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                                                                    EXHIBIT 10.3


                        CENTILLIUM COMMUNICATIONS, INC.

                      2001 NONSTATUTORY STOCK OPTION PLAN

     1.  Purposes of the Plan.  The purposes of this Nonstatutory Stock Option
         --------------------
         Plan are:

         .  to attract and retain the best available personnel for positions of
            substantial responsibility,

         .  to provide additional incentive to Employees, Directors and
            Consultants, and

         .  to promote the success of the Company's business.

         Options granted under the Plan will be Nonstatutory Stock Options.

     2.  Definitions.  As used herein, the following definitions shall apply:
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         (a)  "Administrator" means the Board or any of its Committees as shall
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be administering the Plan, in accordance with Section 4 of the Plan.

         (b)  "Applicable Laws" means the requirements relating to the
               ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

         (c)  "Board" means the Board of Directors of the Company.
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         (d)  "Code" means the Internal Revenue Code of 1986, as amended.
               ----

         (e)  "Committee"  means a committee of Directors appointed by the Board
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in accordance with Section 4 of the Plan.

         (f)  "Common Stock" means the Common Stock of the Company.
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         (g)  "Company" means Centillium Communications, Inc., a Delaware
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corporation.

         (h)  "Consultant" means any person, including an advisor, engaged by
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the Company or a Parent or Subsidiary to render services to such entity.

         (i)  "Director" means a member of the Board.
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         (j)  "Disability" means total and permanent disability as defined in
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Section 22(e)(3) of the Code.

         (k)  "Employee" means any person, including Officers, employed by the
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Company or any Parent or Subsidiary of the Company. A Service Provider shall not
cease to be an Employee
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in the case of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.

         (l)  "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended.

         (m)  "Fair Market Value" means, as of any date, the value of Common
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Stock determined as follows:

              (i)  If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

              (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

              (iii)  In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

         (n)  "Notice of Grant" means a written or electronic notice
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evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.

         (o)  "Officer" means a person who is an officer of the Company within
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the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

         (p)  "Option" means a nonstatutory stock option granted pursuant to the
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Plan, that is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.

         (q)  "Option Agreement" means an agreement between the Company and an
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Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

         (r)  "Option Exchange Program" means a program whereby outstanding
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options are surrendered in exchange for options with a lower exercise price.

         (s)  "Optioned Stock" means the Common Stock subject to an Option.
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         (t)  "Optionee" means the holder of an outstanding Option granted under
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the Plan.

         (u)  "Parent" means a "parent corporation," whether now or hereafter
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existing, as defined in Section 424(e) of the Code.

         (v)  "Plan" means this 2001 Nonstatutory Stock Option Plan.
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         (w)  "Service Provider" means an Employee including an Officer,
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Consultant or Director.

         (x)  "Share" means a share of the Common Stock, as adjusted in
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accordance with Section 12 of the Plan.

         (y)  "Subsidiary" means a "subsidiary corporation," whether now or
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hereafter existing, as defined in Section 424(f) of the Code.

     3.  Stock Subject to the Plan.  Subject to the provisions of Section 12 of
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the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 5,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.

         If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).

     4.  Administration of the Plan.
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         (a)  Administration.  The Plan shall be administered by (i) the Board
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or (ii) a Committee, which committee shall be constituted to satisfy Applicable
Laws.

         (b)  Powers of the Administrator.  Subject to the provisions of the
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Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

              (i)  to determine the Fair Market Value of the Common Stock;

              (ii)  to select the Service Providers to whom Options may be
granted hereunder;

              (iii)  to determine whether and to what extent Options are granted
hereunder;

              (iv)  to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

              (v)  to approve forms of agreement for use under the Plan;

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              (vi)  to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;

               (vii)  to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;

               (viii)  to institute an Option Exchange Program;

               (ix)  to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

               (x)  to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

               (xi)  to modify or amend each Option (subject to Section 14(b) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;

               (xii)  to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;

               (xiii)  to determine the terms and restrictions applicable to
Options;

               (xiv)  to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and

               (xv)  to make all other determinations deemed necessary or
advisable for administering the Plan.

         (c)  Effect of Administrator's Decision.  The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.

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     5.  Eligibility.  Options may be granted to Service Providers; provided,
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however, that notwithstanding anything to the contrary contained in the Plan,
Options may not be granted to Officers and Directors, except in connection with
an Officer's initial service to the Company.

     6.  Limitation.  Neither the Plan nor any Option shall confer upon an
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Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

     7.  Term of Plan.  The Plan shall become effective upon its adoption by the
         ------------
Board.  It shall continue in effect for ten (10) years, unless sooner terminated
under Section 14 of the Plan.

     8.  Term of Option.  The term of each Option shall be stated in the Option
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Agreement.

     9.  Option Exercise Price and Consideration.
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         (a)  Exercise Price.  The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator.

         (b)  Waiting Period and Exercise Dates.  At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

         (c)  Form of Consideration.  The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:

              (i)  cash;

              (ii)  check;

              (iii)  promissory note;

              (iv)  other Shares, provided Shares acquired from the Company, (A)
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said Option shall be
exercised;

              (v)  consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

              (vi)  a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

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              (vii)  such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or

              (viii)  any combination of the foregoing methods of payment.

     10.  Exercise of Option.
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          (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option
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granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.

          An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.  Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised.  No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

          Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.

     (b)  Termination of Relationship as a Service Provider.  If an Optionee
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ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

     (c)  Disability of Optionee.  If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of

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termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

     (d)  Death of Optionee.  If an Optionee dies while a Service Provider, the
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Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

     11.  Non-Transferability of Options.  Unless determined otherwise by the
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Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.  If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

     12.  Adjustments Upon Changes in Capitalization, Dissolution, Merger or
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Asset Sale.
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         (a)  Changes in Capitalization.  Subject to any required action by the
              -------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities

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convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.

     (b)  Dissolution or Liquidation.  In the event of the proposed dissolution
     --------------------------
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.

     (c)  Merger or Asset Sale.  In the event of a merger of the Company with or
          --------------------
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock, immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.

     13.  Date of Grant.  The date of grant of an Option shall be, for all
          -------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

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     14.  Amendment and Termination of the Plan.
          -------------------------------------

          (a)  Amendment and Termination.  The Board may at any time amend,
               -------------------------
alter, suspend, or terminate the Plan.

     (b)  Effect of Amendment or Termination.  No amendment, alteration,
          ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.

     15.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance.  Shares shall not be issued pursuant to the
               ----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               --------------------------
     Option the Company may require the person exercising such Option to
     represent and warrant at the time of any such exercise that the Shares are
     being purchased only for investment and without any present intention to
     sell or distribute such Shares if, in the opinion of counsel for the
     Company, such a representation is required.

     16.  Inability to Obtain Authority.  The inability of the Company to obtain
          -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     17.  Reservation of Shares.  The Company, during the term of this Plan,
          ---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

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