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 March 29, 1998

                                      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 X  No _______

The number of Common Shares of the registrant outstanding on May 11, 1998, was
31,012,591.








<PAGE>

                                     INDEX


Part I.                FINANCIAL INFORMATION                      PAGE

Item 1.                Financial Statements

                               Consolidated Balance Sheets as of March
                               29, 1998, and December 28, 
1997                 
3
                               Consolidated Statements of Income
                               for the Three Months Ended March 29,
                               1998, and March 30, 
1997                             4
                               Consolidated Statements of Cash Flows
                               for the Three Months Ended March 29,
                               1998, and March 30, 
1997                             5
                               Notes to Financial 
Statements                       6
                                                                      
Item 2.                   Management's Discussion and Analysis of Financial
                          Condition and Results of 
Operations                  
8

PART II.               OTHER INFORMATION

Item 1.                Legal 
Proceedings                                             14
                                                                   
Item 2.                Changes in 
Securities                                        15
                                                                   
Item 6.                Exhibits and Reports on Form 8-K                   15
                        
Signatures                                                            S-1
                                                                    









<PAGE>
                                                  LEVEL ONE COMMUNICATIONS, 
INC.
                                                    CONSOLIDATED BALANCE 
SHEETS
                                               March 29, 1998, and December 
28, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 
                                                                                

 March 29, 1998               December 28, 1997
                                                                                

      (Unaudited)
ASSETS
     Current Assets:
        Cash and cash equivalents                                  $        
20,879                   $    25,234
         Short-term investments                                              
103,164                       112,560
         Trade Accounts receivable, net of allowance 
           for doubtful accounts of $493 and $343 
           for 1998 and 1997, respectively                                
32,549                          30,079
         Other 
receivables                                                           
1,084                            2,473
         
Inventories                                                                   
28,487                          26,118
         Other current 
assets                                                       
6,906                            6,552
                  Total current 
assets                                           
193,069                        203,016
          Property and equipment, net                                       
34,811                          31,795
          Long-term investments                                               
38,186                          21,559
          Foundry 
deposits                                                         
16,781                          14,000
          Other 
assets                                                                   
5,496                            7,327
                   Total assets                                            
$         288,343                   $  277,697

LIABILITIES AND SHAREHOLDERS' EQUITY
     Current Liabilities:
         Current portion of capital lease obligations    $             
1,205                    $        1,201
         Accounts 
payable                                                         
20,692                            20,614
         Accrued payroll 
costs                                                     
3,791                              4,591
         Other accrued 
liabilities                                               
13,213                             10,371
                   Total current 
liabilities                                       
38,901                             36,777
         Convertible subordinated notes                                  
115,000                           115,000
         Capital lease obligations, less current portion                
1,903                               2,175
         Deferred lease 
expense                                                      
259                                  300
                   Total 
liabilities                                                 
156,063                            154,252
     Shareholders' Equity:
          Common Stock, no par value                                      
93,220                              91,897
              Authorized - 236,250,000 shares
              Outstanding - 30,924,472 and 30,750,701
                      shares for 1998 and 1997, respectively
           Retained 
earnings                                                        
39,060                             31,548
                    Total shareholders' equity                                
132,280                            123,445
      Total liabilities and shareholders' equity               $       
288,343                       $  277,697
         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
STATEMENTS.


<PAGE>
                                                  LEVEL ONE COMMUNICATIONS, 
INC.
                                               CONSOLIDATED STATEMENTS OF 
INCOME
                                                March 29, 1998, and March 30, 
1997
                                                            (Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 
                                                                                

         Three Months Ended
                                                                    MARCH 29, 
1998                    MARCH 30, 1997
  Revenues                                                       $           
56,607                $           30,107
  Cost  of sales                                                              
23,491                            12,900
            Gross margin                                                    
33,116                            17,207
  Research & development                                            
10,542                             6,341
  Sales & marketing                                                         
8,701                             4,299
  General & administrative                                              
3,462                             1,802
            Total operating expenses                                   
22,705                            12,442
  Operating income                                                        
10,411                             4,765
   Interest 
income                                                             
2,123                               478
   Interest (expense)                                                        
(1,347)                             (162)
   Other 
income                                                                     
23                                50
   Income before provision for income taxes                 
11,210                             5,131
   Provision for income taxes                                           
3,699                             1,674
   Net income                                                     
$             7,511               $             3,457
   Basic earnings per share                                 $              
0.24                $             0.12
   Diluted earnings per share                              $              
0.22                $             0.11

 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.











<PAGE>



                                             LEVEL ONE COMMUNICATIONS, INC.
                                          CONSOLIDATED STATEMENTS OF CASH 
FLOWS
                                                                                

    For Three Months Ended
   (IN THOUSANDS)                                 March 29, 
1998                      March 30, 1997
Cash flows from operating activities:
     Net income                                               $             
7,511               $          3,457
     Adjustments to reconcile net income to net cash
             provided by operating activities:
                   Depreciation and amortization                 
3,439                         2,153
     Changes in assets and liabilities:
                   Trade receivables                                    
(2,470)                       (1,759)
                   Other receivables                                      
1,389                              0
                   Inventories                                              
(2,369)                         (221)
                   Deferred income tax benefit                         
-                             -
                   Prepaid expenses                                      
(433)                           322
                   Accounts payable and accrued liabilities 
2,120                         2,659
                   Deferred lease expense                              
(41)                             -
          Net cash provided by operating activities         
9,146                         6,611
Cash flows from investing activities:
          Purchase of short-term investments                
(19,726)                      (19,410)
          Proceeds from sales and maturities of short term investments
                                                                                

    29,122                        10,948
          Purchase of long-term investments                
(20,511)                       (5,940)
          Proceeds from sales and maturities of long term investments
                                                                                

     3,884                         7,170
          Capital expenditures                                        
(6,123)                       (4,132)
          Payments for related party notes receivable          
-                             -
          Payments for foundry deposits and other assets
                                                                                

   (1,203)                          (32)
                Net cash provided by (used in) investing
                   
activities                                                     
(14,557)                      (11,396)
Cash flows from financing activities:
           Net principal payments under capital lease obligations
                                                                                

     (268)                         (292)
           Proceeds from issuance of stock, net of
               repurchases and costs of issuance
                                                                                

     1,324                         1,236
                 Net cash provided by (used in) financing
                   
activities                                                        
1,056                           944
Net increase (decrease) in cash and cash equivalents
                                                                                

   (4,355)                       (3,841)
Cash and cash equivalents at beginning of period      
25,234                        20,251
Cash and cash equivalents at end of period  $           20,879            
$           16,410
Supplementary disclosure of cash and noncash transactions
          Cash payments for:
                        Interest                                          
$          70            $              162
                        Income taxes                                          
435                           905

 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.





<PAGE>









                    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 month period ended  March  
29,
1998, are  not  necessarily  indicative of the results that may be expected 
for
the year ending December 27, 1998.   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  28,  1997,  and subsequent filings 
with
the Securities and Exchange Commission.

All share and per share numbers in this Report reflect  the effect of a 
3-for-2
stock split effective on March 30, 1998.


NOTE 2 - COMPREHENSIVE INCOME

On  December  29,  1997, the Company adopted Statement of Financial  
Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130).  This 
statement
establishes standards for the reporting and display of comprehensive income 
and
its components in the financial statements.  Comprehensive income is defined 
as
the change in equity of a business enterprise during a period from 
transactions
and other events and  circumstances  from  nonowner  sources.  For the 
Company,
comprehensive income includes net income reported on the  income  statement 
and
changes  in the fair value of its available-for-sale securities reported  as  
a
separate component  of shareholders' equity.  The Company's total 
comprehensive
income for the period  was  $7,530  million  and $3,469 million as of March 
29,
1998 and March 30, 1997, respectively.


NOTE 3 - EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards  Board (the "FASB") 
issued
SFAS 128, "Earnings Per Share," which establishes standards  for  computing 
and
presenting earnings per share ("EPS").  It replaces the presentation of 
primary
EPS  with  a presentation of basic EPS.  It also requires dual presentation  
of
basic and diluted EPS on the face of the income statement for all entities 
with
complex capital  structures  and  requires  reconciliation of the numerator 
and
denominator of the basic EPS computation to the  numerator  and  denominator 
of
the  diluted  EPS  computation.   The  statement  is  effective  for  
financial
statements  issued  for  periods  ending  after December 15, 1997, and 
requires
restatement for all periods presented.





<PAGE>





<TABLE>
<CAPTION>
                                                                                

                       PER SHARE AMOUNT
   (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)            
INCOME                       SHARES
<S>     <C>                                  <C>           <C>            
<C>    <C>            <C>    <C>
                                  Net income
        March 29, 1998                           $   7,511
        March 30, 1997                               3,457
              BASIC EPS: income available to
                         common shareholders
        March 29, 1998                                         $    
7,511                30,817          $         0.24
        March 30, 1997                                              
3,457                29,984                    0.12
              Effect of dilutive securities:
                     Convertible debentures:
        March 29, 1998                                        $       
854                 4,313
        March 30, 1997
                                                                        
-                     -
                                    Options:
        March 29, 
1998                                                                    2,213
                                                                        -
        March 30, 
1997                                                                    1,760
                                                                        -
     DILUTED EPS: income available to common
       stockholders plus assumed conversions
        March 29, 1998                                         $    
8,365                37,343          $         0.22
        March 30, 1997                                              
3,457                31,744                    0.11
</TABLE>




NOTE 4 - INVENTORIES

Inventories are stated at the lower of cost (first in, first out) or market 
and
include materials, labor and manufacturing overhead costs.  Inventories as of
March 29, 1998 and December 28, 1997 consist of:

<TABLE>
<CAPTION>
<S>                                 <C>       <C>             <C>     
<C>         <C>
(IN THOUSANDS)                      MARCH 29, 1998                    
DECEMBER 
28, 1997
Raw materials                                  $  
15,390                           $    8,829
Work-in-process                                      
7,032                             13,135
Finished goods                                       
6,065                               4,154
     Total inventories                         $  
28,487                           $  26,118
</TABLE>




<PAGE>




NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciation is provided on a
straight-line basis, they are comprised of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)                                MARCH 29, 1998                  
DECEMBER 28, 1997
<S>                                 <C>       <C>            <C>     
<C>        <C>
Machinery and equipment                            $  
37,112                          $  36,222
Furniture and fixtures                                
23,020                             18,066
Leasehold improvements                                 
3,662                              3,383
                                                      
63,794                             57,671
Less-Accumulated depreciation                       
(28,983)                           (25,876)
                                                   $  
34,811                          $  31,795
</TABLE>



NOTE 6 - LONG-TERM DEBT

The Company sold $115 million of 4% convertible subordinated notes during 
1997.
The  notes  will mature on September 1, 2004.  Unless  previously  redeemed  
or
repurchased,  the  notes  are  convertible  at  any  time  through the close 
of
business  on  the final maturity date of the notes, into common  stock  of  
the
Company, at a conversion  price  of $26.67 per share.  Interest on the notes 
is
payable semi-annually, commencing March 1, 1998.  Total interest accrued on 
the
convertible subordinated notes at March 29, 1998 was approximately $353,000.

         After  September 2000, the  notes  are redeemable at the option of 
the
Company, in whole or in part.  The notes may  be  redeemed  for  either cash 
or
common stock at a repurchase price of 105% of the principal amount of the 
notes
to be repurchased plus accrued and unpaid interest to the repurchase date.


         The   notes   are   unsecured  obligations  of  the  Company  and  
are
subordinated to all existing and  future  senior  indebtedness  of the 
Company.
The   indenture  contains  no  limitations  on  the  incurrence  of  
additional


indebtedness or other liabilities by the Company.



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 for the period ended December  28,  1997  filed  with  the  Securities 
and
Exchange  Commission  on  March 27, 1998, and any subsequent filings  with  
the
Securities and Exchange Commission.

This  report  contains  forward-looking   statements  that  involve  risks  
and
uncertainties. The statements contained in  this  report  that  are  not 
purely
historical are forward-looking statements within the meaning of Section  27A 
of
the  Securities  Act of 1933 and Section 21E of the Securities Exchange Act  
of
1934,  including  without   limitation   statements   regarding  the  
Company's
expectations,  beliefs,  intentions  or strategies regarding  the  future.  
All
forward-looking statements included in  this  document are based on 
information
available  to  the  Company  on the date hereof, and  the  Company  assumes  
no
obligation to update any such forward-looking statements.  The Company's 
actual
results could differ materially from those anticipated in these 
forward-looking
statements.   See "Factors that May Affect Future Results".


REVENUES

Revenues increased 88% to $56.6  million  in the first quarter of 1998 
compared
to  revenues  of  $30.1  million for the same quarter  of  1997.  
Sequentially,
revenues increased by 11%  from  $51.1  million  in the fourth quarter of 
1997.
During  the  quarter,  no  single customer represented  10%  of  revenues.  
The
increased  revenues reflect the  substantial  unit  sales  growth  due  to  
the
continued market  acceptance  of  the Company's products in both the 
networking
and transmission markets, along with increases in the Company's customer base.

International revenues were $21.2 million  or  37.5% and $10.8 million or 
36.0%
of  revenues,  respectively,  for  the  first  quarter   of   1998   and  
1997,
respectively.   All  sales are denominated in U.S. dollars, thereby 
eliminating
the impact of foreign currency exchange rate fluctuations on revenues.


GROSS MARGIN

Product gross margin is  affected by several factors, including average 
selling
prices, the mix between older  and  newer products, test equipment 
utilization,
manufacturing yields, timing of cost  reductions and the mix between direct 
and
distributor sales.  Margins on domestic  and  international  sales are 
similar.
At 58.5%, gross product margins for the first quarter of 1998  were flat to 
the
fourth  quarter of 1997 and up from 57.1% for the first quarter of  1997.   
The
margin increases  from  the first quarter of 1997 are due to the impact of 
cost
reductions that were implemented during 1997.


RESEARCH AND DEVELOPMENT

Research and development  expenses  were  $10.5 million or 18.6% of revenues 
in
the first quarter of 1998 versus $6.3 million  or  21.1%  of   revenues  in 
the
first  quarter of 1997. The dollar increase in research and development 
expense
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  $8.7  million  or  15.4% of revenues in 
the
first  quarter of 1998 versus $4.3 million or 14.3% of revenues  in  the  
first
quarter  of  1997.   The  increased  expenditures are primarily attributable 
to
increased sales commissions along with the expansion of the Company's sales 
and
marketing staffs and their related costs.


GENERAL AND ADMINISTRATIVE

In the first quarter of 1998, general  and  administrative  expenses  were 
$3.5
million or 6.1% of revenues versus $1.8 million or 6.0% of revenues in the 
same
period of 1997. The increased expenses are primarily attributable to 
additional
staffing associated with the Company's growth.


LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of liquidity as of March 29, 1998, consisted 
of
$124.0  million  of cash, cash equivalents and short-term investments, and  
$10
million available  under  the Company's revolving line of credit.  At March 
29,
1998,  the  Company had no outstanding  balance  under  this  line  of  
credit.
Working capital as of March 29, 1998, was $154.2 million.

During the first  three  months  of 1998, the Company generated $9.1 million 
of
cash from operating activities, as  compared to $6.6 million in the same 
period
in 1997. In both years, net cash generated  from  operations  during the 
period
was  primarily due to net income before depreciation and amortization  
expense.
This cash  generated  was  offset  by  the  net  changes  during the period 
for
inventories, accounts receivable, and accounts payable  These  changes  are 
due
primarily  to  expansion of the Company's business, and do not reflect 
material
changes in the way  the  Company  conducts  operations.  The Company spent 
$6.1
million  for  capital  expenditures during the first three months  of  1998  
as
compared to $4.1 million for the same period of 1997.


FACTORS THAT MAY AFFECT FUTURE RESULTS

The following factors may have an impact on the Company's business:


MANUFACTURING RISKS

The Company does not manufacture  the silicon 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 1994 and 1995, the Company 
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, 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
or test the Company's devices.   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 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
report, 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,  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  its  ability  to  retain and attract 
key
personnel.  Competition  for  such  personnel is intense and there  can  be  
no
assurance that the Company will be able to retain and attract key personnel. 
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.  See "Legal Proceedings".


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 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 
erosion,
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.    The  recent  economic  downturn in several Asian countries has  
not
affected the Company in a material way,  but  there  can  be no assurances 
that
continued economic problems in Asia or any other region of  the  world will 
not
affect the Company.


INCREASED LEVERAGE

As  a  result  of  the  Company's sale in August and September 1997 of  its  
4%
Convertible Subordinated Notes due 2004 (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 47.0%, at March 29, 1998. This increased leverage will  increase  
the
Company's  interest expense 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/or 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 its Notes and the Common Stock. Such factors  include,  
without
limitation,  fluctuations in product revenues 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  Company's  Notes and the 
Common
Stock.


YEAR 2000 COMPLIANCE

The Company has reviewed its exposure to risks that could be caused if 
internal
computer  systems  do not correctly recognize date information  when  the  
year
changes to 2000.  Management believes that the likelihood of a material 
adverse
impact due to problems  with  internal systems or products sold to customers 
is
remote and expects that the cost  of  remedying internal systems that 
currently
cannot process the date change will not have a material effect on the 
Company's
financial position or overall trends in  results of operations.  The Company 
is
also contacting critical suppliers of products  and  services to determine 
that
the supplier's operations and the products and services  they  provide are 
year
2000  compliant.  There can be no assurance that another company's  failure  
to
ensure year 2000 capability would not have an adverse effect on the Company.



                          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. On January 21, 1998, the Court denied Seeq's motion to 
declare
claims of the Level  One  patents  invalid.   The  Court also permitted Seeq 
to
amend  its  counterclaim  to  include  a claim that certain  of  the  
Company's
products infringe Seeq's U.S. Patent 5,504,738;  the  Company  has denied 
these
allegations.     Trial is set for August 1998.  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.





<PAGE>




ITEM 2.      CHANGES IN SECURITIES

On  March 3, 1998, the Company's Certificate of Incorporation  was  amended  
to
effect  a  3-for-2 stock split to shareholders of record on March 9, 1998.  
The
split was effective March 30, 1998.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits - 27.1--Financial Data Schedule, March 29, 1998

      (b)  Reports on Form 8-K - None



<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: May 10, 1998 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: May 10, 1998 By:   /S/ JOHN KEHOE  John Kehoe
   Senior Vice President and Chief
   Financial Officer
   (Principal Financial Officer)



                                            S-1


<PAGE>




[DATE]

[ARTICLE] 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 29, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
[CAPTION]
[PERIOD-TYPE] 3-MOS
[CAPTION]
[FISCAL-YEAR-END]          DEC-29,1997
[CAPTION]
[PERIOD-END]                         MAR-29-1998
[CASH]                    20,879
[SECURITIES]                                103,164
[RECEIVABLES]                    33,042
[ALLOWANCES]                         493
[INVENTORY]                                  28,487
[CURRENT-ASSETS]                  193,069
[PP&E]                    34,811
[DEPRECIATION]                    28,983
[TOTAL-ASSETS]                  288,343
[CURRENT-LIABILITIES]                    38,901
[BONDS]                   115,000
[PREFERRED-MANDATORY]                             0
[PREFERRED]                                                          0
[COMMON]                    93,220
[OTHER-SE]                    39,060
[TOTAL-LIABILITY-AND-EQUITY]          288,343
[SALES]                     56,607
[TOTAL-REVENUES]                     56,607
[CGS]                     23,491
[TOTAL-COSTS]                     23,491
[OTHER-EXPENSES]                     22,705
[LOSS-PROVISION]                             0
[INTEREST-EXPENSE]                       1,347
[INCOME-PRETAX]                     11,210
[INCOME-TAX]                      3,669
[INCOME-CONTINUING]                      7,511
[DISCONTINUED]                             0
[EXTRAORDINARY]                             0
[CHANGES]                             0
[NET-INCOME]                      7,511
[EPS-PRIMARY]           ---
[EPS-DILUTED]                        .22