity, customers will over-
order to assure an  adequate  supply.  Certain  of  the Company's customers may
cancel  or  postpone  orders  without  notice  if  product  becomes   available
elsewhere.

Shortages  of  components  from  other  suppliers  could  cause  the  Company's
customers  to  cancel  or  delay programs incorporating the Company's products,
resulting in the cancellation or delay of orders for the Company's products.

INTENSE COMPETITION

The semiconductor industry is  intensely competitive. The Company's competition
consists of semiconductor companies  and  semiconductor divisions of vertically
integrated  companies.  In  the  telecom  market,   the   Company's   principal
competitors  are Brooktree Corporation (a subsidiary of Rockwell International,
Inc.), Crystal  Semiconductor,  Inc.  (a  subsidiary  of  Cirrus  Logic,  Inc.)
("Crystal"),  Dallas  Semiconductor, Inc., Lucent Technologies Inc. ("Lucent"),
PMC-Sierra Inc. and Siemens  A.G.  In  the  networking  market,  the  Company's
principal  competitors  are Advanced Micro Devices, Inc., Broadcom Corporation,
Crystal, Integrated Circuit Systems, Inc., Lucent, Micro Linear Corp., National
Semiconductor Corporation, Quality Semiconductor, Inc., Seeq Technologies, Inc.
and Texas Instruments, Incorporated.  Many  of  these  competitors  have longer
operating histories, greater name recognition, access to larger customer  bases
and  significantly  greater financial and other resources than the Company with
which  to pursue engineering,  manufacturing,  marketing  and  distribution  of
products.

The ability of the Company to compete successfully in the rapidly evolving area
of high  performance  integrated  circuit  technology  depends  on factors both
within  and  outside  of  the Company's control. Such factors include,  without
limitation, success in designing  and  manufacturing new products, implementing
new technologies, intellectual property programs, product quality, reliability,
price, efficiency of production, and general  economic  conditions. There is no
assurance that the Company will be able to compete successfully against current
and future competitors. Increased competition may result  in  price reductions,
reduced  gross  margins  and  loss  of  market share, any of which may  have  a
material  adverse effect on the Company's  business,  financial  condition  and
results of operations.

INTERNATIONAL OPERATIONS

Due  to  its   reliance   on   international   sales  and  foreign  third-party
manufacturing and assembly operations, the Company  is  subject to the risks of
conducting   business  outside  of  the  United  States  including   government
regulatory  risks,   political,  social  and  economic  instability,  potential
hostilities and changes  in diplomatic and trade relationships. There can be no
assurance that one or more  of  the  foregoing factors will not have a material
adverse  effect on the Company's business,  financial  condition  or  operating
results.

INCREASED LEVERAGE

In  connection   with   the  sale  of  the  Notes,  the  Company  has  incurred
approximately $115.0 million  in  additional  indebtedness  which increases the
ratio of its long-term debt to its total capitalization from  3.0%, at June 29,
1997,  to  51.1%,  as  of  September  28,  1997.  As a result of this increased
leverage, the Company's interest obligations will increase  substantially.  The
degree  to  which  the  Company  will  be  leveraged could adversely affect the
Company's  ability  to  obtain  additional  financing   for   working  capital,
acquisitions  or other purposes and could make it more vulnerable  to  economic
downturns and competitive  pressures.  The  Company's  increased leverage could
also adversely affect its liquidity, as a substantial portion of available cash
from operations may have to be applied to meet debt service  requirements  and,
in  the  event of a cash shortfall, the Company could be forced to reduce other
expenditures  and  forego  potential  acquisitions  to  be  able  to  meet such
requirements.

VOLATILITY OF NOTES AND STOCK PRICE

Economic  and  other external factors, many of which are beyond the control  of
the Company, may have a significant impact on the Company's business and on the
market price of  the  Notes  and  the  Common  Stock  into  which the Notes are
convertible. Such factors include, without limitation, fluctuations  in product
revenue  and  net  income of the Company or its competitors, shortfalls in  the
Company's operating  results  from  levels  forecast  by  securities  analysts,
announcements   concerning   the   Company,   its   competitors  or  customers,
announcements of technological innovations by the Company,  its  competitors or
its  customers, the introduction of new products or changes in product  pricing
policies by the Company, its competitors or its customers, market conditions in
the industry  and  the general state of the securities market. In addition, the
stock prices of many  technology  companies fluctuate significantly for reasons
that  may  be  unrelated  or  disproportionate   to  operating  results.  These
fluctuations, as well as general economic, political and market conditions such
as  recession  or international instability, may adversely  affect  the  market
price of the Notes and the Common Stock.


                          PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   On November 28,  1995,  the  Company  initiated  a  patent infringement suit
against  Seeq  Technologies,  Inc.  in  United States District  Court  for  the
Northern District of California.  The suit  relates  to  two Level One patents,
No. 5,267,269 and No. 5,249,183, and to certain Seeq products  used in Ethernet
system products.  The suit seeks damages and injunctive relief. Seeq has denied
the allegations and may file a counter claim against the Company.  Although the
Company  does  not believe such litigation will have a material impact  on  the
Company, litigation,  regardless  of  its  outcome, could result in substantial
cost and diversion of resources of the Company.   See  "Factors That May Affect
Future Results".


   There are no other material pending legal proceedings,  other  than  routine
litigation  incidental  to  the  Company's business, to which the Company is  a
party or of which any of its property is the subject.

ITEM 2.     CHANGES IN SECURITIES

   On August 4, 1997, the Company's Certificate of Incorporation was amended to
effect a 3-for-2 stock split to shareholders  of record on August 5, 1997.  The
split was effective on August 26, 1997.

   During  the  third quarter of 1997 the Company  raised  $115  million  (less
discounts, commissions  and  expenses  of  approximately  $3.1  million) from a
private placement to qualified investors of subordinated convertible  notes due
2004  with  a 4% coupon (the "Notes").  The Notes are convertible to shares  of
the Company's Common Stock at a price of $40 per share.

   On July 14, 1997, the Company issued an aggregate of 702 shares to employees
who are not "affiliates"  (as that term is defined in SEC Rule 144) pursuant to
an  employee benefit plan. The  shares  were  issued  without  registration  in
reliance  on  Section 4(1) of the Securities Act, as interpreted in Release 33-
6188 and Release 33-6281.

   On July 15,  1997  and  August  27, 1997, the Company issued an aggregate of
2,037 shares of Common Stock to independent sales representatives for aggregate
cash consideration of $4,384 pursuant  to  warrants  issued in 1990. The shares
were issued without registration in reliance on SEC Rule 701.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   On July 17, 1997, the Company held its annual meeting  of  shareholders,  at
which the following matters were submitted to shareholder vote:

Election of Directors:

<TABLE>
<CAPTION>
Robert S. Pepper          For:              12,676,163       Against:          16,417
<S>                       <C>        <C>               <C>            <C>
Thomas J. Connors         For:              12,684,763       Against:           7,817
Paul Gray                 For:              12,681,363       Against:          11,217
Martin Jurick             For:              12,684,979       Against:           7,601
Henry Kressel             For:              12,679,463       Against:          13,117
Joseph P. Landy           For:              12,355,063       Against:         337,517
</TABLE>


Ratification of Appointment of Arthur Andersen LLP as auditor:

For:12,672,558
Against:         4,138
Abstain:       14,234



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits -

4.1 - Indenture dated as of August 15, 1997 between the Company and State
Street Bank and Trust Company of California (National Association) as Trustee.*
4.1 - Form of 4% Convertible Subordinated Note due 2004*
4.3 - Registration Rights Agreement*
27.1--Financial Data Schedule, September 28, 1997

*Incorporated by reference to Registrant's Registration Statement on Form S-3
filed October 15, 1997.

(b)Reports  on  Form 8-K - Announcement of Intention to Issue Notes, August 14,
1997






<PAGE>

                                  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.

   LEVEL ONE COMMUNICATIONS, INCORPORATED



Date: November 12, 1997 By: /S/ ROBERT S. PEPPER
   Robert S. Pepper, Ph.D.
   Chairman of the Board of Directors,
   President and Chief Executive Officer
   (Principal Executive Officer)


Date: November 12, 1997 By:   /S/ JOHN KEHOE  John Kehoe
   Vice President and Chief Financial Officer
   (Principal Financial Officer)




                                           S-1


<PAGE>
[DATE]

[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
<CAPTION>
[PERIOD-TYPE] 3-MOS

<CAPTION>
[FISCAL-YEAR-END]          DEC-30-1996

<CAPTION>
[PERIOD-END]                         SEP-28-1997

[CASH]                  117,849
[SECURITIES]                                  21,053
[RECEIVABLES]                    28,991
[ALLOWANCES]                         256
[INVENTORY]                                  23,115
[CURRENT-ASSETS]                  196,291
[PP&E]                    30,379
[DEPRECIATION]                    23,528
[TOTAL-ASSETS]                  258,856
[CURRENT-LIABILITIES]                    28,180
[BONDS]                   115,000
<PREFFERRED-MANDATORY>                             0
[PREFERRED]
0
[COMMON]                    85,780
[OTHER-SE]                    27,100
[TOTAL-LIABILITY-AND-EQUITY]          258,856
[SALES]                     42,437
[TOTAL-REVENUES]                     42,437
[CGS]                     17,653
[TOTAL-COSTS]                     17,653
[OTHER-EXPENSES]                     17,431
[LOSS-PROVISION]                             0
[INTEREST-EXPENSE]                          514
[INCOME-PRETAX]                       8,061
[INCOME-TAX]                      2,660
[INCOME-CONTINUING]                      5,401
[DISCONTINUED]                             0
[EXTRAORDINARY]                             0
[CHANGES]                             0
[NET-INCOME]                      5,401
[EPS-PRIMARY]           ---
[EPS-DILUTED]                        .25




                                           S-1




</TABLE>