##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One)
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended March 31,
    2002                                                    
|or        
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from                      to                                      

Commission File No. 0-23298

QLogic Corporation


(Exact name of registrant as specified in its
charter)


|                                                                                                 |  |                                                   
|------------------------------------------------------------------------------------------------ |  | --------------------------------------------------
|Delaware(State of incorporation)                                                                 |  | 33-0537669(I.R.S. Employer Identification
    No.)
|26600 Laguna Hills Drive
    Aliso Viejo, California(Address of principal executive
    offices) |  | 92656(Zip Code)                                   

(949) 389-6000

(Registrants telephone number, including
area code)




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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:


Common Stock, Par Value $0.001 Per
Share


Series A Junior Participating Preferred
Stock, Par Value $0.001 Per Share


(Title of class)




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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     þ

As of May 31, 2002 the aggregate market
value of the voting stock held by non-affiliates of the
registrant was $2,641,007,570.

As of May 31, 2002, the registrant had
93,307,742 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the following documents are
incorporated herein by reference in the Parts of this report
indicated below:



| |                                     |                                                                                                                                                                                                            
| | ----------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Part III, Items 10, 11, 12 and 13  | Definitive proxy statement for the 2002 Annual
    Meeting of Stockholders which will be filed with the Securities
    and Exchange Commission within 120 days after the close of
    the 2002 fiscal year.



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TABLE OF CONTENTS



|              |                                                                                               |                                                 |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6. Selected Financial Data                                                              
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7a. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              |                                                                                               | INDEPENDENT AUDITORS REPORT                   
|              |                                                                                               | CONSOLIDATED BALANCE SHEETS                    
|              |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME              
|              |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant.                                 
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|PART IV      
|              | Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K                   
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 21.3 
|EXHIBIT 23.1 



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##### Table of Contents






PART I




Item 1.     Business

Introduction

QLogic Corporation was organized as a Delaware
corporation in 1992. In August 2000, we merged with Ancor
Communications, Inc., in a pooling-of-interests transaction.
Unless the context indicates otherwise, the Company
and QLogic each refer to the Registrant and its
subsidiaries.

All references to years refer to the
Companys fiscal years ended March 31, 2002,
April 1, 2001, and April 2, 2000 as applicable, unless
the calendar years are specified. All references to share and
per share data have been restated to reflect our stock splits.

Overview

QLogic Corporation simplifies the process of
networking storage for original equipment manufacturers, or
OEMs, resellers and system integrators with the only end-to-end
storage area network, or SAN, infrastructure in the industry.
With a vision of a SAN in every business, QLogic produces the
controller chips, management enclosure chips, host bus adapters,
or HBAs, fabric switches and management software that are the
backbone of storage networks for large corporations and small to
medium-sized businesses. The Company serves customers with
solutions based on all SAN technologies including Small Computer
Systems Interface, or SCSI, Internet SCSI, or iSCSI,
InfiniBandTM and Fibre Channel.



| |                                        
| | ---------------------------------------
| | Customers, Markets and
    Applications



| |                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics products are sold directly to OEMs
    and through QLogic-authorized distributors and resellers. QLogic
    customers rely on our SAN infrastructure technology to deliver
    storage solutions to information technology professionals in
    virtually every business sector.
|
| | QLogic technology is found in solutions for:                                                                                                                                                                                                                                             



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Storage-intensive enterprise applications such as
    data warehousing, data mining and online transaction processing;                                 
|
| |  | Media-rich file types such as film/video,
    broadcast, medical imaging and computer-aided design, or CAD and
    computer-aided manufacturing or CAM;
|
| |  | Server clustering and local area network-free, or
    LAN-free, high-speed backup.                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogic products are incorporated in hundreds of
    OEM customer solutions from: Cisco Systems, Inc., Dell Computer
    Corporation, EMC Corporation, Fujitsu Limited, Hitachi Limited,
    Hewlett Packard Company, Intel Corporation,
    IBM Corporation, Quantum Corp., Sony, Storage Technology
    Corporation (StorageTek), Sun Microsystems, Inc. and many others.



| |                           
| | --------------------------
| | Partnerships and Alliances



| |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To ensure interoperability within the SAN, QLogic
    works closely with independent hardware vendors and software
    vendors, as well as developers and integrators who create, test,
    and evaluate complementary storage networking products. Key
    partners include: Computer Associates International, Inc.,
    Legato Systems, Inc., McData Corporation, Microsoft Corporation,
    and VERITAS Software Corporation.

Storage Industry

The University of California at Berkeley report
entitled How Much Information? published in late
2000, attempted to measure how much digital information is
generated in the world each year. The report concluded the world
currently generates over 1.6 million terabytes
(1 terabyte equals roughly 1 million books) of
magnetically recorded information per year. It also appears this
volume is doubling every year. The ability

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to access, share and, most importantly, manage
this amount of information represents a large market opportunity.


In the mid-1980s the need to distribute
information quickly and efficiently drove client access from a
mainframe direct connect environment to a LAN
environment. More recently, the need to access growing volumes
of information by large numbers of homogeneous and heterogeneous
computing platforms has led to a rapid adoption of storage area
networking environments. As indicated in the University of
California at Berkeley study, the explosive expansion of the
Internet and the growing use of digital information servers act
as a catalyst for ever increasing storage requirements and
drives the need to network storage for accessibility,
maintainability and simplicity of management.

IBM first introduced storage area networking in
the early 1990s with the Enterprise System Connection, or
ESCON. While this was an effective solution for IBM mainframe
environments, it did nothing for the rapidly expanding open
systems environment. Fibre Channel, which was introduced in
1994, promised superior connectivity, distance and access
benefits over ESCON in a standard protocol.

Initially deployed in a loop environment and used
primarily for its tremendous bandwidth advantages over existing
SCSI solutions, Fibre Channel gradually moved into networked
environments. At first, deployments used hubs to connect
networked servers and storage subsystems. Subsequently, switches
replaced hubs and now represent the vast majority of deployments.

As was the case in the adoption of LANs, software
was necessary for the successful adoption of storage area
networking. The ability to consolidate multiple computing
environments and share connectivity of previously dedicated
storage offered significant cost advantages. The only remaining
issue was managing such a sophisticated environment. SANs
followed much the same adoption path as LANs, with storage
manufacturers, original equipment manufacturers and third
parties all developing and delivering SAN management solutions.
Today there are many SAN management solutions available, from
relatively basic solutions for small environments to extensive
software packages capable of managing thousands of SAN nodes.

SANs are rapidly being adopted with Fibre Channel
the primary enabling technology for their implementation.
According to International Data Corporation and Dataquest market
reports, SANs will dominate the storage market by 2004 and Fibre
Channel will be the dominant technology used to deploy SANs
through 2004 and beyond.

The QLogic Solution

Our ability to serve the storage industry stems
from our highly leveraged product line that provides a complete
SAN infrastructure solution. On the server side of the SAN, we
provide enclosure management products, HBA technology on
the motherboard (Fibre Down technology), baseboard management
solutions and Fibre Channel HBAs. Connecting servers to storage,
we provide the backbone of the network with a full suite of
Fibre Channel switches. On the storage side of the network, we
provide controller chips for the Redundant Array of Independent
Disks, or RAID, Fibre Channel host port, RAID Fibre Channel
drive port, along with controller chips for hard drives and tape
drives.

One of our key strategies has been to provide our
customers with solutions that simplify their product design
requirements. Complete storage networking solutions that are
pre-tested and easy to install significantly reduce the
implementation efforts and time-to-market in both manufacturing
and enterprise information technology environments. Today our
SAN infrastructure components are found in a broad range of SAN
products, including workstations, department servers, blade
servers, network attached storage, or NAS, servers, storage
routers, virtualization appliances, tape drives and disk arrays.

QLogic Product Overview

QLogic designs and supplies storage network
infrastructure components and software for the worlds
largest server and storage subsystem manufacturers that
ultimately are used by small to medium-sized

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business, along with companies that have large
information technology environments. Our products are based on
SCSI, iSCSI, Fibre Channel, and Infiniband standards.


We have the unique position as the only
end-to-end supplier of Fibre Channel network infrastructure
components that aid in the transfer and acquisition of data
within the SAN. Our products include our SANbladeTM
HBAs, SANboxTM Fibre Channel Switches and SANsurfer
Tool KitTM management software. QLogic is the only
HBA vendor to support SCSI, Internet Protocol, or IP, Virtual
Interface, or VI, and FICON protocols with the same Fibre
Channel HBA. In addition, we design and supply controller chips
used in hard drives and tape drives as well as enclosure
management and baseboard management chip solutions that monitor
the health of the physical environment within a server or
storage enclosure.



| |                            
| | ---------------------------
| | SAN Infrastructure Products



| |                  
| | -----------------
| | Host Bus Adapters



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics SANblade HBA family consists of
    board-level solutions based on Fibre Channel, iSCSI and
    Infiniband. Our SANblade products are engineered around a
    standard, common driver interface, so developers can migrate
    between topologies with minimal investment and bring new
    technology products to market quickly. We produce a broad line
    of HBAs and SANblade ManagerTM as part of our
    SANsurfer Toolkit software, for both direct connect and SAN
    connected environments.



| |                     
| | --------------------
| | SANblade 2300 Series



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The SANblade 2300 Series are PCI-X,
    CompactPCI, or cPCI and SBus to 2Gb Fibre Channel HBAs.
    Targeted specifically for SANs and server clustering
    environments, the 2300 Series is optimized for peak
    performance and real-world scalability. Our 2Gb/sec HBAs support
    a wide range of operating system environments and provide
    reliable, high-performance connectivity for the worlds
    leading server and storage subsystem platforms.



| |                     
| | --------------------
| | SANblade 2200 Series



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The SANblade 2200 Series is designed for
    performance in the SAN environment. The 2200 Series provides all
    the benefits of Fibre Channel technology  fabric
    connections for hundreds of devices, bandwidth to 200MB/s (in
    full duplex) all in a highly integrated cost-effective package.
    With PCI, cPCI, and SBus models, the high-performance
    2200 Series supports SAN-enabled features, like F-port
    fabric login, full duplex, Fibre Channel-tape and
    IP protocol, creating a powerful SAN connectivity solution.



| |                           
| | --------------------------
| | PCI-SCSI Host Bus Adapters



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Designed for maximum performance in real world
    applications, QLogics PCI-SCSI host bus adapter family
    enables a powerful combination of speed and host-CPU
    independence, making QLogic SCSI products among the most
    scalable solutions on the market.



| |                       
| | ----------------------
| | Fibre Channel Switches



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We develop and market Fibre Channel switches and
    SANbox Manager as part of our SANsurfer Tool Kit software.
    QLogic SANbox switches provide a high performance and flexible
    solution for networking storage. With solutions ranging from
    8-port fabric switches to 16-port fabric switches, the SANbox
    product line meets the needs of both small to medium business as
    well as requirements in the global enterprise information
    technology environment. Deployed in single or multi-stage
    fabrics of almost any size, these products are
    essential to the creation of resilient, intelligent SANs.
    Linking multiple host and storage resources, SANbox products
    create the connectivity framework that allows users to share and
    efficiently access stored data.

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| |                                
| | -------------------------------
| | SANbox2TMFibre Channel Switches



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics SANbox2 is a 2Gb and 1Gb Fibre
    Channel switch that ensures complete investment protection for
    current and future SAN infrastructures. It provides a new
    2Gb standard of performance, reliability and simplicity for
    SANs. Providing both 8 and 16 ports, the SANbox2 is the
    fastest, most scalable and easiest to manage Fibre Channel
    switch on the market. Built on the industrys most advanced
    technology from the original SANbox series, SANbox2 breaks new
    ground with enhanced functionality that meets or exceeds
    mission-critical requirements.



| |                               
| | ------------------------------
| | SANboxTMFibre Channel Switches



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics SANboxTM 8, 16 and 16HA
    (High Availability) port switches provide the essential
    foundation for scalable high-performance SANs. Linking multiple
    hosts and storage resources, SANbox products provide a reliable
    high performance connectivity framework to help users share and
    efficiently access stored data. The SANbox-8s small size
    makes it the ideal 8-port switch for either edge
    switch or core switch use, supporting
    applications ranging from server clustering to storage
    consolidation and enterprise backup. The SANbox 16 and 16HA is
    ideal for storage consolidation, server clustering, and
    enterprise backup for any application requiring maximum
    reliability, availability and performance. The SANbox-16HA
    includes all the features of our standard 16-port switch, plus
    optional dual redundant power supplies.



| |         
| | --------
| | Software



| |                                            
| | -------------------------------------------
| | SANsurfer Tool
    KitTMManagement Software



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SANsurfer Tool Kit is included with all QLogic
    SANblade HBAs and SANbox switches. Through its SANblade Manager
    and SANsurfer Manager, it provides everything needed to
    configure and manage a QLogic SAN fabric, all from a single
    intelligent interface. Beginning with easy-to-follow
    installation instructions and incorporating all the necessary
    drivers and firmware, SANsurfer Tool Kit is capable of handling
    any aspect of SANbox and SANblade management, including accurate
    detection of device failures, diagnostic tools to help managers
    troubleshoot, and statistical tools to measure metrics.
    SANsurfer Tool Kit can also be launched from multi-vendor SAN
    management software packages from VERITAS®, Computer
    Associates®, BMC Software®, Tivoli®, McData and
    others. QLogic partners with industry leading SAN software
    providers to ensure that our products interoperate with our
    partners software.

Silicon
Chips



| |                     
| | --------------------
| | ISP Controller Chips



| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics PCI/PCI-X Fibre Channel controllers
    are highly integrated, cost effective solutions.
    Interoperability is key in our unique single-chip design and
    ultra-scalable architecture, making QLogic Fibre Channel
    products the easiest to implement and evolve.



| |                       
| | ----------------------
| | Peripheral Controllers



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics Peripheral Controllers are the
    industry standard for stand-alone SCSI and Fibre Channel
    solutions, providing the flexibility and performance required
    for applications in hard drives, tape drives, scanners, and
    other peripheral products.



| |                       
| | ----------------------
| | Management Controllers



| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | QLogics Management Controller products
    monitor and control the physical environment within server or
    storage enclosure environments. These products detect the
    presence or absence of functional disk drives, power supplies
    and fans, as well as monitor the temperature within the
    enclosure, and pass the information back to a system for display
    and/or programmed action.

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Sales and Marketing

We market and distribute our products through OEM
partners, system integrators, resellers and our direct sales
organization supported by sales and field engineering personnel.
We also utilize a network of independent manufacturers
representatives and regional and international distributors.

In North America, we maintain a direct sales
force to serve our large original equipment manufacturer
customers and multiple outside representatives that are focused
on medium and emerging accounts. National distributors carrying
our products serve the value added reseller, or VAR market.

We also utilize a focused sales organization to
assist, train, equip and augment the sales organizations of our
major original equipment manufacturer customers and their
respective reseller organizations and partners.

We market and sell our products throughout the
world. Internationally, we utilize an extensive network of
distributors and master distributors to focus on the original
equipment manufacturer and VAR markets. We maintain direct sales
and technical relationships with our major original equipment
manufacturer customers.

We believe that it is important to work closely
with our large peripheral and computer system manufacturers
during their design cycles. We support these customers with
extensive applications and system design support, as well as
training classes and seminars, conducted both in the field and
from our offices in Eden Prairie, Minnesota and Aliso Viejo,
California. We also maintain a high level of customer support
through technical hotlines and Internet communications.

For our original equipment manufacturer
customers, our sales efforts are focused on establishing and
developing long-term relationships. The sales cycle typically
begins with one of our product designs being selected as a
component into a potential customers computer system or
data storage peripheral. Once we secure this design win with a
given customer, the time to product shipment can range between
six and eighteen months. After winning a design with a potential
customer, we work closely with the customer to integrate our
product with the customers current and next generation
products.

We actively participate within industry
organizations relating to the development and acceptance of
industry standards. We also collaborate with peer companies in
respective markets through co-marketing activities, joint
training, road tours and cooperative testing. To ensure
multi-vendor inter-operation, we maintain extensive
interoperability and testing laboratories.

Engineering and Development

Our industry is subject to rapid and regular
technological change. Our ability to compete depends upon our
ability to continually design, develop and introduce new
products that take advantage of market opportunities and address
emerging standards. Our strategy is to leverage our substantial
base of architectural and systems expertise to address a broad
range of input/ output, or I/O, and SAN solutions.

We are engaged in the design and development of
integrated circuits for Fibre Channel switches, switch
components, SCSI I/O controllers and Fibre Channel host bus
adapters. We also design and develop SCSI and Fibre Channel hard
disk controllers and management controller semiconductors used
in storage peripherals and server enclosures and circuit boards.

We continue to invest heavily in research and
development and have expanded our capabilities through our
merger with Ancor Communications, Inc. and our acquisition of
Little Mountain Group, Inc. Recognizing the rapid technological
evolution in the industry, we maintain research and development
activities in the areas of emerging technologies including
Infiniband and iSCSI.

As of March 31, 2002, we employed
approximately 373 engineers, including technicians and
support personnel engaged in the development of new products and
the improvement of existing products. There can be no assurance
that we will continue to be successful in attracting and
retaining key personnel with the skills and expertise necessary
to develop new products in the future.

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Backlog

Our backlog of orders was approximately
$56.5 million on March 31, 2002, compared to
approximately $86.2 million on April 1, 2001. These
backlog figures include only orders scheduled for shipment
within six months. Most orders are subject to rescheduling
and/or cancellation with little or no penalty. Purchase order
release lead times depend upon the scheduling practices of the
individual customer, and the rate of booking new orders
fluctuates from month to month. Our customers have in the past
encountered uncertain and changing demand for their products.
Orders are typically placed based on customer forecasts. If
demand falls below customers forecasts, or if customers do
not control their inventories effectively, they may cancel or
reschedule shipments previously ordered from us. Additionally,
the percentage of business that is booked and billed within the
same quarter is increasing. Therefore, the level of backlog at
any particular date is not necessarily indicative of sales for
any future period.

Competition

The markets for SAN infrastructure components are
highly competitive and are characterized by short product life
cycles, price erosion, rapidly changing technology, frequent
product performance improvements and evolving industry standards.

Due to the broad array of components required in
the storage area network infrastructure, we compete with several
companies. In the HBA market our primary competitors are LSI
Logic Corporation, Emulex Corporation, Adaptec Inc. and JNI
Corporation. Our switch products compete with McData Corporation
and Brocade Communications Systems, Inc., however, there are
also many other smaller companies in these markets.

There are two markets in the Fibre Channel
semiconductor controller business. The first market is
associated with host applications and controller interfaces. In
this market our primary competitors are Agilent Technologies and
LSI Logic Corporation. The other market is the hard drive
controller business. Although there are no direct competitors
currently, potential competitors are Marvel Technologies and LSI
Logic Corporation and vertically integrated hard disk drive
manufacturers.

Finally, our enclosure and baseboard management
semiconductor controllers compete primarily with Vitesse
Semiconductor Corporation.

Manufacturing

We subcontract the manufacturing of our
semiconductor chips and host bus adapter boards and switches to
independent foundries and subcontractors, which allows us to
avoid the high costs of owning, operating and constantly
upgrading a wafer fabrication facility and assembly factory. As
a result, we focus our resources on product design and
development, quality assurance, sales and marketing and customer
support. We design our semiconductors, switches, and host
adapter board products, and perform final tests on products,
including tests required under our ISO9001/ TickIT
Certification. We also provide fabrication process reliability
tests, conduct failure analysis and audit the finished goods
inventory to confirm the integrity of our quality assurance
procedures.

Our semiconductors are currently manufactured by
a number of domestic and offshore foundries. Our major
semiconductor suppliers are Toshiba, NEC Electronics, LSI Logic
Corporation and Samsung Semiconductor, Inc. Most of our products
are manufactured using 0.35 or 0.25 micron process technology.

We depend on our foundries to allocate a portion
of their foundry capacity sufficient to meet our needs and to
produce products of acceptable quality and with satisfactory
manufacturing yields in a timely manner. These foundries
fabricate products for other companies and manufacture products
of their own design. We do not have long-term agreements with
any of our foundries; we purchase both wafers and finished chips
on a purchase order basis. Therefore, the foundries generally
are not obligated to supply products to us for any specific
period, in any specific quantity or at any specific price,
except as may be provided in a particular purchase order. We
work with our existing foundries, and intend to qualify new
foundries, as needed, to obtain

6



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additional manufacturing capacity. However, there
can be no assurance that we will be able to maintain our current
foundry relationships or obtain additional capacity.


We currently purchase our semiconductor products
from our foundries either in finished form or wafer form. We use
subcontractors to die assemble our semiconductor products
purchased in wafer form, and to assemble our switches and host
adapter board products. In the assembly process for our
semiconductor products, the silicon wafers are separated into
individual die, which are then assembled into packages and
tested. Following assembly, we further test and inspect the
packaged devices prior to shipment to our customers. For our
host adapter board products, we purchase components in kit form.
We provide these items to contract manufacturing companies that
work together with our component suppliers to assemble the
boards to our specifications. For our switch products, we
subcontract the material, management, test and assembly to a
subcontractor.

Most component parts used in our host bus adapter
boards are standard off-the-shelf items, which are, or can be,
dual-sourced. We select suppliers on the basis of technology,
manufacturing capacity, quality and cost. Whenever possible and
practicable, we strive to have at least two manufacturing
locations for each host adapter board and chip product.
Nevertheless, our reliance on third-party manufacturers involves
risks, including possible limitations on availability of
products due to market abnormalities, unavailability of, or
delays in obtaining access to certain product technologies and
the absence of complete control over delivery schedules,
manufacturing yields, and total production costs. The inability
of our suppliers to deliver products of acceptable quality and
in a timely manner or the inability by us to procure adequate
supplies of our products could have a material adverse effect on
our business, financial condition and results of operations.

Intellectual Property

Although we have seventeen patents issued and
nine additional patent applications pending in the United
States, we rely primarily on our trade secrets, trademarks and
copyrights to protect our intellectual property. We attempt to
protect our proprietary information through confidentiality
agreements and contractual provisions with our customers,
suppliers, employees and consultants, and through other security
measures. Although we intend to protect our rights vigorously,
there can be no assurance that these measures will be
successful. In addition, the laws of certain countries in which
our products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect our
products and intellectual property rights to the same extent as
the laws of the United States.

While our ability to compete may be affected by
our ability to protect our intellectual property, we believe our
technical expertise and ability to introduce new products on a
timely basis will be more important in maintaining our
competitive position than protection of our intellectual
property.

We have received notices of claimed infringement
of trademark rights in the past. There can be no assurance that
third parties will not assert claims of infringement of
trademarks or any other intellectual property rights against us
with respect to existing and future products. In the event of a
patent or other intellectual property dispute, we may be
required to expend significant resources to develop
non-infringing technology or to obtain licenses to the
technology which is the subject of the claim. There can be no
assurance that we would be successful in such development or
that any such license would be available on commercially
reasonable terms, if at all. In the event of litigation to
determine the validity of any third partys claims, such
litigation could result in significant expense to us, and divert
the efforts of our technical and management personnel, whether
or not such litigation is determined in our favor.

Employees

We had 668 employees as of March 31,
2002. We believe our future prospects will depend, in part, on
our ability to continue to attract, train, motivate, retain and
manage skilled engineering, sales, marketing and executive
personnel. None of our employees are represented by a labor
union. We believe that our relations with our employees are good.

7



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|        |           
|------- | ----------
|Item 2. | Properties

Our principal product development, operations,
sales and corporate offices are currently located in three
buildings comprising approximately 165,000 square feet in Aliso
Viejo, California. We purchased the Aliso Viejo facility on
March 23, 2000 and the facility is held without
encumbrance. Additionally, we have leased design centers in
Austin, Texas, Roseville, California and Eden Prairie, Minnesota
comprising 5,973 square feet, 15,622 square feet and 50,182
square feet, respectively.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Periodically, we are a party to ordinary disputes
arising in the normal course of business. We do not believe that
the outcome of any current legal proceedings will have a
material adverse effect on our business, financial condition or
results of operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matter was submitted during the fourth quarter
of fiscal 2002 to a vote of security holders.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Principal Market and Prices

Shares of our common stock are traded and quoted
in The NASDAQ National Market under the symbol QLGC. The
following table sets forth the range of high and low sales
prices per share of our common stock for each quarterly period
of the two most recent years as reported on The NASDAQ National
Market.

|               |  |              |       |     |  |   |       | 
|-------------- |  | ------------ | ----- | --- |  | - | ----- | 
|               |  |             
|               |  | Sales Prices
|               |  |             
|Fiscal 2002    |  | High         |       | Low
|               |  |              |       |    
|First Quarter  |  | $            | 66.16 |     |  | $ | 17.81 | 
|Second Quarter |  |              | 65.67 |     |  |   | 17.21 | 
|Third Quarter  |  |              | 56.99 |     |  |   | 17.30 | 
|Fourth Quarter |  |              | 57.10 |     |  |   | 35.97 | 

|               |  |      |        |     |  |   |       | 
|-------------- |  | ---- | ------ | --- |  | - | ----- | 
|Fiscal 2001    |  | High |        | Low
|               |  |      |        |    
|First Quarter  |  | $    | 131.75 |     |  | $ | 39.69 | 
|Second Quarter |  |      | 119.25 |     |  |   | 60.25 | 
|Third Quarter  |  |      | 130.25 |     |  |   | 60.44 | 
|Fourth Quarter |  |      | 99.13  |     |  |   | 21.75 | 

Number of Common Stockholders

The approximate number of record holders of our
common stock was 675 as of March 31, 2002.

Dividends

We have never paid cash dividends on our common
stock and currently have no intention to do so. We currently
anticipate that we will retain all of our future earnings for
use in the development and expansion of our business and for
general corporate purposes. Any determination to pay dividends
in the future will be at the discretion of our board of
directors and will depend upon our operating results, financial
condition and other factors as the board of directors, in its
discretion, deems relevant.

8



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##### Table of Contents






Item 6.     Selected
Financial Data

The following table of certain selected data
regarding QLogic should be read in conjunction with the
consolidated financial statements and notes thereto.

|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |        |        | 
|--------------------------------------------------------------------------- | --------------------------- | ------------------------------------- | ------- | -------- | ------- | -------- | ------- | --------- | ------- | --------- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                            |                             |                                      
|                                                                            |                             | Fiscal Year Ended                    
|                                                                            |                             |                                      
|                                                                            |                             | March 31,                             |         | April 1, |         | April 2, |         | March 28, |         | March 29,
|                                                                            |                             | 2002                                  |         | 2001     |         | 2000     |         | 1999      |         | 1998     
|                                                                            |                             |                                       |         |          |         |          |         |           |         |          
|                                                                            |                             |                                      
|                                                                            |                             | (In thousands, except per share data)
|Selected Statements of Operations
    Data                                  |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Net revenues                                                                |                             | $                                     | 344,189 |          |         | $        | 357,542 |           |         | $         | 216,093 |        |         | $ | 121,575 |        |        | $ | 89,317  |       
|Cost of revenues                                                            |                             |                                       | 133,005 |          |         |          | 128,739 |           |         |           | 70,982  |        |         |   | 49,034  |        |        |   | 40,040  |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|                                                                            |                             | Gross profit                          |         |          | 211,184 |          |         |           | 228,803 |           |         |        | 145,111 |   |         |        | 72,541 |   |         |        | 49,277 | 
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Operating expenses:                                                         |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|                                                                            | Engineering and development |                                       |         | 69,684   |         |          |         | 56,315    |         |           |         | 47,451 |         |   |         | 29,809 |        |   |         | 19,872 |       
|                                                                            | Selling and marketing       |                                       |         | 38,323   |         |          |         | 36,482    |         |           |         | 22,623 |         |   |         | 15,248 |        |   |         | 12,540 |       
|                                                                            | General and administrative  |                                       |         | 16,673   |         |          |         | 14,828    |         |           |         | 11,202 |         |   |         | 8,803  |        |   |         | 8,402  |       
|                                                                            | Merger and related expenses |                                       |         |         |         |          |         | 22,947    |         |           |         |       |         |   |         |       |        |   |         |       |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|                                                                            |                             | Total operating expenses              |         |          | 124,680 |          |         |           | 130,572 |           |         |        | 81,276  |   |         |        | 53,860 |   |         |        | 40,814 | 
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|                                                                            |                             | Operating income                      |         |          | 86,504  |          |         |           | 98,231  |           |         |        | 63,835  |   |         |        | 18,681 |   |         |        | 8,463  | 
|Interest and other income                                                   |                             |                                       | 19,036  |          |         |          | 18,706  |           |         |           | 9,181   |        |         |   | 5,759   |        |        |   | 3,543   |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|                                                                            | Income before income taxes  |                                       |         | 105,540  |         |          |         | 116,937   |         |           |         | 73,016 |         |   |         | 24,440 |        |   |         | 12,006 |       
|Income taxes                                                                |                             |                                       | 34,814  |          |         |          | 48,168  |           |         |           | 24,701  |        |         |   | 8,310   |        |        |   | 4,983   |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Net income                                                                  |                             |                                       | 70,726  |          |         |          | 68,769  |           |         |           | 48,315  |        |         |   | 16,130  |        |        |   | 7,023   |       
|Accretion on convertible preferred stock                                    |                             |                                       |        |          |         |          |        |           |         |           | 12      |        |         |   | 762     |        |        |   | 345     |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Net income attributable to common stockholders                              |                             | $                                     | 70,726  |          |         | $        | 68,769  |           |         | $         | 48,303  |        |         | $ | 15,368  |        |        | $ | 6,678   |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Basic net income per share                                                  |                             | $                                     | 0.76    |          |         | $        | 0.76    |           |         | $         | 0.56    |        |         | $ | 0.20    |        |        | $ | 0.10    |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Diluted net income per share                                                |                             | $                                     | 0.74    |          |         | $        | 0.72    |           |         | $         | 0.52    |        |         | $ | 0.18    |        |        | $ | 0.09    |       
|                                                                            |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Selected Balance Sheet Data                                                 |                             |                                       |         |          |         |          |         |           |         |           |         |        |         |   |         |        |        |   |         |       
|Working capital                                                             |                             | $                                     | 535,612 |          |         | $        | 442,702 |           |         | $         | 257,127 |        |         | $ | 118,790 |        |        | $ | 96,066  |       
|Total assets                                                                |                             | $                                     | 670,015 |          |         | $        | 571,497 |           |         | $         | 394,969 |        |         | $ | 203,479 |        |        | $ | 159,295 |       
|Long-term capitalized lease obligations,
    excluding current installments |                             | $                                     |        |          |         | $        |        |           |         | $         |        |        |         | $ |        |        |        | $ | 141     |       
|Total stockholders equity                                                  |                             | $                                     | 618,983 |          |         | $        | 523,702 |           |         | $         | 359,325 |        |         | $ | 175,710 |        |        | $ | 139,255 |       




Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

This Discussion and Analysis of Financial
Condition and Results of Operations contains descriptions of our
expectations regarding future trends affecting our business.
These forward-looking statements and other forward-looking
statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of several factors, including, but not limited to those
factors set forth under Factors That May Affect Future
Results and elsewhere in this document, which include
without limitation the fact that our stock price may be volatile
which could affect the value of your investment, that our
operating results fluctuate significantly, that a long lasting
economic downturn in the global economy impacting information
technology spending could negatively impact our business, that
our business is dependent on the storage area network market
that is new and unpredictable, and that our financial

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condition will be materially harmed if we do
not maintain and gain market or industry acceptance of our
products. Readers of this Annual Report on Form 10-K are
urged to read those sections in their entirety. In light of the
significant uncertainties inherent in the forward-looking
information included in this document, the inclusion of
information should not be regarded as a representation by us or
any other person that our objectives or plans will be achieved.
QLogic undertakes no obligation to update or revise these
forward-looking statements, whether as a result of new
information, future events or otherwise.


RESULTS OF OPERATIONS

The following table sets forth the results of
operations and percentage of net revenues in our consolidated
statements of income:

|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |      |      |  
|------------------- | --------------------------- | ------------------------ | ------- | ------------- | ------- |  | ---- | ---- | ---- | - | ------- | ------- | ------- |  | ---- | ---- | ---- | - | ------- | ------- | ------ |  | ---- | ---- | ---- | -
|                    |                             |                          |         |               |         |  |      |      |      |   |         |        
|                    |                             |                         
|                    |                             | Fiscal Year Ended       
|                    |                             |                         
|                    |                             |                          |         |              
|                    |                             |                          |         | April 2, 2000
|                    |                             |                          |         |              
|                    |                             |                          |         |               |         | 
|                    |                             |                          |         |               |         |  |      |     
|                    |                             |                          |         | April 1, 2001 |         |  |      |     
|                    |                             | March 31, 2002           |         |               |         |  |      |     
|                    |                             |                          |         |               |         |  |      |     
|                    |                             |                          |         |               |         |  |      |      |      |  
|                    |                             | )                       
|                    |                             | (In thousands           
|Net revenues        |                             | $                        | 344,189 |               |         |  | 100  | %    |      | $ | 357,542 |         |         |  | 100  | %    |      | $ | 216,093 |         |        |  | 100  | %   
|Cost of revenues    |                             |                          | 133,005 |               |         |  | 38.7 |      |      |   | 128,739 |         |         |  | 36.0 |      |      |   | 70,982  |         |        |  | 32.8 |     
|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     
|                    | Gross profit                |                          |         | 211,184       |         |  |      | 61.3 |      |   |         | 228,803 |         |  |      | 64.0 |      |   |         | 145,111 |        |  |      | 67.2 |     
|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     
|Operating expenses: |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     
|                    | Engineering and development |                          |         | 69,684        |         |  |      | 20.2 |      |   |         | 56,315  |         |  |      | 15.8 |      |   |         | 47,451  |        |  |      | 22.0 |     
|                    | Selling and marketing       |                          |         | 38,323        |         |  |      | 11.1 |      |   |         | 36,482  |         |  |      | 10.2 |      |   |         | 22,623  |        |  |      | 10.5 |     
|                    | General and administrative  |                          |         | 16,673        |         |  |      | 4.9  |      |   |         | 14,828  |         |  |      | 4.1  |      |   |         | 11,202  |        |  |      | 5.2  |     
|                    | Merger and related expenses |                          |         |              |         |  |      |     |      |   |         | 22,947  |         |  |      | 6.4  |      |   |         |        |        |  |      |     |     
|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     
|                    |                             | Total operating expenses |         |               | 124,680 |  |      |      | 36.2 |   |         |         | 130,572 |  |      |      | 36.5 |   |         |         | 81,276 |  |      |      | 37.7 |  
|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     
|                    |                             | Operating income         |         | $             | 86,504  |  |      |      | 25.1 | % |         | $       | 98,231  |  |      |      | 27.5 | % |         | $       | 63,835 |  |      |      | 29.5 | %
|                    |                             |                          |         |               |         |  |      |      |      |   |         |         |         |  |      |      |      |   |         |         |        |  |      |     

Net Revenues

Our net revenues are derived primarily from the
sale of SCSI and Fibre Channel based I/O products and enclosure
management products. We also license certain designs and receive
royalty revenues and non-recurring engineering fees. Net
revenues in fiscal 2002 decreased $13.4 million or 4% from
fiscal 2001 to $344.2 million. The decrease was the result
of a $39.5 million increase in sales of Fibre Channel
products, which was more than offset by a $49.6 million
decrease in sales of SCSI products, and a $3.2 million
decrease in IDE-based royalties.

Net revenues in fiscal 2001 increased
$141.4 million or 65% from fiscal 2000 to
$357.5 million. The increase was the result of a
$35.8 million increase in sales of SCSI products, a
$112.1 million increase in sales of Fibre Channel products,
partially offset by a $6.4 million decrease in IDE-based
royalties.

Export revenues (primarily to Pacific Rim
Countries) in fiscal year 2002 decreased $35.5 million or
18% from fiscal 2001 to approximately $163.4 million. Export
revenues in fiscal 2001 increased $84.0 million or 73% from
fiscal 2000, to approximately $198.9 million. As a
percentage of net revenues, export revenues accounted for 47% in
fiscal year 2002, 56% in fiscal year 2001, and 53% in fiscal
year 2000. The decrease in export net revenues as a percentage
of total revenues is due to a decrease in net revenues in
Pacific Rim countries. The decreases in export revenue dollars
are primarily due to decreased sales to customers in Japan.
Export revenues are denominated in U.S. Dollars. We do not
expect the uncertainty in selected Pacific Rim foreign currency
markets to have a material adverse effect on the results of our
operations.

A small number of our customers account for a
substantial portion of our net revenues, and we expect that a
limited number of customers will continue to represent a
substantial portion of our net revenues for the foreseeable
future. Our four largest customers accounted for approximately
48% of net revenues in fiscal year 2002, 64% in fiscal year
2001, and 55% in fiscal year 2000. In fiscal 2002, Fujitsu
Limited accounted for 17% of

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net revenues, and Sun Microsystems accounted for
16% of the Companys net revenues. In fiscal 2001, Fujitsu
Limited accounted for 29% of net revenues, and Sun Microsystems
accounted for 18% of the Companys net revenues. In fiscal
2000, Fujitsu Limited accounted for 27% of net revenues and Sun
Microsystems accounted for 13% of net revenues.


We believe that our major customers continually
evaluate whether or not to purchase products from alternate or
additional sources. Additionally, customers economic and
market conditions frequently change. Accordingly, there can also
be no assurance that a major customer will not reduce, delay or
eliminate its purchases from us. Any such reduction, delay or
loss of purchases could have a material adverse effect on the
Companys business, financial condition and results of
operations.

Gross Profit

Cost of revenues consist primarily of raw
materials (including wafers and completed chips from third-party
manufacturers), assembly and test labor, overhead and warranty
costs. The gross profit percentage in fiscal 2002 was 61%, a
decrease from 64% in fiscal 2001. The percentage decline was due
to a reduction in the contribution of license fees and a
decrease in margins on sales of earlier generation SCSI products.

The gross profit percentage in fiscal 2001 was
64%, a decrease from 67% in fiscal 2000. The percentage decline
was due to a reduction in the contribution of license fees
combined with an increase in sales of switch products with lower
margins.

Our ability to maintain our current gross profit
percentage can be significantly affected by factors such as
supply costs and, in particular, the cost of silicon wafers, the
worldwide semiconductor foundry capacity, the mix of products
shipped, competitive price pressures, the timeliness of volume
shipments of new products and our ability to achieve
manufacturing cost reductions. We anticipate that it will be
increasingly more difficult to reduce manufacturing costs. As a
result, we anticipate gross profit percentages to decrease in
the future.

Operating Expenses

Engineering and
Development.Engineering and
development expenses consist primarily of salaries and other
personnel related expenses, development related material,
occupancy costs, and computer support. We believe continued
investments in engineering and development activities are
critical to achieving our strategic objectives. As a result, we
expect that engineering and development expenses will increase
in absolute dollars in fiscal 2003.

Engineering and development expenses were
$69.7 million in fiscal year 2002, $56.3 million in
fiscal year 2001, and $47.5 million in fiscal year 2000. As
a percentage of net revenues this amounted to 20% in fiscal
2002, 16% in fiscal 2001, and 22% in fiscal 2000. The increase
in spending each fiscal year was largely due to increased levels
of Fibre Channel and SCSI design and engineering support. The
increase as a percentage of net revenues in fiscal year 2002 is
attributed to the increase in development expenses during a
period in which we experienced moderate revenue declines.

In fiscal year 2000 we incurred a
$7.5 million charge for acquired in-process technology
relating to the acquisition of AdaptiveRAID®technology from
Borg Adaptive Technologies, Inc., a wholly-owned subsidiary of
nStor Corporation. The Company recorded the purchase price as a
one-time charge for in-process research and development of
$7.5 million to engineering and development expense in the
fourth fiscal quarter ended April 2, 2000.

Selling and
Marketing.Selling and marketing
expenses consist primarily of sales and marketing salaries,
sales commissions and related expenses, promotional activities
and travel for sales and marketing personnel. We believe
continued investments of these types of expenses are critical to
the success of our strategy of expanding relationships with our
customers. As a result, we expect sales and marketing
expenditures will continue to increase in the future.

Sales and marketing expenses were
$38.3 million in fiscal 2002, $36.5 million in fiscal
2001, and $22.6 million in fiscal 2000. As a percentage of
net revenues this amounted to 11% in fiscal 2002, 10% in fiscal

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2001, and 11% in fiscal 2000. The increase in
both dollars and as a percentage of net revenues from fiscal
2001 to fiscal 2002 relates to an increased level of sales and
support personnel to more completely serve our customers. The
increase in dollars from fiscal 2000 to fiscal 2001 reflects an
increase in sales commissions paid as a result of the increase
in revenues. The decrease in expenses as a percentage of
revenues from fiscal 2000 to fiscal 2001 relates to economies of
scale benefits realized from the growth in revenues.


General and
Administrative.General and
administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, human
resources and information technology personnel. Non-personnel
related expenses consist of recruiting fees, professional
services, and corporate expenses. We expect general and
administrative expenses to increase in absolute dollars as we
add personnel and incur additional costs relating to the growth
of the business and our operation as a public company.

General and administrative expenses were
$16.7 million in fiscal 2002, $14.8 million in fiscal
2001, and $11.2 million in fiscal 2000. As a percentage of
net revenues this amounted to 5% in fiscal 2002, 4% in fiscal
2001, and 5% in fiscal 2000. The increase in both dollars and as
a percentage of net revenues from fiscal 2001 to fiscal 2002 was
due to increased costs for depreciation related to improved
business systems and insurance.

General and administrative expenses increased in
fiscal 2001 by $3.6 million due to an increase in
personnel, combined with increases in the bad debt reserves
related to accounts receivable growth.

Merger and Related Expenses.Merger and related expenses in fiscal
year 2001 consisted primarily of direct and incremental
transaction costs, such as fees for investment bankers,
attorneys, accountants, and other related fees and expenses.
Merger and related costs of approximately $22.9 million
were incurred in connection with the merger with Ancor accounted
for as a pooling-of-interests.

Non-Operating Income

Interest and other income, was $19.0 million
in fiscal 2002, $18.7 million in fiscal 2001, and
$9.2 million in 2000. The increases in interest and other
income in fiscal 2002, 2001 and 2000 are largely due to
increases in cash equivalents and investment balances due to
$64.9 million in net proceeds received from a secondary
stock offering in the second quarter of 2000 and
$14.8 million in net proceeds received from Intel pursuant
to a stock purchase agreement in the third quarter of fiscal
2000. Additionally, cash equivalent and investment balances have
increased due to cash flow from operations in each of the last
three fiscal years.

Income Tax Provision

Our effective tax rates were approximately 33% in
fiscal 2002, 41% in fiscal 2001, and 34% in fiscal 2000. The
elevated tax rate in fiscal 2001 was due to nondeductible costs
incurred in conjunction with the merger with Ancor
Communications, Inc. For more information on the merger, please
see Note (2) in Notes to Consolidated Financial Statements.

Critical Accounting Policies and
Estimates

The preparation of our financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, and which form the basis for making judgments
about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different
assumptions or conditions.

We consider the following accounting policies to
be both those most important to the portrayal of our financial
condition and those that require the most subjective judgment:



| |   |                            
| | - | ---------------------------
| |  | revenue recognition;       
|
| |  | inventory valuation; and   
|
| |  | accounting for investments.

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Revenue recognition.We sell our products domestically and
internationally primarily through OEM and distribution channel
customers including distributors, system integrators and value
added resellers who sell directly to end-users. Our significant
customers include leading storage solution providers, server
OEMs and storage OEMs.

We recognize revenue from product sales upon
shipment except for sales to distributor customers, most of
which have contractual rights of return and/or price protection.
Revenue from sales to distributors is recognized when these
distributors ship our products to their end-user customers based
on data we receive from such distributors. Reserves for
uncollectible accounts and allowances for estimated sales
returns are provided at the time revenue is recognized. We
reserve for uncollectible accounts and product returns based on
our historical experience and expectations regarding account
collectibility and future returns related to products shipped.
Royalty and product development revenue is recognized when
earned and when receipt is assured.

For all sales, we use either a binding purchase
order or signed agreement as evidence of an arrangement. Sales
through our distributors and major OEMs are evidenced by a
master agreement governing the relationship together with
binding purchase orders on a transaction by transaction basis.

Our products are generally covered by a warranty
of one to five years. We accrue a warranty reserve for the
estimated costs to provide warranty services, which is based on
historical experience and expectation of future conditions. To
the extent we experience increased warranty claim activity or
increased costs associated with servicing those claims, our
warranty accrual will increase resulting in decreased gross
profit.

Inventory valuation.Inventories are valued at the lower of
cost or market on a first-in, first-out basis. We use a standard
cost system for purposes of determining cost. The standards are
adjusted periodically to ensure they approximate actual costs.
We write down the carrying value of our inventory to market
value for estimated obsolete or excess inventory based upon
assumptions about future demand and market conditions. We
compare current inventory levels on a product basis to our
current sales forecasts in order to assess our inventory
balance. Our sales forecasts are based on economic conditions
and trends (both current and projected), anticipated customer
demand and acceptance of our current products, expected future
products and other assumptions. If actual market conditions are
less favorable than those projected by management, additional
write-downs may be required.

Accounting for Investments.We classify our investments in
marketable securities as available for sale, based
on the criteria set forth in Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments
in Debt and Equity Securities. We carry these investments
at fair value, based on quoted market prices, and unrealized
gains and losses are included in accumulated other comprehensive
income (loss), which is reflected as a separate component of
stockholders equity. Realized gains and losses are
recognized upon the sale of our marketable securities in our
statements of operations. We have established investment policy
guidelines that we use to manage the financial institutions that
have custody of our funds. Based on our guidelines, our
investments generally consist of U.S. government, state and
local, and corporate debt obligations with maturities ranging
from one to sixty months. Under our current policies, we do
not use interest rate derivative instruments to manage exposure
to interest rate changes. The fair market value of our
investments in marketable securities may be adversely affected
due to a rise in interest rates, and we may suffer losses in
principal if forced to sell securities that have declined in
market value due to changes in interest rates. Additionally, the
amount of interest income that we earn on our investments may be
adversely affected by changes in interest rates.

New Accounting Standards

Effective July 1, 2001, we adopted Statement
of Financial Accounting Standards No. (SFAS) 141
Business Combinations. SFAS 141 addresses
financial accounting and reporting for business combinations and
requires that all business combinations initiated after
June 30, 2001 be accounted for by a single
method  the purchase method. The adoption of
SFAS 141 did not have a material impact on our financial
position or results of operations.

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SFAS 142 Goodwill and Other Intangible
Assets requires that goodwill and intangible assets that
have indefinite useful lives not to be amortized but rather be
tested at least annually for impairment. We are required to
adopt SFAS 142 on April 1, 2002. However, goodwill and
intangible assets acquired after June 30, 2001 are subject
to the amortization provisions of SFAS 142. The adoption of
SFAS 142 is expected to reduce general and administrative
expenses by $1.0 million annually through December 2005.

In October 2001, the Financial Accounting
Standards Board (FASB) issued SFAS 144 Accounting for
the Impairment and Disposal of Long Lived Assets.
SFAS 144 is effective for fiscal years beginning after
December 15, 2001. We do not expect the adoption of
SFAS 144 to have a material impact on our financial
position or results of operations.

Liquidity and Capital Resources

Our combined balances of cash and cash
equivalents and short-term investments have increased to
$492.5 million at March 31, 2002 compared to
$355.5 million at April 1, 2001. The increase was
attributable to positive cash flow from operations, primarily
net income, during the twelve months ended March 31, 2002.

Our primary source of liquidity is derived from
working capital and cash from operations. We also have an unused
$5.0 million unsecured line of credit with Silicon Valley
Bank. Working capital increased $92.9 million to
$535.6 million from April 1, 2001 to March 31,
2002. The increase in working capital in the fiscal year ended
March 31, 2002 was largely attributable to positive cash
flow from operations. The $5.0 million line of credit
facility with Silicon Valley Bank allows us to borrow at the
banks prime rate. The credit facility expires on
July 5, 2002, and, although there can be no assurance, we
currently expect to renew this line of credit. There were no
borrowings under this credit facility on March 31, 2002.

Our cash flow provided by operations was
$149.2 million in fiscal 2002, and $98.1 million in
fiscal 2001. The growth in cash provided by operations compared
to the prior year was primarily due to decreases in inventories
and accounts and notes receivable, and increases in other
accrued liabilities. Our inventory turns increased to 5.4 in
fiscal 2002 from 2.8 in the comparable prior year period largely
due to a decrease in inventory resulting from improved
management controls in the inventory management function.

Our cash flow used in investing activities was
$210.1 million in fiscal 2002 compared to
$86.7 million in fiscal 2001. The increase in net cash used
in investing activities in fiscal 2002 was primarily due to
increases in purchases of investments, net of maturities that
were partially offset by decreases in additions to property and
equipment. Additions to property and equipment were
$14.5 million in fiscal 2002, compared to
$16.7 million in fiscal 2001.

Our cash flow provided by financing activities
was $8.8 million in fiscal 2002 compared to
$30.0 million in the prior year. The fiscal year 2002
decrease in cash provided by financing activities was primarily
due to a reduction in proceeds from issuance of stock under
employee stock plans.

We have certain obligations and commitments to
make future payments in the form of non-cancelable purchase
orders to our suppliers and commitments under operating lease
arrangements. At March 31, 2002, there were
$31.9 million in non-cancelable purchase orders all due
within one year. Disclosure of operating lease commitments can
be located in Note (10) of the Notes to Consolidated
Financial Statements.

We believe that existing cash and cash equivalent
balances, short term investments, debt facilities and cash flows
from operating activities will provide the Company with
sufficient funds to finance its operations for at least the next
12 months.

FACTORS THAT MAY AFFECT FUTURE
RESULTS

Except for the historical information
contained herein, the information in this report constitutes
forward-looking statements. When used in this report the words
shall, should, forecast,
all of, projected, believes,
anticipates, expects, and similar
expressions are intended to identify forward-looking statements.
In addition, we may from time to time make oral forward-looking
statements. We wish to caution readers that a number of
important factors could cause actual results to differ
materially from those in the

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forward-looking statements. Factors that could
cause or contribute to such differences include those discussed
below, as well as those discussed above in
Managements Discussion and Analysis of Financial
Condition and Results of Operations or elsewhere in this
report.


Our stock price may be volatile which could
affect the value of your investment.

The market price of our common stock has
fluctuated substantially, and there can be no assurance that
such volatility will not continue. From January 1, 2001
through April 30, 2002, the market price has ranged from a
low of $17.21 per share to a high of $99.13 per share. Several
factors could impact our stock price including, but not limited
to:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | announcements concerning QLogic, our competitors
    or customers;                               
|
| |  | quarterly fluctuations in our operating results;                                                 
|
| |  | introduction of new products or changes in
    product pricing policies by us or our competitors;
|
| |  | conditions in the semiconductor industry;                                                        
|
| |  | changes in market projections by industry
    forecasters;                                       
|
| |  | changes in estimates of our earnings by industry
    analysts; and                               
|
| |  | market conditions for high technology equities in
    general.                                   

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

Our operating results fluctuate significantly,
which could cause our stock price to decline if our results fail
to meet investors and analysts
expectations.

We have experienced, and expect to continue to
experience, fluctuations in sales and operating results from
quarter to quarter. As a result, we believe that
period-to-period comparisons of our operating results are not
necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. In addition,
there can be no assurance that we will maintain our current
profitability in the future. A significant portion of our net
revenues in each fiscal quarter result from orders booked in
that quarter. Orders placed by major customers are typically
based on their forecasted sales and inventory levels for our
products. Fluctuations in our quarterly operating results may be
the result of:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | changes in purchasing patterns by one or more of
    our major customers, order changes or rescheduling;
|
| |  | gain or loss of significant customers;                                                                  
|
| |  | customer policies pertaining to desired inventory
    levels of our products;                           
|
| |  | negotiations of rebates and extended payment
    terms;                                                 
|
| |  | changes in our ability to anticipate in advance
    the mix of customer orders;                         
|
| |  | level of inventory our customers require us to
    maintain in our field warehouses;                    
|
| |  | the time, availability and sale of new products;                                                        
|
| |  | changes in the mix of products having differing
    gross margins;                                      
|
| |  | variations in manufacturing capacities,
    efficiencies and costs;                                     
|
| |  | the availability and cost of components,
    including silicon wafers;                                  
|
| |  | warranty expenses;                                                                                      

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| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | variations in product development and other
    operating expenses;                                    
|
| |  | revenue adjustments related to product returns;                                                        
|
| |  | adoption of new accounting pronouncements and/or
    changes in our policies; or                       
|
| |  | general economic and other conditions affecting
    the timing of customer orders and capital spending.

Our quarterly results of operations are also
influenced by competitive factors, including the pricing and
availability of our products and our competitors products.
Although we do not maintain our own wafer manufacturing
facility, large portions of our expenses are fixed and difficult
to reduce in a short period of time. If net revenues do not meet
our expectations, our fixed expenses would magnify the effect on
net income of such shortfall in net revenues. Furthermore,
announcements regarding new products and technologies could
cause our customers to defer or cancel purchases of our
products. Order deferrals by our customers, delays in our
introduction of new products, and longer than anticipated
design-in cycles for our products have in the past adversely
effected our quarterly results of operations. Due to these
factors, as well as other unanticipated factors, it is likely
that in some future quarter or quarters our operating results
will be below the expectations of public market analysts or
investors, and as a result, the price of our common stock could
significantly decrease.

A long lasting downturn in the global economy
that impacts information technology spending could negatively
affect our business.

The global economy is in the midst of a slowdown
that has had wide ranging effects on markets that we serve,
particularly information technology, data storage and networking
industries. This downturn has had a negative effect on our
revenues and operating results, and many analysts have predicted
that the recent terrorist attacks on the United States and the
resulting worldwide conflict will prolong the downturn. We
cannot predict the depth or duration of this downturn, and if it
grows more severe or continues for a long period of time, our
ability to increase or maintain our revenues and operating
results may be impaired. In addition, because we intend to
continue to make significant investments in research and
development during this downturn, and to maintain extensive
ongoing customer service and support capability, any further
decline in the rate of growth of our revenues will have a
significant adverse impact on our operating results.

Our business is dependent on the storage area
network market that is relatively new and unpredictable, and if
this market does not develop and expand as we anticipate, our
business will suffer.

Fibre Channel-based storage area networks, or
SANs, were first deployed in 1997. As a result, the market for
SANs and related storage router products has only recently begun
to develop and is rapidly evolving. Because this market is new,
it is difficult to predict its potential size or future growth
rate. A significant number of our products are used exclusively
in SANs and, therefore, our business is dependent on the SAN
market. Accordingly, the widespread adoption of SANs for use in
organizations computing systems is critical to our future
success. Most of the organizations that potentially may purchase
our products from our customers have invested substantial
resources in their existing computing and data storage systems
and, as a result, may be reluctant or slow to adopt a new
approach like SANs. SANs are often implemented in connection
with the deployment of new storage systems and servers.
Therefore, our future success is also substantially dependent on
the market for new storage systems and servers. Furthermore, the
ability of the different components used in a SAN to function
effectively, or interoperate, with each other when placed in a
computing system has not yet been achieved on a widespread
basis. Until greater interoperability is achieved, customers may
be reluctant to deploy SANs. Our success in generating revenue
in the emerging SAN market will depend on, among other things,
our ability to:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | educate potential OEM customers, distributors,
    resellers, system integrators, storage service providers and
    end-user organizations about the benefits of SANs;
|
| |  | maintain and enhance our relationships with OEM
    customers, distributors, resellers, system integrators, and
    storage system providers;                         

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| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | predict and base our products on standards which
    ultimately become industry standards; and  
|
| |  | achieve interoperability between our products and
    other SAN components from diverse vendors.

Our financial condition will be materially
harmed if we do not maintain and gain market or industry
acceptance of our products.

The markets in which we compete involve rapidly
changing technology, evolving industry standards and continuing
improvements in products and services. Our future success
depends, in part, on our ability to:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | enhance our current products and to develop and
    introduce in a timely manner new products that keep pace with
    technological developments and industry standards;
|
| |  | compete effectively on the basis of price and
    performance; and                                                                                                      
|
| |  | adequately address original equipment
    manufacturer customer and end-user customer requirements and
    achieve market acceptance.                                   

We believe that to remain competitive in the
future we will need to continue to develop new products, which
will require a significant investment in new product
development. A significant portion of our revenues is generated
from Fibre Channel technology. We, and some of our competitors,
are developing alternative technologies that may compete with
the market acceptance of our Fibre Channel products, such as
iSCSI and Infiniband. If alternative standards are adopted by
the industry, we may not be able to develop products for new
standards in a timely manner. Further, even if alternative
technologies do augment Fibre Channel revenues, our products may
not be fully developed in time to be accepted by our customers.
Even if our new products are developed on time, we may not be
able to manufacture them at competitive prices in sufficient
volumes.

We depend on a limited number of customers,
and any decrease in revenue or cash flows from any one of our
customers could cause our stock price to decline.

A small number of customers account for a
substantial portion of our net revenues, and we expect that a
limited number of customers will continue to represent a
substantial portion of our net revenues in the foreseeable
future. Additionally, we are also subject to credit risk
associated with the concentration of our accounts receivable.
The loss of any of our major customers would have a material
adverse effect on our business, financial condition and results
of operations. Some of these customers are based in the Pacific
Rim, which is subject to economic and political uncertainties.
In addition, a majority of our customers order products through
written purchase orders as opposed to long-term supply contracts
and, therefore, such customers are generally not obligated to
purchase products from us for any extended period. Major
customers also have significant leverage over us and may attempt
to change the terms, including pricing, which could materially
adversely effect our business, financial condition and results
of operations. This risk is increased due to the potential for
some of these customers to merge with or acquire another of our
customers. As our original equipment manufacturer customers are
pressured to reduce prices as a result of competitive factors,
we may be required to contractually commit to price reductions
for our products before we know how, or if, cost reductions can
be obtained. If we are unable to achieve such cost reductions,
our gross margins could decline and such decline could have a
material adverse effect on our business, financial condition and
results of operations.

Competition within our product markets is
intense and includes numerous established competitors.

The markets for our products are highly
competitive and are characterized by short product life cycles,
price erosion, rapidly changing technology, frequent product
performance improvements and evolving industry standards. We
currently compete primarily with Adaptec Inc. and LSI Logic
Corporation in the SCSI sector of the I/O market. In the Fibre
Channel host bus adapter sector of the I/O market, we compete
primarily with LSI Logic Corporation, Emulex Corporation, JNI
Corporation and Adaptec Inc. In the Fibre Channel host
controller chip sector of the market we compete primarily with
Agilent Technologies and LSI Logic Corporation. In the switch
products sector, we compete with Brocade Communications, McData
Corporation

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and several smaller companies. In the enclosure
management sector, we compete primarily with Vitesse
Semiconductor Corporation. We may compete with some of our
larger disk drive and computer systems customers, some of which
have the capability to develop I/O controller integrated
circuits for use in their own products. At least one large
original equipment manufacturer customer in the past has decided
to vertically integrate and has therefore stopped purchasing
from us.


We will need to continue to develop products
appropriate to our markets to remain competitive as our
competitors continue to introduce products with improved
performance characteristics. While we continue to devote
significant resources to research and development, these efforts
may not be successful, or may not be developed and introduced in
a timely manner. Further, several of our competitors have
greater resources devoted to securing semiconductor foundry
capacity because of long-term agreements regarding supply flow,
equity or financing agreements or direct ownership of a foundry.
In addition, while relatively few competitors offer a full range
of storage area networking products, additional domestic and
foreign manufacturers may increase their presence in these
markets. We may not be able to compete successfully against
these or other competitors. If we are unable to design, develop
and introduce competitive new products on a timely basis, our
future operating results will be materially and adversely
affected.

Our distributors may not adequately distribute
our products which could negatively affect our
operations.

Our distributors generally offer a diverse array
of products from several different manufacturers and suppliers.
Accordingly, we are at risk that these distributors may give
higher priority to selling products from other suppliers, thus
reducing their efforts to sell our products. A reduction in
sales efforts by our current distributors could materially
adversely impact our business or operating results. Our
distributors may on occasion build inventories in anticipation
of substantial growth in sales, and if such growth does not
occur as rapidly as we anticipate, distributors may decrease the
amount of product ordered from us in subsequent quarters. In
addition, if we decrease our distributor-incentive programs, our
distributors may temporarily decrease the amounts of product
purchased from us. This could result in a change of business
habits, and distributors may decide to decrease the amount of
product held and reduce their inventory levels. In addition, we
may from time to time take actions to reduce levels of our
products at distributors.

We depend on our relationships with wafer
suppliers and other subcontractors, and a loss of these
relationships may lead to unpredictable consequences which may
harm our results of operations if alternative supply sources are
not available.

We currently rely on several independent
foundries to manufacture our semiconductor products either in
finished form or wafer form. Generally, we conduct business with
some of our foundries through written purchase orders as opposed
to long-term supply contracts. Therefore, these foundries are
generally not obligated to supply products to us for any
specific period, in any specific quantity or at any specified
price. If a foundry terminates its relationship with us or if
our supply from a foundry is otherwise interrupted, we may not
have a sufficient amount of time to replace the supply of
products manufactured by that foundry. As a result, we may not
be able to meet customer demands, which could harm our business.

Historically, there have been periods when there
has been a worldwide shortage of advanced process technology
foundry capacity. The manufacture of semiconductor devices is
subject to a wide variety of factors, including the availability
of raw materials, the level of contaminants in the manufacturing
environment, impurities in the materials used, and the
performance of personnel and equipment. We are continuously
evaluating potential new sources of supply. However, the
qualification process and the production ramp-up for additional
foundries have in the past taken, and could in the future take,
longer than anticipated. New supply sources may not be able or
willing to satisfy our wafer requirements on a timely basis or
at acceptable quality or unit prices.

We use multiple sources of supply for some of our
products, which may require customers to perform separate
product qualifications. We have not developed alternate sources
of supply for all of our products and our newly introduced
products are typically produced initially by a single foundry
until alternate sources can be qualified. In particular, our
integrated single chip Fibre Channel controller is manufactured
by LSI Logic and

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integrates LSI Logics transceiver
technology. In the event that LSI Logic is unable or unwilling
to satisfy our requirements for this technology, our marketing
efforts related to Fibre Channel products would be delayed and,
as such, our results of operations could be materially and
adversely affected. The requirement that a customer perform
separate product qualifications, or a customers inability
to obtain a sufficient supply of products from us, may cause
that customer to satisfy its product requirements from our
competitors. Constraints or delays in the supply of our
products, due to capacity constraints, unexpected disruptions at
our foundries or with our subcontractors, delays in obtaining
additional production at the existing foundries or in obtaining
production from new foundries, shortages of raw materials or
other reasons, could result in the loss of customers.


Our products are complex and may contain
undetected software or hardware errors that could lead to an
increase in our costs, reduce our net revenues or damage our
reputation.

Products as complex as ours frequently contain
undetected software or hardware errors when first introduced or
as newer versions are released. We have from time to time found
errors in existing, new or enhanced products. The occurrence of
hardware or software errors could adversely affect sales of our
products, cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from
our product development efforts and cause significant customer
relations problems.

Terrorist activities and resulting military
actions could adversely affect our business.

The terrorist attacks in New York and Washington,
D.C. have disrupted commerce throughout the United States and
Europe. The continued threat of terrorism within the United
States and Europe and the military action and heightened
security measures in response to such threat may cause
significant disruption to commerce throughout the world. To the
extent that such disruptions result in delays or cancellations
of customer orders, delays in collecting cash, a general
decrease in corporate spending on information technology, or our
inability to effectively market, manufacture or ship our
products, our business and results of operations could be
materially and adversely affected. We are unable to predict
whether the threat of terrorism or the responses thereto will
result in any long-term commercial disruptions or if such
activities or responses will have any long-term material adverse
effect on our business, financial condition or results of
operations.

Because we depend on foreign customers and
suppliers, we are subject to international economic, regulatory
and political risks that could harm our financial
condition.

We expect that export revenues will continue to
account for a significant percentage of our net revenues for the
foreseeable future. As a result, we are subject to several
risks, which include:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | a greater difficulty of administering our
    business globally;                                                                              
|
| |  | compliance with multiple and potentially
    conflicting regulatory requirements, such as export
    requirements, tariffs and other barriers;
|
| |  | differences in intellectual property protections;                                                                                             
|
| |  | difficulties in staffing and managing foreign
    operations;                                                                                 
|
| |  | potentially longer accounts receivable cycles;                                                                                                
|
| |  | currency fluctuations;                                                                                                                        
|
| |  | export control restrictions;                                                                                                                  
|
| |  | overlapping or differing tax structures;                                                                                                      
|
| |  | political and economic instability; and                                                                                                       
|
| |  | general trade restrictions.                                                                                                                   

A significant number of our customers and
suppliers are located in Japan. Historically, the Asian markets
have suffered from economic uncertainty. This uncertainty has
taken place especially in countries that have

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had a collapse in both their currency and stock
markets. These economic pressures have reduced liquidity in the
banking systems of the affected countries and, when coupled with
spare industrial production capacity, could lead to widespread
financial difficulty among the companies in this region. Our
export sales are invoiced in U.S. dollars and, accordingly,
if the relative value of the U.S. dollar in comparison to
the currency of our foreign customers should increase, the
resulting effective price increase of our products to such
foreign customers could result in decreased sales. There can be
no assurance that any of the foregoing factors will not have a
material adverse effect on our business, financial condition and
results of operations.


We may need to engage in high risk
transactions to guarantee we have production capacity which may
require us to seek additional financing and result in dilution
to our stockholders.

The semiconductor industry has, in the past,
experienced shortages of available foundry capacity.
Accordingly, in order to secure an adequate supply of wafers, we
may consider various possible supply agreements. Those types of
agreements include the use of take or pay contracts,
making equity investments in, or advances to, wafer
manufacturing companies in exchange for guaranteed production
capacity, or the formation of joint ventures to own and operate
or construct foundries or to develop certain products. Any of
these arrangements would involve financial risk to us and could
require us to commit a substantial amount of our funds or
provide technology licenses in return for guaranteed production
capacity. The need to commit our own funds may require us to
seek additional equity or debt financing. The sale or issuance
of additional equity or convertible debt securities could result
in dilution to our stockholders. This kind of additional
financing, if necessary, may not be available on terms
acceptable to us.

We anticipate engaging in mergers,
acquisitions and strategic investments, however, these
activities may adversely affect our results of operations and
stock price if they do not complement our business.

We anticipate that our future growth may depend
in part on our ability to identify and acquire complementary
businesses, technologies or product lines that are compatible
with ours. Mergers and acquisitions involve numerous risks,
including:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | uncertainties in identifying and pursuing target
    companies;                                                                  
|
| |  | difficulties in the assimilation of the
    operations, technologies and products of the acquired companies;                     
|
| |  | the diversion of managements attention from
    other business concerns;                                                        
|
| |  | risks associated with entering markets or
    conducting operations with which we have no or limited direct
    prior experience;
|
| |  | the potential loss of current customers and/or
    retention of the acquired companys customers; and                            
|
| |  | the potential loss of key employees of the
    acquired company.                                                                 

Further, we may never realize the perceived
benefits of a business combination. Future acquisitions by us
could dilute stockholders investment, and cause us to
incur debt, contingent liabilities and amortization/ impairment
expense related to intangible assets, all of which could
materially adversely affect our results of operations. Effective
July 1, 2001, the Financial Accounting Standards Board, or
FASB, has issued, and we have adopted, SFAS 141
Business Combinations. SFAS 141 addresses
financial accounting and reporting for business combinations and
requires that all business combinations implemented after
June 30, 2001 be accounted for using the purchase method of
accounting. As a result, we will not be able to complete a
business combination without incurring goodwill or other
intangible assets. SFAS 142 Goodwill and Other
Intangible Assets eliminates the quarterly and yearly
recurring charges for the amortization of goodwill. A
significant charge to earnings may be recorded if it can be
determined that the goodwill or other intangible assets are
impaired. This potential charge could have a material impact on
our results of operations.

We have made, and plan to continue to make,
investments in technology companies including privately held
companies in a development stage. Many of these private equity
investments are inherently risky because the companies
businesses may never develop, and we may incur losses related to
these investments. We may be required to reduce the value of
those investments as reflected on our balance sheet, which also
may affect

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our results of operations. In addition if we
incur a charge to reflect other than temporary declines in the
value of our private equity investments below our recorded
value, our balance sheet and results of operations will be
reduced.


Our business could be materially adversely
affected as a result of the risks associated with strategic
alliances.

We have alliances with leading information
technology companies, and we plan to continue our strategy of
developing key alliances in order to expand our reach into
emerging markets. There can be no assurance that we will be
successful in our ongoing strategic alliances or that we will be
able to find further suitable business relationships as we
develop new products and strategies. Any failure to continue or
expand such relationships could have a material adverse effect
on our business, results of operations or financial conditions.

There can be no assurance that companies with
which we have strategic alliances, certain of which have
substantially greater financial, marketing and technological
resources than us, will not develop or market products in
competition with us in the future, discontinue their alliances
with us or form alliances with our competitors.

Continued rapid growth will strain our
operations and require that we incur costs to upgrade our
infrastructure.

We have recently experienced a period of rapid
growth and expansion that has placed, and continues to place, a
significant strain on our resources. Unless we manage this
growth effectively, we may make mistakes in executing our
business such as inaccurate sales forecasting, material
planning, inventory management or financial reporting, which may
result in unanticipated fluctuations in our operating results.
We may not be able to install adequate control systems in an
efficient and timely manner, and our current or planned
personnel, systems, procedures and controls may not be adequate
to support our future operations. In addition, we test
substantially all of our products prior to shipment. If our
capacity to conduct this testing does not expand concurrently
with the anticipated growth of our business, product shipments
could be delayed, which could result in delayed or lost revenues
and customer dissatisfaction.

If we are unable to attract and retain key
personnel, we may not be able to sustain or grow our
business.

Our future success largely depends on our key
engineering, sales, marketing and executive personnel, including
highly skilled semiconductor design personnel and software
developers. We also must identify and hire additional personnel.
If we lose the services of key personnel, our business would be
adversely affected. We believe that the market for key personnel
in the industries in which we compete is highly competitive. In
particular, periodically we have experienced difficulty in
attracting and retaining qualified engineers and other technical
personnel and anticipate that competition for such personnel
will increase in the future. We may not be able to attract and
retain key personnel with the skills and expertise necessary to
develop new products in the future, or to manage our business,
both in the United States and abroad.

Our proprietary rights may be inadequately
protected, and infringement claims or adverse judgments could
harm our competitive position.

Although we have patent protection on some
aspects of our technology in some jurisdictions, we rely
primarily on trade secrets, copyrights and contractual
provisions to protect our proprietary rights. There can be no
assurance that these protections will be adequate to protect our
proprietary rights, that others will not independently develop
or otherwise acquire equivalent or superior technology or that
we can maintain such technology as trade secrets. There also can
be no assurance that any patents we possess will not be
invalidated, circumvented or challenged. In addition, the laws
of certain countries in which our products are or may be
developed, manufactured or sold, including various countries in
Asia, may not protect our products and intellectual property
rights to the same extent as the laws of the United States or at
all. If we fail to protect our intellectual property rights, our
business would be negatively impacted.

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Intellectual property claims have been made
against us in the past, and patent or other intellectual
property infringement claims could be made against us in the
future. Although patent and intellectual property disputes may
be settled through licensing or similar arrangements, costs
associated with these arrangements may be substantial and the
necessary licenses or similar arrangements may not be available
to us on satisfactory terms or at all. As a result, we could be
prevented from manufacturing and selling some of our products.
In addition, if we litigate these kinds of claims, the
litigation could be expensive and time consuming and could
divert managements attention from other matters. Our
business could suffer regardless of the outcome of the
litigation. Our supply of wafers and other components can also
be interrupted by intellectual property infringement claims
against our suppliers.

Our charter document and shareholder rights
plan may discourage companies from acquiring us and offering our
stockholders a premium for their stock.

Pursuant to our certificate of incorporation, our
board of directors is authorized to approve the issuance of
shares of currently undesignated preferred stock without any
vote or future action by the stockholders. Pursuant to this
authority, in June 1996 our board of directors adopted a
shareholder rights plan and declared a dividend of a right to
purchase one one-hundredths of a share of preferred stock for
each outstanding share of our common stock. After adjustment for
each of the three two-for-one stock splits effected by us to
date, our common stock now carries one-eighth of the preferred
stock purchase right per share. The shareholder rights plan may
have the effect of delaying, deferring or preventing a change in
control of our stock. This may discourage bids for our common
stock at a premium over the market price of the common stock and
may adversely affect the market price of the common stock.

The preparation of our consolidated financial
statements in accordance with generally accepted accounting
principles requires management to make estimates when
interpreting and applying critical accounting
policies.

We use estimates when recording certain balances
in our consolidated financial statements, in accordance with
generally accepted accounting principles. These estimates impact
the amounts reported in the financial statements, and include
estimates with respect to the following:



| |   |                             
| | - | ----------------------------
| |  | sales discounts and returns;
|
| |  | allowances for bad debts;   
|
| |  | warranty expenses;          
|
| |  | deferred revenues; and      
|
| |  | valuation of inventory.     

Actual results could materially differ from these
estimates, which could in turn impact the amounts reported in
our financial statements.

Our corporate headquarters and principal
design facilities are located in a region that is subject to
earthquakes and other natural disasters, as well as electricity
shortages.

Our California facilities, including our
principal executive offices, our principal design facilities,
and our critical business operations are located near major
earthquake faults. We are not specifically insured for
earthquakes, or other such natural disasters. Any personal
injury or damage to the facilities as a result of such
occurrences could have a material adverse effect on our
business, results of operations and financial condition.
Additionally, our operations depend upon a continuing adequate
supply of electricity, natural gas and water. These energy
sources have historically been available on a continuous basis
and in adequate quantities for our needs. An interruption in the
supply of raw materials or energy inputs for any reason would
have an adverse effect on our manufacturing operations.
Recently, California has had power shortages resulting in
rolling blackouts, or the temporary and generally unannounced
loss of electrical power. These shortages could affect our
ability to supply products to our customers on a timely basis.

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Item 7a.     Quantitative
and Qualitative Disclosures About Market Risk



| |                          
| | -------------------------
| | Interest Rate Sensitivity

At March 31, 2002, our investment portfolio
consisted of fixed income securities, excluding those classified
as cash equivalents, with a fair value and carrying amount of
$416.4 million (see Note 4 of Notes to Consolidated
Financial Statements). These securities are subject to interest
rate risk and will decline in value if market interest rates
increase. If market interest rates were to increase immediately
and uniformly by 10% from levels as of March 31, 2002, the
decline in the fair value of the portfolio would not be material
to our financial position, results of operations and cash flows.

Our export revenues are denominated in
U.S. dollars. We also have a subsidiary in the United
Kingdom. Based on the size of its operations, the Company does
not have a material exposure to fluctuation in foreign currency.




Item 8.     Financial
Statements and Supplementary Data

The financial statements of the Company are
referenced in Item 14(a).

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INDEPENDENT AUDITORS REPORT

The Board of Directors

QLogic Corporation:


We have audited the consolidated financial
statements of QLogic Corporation and subsidiaries as listed in
Item 14(a). In connection with our audits of the
consolidated financial statements, we have also audited the
financial statement schedule as listed in Item 14(a). These
consolidated financial statements and the financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of QLogic Corporation and
subsidiaries as of March 31, 2002 and April 1, 2001
and the results of their operations and their cash flows for
each of the years in the three-year period ended March 31,
2002, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG LLP

Orange County, CA

May 7, 2002


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##### Table of Contents



QLOGIC CORPORATION






CONSOLIDATED BALANCE SHEETS


March 31, 2002 and April 1,
2001


|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                                                      |                                                                                                                                                                                                   | 2002                       |         | 2001   
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                           
|                                                                                                                                                      |                                                                                                                                                                                                   | (In thousands, except     
|                                                                                                                                                      |                                                                                                                                                                                                   | share data)               
|ASSETS                                                                                                                                               
|Cash and cash equivalents                                                                                                                             |                                                                                                                                                                                                   | $                          | 76,124  |         |         | $ | 128,273 |        
|Short term investments                                                                                                                                |                                                                                                                                                                                                   |                            | 416,422 |         |         |   | 227,210 |        
|Accounts and notes receivable, less allowance for
    doubtful accounts of $3,429 and $2,372 as of March 31, 2002
    and April 1, 2001, respectively |                                                                                                                                                                                                   |                            | 38,360  |         |         |   | 53,588  |        
|Inventories                                                                                                                                           |                                                                                                                                                                                                   |                            | 24,758  |         |         |   | 46,510  |        
|Deferred income taxes                                                                                                                                 |                                                                                                                                                                                                   |                            | 27,635  |         |         |   | 32,558  |        
|Prepaid expenses and other current assets                                                                                                             |                                                                                                                                                                                                   |                            | 3,345   |         |         |   | 2,358   |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      | Total current assets                                                                                                                                                                              |                            |         | 586,644 |         |   |         | 490,497 |        
|Property and equipment, net                                                                                                                           |                                                                                                                                                                                                   |                            | 60,293  |         |         |   | 56,843  |        
|Other assets                                                                                                                                          |                                                                                                                                                                                                   |                            | 23,078  |         |         |   | 24,157  |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      |                                                                                                                                                                                                   | $                          | 670,015 |         |         | $ | 571,497 |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                             
|Accounts payable                                                                                                                                      |                                                                                                                                                                                                   | $                          | 15,025  |         |         | $ | 18,017  |        
|Accrued compensation                                                                                                                                  |                                                                                                                                                                                                   |                            | 15,142  |         |         |   | 15,413  |        
|Accrued warranty                                                                                                                                      |                                                                                                                                                                                                   |                            | 3,184   |         |         |   | 2,887   |        
|Income taxes payable                                                                                                                                  |                                                                                                                                                                                                   |                            | 8,595   |         |         |   | 6,295   |        
|Other accrued liabilities                                                                                                                             |                                                                                                                                                                                                   |                            | 9,086   |         |         |   | 5,183   |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      | Total current liabilities                                                                                                                                                                         |                            |         | 51,032  |         |   |         | 47,795  |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|Commitments and contingencies                                                                                                                         |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|Stockholders equity:                                                                                                                                 |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      | Preferred stock, $0.001 par value;
    1,000,000 shares authorized, (200,000 shares
    designated as Series A Junior Participating Preferred,
    $0.001 par value); none issued and outstanding |                            |         |        |         |   |         |        |        
|                                                                                                                                                      | Common stock, $0.001 par value;
    500,000,000 shares authorized, 93,029,087 and 92,324,042
    issued and outstanding at March 31, 2002 and April 1,
    2001, respectively                     |                            |         | 93      |         |   |         | 92      |        
|                                                                                                                                                      | Additional paid-in capital                                                                                                                                                                        |                            |         | 417,343 |         |   |         | 393,383 |        
|                                                                                                                                                      | Deferred stock-based compensation                                                                                                                                                                 |                            |         | (3,678  | )       |   |         | (5,751  | )      
|                                                                                                                                                      | Retained earnings                                                                                                                                                                                 |                            |         | 204,980 |         |   |         | 134,254 |        
|                                                                                                                                                      | Other comprehensive income                                                                                                                                                                        |                            |         | 245     |         |   |         | 1,724   |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      |                                                                                                                                                                                                   | Total stockholders equity |         |         | 618,983 |   |         |         | 523,702 | 
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        
|                                                                                                                                                      |                                                                                                                                                                                                   | $                          | 670,015 |         |         | $ | 571,497 |        
|                                                                                                                                                      |                                                                                                                                                                                                   |                            |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

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QLOGIC CORPORATION






CONSOLIDATED STATEMENTS OF INCOME


Years Ended March 31, 2002, April 1,
2001 and April 2, 2000


|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |         |        | 
|------------------------------------------------ | --------------------------- | ------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                                                 |                             | 2002                                  |         | 2001    |         | 2000
|                                                 |                             |                                       |         |         |         |     
|                                                 |                             |                                      
|                                                 |                             | (In thousands, except per share data)
|Gross revenues                                   |                             | $                                     | 349,690 |         |         | $    | 362,781 |         |         | $ | 216,860 |        
|Stock-based sales discounts                      |                             |                                       | 5,501   |         |         |      | 5,239   |         |         |   | 767     |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Net revenues                                     |                             |                                       | 344,189 |         |         |      | 357,542 |         |         |   | 216,093 |        
|Cost of revenues                                 |                             |                                       | 133,005 |         |         |      | 128,739 |         |         |   | 70,982  |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Gross profit                |                                       |         | 211,184 |         |      |         | 228,803 |         |   |         | 145,111 |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Operating expenses:                              |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Engineering and development |                                       |         | 69,684  |         |      |         | 56,315  |         |   |         | 47,451  |       
|                                                 | Selling and marketing       |                                       |         | 38,323  |         |      |         | 36,482  |         |   |         | 22,623  |       
|                                                 | General and administrative  |                                       |         | 16,673  |         |      |         | 14,828  |         |   |         | 11,202  |       
|                                                 | Merger and related expenses |                                       |         |        |         |      |         | 22,947  |         |   |         |        |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 |                             | Total operating expenses              |         |         | 124,680 |      |         |         | 130,572 |   |         |         | 81,276 | 
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Operating income                                 |                             |                                       | 86,504  |         |         |      | 98,231  |         |         |   | 63,835  |        
|Interest and other income                        |                             |                                       | 19,036  |         |         |      | 18,706  |         |         |   | 9,181   |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Income before income taxes  |                                       |         | 105,540 |         |      |         | 116,937 |         |   |         | 73,016  |       
|Income taxes                                     |                             |                                       | 34,814  |         |         |      | 48,168  |         |         |   | 24,701  |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Net income                  |                                       |         | 70,726  |         |      |         | 68,769  |         |   |         | 48,315  |       
|Accretion on convertible preferred stock         |                             |                                       |        |         |         |      |        |         |         |   | 12      |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Net income attributable to common stockholders   |                             | $                                     | 70,726  |         |         | $    | 68,769  |         |         | $ | 48,303  |        
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Net income per share :                           |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Basic                       |                                       | $       | 0.76    |         |      | $       | 0.76    |         |   | $       | 0.56    |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Diluted                     |                                       | $       | 0.74    |         |      | $       | 0.72    |         |   | $       | 0.52    |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|Number of shares used in per share computations: |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Basic                       |                                       |         | 92,645  |         |      |         | 91,073  |         |   |         | 86,485  |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        
|                                                 | Diluted                     |                                       |         | 95,126  |         |      |         | 95,139  |         |   |         | 92,533  |       
|                                                 |                             |                                       |         |         |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



QLOGIC CORPORATION






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


Years ended March 31, 2002, April 1,
2001 and April 2, 2000


|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |        |  
|---------------------------- | ------------------------------------------------------------------------------------------ | -------------- | ------ | ---------- |  | ----------- | -- | -------- |  | -------- | ------- | ------------- |  | ------ | ------ | ------ | - | - | ------- | ------ | - | - | ----- | ------ | - | - | ------- | ------ | -
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |              
|                             |                                                                                            | Common Stock   |        | Additional |  | Deferred    |    |          |  | Other    |         | Total        
|                             |                                                                                            |                |        | Paid-In    |  | Stock-Based |    | Retained |  | Comp     |         | Stockholders
|                             |                                                                                            | Shares         |        | Amount     |  | Capital     |    | Comp     |  | Earnings |         | Income        |  | Equity
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |       
|                             |                                                                                            |               
|                             |                                                                                            | (In thousands)
|Balance as of March 28, 1999 |                                                                                            |                | 84,117 |            |  | $           | 85 |          |  | $        | 155,523 |               |  | $      |       |        |   | $ | 20,102  |        |   | $ |      |        |   | $ | 175,710 |       
|                             | Adjustment to conform fiscal year of pooled entity                                         |                |        | 385        |  |             |    |         |  |          |         | 6,410         |  |        |        |       |   |   |         | (2,932 | ) |   |       | (242   | ) |   |         | 3,236  |  
|                             | Net income and comprehensive income                                                        |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         | 48,315 |   |   |       |       |   |   |         | 48,315 |  
|                             | Sales of common stock in secondary offering (net
    of issuance costs of $4,174)          |                |        | 1,319      |  |             |    | 1        |  |          |         | 64,888        |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 64,889 |  
|                             | Sales of common stock                                                                      |                |        | 148        |  |             |    |         |  |          |         | 14,820        |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 14,820 |  
|                             | Warrants issued in connection with product sales
    and for services rendered             |                |        |           |  |             |    |         |  |          |         | 798           |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 798    |  
|                             | Conversions of Series C preferred stock                                                    |                |        | 436        |  |             |    | 1        |  |          |         |              |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 1      |  
|                             | Issuance of common stock under employee stock
    plans (including tax benefit of $34,007) |                |        | 3,310      |  |             |    | 3        |  |          |         | 51,553        |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 51,556 |  
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       
|Balance as of April 2, 2000  |                                                                                            |                | 89,715 |            |  | $           | 90 |          |  | $        | 293,992 |               |  | $      |       |        |   | $ | 65,485  |        |   | $ | (242  | )      |   | $ | 359,325 |       
|                             | Net income                                                                                 |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         | 68,769 |   |   |       |       |   |   |         | 68,769 |  
|                             | Change in unrealized gain on securities, net of
    tax                                    |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         |       |   |   |       | 1,966  |   |   |         | 1,966  |  
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       
|                             | Total comprehensive income                                                                 |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 70,735 |  
|                             | Warrants issued in connection with product sales                                           |                |        |           |  |             |    |         |  |          |         | 5,239         |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 5,239  |  
|                             | Shares issued for business acquisition                                                     |                |        | 23         |  |             |    |         |  |          |         | 11,403        |  |        |        | (5,891 | ) |   |         |       |   |   |       |       |   |   |         | 5,512  |  
|                             | Amortization of deferred stock-based compensation                                          |                |        |           |  |             |    |         |  |          |         |              |  |        |        | 140    |   |   |         |       |   |   |       |       |   |   |         | 140    |  
|                             | Issuance of common stock under employee stock
    plans (including tax benefit of $52,742) |                |        | 2,586      |  |             |    | 2        |  |          |         | 82,749        |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 82,751 |  
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       
|Balance as of April 1, 2001  |                                                                                            |                | 92,324 |            |  | $           | 92 |          |  | $        | 393,383 |               |  | $      | (5,751 | )      |   | $ | 134,254 |        |   | $ | 1,724 |        |   | $ | 523,702 |       
|                             | Net income                                                                                 |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         | 70,726 |   |   |       |       |   |   |         | 70,726 |  
|                             | Change in unrealized gain on securities, net of
    tax                                    |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         |       |   |   |       | (1,479 | ) |   |         | (1,479 | )
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       
|                             | Total comprehensive income                                                                 |                |        |           |  |             |    |         |  |          |         |              |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 69,247 |  
|                             | Warrants issued in connection with product sales                                           |                |        |           |  |             |    |         |  |          |         | 5,501         |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 5,501  |  
|                             | Shares issued for business acquisition                                                     |                |        | 41         |  |             |    |         |  |          |         | 2,182         |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 2,182  |  
|                             | Amortization of deferred stock-based compensation                                          |                |        |           |  |             |    |         |  |          |         |              |  |        |        | 2,073  |   |   |         |       |   |   |       |       |   |   |         | 2,073  |  
|                             | Issuance of common stock under employee stock
    plans (including tax benefit of $7,512)  |                |        | 664        |  |             |    | 1        |  |          |         | 16,277        |  |        |        |       |   |   |         |       |   |   |       |       |   |   |         | 16,278 |  
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       
|Balance as of March 31, 2002 |                                                                                            |                | 93,029 |            |  | $           | 93 |          |  | $        | 417,343 |               |  | $      | (3,678 | )      |   | $ | 204,980 |        |   | $ | 245   |        |   | $ | 618,983 |       
|                             |                                                                                            |                |        |            |  |             |    |          |  |          |         |               |  |        |        |        |   |   |         |        |   |   |       |        |   |   |         |       

See accompanying notes to consolidated financial
statements.

27



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##### Table of Contents



QLOGIC CORPORATION






CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended March 31, 2002, April 1,
2001 and April 2, 2000


|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |          |        |          |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | -------- | ------ | -------- | ------- | -------- | ------ | ------- | ------- | -------- | ------ | -------- | -
|                                                                          |                                                                                       | 2002                                                                |                                           | 2001     |        | 2000    
|                                                                          |                                                                                       |                                                                     |                                           |          |        |         
|                                                                          |                                                                                       |                                                                    
|                                                                          |                                                                                       | (In thousands)                                                     
|Cash flows from operating activities:                                     |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Net income                                                                            |                                                                     | $                                         | 70,726   |        |          | $       | 68,769   |        |         | $       | 48,315   |       
|                                                                          | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                     |                                           |          |        |          |         |          |        |         |         |          |       
|                                                                          |                                                                                       | Provisions for non-cash sales discounts and
    consulting services |                                           |          | 5,501  |          |         |          | 5,239  |         |         |          | 798    |         
|                                                                          |                                                                                       | Depreciation and amortization                                       |                                           |          | 12,967 |          |         |          | 10,806 |         |         |          | 6,447  |         
|                                                                          |                                                                                       | Write-off of acquired in-process technology                         |                                           |          | 699    |          |         |          | 554    |         |         |          | 8,410  |         
|                                                                          |                                                                                       | Provision for doubtful accounts                                     |                                           |          | 1,125  |          |         |          | 1,392  |         |         |          | 35     |         
|                                                                          |                                                                                       | Amortization of deferred stock-based compensation                   |                                           |          | 2,073  |          |         |          |       |         |         |          |       |         
|                                                                          |                                                                                       | Loss on disposal of property and equipment                          |                                           |          | 254    |          |         |          | 449    |         |         |          | 219    |         
|                                                                          |                                                                                       | Provision (benefit) from deferred income
    taxes                  |                                           |          | 9,338  |          |         |          | (5,829 | )       |         |          | (9,359 | )       
|                                                                          |                                                                                       | Tax benefit from issuance of stock under employee
    stock plans   |                                           |          | 7,512  |          |         |          | 52,742 |         |         |          | 34,007 |         
|                                                                          |                                                                                       | Changes in assets and liabilities:                                  |                                           |          |        |          |         |          |        |         |         |          |        |         
|                                                                          |                                                                                       |                                                                     | Accounts and notes receivable             |          |        | 14,103   |         |          |        | (27,491 | )       |          |        | (11,296  | )
|                                                                          |                                                                                       |                                                                     | Inventories                               |          |        | 21,752   |         |          |        | (21,418 | )       |          |        | (13,313  | )
|                                                                          |                                                                                       |                                                                     | Prepaid expenses and other current assets |          |        | (987     | )       |          |        | (642    | )       |          |        | 41       |  
|                                                                          |                                                                                       |                                                                     | Other assets                              |          |        | (2,520   | )       |          |        | 1,389   |         |          |        | (137     | )
|                                                                          |                                                                                       |                                                                     | Accounts payable                          |          |        | (2,992   | )       |          |        | 10,059  |         |          |        | 551      |  
|                                                                          |                                                                                       |                                                                     | Accrued compensation                      |          |        | (271     | )       |          |        | 4,322   |         |          |        | 3,519    |  
|                                                                          |                                                                                       |                                                                     | Income taxes payable                      |          |        | 2,300    |         |          |        | 6,088   |         |          |        | (7,117   | )
|                                                                          |                                                                                       |                                                                     | Accrued warranty                          |          |        | 297      |         |          |        | 715     |         |          |        | 1,090    |  
|                                                                          |                                                                                       |                                                                     | Other accrued liabilities                 |          |        | 7,309    |         |          |        | (3,907  | )       |          |        | 4,312    |  
|                                                                          |                                                                                       |                                                                     | Other non-current liabilities             |          |        |         |         |          |        | (5,097  | )       |          |        |         |  
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          |                                                                                       |                                                                     | Net cash provided by operating activities |          |        | 149,186  |         |          |        | 98,140  |         |          |        | 66,522   |  
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Cash flows from investing activities:                                     |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Additions to property and equipment                                                   |                                                                     |                                           | (14,486  | )      |          |         | (16,705  | )      |         |         | (42,403  | )     
|                                                                          | Purchases of investments                                                              |                                                                     |                                           | (404,751 | )      |          |         | (236,726 | )      |         |         | (659,692 | )     
|                                                                          | Acquisition of business, net of cash acquired                                         |                                                                     |                                           | (1,923   | )      |          |         | (2,346   | )      |         |         | (8,860   | )     
|                                                                          | Maturities of investments                                                             |                                                                     |                                           | 214,059  |        |          |         | 169,041  |        |         |         | 600,398  |       
|                                                                          | Purchase of equity investments                                                        |                                                                     |                                           | (3,000   | )      |          |         |         |        |         |         |         |       
|                                                                          | Other, net                                                                            |                                                                     |                                           |         |        |          |         |         |        |         |         | (347     | )     
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          |                                                                                       |                                                                     | Net cash used in investing activities     |          |        | (210,101 | )       |          |        | (86,736 | )       |          |        | (110,904 | )
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Cash flows from financing activities:                                     |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Principal payments on other non-current
    liabilities                               |                                                                     |                                           |         |        |          |         | (29      | )      |         |         | (358     | )     
|                                                                          | Proceeds from issuance of stock under stock plans                                     |                                                                     |                                           | 8,766    |        |          |         | 30,009   |        |         |         | 16,672   |       
|                                                                          | Proceeds from sale of common and preferred stock                                      |                                                                     |                                           |         |        |          |         |         |        |         |         | 79,709   |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          |                                                                                       |                                                                     | Net cash provided by financing activities |          |        | 8,766    |         |          |        | 29,980  |         |          |        | 96,023   |  
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Net increase (decrease) in cash and cash
    equivalents                  |                                                                                       |                                                                     | (52,149                                   | )        |        |          | 41,384  |          |        |         | 51,641  |         
|Adjustment to conform fiscal year end of pooled
    entity                |                                                                                       |                                                                     |                                          |          |        |          |        |          |        |         | (14,384 | )       
|Cash and cash equivalents at beginning of year                            |                                                                                       |                                                                     | 128,273                                   |          |        |          | 86,889  |          |        |         | 49,632  |         
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Cash and cash equivalents at end of year                                  |                                                                                       | $                                                                   | 76,124                                    |          |        | $        | 128,273 |          |        | $       | 86,889  |         
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Supplemental disclosure of cash flow information:                         |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Cash paid during the year for:                                            |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Interest                                                                              |                                                                     | $                                         | 17       |        |          | $       | 60       |        |         | $       | 38       |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Income taxes                                                                          |                                                                     | $                                         | 14,993   |        |          | $       | 2,318    |        |         | $       | 6,068    |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Accrual for acquisition performance payment                                           |                                                                     | $                                         | 1,705    |        |          | $       | 1,244    |        |         | $       | 841      |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Stock option plan assumed in acquisition                                              |                                                                     | $                                         |         |        |          | $       | 5,891    |        |         | $       |         |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         
|                                                                          | Stock issued in connection with business
    acquisition                              |                                                                     | $                                         | 2,182    |        |          | $       | 2,010    |        |         | $       |         |       
|                                                                          |                                                                                       |                                                                     |                                           |          |        |          |         |          |        |         |         |         

See accompanying notes to consolidated financial
statements.

28



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##### Table of Contents



QLOGIC CORPORATION






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


Note (1) Description of Business and
Summary of Significant Accounting Policies



| |                             
| | ----------------------------
| | General Business Information

QLogic Corporation (QLogic or the
Company) designs and supplies semiconductor and
board level input/ output (I/O) products, full fabric switches,
and enclosure management semiconductors. The Companys I/O
products provide a high performance interface between computer
systems and their attached data storage peripherals, such as
hard disk drives, tape drives, removable disk drives and
redundant array of independent disks subsystems, or RAID
subsystems. QLogic markets and distributes its products through
a direct sales organization supported by field application
engineers, as well as through a network of independent
manufacturers representatives and regional and
international distributors. The Companys primary OEM
customers are major domestic and international suppliers and
manufacturers of servers, workstations and data storage
peripherals.



| |                                                               
| | --------------------------------------------------------------
| | Principles of Consolidation and Financial
    Reporting Period

The consolidated financial statements include the
financial statements of QLogic Corporation and its wholly owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
QLogics fiscal year ends on the Sunday nearest
March 31. The fiscal year ended March 31, 2002
(fiscal 2002) comprised 52 weeks, the fiscal
year ended April 1, 2001 (fiscal 2001)
comprised 52 weeks and the fiscal year ended April 2,
2000 (fiscal 2000) comprised 53 weeks.

As more fully described in Note (2), QLogic
merged with Ancor Communications, Inc. (Ancor) on
August 1, 2000 in a pooling of interests transaction.
Historically, the fiscal year of Ancor ended on
December 31. In order to report the historical fiscal year
ends, the Companys consolidated financial statements for
the year ended March 28, 1999 were restated to include
Ancors consolidated financial statements for the year
ended December 31, 1998. All years prior to March 28,
1999 were restated similarly. The Companys consolidated
financial statements for the fiscal year ended April 2,
2000 were restated to include the Ancor balance sheet at
March 31, 2000, and the results of operations and cash
flows of Ancor for the twelve months ended December 31,
1999. Ancors net revenues and net loss of
$6.9 million and $2.9 million, respectively, in the
three months ended March 31, 2000 were included as a
retained earnings adjustment in the fiscal year ended
April 2, 2000. During the three months ended March 31,
2000 Ancor issued 385,000 shares of common stock with net
proceeds of $6.4 million. Net cash outflow during the three
months ended March 31, 2000 amounted to $14.4 million.

All references to share and per share data have
been restated to give effect to the Companys stock splits.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America, requires management to make estimates
that affect the amounts reported in the Companys
consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.



| |                    
| | -------------------
| | Revenue Recognition

Revenue is generally recognized upon product
shipment. The customers obligation to pay the Company, and
the payment terms, are set at the time of shipment and are not
dependent on subsequent resale of the Companys product.
However, certain of the Companys sales are made to
distributors under agreements allowing limited right of return
and/or price protection. The Company recognizes revenue through
these distribution channels when these distributors ship our
products to their end-user customers based on data from the
distributors as to the time the products have been resold.
Royalty and product revenue is recognized when earned and
receipt is assured. The Company warrants its products, on a
limited basis, to be free from defects

29



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for periods of one to five years from date of
shipment. The Company estimates and establishes allowances and
reserves for product returns, warranty obligations, doubtful
accounts, and price adjustments. During fiscal year 2001, the
Company adopted the Securities and Exchange Commissions
Staff Accounting Bulletin (SAB) 101,
Revenue Recognition in Financial Statements, as
amended. The adoption of SAB 101 did not have a material
impact on the Companys consolidated financial statements.



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance to reduce deferred tax
assets is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.



| |                     
| | --------------------
| | Net Income per Share

The Company computes basic net income per common
share based on the weighted average number of common shares
outstanding during the periods presented. Diluted net income per
share is computed based on the weighted average number of common
and dilutive potential common shares outstanding during the
periods presented. The Company has granted certain stock options
and warrants which have been treated as dilutive potential
common shares in computing diluted net income per share.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

For certain of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, the
carrying amounts approximate fair value due to their short
maturities. Long-term investments are carried at cost which
approximates fair value.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist
principally of cash equivalents, investments in marketable
securities, and trade accounts receivable. The Company places
its marketable securities primarily in municipal bonds,
corporate bonds and government securities, all of which are high
investment grade. The Company, by policy, limits the amount of
credit exposure through diversification and investment in highly
rated securities. Sales to customers are denominated in
U.S. dollars. As a result, the Company believes its foreign
currency risk is minimal.

The Company sells its products to original
equipment manufacturers and distributors throughout the world.
The Companys four largest customers, all large OEMs,
comprise of 46% of total accounts receivable at March 31,
2002 and 56% at April 1, 2001. The Company performs ongoing
credit evaluations of its customers financial condition
and, generally, requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts based upon
the expected collectibility of accounts receivable. There have
not been significant losses experienced on accounts receivable.



| |                 
| | ----------------
| | Cash Equivalents

For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments
purchased with original maturities of three months or less on
their acquisition date to be cash equivalents.

30



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Investments

The Company invests primarily in debt securities.
During the second fiscal quarter ended October 1, 2001, the
Company changed its classification of these securities based on
managements intent from held to maturity to
available for sale according to the definitions of
SFAS 115, Accounting for Certain Investments in Debt
and Equity Securities. Accordingly, the Companys
debt securities are carried at fair value in short-term
investments in the accompanying consolidated balance sheets.
Unrealized gains and losses, net of the related tax effect, if
any, are excluded from earnings and reported as a separate
component of other comprehensive income until realized. Realized
gains or losses and other than temporary declines in fair value
are determined on a specific identification basis and reported
in other income and expense as incurred.

The Company also holds minority investments in
companies that are not publicly traded. These investments are
recorded at cost and are included in other assets in the
accompanying consolidated balance sheets. The Company monitors
these investments for impairment by reference to valuation of
publicly traded companies in similar sectors and other factors
such as the status of the investees technology, product
launch and customer acceptance. In some circumstances, the
Company may obtain an independent valuation of the investment.
If the Company determines that the investment has suffered an
other than temporary decline in value, this decline is reported
in other income or expense in the period in which the
determination is made. As of March 31, 2002 no other than
temporary declines in value had occurred.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost
(first-in, first-out) or net realizable value.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Impairment of Long-Lived Assets and
    Long-Lived Assets to be Disposed Of

Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by the comparison of the carrying
amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost.
Depreciation is calculated using the straight-line method over
estimated useful lives of 39.5 years for buildings, and two
to five years for equipment. Leasehold improvements are
amortized on a straight-line basis over the shorter of the lease
term or the estimated useful life of the related asset.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for its employee and
director stock options and employee stock purchase plan using
the intrinsic value method. During fiscal year 2001, the Company
adopted the FASB Interpretation No. 44, Accounting
for Certain Transactions Involving Stock
Compensation  an interpretation of APB
No. 25, (FIN44). The adoption of
FIN 44 did not have a material impact on the Companys
consolidated financial statements.



| |                     
| | --------------------
| | Comprehensive Income

Comprehensive income is defined as the change in
equity of a company during a period from transactions and other
events and circumstances excluding transactions resulting from
investments by owners and

31



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

distributions to owners. The Companys
comprehensive income consists of net income and the unrealized
gain on the available-for-sale securities, net of income taxes.



| |                         
| | ------------------------
| | Research and Development

Research and development costs, including costs
related to the development of new products and process
technology, as well as acquired in-process technology, are
expensed as incurred.



| |                         
| | ------------------------
| | New Accounting Standards

SFAS 142 Goodwill and Other Intangible
Assets requires that goodwill and intangible assets that
have indefinite useful lives not to be amortized but rather be
tested at least annually for impairment. The Company is required
to adopt SFAS 142 on April 1, 2002. However, goodwill
and intangible assets acquired after June 30, 2001 are
subject to the amortization provisions of SFAS 142. The
adoption of SFAS 142 is expected to reduce general and
administrative expenses by $1.0 million annually through
December 2005.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
fiscal 2001 and fiscal 2000 consolidated financial statements to
conform to the fiscal 2002 presentation.

Note (2) Business
Combinations



| |                            
| | ---------------------------
| | Little Mountain Group, Inc.

On January 23, 2001, the Company acquired
the outstanding common stock of Little Mountain Group, Inc.
(LMG), for cash and stock which could amount to
$30 million over a four-year period. LMG is a designer of
iSCSI silicon and board level products to enable an ethernet
Storage Area Network. The Company accounted for the transaction
as a purchase. Accordingly, the excess purchase price paid over
the fair value of the LMG net assets of $7.1 million was
recorded as goodwill, and is being amortized over five years.
Pro forma information regarding the acquisition is not included
as the results of operations of LMG were not material. In fiscal
year 2003, the Company will adopt SFAS 142, which will
require the Company to stop amortizing goodwill deemed to have
an indefinite useful life. The structure of the acquisition
includes payments of stock based on performance milestones to be
achieved over the next four fiscal years. These payments will be
charged to engineering and development expense as the
performance milestones are achieved. In January 2002, the first
performance milestone payment of $2.2 million was paid.

At March 31, 2002, a performance payment to
the former shareholders of LMG of $363,000 was included in other
accrued liabilities in the accompanying consolidated balance
sheets.



| |                           
| | --------------------------
| | Ancor Communications, Inc.

On August 1, 2000, the Company completed its
merger with Ancor Communications, Incorporated
(Ancor). Ancor was a leading provider of Fibre
Channel switches. In connection with the merger, the Company
issued 15,535,835 shares of its common stock in exchange for all
shares of Ancors common stock and reserved 1,724,036
shares of its common stock for issuance upon exercise of
outstanding Ancor employee stock options and other rights
assumed by the Company. The merger was accounted for as a
pooling of interests. Accordingly, the Companys
consolidated financial statements have been restated to include
the pooled operations of Ancor as if it had combined with the
Company since Ancors inception. Included in restated net
revenues for fiscal year 2000 and 1999 were net revenues from
Ancor of $13.0 and $4.4 million, respectively. Included in
restated net income for fiscal year 2000 and 1999 were net
losses from Ancor of approximately $8.7 million and
$15.3 million, respectively. Restated diluted net income
per share for fiscal year 2000 and 1999 included losses of $0.09
and $0.18 per share, respectively, from Ancor. Included in
net

32



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

revenues for the year ended April 1, 2001,
was $9.4 million from Ancor, recognized prior to the
closing of the merger on August 1, 2000. Included in net
income for the year ended April 1, 2001 were losses
totaling $3.8 million from Ancor, incurred prior to
August 1, 2000. There were no transactions between the
Company and Ancor prior to the consummation of the merger.

In connection with the merger with Ancor, the
Company recorded approximately $22.9 million in charges for
direct and other merger-related costs including fees of
investment bankers, attorneys, accountants and other direct and
incremental charges. Substantially all of the merger-related
costs and fees had been paid at April 1, 2001.



| |                         
| | ------------------------
| | Adaptive RAID Technology

On January 10, 2000, the Company acquired
certain intellectual property (AdaptiveRAID®
technology) from Borg Adaptive Technologies, Inc., a
wholly owned subsidiary of nStor Corporation. The
AdaptiveRAID® technology, which was expected to provide
next generation embedded RAID storage solutions for the Intel
Architecture workstation market, was purchased for
$7.5 million in cash. At the time of the acquisition, the
AdaptiveRAID® technology was in the development stage with
no completed commercially viable storage solution products and
thus the entire purchase price was written-off to acquired
in-process technology. On February 26, 2001, the technology
was sold to YottaYotta, Inc. in exchange for a $7.5 million
note receivable. The note is immediately payable upon completion
of YottaYotta, Inc.s qualified financing, or at the
notes maturity in January 2004. Due to the uncertainty
regarding collection of the note, the Company will record the
ultimate gain from the sale of this technology upon the
collection of the note receivable from YottaYotta, Inc.



| |                                   
| | ----------------------------------
| | Silicon Design Resources,
    Inc.

On August 20, 1998, the Company acquired the
net assets of Silicon Design Resources, Inc. (SDR)
for $2 million in cash. In addition, the Company is
obligated to pay up to an additional $8 million in cash
provided that certain performance targets are achieved through
fiscal year 2002. These payments will be accounted for as
additional purchase price and allocated to the intangible assets
acquired, specifically the in-process technology and the
completed technology. The Company accounted for the transaction
using the purchase method of accounting, and excluding the
initial write-off of the acquired in-process technology in the
quarter ended September 27, 1998, the impact to the
Companys financial position and results of operations from
the acquisition date was not material. Additionally, the Company
incurred approximately $413,000 in professional fees related to
the acquisition.

At March 31, 2002, April 1, 2001 and
April 2, 2000, a performance payment to the former
shareholders of SDR of $1,705,000, $1,244,000 and $841,000,
respectively, was included in other accrued liabilities in the
accompanying consolidated balance sheets. These payments were
allocated to the intangible assets acquired: $1,124,000,
$820,000 and $554,000, respectively, were written-off as
acquired in-process technology and $581,000, $424,000 and
$287,000, respectively, were capitalized as completed technology.

Note (3) Net Income per
Share

The Company computed basic net income per share
based on the weighted average number of common shares
outstanding during the periods presented. Diluted income per
share was computed based on the weighted average number of
common and dilutive potential common shares outstanding during
the periods presented. The Company has granted certain stock
options and warrants which have been treated as dilutive
potential common shares.

33



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the computations
of basic and diluted net income per share:

|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |        | 
|---------------------------- | ------------------------------------------------------------------------ | --------------------- | ---- | ------ |  | ---- | ---- | ------ |  | - | ---- | ------ | 
|                             |                                                                          | 2002                  |      | 2001   |  | 2000
|                             |                                                                          |                       |      |        |  |     
|                             |                                                                          |                      
|                             |                                                                          | (In thousands, except
|                             |                                                                          | per share amounts)   
|Numerator:                   |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|                             | Net income attributable to common stockholders                           |                       | $    | 70,726 |  |      | $    | 68,769 |  |   | $    | 48,303 | 
|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|Denominator:                 |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|                             | Denominator for basic net income per share 
    weighted average shares |                       |      | 92,645 |  |      |      | 91,073 |  |   |      | 86,485 | 
|                             | Dilutive potential common shares, using treasury
    stock method        |                       |      | 2,481  |  |      |      | 4,066  |  |   |      | 6,048  | 
|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|                             | Denominator for diluted net income per share                             |                       |      | 95,126 |  |      |      | 95,139 |  |   |      | 92,533 | 
|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|Basic net income per share   |                                                                          | $                     | 0.76 |        |  | $    | 0.76 |        |  | $ | 0.56 |       
|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |       
|Diluted net income per share |                                                                          | $                     | 0.74 |        |  | $    | 0.72 |        |  | $ | 0.52 |       
|                             |                                                                          |                       |      |        |  |      |      |        |  |   |      |       

Options to purchase 4,088,567, 716,818 and
133,732 shares of common stock were outstanding as of
March 31, 2002, April 1, 2001, and April 2, 2000,
respectively, but were not included in the computation of
diluted net income per share, as the effect would be
antidilutive.



|         |            
|-------- | -----------
|Note (4) | Investments

The Companys portfolio of investments as of
March 31, 2002 consists of the following:

|                                            |                            |                |         |            |  |            |       |           |  |   |        |       |   |   |         |         | 
|------------------------------------------- | -------------------------- | -------------- | ------- | ---------- |  | ---------- | ----- | --------- |  | - | ------ | ----- | - | - | ------- | ------- | 
|                                            |                            |                |         | Gross      |  | Gross      |       | Estimated
|                                            |                            | Amortized      |         | Unrealized |  | Unrealized |       | Fair     
|                                            |                            | Cost           |         | Gain       |  | Loss       |       | Value    
|                                            |                            |                |         |            |  |            |       |          
|                                            |                            |               
|                                            |                            | (In thousands)
|Debt securities:                            |                            |                |         |            |  |            |       |           |  |   |        |       |   |   |         |        
|                                            | Municipal bonds            |                | $       | 59,892     |  |            | $     | 541       |  |   | $      | (26   | ) |   | $       | 60,407  | 
|                                            | Corporate bonds            |                |         | 108,648    |  |            |       | 1,231     |  |   |        | (723  | ) |   |         | 109,156 | 
|                                            | U.S. Government securities |                |         | 237,624    |  |            |       | 783       |  |   |        | (1439 | ) |   |         | 236,968 | 
|                                            | Other debt securities      |                |         | 86,577     |  |            |       | 162       |  |   |        | (111  | ) |   |         | 86,628  | 
|                                            |                            |                |         |            |  |            |       |           |  |   |        |       |   |   |         |        
|Total available for sale securities         |                            |                | 492,741 |            |  |            | 2,717 |           |  |   | (2,299 | )     |   |   | 493,159 |        
|Less amounts classified as cash equivalents |                            |                | 76,737  |            |  |            |      |           |  |   |       |       |   |   | 76,737  |        
|                                            |                            |                |         |            |  |            |       |           |  |   |        |       |   |   |         |        
|                                            |                            | $              | 416,006 |            |  | $          | 2,717 |           |  | $ | (2,299 | )     |   | $ | 416,422 |        
|                                            |                            |                |         |            |  |            |       |           |  |   |        |       |   |   |         |        

34



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys portfolio of investments as of
April 1, 2001 consists of the following:

|                                            |                            |                |         |            |  |            |       |           |  |   |     |     |   |   |         |         | 
|------------------------------------------- | -------------------------- | -------------- | ------- | ---------- |  | ---------- | ----- | --------- |  | - | --- | --- | - | - | ------- | ------- | 
|                                            |                            |                |         | Gross      |  | Gross      |       | Estimated
|                                            |                            | Amortized      |         | Unrealized |  | Unrealized |       | Fair     
|                                            |                            | Cost           |         | Gain       |  | Loss       |       | Value    
|                                            |                            |                |         |            |  |            |       |          
|                                            |                            |               
|                                            |                            | (In thousands)
|Debt securities:                            |                            |                |         |            |  |            |       |           |  |   |     |     |   |   |         |        
|                                            | Municipal bonds            |                | $       | 30,275     |  |            | $     | 284       |  |   | $   | (11 | ) |   | $       | 30,548  | 
|                                            | Corporate bonds            |                |         | 80,003     |  |            |       | 1,455     |  |   |     | (9  | ) |   |         | 81,449  | 
|                                            | U.S. Government securities |                |         | 92,770     |  |            |       | 884       |  |   |     | (23 | ) |   |         | 93,631  | 
|                                            | Other debt securities      |                |         | 153,522    |  |            |       | 109       |  |   |     |    |   |   |         | 153,631 | 
|                                            |                            |                |         |            |  |            |       |           |  |   |     |     |   |   |         |        
|Total available for sale securities         |                            |                | 356,570 |            |  |            | 2,732 |           |  |   | (43 | )   |   |   | 359,259 |        
|Less amounts classified as cash equivalents |                            |                | 132,014 |            |  |            | 35    |           |  |   |    |     |   |   | 132,049 |        
|                                            |                            |                |         |            |  |            |       |           |  |   |     |     |   |   |         |        
|                                            |                            | $              | 224,556 |            |  | $          | 2,697 |           |  | $ | (43 | )   |   | $ | 227,210 |        
|                                            |                            |                |         |            |  |            |       |           |  |   |     |     |   |   |         |        

The contractual maturity of investments in debt
securities as of March 31, 2002, were as follows:

|                                         |  |                |         |            |  |   |         | 
|---------------------------------------- |  | -------------- | ------- | ---------- |  | - | ------- | 
|                                         |  | Amortized      |         | Estimated 
|                                         |  | Cost           |         | Fair Value
|                                         |  |                |         |           
|                                         |  |               
|                                         |  | (In thousands)
|Mature in one year or less               |  | $              | 187,684 |            |  | $ | 188,108 | 
|Mature after one year through five years |  |                | 305,057 |            |  |   | 305,051 | 
|                                         |  |                |         |            |  |   |         | 
|                                         |  | $              | 492,741 |            |  | $ | 493,159 | 
|                                         |  |                |         |            |  |   |         | 



|         |            
|-------- | -----------
|Note (5) | Inventories

Components of inventories are as follows:

|                 |  |                |        |      |  |   |        | 
|---------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                 |  | 2002           |        | 2001
|                 |  |                |        |     
|                 |  |               
|                 |  | (In thousands)
|Raw materials    |  | $              | 18,271 |      |  | $ | 37,110 | 
|Work in progress |  |                | 2,571  |      |  |   | 8,021  | 
|Finished goods   |  |                | 3,916  |      |  |   | 1,379  | 
|                 |  |                |        |      |  |   |        | 
|                 |  | $              | 24,758 |      |  | $ | 46,510 | 
|                 |  |                |        |      |  |   |        | 

Note (6) Property and
Equipment

Components of property and equipment are as
follows:

|                                               |  |                |        |      |  |   |        | 
|---------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                               |  | 2002           |        | 2001
|                                               |  |                |        |     
|                                               |  |               
|                                               |  | (In thousands)
|Land                                           |  | $              | 11,663 |      |  | $ | 11,663 | 
|Building and improvements                      |  |                | 22,038 |      |  |   | 21,819 | 
|Product and test equipment                     |  |                | 55,326 |      |  |   | 43,267 | 
|Furniture and fixtures                         |  |                | 4,366  |      |  |   | 3,835  | 
|Semiconductor tooling                          |  |                | 5,751  |      |  |   | 4,584  | 
|                                               |  |                |        |      |  |   |        | 
|                                               |  |                | 99,144 |      |  |   | 85,168 | 
|Less accumulated depreciation and amortization |  |                | 38,851 |      |  |   | 28,325 | 
|                                               |  |                |        |      |  |   |        | 
|                                               |  | $              | 60,293 |      |  | $ | 56,843 | 
|                                               |  |                |        |      |  |   |        | 

35



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                 
|-------- | ----------------
|Note (7) | Capital Accounts



| |             
| | ------------
| | Common Stock

On March 31, 2002 and April 1, 2001,
the Companys authorized common stock was 500,000,000 with
93,029,087 and 92,324,042 shares issued and outstanding,
respectively. At March 31, 2002, 28,712,050 shares were
reserved for the exercise of issued and unissued common stock
options, 2,400,000 shares were reserved for issuance in
connection with the Companys Employee Stock Purchase Plan,
and 791,250 shares were reserved for the exercise of issued
common stock warrants.



| |                
| | ---------------
| | Preferred Stock

In fiscal 1994, the Companys stockholders
approved an amendment and restatement of the certificate of
incorporation which authorized the future issuance of 1,000,000
shares of preferred stock, $0.10 par value, with rights and
preferences to be determined by the Board of Directors. In
January 2000, the par value was adjusted to $0.001.



| |                        
| | -----------------------
| | Shareholder Rights Plan

On June 4, 1996, the Board of Directors of
the Company unanimously adopted a Shareholder Rights Plan (the
Rights Plan) pursuant to which it declared a
dividend distribution of preferred stock purchase rights
(a Right) upon all of the outstanding shares of
the common stock.

The Rights dividend was paid on June 20,
1996 to the holders of record of shares of common stock on that
date, at the rate of one-eighth of one whole Right per one share
of common stock, as adjusted pursuant to the Companys
stock splits. Each share of common stock presently outstanding
that had been issued since June 20, 1996 also includes
one-eighth Right, and each share of common stock that may be
issued after the date hereof and prior to the Distribution Date
(as defined below) also will include one-eighth Right.

The Rights become exercisable (i) the 10th
business day following the date of a public announcement that a
person or a group of affiliated or associated persons (an
Acquiring Person) has acquired beneficial ownership
of 15% or more of the outstanding shares of common stock, or
(ii) the 10th business day following the commencement of,
or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the
person or group making the offer becoming an Acquiring Person
(the earlier of the dates described in clauses (i) and
(ii) being called the Distribution Date).

The Rights held by an Acquiring Person or its
affiliates are not exercisable. All shares of common stock that
will be issued prior to the Distribution Date will include such
Rights. The Rights will expire at the close of business on
June 4, 2006 (the Scheduled Expiration Date),
unless prior thereto the Distribution Date occurs, or unless the
Scheduled Expiration Date is extended.

Pursuant to the Rights Plan, as amended to date,
each Right entitles the registered holder, on and after the
Distribution Date and until redemption of all Rights, to
purchase from the Company  1/100 of one whole share (a
Unit) of the Companys Series A Junior
Participating Preferred Stock, par value $.001 per share (the
Series A Preferred Stock). The purchase price
is $425.00 per Unit. In the event of certain acquisitions
involving the Acquiring Person, directly or indirectly, the
holder of each Right will be entitled to purchase for $425.00
certain shares or assets of the Company or an Acquiring person
that have a market value of $850.00 at such time.

The Company has 200,000 whole shares of
Series A Preferred Stock authorized (40,000,000 Units
authorized), of which no shares or Units are issued or
outstanding at March 31, 2002. Each Unit would entitle the
holder to (A) one vote, voting together with the shares of
common stock; (B) in the event the Companys assets
are liquidated, a payment of one dollar ($1.00) or an amount
equal to the payment to be distributed per share of common
stock, whichever is greater; and (C) in the event of any
merger, consolidation or other

36



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

transaction in which shares of common stock are
exchanged, a payment in an amount equal to the payment received
per share of common stock. The number of Rights per share of
common stock, and the purchase price, is subject to adjustment
in the event of each and any stock split, stock dividend or
similar event.

Holders of Rights will be entitled to purchase
shares or assets of the Company or an Acquiring Person with a
value that is double the exercise price in the event of certain
acquisitions involving the Acquiring Person, directly or
indirectly.

Note (8) Stock Plans



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan
(the ESPP) that operates in accordance with
Section 423 of the Internal Revenue Code. Under the ESPP,
employees of the Company who elect to participate are granted
options to purchase common stock at a 15% discount from the
lower of the market value of the common stock at the beginning
or end of each three month offering period. The ESPP permits an
enrolled employee to make contributions to purchase shares of
common stock by having withheld from their salary an amount
between 1% and 10% of compensation. The ESPP is administered by
the Compensation Committee of the Board of Directors. The total
number of shares of common stock that may be issued pursuant to
options granted under the ESPP is 2,400,000. The total
cumulative number of shares issued under the ESPP were 249,837,
145,831 and 79,572 during the years ended March 31, 2002,
April 1, 2001 and April 2, 2000, respectively.



| |                             
| | ----------------------------
| | Incentive Compensation Plans

On January 12, 1994, the Companys
Board of Directors adopted the QLogic Corporation Stock Awards
Plan (the Stock Awards Plan) and the QLogic
Corporation Non-Employee Director Stock Option Plan (the
Director Plan) (collectively the Stock Option
Plans). Additionally, the Company issues options on an ad
hoc basis from time to time.

The Stock Awards Plan provides for the issuance
of incentive and non-qualified stock options, restricted stock
and other stock-based incentive awards for officers and key
employees. The Stock Awards Plan permits the Compensation
Committee of the Board of Directors to select eligible employees
to receive awards and to determine the terms and conditions of
awards. As of March 31, 2002, a total of 24,800,000 shares
were reserved for issuance under the Stock Awards Plan, no
shares of restricted stock were issued, options to purchase
8,236,153 shares of Common Stock were outstanding, and there
were 7,120,400 shares available for future grants.

Options granted under the Companys Stock
Awards Plan provide that an employee holding a stock option may
exchange mature stock which the employee already owns as payment
against the exercise of an option. This provision applies to all
options outstanding as of March 31, 2002. All stock options
granted under the Companys Stock Awards Plan have ten-year
terms and vest ratably over four years from the date of grant.

Under the terms of the Director Plan, new
directors receive an option grant, at fair market value, to
purchase 40,000 shares of common stock of the Company upon
election to the Board, and the plan provides for annual grants
to each non-employee director (other than the Chairman of the
Board) of options to purchase 20,000 shares of common stock. The
plan also provides for annual grants to the Chairman of the
Board of options to purchase 54,000 shares of common stock. A
total of 2,000,000 shares have been reserved for issuance under
the Director Plan. As of March 31, 2002, options for a
total of 505,999 shares were outstanding, and 589,338 shares
were available for grant. All stock options granted under the
Director Plan have ten-year terms and vest ratably over three
years from the date of grant.

37



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of March 31, 2002, additional stock
options have been issued representing options to purchase 80,000
shares, with a total of 46,000 options outstanding.

As a result of the Companys acquisitions,
the Company assumed stock options granted under stock option
plans established by each acquired company; no additional
options will be granted under those plans. As of March 31,
2002, 1,832,050 shares of common stock were reserved for
issuance under these stock option plans, with options to
purchase 563,537 shares outstanding.



| |         
| | --------
| | Warrants

As part of an agreement with Sun Microsystems,
Inc. (Sun), the Company granted a warrant to Sun to
purchase up to 791,250 shares of the Companys common stock
at an exercise price of $13.84 per share. The warrant shares are
earned at the rate of one share for each $127.00 of switch
product revenue the Company receives from Sun through
September 30, 2002. In each period in which the warrant
shares are earned, a non-cash sales discount is recorded. The
amount of non-cash sales discount is the fair value of the
warrant shares which are earned in the period. The fair value of
the warrant shares is calculated by using the Black-Scholes
option pricing model. The assumptions used in the fair value
calculation of the warrant shares were consistent with those
assumptions disclosed in the Pro Forma Information later in this
note, except as to the term of the warrants, which is the
contractual term. None of the warrant shares vested until the
Company received a total of $10 million in cumulative
switch product revenue from Sun. During the fourth fiscal
quarter of 2001, approximately 79,125 warrants became vested as
switch revenues from Sun reached $10 million. Warrants will
continue to vest quarterly through September 30, 2002. As
of March 31, 2002 the number of warrants vested was 283,137.

Stock option activity in fiscal 2002, 2001 and
2000 under the Companys Stock Option Plans was as follows:

|                                             |  |        |            |                 |  |   |       | 
|-------------------------------------------- |  | ------ | ---------- | --------------- |  | - | ----- | 
|                                             |  |        |            | Average Option 
|                                             |  | Shares |            | Price per Share
|                                             |  |        |            |                
|Options outstanding as of March 28, 1999     |  |        | 7,799,823  |                 |  | $ | 4.43  | 
|Granted                                      |  |        | 2,931,456  |                 |  |   | 40.98 | 
|Canceled                                     |  |        | (207,057   | )               |  |   | 3.75  | 
|Exercised                                    |  |        | (3,006,856 | )               |  |   | 6.17  | 
|                                             |  |        |            |                 |  |   |       | 
|Options outstanding as of April 2, 2000      |  |        | 7,517,366  |                 |  |   | 21.35 | 
|Granted and assumed in business combinations |  |        | 2,670,757  |                 |  |   | 68.71 | 
|Canceled                                     |  |        | (259,799   | )               |  |   | 58.07 | 
|Exercised                                    |  |        | (2,429,659 | )               |  |   | 10.81 | 
|                                             |  |        |            |                 |  |   |       | 
|Options outstanding as of April 1, 2001      |  |        | 7,498,665  |                 |  |   | 39.94 | 
|Granted                                      |  |        | 2,928,232  |                 |  |   | 46.83 | 
|Canceled                                     |  |        | (514,921   | )               |  |   | 67.34 | 
|Exercised                                    |  |        | (560,287   | )               |  |   | 9.46  | 
|                                             |  |        |            |                 |  |   |       | 
|Options outstanding as of March 31, 2002     |  |        | 9,351,689  |                 |  | $ | 42.41 | 
|                                             |  |        |            |                 |  |   |       | 

As of March 31, 2002, April 1, 2001,
and April 2, 2000, the number of options exercisable was
4,232,083, 2,696,620 and 3,038,868 respectively, and the
weighted average exercise price of those options was $33.35,
$22.95 and $24.63, respectively.

38



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                         |  |                     |           |                     |  |              |       |             |  |                |     |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | ------------ | ----- | ----------- |  | -------------- | --- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  | Outstanding         |           | Weighted            |  |              |       | Exercisable |  | Weighted      
|                         |  | As of               |           | Average             |  | Remaining    |       | As of       |  | Average       
|                         |  | March 31,           |           | Exercise Price      |  | Contractual  |       | March 31,   |  | Exercise Price
|Range of Exercise Prices |  | 2002                |           | Per Option          |  | Life (Years) |       | 2002        |  | Per Option    
|                         |  |                     |           |                     |  |              |       |             |  |               
|$ 0.00 to $  7.52        |  |                     | 1,504,843 |                     |  | $            | 3.20  |             |  |                | 5.4 |  |  |  | 1,390,412 |  |  | $ | 3.22  | 
|$ 7.53 to $ 31.50        |  |                     | 1,953,557 |                     |  | $            | 25.16 |             |  |                | 7.1 |  |  |  | 1,229,843 |  |  | $ | 24.23 | 
|$31.51 to $ 63.00        |  |                     | 3,382,197 |                     |  | $            | 47.52 |             |  |                | 9.0 |  |  |  | 500,074   |  |  | $ | 47.76 | 
|$63.01 to $151.00        |  |                     | 2,511,092 |                     |  | $            | 72.45 |             |  |                | 8.0 |  |  |  | 1,111,754 |  |  | $ | 74.64 | 
|                         |  |                     |           |                     |  |              |       |             |  |                |     |  |  |  |           |  |  |   |       | 
|$ 0.00 to $151.00        |  |                     | 9,351,689 |                     |  | $            | 42.41 |             |  |                | 7.8 |  |  |  | 4,232,083 |  |  | $ | 33.35 | 
|                         |  |                     |           |                     |  |              |       |             |  |                |     |  |  |  |           |  |  |   |       | 



| |                      
| | ---------------------
| | Pro Forma Information

The Company applies the intrinsic value method in
accounting for its Stock Option Plans and, accordingly, no
compensation cost has been recognized for its stock options in
the consolidated financial statements. For the purpose of pro
forma disclosure, the estimated fair value of the options is
amortized over the options vesting period. The
Companys pro forma information is indicated below:

|                                                             |  |                                 |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------ |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                             |  | 2002                            |        | 2001 |  | 2000
|                                                             |  |                                 |        |      |  |     
|                                                             |  |                                
|                                                             |  | (In thousands, except per share
|                                                             |  | amounts)                       
|Net income as reported                                       |  | $                               | 70,726 |      |  | $    | 68,769 |  |  | $ | 48,303 | 
|Assumed stock compensation cost, net of tax                  |  | $                               | 28,592 |      |  | $    | 23,942 |  |  | $ | 15,569 | 
|                                                             |  |                                 |        |      |  |      |        |  |  |   |        | 
|Pro forma net income attributable to common
    stockholders |  | $                               | 42,134 |      |  | $    | 44,827 |  |  | $ | 32,734 | 
|                                                             |  |                                 |        |      |  |      |        |  |  |   |        | 
|Diluted net income per share as reported                     |  | $                               | 0.74   |      |  | $    | 0.72   |  |  | $ | 0.52   | 
|Pro forma diluted net income per share                       |  | $                               | 0.44   |      |  | $    | 0.47   |  |  | $ | 0.35   | 

The Company uses the Black-Scholes option-pricing
model for estimating the fair value of its equity instruments.
The following represents the weighted-average fair value of
options granted and the assumptions used for the calculations:

|                        |  |      |        |      |  |      |               |   |  |  |               |  
|----------------------- |  | ---- | ------ | ---- |  | ---- | ------------- | - |  |  | ------------- | -
|                        |  | 2002 |        | 2001 |  | 2000
|                        |  |      |        |      |  |     
|Stock volatility        |  |      | 105.69 | %    |  |      | 98.5 -  136.6 | % |  |  | 84.6 -  140.0 | %
|Risk-free interest rate |  |      | 5.4    | %    |  |      | 4.9 - 5.9     | % |  |  | 5.9 - 6.4     | %
|Expected life (years)   |  |      | 5.0    |      |  |      | 5.0           |   |  |  | 3.5 - 5.0     |  

The fair value of each option grant, as defined
by SFAS 123, is estimated on the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes model, as
well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which
significantly differ from the Companys stock option
awards. These models also require highly subjective assumptions,
including future stock price volatility and expected time until
exercise, which greatly affect the calculated fair value on the
grant date. The weighted average estimated fair value of options
granted under the Companys Stock Option Plans during
fiscal 2002, 2001 and 2000 was $37.15, $61.10 and $30.35,
respectively.

39



---



##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                         
| | ----------------------------------------
| | Equity Compensation Plan
    Information

The following table sets forth information
regarding outstanding options, warrants and rights and shares
reserved for future issuance under our existing equity
compensation plans as of March 31, 2002.

|                                                             |  |                      |           |                      |  |                          |       |  |  |  |           | 
|------------------------------------------------------------ |  | -------------------- | --------- | -------------------- |  | ------------------------ | ----- |  |  |  | --------- | 
|                                                             |  | (a)                  |           | (b)                  |  | (c)                     
|                                                             |  |                      |           |                      |  | Number of Securities    
|                                                             |  |                      |           |                      |  | Remaining Available     
|                                                             |  | Number of Securities |           |                      |  | for Future Issuance     
|                                                             |  | to be Issued         |           | Weighted-Average     |  | Under Equity            
|                                                             |  | Upon Exercise of     |           | Exercise Price of    |  | Compensation Plans      
|                                                             |  | Outstanding Options, |           | Outstanding Options, |  | (Excluding Securities   
|Plan Category                                                |  | Warrants and Rights  |           | Warrants and Rights  |  | Reflected in Column (a))
|                                                             |  |                      |           |                      |  |                         
|Incentive compensation plans approved by
    shareholders    |  |                      | 9,305,689 |                      |  | $                        | 42.62 |  |  |  | 7,709,738 | 
|Employee Stock Purchase Plan approved by
    shareholders    |  |                      |          |                      |  |                          |      |  |  |  | 2,150,163 | 
|Incentive compensation plan not approved by
    shareholders |  |                      | 46,000    |                      |  | $                        | 1.16  |  |  |  |          | 
|                                                             |  |                      |           |                      |  |                          |       |  |  |  |           | 
|TOTAL                                                        |  |                      | 9,351,689 |                      |  | $                        | 42.41 |  |  |  | 9,859,901 | 
|                                                             |  |                      |           |                      |  |                          |       |  |  |  |           | 

Note (9) Employee Retirement Savings
Plan

The Company has established a pretax savings and
profit sharing plan under Section 401(k) of the Internal
Revenue Code for substantially all domestic employees. Under the
plan, eligible employees are able to contribute up to 15% of
their compensation. Company contributions match up to 3% of a
participants compensation. The Companys direct
contributions on behalf of its employees were $1,326,000,
$941,000 and $647,000 in fiscal 2002, 2001, and 2000,
respectively.

Note (10) Commitments and
Contingencies



| |               
| | --------------
| | Line of Credit

On July 5, 2001, the Company renewed its
unsecured line of credit from a bank. Maximum borrowings under
the line of credit are $5.0 million, subject to a borrowing
base based on accounts receivable, with a $3.0 million
sub-limit for letters of credit. Interest on outstanding
advances is payable monthly at the banks prime rate (4.75%
at March 31, 2002). The line of credit expires on
July 5, 2002. The line of credit contains certain
restrictive covenants that, among other things, require the
maintenance of certain financial ratios and restrict the
Companys ability to incur additional indebtedness. The
Company was in compliance with all such covenants as of
March 31, 2002. There were no borrowings under the line of
credit as of March 31, 2002. The Company expects to extend
the line of credit through the end of fiscal year 2003.



| |       
| | ------
| | Leases

The Company leases certain equipment and
facilities under non-cancelable operating lease agreements,
which expire at various dates through fiscal year 2007. Future
minimum non-cancelable lease commitments are as follows:

|                             |  |                |       | 
|---------------------------- |  | -------------- | ----- | 
|Fiscal year:                 |  |               
|                             |  | (In thousands)
|2003                         |  | $              | 1,842 | 
|2004                         |  |                | 1,202 | 
|2005                         |  |                | 1,059 | 
|2006                         |  |                | 777   | 
|2007                         |  |                | 116   | 
|                             |  |                |       | 
|Total minimum lease payments |  | $              | 4,996 | 
|                             |  |                |       | 

40



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Rent expense for fiscal 2002, 2001, and 2000 was
$1,334,000, $1,400,000 and $2,287,000 respectively.



| |           
| | ----------
| | Litigation

QLogic is involved in various legal proceedings,
which have arisen in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Companys
consolidated financial position, results of operations or
liquidity.

Note (11) Income Taxes

The components of the income tax provision are as
follows:

|                           |         |                |        |        |        |      |        |        |        |   |        |        |        |  
|-------------------------- | ------- | -------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                           |         | 2002           |        | 2001   |        | 2000
|                           |         |                |        |        |        |     
|                           |         |               
|                           |         | (In thousands)
|Current:                   |         |                |        |        |        |      |        |        |        |   |        |       
|                           | Federal |                | $      | 22,620 |        |      | $      | 45,597 |        |   | $      | 30,402 |       
|                           | State   |                |        | 2,855  |        |      |        | 7,952  |        |   |        | 2,564  |       
|                           | Foreign |                |        | 1      |        |      |        | 448    |        |   |        | 1,094  |       
|                           |         |                |        |        |        |      |        |        |        |   |        |       
|                           |         | Total current  |        |        | 25,476 |      |        |        | 53,997 |   |        |        | 34,060 |  
|Deferred:                  |         |                |        |        |        |      |        |        |        |   |        |       
|                           | Federal |                |        | 8,572  |        |      |        | (3,544 | )      |   |        | (8,351 | )     
|                           | State   |                |        | 766    |        |      |        | (2,285 | )      |   |        | (1,008 | )     
|                           |         |                |        |        |        |      |        |        |        |   |        |       
|                           |         | Total deferred |        |        | 9,338  |      |        |        | (5,829 | ) |        |        | (9,359 | )
|                           |         |                |        |        |        |      |        |        |        |   |        |       
|Total income tax provision |         | $              | 34,814 |        |        | $    | 48,168 |        |        | $ | 24,701 |       
|                           |         |                |        |        |        |      |        |        |        |   |        |       

The tax benefits associated with dispositions
from employee stock plans of approximately $7.5 million,
$52.7 million and $34.0 million in fiscal 2002, 2001
and 2000 respectively, were recorded directly to additional
paid-in capital.

A reconciliation of the income tax provision with
the amount computed by applying the federal statutory tax rate
to pretax income is as follows:

|                                                              |  |                |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                              |  | 2002           |        | 2001 |  | 2000
|                                                              |  |                |        |      |  |     
|                                                              |  |               
|                                                              |  | (In thousands)
|Expected income tax provision at the statutory
    rate       |  | $              | 36,834 |      |  | $    | 40,928 |   |  | $ | 25,555 |  
|State income tax, net of federal tax benefit                  |  |                | 2,354  |      |  |      | 3,683  |   |  |   | 2,522  |  
|Tax benefit of research and development and other
    credits |  |                | (2,600 | )    |  |      | (1,304 | ) |  |   | (2,120 | )
|Foreign Sales Corporation tax benefit                         |  |                | (1,750 | )    |  |      | (1,137 | ) |  |   | (430   | )
|Nondeductible business combination related costs              |  |                |       |      |  |      | 7,609  |   |  |   |       |  
|Tax exempt income                                             |  |                | (571   | )    |  |      | (326   | ) |  |   | (617   | )
|Other, net                                                    |  |                | 547    |      |  |      | (1,285 | ) |  |   | (209   | )
|                                                              |  |                |        |      |  |      |        |   |  |   |        |  
|                                                              |  | $              | 34,814 |      |  | $    | 48,168 |   |  | $ | 24,701 |  
|                                                              |  |                |        |      |  |      |        |   |  |   |        |  

41



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and
liabilities are as follows:

|                          |                                                |                                      |   |        |        |  |   |        |        | 
|------------------------- | ---------------------------------------------- | ------------------------------------ | - | ------ | ------ |  | - | ------ | ------ | 
|                          |                                                | 2002                                 |   | 2001  
|                          |                                                |                                      |   |       
|                          |                                                |                                     
|                          |                                                | (In thousands)                      
|Deferred tax assets:      |                                                |                                      |   |        |        |  |   |       
|                          | Reserves and accruals not currently deductible |                                      | $ | 23,400 |        |  | $ | 21,685 |       
|                          | Property and equipment                         |                                      |   |       |        |  |   | 1,104  |       
|                          | Acquired in-process technology                 |                                      |   | 2,188  |        |  |   | 4,157  |       
|                          | Net operating loss carryforwards               |                                      |   | 6,255  |        |  |   | 16,694 |       
|                          | Research credits                               |                                      |   | 6,614  |        |  |   | 6,532  |       
|                          | Stock warrants                                 |                                      |   | 4,593  |        |  |   | 2,455  |       
|                          | Other                                          |                                      |   | 634    |        |  |   | 542    |       
|                          |                                                |                                      |   |        |        |  |   |       
|                          |                                                | Total gross deferred tax assets      |   |        | 43,684 |  |   |        | 53,169 | 
|                          |                                                |                                      |   |        |        |  |   |       
|Deferred tax liabilities: |                                                |                                      |   |        |        |  |   |       
|                          | Research and development expenditures          |                                      |   | 1,134  |        |  |   | 1,534  |       
|                          | Property and equipment                         |                                      |   | 253    |        |  |   |       |       
|                          |                                                |                                      |   |        |        |  |   |       
|                          |                                                | Total gross deferred tax liabilities |   |        | 1,387  |  |   |        | 1,534  | 
|                          |                                                |                                      |   |        |        |  |   |       
|                          | Net deferred tax assets                        |                                      | $ | 42,297 |        |  | $ | 51,635 |       
|                          |                                                |                                      |   |        |        |  |   |       

Based upon the Companys current and
historical pre-tax earnings, management believes it is more
likely than not that the Company will realize the benefit of the
existing net deferred tax assets as of March 31, 2002.
Management believes the existing net deductible temporary
differences will reverse during periods in which the Company
generates net taxable income or that there would be sufficient
tax carry backs available; however, there can be no assurance
that the Company will generate any earnings or any specific
level of continuing earnings in future years.

As of March 31, 2002 the Company has federal
net operating loss carryforwards of approximately
$17.3 million and aggregate state net operating loss
carryforwards of approximately $19.6 million. The federal
net operating loss carryforwards expire on various dates between
2009 and 2020. The aggregate state net operating loss
carryforwards expire on various dates between 2004 and 2015. All
net operating loss carryforwards relate to acquired companies
and are subject to limitations on their utilization.

As of March 31, 2002 the Company has federal
and state tax credit carryforwards of approximately
$6.6 million and $523,000 respectively. If not utilized,
the federal and state tax credit carryforwards will begin to
expire in 2006. Approximately $1.1 million of the federal
and $296,000 of the state tax credits carryforwards relate to
acquired companies and are subject to limitations on their
utilization.

The Companys U.S. income tax returns for
the 1999 through 2000 fiscal years are presently scheduled for
examination by the Internal Revenue Service. Management does not
expect a material impact on the consolidated financial
statements from the examination.

Note (12) Product Revenues, Geographic
Revenues and Significant Customers

Operating segments, as defined by SFAS 131,
are components of an enterprise for which separate financial
information is available and is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance. SFAS 131 also requires
disclosures about products and services, geographic areas, and
significant customers. The Company operates in one operating
segment for purposes of SFAS 131.

42



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Product Revenues

The Company designs and supplies switch products,
semiconductor and board I/O, and enclosure management products.
These products utilize one of three technology standards: Fibre
Channel, Small Computer Systems Interface (SCSI) and Integrated
Drive Electronics (IDE). Net revenues for the Companys
products are grouped by technology standard as they function
using similar technologies.

|              |  |                |         |      |  |      |         |  |  |   |         | 
|------------- |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|              |  | 2002           |         | 2001 |  | 2000
|              |  |                |         |      |  |     
|              |  |               
|              |  | (In thousands)
|Fibre Channel |  | $              | 224,553 |      |  | $    | 185,085 |  |  | $ | 73,026  | 
|SCSI          |  |                | 117,936 |      |  |      | 167,527 |  |  |   | 131,694 | 
|IDE           |  |                | 1,700   |      |  |      | 4,930   |  |  |   | 11,373  | 
|              |  |                |         |      |  |      |         |  |  |   |         | 
|              |  | $              | 344,189 |      |  | $    | 357,542 |  |  | $ | 216,093 | 
|              |  |                |         |      |  |      |         |  |  |   |         | 



| |                    
| | -------------------
| | Geographic Revenues

The Companys net revenues by country based
on ship-to location are:

|               |  |                |         |      |  |      |         |  |  |   |         | 
|-------------- |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|               |  | 2002           |         | 2001 |  | 2000
|               |  |                |         |      |  |     
|               |  |               
|               |  | (In thousands)
|United States  |  | $              | 180,794 |      |  | $    | 158,665 |  |  | $ | 101,190 | 
|Japan          |  |                | 98,360  |      |  |      | 131,691 |  |  |   | 78,395  | 
|United Kingdom |  |                | 34,699  |      |  |      | 32,908  |  |  |   | 17,149  | 
|Rest of world  |  |                | 30,336  |      |  |      | 34,278  |  |  |   | 19,359  | 
|               |  |                |         |      |  |      |         |  |  |   |         | 
|               |  | $              | 344,189 |      |  | $    | 357,542 |  |  | $ | 216,093 | 
|               |  |                |         |      |  |      |         |  |  |   |         | 



| |                      
| | ---------------------
| | Significant Customers

The following table represents sales to customers
accounting for greater than 10% of the Companys net
revenues. With the exception of these customers, management
believes that the loss of any one customer would not have a
material adverse effect on its operations.

|           |  |      |    |      |  |      |    |   |  |  |    |  
|---------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|           |  | 2002 |    | 2001 |  | 2000
|           |  |      |    |      |  |     
|Customer 1 |  |      | 17 | %    |  |      | 29 | % |  |  | 27 | %
|Customer 2 |  |      | 16 | %    |  |      | 18 | % |  |  | 13 | %

43



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##### Table of Contents



QLOGIC CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note (13) Condensed Quarterly Results
(Unaudited)

The following summarizes certain unaudited
quarterly financial information for fiscal 2002, 2001, and 2000.

|                                             |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|-------------------------------------------- |  | ------------------ | ------ | --------- |  | -------- | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                                             |  |                   
|                                             |  | Three Months Ended
|                                             |  |                   
|                                             |  | June               |        | September |  | December |        | March
|                                             |  |                    |        |           |  |          |        |      
|Fiscal 2002:                                 |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|Net revenues                                 |  | $                  | 89,901 |           |  | $        | 80,879 |       |  | $ | 82,587 |  |  | $ | 90,822 | 
|Gross profit                                 |  |                    | 55,590 |           |  |          | 48,272 |       |  |   | 51,131 |  |  |   | 56,191 | 
|Operating income                             |  |                    | 23,604 |           |  |          | 19,039 |       |  |   | 20,779 |  |  |   | 23,082 | 
|Net income                                   |  |                    | 19,180 |           |  |          | 15,862 |       |  |   | 17,028 |  |  |   | 18,656 | 
|Net income per share  basic                 |  |                    | 0.21   |           |  |          | 0.17   |       |  |   | 0.18   |  |  |   | 0.20   | 
|Net income per share  diluted               |  |                    | 0.20   |           |  |          | 0.17   |       |  |   | 0.18   |  |  |   | 0.20   | 
|                                             |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|Fiscal 2001:                                 |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|Net revenues                                 |  | $                  | 76,773 |           |  | $        | 85,971 |       |  | $ | 95,129 |  |  | $ | 99,669 | 
|Gross profit                                 |  |                    | 50,185 |           |  |          | 55,507 |       |  |   | 60,498 |  |  |   | 62,613 | 
|Operating income(1)                          |  |                    | 25,849 |           |  |          | 6,888  |       |  |   | 33,252 |  |  |   | 32,242 | 
|Net income (loss)(1)                         |  |                    | 19,624 |           |  |          | (1,306 | )     |  |   | 25,208 |  |  |   | 25,243 | 
|Net income per share  basic                 |  |                    | 0.22   |           |  |          | (0.01  | )     |  |   | 0.28   |  |  |   | 0.27   | 
|Net income (loss) per share 
    diluted(1) |  |                    | 0.21   |           |  |          | (0.01  | )     |  |   | 0.26   |  |  |   | 0.27   | 
|                                             |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|Fiscal 2000:                                 |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 
|Net revenues                                 |  | $                  | 44,706 |           |  | $        | 51,091 |       |  | $ | 56,350 |  |  | $ | 63,946 | 
|Gross profit                                 |  |                    | 30,556 |           |  |          | 35,228 |       |  |   | 37,217 |  |  |   | 42,110 | 
|Operating income                             |  |                    | 13,831 |           |  |          | 16,836 |       |  |   | 19,239 |  |  |   | 13,929 | 
|Net income                                   |  |                    | 10,112 |           |  |          | 12,325 |       |  |   | 14,392 |  |  |   | 11,486 | 
|Net income per share  basic                 |  |                    | 0.12   |           |  |          | 0.14   |       |  |   | 0.17   |  |  |   | 0.13   | 
|Net income per share  diluted               |  |                    | 0.11   |           |  |          | 0.14   |       |  |   | 0.15   |  |  |   | 0.12   | 
|                                             |  |                    |        |           |  |          |        |       |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Operating income, net income (loss) and net
    income (loss) per share includes a $22.9 million charge for
    merger and related expenses in the third-quarter of fiscal 2001.

44



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##### Table of Contents








|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial
    Disclosure.

None.




PART III






|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant.

Reference is made to the Companys
Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal 2002,
for information relating to the Companys Directors under
the heading Nomination and Election of Directors,
for information relating to the Companys executive
officers under the heading Executive Officers and
for information relating to reporting compliance under the
heading Section 16(a) Beneficial Ownership Reporting
Compliance. Such information is incorporated herein by
reference.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Reference is made to the Companys
Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal 2002,
for information relating to executive compensation under the
heading Executive Compensation and Other Information
excluding the Report of Executive Compensation
Committee and the Stockholder Return Performance
Presentation. Such information is incorporated herein by
reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Reference is made to the Companys
Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal 2002,
for information relating to security ownership of certain
beneficial owners and management under the headings
Principal Stockholders and Stock Ownership of
Management. Such information is incorporated herein by
reference.

There are no arrangements, known to the Company,
which might at a subsequent date result in a change in control
of the Company.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Reference is made to the Companys
Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal 2002,
for information relating to certain relationships and related
transactions, if any, under the headings Compensation
Committee Interlocks and Insider Participation and
Certain Transactions. Such information is
incorporated herein by reference.

45



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##### Table of Contents






PART IV






|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 14. | Exhibits, Financial Statements, Schedules
    and Reports on Form 8-K

(a)Exhibits, Financial Statements and
Schedules



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)Consolidated Financial Statements                                                                                                                                             
|
| | The following consolidated financial statements
    of the Company for the years ended March 31, 2002,
    April 1, 2001, and April 2, 2000 are filed as part of
    this report:

FINANCIAL STATEMENT INDEX

|                    |                                                                                                                             |        |  |    | 
|------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------ |  | -- | 
|                    |                                                                                                                             | Page  
|Statement           |                                                                                                                             | Number
|                    |                                                                                                                             |       
|QLogic Corporation: |                                                                                                                             |        |  |   
|                    | Independent Auditors Report                                                                                                |        |  | 24 | 
|                    | Consolidated Balance Sheets as of March 31,
    2002 and April 1, 2001                                                      |        |  | 25 | 
|                    | Consolidated Statements of Income for the years
    ended March 31, 2002, April 1, 2001 and April 2,
    2000               |        |  | 26 | 
|                    | Consolidated Statements of Stockholders
    Equity for the years ended March 31, 2002, April 1,
    2001 and April 2, 2000 |        |  | 27 | 
|                    | Consolidated Statements of Cash Flows for the
    years ended March 31, 2002, April 1, 2001 and
    April 2, 2000           |        |  | 28 | 
|                    | Notes to Consolidated Financial Statements                                                                                  |        |  | 29 | 



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2)Financial Statement Schedule                                                                                                                                                        
|
| | The following consolidated financial statement
    schedule of the Company for the years ended March 31, 2002,
    April 1, 2001 and April 2, 2000 is filed as part of
    this report:

|                                                    |  |                |    | 
|--------------------------------------------------- |  | -------------- | -- | 
|                                                    |  | Page Number of
|                                                    |  | This Report   
|                                                    |  |               
|Schedule II  Valuation and
    Qualifying Accounts |  |                | 48 | 



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other Schedules for which provision is made
    in the applicable accounting regulations of the Securities and
    Exchange Commission are not required under the related
    instructions or are not applicable and, therefore, have been
    omitted.
|
| | (3)Exhibits                                                                                                                                                                                                                                                
|
| | An exhibit index has been filed as part of this
    Report beginning on page 49 and is incorporated herein by this
    reference.                                                                                                                          

(b) Reports on Form 8-K

The Registrant filed a Current Report on
Form 8-K on March 15, 2002, with respect to the
appointment of a new Chief Financial Officer and certain changes
in the composition of the Registrants audit committee and
compensation committee, reported under Item 5.

POWER OF ATTORNEY

Each person whose signature appears below hereby
authorizes H.K. Desai and/or Frank A. Calderoni, as
attorney-in-fact, to sign in his behalf and in each capacity
stated below, and to file, all amendments and/or supplements to
this Annual Report on Form 10-K.

46



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                   
| | ------------------
| | QLOGIC CORPORATION



| |     |               
| | --- | --------------
| | By: | /s/ H.K. DESAI

| |                                          
| | -----------------------------------------
| |                                          
| | H.K. Desai                               
| | Chairman of the Board,                   
| | Chief Executive Officer and
    President

Date: June 15, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities indicated on.

|                                                 |  |                                                                  
|------------------------------------------------ |  | -----------------------------------------------------------------
|Signature                                        |  | Title                                                            
|                                                 |  |                                                                  
|Principal Executive Officer:                     |  |                                                                  
|/s/ H.K. DESAIH.K. Desai                         |  | Chairman of the Board , Chief Executive Officer
    and President
|                                                
|Principal Financial and Accounting
    Officer:  |  |                                                                  
|/s/ FRANK A. CALDERONIFrank A. Calderoni         |  | Vice President and Chief Financial Officer                       
|/s/ GEORGE D. WELLSGeorge D. Wells               |  | Director                                                         
|/s/ CAROL L. MILTNERCarol L. Miltner             |  | Director                                                         
|/s/ LARRY R. CARTERLarry R. Carter               |  | Director                                                         
|/s/ JAMES R. FIEBIGERJames R. Fiebiger           |  | Director                                                         
|/s/ KENNETH E. HENDRICKSONKenneth E. Hendrickson |  | Director                                                         

47



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##### Table of Contents



SCHEDULE II

QLOGIC CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

Years ended March 31, 2002, April 1,
2001 and April 2, 2000


|                          |                                 |                |   |            |  |              |   |            |  |  |   |    |  |  |   |       | 
|------------------------- | ------------------------------- | -------------- | - | ---------- |  | ------------ | - | ---------- |  |  | - | -- |  |  | - | ----- | 
|                          |                                 |                |   | Additions  |  | Deductions  |   |           
|                          |                                 | Balance at     |   | Charged to |  | Amounts      |   | Balance at
|                          |                                 | Beginning of   |   | Costs and  |  | Written Off/ |   | End of    
|                          |                                 | Period         |   | Expenses   |  | Recovered    |   | Period    
|                          |                                 |                |   |            |  |              |   |           
|                          |                                 |               
|                          |                                 | (In thousands)
|Classification:           |                                 |                |   |            |  |              |   |            |  |  |   |    |  |  |   |      
|Year ended March 31, 2002 |                                 |                |   |            |  |              |   |            |  |  |   |    |  |  |   |      
|                          | Allowance for doubtful accounts |                | $ | 2,372      |  |              | $ | 1,125      |  |  | $ | 68 |  |  | $ | 3,429 | 
|Year ended April 1, 2001  |                                 |                |   |            |  |              |   |            |  |  |   |    |  |  |   |      
|                          | Allowance for doubtful accounts |                | $ | 1,014      |  |              | $ | 1,392      |  |  | $ | 34 |  |  | $ | 2,372 | 
|Year ended April 2, 2000  |                                 |                |   |            |  |              |   |            |  |  |   |    |  |  |   |      
|                          | Allowance for doubtful accounts |                | $ | 979        |  |              | $ | 35         |  |  | $ |   |  |  | $ | 1,014 | 

48



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##### Table of Contents






EXHIBIT INDEX

|        |         |              |  |                                                                                                                                                                                                             
|------- | ------- | ------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |             
|No.     |         | Item Caption
|        |         |             
|        | 2.1     |              |  | Distribution Agreement dated as of
    January 24, 1994 among Emulex Corporation, a Delaware
    corporation, Emulex Corporation, a California Corporation and
    QLogic Corporation.(2)                   
|        | 2.2     |              |  | Agreement and Plan of Merger dated as of
    May 8, 2000 by and among QLogic Corporation, Amino
    Acquisition Corp. and Ancor Communications, Incorporated.(10)                                           
|        | 3.1     |              |  | Certificate of Incorporation of Emulex Micro
    Devices Corporation, dated November 13, 1992.(2)                                                                                                           
|        | 3.2     |              |  | EMD Incorporation Agreement, dated as of
    January 1, 1993.(2)                                                                                                                                            
|        | 3.3     |              |  | Certificate of Amendment of Certificate of
    Incorporation, dated May 26, 1993.(2)                                                                                                                        
|        | 3.4     |              |  | By-Laws of QLogic Corporation.(2)                                                                                                                                                                           
|        | 3.5     |              |  | Amendments to By-Laws of QLogic Corporation.(3)                                                                                                                                                             
|        | 3.6     |              |  | Certificate of Amendment of Certificate of
    Incorporation, dated May 26, 1993.(2)                                                                                                                        
|        | 3.7     |              |  | Certificate of Amendment of Certificate of
    Incorporation, dated February 15, 1999.(7)                                                                                                                   
|        | 3.8     |              |  | Certificate of Amendment of Certificate of
    Incorporation, dated January 5, 2000.(8)                                                                                                                     
|        | 4.1     |              |  | Rights Agreement, dated as of June 4, 1996
    between QLogic Corporation and Harris Trust Company of
    California, which includes as Exhibit B thereto the form of
    Rights Certificate.(4)            
|        | 4.2     |              |  | Amendment to Rights Agreement, dated as of
    November 19, 1997 between QLogic Corporation and Harris
    Trust Company of California.(5)                                                                  
|        | 4.3     |              |  | Amendment to Rights Agreement, dated as of
    January 24, 2000 between QLogic Corporation and Harris
    Trust Company of California.(9)                                                                   
|        | 10.1.2  |              |  | Form of QLogic Corporation Non-Employee Director
    Stock Option Plan, as amended.*(12)                                                                                                                    
|        | 10.2.2  |              |  | QLogic Corporation Stock Awards Plan, as
    amended.*(12)                                                                                                                                                  
|        | 10.3    |              |  | Form of Tax Sharing Agreement among Emulex
    Corporation, a Delaware corporation, Emulex Corporation, a
    California corporation, and QLogic Corporation.(2)                                            
|        | 10.4    |              |  | Administrative Services Agreement, dated as of
    February 21, 1993, among Emulex Corporation, a California
    corporation, Emulex Corporation, a Delaware corporation and
    QLogic Corporation.(2)     
|        | 10.5    |              |  | Employee Benefits Allocation Agreement, dated as
    of January 24, 1994, among Emulex Corporation, a Delaware
    corporation, Emulex Corporation, a California corporation, and
    QLogic Corporation.(2)
|        | 10.6    |              |  | Form of Assignment, Assumption and Consent Re:
    Lease among Emulex Corporation, a California corporation, QLogic
    Corporation and C.J. Segerstrom & Sons, a general
    partnership.(2)               
|        | 10.7    |              |  | Intellectual Property Assignment and Licensing
    Agreement, dated as of January 24, 1994, between Emulex
    Corporation, a California Corporation, and QLogic Corporation.(2)                            
|        | 10.8    |              |  | Form of QLogic Corporation Savings Plan.*(2)                                                                                                                                                                
|        | 10.9    |              |  | Form of QLogic Corporation Savings Plan Trust.*(2)                                                                                                                                                          
|        | 10.11   |              |  | Form of Indemnification Agreement between QLogic
    Corporation and Directors.(3)                                                                                                                          
|        | 10.13   |              |  | Industrial Lease Agreement between the
    Registrant, as lessee, and AEW/Parker South, LLC, as lessor.(6)                                                                                                  
|        | 10.15   |              |  | Form QLogic Corporation 1998 Employee Stock
    Purchase Plan.*(7)                                                                                                                                          
|        | 10.16   |              |  | Loan and Security Agreement with Silicon Valley
    Bank dated March 31, 1994.(1)                                                                                                                           
|        | 10.16.1 |              |  | Loan and Security Agreement with Silicon Valley
    Bank dated July 5, 2001.(11)                                                                                                                            
|        | 21.3    |              |  | Subsidiaries of the Registrant.                                                                                                                                                                             
|        | 23.1    |              |  | Consent of KPMG LLP.                                                                                                                                                                                        

49



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##### Table of Contents








|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to
    Registrants Annual Report on Form 10-K for the year
    ended April 3, 1994, and incorporated herein by reference.              
|   
|(2) | Previously filed as an exhibit to
    Registrants Registration Statement on Form 10 on
    January 28, 1994, and incorporated herein by reference.                    
|   
|(3) | Previously filed as an exhibit to
    Registrants Annual Report on Form 10-K for the year
    ended April 2, 1995, and incorporated herein by reference.              
|   
|(4) | Previously filed as an exhibit to
    Registrants Registration Statement on Form 8-A on
    June 19, 1996, and incorporated herein by reference.                      
|   
|(5) | Previously filed as an exhibit to
    Registrants Registration Statement on Form 8-A/A on
    November 25, 1997, and incorporated herein by reference.                
|   
|(6) | Previously filed as an exhibit to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 27, 1998, and incorporated herein by
    reference.
|   
|(7) | Previously filed as an exhibit to
    Registrants Annual Report on Form 10-K for the year
    ended March 28, 1999, and incorporated herein by reference.             
|   
|(8) | Previously filed as an exhibit to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 26, 1999, and incorporated herein by
    reference.
|   
|(9) | Previously filed as and exhibit to
    Registrants Registration Statement on Form 8-A/A
    dated June 1, 2000, and incorporated herein by reference.                 



|     |                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as an exhibit to
    Registrants Amendment No. 1 to Registration Statement
    on Form S-4 on June 22, 2000, and incorporated herein
    by reference.
|    
|(11) | Previously filed as an exhibit to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended July 1, 2001, and incorporated herein by
    reference.      
|    
|(12) | Previously filed as an exhibit to
    Registrants Registration Statement on Form S-8 on
    September 25, 2001, and incorporated herein by reference.                  



|  |                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Compensation plan, contract or arrangement
    required to be filed as an exhibit pursuant to applicable rules
    of the Securities and Exchange Commission.

50