<PAGE>
 
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                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K
                                        
(Mark One)
          [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                   THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended September 30, 1998

                                       or

          [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                   THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from ...... to ......

                         COMMISSION FILE NUMBER 0-19654
                                        

                       VITESSE SEMICONDUCTOR CORPORATION
             (Exact name of registrant as specified in its charter)

         DELAWARE                               NO. 77-0138960
   (State or other jurisdiction of              (I.R.S. Employer
   incorporation or organization)               Identification No.)

                     741 CALLE PLANO, CAMARILLO, CA  93012
                    (Address of principal executive offices)

      Registrant's telephone number, including area code:  (805) 388-3700

       Securities registered pursuant to Section 12(b) of the Act:  NONE

          Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $0.01 PAR VALUE
                                (TITLE OF CLASS)
                                        

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

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [X]

  The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on September
30, 1998 as reported on the Nasdaq National Market, was approximately
$1,354,962,498.  Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates.  This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

  As of September 30, 1998, the registrant had outstanding 73,788,136 shares of
Common Stock.

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<PAGE>
 
                                     PART I

ITEM 1.  BUSINESS

  Certain statements in this Annual Report on Form 10-K, including certain
statements contained in "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").  Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."

  Vitesse is a leader in the design, development, manufacturing and marketing of
digital GaAs ICs.  The Company's products incorporate its proprietary H-GaAs
(high integration gallium arsenide) technology to produce high-performance ICs
primarily for telecommunications, data communications and automated test
equipment (ATE) systems providers.  The Company believes H-GaAs technology
provides significant advantages over silicon-based IC technologies in addressing
the combination of speed, power dissipation and complexity requirements of these
high-performance systems providers.  In fiscal 1998, sales of
telecommunications, data communications and ATE products represented 51%, 23%
and 26%, respectively, of the Company's total revenues.  The Company's major
customers include Alcatel, Cisco, Credence, Ericsson, Fujitsu, IBM, Lucent, NEC,
Schlumberger, Seagate, Tellabs and Teradyne.

BACKGROUND

 Telecommunications Market

  As a result of deregulation and heightened competition in the worldwide
telecommunications industry over the past decade, domestic and foreign public
network service providers have been forced to differentiate themselves by being
more responsive and offering new and better services at lower costs.  The volume
of information required to be transmitted across public networks has increased
significantly in recent years as a result of a variety of factors, including the
increase in data transmission and facsimile use, the rapid growth of the
internet, the emergence of corporate virtual private networks ("VPNs"), and the
development of new applications such as video conferencing and multimedia.
Public network service providers, including interexchange long distance carriers
("IXCs") and local exchange carriers ("LECs"), have been required to upgrade
their infrastructure to provide high-speed data services to customers to meet
these needs in addition to providing their standard telephone services.
Infrastructure improvements to public networks have most prominently included a
dramatic increase in the deployment of fiber optic technology to replace
conventional copper wire.  Since optical fiber offers substantially greater
capacity, is less error prone and is easier to administer than copper wire, it
has become the transmission medium of choice for IXCs and, increasingly, LECs.

  As fiber optic technology has spread, existing network standards for the
transmission of information, which had been developed primarily for copper wire
networks, have presented limitations to simultaneously transmitting voice and
data.  As a result, the SONET (Synchronous Optical Network) standard in the
United States and the equivalent SDH (Synchronous Digital Hierarchy) standard in
the rest of the world emerged as the next generation standards for high-speed
optical fiber transmission.  The SONET/SDH standard facilitates high data
integrity and improved performance in terms of network reliability and reduces
maintenance and other operations costs by standardizing interoperability among
different vendors' equipment.
 
  More recently, the demand for system bandwidth is being addressed by
transmitting multiple channels on a single fiber by a technique called
wavelength division multiplexing ("WDM").  The adoption of WDM has enabled
system operators to significantly increase system bandwidth without having to
bury additional fiber cables, a long and costly process.  While WDM increases
the bandwidth carried by each optical fiber, it does not reduce the number of
electronic components required.  Instead, WDM has accelerated the growth of
SONET/SDH deployment by eliminating fiber installation as a growth limiter.

                                       1
<PAGE>
 
  Asynchronous transfer mode ("ATM") is a data transmission standard
complementary to SONET/SDH that is in an early stage of development.  ATM takes
advantage of the additional capacity provided by fiber optic technology.  The
SONET/SDH standard relates to the system through which data is transmitted,
while ATM is a protocol for the packaging of data for transmission over the
SONET/SDH system.  ATM technology enables LAN, WAN and public network systems
designers to provide increasingly improved services to network users.  LAN and
WAN equipment vendors must enable the integration of mixed high-speed, high-
volume data communications, voice, video and imaging applications, reduce
bandwidth limitations of current LANs and WANs, lower equipment costs and ease
administrative burdens imposed by current system architectures.  Similarly,
equipment vendors must provide systems that can handle integrated-switched high-
speed, high-volume data communications, voice, video and imaging services.
Public network equipment vendors must also seamlessly integrate their products
with both LAN and WAN equipment to reduce overall networking costs.

  Fiber optic applications designed to the SONET/SDH and ATM standards use data
transmission rates of 155 MHz, 622 MHz, 2.488 GHz or 10 GHz.  The Company
believes that SONET/SDH transmission systems installed by network providers
generally operate at 2.488 GHz and above.  The Company also believes that
silicon-based approaches are not practicable solutions at such frequencies and,
as a result, telecommunications systems manufacturers increasingly look to GaAs
solutions because of their requirements for high bandwidth.

 Data Communications Market

  Performance improvements in processors and peripherals, along with the
transition to distributed architectures such as client/server, have spawned
increasingly data-intensive and high-speed networking applications.  This has
led to a focus on the methods of connecting high-performance computers to
peripheral equipment in the data communications industry.

  In 1988, the American National Standards Institute established a Fibre Channel
standard, which is a practical, inexpensive, yet expandable method for achieving
high-speed data transfer among workstations, mainframes, data storage devices
and other peripherals.  The Fibre Channel standard addresses the need for very
fast transfers of large volumes of information, while at the same time relieving
system manufacturers from the burden of supporting the variety of networks and
channels currently in place.  Fibre Channel is especially effective in
situations where large blocks of data must be transferred within and between
buildings and over campus environments.  Fibre Channel is substantially faster
than existing network data transmission protocols.  Fibre Channel is capable of
transmitting at rates exceeding 1 gigabit per second in both directions
simultaneously and is also able to transport existing protocols over both
optical fiber and copper wire.  Currently, the most prominent use of Fibre
Channel technology is in high-density rigid disk drives of 1 gigabyte or
greater.

  In the LAN environment, Ethernet is currently the most widespread standard,
operating at 10 to 100 megabits per second.  However, LAN backbones are rapidly
being upgraded to Gigabit Ethernet and ATM in order to increase available
bandwidth.  These network protocols, which enable expanded bandwidth in excess
of one gigabit per second, are emerging as the new standards for LAN backbones.

  The Company believes that CMOS silicon approaches are not practicable
solutions at the 1 gigabit per second or higher clock rates used in the Fibre
Channel and Gigabit Ethernet standards.  The Company believes that its H-GaAs
solutions for these markets operate at lower power and greater performance
margins than competing ECL and BiCMOS ICs.

 Automated Test Equipment Market

  ATE is used for the comprehensive testing of ICs, printed circuit boards and
electronic systems.  The increasing worldwide demand for ICs in recent years has
led to an increase in the demand for IC test equipment.  The ATE industry has
experienced changes arising from the increasing complexity of ICs, as manifested
by growing pin counts, higher speeds and greater levels of integration.  These
changes have created challenges for ATE systems designers, since the equipment
used to test these complex devices must be capable of performance exceeding that
of the devices themselves.

                                       2
<PAGE>
 
  These changes have also led to major revisions in ATE architectures.
Historically, ATE systems were primarily based on a central resource
architecture where timing and pattern generation hardware and software were
centralized and allocated as needed to groups of pins on the "device under test"
("DUT").  Central resource architecture works best with relatively simple ICs,
but with newer, higher complexity devices, the test environment can be
significantly different for each pin.  This has led to a "tester-per-pin"
architecture in which tester resources are dedicated to each pin of the DUT.
This rapid increase in system complexity has resulted in a marked increase in
the number of electronic components needed in the pin channel.  The Company
believes these factors have led ATE designers to seek to increase component
integration.

  For high-performance ATE systems, the Company believes that CMOS and BiCMOS
silicon ICs are too slow and that the high power dissipation in ECL silicon ICs
limits their integration capabilities.  The Company believes that the low power
dissipation and high complexity of the Company's H-GaAs ICs, which permit
systems to be built with fewer ICs, are well-suited for the increasingly
demanding requirements of present generation ATE equipment.

STRATEGY

  The Company's strategy includes the following elements:

 Target Growing Markets

  Vitesse targets the growing telecommunications, data communications and ATE
markets.  Within the telecommunications and data communications markets, the
Company's products are used in emerging high-growth markets such as SONET/SDH,
ATM, Fibre Channel, and Gigabit Ethernet, which require ICs that are capable of
high-bandwidth data transmission.

 Reduce Costs of High-Performance Products

  The Company continually strives to reduce the cost of its high-performance
products.  The Company endeavors to continue to increase manufacturing yields
and decrease die sizes, as well as to decrease power dissipation to enable the
use of lower-cost plastic packaging.  Another critical element of this strategy
involves the integration of multiple functions onto a single chip.

 Perform Own Wafer Fabrication Using Proprietary Manufacturing Process
 Technology

  The Company operates its own advanced wafer fabrication facilities in
Camarillo, California and in Colorado Springs, Colorado.  The Company believes
that control of wafer fabrication assures a reliable source of supply and
provides greater opportunities to enhance product quality and reliability.  In
addition, the Company believes such control facilitates new process and product
development and provides a more dependable wafer supply to meet customer
requirements.

  The Company's proprietary manufacturing process utilizes industry standard
manufacturing equipment.  This enables the Company to employ developments in
silicon manufacturing technology to continue to improve minimum feature size,
dimension control, deposition and etch capabilities.  By eliminating the need
for "custom" wafer fabrication equipment, the Company can focus its resources on
developing leading process technology rather than on developing expensive
customized manufacturing equipment.

 Develop "GaAs Transparent" Products

  The Company endeavors to make the process of designing Vitesse GaAs products
"transparent" to the designer when compared to the design process for silicon
ICs.  The design of its H-GaAs products is conducted using methodologies and CAD
tools essentially identical to those used to design silicon products.  Customers
designing Vitesse ASIC products can use industry standard CAD tools (including
those offered by Cadence, Mentor Graphics, Synopsys and Viewlogic) in such a
manner that there are no "GaAs-unique" factors that require special background
or training beyond those for an ASIC designer generally.  In addition, the
Company's products do not require electronic systems manufacturers to change
input/output interface levels or utilize power supply voltages unique to Vitesse
products.

                                       3
<PAGE>
 
 Establish Close Relationships with Customers' Engineering Management

  The Company establishes close relationships with its customers' engineering
management and believes these relationships enable it to better understand the
customers' needs and win designs for existing and new systems.

PRODUCTS AND CUSTOMERS

 Telecommunications

  Telecommunications products accounted for 51% and 52% of the Company's total
revenues for fiscal 1998 and fiscal 1997, respectively.  In fiscal 1998,
substantially all of the Company's sales in the telecommunications market were
for SONET/SDH applications.  In fiscal 1998, the Company's significant
telecommunications customers, each of which purchased at least $100,000 of the
Company's products, included Alcatel, Ciena, Ericsson, Fujitsu, Lucent, NEC and
Tellabs.

  The Company manufactures a variety of telecommunications IC products for the
transmission and reception of data over a fiber optic network.  The Company
supplies these products as Company standard products or as customer-designed
ASIC products.  With respect to the transmission of data, the Company's products
take parallel data, code it and serialize it (multiplexing or "mux") for
transmission.  At the receiving end of the fiber optic system, the Company's
telecommunications products decode and de-serialize the data (demultiplexing or
"demux").

  In the case of telecommunications switching, the Company offers a line of
crosspoint switches for high-speed digital switching applications including data
distribution and video switching.  The Company also offers a line of
photodetector/transimpedance amplifiers for both telecommunications and data
communications applications which offer a low noise and wide bandwidth solution
for converting light from a fiber optic communications channel into an
electrical signal.  The following is a summary of applications and related
operating frequencies which the Company's telecommunications products address:
 
                        Associated             Crosspoint  Transimpedance
     SONET Hierarchy    Clock Rate   MUX/DMUX   Switches     Amplifiers
     ---------------    ----------   --------   --------     ----------
     STS/OC-3             155 MHz        X          X            X
     STS/OC-12            622 MHz        X          X            X
     STS/OC-48          2.488 GHz        X
     STS/OC-192            10 GHz        X

 Data Communications

  Data communications products accounted for 23% and 22% of the Company's total
revenues for fiscal 1998 and fiscal 1997, respectively.  Vitesse has developed a
line of Fibre Channel products for this market, which consist primarily of
transmitters, receivers, transceivers, repeaters, and port bypass circuits.
Additionally, the Company has developed physical layer interface products for
the recently emerging Gigabit Ethernet and ATM markets.  The Company is also in
the process of developing additional products for these markets.  In fiscal
1998, the Company's significant data communications customers, each of which
purchased at least $100,000 of the Company's products, included Cisco, IBM,
Newbridge Networks, Seagate, Sequent and Sun Microsystems.

 Automated Test Equipment

  ATE products accounted for 26% and 22% of the Company's total revenues for
fiscal 1998 and fiscal 1997, respectively.  Vitesse provides gate arrays and
custom products that offer a combination of high complexity, low power
dissipation and high speed for ATE.  More recently, the Company has introduced a
line of standard products targeted at the ATE industry.  In fiscal 1998, the
Company's significant ATE customers, each of which purchased at least $100,000
of the Company's products, included Ando, Credence, Integrated Measurement
Systems, LTX, Schlumberger and Teradyne.

                                       4
<PAGE>
 
  The Company's ten largest customers accounted for approximately 69% and 77% of
total revenues in fiscal 1998 and fiscal 1997, respectively.  In fiscal 1998 and
fiscal 1997, sales to Lucent accounted for 23% and 20%, respectively, of the
Company's total revenues, and sales to Schlumberger accounted for 15% and 12%,
respectively, of the Company's total revenues.

TECHNOLOGY

  The Company believes the limitations of silicon-based CMOS, BiCMOS, and ECL
ICs have become more pronounced as the requirements of the telecommunications,
data communications and ATE systems providers have increased.  While CMOS offers
certain complexity advantages over the alternative silicon processes, the
Company believes it lacks the speed required for many high-performance systems.
ECL technology offers higher speeds but at the cost of high power dissipation,
which limits its use for high-complexity applications.  BiCMOS offers higher
performance than is obtainable from CMOS, but less than that offered by ECL, at
levels of complexity which are greater than that available from ECL but lower
than that provided by CMOS.  BiCMOS is slower than ECL and, the Company
believes, does not achieve the speed necessary for the highest performance
telecommunications, data communications and ATE systems.

  GaAs has inherent physical properties which allow electrons to move several
times faster than within silicon.  This higher electron mobility provides the
Company with the flexibility to manufacture ICs that operate at much higher
speeds than silicon devices or to operate at the same speeds with reduced power
consumption.  The following table compares the intrinsic transistor performance
and cost per function for H-GaAs with alternative process technologies:

                             H-GaAs      ECL      BiCMOS     CMOS
                            --------   -------   --------   -------
     Speed...............   Highest     High     Moderate   Lowest
     Power Dissipation...     Low      Highest   Moderate   Lowest
     Complexity..........     High     Lowest     Higher    Highest
     Cost per Function...   Moderate   Highest   Moderate   Lowest

  The Company employs proprietary H-GaAs process technology based on a
refractory metal self-aligned gate ("SAG") process.  SAG technology is
universally used in the manufacture of complex silicon ICs.  The process
structure and logic implementation of the Company's GaAs ICs are similar to a
traditional silicon MOS process with the exception that the gate metal is
deposited directly on the GaAs substrate creating a metal-semiconductor junction
comparable to depositing the metal on a thin oxide layer grown on the silicon
substrate in the case of metal gate n-channel MOS.

  The implementation of a SAG process in GaAs or silicon requires a gate metal
structure that can withstand the high temperature of an ion implant activation
anneal.  This is in contrast to conventional microwave GaAs ("RF GaAs") process
technologies which utilize a low temperature, non-self-aligned technology based
on gold as the gate metal.  The table below compares Vitesse's H-GaAs,
traditional silicon MOS and microwave RF-GaAs:

                                  Silicon    Microwave
                        H-GaAs      MOS       RF-GaAs
                       --------   --------   ---------
     Self-Aligned...     Yes        Yes         No
     Interconnect...   Aluminum   Aluminum     Gold
     Complexity.....     High     Highest     Medium

  Another advantage of SAG technology in GaAs is the greater control over
electrical transistor parameters compared to conventional gold gate technology.
This control of the field effect transistor ("FET") characteristics has enabled
the Company to be one of the few companies that have demonstrated the ability to
manufacture products having lower power dissipation using direct coupled FET
logic ("DCFL").  DCFL has the highest complexity, fewest elements per logic
function and best available combination of speed at low power of any n-channel
FET technology demonstrated in silicon or GaAs.

  The use of a high-temperature process also allows Vitesse to use silicon
industry standard aluminum interconnect technology.  This enables the Company to
utilize standard deposition and dry etch equipment for interconnects.  The
interconnect portion of the circuit represents a majority of mask levels in the
manufacturing process.

                                       5
<PAGE>
 
  The Company has significantly improved its process technology:
<TABLE>
<CAPTION>
                                                H-GaAs      H-GaAs      H-GaAs       H-GaSs
                                                  I           II         III          IV
                                                ------      ------      ------       ------
<S>                                             <C>         <C>         <C>          <C>
     Product Announcement Year...............     1986        1988       1991         1995
     Gate Length.............................   1.2mum      0.8mum      0.6mum       0.4mum
     Metal Layers............................      2           3           4            5
     Maximum Relative Speed(1)...............     1.0x        1.4x        2.0x         3.0x
     Minimum Relative Power Dissipation(1)...     1.0x        0.7x        0.5x         0.3x
</TABLE>
------------
(1)  Compared to H-GaAs I.

  The Company's H-GaAs IV 0.4 micron five-layer metal GaAs FET technology is
capable of achieving higher complexity and lower power dissipation than previous
Vitesse technologies.  The Company manufactures various standard products as
well as ASICs based on the GLX family of gate arrays and the SLX family of
standard cell ICs.  The GLX family of gate arrays has been designed to offer the
same speed as the H-GaAs III family of gate arrays, but with lower power
dissipation.  This is intended to enable ICs to be packaged in a lower cost
plastic package in the 100 MHz to 800 MHz range, thereby offering the customer a
lower cost solution in this performance range.

MANUFACTURING

 Wafer Fabrication

  The Company fabricates four-inch wafers at its Camarillo plant in a 6,000
square foot clean room, which has a rating of Class 10 (meaning there are fewer
than ten particles larger than 0.5 micron per cubic foot of air).  In 1998 the
Company started fabricating six-inch wafers at a newly constructed plant in
Colorado Springs, Colorado which includes a 15,000 square foot Class 1 clean
room.  Wafer fabrication equipment used by the Company is generally identical to
that used in a sub-micron silicon MOS fabrication facility.  Process technology
is generally similar to that used in advanced sub-micron silicon process
technologies, with certain modifications necessary to accommodate GaAs material
properties.

  As is typically the case with semiconductor manufacturing, the Company's
manufacturing yields vary significantly among products, depending on the
product's complexity and the Company's experience in manufacturing the
particular ICs.  While the Company's process technology utilizes standard
silicon semiconductor manufacturing equipment, aggregate production quantities
have been relatively low and the process technology is significantly less
developed than silicon process technology used by competitors.  This leads to
overall yields lower than levels typically achieved in the silicon process.  The
Company expects that many of its current and future products may never be
produced in high volume.

  Regardless of the process technology used, the fabrication of ICs is a highly
complex and precise process.  Defects in masks, impurities in the materials
used, contamination of the manufacturing environment, equipment failure and
other difficulties in the fabrication process can cause a substantial percentage
of wafers to be rejected or numerous die on each wafer to be non-functional.

  By utilizing standard silicon IC manufacturing equipment the Company is able
to employ developments in silicon manufacturing technology to continue to
improve minimum feature size, dimension control, deposition and etch
capabilities.  By eliminating the need for `custom" wafer fabrication equipment,
the Company can focus its resources on developing leading process technology
rather than on developing expensive customized manufacturing equipment.

 Assembly and Test

  A majority of the Company's ICs are packaged in plastic by third parties.  The
Company conducts ceramic package assembly for a portion of its ICs in its
Camarillo plant.  The Company employs industry standard assembly equipment in an
automated assembly line that is intended to reduce packaging time as well as to
improve quality.  For final testing, the Company utilizes advanced automated
VLSI testers and has constructed several custom testers.  However, in many
cases, the Company cannot test its products at full speed and must rely on
numerous sub-circuit path measurements to determine the performance of the IC.

                                       6
<PAGE>
 
 Components and Raw Materials

  The Company purchases the majority of its ceramic packages from Kyocera.
Kyocera is the world's largest supplier of multilayer, high-performance ceramic
packages and, in many cases, is the only source of these packages.  Since most
of the ceramic packages used in the Company's assembly process are designed to
the Company's specifications, there are typically no second sources for these
packages.  To date, the Company has not experienced any adverse effects due to
the sole-source nature of its ceramic packages.  The Company believes it
maintains an adequate inventory of sole-source ceramic packages.  The level of
inventory of ceramic packages carried by the Company is substantially higher
than standard plastic packages for IC companies that utilize standard packages
available from a wide variety of sources.  Since 1992, the Company has increased
its use of plastic packages, and it uses multiple contract manufacturers to
perform plastic packaging.

  GaAs substrates and other raw materials and equipment used in the production
of the Company's ICs are available from several suppliers.  Although lead times
are occasionally extended in the industry, the Company has not experienced any
material difficulty in obtaining raw materials or equipment.

ENGINEERING, RESEARCH AND DEVELOPMENT

  The market for the Company's products is characterized by rapid changes in
both GaAs and competing silicon process technologies.  Because of continual
improvements in these technologies, the Company believes that its future success
will depend largely on its ability to continue to improve its product and
process technologies, to develop new technologies in order to maintain the
performance of its products relative to competitors, to adapt its products and
process technologies to technological changes and to adopt emerging industry
standards.

 Product Research and Development

  The Company's present product research and development efforts are focused on
developing new products for its telecommunications, data communications and ATE
product lines.  Considerable design effort is being expended to increase the
speed and complexity and reduce the power dissipation of the Company's products.

 Process Research and Development

  The Company has implemented H-GaAs IV, a 0.4 micron GaAs FET technology that
offers higher complexity and lower power dissipation than previous Vitesse
technologies.  The Company is currently engaged in research and development
projects focused on other process-related improvements to increase yields and
improve the speed, complexity and power dissipation characteristics of its
devices.

  The Company's engineering, research and development expenses in fiscal 1998,
1997 and 1996 were $27,915,000, $16,804,000 and $11,045,000, respectively.

COMPETITION

  The high-performance semiconductor market is highly competitive and subject to
rapid technological change, price erosion and heightened international
competition.  The telecommunications, data communications and ATE industries,
which are the primary target markets for the Company, are also becoming
intensely competitive because of deregulation and heightened international
competition, among other factors.  In the telecommunications market, the Company
currently competes primarily against other GaAs-based companies such as Triquint
Semiconductor and the GaAs fabrication operations of system companies such as
Rockwell.  In the data communications and the ATE markets, the Company competes
primarily against silicon ECL and BiCMOS products offered principally by
semiconductor manufacturers such as Fujitsu, Hewlett Packard, Motorola, National
Semiconductor and Texas Instruments and bipolar silicon IC manufacturers such as
Applied Micro Circuits Corporation and Synergy Semiconductor Corporation.  Many
of these companies have significantly greater financial, technical,
manufacturing and marketing resources than the Company.  In addition, in lower-
frequency applications, the Company faces increasing competition from CMOS-based
products, particularly as the performance of such products continues to improve.

                                       7
<PAGE>
 
  Competition in the Company's markets for high-performance ICs is primarily
based on price/performance, product quality and the ability to deliver products
in a timely fashion.  Some prospective customers may be reluctant to adopt
Vitesse's products because of perceived risks relating to GaAs technology.  In
addition, product qualification is typically a lengthy process and certain
prospective customers may be unwilling to invest the time or incur the costs
necessary to qualify suppliers such as the Company.  Prospective customers may
also have concerns about the relative speed, complexity and power advantages of
the Company's products compared to more familiar ECL of BiCMOS semiconductors or
about the risks associated with relying on a relatively small company for a
critical sole-sourced component.

SALES AND CUSTOMER SUPPORT

  The Company's principal method of selling its products is through direct sales
to systems manufacturers by the Vitesse sales force.  In certain markets such as
Japan, the Company also employs value-added distributors.

  Because of the large engineering support required in connection with the sale
of high performance ICs, the Company provides its customers with field
engineering support as well as engineering support from the Company's
headquarters.  Typically, a field engineer will accompany a salesperson to the
initial customer visit to understand and evaluate the customer's requirements.
The salesperson and field engineer will determine whether additional engineering
analysis will be required by engineers based at the Company's headquarters.  The
Company's sales cycle is typically lengthy and requires the continued
participation of salespersons, field engineers, engineers based at the Company's
headquarters, and senior management.

  The Company's sales headquarters is located in Camarillo, California.  The
Company has 12 additional sales and field application support offices in the
United States, and one each in Germany, Italy and Japan.

  The Company generally warrants its products against defects in materials and
workmanship for a period of one year.

LICENSES AND PATENTS

  The Company has been awarded 14 U.S. patents for various aspects of design and
process innovations used in the design and manufacture of its products.  The
Company has two patent applications pending in the U.S. and three patent
applications pending in Japan and is preparing to file several more patent
applications.  The Company believes that patents are of less significance in its
industry than such factors as technical expertise, innovative skills and the
abilities of its personnel.

  As is typical in the semiconductor industry, the Company has, from time to
time, received, and may receive in the future, letters from third parties
asserting patent rights, maskwork rights or copyrights on certain of the
Company's products and processes.  None of the claims to date has resulted in
the commencement of any litigation against the Company nor has the Company to
date believed it is necessary to license any of the patent rights referred to in
such letters.

BACKLOG

  Vitesse's sales are made primarily pursuant to standard purchase orders for
delivery of products.  Quantities of the company's products to be delivered and
delivery schedules are frequently revised to reflect changes in customer needs.
For these reasons, the Company's backlog as of any particular date is not
representative of actual sales for any succeeding period and the Company
therefore believes that backlog is not a good indicator of future revenue. The
Company's backlog scheduled to be shipped in the next six months was
$103,000,000 on September 30, 1998, compared to $62,000,000 on September 30,
1997.

ENVIRONMENTAL MATTERS

  The Company is subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines on the

                                       8
<PAGE>
 
Company, the suspension of production or a cessation of operations. In addition,
such regulations could restrict the Company's ability to expand its facilities
at its present location or operate its manufacturing facility in Colorado
Springs, Colorado, or could require the Company to acquire costly equipment or
incur other significant expenses to comply with environmental regulations or
clean up prior discharges.

EMPLOYEES

  As of September 30, 1998, the Company had 590 employees, including 222 in
engineering, research and development, 46 in marketing and sales, 299 in
operations and 23 in finance and administration.  The Company's ability to
attract and retain qualified personnel is essential to its continued success.
None of the Company's employees is represented by a collective bargaining
agreement, nor has the Company ever experienced any work stoppage.  The Company
believes its employee relations are good.


ITEM 2.  PROPERTIES

  The Company's executive offices and principal research and development and
fabrication facility is located in Camarillo, California, and is being leased
under a noncancellable operating lease that expires in 1999.  The total space
occupied in this building is approximately 80,000 square feet.  The Company has
a second wafer fabrication facility in Colorado Springs, Colorado that is being
leased under a synthetic lease that expires in 2001.  The Company has the option
to purchase this facility at cost at the end of the lease term.  The Company
leases an additional 10,000 square feet in Camarillo for product development and
8,000 square feet in Santa Clara, California for a product development and sales
office.  The Company's Colorado Springs, Colorado facility is in a 100,000
square foot building that is being occupied on a five-year operating lease with
a purchase option at the end of the lease.  This facility includes a 10,000
square foot clean room for wafer fabrication, and a product development center.
The Company also leases space for three other product development centers in
Portland, Oregon and Dallas, Texas, and Melbourne, Florida and 15 sales and
field application support offices (12 in the United States, two in Europe and
one in Japan).


ITEM 3.  LEGAL PROCEEDINGS

  The Company is currently involved in several legal proceedings; however, it
believes that none of them would have a material or adverse affect on the
Company.
 

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

  No matters were submitted to a vote of the Company's shareholders during the
last quarter of the fiscal year ended September 30, 1998.

                                       9
<PAGE>
 
                                    PART II
                                        

ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

  The information required by this item which appears on page 11 of the
Company's 1998 Annual Report to Shareholders is incorporated herein by
reference.


ITEM 6.  SELECTED FINANCIAL DATA

  The selected financial data for each of the five years ended September 30,
1998, which appears on page 10 of the Company's 1998 Annual Report to
Shareholders is incorporated herein by reference.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

  The information required by this item which appears on pages 12 to 20 of the
Company's 1998 Annual Report to Shareholders is incorporated herein by
reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Information required by this item is included in pages 22 to 36 of the
Company's 1998 Annual Report to Shareholders, and is incorporated herein by
reference.


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

  None.

                                       10
<PAGE>
 
                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
     Name                        Age   Position
     ----                        ---   --------
     <C>                         <C>   <S>
     Louis R. Tomasetta           49   President and Chief Executive Officer, Director
     Ian Burrows                  44   Vice President, Wafer Fab
     Robert J. Cutter             43   Vice President & General Manager, Colorado Springs
     Ira Deyhimy                  58   Vice President, Product Development
     Christopher R. Gardner       38   Vice President & General Manager, ATE
     Eugene F. Hovanec            46   Vice President, Finance & Chief Financial Officer
     Jeanne Johnson               57   Vice President, Human Resources
     James Mikkelson              50   Vice President, Technology Devel., Chief Technical Officer
     Michael Millhollan           54   Vice President & General Manager, Data Communications
     Robert Nunn                  37   Vice President & General Manager, Telecommunications
     Neil Rappaport               52   Vice President, Sales
     Ram Venkataraman             58   Vice President, Quality
     James A. Cole                56   Director
     Alex Daly                    37   Director
     Pierre R. Lamond             68   Chairman of the Board
     John C. Lewis                63   Director
</TABLE>

  Louis R. Tomasetta, a co-founder of the Company, has been President, Chief
Executive Officer and a Director since the Company's inception in February 1987.
From 1984 to 1987, he served as President of the integrated circuits division of
Vitesse Electronics Corporation.  Prior to that, Dr. Tomasetta was the director
of the Advanced Technology Implementation department at Rockwell International
Corporation.  Dr. Tomasetta has over 25 years experience in the management and
development of GaAs based businesses, products, and technology.  He received
B.S., M.S., and Ph.D. degrees in electrical engineering from the Massachusetts
Institute of Technology.

  Ian Burrows joined the Company in February 1987 as a Process Engineering
Manager, became Director of Wafer Fabrication in December 1990, and Vice
President of Wafer Fabrication Operations in April 1995.  Prior to that, he held
the position of process engineering development manager at Honeywell's GaAs
product center and development process engineer at Mostek.  Dr. Burrows received
a B.S. in electrical engineering from Warwick University, England, and M.S. and
Ph.D. degrees in electrical engineering from Texas Tech University.

  Robert J. Cutter joined the Company in October 1996 as Vice President &
General Manager of the Colorado Springs facility.  Prior to that, Mr. Cutter was
Plant Manager, Colorado Springs, for Rockwell Semiconductor Systems.  From 1990
to 1995, he was Director of Operations for United Technologies Microelectronics
Center.  From 1981 to 1988, he held a variety of management positions at Inmos
Corporation.  Mr. Cutter graduated from University of Southhampton, United
Kingdom, with a First Class Honors Degree in Aeronautics & Astronautics.

  Ira Deyhimy, a co-founder of the Company, has been Vice President of Product
Development since the Company's inception in February 1987.  From 1984 to 1987
he was Vice President, Engineering at Vitesse Electronics Corporation.  Prior to
that, Mr. Deyhimy was manager of Integrated Circuit Engineering at Rockwell
International Corporation.  He has over 25 years of experience in GaAs
electronics.  Mr. Deyhimy received a B.S. degree in physics from the University
of California at Los Angeles and an M.S. degree in physics from California State
University at Northridge.

  Christopher R. Gardner joined the Company in February 1987 and held various
engineering and engineering management positions through September 1996 when he
became Vice President & General Manager, ATE.  Prior to that, Mr. Gardner was a
member of technical staff at AT&T Bell Laboratories.  Mr. Gardner holds a B.S.
degree in electrical engineering from Cornell University and an M.S. degree in
electrical engineering from the University of California at Berkeley.

                                       11
<PAGE>
 
  Eugene F. Hovanec joined the Company as Vice President, Finance and Chief
Financial Officer in December 1993.  From 1989 to 1993, Mr. Hovanec served as
Vice President, Finance & Administration, and Chief Financial Officer at Digital
Sound Corporation.  Prior to that, from 1984 to 1989, he served as Vice
President and Controller at Micropolis Corporation. Mr. Hovanec holds a Bachelor
of Business Administration degree from Pace University, New York.  Mr. Hovanec
also serves as a Director of Interlink Electronics, Inc.

  Jeanne Johnson joined the Company in August 1987 as Director, Human Resources
and became Vice President, Human Resources in September 1997.  From January 1984
to August 1987, Ms. Johnson was a human resources consultant in the areas of
compensation, benefits and training.  Her human resources management experience
also includes two years as Director of Human Resources for IBIS Systems, Inc.
and eight years as Employee Relations Manager for Borg-Warner Corporation.  Ms.
Johnson has a B.A. degree from the University of California, Santa Barbara.

  James Mikkelson, a co-founder of the Company, became Chief Technical Officer
in September 1997. He has served as Vice President of Technology Development
since the Company's inception in February 1987.  From 1984 to 1987, he served as
Vice President, Operations at Vitesse Electronics Corporation.  Prior to that,
he served as Project Manager at Hewlett-Packard Company, responsible for the
development and manufacturing of MOS VLSI circuits.  Mr. Mikkelson holds B.S.
and M.S. degrees in electrical engineering from the Massachusetts Institute of
Technology.

  Michael Millhollan joined the Company in July 1989 as Director of the
Sunnyvale Product Development Center and became Vice President and General
Manager of Standard Products in October 1992.  From 1976 to 1989, he held
various senior design engineering positions with National Semiconductor
Corporation, a semi-conductor manufacturer, most recently as Director of
programmable logic product development.  Prior to that, he was at Motorola,
Inc., a semiconductor manufacturer, for seven years in various design
engineering positions.  Mr. Millhollan holds a B.S. degree in electrical
engineering from the Georgia Institute of Technology.

  Robert Nunn joined the Company in July 1989, became Director of Marketing in
January 1991 and Vice President and General Manager of ASIC Products in July
1992.  From August 1987 to July 1989 he served as product marketing manager at
Advanced Micro Devices, Inc. ("AMD"), a semiconductor manufacturer, where he
managed a staff focusing on international markets.  From March 1986 to August
1987 Mr. Nunn held various marketing positions at Monolithic Memories, Inc.
("MMI") in their Semi-custom Products and Programmable Products Divisions before
MMI merged with AMD in 1987.  Mr. Nunn holds a B.S. degree in computer
engineering from the University of California at Los Angeles and an M.B.A. from
Harvard Business School.

  Neil Rappaport joined the Company as Vice President, Sales in August 1987.
From September 1982 to 1987, Mr. Rappaport was national sales manager with
Applied Micro Circuits Corporation, a manufacturer of ECL integrated circuits.
Prior to that, he held various sales positions with Signetics Corporation, a
semiconductor manufacturer.  Prior to that, he was a design engineer at Hughes
Aircraft Company.  Mr. Rappaport has a B.S. degree from Fairleigh Dickinson
University and an A.S. degree in electronics technology from the RCA Institute.

  Ram Venkataraman joined the Company as Director of Quality in January 1990 and
in August 1990 he became Vice President, Quality.  From November 1984 to January
1990, he held various positions, including manager of reliability and quality
assurance and Director of Wafer Fabrication Operations, at GigaBit Logic, Inc.,
a gallium arsenide semiconductor manufacturer.  Mr. Venkataraman has over 20
years of experience in IC quality assurance and reliability spanning both
silicon and GaAs technologies.  Mr. Venkataraman holds B.S. degrees in physics
and electrical engineering from Madras University, India, and an M.S. degree in
electrical engineering from the Indian Institute of Technology, India.

  James A. Cole has served as a Director of the Company since February 1987.  He
has been a General Partner of Windward Ventures since 1997 and he has been a
General Partner of Spectra Enterprise Associates since 1986.  He was a founder
and Executive Vice President of Amplica, Inc., a GaAs microwave IC and sub-
system company.  Mr. Cole also serves as a Director of Giga-Tronics, Inc. and
Spectrian Corporation.

                                       12
<PAGE>
 
   Alex Daly became a Director of the Company in January 1998.  He has been
President and Chief Executive Officer of Cygnus Solutions, a developer of
software tools, since February 1998.  From 1995 to 1998 he served as Vice
President of Marketing at C-Cube Microsystems, a developer of digital video
communications products.  From 1990 to 1995, he served at Intel Corporation, a
semiconductor company, most recently as director of marketing for the mobile
computing group.

  Pierre R. Lamond has been the Chairman of the Board of Directors since the
Company's inception in February 1987.  Since August 1981, he has been a General
Partner of Sequoia Capital, a venture capital firm.  Sequoia has financed
companies such as Cypress Semiconductor Corporation, Cisco, and C-Cube
Microsystems.  Mr. Lamond was founder and Vice President of National
Semiconductor Corporation.  He is also a Director of CKS Group and CombiChem.

  John C. Lewis became a Director of the Company in January 1990.  He is
currently Chairman of the Board of Directors of Amdahl Corporation, a
manufacturer of large general purpose computer storage systems and software
products.  Before joining Amdahl in 1977, he was President of Xerox Business
Systems.  Mr. Lewis also serves as a Director of Cypress Semiconductor
Corporation and Pinnacle Systems.


Item 11.  Executive Compensation

  This item is answered by reference to the information set forth under the
captions "Executive Compensation," "Stock Option Plans," "1991 Employee Stock
Purchase Plan," "401(k) Plan" and "Certain Transactions" in the Company's Proxy
Statement for the 1999 Annual Meeting of Shareholders to be filed with the
Commission on or before December 31, 1998.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  This item is answered by reference to the information set forth under the
caption "Principal Share Ownership" in the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders to be filed with the Commission on or before
December 31, 1998.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  This item is answered by reference to the information set forth under the
caption "Certain Transactions" in the Company's Proxy Statement for the 1999
Annual Meeting of Shareholders to be filed with the Commission on or before
December 31, 1998.

                                       13
<PAGE>
 
                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
                                                                                                                       Page in
                                                                                                                       -------
   1. Financial Statements:                                                                                         Annual Report
                                                                                                                    -------------
      <S>                                                                                                           <C> 
      The financial statements of the Company listed below are incorporated herein by reference
      to the following pages of the 1998 Annual Report to Shareholders:
 
      Independent Auditors' Report                                                                                        21
      Consolidated Balance Sheets as of September 30, 1998 and 1997                                                       22
      Consolidated Statements of Operations for the years ended September 30, 1998,
        1997 and 1996                                                                                                     23
      Consolidated Statements of Shareholders' Equity for the years ended September 30,
        1998, 1997 and 1996                                                                                               24
      Consolidated Statements of Cash Flows for the years ended September 30, 1998, 1997
        and 1996                                                                                                          25
      Notes to Consolidated Financial Statements                                                                          26
 
   2. Consolidated Financial Statement Schedules:                                                                        Page
                                                                                                                         ----
      The Consolidated financial statement schedules of the Company  are included in Part IV
        Of this report on the pages indicated:
 
      Independent Auditors' Report on Consolidated Financial Statement Schedule                                           17
 
      For the three fiscal years ended September 30, 1998--
        II -- Valuation and Qualifying Accounts                                                                           18
</TABLE>
      All other schedules are omitted because they are not applicable or are not
required.

   3.    Exhibits:

      See Item 14(c) below.

  (b)  Reports on Form 8-K

      No reports on Form 8-K were filed during the last quarter of the fiscal
      year ended September 30, 1998.

  (c)  Exhibits

      The exhibits listed on the accompanying index immediately following the
      signature page are filed As part of this report.

  (d)  Financial Statement Schedules

      See Item 14(a) above.

                                       14
<PAGE>
 
                                   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.


                                            VITESSE SEMICONDUCTOR CORPORATION


Date:  December 22, 1998                    By: /s/ Eugene F. Hovanec
                                                ---------------------
                                                    Eugene F. Hovanec
                                                  Vice President, Finance
                                                 & Chief Financial Officer


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



          Signature                      Title                     Date
          ---------                      -----                     ----


    /s/ Louis R. Tomasetta    President and Chief Executive    December 22, 1998
    ----------------------    Officer (Principal Executive 
        Louis R. Tomasetta    Officer)    



    /s/ Eugene F. Hovanec     Vice President, Finance and      December 22, 1998
    ----------------------    Chief Financial Officer
        Eugene F. Hovanec       
 


    /s/ James A. Cole         Director                         December 22, 1998
    ----------------------                                                    
        James A. Cole



    /s/ Alex Daly             Director                         December 22, 1998
    ----------------------
        Alex Daly



    /s/ Pierre R. Lamond      Chairman of the Board            December 22, 1998
    ----------------------    of Directors  
        Pierre R. Lamond



    /s/ John C. Lewis         Director                         December 22, 1998
    ----------------------                                                    
        John C. Lewis

                                       15
<PAGE>
 
ITEM 16  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 (a)  Exhibits
<TABLE> 
<CAPTION> 
 Exhibit Number
 --------------
 <C>              <S> 
     3.1/1/       Certificate of Incorporation of Registrant, as amended to date.
     3.2/2/       Bylaws of Registrant as amended to date.
     4.1/2/       Specimen of Company's Common Stock Certificate.
    10.1/2/       1989 Stock Option Plan.
    10.2/2/       1991 Stock Option Plan.
    10.3/2/       1991 Employee Stock Purchase Plan.
    10.4/2/       1991 Directors' Stock Option Plan.
    10.5/2/       Standard Form of Indemnification Agreement between Registrant and its officers and directors.
    10.6/2//3/    Loan and Security Agreement dated May 8, 1991 between Silicon Valley Bank and Registrant.
    10.7/1/       Amendment to Loan Agreement dated December 28, 1992 between Silicon Valley Bank and Registrant.
    10.8/5/       Amendment to Loan Agreement dated June 14, 1993 between Silicon Valley Bank and Registrant.
    10.9/1/       First Amendment to Lease between Carson Estate Company (formerly Victoria Partnership) and Registrant.
    10.10/2/      Lease dated January 31, 1991 between Camarillo I Development Corporation and Registrant.
    10.11/2/      Standard Form Proprietary Information Agreement.
    10.12/4/      Amendment dated March 23, 1994, to the Loan Agreement dated May 8, 1991, as amended, by and between
                  Silicon Valley Bank and Registrant.
    10.13/5/      Amendment dated December 13, 1994, to the Loan Agreement dated May 8, 1991, as amended, by and between
                  Silicon Valley Bank and Registrant.
    10.14/6/      Amendment dated January 2, 1996, to the Loan Agreement dated May 8, 1991, as amended, by and between
                  Silicon Valley Bank and Registrant.
    10.15/7/      Amendment dated January 22, 1997, to the Loan Agreement dated May 8, 1991, as amended, by and between
                  Silicon Valley Bank and Registrant.
    10.16/7/      Agreement dated October 30, 1996 between ABN AMRO Bank N.V., Lease Plan North America, Inc. and Registrant.
    10.17/7/      Agreement dated August 15, 1997 between ABN AMRO Bank N.V., Lease Plan North America, Inc. and Registrant.
    10.18         Loan modification agreement dated October 10, 1997, to the Loan Agreement dated May 8, 1991, as amended,
                  by and between Silicon Valley Bank and Registrant.
    10.19         Amendment dated January 6, 1998, to the Loan Agreement dated May 8, 1991, as amended, by and between
                  Silicon Valley Bank and Registrant.
    10.20         Agreement dated July 9, 1998 between Metlife Capital Corporation and Registrant.
    13.1          Annual Report to Security Holders
    23.1          Report on Schedule and Consent of Independent Certified Public Accountants.
    27.1          Financial Data Schedule
</TABLE>

(1)  Incorporated by reference from the Company's annual report on Form 10-K for
     the period ended September 30, 1992.
(2)  Incorporated by reference from the Company's registration statement on Form
     S-1 (File no. 33-43548), effective December 10, 1991.
(3)  Confidential treatment previously granted as to certain portions of these
     exhibits.
(4)  Incorporated by reference from the Company's quarterly report on Form 10Q
     for the period ended March 30, 1994.
(5)  Incorporated by reference from the Company's annual report on Form 10-K for
     the period ended September 30, 1995.
(6)  Incorporated by reference from the Company's annual report on Form 10-K for
     the period ended September 30, 1996.
(7)  Incorporated by reference from the Company's annual report on Form 10-K for
     the period ended September 30, 1997.

                                       16
<PAGE>
 
                         Independent Auditors' Report
                         -----------------------------


The Board of Directors
Vitesse Semiconductor Corporation:

Under date of October 14, 1998, we reported on the consolidated balance sheets
Vitesse Semiconductor Corporation and subsidiaries as of September 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
September 30, 1998, as contained in the 1998 annual report to shareholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1998.  In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index.  This financial statement schedule is the responsibility of
the Company's management.  Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such 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.

                                                  (signed) KPMG PEAT MARWICK LLP

Los Angeles, California
October 14, 1998

                                      17
<PAGE>
 
                       VITESSE SEMICONDUCTOR CORPORATION
                SCHEDULE II -- Valuation and Qualifying Accounts
                 Years ended September 30, 1998, 1997 and 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                           Balance at    Charged to                  Balance
                                          Beginning of   Costs and    Deductions/    at end
                                             Period      Expenses     Write-offs    of Period
                                          ------------   ----------   -----------   ---------
<S>                                       <C>            <C>          <C>           <C>
 
Year ended September 30, 1998
  Deducted from Inventories:
     Reserve for obsolescence                   $3,121       $1,034           ---      $4,155
  Deducted from Accounts Receivable:
     Allowance for doubtful accounts             1,000          790           790       1,000
 
Year ended September 30, 1997
  Deducted from Inventories:
     Reserve for obsolescence                    2,797        1,988         1,664       3,121
  Deducted from Accounts Receivable:
     Allowance for doubtful accounts               900          500           400       1,000
 
Year ended September 30, 1996
  Deducted from Inventories:
     Reserve for obsolescence                    2,493        1,347         1,043       2,797
  Deducted from Accounts Receivable:
     Allowance for doubtful accounts               700          200           ---         900
 </TABLE>

                                       18