Use these links to rapidly review the documentTable of Contents ITEM 8. Financial Statements and Supplementary Data





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|(Mark One)                                                       |                                                                                         
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2007                     
|or                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                to

Commission file number 000-52014

TECHWELL, INC.(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)              |  | 77-0451738(I.R.S Employer Identification No.)
|----------------------------------------------------------------------------------- |  | ---------------------------------------------
|408 E. Plumeria Drive, San Jose, California(Address of principal executive offices) |  | 95134(Zip Code)                              
|Registrant's telephone number, including area code:(408) 435-3888                  

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

Title of each class:

Name of each exchange on which registeredCommon Stock, par value $0.001 per share

The NASDAQ Stock Market LLC


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

Title of ClassNone


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o                       |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------- |  | ---------------------------
|                          |  |                     |  | (Do not check if a smaller reporting company) |  |                            

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the
registrant's common stock on June 30, 2007 as reported by the NASDAQ Global Market on that date, was $197,335,924.

Number
of shares of the registrant's common stock outstanding as of February 29, 2008: 20,969,425, at $0.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10 (as to directors, audit committee financial expert and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12, 13 and 14 of
Part III of this Annual Report on Form 10-K incorporate by reference information from the Registrant's proxy statement to be filed with the Securities and Exchange Commission
within 120 days of the fiscal year ended December 31, 2007 in connection with the solicitation of proxies for the Registrant's 2008 Annual Meeting of Stockholders.



---





Table of Contents



|PART I   |  |                                                                                                              
|-------- |  | -------------------------------------------------------------------------------------------------------------
|Item 1.  |  | Business                                                                                                     
|         |  | Overview                                                                                                     
|         |  | Industry Background                                                                                          
|         |  | Our Strengths                                                                                                
|         |  | Our Growth Strategy                                                                                          
|         |  | Products                                                                                                     
|         |  | Technology                                                                                                   
|         |  | Customers                                                                                                    
|         |  | Sales and Marketing                                                                                          
|         |  | Backlog                                                                                                      
|         |  | Research and Development                                                                                     
|         |  | Intellectual Property                                                                                        
|         |  | Manufacturing                                                                                                
|         |  | Competition                                                                                                  
|         |  | Employees                                                                                                    
|         |  | Available Information                                                                                        
|         |  | Executive Officers and other Key Employees                                                                   
|Item 1A. |  | Risk Factors                                                                                                 
|Item 1B. |  | Unresolved Staff Comments                                                                                    
|Item 2.  |  | Properties                                                                                                   
|Item 3.  |  | Legal Proceedings                                                                                            
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          
|PART II  |  |                                                                                                              
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
|Item 6.  |  | Selected Financial Data                                                                                      
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         
|Item 9A. |  | Controls and Procedures                                                                                      
|Item 9B. |  | Other Information                                                                                            
|PART III |  |                                                                                                              
|Item 10. |  | Directors, Executive Officers of the Registrant and Corporate Governance                                     
|Item 11. |  | Executive Compensation                                                                                       
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               
|Item 13. |  | Certain Relationships, Related Transactions and Director Independence                                        
|Item 14. |  | Principal Accountant Fees and Services                                                                       
|PART IV  |  |                                                                                                              
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   
|         |  | Signatures                                                                                                   

2

---





This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. These statements relate to future
periods, future events or our future operating or financial plans or performance. These statements can often be identified by the use of forward-looking terminology such as "expects," "believes,"
"intends," "anticipates," "estimates," "plans," "may," or "will," or the negative of these terms, and other similar expressions. These forward-looking statements include statements as to the source of
our revenues, our ability to generate revenues, our ability to sustain our growth rate and profitability, our expectation regarding the increase in certain expenses, our cash needs, our capital
requirements, our market risk sensitivity, our business and product strategies, our anticipated tax rate, our intention to add integrated audio functionality to our video decoders, industry trends and
our anticipation that developments in our technologies and new products will increase our target market share.

These forward-looking statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties.
These risks and uncertainties could cause actual results to differ materially from those projected and include, but are not limited to, fluctuations in our revenue and operating results, the demand
for digital video applications for the security surveillance, automotive consumer and PC markets, our ability to compete, our dependence on key and highly skilled personnel, the ability to develop new
products and to enhance our existing products, the continued seasonality of our business due to our target markets and location of our customer, our ability to integrate businesses that we may
acquire, our ability to estimate and predict customer demand, economic volatility in either domestic or foreign markets, the impact of any change in United States federal income tax laws and the loss
of any beneficial tax treatment that we currently enjoy, our reliance on independent foundries and subcontractors for the manufacture, assembly and testing of our products, the length of our sales
cycle and reliance on distributors, our ability to protect our intellectual property, the cyclical nature of the semiconductor industry, our ability to raise capital, the potential volatility of our
stock, the outcome of future litigation and the risks set forth under Item 1A. "Risk Factors." Given these risks and uncertainties, you should not place undue reliance on these forward-looking
statements. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statements for any reason, even if new information becomes available or other events
occur in the future.

In this report all references to "Techwell," "we," "us" or "our" mean Techwell, Inc.

Techwell is our registered trademark. We also refer to trademarks of other corporations and organizations in this
Form 10-K.

PART I

ITEM 1. Business

Overview

We are a fabless semiconductor company that designs, markets and sells mixed signal integrated circuits for multiple digital video applications in the security
surveillance, automotive, consumer and PC markets. We target video applications based on digital technologies that receive and process analog video signals. These video applications include
security surveillance systems, in-car LCD displays, advanced TVs, multifunction LCD monitors, camcorders, DVD recorders and TV tuner cards. These applications receive analog video signals
commonly generated by surveillance cameras, by consumer electronics devices such as set-top boxes, DVD players, VCRs and camcorders, and to a lesser extent by
over-the-air TV broadcasts. We design application specific products that are targeted at defined markets that enable the conversion of analog video signals to digital form and
perform advanced digital video processing to facilitate the display, storage and transport of video content. We believe this product strategy allows us to better address varying customer requirements,
fully leverage our technology capabilities and achieve greater share within our target markets. Our semiconductors are based on our proprietary architecture and mixed signal technologies that we
believe provide high video quality under a wide range of signal conditions, enable high levels of integration and are cost effective.

3

---



Industry Background

Growth in Video Applications Based on Digital Technology

Video applications based on digital technology are experiencing rapid growth in the security surveillance automotive, consumer and PC markets. This growth is
largely attributable to significant improvements in the user experience, including enhanced video quality, increased functionality and reduced form factors as well as the lower cost of such systems.

The
security surveillance market is comprised of systems that receive video from multiple surveillance cameras. Security surveillance systems are increasingly incorporating digital
technologies that provide advanced functionalities such as video motion detection, hard disk drive storage, intelligent video content analysis and remote monitoring over the Internet. In addition, a
heightened focus on security and declining system prices are driving increased demand for security surveillance systems. Based on our analysis of research data from IMS Research, we believe our
addressable market for our video related semiconductors used in DVRs, video servers and multiplexers for security surveillance systems is expected to grow from more than $100 million in 2006 to
more than $350 million in 2011, representing a compound annual growth rate of 25%.

Applications
such as navigation, DVD entertainment, enhanced driver information systems and backup cameras are causing the proliferation of in-car LCD displays in the
automotive market. These displays are capable of displaying video and graphics signals from a variety of sources, including navigation systems, DVDs, game consoles, TV tuners and cameras. Based on our
analysis of research data from Telematics Research Group, we believe our addressable market for our LCD display semiconductor solutions designed for the automotive market is expected to grow from
approximately $50 million in 2007 to more than $100 million in 2011, representing a compound annual growth rate of 20%. In addition to being incorporated into new automobiles by
manufacturers, these systems are also increasingly being purchased by consumers in the aftermarket.

The Complexity of Video

To display, store and transport video content, digital video applications receive analog video signals based on multiple standards from a variety of
sources. For example, a security surveillance system receives analog video signals from multiple surveillance cameras for storage on a hard disk drive, display on a TV or PC monitor or transport over
the Internet. In addition, an in-car LCD display typically receives analog signals from navigation systems, DVDs, game consoles, TV tuners and cameras.

Video
applications such as security surveillance cameras, set-top boxes, VCRs, DVD players, game consoles, and camcorders generate video signals that conform to popular
analog video standards such as composite, S-video, component and Syndicate of Radio and Television Manufacturers, or SCART. In addition, Terrestrial TV broadcast stations generate video
signals that
conform to standards varying by region, with over ten standards and sub-standards utilized worldwide. Examples of these standards include National Television Systems Committee, or NTSC,
phase alternation line, or PAL, and sequential color with memory, or SECAM. However, these sources may generate video signals that are off-specification or weak, both of which deteriorate
video quality. Off-specification signals are signals that have been generated with slight variations to specifications under a particular standard. Weak signals are signals that conform to
specifications but result in high levels of noise. Digital video applications must support these standard analog video signals, even if they are off-specification or weak, without
sacrificing video quality.

4

---



Opportunity for Mixed Signal Video Semiconductors

Mixed signal video semiconductors are critical components of digital video applications and enable the conversion of standard analog video signals to digital
form, even if they are off-specification or weak. In addition, these semiconductors incorporate advanced digital video processing to improve video quality and provide enhanced
functionality. Designing these semiconductors requires an extensive knowledge of TV broadcast and popular analog video standards as well as significant digital video processing expertise and advanced
analog design capability. We believe that semiconductor companies that possess the combination of these capabilities will benefit most from the growth in digital video applications.

Our Strengths

Since our inception, we have internally developed the combination of technologies, expertise and capabilities necessary for the conversion and processing of video
signals. We do not depend on third parties for any material technology, expertise or capability. We believe we have the following technology strengths:

Advanced Analog Design Capability.As a result of our advanced analog design capability, we have developed multiple
technologies that enable analog video signals to be processed digitally. One of the key analog technologies we have developed internally is our high performance, cost effective and low power analog
front-end that conditions and converts analog video signals into a digital format. The multiple core functions performed within our analog front-end are
anti-aliasing filtering, automatic gain control signal clamping and analog to digital conversion. Other key analog technologies we have developed internally are phase lock loops, high
frequency and delta sigma analog to digital converters, video and audio digital to analog converters and low voltage differential signaling.

Advanced Digital Video Processing Technology.We have a proprietary video decoding architecture for decoding analog video.
This architecture allows us to cost effectively implement two dimension, or 2D, and three dimension, or 3D, comb filtering, color demodulating and sync processing, which are the key technologies
required for high performance video decoding. Comb filtering enables improved video quality, while sync processing enables support of weak and off-specification signals. In addition, we
have developed a number of digital technologies targeted at specific applications in the consumer, security surveillance and automotive markets. For example, we have developed deinterlacing, scaling
and image enhancement algorithms, which are important technologies for displaying video signals in in-car LCD display and advanced TV applications. Similarly, we have developed
multiplexing, motion detection, multiple picture-in-picture and motion JPEG compression technologies for security surveillance systems.

Expertise in TV Broadcast and Popular Analog Video Standards.Our focus on video has enabled us to develop expertise in
analog TV broadcast and popular analog video signals, including off-specification and weak signals that are difficult to support. As a result, we have the extensive knowledge base required
to perform the analog, mixed signal and digital processing necessary for the display, storage and transport of video signals. This is particularly important because no standards body exists to
determine and qualify products developed to meet analog video standards.

Integrated Analog and Digital Technologies in a Standard CMOS Process.We integrate our advanced digital technologies with
our analog technologies on a single semiconductor using a standard complementary metal-oxide semiconductor, or CMOS, process. We believe this provides us with performance, cost and power advantages
over other processes such as bipolar.

5

---



We
believe that the combination of the technology strengths listed above allows us to provide our customers with significant benefits, including:

High Performance.We enable our customers to achieve high video quality by limiting artifacts such as cross-color, crawling
or dangling dots and stair-stepping or jagging that are commonly found when processing analog video signals. Our technology also enables our customers' products to support multiple standard signals,
even if off-specification or weak, without sacrificing video quality. The result is high video quality under a wide range of signal conditions.

High Levels of Integration.We integrate our analog conversion and digital processing technologies into a single
semiconductor. For example, in the security surveillance market, we integrate multiple video decoders and a system controller into a single highly integrated semiconductor, allowing for increased
functionality and enabling our customers to reduce system-level costs significantly. Similarly, in the automotive market, we integrate a video decoder, display processor and a timing controller into a
single semiconductor, also enabling our customers to reduce system-level costs.

Cost Effectiveness.Our proprietary video decoding architecture and our standard CMOS process design expertise allow us to
reduce the number of transistors required to design semiconductors cost effectively.

Our Growth Strategy

Our objective is to be the leading provider of high performance, cost effective mixed signal semiconductors for multiple digital video applications. To achieve
this objective, we expect to continue to pursue the following strategies:

Target Multiple High Growth Digital Video Applications.We address a number of digital video applications in the security
surveillance, automotive, consumer and PC markets that provide us with multiple high growth opportunities. Our products are incorporated into numerous applications that are experiencing significant
growth, including security surveillance systems, in-car LCD displays, and consumer products such as advanced TVs, multifunction LCD monitors, DVD recorders, camcorders and PC products such
as TV tuner cards.

Develop Additional Application Specific Products.We provide our customers with application specific products designed
specifically to address the requirements of the specific market we target. These application specific products integrate our video decoder with our advanced digital processing technologies and target
security surveillance, LCD display, consumer and PC markets. We believe that our application specific product strategy allows us to better address varying customer requirements, fully leverage our
technology capabilities and achieve greater share within our target markets. We plan to maintain and expand upon this product strategy in the future.

Develop New Technologies.We plan to continue to develop additional technologies to address evolving customer requirements.
For example, we have expanded our research and development efforts and are developing HDTV demodulating and decoding technologies, which are important functions for receiving and processing digital TV
broadcast signals. Consistent with our product strategy, we intend to incorporate these HDTV technologies into our application specific products in the future.

Expand Customer Relationships.Our mixed signal semiconductors are used by over 100 companies in the security surveillance,
automotive, consumer and PC markets. We sell our semiconductors through sales and customer support personnel and sales and marketing offices in the United States, Japan, South Korea, Taiwan and China.
We intend to continue to expand our sales, marketing and technical support capabilities to pursue additional design wins with our existing customers and to develop relationships with new customers in
our target markets.

6

---



Products

We design, market and sell mixed signal semiconductor products that enable the conversion of analog video signals to digital form and perform advanced digital
video processing to facilitate the display, storage and transport of video content. Historically, we classified our initial products as general purpose products in that they serviced multiple markets.
In the process of supplying products to these markets we developed specific knowledge regarding the requirements for each market. We then determined that we would concentrate our development efforts
on video applications in the security surveillance, automotive, consumer and PC markets. Today, our application specific products include products specifically designed for security surveillance
systems, LCD displays primarily for the automotive market and video decoders used in consumer products. We intend to continue to develop new generations of products for each of these application
specific product lines.

Security Surveillance.Our security surveillance products integrate important functions required to display, store and
transport analog video signals from security surveillance cameras. For example, we integrate multiple video decoders into a single semiconductor. As a result, this semiconductor is able
to receive and decode analog video signals from multiple cameras into a standard digital format. In addition, we integrate a multiplexer, a key technology required to combine multiple video
signals into a single video signal. In 2006, we introduced two new security surveillance products, each of which includes four video decoders and a system controller on a single semiconductor.
We also have developed a motion JPEG, or MJPEG, encoder/decoder, or CODEC, that facilitates the storage and playback of video from a hard disk drive and transport of video over the Internet. We
currently sell our security surveillance products to customers for the following applications: embedded digital video recorders, or DVRs, PC-based DVRs, networked video recorders,
or NVRs, and multiplexers.

LCD Display.Our LCD display products integrate important functions required to display popular analog video, high definition
video and PC graphics signals on a LCD display. These key functions include a video decoder, deinterlacer and scaler. In addition, our newer generation LCD display products integrate a timing
controller to interface directly with certain types of LCD displays and image enhancement functionality to improve overall video quality. In January 2008, we announced the introduction of five new LCD
display processors designed for the automotive end market. These new
products are designed to provide advanced image processing, an integrated programmable timing controller and multiple analog and digital video inputs.

Video Decoders.Our video decoder products are high performance mixed signal semiconductors that decode analog TV broadcast
signals, including NTSC, PAL and SECAM, and popular analog video signals, including composite, S-Video, component and SCART, into a standard digital format. Our video decoder products
integrate proprietary sync processing, color demodulating and digital 2D and 3D comb filtering, which are the key technologies required for high performance video decoding. We offer a broad range of
video decoder products at various price points and with varying features. We currently sell our video decoder products to customers across the following digital video applications: advanced TV,
multifunction LCD monitor, DVD recorder, camcorder, security surveillance systems and in-car LCD display.

7

---



The
following table summarizes the features and diverse applications of our application specific semiconductor product lines:

|Product Line          |  | Key Features |                                                                                                                         | Target Applications
|--------------------- |  | ------------ | ----------------------------------------------------------------------------------------------------------------------- | -------------------
|Security Surveillance |  |             | Integrates four NTSC and PAL video decoders                                                                             |                    
|                      |  |             | Incorporates motion detection, scaling and/or audio analog to digital converters                                        |                    
|                      |  |             | Integrates a multiplexer and a MJPEG video CODEC                                                                        |                    
|                      |  |              |                                                                                                                         |                    
|
|LCD Display           |  |             | Integrates NTSC, PAL, SECAM video decoder, deinterlacer, scaler, timing controller and image enhancement                |                    
|                      |  |             | Supports composite, component, S-video and SCART video formats                                                          |                    
|                      |  |             | Incorporates image enhancement and analog and digital timing controller                                                 |                    
|                      |  |              |                                                                                                                         |                    
|
|Video Decoder         |  | 
          | Supports NTSC, PAL and SECAM analog TV broadcast formats
Supports composite, component, S-video and SCART video formats |                    
|                      |  |             | Incorporates either 2D or 3D comb filter and either 9 or 10 bit analog to digital converter                             |                    
|                      |  |             | Available with 100mW to 800mW power consumption                                                                         |                    

Our
other products include contract development projects, early generation mixed signal semiconductors for digital video applications and a PCI video decoder product, which is a video
decoder that utilizes peripheral component interconnect, or PCI, technology for personal computer applications.

Technology

We have several core competencies that enable us to design important analog, mixed signal and digital technologies that can be implemented across our application
specific product lines. Over the last ten years, we have internally developed the combination of technologies, expertise and capabilities necessary for the conversion and processing of video signals.
We do not depend on third parties for any material technology, expertise or capability.

We
have developed a proprietary high performance and cost effective video decoder technology that receives and converts various analog video signals, including TV broadcast, composite
video, S-video, component and SCART, into a standard digital format. Our video decoder uses both analog

8

---



and
digital circuitry. Our video decoder uses our high performance, cost effective and low power analog front-end for signal conditioning and sampling the analog signal into digital
format. It uses our advanced digital processing circuitry, including a 2D and 3D comb filter, a color demodulator and a sync processor for deciphering the raw digital stream into the four principal
components: luminance, U, V and synchronization. These are important technologies required for high performance video decoding. Comb filtering is a technique for separating TV broadcast and
composite video signals into luminance and modulated chrominance. Our advanced comb filter provides separation resulting in high-resolution image with minimal visible artifacts such as
cross color and crawling or dangling dots. Our color demodulator converts the modulated chrominance signals based on NTSC, PAL and SECAM standards and sub-standards into baseband U and V
components. Our sync processor extracts the vertical and horizontal synchronization information from the video stream, which is required for the display device to reconstruct the original video
content. Both our advanced color demodulator and our advanced sync processor are critical to our decoder's ability to support off-specification and weak signals.

We
have expertise in analog TV broadcast and popular analog video standards. These standards typically define video signal characteristics such as line period, field rate, signal
amplitude, chrominance modulation scheme and frequency, among others. Notwithstanding the existence of standards, terrestrial TV stations and video applications such as TVs, VCRs, DVD players, game
consoles, camcorders and security cameras sometimes generate signals that are off-specification due to their mechanical nature or other characteristics. In addition, these video sources
sometimes contain noise from interference, additional modulation/de-modulation processing or RF transmission. These variations in signal standards and signal strength create significant
challenges for original equipment manufacturers, or OEMs, and, in turn, semiconductor companies. To deal with these challenges, we believe these semiconductor companies require expertise in analog TV
broadcast and popular analog video standards to assure manufacturers that their products can support these signals, even if they are off-specification or weak.

We
design semiconductors that receive an analog signal, convert the analog signal to a digital signal represented by ones and zeroes and then use digital circuitry to process the signal.
Using digital circuitry to process analog video signals allows us to achieve high performance video, integrate more functionality and reduce costs. As a result, we combine analog functionality on the
same semiconductor substrate with digital functionality. Digital circuits perform high speed switching between logic states that generate transients known as electromagnetic interference as well as
electrical noise on the substrate and on the power bus. By contrast, analog circuits are extremely sensitive to noise. There are significant design and development challenges involved in mixing noisy
digital circuits with noise-sensitive analog circuits on the same semiconductor substrate. Our design engineers are skilled at solving these problems to achieve high quality video performance on a
mixed signal semiconductor.

Customers

We principally sell our products to distributors who, in turn, sell to OEMs, original design manufacturers, or ODMs, contract manufacturers and design houses. In
addition, we sell our products, though to a lesser extent, directly to OEMs and ODMs. ODMs typically design and manufacture electronic products to sell to OEMs. In the
three years ended December 31, 2007, our largest customers have been distributors. Our largest customers in 2005 were IC Land and Lacewood each accounting for 10% of our revenues. Our largest
customers in 2006 were Lacewood, Regulus and Gentech accounting for 15%, 12% and 10% of our revenues, respectively. In 2007, our largest customer was Lacewood accounting for 22% of our revenues. Our
agreements to sell our products through distribution channels generally provide for a non-exclusive right to sell, and to promote and develop a market for our products in a specified
geographic area. These agreements generally may be terminated

9

---



by
either party on 30 days' notice and do not require price protection. Our direct sales to OEMs and ODMs are accomplished through purchase orders.

Substantially
all of our sales are to customers in Asia, which sales accounted for approximately 98% of our revenues for both 2007 and 2006 and approximately 99% of our revenues for
2005. The table below indicates the percentage of total revenue by geographic location for the periods indicated:

Year Ended December 31,2007

2006

2005Taiwan

40
%
43
%
38
%South Korea

29

31

41China

26

21

16Japan

3

3

4Other

2

2

1


Sales and Marketing

We sell our products worldwide through multiple channels, including our direct sales force and applications engineering staff and our network of domestic and
international independent distributors and sales representatives. Each of these sales channels is supported by our customer service and marketing organizations. We have marketing and customer support
personnel in the United States as well as China, Japan, South Korea and Taiwan. We intend to expand our sales and support capabilities and our network of independent sales representatives in key
regions domestically and internationally.

Our
sales cycle typically ranges from six to 24 months. We work directly with system designers to create demand for our semiconductors by providing them with application-specific
product information for their system design, engineering and procurement groups. We actively engage these groups during their design processes to introduce them to our semiconductors. We endeavor to
design our products to meet anticipated, increasingly complex and specific design requirements, but which will also support widespread demand for the products and future enhancements to them. If
successful, this process culminates in a system designer deciding to use our products in their system, which we refer to as a design win. Once our product is accepted and designed into an application,
the system designer is likely to continue to use the same or enhanced versions of our product across a number of their models, which tends to extend the life cycles of our product. If we fail to
achieve an initial design win, we may lose the opportunity for sales to a customer for a number of its products and for a lengthy period of time.

Backlog

Our sales are made primarily pursuant to standard individual purchase orders. Our backlog consists of orders that we have received from customers that have not
yet shipped. Historically, management has not used backlog as an indicator of future business. As our order lead times may vary and as industry practice allows customers to reschedule or cancel orders
on relatively short notice, we believe that backlog is not necessarily a good indicator of future sales. In addition, a substantial portion of our quarterly revenues typically depend on orders booked
and shipped in that quarter.

Research and Development

Our research and development efforts are focused on the development of new technologies for our application specific product lines. As of December 31,
2007, we had 61 persons engaged in research and development. Our research and development expense was $12.3 million in 2007, $9.2 million in 2006 and $8.7 million in 2005.

10

---



Intellectual Property

We seek to protect our proprietary technology, documentation and other written materials primarily under trade secret and copyright laws. We also typically
require employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be
adequate to prevent misappropriation of our technology.

Although
we rely primarily on trade secret laws and contractual restrictions to protect the technology in the semiconductors we currently design and market, our success and ability to
compete in the future may also depend to a significant degree upon obtaining and enforcing patent protection for our video decoding architecture and other mixed signal technologies. As of
December 31, 2007, we had three issued patents and six patent applications pending in the United States and two patent applications pending in foreign jurisdictions. These patents and patent
applications cover aspects of the technology in the semiconductors we currently design and market, including a patent for our video decoding architecture. Our issued patents have expiration dates
ranging from September 2, 2019 to March 27, 2020. Patents that we currently own do not cover all of the semiconductors that we presently design and market. Our present and future patents
may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could be successful in challenging any issued patents
or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents.

The
laws of other countries in which we market our semiconductors, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies.
Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so. Any
inability to protect our proprietary rights could harm our ability to compete, generate revenue and grow our business.

We
may be required to resort to litigation to enforce our intellectual property rights. We may also be subject to legal proceedings and claims relating to our intellectual property in
the ordinary course of our business. Intellectual property litigation is expensive and time-consuming and could divert management's attention away from running our business. This
litigation could also require us to pay substantial damages to the party claiming infringement, stop selling products or using technology that contains the allegedly infringing intellectual property,
develop non-infringing technology or enter into royalty or license arrangements.

Manufacturing

We do not own or operate a semiconductor fabrication, packaging or testing facility. We depend on third-party vendors to manufacture, package and test our
products. By outsourcing manufacturing, we are able to avoid the cost associated with owning and operating our own manufacturing facility. This allows us to focus our efforts on the design and
marketing of our products.

Semiconductor Fabrication.We currently outsource our semiconductor manufacturing principally to Taiwan Semiconductor
Manufacturing Company, or TSMC. We work closely with TSMC to forecast on a monthly basis our manufacturing capacity requirements. Our semiconductors are currently fabricated in several advanced,
sub-micron manufacturing processes. Because finer manufacturing processes lead to enhanced performance, smaller silicon chip size and lower power requirements, we continually evaluate the
benefits and feasibility of migrating to smaller geometry process technologies in order to reduce cost and improve performance. We believe that our fabless manufacturing approach provides us with the
benefits of superior manufacturing capability as well as flexibility to move the manufacturing, assembly and testing of our products to those vendors that offer the best capability at an attractive
price. Nevertheless, because we do not have a formal, long-term pricing agreement with

11

---



TSMC,
our wafer costs and services are subject to sudden price fluctuations based on the cyclical demand for semiconductors. Our engineers work closely with TSMC to increase yields, lower
manufacturing costs and improve quality. We intend to qualify and retain additional foundries to manufacture our semiconductors in the future.

Assembly and Test.Our products are shipped from TSMC to third-party sort, assembly and test facilities where they are
assembled into finished semiconductors and tested. We outsource all packaging and testing of our products to assembly and test subcontractors, principally Advanced Semiconductor
Engineering, Inc., or ASE, in Taiwan. Our products are designed to use low cost, standard packages and to be tested with widely available test equipment.

Quality Assurance.We are committed to maintaining the highest level of quality in our products. We have designed and
implemented a quality management system that provides the framework for continual improvement of products, processes and customer service. We also rely on in-depth simulation studies,
testing and practical application testing to validate and verify our semiconductors. To ensure consistent product quality, reliability and yield, together with our manufacturing logistics partners we
closely monitor the production cycle by reviewing manufacturing process data from each wafer foundry and assembly subcontractor. Both TSMC and ASE have been awarded ISO 9000 certificates.

Competition

The market in which we operate is extremely competitive, and is characterized by rapid technological change, continuously evolving customer requirements and
declining average selling prices. We may not be able to compete successfully against current or potential competitors. We compete with numerous domestic and international semiconductor manufacturers
and designers, including NXP, Inc. (formerly Philips Semiconductors), Micronas Semiconductor Holding AG, Texas Instruments Incorporated, MStar, Conexant and Nextchip. Most of our current and
potential competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we do. This may allow them to respond more quickly than
us to new or emerging technologies or changes in customer requirements. Some of our competitors currently offer product features or technologies that we do not currently offer but intend to sell in
the future. We must, therefore, compete against competitors that have more experience in developing and selling products and technologies that we do not currently offer but intend to offer in the
future. Some of our competitors also use smaller geometry process technologies in their products, which can result in better manufacturing yields and decreased costs. In addition, these competitors
may have greater credibility with our existing and potential customers. Many of our current and potential customers have their own internally developed semiconductor solutions, and may choose not to
purchase products from third party suppliers like us. Increased competition could harm our business, by, for example, increasing pressure on our profit margins or causing us to lose customers. In
addition, delivery of products with defects or reliability, quality or compatibility problems may damage our reputation and competitive position. For example, in 2003, we were unable to sell certain
products to a customer for whom these products were specifically designed as a result of our failure to produce a product that met this customer's specifications. We believe this customer eventually
secured this product from another vendor. Although we no longer design and tailor specific chips for customers, our ability to compete successfully depends in part on our ability to deliver products
without reliability, quality or compatibility problems.

Our
ability to compete successfully depends on a number of factors, including:



12

---





We
believe we currently compete favorably with respect to these factors in the aggregate. However, we cannot assure you that our semiconductor products will continue to compete favorably
or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering our market.

Employees

As of December 31, 2007, we employed 142 full-time employees, including 61 in research and development, 53 in sales, marketing and support, 16
in operations and 12 in general and administration. We have never had a work stoppage and none of our employees is represented by a labor organization or under any collective bargaining arrangements.
We consider our employee relations to be good.

Available Information

We were incorporated in California in March 1997 and reincorporated in Delaware in March 2006. The mailing address of our headquarters is 408 E. Plumeria Drive,
San Jose, California 95134, and our telephone number at that location is (408) 435-3888. Our Website is www.techwellinc.com. Through a link on the Investor Relations section of our
Website, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC: our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge.

Executive Officers and other Key Employees

The following table shows information about our executive officers and other key employees as of February 29, 2008:

|Name                  |  | Age |  | Position(s)                                                             
|--------------------- |  | --- |  | ------------------------------------------------------------------------
|Fumihiro Kozato       |  | 48  |  | President, Chief Executive Officer and Director                         
|Mark Voll             |  | 53  |  | Vice President of Finance and Administration and Chief Financial Officer
|Dr. Feng Kuo          |  | 50  |  | Chief Technical Officer                                                 
|Dong Wook (David) Nam |  | 40  |  | Vice President of Sales and Marketing                                   
|Tom Krause            |  | 30  |  | Vice President of Business Development                                  
|Joe Kamei             |  | 51  |  | Vice President of Operations                                            

Fumihiro Kozatofounded Techwell in 1997 and has served as our president and chief executive officer since inception. From 1995 to 1996,
Mr. Kozato was president of Sigmax Technologies, Inc., a CD-ROM controller chip development company. From 1991 to 1995, Mr. Kozato was the business control manager for
Ricoh Co., Ltd, a global manufacturer of office automation equipment. Mr. Kozato holds a B.S. in mathematics from the University of California, Santa Barbara.

Mark Vollhas served as our vice president of finance and administration and chief financial officer since November 2005. From June 2002
to November 2005, Mr. Voll served as chief financial officer at Monolithic System Technology, Inc., a semiconductor intellectual property licensing company. From December 2004 to July
2005, Mr. Voll served as the interim chief executive officer of Monolithic

13

---



System
Technology, Inc. From June 2000 to June 2002, Mr. Voll served as the chief financial officer for Axis Systems, Inc., a developer of semiconductor verification tools.
Mr. Voll holds a B.S. in accounting from Providence College.

Dr. Feng Kuohas served as our chief technical officer since 2000 and our vice president of engineering from 1998 to 2000. From
1994 to 1996, Dr. Kuo was the vice president of engineering of Sigmax Technologies, Inc., a CD-ROM controller chip development company. From 1991 to 1994, Dr. Kuo was
a design manager at S-MOS systems, a Seiko Epson Corporation affiliated company responsible for semiconductor development and silicon foundry service. Dr. Kuo holds a B.S. in
electrical engineering from National Taiwan University and an M.S. and Ph.D. from Stony Brook University of New York.

Dong Wook (David) Namhas served as our vice president of sales and marketing since July 2005. From October 2002 to June 2005,
Mr. Nam served as our director of sales and from January 2001 to February 2002, he served as our field applications engineer manager. From January 1994 to January 2001, Mr. Nam was a
technical applications and marketing engineer at Samsung Electronics Co., Ltd., a large consumer electronics company. Mr. Nam holds a B.S. in electrical engineering from KyungPook
National University in South Korea.

Tom Krausehas served as our vice president of business development since July 2007. From April 2004 to June 2007, Mr. Krause
served as our director of business development. From March 2002 to March 2004, Mr. Krause was an associate at Technology Crossover Ventures, a venture capital firm. From July 2000 to February
2002, Mr. Krause was an investment banking analyst at Robertson Stephens Inc., an investment banking firm. Mr. Krause holds a. B.A. in economics from Princeton University.

Joe Kameijoined Techwell as our director of operations in May 2000 and has served as our vice president of operations since July 2007.
From 1998 to 2000, Mr. Kamei was a manager at Kanematsu USA Inc., a Japanese general trading company. From 1991 to 1998, Mr. Kamei was an engineering manager at
Ricoh Co., Ltd., a global manufacturer of office automation equipment. Mr. Kamei holds a B.S. of precise machinery engineering from Tokyo University.

ITEM 1A. Risk Factors

If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly.

Risks Related to Our Business

Fluctuations in our revenue and operating results on a quarterly basis could cause the market price of our common stock to decline.

Our revenue and operating results are difficult to predict, have in the past fluctuated, and may in the future fluctuate from quarter to quarter. It is possible
that our operating results in some quarters will be below market expectations. This would likely cause the market price of our common stock to decline. Our quarterly operating results are affected by
a number of factors, including:



14

---





We
base our planned operating expenses in part on our expectations of future revenue, and a significant portion of our expenses is relatively fixed in the short term. We have limited
historical
financial data from which to predict future sales for our products. As a result, it is difficult for us to forecast our future revenue and budget our operating expenses accordingly. If revenue for a
particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter.

We have a history of losses, have only recently become profitable and may not sustain or increase profitability in the future which may cause the market
price of our common stock to decline.

We
first became profitable in the second quarter of 2005. We incurred significant net losses prior to that quarter. To sustain or increase profitability, we will need to generate and
sustain substantially higher revenue while maintaining reasonable cost and expense levels. We currently expect to increase expense levels in each of the next several quarters to support increased
research and development and sales and marketing efforts for our current products and increased design costs related to our new products targeted for the PC market. These expenditures may not result
in increased revenue or customer growth. Because many of our expenses are fixed in the short term, or are incurred in advance of anticipated sales, we may not be able to decrease our expenses in a
timely manner to offset any shortfall of sales. We also believe our effective tax rate will increase in the future, which will harm our financial results and negatively impact our profitability. We
may not be able to sustain or increase profitability on a quarterly or an annual basis. This may, in turn, cause the price of our common stock to decline.

If the growth of demand for digital video applications for the security surveillance, automotive, consumer and PC markets does not continue, our ability
to increase our revenue could suffer.

Our
ability to increase our revenue will depend on increased demand for digital video applications in the security surveillance, automotive, consumer and PC markets. If our target
markets do not grow as rapidly or to the extent we anticipate, our business could suffer. The growth of our target markets is uncertain and will depend in particular upon:



15

---





Our success depends on the development and introduction of new products, which we may not be able to do in a timely manner, as product development in
smaller wafer fabrication geometries becomes more complex and costly.

The development of new products is highly complex, and we have experienced some delays in bringing new products to the market in the past. As our products
integrate new, more advanced functions, they become more complex and increasingly difficult to design. In addition, in our effort to decrease cost, we intend to design new products in smaller
fabrication geometries, some of which we may have no prior experience of success. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies.

Completing
these projects is extremely challenging, time-consuming and expensive, and we can give no assurance that we will succeed or succeed in a timely and
cost-effective manner. Product development delays may result from unanticipated engineering complexities, changing market or competitive product requirements or specifications,
difficulties in overcoming resource limitations, the inability to license third-party technology or other factors. If we are unable to develop products successfully, in a timely and
cost-effective manner, our business, financial condition and results of operations could suffer.

The average selling prices of our semiconductor products may be subject to rapid price declines which could harm our revenue and gross profits.

The semiconductor products we develop and sell may be subject to rapid declines in average selling prices. From time to time, we have had to reduce our prices
significantly to meet customer requirements, and we may be required to reduce our prices in the future. This would cause our gross margins to decline which in turn may negatively impact our operating
results. Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs or developing new or enhanced
products on a timely basis with higher selling prices or gross margins.

We face intense competition and may not be able to compete effectively, which could reduce our market share and decrease our net revenue and
profitability.

The markets in which we operate are extremely competitive and are characterized by rapid technological change, continuously evolving customer requirements and
declining average selling prices. We may not be able to compete successfully against current or potential competitors. If we do not compete successfully, our market share and revenue may decline. We
compete with large semiconductor manufacturers and designers. Most of our current and potential competitors have longer operating histories, significantly greater resources and name recognition and a
larger base of customers than we do. This may allow them to respond more quickly than we can to new or emerging technologies or changes in customer requirements. In addition, these competitors may
have greater credibility with our existing and potential customers. Many of our current and potential customers have their own internally developed semiconductor solutions and may choose not to
purchase products from third party suppliers like us.

We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel and hire additional
personnel, our ability to develop and market our products could be harmed.

We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, engineering and sales and marketing
personnel. The loss of any key employees or the inability to attract or retain qualified personnel, including engineers and sales and marketing personnel, could delay the development and introduction
of, and harm our ability to sell, our products

16

---



and
harm the market's perception of us. We believe that our future success is highly dependent on the contributions of Fumihiro Kozato, our president and chief executive officer, and Dr. Feng
Kuo, our chief technical officer. We do not have long-term employment contracts with these or any other key personnel, and their knowledge of our business and industry would be extremely
difficult to replace.

If we fail to develop new products and enhance our existing products in order to react to rapid technological change and market demands, our business
will suffer.

We must develop new products and enhance our existing products with improved technologies to meet rapidly evolving customer requirements. We need to design
products for customers who continually require higher performance and functionality at lower costs. We must, therefore, continue to
cost-effectively add features that enhance performance and functionality to our products. The development process for these advancements is lengthy and requires us to accurately anticipate
market trends. Our failure to accurately anticipate market trends in a timely manner will harm the market acceptance of our products and the sales of our products. We have been excluded from certain
customer qualification processes due to the lack of integrated audio functionality in our video decoders. As part of our continued investment in new technologies, we intend to add integrated audio
functionality to our video decoders in the near term to address the market requirements of our customers.

Developing
and enhancing these products is uncertain and can be time-consuming, costly and complex. There is a risk that these developments and enhancements will be late,
fail to meet customer or market specifications or not be competitive with products from our competitors that offer comparable or superior performance and functionality. Any new products or product
enhancements may not be accepted in new or existing markets. Our business will suffer if we fail to develop and introduce new products or product enhancements on a cost-effective basis.

If we fail to achieve initial design wins for our products, we may lose the opportunity for sales for a significant period of time to customers and be
unable to recoup our investments in our products.

We expend considerable resources in order to achieve design wins for our products, especially our new products and product enhancements. Once a customer designs a
semiconductor into a product, it is likely to continue to use the same semiconductor or enhanced versions of that semiconductor from the same supplier across a number of similar and successor products
for a lengthy period of time due to the significant costs associated with qualifying a new supplier and potentially redesigning the product to incorporate a different semiconductor. If we fail to
achieve an initial design win in a customer's qualification process, we may lose the opportunity for significant sales to that customer for a number of its products and for a lengthy period of time.
This may cause us to be unable to recoup our investments in our products, which would harm our business.

If we fail to develop, in a timely manner, or at all, technologies that address the demands of a shift from analog broadcast TV to digital broadcast TV,
our operating results could suffer.

Our semiconductors are principally designed to decode analog broadcast TV signals into digital images. In February 2009, transmission of broadcast TV signals will
no longer be permitted in analog and all signals must be in a digital format. We are in the process of developing mixed signal and digital technology to decode digital signals. However, transmission
of digital video involves a combination of emerging technologies. The complexities of these technologies and the variability in implementations between manufacturers may cause our development of
semiconductors to be costly and time-consuming. We may never obtain the benefits of our investment in developing this technology. The complexities of digital broadcast technologies may
also cause some of the semiconductors we are developing to ultimately work incorrectly for reasons that may be either related or unrelated to our products, or not be interoperable with other key
products. Delays or difficulties in integrating our

17

---



semiconductors
into digital broadcast TV products or the failure of products incorporating digital broadcast TV to achieve broad market acceptance could have an adverse effect on our business.

A significant portion of our products are sold into the consumer and security surveillance markets, and if sales of our semiconductors into these
markets decline or do not increase, or if we do not increase our sales into the automotive market, our business and financial results could suffer.

We sell semiconductors targeted for the security surveillance, automotive, consumer and PC markets. For the year ended December 31, 2007 more than 85% of
our sales were derived from the sale of our products designed for the consumer and security surveillance markets. If sales of semiconductors into these markets decline or do not increase, or if demand
slows in these markets generally, our operating results would suffer. In addition, we have increased our focus on the automotive market and devoted substantial resources to the development of
semiconductors for digital video applications that address this market. If we are not successful in selling our semiconductors into this market, we may not recover the costs associated with our
efforts in this area and our operating results could suffer.

Our business is subject to seasonality, which is likely to cause our revenues to fluctuate.

Our business is subject to seasonality as a result of our target markets and the location of our customers. We sell a significant number of our semiconductors
into the consumer market. Our customers who manufacture products for the consumer market experience seasonality in the sales of their products, which in turn may affect the timing and volume of orders
for our semiconductors. Because the consumer market for digital video applications is characterized by this seasonality, our
operating results may vary significantly from quarter to quarter. For example, we generally experience lower sales in the first calendar quarter with our video decoder and LCD display products as a
result of the seasonality associated with the consumer markets. In addition, a significant number of our semiconductors are sold to customers located in Asia, primarily to customers located in regions
who observe the Lunar New Year holiday, also referred to as Chinese New Year. Typically, our foreign offices and those of our customers are closed for a week or more during the extended holiday
period. For both years ended December 31, 2007 and 2006, approximately 95% of our revenues were attributable to customers located in regions that observe the Lunar New Year holiday. As a
result, we typically experience fluctuations in our first calendar quarter due in part to a slowing of business activity around the period of the Lunar New Year holiday. These sales fluctuations are
expected to continue.

We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect our financial results could be negatively
impacted.

Our sales are made on the basis of purchase orders rather than long-term purchase commitments. In addition, our customers may cancel purchase orders
or defer the shipments of our products. We manufacture our products according to our estimates of customer demand. This process requires us to make multiple demand forecast assumptions, each of which
may introduce error into our estimates. If we overestimate customer demand, we may manufacture products that we may not be able to sell. As a result, we would have excess inventory, which would
increase our losses. Conversely, if we underestimate customer demand or if sufficient manufacturing capacity were unavailable, we would forego revenue opportunities, lose market share and damage our
customer relationships.

We do not expect to sustain the growth rate of our recent revenues.

Our revenues increased approximately 109% in 2005 from 2004 and approximately 49% in 2006 from 2005. We do not expect to achieve similar growth rates in future
periods. For example, in 2007, our revenues increased approximately 11%. You should not rely on the results of any prior quarterly or

18

---



annual
periods as an indication of our future operating performance. If we are unable to maintain adequate revenue growth, our stock price may decline and we may not have adequate financial resources
to execute our business objectives.

We may pursue acquisitions or investments in complementary technologies and businesses, which could harm our operating results and may disrupt our
business.

In the future, we may pursue acquisitions of, or investments in, complementary technologies and businesses. Acquisitions present a number of potential risks and
challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired company. Even if we are successful, we may not be able to
integrate the acquired businesses, products or technologies into our existing business and products. Furthermore, potential acquisitions and investments, whether or not consummated, may divert our
management's attention and require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume
contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability.

Changes in our tax rates will affect our future results.

Our future effective tax rates will be favorably or unfavorably affected by the absolute amount and future geographic distribution of our pre-tax
income, our ability to take advantage of the available tax planning strategies and our ability to utilize our net operating loss carryforwards. Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code"), imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carryforwards to reduce its tax liability. Due in
part to equity financings, we experienced "ownership changes" as defined in Section 382 of the Code. Accordingly, our use of the net operating loss carryforwards and credit carryforwards is
limited by the annual limitations as described in Sections 382 and 383 of the Code. Nevertheless, we expect to utilize a substantial portion of these net operating loss carryforwards in the
current year resulting in lower net operating loss carryforwards available for later years. Our plans for continued international expansion may further limit our ability to utilize our remaining net
operating loss carryforwards as our net income increases. Our effective tax rate for the years ended December 31, 2007 and 2006 was (3.6)% and 8.9%, respectively. Prior to September 30,
2007, we determined that it was not more likely than not that our deferred tax assets would be recovered from future taxable income. Therefore we provided a valuation allowance for our deferred tax
assets. At September 30, 2007, we reassessed the necessity of the valuation allowance. As a result of this assessment, we reversed the valuation allowance recorded against our deferred tax
assets of approximately $5.5 million. We recorded a tax benefit for 2007 as a result of the reversal of the valuation allowance. In addition, we are subject to the examination of our income tax
returns by the Internal Revenue Service and other tax authorities. The outcomes of these examinations, if they occur, could harm our net income and financial condition.

We may not be able to manage our future growth effectively, and we may need to incur expenditures to address the additional operational and control
requirements of our growth.

We are experiencing a period of growth and expansion, which has placed, and any future expansion will continue to place, a significant strain on our management,
personnel, systems and financial resources. We plan to hire additional employees to support an increase in research and development as well as increase our selling and marketing efforts. To manage our
growth successfully, we believe we must effectively:



19

---









Our
efforts may require substantial managerial and financial resources and may increase our operating costs even though these efforts may not be successful. If we are unable to manage
our growth effectively, we may not be able to take advantage of market opportunities, develop new products, satisfy customer requirements, execute our business plan or respond to competitive
pressures.

We may experience unforeseen delays, expenses or lower than expected product yields for our semiconductors manufactured by our third party vendors,
which could increase our costs and prevent us from recognizing the benefits of new technologies we develop.

We occasionally have experienced delays in completing the development and introduction of new products and product enhancements, and we could experience delays in
the future that may render our new or enhanced products, when introduced, obsolete and unmarketable. In addition, it is often difficult for semiconductor foundries to achieve satisfactory product
yields. Product yields depend on both our product design and the manufacturing process technology unique to the semiconductor foundry. Since low yields may result from either design or process
difficulties, identifying yield problems
can only occur well into the production cycle after a product that can be physically analyzed and tested exists. Poor yields from our foundry could cause us to sell our products at lower gross margins
and therefore harm our financial results.

Defects in our products could increase our costs, cause customer claims and delay our product shipments.

Although we test our products, they are complex and may contain defects and errors. In the past, we have encountered defects and errors in our products. For
example, in 2003 we were unable to sell certain products to a customer for whom these products were specifically designed as a result of our failure to produce a product that met this customer's
specifications. We believe this customer secured the product from another vendor. Delivery of products with defects or reliability, quality or compatibility problems may damage our reputation and our
ability to retain existing customers and attract new customers. In addition, product defects and errors could result in additional development costs, diversion of technical resources, delayed product
shipments, increased product returns and product liability claims against us, which may not be fully covered by insurance. Any of these could harm our business.

We rely on a limited number of independent subcontractors for the manufacture, assembly and testing of our semiconductors, and the failure of any of
these third-party vendors to deliver products or otherwise perform as requested could damage our relationships with our customers, decrease our sales and limit our growth.

We do not have our own manufacturing or assembly facilities and have very limited in-house testing facilities. Therefore, we must rely on third-party
vendors to manufacture, assemble and test the products we design. We currently rely on Taiwan Semiconductor Manufacturing Corporation, or TSMC, to produce the majority of our semiconductors. We rely
on Advanced Semiconductor Engineering, Inc., or ASE, to assemble, package and test many of our products. If these vendors do not provide us with high-quality products, services and
production and test capacity in a timely manner, or if one or more of these vendors terminates its relationship with us, we may be unable to obtain satisfactory replacements to fulfill customer orders
on a timely basis, our relationships with our customers could

20

---



suffer
and our sales could decrease. Other significant risks associated with relying on these third-party vendors include:



We
currently do not have long-term supply contracts with any of our third-party vendors. Therefore, they are not obligated to perform services or supply products to us for
any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. Neither TSMC nor ASE has provided contractual assurances to us that
adequate capacity will be available for us to meet future demand for our products. These third party vendors may allocate capacity to the production of other companies' products while reducing
deliveries to us on short notice. In particular, other customers that are larger and better financed than we are or that have long-term agreements with TSMC or ASE may cause either or both
of them to reallocate capacity to those customers, decreasing the capacity available to us.

We plan to retain additional foundries to manufacture our semiconductors, which could disrupt our current manufacturing process and negatively impact
our sales volumes and net revenue.

As a result of the complexity in manufacturing our semiconductors, it is difficult to retain and rely on a new foundry. We may not be able to enter into a
relationship with a new foundry that produces satisfactory yields on a cost-effective basis. If we need another foundry because of increased demand, or the inability to obtain timely and
adequate deliveries from our current provider, we might not be able to cost-effectively and quickly retain other vendors to satisfy our requirements. Any failure to successfully integrate
a new foundry could negatively impact our sales volumes and net revenue.

Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial
and political risks, which could adversely affect our financial results.

The percentage of our revenues attributable to sales to customers in Asia was approximately 98% in both 2007 and 2006 and approximately 99% in 2005. We expect
that revenues from customers in Asia will continue to account for substantially all of our revenues. All our sales currently are denominated in U.S. dollars. As a result, an increase in the value of
the U.S. dollar relative to foreign currencies could make our products less competitive in international markets.

Currently,
we maintain international sales offices in Asia, and we rely on a network of third-party sales representatives to sell our products internationally. We have also established
offices in Japan, China, Taiwan and South Korea, which serve various aspects of our business. Moreover, we have in the past relied on, and expect to continue to rely on, suppliers, manufacturers and
subcontractors primarily

21

---



located
in Taiwan. Accordingly, we are subject to several risks and challenges, any of which could harm our business and financial results. These risks and challenges include:



Our sales cycle can be lengthy, which could result in uncertainty and delays in generating revenue.

Because our products are based on constantly evolving technologies, we have experienced a lengthy sales cycle for some of our semiconductors, particularly those
designed for digital video applications in the automotive market. Our sales cycle typically ranges from six to 24 months. We may experience a delay between the time we increase expenditures for
research and development, sales and marketing efforts and inventory and the time we generate revenue, if any, from these expenditures. In addition, because we do not have long-term
commitments from our customers, we must repeat our sales process on a continual basis even for current customers looking to purchase a new product. As a result, our business could be harmed if a
customer reduces or delays its orders, chooses not to release products incorporating our semiconductors or elects not to purchase a new product or product enhancements from us.

We primarily sell our semiconductors through distributors, and if our relationships with one or more of those distributors were to terminate, our
operating results may be harmed.

We market and distribute our products primarily through distributors. This distribution channel has been characterized by rapid change and consolidations.
Distributors have accounted for a significant portion of our revenues in the past. Sales to our distributors represented approximately 77% of our revenues in 2007, 79% of our revenues in 2006 and 65%
of our revenues in 2005.

Our
operating results and financial condition could be significantly disrupted by the loss of one or more of our current distributors and sales representatives, volume pricing discounts,
order cancellations, delays in shipment by one of our major distributors or sales representatives or the failure of our distributors or sales representatives to successfully sell our products.

We rely primarily upon copyright and trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights are not
sufficiently protected, our ability to compete and generate revenue could suffer.

We seek to protect our proprietary design processes, documentation and other written materials primarily under trade secret and copyright laws. We also typically
require employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us

22

---



to
protect our proprietary information may not be adequate to prevent misappropriation of our technology. In addition, our proprietary rights may not be adequately protected because:



Reverse
engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without compensating us
for doing so. For example, if the foundry that manufactures our semiconductors loses control of our intellectual property, it would be more difficult for us to take remedial measures since it is
located in Taiwan, which does not have the same protection for intellectual property as is provided in the United States. Any inability to adequately protect our proprietary rights could harm our
ability to compete, generate revenue and grow our business.

We may not obtain sufficient patent protection on the technology embodied in the semiconductors we currently manufacture and market, which could harm
our competitive position and increase our expenses.

Although we rely primarily on trade secret laws and contractual restrictions to protect the technology in the semiconductors we currently manufacture and market,
our success and ability to compete in the future may also depend to a significant degree upon obtaining patent protection for our proprietary technology. As of December 31, 2007, we had three
issued patents in the United States, six patent applications pending in the United States and two applications pending in foreign jurisdictions. These patents and patent applications cover aspects of
the technology in the semiconductors we currently manufacture and market, including a patent for our video decoding architecture. Patents that we currently own do not cover all of the semiconductors
that we presently manufacture and market. Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek. In
addition, any issued patents may be challenged, invalidated or declared unenforceable. The term of any issued patents would be 20 years from its filing date and if our applications are pending
for a long time period, we may have a correspondingly shorter term for any patent that may issue. Our issued patents have expiration dates ranging from September 2, 2019 to March 27,
2020. Our present and future patents may provide only limited protection for our technology and may not be sufficient to provide us with competitive advantages. For example, competitors could be
successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain
foreign countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in the United States, making it difficult for us to effectively protect
our intellectual property from misuse or infringement by anyone in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business. In
addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important to our business or our competitive position.

Intellectual property litigation, which is common in our industry, could be costly, harm our reputation, limit our ability to sell our products and
divert the attention of management and technical personnel.

Our industry is characterized by frequent litigation regarding patent and other intellectual property rights. For example, we were a party to an administrative
proceeding in front of the intellectual property tribunal in South Korea in which another party unsuccessfully sought a determination that our TW2824 and TW2834 products infringed a South Korean
patent allegedly held by that party. We have

23

---



certain
indemnification obligations to customers under our contract development projects with respect to any infringement of third-party patents and intellectual property rights by our products. If a
lawsuit were to be filed against us in connection with claims of infringement, our business would be harmed.

Questions
of infringement in the digital video applications market involve highly technical and subjective analyses. Litigation may be necessary in the future to enforce any patents we
may receive and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or
invalidity, and we may not prevail in any future litigation. Litigation, whether or not determined in our favor or settled, could be costly, could harm our reputation, could cause our customers to use
our competitors' products and could divert the efforts and attention of our management and technical personnel from normal business operations. In addition, adverse determinations in litigation could
result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties or prevent us from licensing our technology or selling our products,
any of which could seriously harm our business.

Our headquarters are located in the State of California and our third-party manufacturing, assembly and testing vendors have facilities in the State of
Washington and in Asia, areas subject to significant earthquake risks. Any disruption to our or their operations resulting from earthquakes or other natural disasters could cause significant delays in
the production or shipment of our products.

TSMC, which manufactures our semiconductors, has facilities in the State of Washington and in Taiwan. Our assembly and testing vendors' facilities are primarily
located in Taiwan. In addition, our headquarters are located in Northern California. The risk of an earthquake or extreme weather in the Pacific Rim region or an earthquake in Northern California or
Washington state is significant due to the proximity of major earthquake fault lines. In September 1999, a major earthquake in Taiwan affected the facilities of TSMC and ASE, our primary assembly
vendor, as well as other providers of foundry, packaging and test services. In March 2002 and June 2003, additional earthquakes occurred in Taiwan. In 2005, several typhoons also disrupted the
operations of TSMC and ASE. As a result of these natural disasters, these contractors suffered power outages and disruptions that impaired their production capacity. The occurrence of earthquakes or
other natural disasters could result in the disruption of our foundry or assembly and test capacity. We may not be able to obtain alternate capacity on favorable terms, if at all, which could harm our
operating results.

Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.

We prepare our financial statements to conform with accounting principles generally accepted in the United States of America, or GAAP. These accounting principles
are subject to interpretation by the Financial Accounting Standards Board, or FASB, the Securities and Exchange Commission, or SEC, and various bodies formed to interpret and create appropriate
accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to
those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, accounting policies affecting many aspects of
our business, including rules relating to employee stock option grants, have recently been revised. The FASB and other agencies have made changes to GAAP that required us, starting in our first
quarter of fiscal 2006, to record a charge to earnings for the estimated fair value of employee stock option grants and other equity incentives, whereas under prior accounting rules charges were
required only for the intrinsic value, if any, of such awards to employees. We may have significant and ongoing accounting charges under the new rules resulting from option grant and other equity
incentive expensing, which could reduce our overall net income. In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the
accounting change could make the use of

24

---



equity-related
compensation less attractive to us or require us to pay more cash compensation and therefore make it more difficult for us to attract and retain employees.

Management may apply our cash, cash equivalents, short-term and long-term investments to uses that do not increase our market
value or improve our operating results.

We intend to use our cash, cash equivalents, short-term and long-term investments for general corporate purposes, including working
capital and capital expenditures. We may also use a portion of our cash, cash equivalents, short-term and long-term investments to acquire or invest in complementary
technologies, businesses or other assets. We have not reserved or allocated our cash, cash equivalents, short-term and long-term investments for any specific purpose, and we
cannot state with certainty how our management will use our cash, cash equivalents, short-term and long-term investments. Accordingly, our management has considerable
discretion in applying our cash, cash equivalents, short-term and long-term investments and may use our cash, cash equivalents, short-term and long-term
investments for purposes that do not result in any increase in our results of operations or market value. Until the cash, cash equivalents, short-term and long-term investments
are used, they may be placed in investments that do not produce income or that lose value.

Risks Related to Our Industry

Due to the cyclical nature of the semiconductor industry, our operating results may fluctuate significantly, which could adversely affect the market
price of our common stock.

The semiconductor industry is highly cyclical and subject to rapid change and evolving industry standards and, from time to time, has experienced significant
downturns. These downturns are characterized by decreases in product demand, excess customer inventories and accelerated erosion of prices. These factors have caused and could cause substantial
fluctuations in our net revenue and in our operating results. Any downturns in the semiconductor industry may be severe and prolonged, and any failure of this industry to fully recover from downturns
could harm our business. The semiconductor industry also periodically experiences increased demand and production capacity constraints, which may affect our ability to ship products. Accordingly, our
operating results have varied and may vary significantly as a result of the general conditions in the semiconductor industry, which could cause our stock price to decline.

The demand for semiconductors is affected by general economic conditions, which could impact our business.

The United States and international economies have recently experienced a period of slow economic growth. A sustained economic recovery is uncertain. In addition,
terrorist acts and similar events, turmoil in the Middle East or war in general, could contribute to a slowdown of the market demand for our products. If the economic recovery slows down as a result
of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for our products, which may
harm our operating results. Our business has been adversely affected by previous economic downturns. For example, during the global economic downturn in 2002 to 2003, demand for many semiconductor and
consumer electronics products suffered as consumers delayed purchasing decisions or changed or reduced their discretionary spending. As a result, demand for our products suffered and we had to
implement restructuring initiatives to align our corporate spending with a slower than anticipated revenue growth during that timeframe.

25

---



Risks Related to Our Common Stock

Our stock price has been volatile and you may not be able to resell shares of our common stock at or above the price you paid, or at all.

The trading price of our common stock has experienced wide fluctuations due to the factors discussed in this risk factors section and elsewhere in this Annual
Report on Form 10-K. For example, in the quarter ended December 31, 2007 the closing price of our stock ranged from $10.50 to $13.09. In addition, the stock market in general
has, and The NASDAQ Global Market and technology companies in particular have, experienced extreme price and volume fluctuations. These trading prices and valuations may not be sustainable. These
broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the
overall market and the market price of a company's securities, securities class action litigation has often been instituted against companies that experienced such volatility. This litigation, if
instituted against us, regardless of its outcome, could result in substantial costs and a diversion of our management's attention and resources.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or
more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us,
we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our ability to raise capital in the future may be limited and our failure to raise capital when needed could prevent us from executing our growth
strategy.

We believe that our existing cash and cash equivalents and our investments will be sufficient to meet our anticipated cash needs for at least the next
12 months. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:



If
our capital resources are insufficient to satisfy our liquidity requirements or if we are unable to liquidate our investment, especially auction rate securities, as necessary due to
uncertainty in the credit markets, we may seek to sell additional equity securities or debt securities or obtain debt financing. The sale of additional equity securities or convertible debt securities
would result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations. We have not made
arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

Additional sales of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to
decline. At December 31, 2007, we had 20,889,349 shares of common stock outstanding. A substantial portion of these shares of common

26

---



stock
are entitled to rights to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares, other than
shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration.

Some
of our officers and directors have entered into 10b5-1 trading plans, which generally provide for pre-determined sales of stock by these officers. The sales
of stock
by our officers and directors, even if made pursuant to these 10b5-1 trading plans, may cause our stock price to fall.

Our corporate actions are substantially controlled by officers, directors, principal stockholders and affiliated entities.

Our directors, executive officers and their affiliated entities beneficially own a significant percentage of our outstanding common stock. These stockholders, if
they acted together, could exert substantial control over matters requiring approval by our stockholders, including electing directors and approving mergers or other business combination transactions.
This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as
part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders.

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that
stockholders may consider favorable.

Provisions in our certificate of incorporation, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our
management. These provisions include the following:



In
addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or
restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or

27

---



combining
with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might
be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.

We have incurred and will continue to incur increased costs as a result of being a public company.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and NASDAQ, have required changes in corporate governance practices of public companies. We expect
these new rules and regulations to increase our legal and financial compliance costs and to make some activities more
time-consuming and costly. For example, as a result of becoming a public company, we have added an independent director, created additional board committees and adopted policies regarding
internal controls and disclosure controls and procedures. In addition, we have incurred and will continue to incur additional costs associated with our public company reporting requirements. We
continue to evaluate and monitor developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

ITEM 1B.    Unresolved Staff Comments

Not applicable.

ITEM 2.    Properties

Our corporate headquarters and primary research and development and operations facilities occupy approximately 27,900 square feet in San Jose, California under
leases that expire in December 2011. We also lease properties in Japan, Taiwan, South Korea and China. We do not own any manufacturing facilities, and we contract and license to third parties the
production and distribution of our semiconductors. We believe our space is adequate for our current needs and that suitable additional or substitute space will be available to accommodate foreseeable
expansion of our operations.

For
additional information regarding obligations under operating leases, see our Consolidated Financial Statements and related notes included elsewhere in this report.

ITEM 3.    Legal Proceedings

We are currently not a party to any material legal proceedings. We may from time to time become involved in litigation relating to claims arising from our
ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

ITEM 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of 2007.

28

---





PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

The information required by this item regarding equity compensation plans is set forth under the caption Equity Compensation Plan Information in our 2008 Proxy
Statement and is incorporated herein by reference.

Our
common stock began trading on the NASDAQ Global Market on June 21, 2006 under the symbol "TWLL". The following table sets forth for the periods indicated the
high and low closing sale prices of our common stock, as reported by the NASDAQ Global Market.

Low

HighYear ending December 31, 2006:Second Quarter

$
8.75

$
10.65Third Quarter

$
9.70

$
16.74Fourth Quarter

$
14.07

$
18.96Year ending December 31, 2007:First Quarter

$
11.69

$
18.11Second Quarter

$
12.30

$
15.25Third Quarter

$
8.98

$
14.34Fourth Quarter

$
10.50

$
13.09


Holders of Record

At December 31, 2007, there were approximately 69 stockholders of record.

Dividend Policy

To date, we have not declared or paid cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends
in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding the securities authorized for issuance under our equity compensation plans can be found under Item 12 of Part III of this
Report.

Sales of Unregistered Securities and Purchases of Equity Securities

During the fiscal year ended December 31, 2007, we did not sell any equity securities that were not registered under the Securities Act nor did we
repurchase any of our equity securities. During the fiscal year ended December 31, 2006, we had sales of unregistered equity securities. These transactions are disclosed in our quarterly
reports on Form 10-Q as filed with the SEC.

Stock Performance Graph

This performance graph shall not be deemed "filed" for purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
incorporated by reference into any filing of Techwell under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

The
following graph shows a comparison from June 21, 2006 (the date our common stock commenced trading on the NASDAQ Global Market) through December 31, 2007 of the
cumulative

29

---



total
return for our common stock, the NASDAQ Composite Index, and the Nasdaq Semiconductor Index. Such returns are based on historical results and are not intended to suggest future performance. Data
for the NASDAQ Composite Index and the Nasdaq Semiconductor Index assume reinvestment of dividends. We have never paid dividends on our common stock and have no present plans to do so.

COMPARISON OF 18 MONTH CUMULATIVE TOTAL RETURN*

Among Techwell, Inc, The NASDAQ Composite Index
And The Nasdaq Semiconductor Index

GRAPHIC

---

ITEM 6.    Selected Financial Data

The following selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 and our consolidated financial statements and related notes included elsewhere in this report. The selected consolidated balance sheet data at December 31,
2007 and 2006 and the selected consolidated statements of operations data for each year ended December 31, 2007, 2006 and 2005 have been derived from our audited consolidated financial
statements that are included elsewhere in this report. The selected consolidated balance sheet data at December 31, 2004 and 2003 and the selected consolidated statements of operations data for
each year ended December 31, 2005, 2004 and 2003

30

---



have
been derived from our audited consolidated financial statements not included in this report. Historical results are not necessarily indicative of the results to be expected in the future.

|                                                                      |                                        | Year Ended December 31, |       
|--------------------------------------------------------------------- | -------------------------------------- | ----------------------- | ------
|
|
|Consolidated Statements of Operations:                                |                                        |                         |       
|Revenues                                                              |                                        | $                       | 59,887
|Cost of revenues(1)                                                   |                                        |                         | 24,200
|                                                                      |                                        |                         |       
|Gross profit                                                          |                                        |                         | 35,687
|                                                                      |                                        |                         |       
|Operating expenses:                                                   |                                        |                         |       
|                                                                      | Research and development(1)            |                         |       
|                                                                      | Selling, general and administrative(1) |                         |       
|                                                                      | Restructuring costs                    |                         |       
|                                                                      |                                        |                         |       
|Total operating expenses                                              |                                        |                         | 24,564
|                                                                      |                                        |                         |       
|Income (loss) from operations                                         |                                        |                         | 11,123
|Interest income                                                       |                                        |                         | 3,089 
|                                                                      |                                        |                         |       
|Income (loss) before income taxes                                     |                                        |                         | 14,212
|Income taxes provision (benefit)                                      |                                        |                         | (518  
|                                                                      |                                        |                         |       
|Net income (loss)                                                     |                                        | $                       | 14,730
|                                                                      |                                        |                         |       
|Basic net income (loss) per share                                     |                                        | $                       | 0.71  
|Weighted shares used in computing basic net income (loss) per share   |                                        |                         | 20,772
|Diluted net income (loss) per share                                   |                                        | $                       | 0.68  
|Weighted shares used in computing diluted net income (loss) per share |                                        |                         | 21,818

---

|                    |                                     | Year Ended December 31,
|------------------- | ----------------------------------- | -----------------------
|
|
|Costs and expenses: |                                     |                        
|                    | Cost of revenues                    |                        
|                    | Research and development            |                        
|                    | Selling, general and administrative |                        

|
|

|                                       |  | December 31, |       
|-------------------------------------- |  | ------------ | ------
|
|
|Consolidated Balance Sheet Data:       |  |              |       
|Cash and cash equivalents              |  | $            | 27,177
|Short and long-term investments        |  |              | 41,223
|Working capital                        |  |              | 65,374
|Total assets                           |  |              | 83,737
|Redeemable convertible preferred stock |  |              |      
|Total stockholders' equity (deficit)   |  | $            | 78,065

31

---



ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the
related notes included elsewhere this Annual Report on Form 10-K.

Overview

We are a fabless semiconductor company that designs, markets and sells mixed signal integrated circuits for multiple video applications in the security
surveillance, automotive, consumer and PC markets. We target video applications based on digital technologies that receive and process analog video signals. These video applications include security
surveillance systems, in-car LCD displays, advanced TVs, multifunction LCD monitors, camcorders, DVD recorders and TV tuner cards. These applications receive analog video signals commonly
generated by surveillance cameras, by consumer electronics devices such as set-top boxes, DVD players, VCRs and camcorders, and to a lesser extent by over-the-air
TV broadcasts. We design application specific products that enable the conversion of analog video sources to digital form and perform advanced digital video processing to facilitate the display,
storage and transport of video content. We believe this product strategy allows us to better address varying customer requirements, fully leverage our technology capabilities and achieve greater share
within our target markets. Our semiconductors are based on our proprietary architecture and mixed signal technologies that we believe provide high video quality under a wide range of signal
conditions, enable high levels of integration and are cost effective.

We
commenced operations in 1997. From 1997 to 1999, we were primarily involved in developing our technology. We shipped our first generation video decoder in 1999. Since 1999, our
business has
experienced significant growth primarily as a result of our ability to develop new products, obtain design wins and convert these design wins into revenues. We generated revenues from the sale of over
25 different products in the year ending December 31, 2007.

We
have three principal semiconductor product lines: security surveillance products, liquid crystal display, or LCD, products, and video decoder products. Our security surveillance
products integrate important functions required to display, store and transport analog video signals from security surveillance cameras. For example, we integrate multiple video decoders into a single
semiconductor. As a result, this semiconductor is able to receive and decode analog video signal from multiple cameras into a standard digital format. In addition, we integrate a multiplexer, a key
technology required to combine multiple video signals into a single video signal. In 2007, we introduced our most integrated security surveillance product, which includes four video decoders and a
system controller and a multiplexer on a single semiconductor. We also have developed a motion JPEG, or MJPEG, encoder/decoder, or CODEC, that facilitates the storage and playback of video from a hard
disk drive and transport of video over the Internet. We currently sell our security surveillance products to customers for the following applications: embedded digital video recorders, or DVRs,
PC-based DVRs, network video recorders, or NVRs and multiplexers.

Our
LCD display products integrate important functions required to display analog TV broadcast, popular analog video, high definition video and PC graphics signals on an LCD display. We
have targeted our initial products for applications in the in the automotive markets. Our first products in this market provided customers with an integrated video decoder and LCD display processor
for LCD display panels in vehicles that provided rear seat entertainment. In the first quarter of 2008, we introduced five new LCD display processors that can be used in navigation systems for front
seat consoles in the automotive market. These new products are designed to provide advanced image processing, an integrated programmable timing controller and multiple analog and digital video inputs.

Our
video decoder products are high-performance mixed signal semiconductors that decode analog TV broadcast signals, including National Television Systems Committee, or NTSC,
phase alternation

32

---



line,
or PAL, and sequential color with memory, or SECAM, and popular analog video signals, including composite, S-Video, component and Syndicate of Radio and Television Manufacturers, or
SCART, into a standard digital format. We intend to develop our video decoder products for targeted applications within the consumer and PC markets.

Our
other products include early generation mixed signal semiconductors for digital video applications and PCI video decoder products, which are video decoders that utilize peripheral
component interconnect, or PCI, technology for personal computer applications.

Although
our revenues have grown rapidly in a short period of time, we do not expect to achieve similar growth rates in the future. We currently expect to increase our expense levels in
each of the next several quarters to support increased research and development and sales and marketing efforts. These expenditures may not result in increased revenue or profitability in the future.
In addition, our ability to increase our revenues will depend on increased demand for digital video applications in the consumer, security surveillance and automotive markets. The growth of our target
markets is uncertain. In addition, the timing of orders by and shipments to our customers, as well as general trends in our target markets, can cause our revenue growth to be inconsistent.

We
undertake significant product development efforts well in advance of a product's release, and in advance of receiving purchase orders from our customers. Our product development
efforts, which are focused on developing new designs with broad demand and potential for future derivative products, typically take from six months to two years until production begins, depending on
the product's complexity. If we secure a design win, the system designer is likely to continue to use the same or enhanced versions of our product across a number of their models, which tends to
extend the life cycles of our product. Conversely, if a competitor secures the design win, it may be difficult for us to sell into the customer's application for an extended period. Our sales cycle
typically ranges from six to 24 months. Due to the length of our product development and sales cycle, the majority of our revenues for any period is generally weighted toward products
introduced for sale, meaning products for which we commenced placing orders with our manufacturing subcontractors, in the prior one or two years. As a result, our present revenues are not necessarily
representative of future sales because our future sales are likely to be comprised of a different mix of products, some of which are now in the development stage.

As
a fabless semiconductor company, we outsource all of our manufacturing, assembly and test functions to third-party vendors primarily located in Taiwan. This business model enables us
to reduce our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strength, the design of mixed signal semiconductors for digital video applications.

We
sell our products to distributors that fulfill third-party orders for our products. We also sell directly, using independent sales representatives, to OEMs and to original
design manufacturers, or ODMs. In 2007, we derived approximately 77% of our revenues from products sold to distributors and 23% from products sold to OEMs or ODMs. In 2006, we
derived approximately 79% of our revenues from products sold to distributors and 21% from products sold to OEMs or ODMs. In 2005, we derived 65% of our revenues from products sold to
distributors and 35% from products sold to OEMs or ODMs. Our gross margins have not historically been significantly different between sales to distributors and sales to OEMs or
ODMs through orders procured by independent sales representatives. However, our operating profit on sales through orders procured by independent sales representatives can be less due to the
payment of commissions to sales representatives which we record as sales and marketing expense.

We
received an aggregate of 78%, 76% and 67% of our revenues from our ten largest customers in 2007, 2006 and 2005, respectively. In 2007, one of our customers, a distributor, accounted
for 22% of our revenues. In 2006, three of our customers, all of which are distributors, accounted for 15%, 12%

33

---



and
10% of our revenues, respectively. In 2005, two of our customers, both of which are distributors, each accounted for 10% of our revenues.

We
derive substantially all of our revenues from sales to foreign customers, particularly in Asia, which sales accounted for approximately 98% of our revenues in both 2007 and 2006 and
approximately 99% of our revenues in 2005. The table below indicates the percentage of total revenue by geographic location for the periods indicated:

Year Ended December 31,2007

2006

2005Taiwan

40
%
43
%
38
%South Korea

29

31

41China

26

21

16Japan

3

3

4Other

2

2

1


We
believe that a substantial majority of our revenues will continue to come from customers located in Asia, where most of the consumer electronic devices that use our semiconductors,
are manufactured. As a result of this regional customer concentration, we may be subject to economic, cultural and political events and other developments that impact our customers in Asia. All of our
sales currently are denominated in U.S. dollars. Therefore, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international
markets. Substantially all of our cost of revenues and a majority of our operating expenses are also denominated in U.S. dollars. As a consequence, we believe that our overall exposure to foreign
exchange risk is low.

We
have two international subsidiaries, one in Japan and one in China. We also have two international branches, one in South Korea and one in Taiwan. At December 31, 2007, 57 of
our 142 employees were located in our international subsidiaries and branch offices. Our Japan subsidiary is involved in both product development and technical marketing support. Our China subsidiary
and our Taiwan and Korea branches primarily provide marketing support.

It
is difficult for us to forecast the demand for our products, in part because of the highly complex supply chain between us and the end markets that incorporate our products. Demand
for new features changes rapidly. Distributors and ODMs add an additional layer of complexity. We must, therefore, forecast demand not only from our direct customers, but also from other
participants in this multi-level distribution channel. Because of our lengthy product development cycle, it is critical for us to anticipate changes in demand for our various product features and the
applications they serve, to allow sufficient time for product design. Our failure to accurately forecast demand can lead to product shortages that can impede production by our customers and harm our
relationship with these customers. Conversely, our failure to forecast declining demand or shifts in product mix can result in excess or obsolete inventory.

Generally,
the average selling price of our products will decline over the life of the product. Our experience to date is that the decline has not had a material effect on our gross
margins, as price reductions have been mitigated by lower per unit costs associated with both high unit volume and the transition of our products to smaller process geometries. We expect revenues from
these products to be lower in the first calendar quarter of the year. In addition, a significant number of our semiconductors are sold to customers located in Asia, primarily to customers located in
regions who observe the Lunar New Year holiday. Typically, our customers are closed for a week or more during the extended holiday period, which negatively impacts our business. As a result of
seasonality associated with the consumer market and our customer concentration in Asia, we expect our revenues to lower in the first calendar quarter of each year.

34

---



Our
revenues increased by 11% for the year ended December 31, 2007 compared to the year ended December 31, 2006. Our income before income taxes decreased to
$14.2 million for the year ended
December 31, 2007 from $14.5 million for the year ended December 31, 2006, primarily due to increased compensation related expenses, tape-out expenses, and expenses
associated with the expansion of our foreign offices. We may not be able to maintain our recent growth and profitability and our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of operating results should not be relied upon as predictive of future performance.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those
related to inventory valuations, income taxes, warranty obligations and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of assets and liabilities that are not readily apparent from other
sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.

We
believe the following critical accounting policies affect our more significant judgments used in the preparation of our condensed consolidated financial statements.

Revenue Recognition.Revenues from product sales are recognized upon shipment, provided title and risk of loss has passed to
the customer, when persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is probable. We do not allow for price protection or stock rotation rights with
any of our distributors. If we change our practice and allow stock rotation or price protection in the future, we would have to evaluate the consequences on the timing of our revenue recognition,
which could lead to the deferral of the revenues subject to such uncertainties unless reasonable estimates can be made at the time of shipment.

Warranty.We offer an 18 month product replacement warranty against any defective product. We accrue for estimated
returns of defective products at the time revenue is recognized, based on the rate of return from our historical experience. As a consequence of standardized manufacturing processes and product
testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been significant in the fiscal periods
presented. If our future experience with warranty costs differs significantly from our historical experience, we would need to exercise increased judgment in determining the appropriate warranty
accrual.

Inventory Valuation.Inventory is valued at the lower of cost or market, computed on a first-in,
first-out basis. We evaluate inventory for excess and obsolescence and write-off units that are unlikely to be sold based upon a six months' demand forecast. This evaluation
may take into account matters including expected demand, anticipated sales price, product obsolescence and other factors. If actual future demand for our products is less than currently forecasted,
additional inventory adjustments may be required. Once a reserve is established, it is maintained until the product to which it relates is sold or scrapped. If a unit that has been written down or off
is subsequently sold, the cost associated with the revenue from this unit is reduced to the extent of the write-off, resulting in an increase in gross profit.

35

---



Accounting for Income Taxes.We account for income taxes under the provisions of Statement of Financial Standards
No. 109, or SFAS No. 109,Accounting for Income Taxes. In applying SFAS No. 109, we are required to estimate our current tax
expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We
must assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance.
Significant management judgment is required to assess the likelihood that our deferred tax assets will be recovered from future taxable income. At December 31, 2007, our total deferred tax
assets were principally comprised of net operating loss carryforwards, research tax credit carryforwards, stock-based compensation expenses, and expense accruals.

As
required under the provisions of SFAS No. 109, we assessed the recoverability of our deferred tax assets. To assess the likelihood that our deferred tax assets will be
recovered from taxable income, we applied the guidance provided in SFAS No. 109 and considered both positive evidence that indicates a valuation allowance is not needed and negative evidence
that indicates a valuation allowance is needed. At September 30, 2007, we considered our recent history of consecutive profitable quarters and anticipated profit in future periods, and we
released the valuation allowance recorded against our deferred tax assets of approximately $5.5 million as we believe that it is more likely than not the deferred tax assets will be realized in
the future.

We
file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. We have not been under the examination of U.S. federal, state or other foreign
jurisdictions.

On
January 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, or FIN No. 48,Accounting for
Uncertainty in Income Taxes. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with
SFAS No. 109.As a result of the implementation of FIN No. 48, we recognized no material adjustment to the January 1, 2007 balance
of retained earnings. We recognize interest related to unrecognized tax benefits in our income tax expense and penalties related to unrecognized tax benefits in our operating expenses. During the year
ended December 31, 2007, we recognized approximately $6,000 in interest and no penalties related to unrecognized tax benefits.

Stock-Based Compensation.Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004), or SFAS
No. 123(R),Share-Based Payment, which requires that we measure compensation expense for all share-based payment awards made to employees and
directors, including employee stock options, based on estimated fair values and recognize that expense over the required service period. Prior to our adoption
of SFAS No. 123(R), we accounted for stock-based compensation awards issued to our employees using the intrinsic value measurement provisions of Accounting Principles Board Opinion
No. 25, or APB Opinion No. 25,Accounting for Stock Issued to Employees. Under APB Opinion No. 25, compensation cost was recognized
based on the difference, if any, on the date of grant between the fair value of our stock and the amount an employee must pay to acquire the stock.

We
adopted SFAS No. 123(R) using the prospective transition method. Under this method, SFAS No. 123(R) is applied to new awards and to awards modified, repurchased or
cancelled after January 1, 2006. Compensation cost previously recorded under APB Opinion No. 25 for unvested options will continue to be recognized as the required services are rendered.
Accordingly, for the years ended December 31, 2007 and 2006, stock based compensation expense includes compensation costs related to estimated fair values of awards granted after the date of
adoption of SFAS No. 123(R) and compensation costs related to unvested awards at the date of adoption based on the intrinsic values as previously recorded under APB Opinion No. 25.

For
options granted after January 1, 2006, and valued in accordance with SFAS No. 123(R), we use the straight-line method for expense attribution. For options
granted prior to January 1, 2006, we use the multiple grant approach for expense attribution, which results in substantially higher amounts of

36

---



amortization
in earlier years as opposed to the straight-line method, which results in equal amortization over the vesting period of the options.

The
fair value of options granted after January 1, 2006 is estimated on the grant date using the Black-Scholes option valuation model. Since our stock has been actively traded for
only a short period of time, we use the simplified calculation of expected term described in Staff Accounting Bulletin No. 107 and volatility is based on an average of the historical
volatilities of the common stock of several entities with characteristics similar to us. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for
periods corresponding with the expected term of the option. The estimated forfeiture rate is based on our historical forfeiture experience and is estimated at 10% for all periods presented.

The
following assumptions are used to value stock options granted after adoption of SFAS No. 123(R):

Year Ended December 31,2007

2006Expected term in years

6.08

6.08Risk-free interest rate

4.554.78
%
4.555.0
%Expected volatility

65.170.6
%
72.674.1
%Dividend yield

0
%
0
%


Compensation
expense for restricted stock awards is determined using the fair value of Techwell's stock on the date of the grant and is recognized on a straight-line basis
over the service period.

Stock-based
compensation expense is allocated among cost of revenues, research and development expenses and selling, general and administrative expenses, respectively, based upon the
employee's job function. We expect to continue to recognize substantial amounts of stock-based compensation expense relating to our employee stock options in future periods primarily as a result of
our adoption of SFAS No. 123(R).

37

---



Results of Operations

The following table is derived from our selected consolidated financial data and sets forth our historical operating results as a percentage of revenues for the
periods indicated:

|                                           |                                        | Year Ended December 31,  |     
|------------------------------------------ | -------------------------------------- | ------------------------ | ----
|
|Consolidated Statement of Operations Data: |                                        |                          |     
|Revenues                                   |                                        | 100.0                    | %   
|Cost of revenues(1)                        |                                        | 40.4                     |     
|                                           |                                        |                          |     
|                                           | Gross profit                           |                          | 59.6
|                                           |                                        |                          |     
|Operating expenses:                        |                                        |                          |     
|                                           | Research and development(1)            |                          | 20.5
|                                           | Selling, general and administrative(1) |                          | 20.5
|                                           |                                        |                          |     
|                                           |                                        | Total operating expenses |     
|                                           |                                        |                          |     
|Income from operations                     |                                        | 18.6                     |     
|Interest and other income                  |                                        | 5.2                      |     
|                                           |                                        |                          |     
|                                           | Income before income taxes             |                          | 23.8
|Income taxes provision (benefit)           |                                        | (0.9                     | )   
|                                           |                                        |                          |     
|Net income                                 |                                        | 24.7                     | %   
|                                           |                                        |                          |     

---

|                    |                                     | Year Ended December 31, |    
|------------------- | ----------------------------------- | ----------------------- | ---
|
|Costs and expenses: |                                     |                         |    
|                    | Cost of revenues                    |                         | 0.5
|                    | Research and development            |                         | 3.1
|                    | Selling, general and administrative |                         | 4.1

Revenues By Principal Product Lines

The following table illustrates our revenues by our principal product lines (dollar amounts in thousands)

|                         |  | Year Ended December 31, |       
|------------------------ |  | ----------------------- | ------
|
|
|Security Surveillance(1) |  | $                       | 40,571
|Video Decoder(2)         |  |                         | 12,344
|LCD Display(3)           |  |                         | 6,015 
|Other(4)                 |  |                         | 957   
|                         |  |                         |       
|Total Revenues           |  | $                       | 59,887
|                         |  |                         |       

---

38

---





Comparison of Years Ended December 31, 2007, 2006 and 2005

Revenues.Our revenues consist of sales of our mixed signal integrated circuits for digital video applications. We have three
principal product lines: security surveillance, LCD display and video decoders. All of our sales are denominated in U.S. dollars.

Revenues
were $59.9 million in 2007 and $53.7 million in 2006, an increase of 11%. Revenues from our security surveillance products were $40.6 million an increase of
approximately $12.9 million, or 47%, in 2007 compared to 2006, primarily a result of the increase in sales of our four-in-one video decoders and our more highly
integrated security surveillance products. Revenues from our video decoder products were $12.3 million, a decrease of approximately $5.8 million, or 32%, in 2007 compared to 2006,
primarily as a result of a general decrease in demand from the markets for products utilizing video decoders such as multi-function monitors and DVD recorders. Revenues from our LCD display products
were $6.0 million, a decrease of approximately $0.9 million, or 13%, in 2007 compared to 2006, primarily as a result of a decline in production in the automotive market of vehicles
installed with in-car LCD displays that utilize our product. Other revenues increased slightly in 2007 as compared to 2006, primarily as a result of increased sales of our PCI video
decoder products.

Revenues
were $53.7 million in 2006 and $36.1 million in 2005, an increase of 49% primarily from the increased revenues from our security surveillance products that
increased approximately $13.9 million, or 101%, in 2006 compared to 2005. The increased revenues in security surveillance were primarily a result of the increase in sales of our
four-in-one video decoders and our recently introduced more highly integrated security surveillance products. Revenues from our video decoder products increased approximately
$2.0 million, or 13%, in 2006 compared to 2005, primarily as a result of a general increase in demand from the markets for products such as multi-function monitors and DVD recorders, offset by
a shift in sales from general-purpose video decoders to application specific products specifically designed for the security surveillance market. Revenues from our LCD display products increased
approximately $1.9 million, or 38%, in 2006 compared to 2005, primarily as a result of a continuing ramp of customer projects begun from earlier design wins in the automotive market. Other
revenues decreased $0.2 million, or 16%, in 2006 as compared to 2005, primarily as a result of decreased sales of our PCI video decoder products.

Gross Profit and Gross Margin.Gross profit is the difference between revenues and cost of revenues, and gross margin
represents gross profit as a percentage of revenues. Cost of revenues, also known as cost of goods sold, consists primarily of cost of processed silicon wafers, costs associated with assembly, test
and shipping of our production semiconductors, cost of personnel and related expenses associated with supporting our outsourced manufacturing activities and write-downs for excess and obsolete
inventory.

Gross
profit was $35.7 million in 2007, $30.7 million in 2006, and $18.7 million in 2005. The year-over-year increase in gross profit was
attributable to a higher volume of product sales for each successive year.

Gross
margin was 60% for 2007, 57% for 2006 and 52% for 2005. The increase in gross margin in 2007 from 2006 was favorably impacted by cost savings from reduced materials costs partially
attributable to increased volume purchases and the increasing transition of our products to lower process geometries that has occurred throughout 2007. The increase in gross margin in 2006 from 2005

39

---



was
primarily a result of reduced materials costs and production costs in 2006 as compared to 2005 partially attributable to increased volume purchases.

We
incurred stock-based compensation included in cost of revenues associated with outsourced manufacturing support and quality assurance personnel of $0.3 million in 2007,
$0.1 million in 2006 and less than $0.1 million in 2005.

Research and Development.Research and development expenses consist primarily of compensation and associated costs of
employees engaged in research and development, contractor costs, tape out costs, development testing and evaluation costs, occupancy costs and depreciation expense. Before releasing new products, we
incur charges for mask sets, prototype wafers and mask set revisions, which we refer to as tape-out costs. Tape-out costs cause our research and development expenses to
fluctuate because they are not incurred uniformly every quarter. We expect our research and development costs to increase in absolute dollars in the future as we increase our investment in developing
new products.

Research
and development expenses were $12.3 million, or 21% of revenues, in 2007, $9.2 million, or 17% of revenues, in 2006, $8.7 million, or 24% of revenues, in
2005. The increase in research and development expense in 2007 from 2006 was primarily attributable to increased compensation expense of $1.5 million reflecting both increases in stock-based
compensation and in headcount to support the development of new technologies. The increase in 2007 was also attributable to an increase of approximately $1.1 million of tape-out
expenses. Tape-out expenses are not incurred uniformly each quarter and that have increased with our migration to smaller geometry process technologies. The increase in research and
development expense in 2006 from 2005 was primarily attributable to increased compensation expense of $1.2 million to support the development of new technologies. The increase in compensation
related expenses was partially offset by a decrease of $0.9 million in tape-out expenses for new products in 2006.

We
incurred stock-based compensation expense associated with research and development personnel of $1.8 million in 2007, $1.1 million in 2006 and $0.4 million in
2005. The increase in stock-based compensation expenses was a result of the increase in personnel in research and development from 2005 to 2007. In 2006, stock-based compensation expense included
$0.6 million for stock options and awards granted to certain consultants as compensation for product development services.

Selling, General and Administrative.Selling, general and administrative expenses consist primarily of compensation and
associated costs for marketing, selling and administrative personnel, sales
commissions to independent sales representatives, contractor compensation, public relations, promotional and other marketing expenses, insurance and fees paid for professional services, travel,
depreciation expenses and occupancy costs. Costs associated with audit and tax services, corporate governance and compliance and financial reporting are also selling, general and administrative
expenses. We expect selling, general and administrative expenses to continue to increase in the future in support of our anticipated growth and to cover additional costs associated with operating as a
public company, such as improvements to our information technology infrastructure and increased costs associated with our efforts to comply with the Sarbanes-Oxley Act of 2002.

Selling,
general and administrative expenses were $12.3 million, or 21% of revenues, in 2007, $8.7 million, or 16% of revenues, in 2006, $5.7 million, or 16% of
revenues, in 2005. The increase in selling, general and administrative expense in 2007 from 2006 was primarily attributable to increases of $1.8 million in compensation related expenses
primarily associated with stock-based compensation, $1.1 million of expenses associated with the expansion of our foreign offices, $0.3 million in insurance and administrative fees
reflecting costs associated with being a public company, $0.2 million for trade shows and other marketing activities, $0.1 million in professional services expenses primarily for audit,
tax and legal services, and $0.1 million for depreciation expenses and occupancy costs. We expect selling, general and administrative expenses to continue to increase in the future in support
of our anticipated growth as we hire additional personnel and expand our sales and marketing efforts.

40

---



Administrative
expenses will also increase to cover additional costs associated with our information technology infrastructure and our efforts to comply with the Sarbanes-Oxley Act of 2002. The
$3.0 million increase in 2006 from 2005 was primarily attributable to an increase of $1.1 million in compensation related expenses associated with the growth in our business,
$1.0 million in professional services expenses primarily for audit, tax and legal services and $0.4 million in insurance and administrative fees reflecting costs associated with being a
public company, and $0.3 million of expenses associated with the expansion of our foreign offices and our subsidiary in China. These increases in expenses were offset in part by a decrease of
$0.2 million in 2006 in commission expense paid to our outside sales representatives reflecting a larger proportion of sales to distributors in 2006.

We
incurred stock-based compensation expense associated with selling, general and administrative personnel of $2.4 million in 2007, $1.0 million in 2006 and
$0.4 million in 2005. The increase in stock-based compensation expenses was a result of the increase in personnel in sales from 2005 to 2007.

Interest Income.Interest income was $3.1 million in 2007, $1.7 million in 2006 and $0.4 million in
2005. The increase in 2007 from 2006 was attributable to higher cash, cash equivalent and short and long-term investment balances primarily as a result of our income from operations and
higher interest rates earned on our cash, cash equivalent and investment balances in 2007 as compared to 2006. The increase in 2006 from 2005 was attributable to higher cash, cash equivalent and short
and long-term investment balances primarily as a result of our initial public offering and higher interest rates in 2006 as compared to 2005.

Income Taxes.A benefit from income taxes of $0.5 million was recorded in 2007. A provision for income taxes of
$1.3 million and $0.2 million were recorded in 2006 and 2005, respectively. In 2007, the effective tax rate differed from the statutory federal income tax rate primarily because we
recognized a tax benefit from the release of our valuation allowance on our deferred tax assets of approximately $5.5 million. The effective tax rate for 2006 and 2005 differed from the
statutory federal income tax rate primarily because we utilized prior net operating losses and available tax credits in years which we had a valuation allowance against our deferred tax assets. We
expect our effective tax rate to increase significantly beginning in the first quarter of 2008. However, our future effective income tax rate will be subject to many variables, including the absolute
amount and future geographic distribution of our pre-tax income and our ability to take advantage of tax planning strategies that may be available to us.

Liquidity and Capital Resources

Since our inception, we have financed our growth primarily with proceeds from the issuance of preferred stock and common stock. In June 2006, we received
approximately $17.5 million in cash, net of underwriting discounts, commissions and other offering costs, from our initial public offering of common stock. In July 2006, we received aggregate
proceeds of $1.1 million, net of underwriting discounts and commissions, from the sale of an additional 130,000 shares following the underwriters' partial exercise of their
over-allotment option related to our initial public offering. Our cash and cash equivalents and short-term investments were $60.6 million as of December 31, 2007,
$49.6 million as of December 31, 2006 and $16.8 million as of December 31, 2005.

Net
cash provided by operating activities was $14.4 million in 2007. The cash provided by our operating activities in the 2007 was primarily due to our net income of
$14.7 million and a decrease of accounts receivable of $0.7 million attributable to the timing of customer collections, as well as non-cash charges to stock-based
compensation expenses of $4.5 million and depreciation expense of $0.5 million in 2007. We also recognized a tax benefit of $0.8 million attributable to our equity incentive
plans. These were partially offset by decreases in accrued liabilities of $0.8 million and accounts payable of $0.6 million primarily related to compensation costs and payments we have
received from our customers in advance of product shipment, an increase in inventory of $0.2 million in

41

---



response
to increasing customer demand, and a $5.4 million increase in deferred income taxes, which was non-cash as a result of the release of a valuation allowance.

Net
cash provided by operating activities was $18.3 million in 2006. The cash provided by our operating activities in the 2006 was primarily due to our net income of
$13.2 million, an increase in accounts payable of $2.1 million associated with increasing customer demand as a result of new product introductions and increased sales of existing
products, an increase in accrued liabilities of $1.7 million primarily related to compensation costs and payments we have received from our customers in advance of product shipment and a
decrease of accounts receivable of $0.3 million attributable to the timing of customer collections. These were partially offset by an increase in inventory of $1.5 million in response
to increasing customer demand and an increase in prepaid expenses and other current assets of $1.0 million reflecting interest earned on our investments but not received, advance payments for
insurance expense and excess tax benefits from stock-based compensation. We incurred non-cash expenses of $2.3 million for stock-based compensation expense and $0.3 million
in depreciation expense in 2006. We also recognized a tax benefit of $0.9 million attributable to our equity incentive plans.

Net
cash provided by operating activities was $3.6 million in 2005. The cash provided by our operating activities in 2005 was primarily due to our net income of
$4.5 million and an increase in accrued liabilities of $1.0 million and accounts payable of $0.4 million and prepaid expenses and other current assets of $0.8 million,
which was substantially offset by increases in accounts receivable of $2.5 million and inventory of $1.7 million. The increases in inventory, accounts receivable and accounts payable
were associated with the increase in revenues during the period as a result of new product introductions and increased sales of existing products. The increase in accrued liabilities was due to
compensation costs associated with our increased headcount and inventory purchases and taxes payable associated with achieving profitability. We incurred non-cash expenses of
$0.9 million for stock-based compensation expense and $0.2 million in depreciation expenses in 2005.

Net
cash used in our investing activities was $1.1 million in 2007 reflecting purchases of short and long-term investments of $93.7 million and purchases of
capital equipment of $1.3 million offset by maturities of short-investments of $93.8 million.

Net
cash used in our investing activities was $41.0 million in 2006 reflecting purchases of short and long-term investments of $102.5 million and purchases of
capital equipment of $0.5 million offset by maturities of short-investments of $61.9 million.

Net
cash provided by our investing activities was $7.4 million in 2005 due to the maturities of short-term investments of $7.6 million and a $0.1 million
decrease in restricted cash, partially offset by the purchase of capital equipment of $0.3 million.

Net
cash provided by financing activities was $0.7 million in 2007 reflecting proceeds from the exercise of stock options.

Net
cash provided by financing activities was $20.0 million in 2006 reflecting proceeds from our initial stock offering, net of underwriting discounts, commissions and offering
costs of $19.4 million and proceeds from the exercise of stock options of $0.6 million.

Net
cash provided by our financing activities was $2.9 million in 2005. Net cash provided by our financing activities in 2005 consisted of proceeds of $2.9 million from the
issuance of Series F preferred
stock, $0.4 million from the exercise of common stock options, $0.4 million from collections of stockholders' notes receivable, partially offset by payment of deferred offering costs of
$0.8 million.

42

---





At February 29, 2008, we held approximately $7.1 million of investments, classified as current assets, with an auction reset feature, which are referred to as "auction rate
securities", whose underlying assets are generally student loans which are substantially backed by the federal government. Our holdings of auction rate securities decreased from $11.6 million
at December 31, 2007 due to successful sales of several auction rate securities at the carrying value in February 2008. In February 2008, auctions failed for our auction rate securities, and
there is no assurance that currently successful auctions on the other auction rate securities in our investment portfolio will continue to succeed. As a result, our ability to liquidate our investment
and fully recover the carrying value of our investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not. All of our auction
rate securities, including those subject to the failure, were rated AAA at the time of purchase, the highest rating, by a rating agency. If the issuers of these securities are unable to successfully
close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. We believe that the underlying credit quality of the
assets backing our auction rate securities have not been impacted by the reduced liquidity of these investments. We are continuing to evaluate the credit quality, classification and valuation of our
auction rate securities; however, we are not yet able to quantify the amount of impairment, if any, or change in classification in these investments at this time. Based on our expected operating cash
flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments will affect our ability to execute our current business plan. We believe our existing
cash balances, as well as cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our
long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development
efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, the continuing market
acceptance of our products and our ability to liquidate our auction rate securities in a timely manner. We could be required, or could elect, to seek additional funding through public or private
equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off-Balance Sheet Arrangements

As of December 31, 2007, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange
Commission's Regulation S-K.

Contractual Obligations

The following table describes our commitments to settle contractual obligations as of December 31, 2007:

|                     |       | Payments Due by Period
|-------------------- | ----- | ----------------------
|
|
|Operating leases     |       | $                     
|Purchase obligations |       |                       
|                     |       |                       
|                     | Total |                       
|                     |       |                       

Recent Accounting Pronouncements

In June 2006, the FASB issued FIN No. 48,Accounting for Income Tax Uncertainties. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109,Accounting for Income
Taxes.FIN No. 48 defines

43

---



the
threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. It
also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN No. 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. We adopted the provisions of FIN
No. 48 on January 1, 2007. As a result of the implementation of FIN No. 48, we recognized no material adjustment to our results of operations and financial position.

In
May 2007, the FASB issued FASB Staff Position (FSP) FIN No. 48-1,Definition of Settlement in FASB Interpretation
No. 48, which is effective retroactively to January 1, 2007. FSP FIN No. 48-1 provides guidance on how to determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax benefits. The adoption of FSP FIN No. 48-1 did not have any effect on the Company's consolidated
financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. However, on February 12,
2008, the FASB issued SFAS No. 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157-2 partially defers the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FASB Staff Position. Effective for 2008, we will adopt SFAS
No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in SFAS No. 157-2. The partial adoption of SFAS No. 157 will not have a
material impact on our consolidated financial positions, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an Amendment of
FASB Statement No. 115, to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value, to report
unrealized gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. An entity is prohibited from retrospectively applying
SFAS No. 159, unless it chooses early adoption. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. We are currently
evaluating the potential impact of SFAS No. 159 on our consolidated financial position, results of operations or cash flows.

In
June 2007, the EITF reached a consensus on Issue No. 07-3,Accounting for Nonrefundable Advance Payments for Goods or Services Received to
Be Used in Future Research and Development Activities. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development
activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no
longer expected to be provided. This Issue is effective for fiscal years beginning after December 15, 2007, and earlier application is not permitted. We are currently evaluating the potential
impact of this pronouncement on our consolidated financial position, results of operations or cash flows.

44

---



ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk

The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some
of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk,
we maintain our portfolio of cash equivalents, short and long-term investments in demand accounts, money market funds, commercial paper, corporate bonds, U.S. government agency securities
and auction rate securities which are investment grade securities with a maximum dollar weighted maturity of two years or less. The risk associated with fluctuating interest rates is limited to our
investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our interest income.

At
February 29, 2008, we held approximately $7.1 million of investments, classified as current assets, with an auction reset feature, which are referred to as "auction rate
securities", whose underlying assets are generally student loans which are substantially backed by the federal government. Our holdings of auction rate securities decreased from $11.6 million
at December 31, 2007 due to successful sales of several auction rate securities at the carrying value in February 2008. In February 2008 auctions failed for our auction rate securities and
there is no assurance that currently successful auctions on the other auction rate securities in our investment portfolio will continue to succeed and as a result our ability to liquidate our
investment and fully recover the carrying value of our investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not. All of
our auction rate securities, including those subject to the failure, were rated AAA at the time of purchase, the highest rating, by a rating agency. If the issuers are unable to successfully close
future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment
charge on these investments. We believe that the underlying credit quality of the assets backing our auction rate securities have not been impacted by the reduced liquidity of these investments. We
are continuing to evaluate the credit quality, classification and valuation of our auction rate securities; however, we are not yet able to quantify the amount of impairment, if any, or change in
classification in these investments at this time. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments
will affect our ability to execute our current business plan.

To
date, our international customer agreements have been denominated solely in U.S. dollars, and accordingly, we have not been exposed to foreign currency exchange rate fluctuations from
customer agreements, and do not currently engage in foreign currency hedging transactions. However, the functional currency of our operations in Taiwan, South Korea and China is the U.S. dollar and
our local accounts are maintained in the local currency in Taiwan, South Korea and China, respectively, and thus we are subject to foreign currency exchange rate fluctuations associated with
remeasurement to U.S. dollars. Such fluctuations have not been significant historically and we believe that a 10% change in exchange rates would not have a significant impact on our operating
expenses.

45

---



ITEM 8.    Financial Statements and Supplementary Data

Index
to Consolidated Financial Statements



|                                                                                                                  |  | Page
|----------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                                           |  | 48  
|Consolidated Balance Sheets                                                                                       |  | 49  
|Consolidated Statements of Operations                                                                             |  | 50  
|Consolidated Statements of Stockholders' Equity (Deficit) and redeemable preferred stock and Comprehensive Income |  | 51  
|Consolidated Statements of Cash Flows                                                                             |  | 52  
|Notes to Consolidated Financial Statements                                                                        |  | 53  

46

---



The
following table sets forth selected unaudited quarterly information for our last eight fiscal quarters, which has been prepared on the same basis as the audited financial statements.
We believe that all necessary adjustments consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the results of such periods when read in
conjunction with our audited consolidated financial statements and related notes included elsewhere herein. Operating results for any quarter are not necessarily indicative of results for any future
period.

|                                                      |                                        | Quarters Ended           |       
|----------------------------------------------------- | -------------------------------------- | ------------------------ | ------
|
|
|REVENUES                                              |                                        | $                        | 9,801 
|COST OF REVENUES(1)                                   |                                        |                          | 4,497 
|                                                      |                                        |                          |       
|GROSS PROFIT                                          |                                        |                          | 5,304 
|                                                      |                                        |                          |       
|OPERATING EXPENSES:                                   |                                        |                          |       
|                                                      | Research and development(1)            |                          |       
|                                                      | Selling, general and administrative(1) |                          |       
|                                                      |                                        |                          |       
|                                                      |                                        | Total operating expenses |       
|                                                      |                                        |                          |       
|INCOME FROM OPERATIONS                                |                                        |                          | 996   
|INTEREST INCOME                                       |                                        |                          | 155   
|                                                      |                                        |                          |       
|INCOME BEFORE INCOME TAXES PROVISION                  |                                        |                          | 1,151 
|INCOME TAX PROVISION (BENEFIT)                        |                                        |                          | 166   
|                                                      |                                        |                          |       
|NET INCOME                                            |                                        | $                        | 985   
|                                                      |                                        |                          |       
|Basic net income per share                            |                                        | $                        | 0.22  
|Shares used in computing basic net income per share   |                                        |                          | 4,470 
|Diluted net income per share                          |                                        | $                        | 0.05  
|Shares used in computing diluted net income per share |                                        |                          | 18,905

---

|                    |                                     | Quarters Ended
|------------------- | ----------------------------------- | --------------
|
|
|Costs and expenses: |                                     |               
|                    | Cost of revenues                    |               
|                    | Research and development            |               
|                    | Selling, general and administrative |               

47

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of

Techwell, Inc.

San
Jose, California:

We
have audited the accompanying consolidated balance sheets of Techwell, Inc. and subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders' equity (deficit) and redeemable convertible preferred stock and comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our
audits.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Techwell, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of
America.

As
discussed in Note 1 to the consolidated financial statements, on January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. Also, as
discussed in Note 1, on January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2007, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 12, 2008 expressed an unqualified opinion on the Company's internal control over financial
reporting.

/s/
DELOITTE & TOUCHE LLP

San
Jose, California

March 12,
2008

48

---





TECHWELL, INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except share amounts)

|                                       |                                                                                                                                                                    | December 31,               |       
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------
|
|ASSETS                                 |                                                                                                                                                                    |                            |       
|Current assets:                        |                                                                                                                                                                    |                            |       
|                                       | Cash and cash equivalents                                                                                                                                          |                            | $     
|                                       | Short-term investments                                                                                                                                             |                            |       
|                                       | Accounts receivable                                                                                                                                                |                            |       
|                                       | Inventory                                                                                                                                                          |                            |       
|                                       | Deferred income tax assets                                                                                                                                         |                            |       
|                                       | Prepaid expenses and other current assets                                                                                                                          |                            |       
|                                       |                                                                                                                                                                    |                            |       
|                                       |                                                                                                                                                                    | Total current assets       |       
|Property and equipment, net            |                                                                                                                                                                    |                            | 1,471 
|Long-term investments                  |                                                                                                                                                                    |                            | 7,839 
|Deferred income tax assets             |                                                                                                                                                                    |                            | 3,419 
|Other assets                           |                                                                                                                                                                    |                            | 127   
|                                       |                                                                                                                                                                    |                            |       
|TOTAL                                  |                                                                                                                                                                    | $                          | 83,737
|                                       |                                                                                                                                                                    |                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                                                    |                            |       
|Current liabilities:                   |                                                                                                                                                                    |                            |       
|                                       | Accounts payable                                                                                                                                                   |                            | $     
|                                       | Accrued liabilities                                                                                                                                                |                            |       
|                                       |                                                                                                                                                                    |                            |       
|                                       |                                                                                                                                                                    | Total current liabilities  |       
|Deferred rent                          |                                                                                                                                                                    |                            | 165   
|                                       |                                                                                                                                                                    |                            |       
|                                       |                                                                                                                                                                    | Total liabilities          |       
|                                       |                                                                                                                                                                    |                            |       
|Commitments and contingencies (Note 8) |                                                                                                                                                                    |                            |       
|Stockholders' equity                   |                                                                                                                                                                    |                            |       
|                                       | Preferred stock, $0.001 par value; 10,000,000 shares authorized and no shares issued and outstanding                                                               |                            |       
|                                       | Common stock, $0.001 par value; 250,000,000 shares authorized; 20,889,349 and 20,528,468 shares issued and outstanding at December 31, 2007 and 2006, respectively |                            |       
|                                       | Additional paid-in capital                                                                                                                                         |                            |       
|                                       | Deferred stock-based compensation                                                                                                                                  |                            |       
|                                       | Accumulated other comprehensive income (loss)                                                                                                                      |                            |       
|                                       | Retained earnings (accumulated deficit)                                                                                                                            |                            |       
|                                       |                                                                                                                                                                    |                            |       
|                                       |                                                                                                                                                                    | Total stockholders' equity |       
|                                       |                                                                                                                                                                    |                            |       
|TOTAL                                  |                                                                                                                                                                    | $                          | 83,737
|                                       |                                                                                                                                                                    |                            |       

See
accompanying notes to consolidated financial statements.

49

---





TECHWELL, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share amounts)

|                                                                |                                     | Years Ended December 31,
|--------------------------------------------------------------- | ----------------------------------- | ------------------------
|
|Revenues                                                        |                                     | $                       
|Cost of revenues                                                |                                     |                         
|                                                                |                                     |                         
|Gross profit                                                    |                                     |                         
|                                                                |                                     |                         
|Operating expenses:                                             |                                     |                         
|                                                                | Research and development            |                         
|                                                                | Selling, general and administrative |                         
|                                                                |                                     |                         
|                                                                |                                     | Total operating expenses
|                                                                |                                     |                         
|Income from operations                                          |                                     |                         
|Interest income                                                 |                                     |                         
|                                                                |                                     |                         
|Income before income taxes                                      |                                     |                         
|Income tax provision (benefit)                                  |                                     |                         
|                                                                |                                     |                         
|Net income                                                      |                                     | $                       
|                                                                |                                     |                         
|Basic net income per share                                      |                                     | $                       
|Diluted net income per share                                    |                                     | $                       
|Weighted average shares used in computing net income per share: |                                     |                         
|                                                                | Basic                               |                         
|                                                                | Diluted                             |                         

See
accompanying notes to consolidated financial statements.

50

---





TECHWELL, INC.    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND    REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMPREHENSIVE INCOME    (In thousands, except per share
amounts)

|                                                                                                |  | Redeemable
Preferred Stock |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|----------------------------------------------------------------------------------------------- |  | -------------------------- | - | - | ------- | - | ---------- | - | - | -- |  | - | ------ | - | - | ---- | - | - | ------ | - | -
|
|
|
|BALANCESDecember 31, 2004                                                                      |  | 12,231,664                 |   | $ | 37,868  |   | 3,688,454  |   | $ | 4  |  | $ | 3,961  |   | $ | (438 | ) | $ | (1,198 | ) | $
|Net income                                                                                      |  |                           |   |   |        |   |           |   |   |    |  |   |       |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|Issuance of Series F redeemable preferred shares, net of issuance costs of $91                  |  | 545,454                    |   |   | 2,909   |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|Issuance of common stock upon exercise of stock options                                         |  |                           |   |   |        |   | 680,604    |   |   |   |  |   | 369    |   |   |     |   |   |       |   |  
|Payments received on stockholder notes receivable                                               |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   | 438  |   |   |       |   |  
|Deferred stock-based compensation                                                               |  |                           |   |   |        |   |           |   |   |   |  |   | 1,515  |   |   |     |   |   | (1,515 | ) |  
|Amortization of deferred stock-based compensation                                               |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   | 1,098  |   |  
|Forfeitures of deferred stock-based compensation                                                |  |                           |   |   |        |   |           |   |   |   |  |   | (490   | ) |   |     |   |   | 292    |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|BALANCESDecember 31, 2005                                                                      |  | 12,777,118                 |   |   | 40,777  |   | 4,369,058  |   |   | 4  |  |   | 5,355  |   |   |     |   |   | (1,323 | ) |  
|Net income                                                                                      |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|Unrealized losses on investments, net of tax                                                    |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|Comprehensive income                                                                            |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|Initial public offering of common stock, net of issuance costs of $5,442                        |  |                           |   |   |        |   | 2,670,225  |   |   | 3  |  |   | 18,587 |   |   |     |   |   |       |   |  
|Conversion of preferred stock to common stock                                                   |  | (12,777,118                | ) |   | (40,777 | ) | 12,777,118 |   |   | 13 |  |   | 40,764 |   |   |     |   |   |       |   |  
|Issuance of common stock upon exercise of stock options                                         |  |                           |   |   |        |   | 707,067    |   |   | 1  |  |   | 620    |   |   |     |   |   |       |   |  
|Equity-based compensation                                                                       |  |                           |   |   |        |   | 5,000      |   |   |   |  |   | 1,429  |   |   |     |   |   |       |   |  
|Amortization of deferred stock-based compensation                                               |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   | 1,029  |   |  
|Forfeitures of deferred stock-based compensation                                                |  |                           |   |   |        |   |           |   |   |   |  |   | (281   | ) |   |     |   |   | 92     |   |  
|Correction of deferred stock-based compensation                                                 |  |                           |   |   |        |   |           |   |   |   |  |   | 342    |   |   |     |   |   | (344   | ) |  
|Tax benefits from stock-based compensation                                                      |  |                           |   |   |        |   |           |   |   |   |  |   | 918    |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|BALANCESDecember 31, 2006                                                                      |  |                           |   |   |        |   | 20,528,468 |   |   | 21 |  |   | 67,734 |   |   |     |   |   | (546   | ) |  
|Net income                                                                                      |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|Unrealized gains on investments, net of tax                                                     |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|Comprehensive income                                                                            |  |                           |   |   |        |   |           |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|Issuance of common stock upon exercise of stock options and releases of restricted stock awards |  |                           |   |   |        |   | 368,690    |   |   |   |  |   | 711    |   |   |     |   |   |       |   |  
|Tax effect from issuance of restricted stock awards                                             |  |                           |   |   |        |   | (4,684     | ) |   |   |  |   | (53    | ) |   |     |   |   |        |   |  
|Amortization of deferred stock-based compensation                                               |  |                           |   |   |        |   |           |   |   |   |  |   |        |   |   |     |   |   | 360    |   |  
|Forfeitures of deferred stock-based compensation                                                |  |                           |   |   |        |   |           |   |   |   |  |   | (84    | ) |   |     |   |   | 26     |   |  
|Cancellation of shares issued to consultant under stock award                                   |  |                           |   |   |        |   | (3,750     | ) |   |   |  |   |       |   |   |     |   |   |       |   |  
|Shares issued to consultant under stock award                                                   |  |                           |   |   |        |   | 625        |   |   |   |  |   |       |   |   |     |   |   |       |   |  
|Stock-based compensation                                                                        |  |                           |   |   |        |   |           |   |   |   |  |   | 4,246  |   |   |     |   |   |       |   |  
|Tax benefits from stock-based compensation                                                      |  |                           |   |   |        |   |           |   |   |   |  |   | 900    |   |   |     |   |   |       |   |  
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  
|BALANCEDecember 31, 2007                                                                       |  |                           |   | $ |        |   | 20,889,349 |   | $ | 21 |  | $ | 73,454 |   | $ |     |   | $ | (160   | ) | $
|                                                                                                |  |                            |   |   |         |   |            |   |   |    |  |   |        |   |   |      |   |   |        |   |  

See accompanying notes to consolidated financial statements.

51

---





TECHWELL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                                       |                                                                                   | Years Ended December 31,                          |                                          
|---------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities                                   |                                                                                   |                                                   |                                          
|                                                                       | Net income                                                                        |                                                   | $                                        
|                                                                       | Adjustments to reconcile net income to net cash provided by operating activities: |                                                   |                                          
|                                                                       |                                                                                   | Depreciation and amortization                     |                                          
|                                                                       |                                                                                   | Stock-based compensation                          |                                          
|                                                                       |                                                                                   | Tax benefit from employee equity incentive plan   |                                          
|                                                                       |                                                                                   | Excess tax benefits from stock-based compensation |                                          
|                                                                       |                                                                                   | Deferred income taxes                             |                                          
|                                                                       |                                                                                   | Changes in assets and liabilities:                |                                          
|                                                                       |                                                                                   |                                                   | Accounts receivable                      
|                                                                       |                                                                                   |                                                   | Inventory                                
|                                                                       |                                                                                   |                                                   | Prepaid expenses and other current assets
|                                                                       |                                                                                   |                                                   | Other assets                             
|                                                                       |                                                                                   |                                                   | Accounts payable                         
|                                                                       |                                                                                   |                                                   | Accrued liabilities                      
|                                                                       |                                                                                   |                                                   | Restructuring accrual                    
|                                                                       |                                                                                   |                                                   | Deferred rent                            
|                                                                       |                                                                                   |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|Cash flows from investing activities                                   |                                                                                   |                                                   |                                          
|                                                                       | Purchase of property and equipment                                                |                                                   |                                          
|                                                                       | Change in restricted cash                                                         |                                                   |                                          
|                                                                       | Purchase of investments                                                           |                                                   |                                          
|                                                                       | Proceeds from maturities of short-term investments                                |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|Cash flows from financing activities                                   |                                                                                   |                                                   |                                          
|                                                                       | Proceeds from initial public offering of common stock, net of offering costs      |                                                   |                                          
|                                                                       | Proceeds from issuance of Series F redeemable preferred shares                    |                                                   |                                          
|                                                                       | Proceeds from exercise of stock options                                           |                                                   |                                          
|                                                                       | Excess tax benefits from stock-based compensation                                 |                                                   |                                          
|                                                                       | Collections on notes receivable from stockholders                                 |                                                   |                                          
|                                                                       | Payment of deferred offering costs                                                |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|                                                                       |                                                                                   |                                                   |                                          
|Net increase (decrease) in cash and cash equivalents                   |                                                                                   |                                                   | 13,976                                   
|Cash and cash equivalents, beginning of the year                       |                                                                                   |                                                   | 13,201                                   
|                                                                       |                                                                                   |                                                   |                                          
|Cash and cash equivalents, end of the year                             |                                                                                   | $                                                 | 27,177                                   
|                                                                       |                                                                                   |                                                   |                                          
|Supplemental cash flow information: income taxes paid                  |                                                                                   | $                                                 | 3,578                                    
|Supplemental disclosure of non-cash investing and financing activities |                                                                                   |                                                   |                                          
|                                                                       | Conversion of redeemable convertible preferred stock to common stock              |                                                   | $                                        
|                                                                       | Deferred stock-based compensation related to stock option grants                  |                                                   | $                                        
|                                                                       | Reversals of deferred stock-based compensation for cancellation of stock options  |                                                   | $                                        
|                                                                       | Accrued offering costs                                                            |                                                   | $                                        
|                                                                       | Accrued equipment costs                                                           |                                                   | $                                        

See accompanying notes to consolidated financial statements.

52

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization.Techwell, Inc. ("Techwell" or the "Company") was incorporated in California on March 7, 1997 and
reincorporated in Delaware on March 30, 2006. Techwell is a fabless semiconductor company that designs, markets and sells mixed signal integrated circuits for multiple video applications in the
consumer, security surveillance and automotive markets.

The
Company's international offices include subsidiaries in China and Japan and branch offices in South Korea and Taiwan. Our Japan subsidiary is involved in both product development and
technical marketing support. Our China subsidiary and our Taiwan and Korea branches primarily provide marketing support.

Principles of Consolidation.The consolidated financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

Use of Estimates.The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents.The Company considers all highly liquid investments purchased with a remaining maturity of three
months or less to be cash equivalents.

Investments.The Company accounts for its investments in debt and equity securities under the provisions of SFAS
No. 115,Accounting for Certain Investments in Debt and Equity Securitiesand SFAS No. 115-1,The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Company calculates the fair value of its investments using
quoted market prices. Investments purchased with a remaining maturity of greater than three months are considered available-for-sale and are carried at fair market value based
on market quotes. Unrealized gains and losses, net of tax, are reported as a separate component of stockholders' equity and included in "Accumulated other comprehensive loss". Realized gains and
losses are recorded based on the specific identification method and are not significant in any period presented.

Concentration of Credit Risk.Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of cash and cash equivalents, investments and trade receivables. Risks associated with cash and cash equivalents are mitigated by banking with creditworthy institutions and the
Company's investments have investment grade ratings. Additionally, the Company limits the amount invested by maturity, type of security and issuer. The Company's accounts receivable are substantially
derived from customers located in Asia. The Company generally requires letters of credit or advance payments from customers. The Company also performs credit evaluations of its customers and provides
credit to certain customers in the normal course of business. The Company has not incurred bad debt write-offs during any of the periods presented.

53

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
accounts receivable and revenues from customers representing 10% or more of total revenues and accounts receivables are as follows:

|  |  | Accounts Receivable |   | Revenues |  
|- |  | ------------------- | - | -------- | -
|
|
|
|
|A |  | 14                  | % | 16       | %
|B |  | 28                  |   | 14       |  
|C |  | 19                  |   | *        |  
|D |  | *                   |   | *        |  
|E |  | *                   |   | 27       |  
|F |  | *                   |   | *        |  

---

Concentration of Supplier Risk.The Company is a fabless producer of semiconductors and is dependent on two subcontractors
for substantially all of its production requirements. The failure of either subcontractor to fulfill the production requirements of the Company on a timely basis would adversely impact future results.
Although there are other subcontractors that are capable of providing similar services, an unexpected change in either subcontractor would cause delays in the Company's products and potential
significant loss of revenue.

Inventory.Inventory is valued at the lower of cost or market, computed on a first-in, first-out
basis. Inventory consists of work in process (principally processed wafers and products at third party assembly and test subcontractors) and finished goods. The Company's products are subject to rapid
technological obsolescence and severe price competition. Should the Company experience a substantial unanticipated decline in the selling price of, or demand for, its products, a significant charge to
operations could result. The Company evaluates inventory for excess and obsolescence and writes off units which are not expected to be sold based upon demand forecasts. If actual future demand for the
Company's products is less than amounts forecasted, additional inventory adjustments may be required. Once a reserve is established, it is maintained until the product to which it relates is sold or
scrapped. In the years ended December 31, 2007, 2006 and 2005, the Company recorded inventory write-downs of $0.8 million, $0.7 million and $0.5 million, respectively, due
to excess and obsolete inventory and lower-of-cost or market markdown.

Property and Equipment.Property and equipment, including leasehold improvements, are recorded at historical cost, less
accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally ranging from three to five years, or in the case
of leasehold improvements, over the shorter of the lease period or the estimated useful life.

Long-Lived Assets.Long-lived assets include equipment and furniture and fixtures. The Company
evaluates long-lived assets for impairment in accordance with Statement of Financial Accounting Standards No. 144, or SFAS No. 144,Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When
the undiscounted future net cash flows expected to result from the use of the asset

54

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and
its eventual disposition is less than its carrying amount, the Company would measure an impairment loss in an amount equal to the excess of the carrying amount over the fair value.

Other Assets.Other assets consist primarily of long-term lease deposits.

Revenue Recognition.Revenues from product sales are recognized upon shipment, provided title and risk of loss has passed to
the customer, when persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is probable. The Company does not allow for price protection or stock rotation
rights with any of its customers.

Customers
have no rights of return except pursuant to the Company's product warranty. The Company has no other post-shipment obligations and sales are not subject to customer
acceptance provisions.

Product Warranty.The Company offers an 18-month product replacement warranty. The Company accrues for estimated
returns of defective products based on historical activity at the time revenue is recognized. The determination of these accruals requires the Company to make estimates of the frequency and extent of
warranty activity and estimated future costs to replace the products under warranty. If the actual warranty activity and/or repair and replacement costs differ significantly from these estimates,
adjustments to recognize additional cost of sales may be required in future periods. However, returns of defective products have been infrequent and the quantities have not been significant.
Accordingly, historical warranty costs have not been material for the periods presented. A summary of the accrued warranty, which is included in accrued liabilities, is as follows (in thousands):

Years Ended December 31,2007

2006Balance at beginning of the period

$
47

$
50Accruals for sales in the period


25


24Costs incurred


(22
)

(27
)Balance at end of the period

$
50

$
47


Research and Development.Research and development costs are expensed as incurred.

Advertising Costs.Advertising costs are expensed as incurred and are not significant in any of the periods presented.

Income Taxes.The Company accounts for income taxes under the provisions of SFAS No. 109, Accounting for
Income Taxes. In applying SFAS 109, the Company is required to estimate its current tax expense together with assessing temporary
differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Significant management judgment is required
to assess the likelihood that its deferred tax assets will be recovered from future taxable income. As of December 31, 2007, the Company's total deferred tax assets were principally comprised
of net operating loss carryforwards, research tax credit carryforwards, stock-based compensation expenses, and expense accruals.

55

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

As
required under the provisions of SFAS No. 109, the Company assessed the recoverability of its deferred tax assets. To assess the likelihood that the deferred tax assets will be
recovered from taxable income, the Company applied the guidance provided in SFAS No. 109 and considered both positive evidence that indicates a valuation allowance is not needed and negative
evidence that indicates a valuation allowance is needed.

The
Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, or FIN No. 48,Accounting for Uncertainty in
Income Taxes, on January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in
accordance with SFAS No. 109.As a result of the implementation of FIN No. 48, the Company recognized no material adjustment to the
January 1, 2007 balance of retained earnings.

Stock-Based Compensation.Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), or SFAS
No. 123(R),Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards made
to employees and directors, including employee stock options, based on estimated fair values recognized over the requisite service period. Prior to our adoption of SFAS No. 123(R), the Company
accounted for stock-based compensation awards issued to its employees using the intrinsic value measurement provisions of Accounting Principles Board Opinion No. 25, or APB Opinion
No. 25,Accounting for Stock Issued to Employees, and complied with the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation cost was recognized based on the difference, if any, on the date
of grant between the fair value of our stock and the amount an employee must pay to acquire the stock. In March 2005, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin
No. 107, or SAB No. 107, relates to SFAS No. 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R). The Company accounts
for stock-based awards to non-employees in accordance with Emerging Issues Task Force, or EITF, Issue No. 96-18,Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Servicesand SFAS No. 123(R).

The
Company adopted SFAS No. 123(R) using the prospective transition method. Under this method, SFAS No. 123(R) is applied to new awards and to awards modified, repurchased
or cancelled after the adoption date of January 1, 2006. Compensation cost previously recorded under APB Opinion No. 25 for awards outstanding at the adoption date, such as unvested
options, will continue to be recognized as the options vest. Accordingly, for the years ended December 31, 2007 and 2006, stock based compensation expense includes compensation cost related to
estimated fair values of awards granted after the date of adoption of SFAS No. 123(R) and compensation costs related to unvested awards at the date of adoption based on the intrinsic values as
previously recorded under APB Opinion No. 25.

For
options granted after January 1, 2006, and valued in accordance with SFAS No. 123(R), we use the straight-line method for expense attribution. For options
granted prior to January 1, 2006, we use the multiple grant approach for expense attribution, which results in substantially higher amounts of amortization in earlier years as opposed to the
straight-line method, which results in equal amortization over the vesting period of the options.

The
fair value of options granted after January 1, 2006 is estimated on the grant date using the Black-Scholes option valuation model. Since our stock has been actively traded for
only a short period

56

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

of
time, we use the simplified calculation of expected term described in Staff Accounting Bulletin No. 107 and volatility is based on an average of the historical volatilities of the common
stock of several entities with characteristics similar to us. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the
expected term of the option. The estimated forfeiture rate is based on our historical forfeiture experience and is estimated at 10% for all periods presented.

The
following assumptions are used to value stock options granted in the years presented:

Year Ended December 312007

2006Expected term in years

6.08

6.08Risk-free interest rate

4.554.78
%
4.555.0
%Expected volatility

65.170.6
%
72.674.1
%Dividend yield

0
%
0
%


Compensation
expense for restricted stock awards is determined using the fair value of Company's stock on the date of the grant and is recognized on a straight-line basis
over the service period.

Stock-based
compensation expense is allocated among cost of revenues, research and development expenses and selling, general and administrative expenses, respectively, based upon the
employee's job
function. We expect to continue to recognize substantial amounts of stock-based compensation expense relating to our employee stock options and restricted stock awards in future periods primarily as a
result of our adoption of SFAS No. 123(R).

SFAS
No. 123(R) requires the cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense
recorded for those options (excess tax benefits) to be classified as cash from financing activities. The Company recorded excess tax benefits of $23,000 and $15,000 in the year ended
December 31, 2007 and 2006, respectively.

Net Income (Loss) Per Share.The Company calculates net income per share in accordance with SFAS No. 128, Earnings Per Share. Under SFAS No. 128, basic net income per common share is calculated by dividing net income by the weighted-average number of
common shares outstanding during the reporting period excluding shares subject to repurchase. Diluted net income per common share reflects the effects of potentially dilutive securities, which consist
of convertible preferred stock,

57

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

common
stock options, and common stock subject to repurchase. A reconciliation of shares used in the calculation of basic and diluted net income per share is as follows (in thousands):

Years Ended December 31,2007

2006

2005Weighted average common shares outstanding

20,814

12,845

4,041Weighted average shares subject to repurchase

(42
)
(73
)
(48
)Shares used to calculate basic net income per share

20,772

12,772

3,993Effect of dilutive securities:Convertible preferred stock



6,143

12,674Common stock options and unvested common shares subject to repurchase or cancellation

1,046

1,623

1,767Dilutive potential common stock

1,046

7,766

14,441Shares used to calculate diluted net income per share

21,818

20,538

18,434


For
the year ended December 31, 2005, the weighted shares used to calculate diluted net income per share include the effect of the convertible preferred stock. The completion of
the Company's IPO in June 2006 resulted in the conversion to common stock of all outstanding shares of convertible preferred stock. As a consequence, the shares used to calculate basic net income per
share have increased by the weighted average impact of the 12,777,118 shares of common stock issued on conversion of the convertible preferred stock and the 2,540,225 shares of common stock issued in
the IPO and 130,000 shares of common stock issued in July 2006 following the underwriters' partial exercise of their over-allotment option related to the IPO. No additional potentially
dilutive securities were outstanding at December 31, 2007 and 2006.

Other Comprehensive Income (Loss).The Company accounts for other comprehensive income (loss) under the provisions SFAS
No. 130,Reporting Comprehensive Income (Loss),which establishes standards for reporting and displaying comprehensive income (loss) and its
components in the financial statements. Comprehensive income (loss), as defined, includes all changes in equity during a period from non-owner sources. At December 31, 2007 and
2006, accumulated other comprehensive income (loss) consists of net unrealized gains and losses on available-for-sale investments. There were no unrealized gains or losses on
investments in the year ended December 31, 2005.

Recent Accounting Pronouncements.

In June 2006, the FASB issued FIN No. 48,Accounting for Income Tax Uncertainties. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109,Accounting for Income
Taxes.FIN No. 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority. It also provides guidance on the recognition, measurement and classification of income tax
uncertainties, along with any related interest and penalties. FIN No. 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of
disclosures associated with any recorded income tax

58

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

uncertainties.
We adopted the provisions of FIN No. 48 on January 1, 2007. As a result of the implementation of FIN No. 48, we recognized no material adjustment to our results of
operations and financial position.

In
May 2007, the FASB issued FASB Staff Position (FSP) FIN No. 48-1,Definition of Settlement in FASB Interpretation
No. 48, which is effective retroactively to January 1, 2007. FSP FIN No. 48-1 provides guidance on how to determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax benefits. The adoption of FSP FIN No. 48-1 did not have any effect on the Company's consolidated
financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. However, on February 12,
2008, the FASB issued SFAS No. 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157-2 partially defers the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FASB Staff Position. Effective for 2008, we will adopt SFAS
No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in SFAS No. 157-2. The partial adoption of SFAS No. 157 will not have a
material impact on our consolidated financial positions, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an Amendment of
FASB Statement No. 115, to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair
value, to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to
those items in earnings as incurred and not deferred. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 is effective as
of the beginning of the first fiscal year that begins after November 15, 2007. We are currently evaluating the potential impact of SFAS No. 159 on our consolidated financial position,
results of operations or cash flows.

In
June 2007, the EITF reached a consensus on Issue No. 07-3,Accounting for Nonrefundable Advance Payments for Goods or Services Received to
Be Used in Future Research and Development Activities. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development
activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services
are no longer expected to be provided. This Issue is effective for fiscal years beginning after December 15, 2007, and earlier application is not permitted. We are currently evaluating the
potential impact of this pronouncement on our consolidated financial position, results of operations or cash flows.

59

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. INVESTMENTS

The following is a summary of the Company's cash equivalents and investments at December 31, 2007 (in thousands):

|                                    |                        | Amortized Cost |        | Unrealized Gains |   | Unrealized Losses |  | Estimated Fair Value
|----------------------------------- | ---------------------- | -------------- | ------ | ---------------- | - | ----------------- |  | --------------------
|Commercial paper                    |                        | $              | 9,077  |                  | $ | 8                 |  | $                   
|Auction rate securities             |                        |                | 11,600 |                  |   |                  |  |                     
|Corporate bonds                     |                        |                | 17,002 |                  |   | 33                |  |                     
|U.S. Treasury and agency securities |                        |                | 3,500  |                  |   | 3                 |  |                     
|Money market funds                  |                        |                | 24,284 |                  |   |                  |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     
|Total                               |                        | $              | 65,463 |                  | $ | 44                |  | $                   
|                                    |                        |                |        |                  |   |                   |  |                     
|Amounts included in:                |                        |                |        |                  |   |                   |  |                     
|                                    | Cash equivalents       |                |        |                  |   |                   |  |                     
|                                    | Short-term investments |                |        |                  |   |                   |  |                     
|                                    | Long-term investments  |                |        |                  |   |                   |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     
|Total securities                    |                        |                |        |                  |   |                   |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     

The
following is a summary of Techwell's cash equivalents and investments at December 31, 2006 (in thousands):

|                                    |                        | Amortized Cost |        | Unrealized Gains |   | Unrealized Losses |  | Estimated Fair Value
|----------------------------------- | ---------------------- | -------------- | ------ | ---------------- | - | ----------------- |  | --------------------
|Commercial paper                    |                        | $              | 18,476 |                  | $ |                  |  | $                   
|Auction rate securities             |                        |                | 15,375 |                  |   |                  |  |                     
|Corporate bonds                     |                        |                | 2,962  |                  |   |                  |  |                     
|U.S. Treasury and agency securities |                        |                | 5,977  |                  |   |                  |  |                     
|Money market funds                  |                        |                | 5,923  |                  |   | 1                 |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     
|Total                               |                        | $              | 48,713 |                  | $ | 1                 |  | $                   
|                                    |                        |                |        |                  |   |                   |  |                     
|Amounts included in:                |                        |                |        |                  |   |                   |  |                     
|                                    | Cash equivalents       |                |        |                  |   |                   |  |                     
|                                    | Short-term investments |                |        |                  |   |                   |  |                     
|                                    | Long-term investments  |                |        |                  |   |                   |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     
|Total securities                    |                        |                |        |                  |   |                   |  |                     
|                                    |                        |                |        |                  |   |                   |  |                     

Each
of the securities in the above table have investment grade ratings and are in an unrealized loss position due primarily to interest rate changes. At maturity, the Company expects to
receive the full principal and interest on these securities. At December 31, 2007 and 2006, each of the securities has been in a loss position for less than 12 months. The effective
maturities of the Company's investments are $57.7 million within one year and $7.8 million in two years at December 31, 2007. The effective maturities of Company's investments are
$43.7 million within one year and $5.0 million in two years at December 31, 2006.

60

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. INVESTMENTS (Continued)

At
February 29, 2008, the Company held approximately $7.1 million of investments, classified as current assets, with an auction reset feature, which are referred to as
"auction rate securities", whose underlying assets are generally student loans which are substantially backed by the federal government. The Company's holdings of auction rate securities decreased
from $11.6 million at December 31, 2007 due to successful sales of several auction rate securities at the carrying value in February 2008. In
February 2008, auctions failed for the Company's auction rate securities and there is no assurance that currently successful auctions on the other auction rate securities in its investment portfolio
will continue to succeed and as a result the Company's ability to liquidate its investment and fully recover the carrying value of these investments in the near term may be limited or not exist. An
auction failure means that the parties wishing to sell securities could not. All of the Company's auction rate securities, including those subject to the failure, were rated AAA at the time of
purchase, the highest rating, by a rating agency. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, the Company may in the future be required to
record an impairment charge on these investments. The Company believes that the underlying credit quality of the assets backing our auction rate securities have not been impacted by the reduced
liquidity of these investments. The Company is continuing to evaluate the credit quality, classification and valuation of its auction rate securities; however, the Company is not yet able to quantify
the amount of impairment, if any, or change in classification in these investments at this time.

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS



December 31,2007

2006(in thousands)Finished goods

$
3,194

$
1,702Work in process


1,559


2,882$
4,753

$
4,584




December 31,2007

2006(in thousands)Equipment

$
1,727

$
1,029Software


546


215Furniture and fixtures


279


317Leasehold improvements


414


1462,966


1,707Less accumulated depreciation and amortization


(1,495
)

(1,082
)$
1,471

$
625


61

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (Continued)



December 31,2007

2006(in thousands)Accrued compensation

$
1,008

$
1,988Accrued inventory purchases


461


279Customer advances


280


325Income taxes payable


204


Accrued tape out expenses


158


6Legal and professional services fees


116


271Exercise of unvested stock options


62


110Other


245


365$
2,534

$
3,344


4. RESTRUCTURING COSTS

During the year ended December 31, 2004, the Company moved its corporate headquarters and business operations to another leased office facility in the
United States. The Company incurred restructuring costs for the remaining lease payments for its previous office facility lease. Restructuring costs are as follows (in thousands):

December 31, 2005Restructuring costs accrued at beginning of the year

$
103Restructuring costs expensed


Restructuring costs paid in the year


103Restructuring costs accrued at end of the year

$



5. STOCKHOLDERS' EQUITY

Initial Public Offering of Common Stock.In June 2006, the Company completed its IPO and issued 2,540,225 shares of its
common stock at a price of $9.00 per share. The Company received approximately $17.5 million in cash, net of underwriting discounts, commissions and other offering costs. In July 2006, the
Company received aggregate proceeds of $1.1 million, net of underwriting discounts and commissions, from the sale of an additional 130,000 shares following the underwriters' partial exercise of
their over-allotment option related to the Company's IPO.

Redeemable Convertible Preferred Stock.Simultaneously with the closing of the IPO in June 2006, each outstanding share of
redeemable convertible preferred stock was automatically converted into one

62

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. STOCKHOLDERS' EQUITY (Continued)

share
of common stock. At December 31, 2005, the redeemable convertible preferred stock was as follows (in thousands, except share and per share amounts):

|Series |  | Issuance Price per Share |      | Shares Authorized |            | Shares Outstanding |            | Liquidation Amount |   | Balance |  | Common Shares Reserved for Conversion
|------ |  | ------------------------ | ---- | ----------------- | ---------- | ------------------ | ---------- | ------------------ | - | ------- |  | -------------------------------------
|A      |  | $                        | 0.50 |                   | 3,004,219  |                    | 3,004,219  |                    | $ | 1,502   |  | $                                    
|B      |  | $                        | 1.50 |                   | 2,457,980  |                    | 2,457,980  |                    |   | 3,687   |  |                                      
|C      |  | $                        | 4.50 |                   | 1,279,465  |                    | 1,269,465  |                    |   | 5,713   |  |                                      
|D      |  | $                        | 5.00 |                   | 1,500,000  |                    | 1,500,000  |                    |   | 7,500   |  |                                      
|E      |  | $                        | 5.00 |                   | 2,400,000  |                    | 2,400,000  |                    |   | 12,000  |  |                                      
|E-1    |  | $                        | 5.00 |                   | 1,600,000  |                    | 1,600,000  |                    |   | 8,000   |  |                                      
|F      |  | $                        | 5.50 |                   | 545,454    |                    | 545,454    |                    |   | 3,000   |  |                                      
|       |  |                          |      |                   |            |                    |            |                    |   |         |  |                                      
|       |  |                          |      |                   | 12,787,118 |                    | 12,777,118 |                    | $ | 41,402  |  | $                                    
|       |  |                          |      |                   |            |                    |            |                    |   |         |  |                                      

6. STOCK INCENTIVE PLANS

In 1997 and 2001, the Company adopted stock option plans (the "Plans") and reserved a total of 6,500,000 shares of common stock for issuance under the Plans. In
November 2005, the Company adopted the 2006 Stock Incentive Plan (the "2006 Plan") and reserved an aggregate of 1,990,000 shares of common stock for issuance under the 2006 Plan. The 2006 Plan became
effective upon the completion of the Company's IPO at which time 898,726 shares of common stock originally authorized for issuance under the Plans were cancelled. The Plans and the 2006 Plan
(collectively the "Incentive Plans") provide for the grant of stock options, restricted stock, stock units and stock appreciation rights to employees, consultants and directors. The 2006 Plan contains
a provision that automatically increases the number of shares of common stock reserved for issuance on January 1 of each succeeding year. At December 31, 2007, the Company had reserved
4,512,890 shares of common stock for issuance under the Incentive Plans. On January 1, 2008, the shares reserved for issuance under the Company's Incentive Plans increased by 836,607 shares.

Under
the terms of the Incentive Plans, incentive options may be granted only to employees at a price not to be less than 100 percent of the fair market value of the Company's
common stock on the grant date. Nonstatutory options may be granted at a price that is not less than 85 percent of the fair market value on the date of grant. Options and restricted stock
granted under the Incentive Plans have a contractual term up to ten years, generally vest over four years at the rate of 25 percent on the one-year anniversary of the vesting
commencement date and ratably each month
thereafter and are exercisable under conditions determined by the Board as permissible under the terms of the Incentive Plans.

Certain
options granted under the Incentive Plans are fully exercisable on and after the date of grant, subject to the Company's right to repurchase from an optionee, at the optionee's
original per share exercise price, any unvested shares which the optionee has purchased and holds in the event of the termination of the optionee's employment, with or without cause. The Company's
right lapses as shares subject to the option become vested. At December 31, 2007, 25,834 shares were subject to repurchase pursuant to these provisions.

At
December 31, 2007, 1,245,657 shares were available for grant under the Incentive Plans.

63

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. STOCK INCENTIVE PLANS (Continued)

Stock
option activity is summarized as follows (change dates and amount):

Number Outstanding

Weighted-Average Exercise PriceOptions outstanding at January 1, 2005 (1,890,016 shares exercisable at a weighted-average price of $0.60)

2,615,062

$
0.69Options granted

763,062

$
2.39Options exercised

(680,604
)
$
0.54Options cancelled

(279,792
)
$
1.07Options outstanding at December 31, 2005 (1,244,418 shares exercisable at a weighted-average price of $0.66)

2,417,728

$
1.22Options granted

757,000

$
10.41Options exercised

(707,067
)
$
0.88Options cancelled

(245,232
)
$
3.54Options Outstanding at December 31, 2006 (959,283 shares exercisable at a weighted-average exercise price of $1.02)

2,222,429

$
4.20Options granted

625,000

$
13.96Options exercised

(352,797
)
$
2.02Options cancelled

(105,631
)
$
7.20Options outstanding at December 31, 2007 (1,135,573 shares exercisable at a weighted-average exercise price of $3.04)

2,389,001

$
6.94Options vested and expected to vest at December 31, 2007

2,230,831

$
6.73


The
aggregate intrinsic value of options outstanding, options vested and expected to vest and options exercisable at December 31, 2007, is $9.7 million,
$11.4 million and $9.1 million, respectively. The weighted average remaining contractual life of options outstanding, options vested and expected to vest and options exercisable at
December 31, 2007, is 7.01 years, 6.91 years and 5.30 years, respectively.

64

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. STOCK INCENTIVE PLANS (Continued)

The
stock options outstanding and exercisable by exercise price at December 31, 2007, are as follows:

|              |  | Options Outstanding |  | Options Outstanding and Exercisable
|------------- |  | ------------------- |  | -----------------------------------
|
|$0.45         |  | 512,666             |  | 2.72                               
|$0.90         |  | 273,843             |  | 6.32                               
|$1.50$3.00   |  | 265,282             |  | 7.55                               
|$4.00$10.00  |  | 294,356             |  | 8.15                               
|$11.00$11.00 |  | 336,063             |  | 8.25                               
|$12.38$13.84 |  | 76,791              |  | 9.06                               
|$13.94$13.94 |  | 525,000             |  | 9.14                               
|$14.00$15.11 |  | 90,000              |  | 9.17                               
|$16.27$16.27 |  | 5,000               |  | 9.01                               
|$17.24$17.24 |  | 10,000              |  | 8.92                               
|              |  |                     |  |                                    
|              |  | 2,389,001           |  | 7.01                               
|              |  |                     |  |                                    

Restricted
stock award activity is summarized as follows:

Number of Shares

Weighted-Average
Fair ValueRestricted stock awards outstanding at January 1, 2006



$
Restricted stock awards granted

92,500

$
14.83Restricted stock awards vested

(5,000
)
$
10.00Restricted stock awards cancelled

(25,000
)
$
15.11Restricted stock awards outstanding at January 1, 2007

62,500

$
15.11Restricted stock awards granted

913,500

$
13.92Restricted stock awards vested

(17,768
)
$
16.67Restricted stock awards cancelled

(80,000
)
$
15.13Restricted stock awards outstanding at December 31, 2007

878,232

$
13.84


7. STOCK-BASED COMPENSATION

As discussed in Note 1, the Company adopted SFAS 123(R) effective January 1, 2006 using the prospective transition method. Under
SFAS 123(R), the Company estimates the fair value of stock options granted after December 31, 2005 on the grant date using the Black-Scholes option valuation model and applies the
straight-line method of expense attribution.

The
total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $3.8 million, $7.7 million and $2.5 million
respectively.

65

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCK-BASED COMPENSATION (Continued)

Prior
to adoption of SFAS 123(R), the Company accounted for its stock-based awards to employees using the intrinsic value method in accordance with APB Opinion No. 25.
Accordingly, the Company recorded deferred stock compensation equal to the difference between the exercise price and deemed fair value of the Company's common stock on the date of grant.

Employee Options.In connection with certain employee stock option grants prior to adoption of SFAS 123(R) on
January 1, 2006, the Company recognized deferred stock-based compensation based on the excess of the deemed fair value of the underlying stock over the stock option exercise price at the date
of grant, which is being amortized over the vesting periods of the related options and stock, generally four years, using the multiple grant method described in Note 1. Future compensation
charges are subject to reduction for any employee who terminates employment prior to such employee's option vesting date.

During
the year ended December 31, 2005, the Company granted stock options with exercise prices as follows:

|Grants Made During Quarter Ended |  | Number of Options Granted |  | Weighted-Average Exercise Price |      | Weighted-Average Fair Value per Share |   | Weighted-Average Intrinsic Value per Share
|-------------------------------- |  | ------------------------- |  | ------------------------------- | ---- | ------------------------------------- | - | ------------------------------------------
|March 31, 2005                   |  | 30,000                    |  | $                               | 0.90 |                                       | $ | 2.80                                      
|June 30, 2005                    |  | 312,062                   |  | $                               | 1.50 |                                       | $ | 3.35                                      
|September 30, 2005               |  | 80,000                    |  | $                               | 1.50 |                                       | $ | 3.99                                      
|December 31, 2005                |  | 291,000                   |  | $                               | 3.75 |                                       | $ | 5.26                                      

The
weighted-average fair value per share of options granted during the year ended December 31, 2005, and accounted for using the intrinsic value measurement provisions of APB
Opinion No. 25, was $4.17. The intrinsic value per share is being recognized as compensation expense over the applicable vesting period (which equals the service period).

As
discussed in Note 1, the Company adopted SFAS 123(R) effective January 1, 2006 using the prospective transition method. The weighted-average
grant-date fair value of options granted in the years ended December 31, 2007 and 2006 and accounted in accordance with SFAS 123(R) is $9.28 and $7.08 per share. The fair
value per share is being recognized as compensation expense over the applicable vesting period (which equals the service period).

Consultant Options and Awards.In both of the years ended December 31, 2006 and 2005, the Company granted stock
options to purchase 50,000 of common stock to consultants in exchange for services at exercise prices ranging from nil to $6.00 per share. In year ended December 31, 2007 and 2006, the Company
granted restricted stock awards of 7,000 shares and 5,000 shares of common stock, respectively, to consultants in exchange for services.

66

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCK-BASED COMPENSATION (Continued)

The
Company determined the value of the options granted to consultants based on the Black-Scholes option pricing model. The following table sets forth assumptions that were used in
determining the fair value of options granted to consultants for the years ended December 31, 2006 and 2005:

Years Ended December 31,2006

2005Contractual life

10 years

10 yearsRisk-free interest rates

4.55
%
3.884.39
%Volatility

74.1
%
50.0
%Dividend yield

0
%
0
%


In
the year ended December 31, 2007, the Company recorded $64,000 of stock compensation expenses for consultants for restricted stock awards granted during the year. The Company
recorded $0.6 million of stock compensation expense for consultants for options and restricted stock awards granted in the year ended December 31, 2006 that were immediately vested at
grant. The Company recorded $92,000 from amortization of deferred stock compensation expense for consultants in the year ended December 31, 2005. At December 31, 2007 and 2006, there was
no unamortized deferred stock-based compensation related to stock options or awards granted to consultants.

Stock-Based Compensation Expense.The following table summarizes the distribution of stock-based compensation expense (in
thousands):

Years Ended December 31,2007

2006

2005Cost of revenues

$
297

$
117

$
31Research and development


1,830


1,100


427Selling, general and administrative


2,423


1,050


442Related tax effect


(1,391
)

(68
)

Total stock-based compensation expense

$
3,159

$
2,199

$
900


The
total compensation cost attributable to activities capitalized in inventory was not significant in any of the periods presented.

Future Amortization of Deferred Stock-based Compensation.Total compensation cost, excluding estimated future forfeitures, of
options granted but not yet vested as of December 31, 2007 was $7.2 million, which is expected to be recognized over the weighted-average period of 1.49 years. Total compensation
cost of restricted stock awards granted but not yet vested as of December 31, 2007 was $10.2 million, which is expected to be recognized over the weighted-average period of
1.82 years.

8. COMMITMENTS AND CONTINGENCIES

Leases.The Company leases its primary facility and other offices, under operating leases which expire at various dates
through 2011.

Rent
expense for the years ended December 31, 2007, 2006 and 2005 was $0.6 million, $0.5 million and $0.5 million respectively. The Company recognizes rent
expense on a straight-line basis over the lease period.

67

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. COMMITMENTS AND CONTINGENCIES (Continued)

Future minimum lease payments under non-cancellable operating leases are as follows (in thousands):

Operating LeasesYear ending December 31, 2008

$
527Year ending December 31, 2009


317Year ending December 31, 2010


307Year ending December 31, 2011


319Thereafter


$
1,470


Purchase Commitments.As of December 31, 2007, the Company has purchase commitments of $2.5 million with its
inventory suppliers with due dates within the next twelve months. Both the quantities and purchase prices are fixed in the noncancelable commitments.

9. STOCKHOLDER NOTES RECEIVABLE

At December 31, 2004, the Company held full recourse promissory notes receivable totaling $0.4 million due from certain officers and employees of
the Company. These notes were repaid in full in 2005. The full recourse promissory notes bore interest at rates ranging from 3 percent to 6 percent, which rates were deemed to be below
market rates for the individuals. Interest and principal on the notes were payable at the maturity dates of the notes, which ranged from December 2007 to January 2008. In accordance with FASB
Interpretation No. 44,Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25and
EITF 00-23,Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation
No. 44, during the years ended December 31, 2004 and 2005, the Company recorded deferred compensation of $13,000 and none, respectively. During the years ended
December 31, 2004 and 2005, the Company amortized $25,000 and none of deferred stock compensation for the full-recourse promissory notes, respectively.

10. INCOME TAXES

The components of income before income taxes are as follows (in thousands):

Years Ended December 31,2007

2006

2005United States

$
14,005

$
14,451

$
4,680Foreign


207


69


21Income before income taxes

$
14,212

$
14,520

$
4,701


68

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. INCOME TAXES (Continued)

The
components of the provision for (benefit from) income taxes are as follows (in thousands):

December 31,2007

2006

2005Current:Federal

$
4,840

$
1,258

$
110State


24


30


33Foreign


53


10


17Total current


4,917


1,298


160DeferredFederal


(4,444
)




State


(991
)




Total deferred


(5,435
)




Total provision for (benefit from) income taxes

$
(518
)
$
1,298

$
160


The
components of deferred tax assets for federal and state income taxes are as follows (in thousands):

December 31,2007

2006Deferred tax assets:Net operating loss carryforwards

$
323

$
2,526Research and other credits


910


1,238Stock-based compensation


2,230


1,221Accruals


2,016


497Other


(44
)

49Total deferred tax assets


5,435


5,531Valuation allowance





(5,531
)Deferred tax assets

$
5,435

$



As
required under the provisions of SFAS No. 109, the Company assessed the recoverability of its deferred tax assets. To assess the likelihood that the deferred tax assets will be
recovered from taxable income, the Company applied the guidance provided in SFAS No. 109 and considered both positive evidence that indicates a valuation allowance is not needed and negative
evidence that indicates a valuation allowance is needed. As a result of this assessment at September 30, 2007 in which the Company considered its recent history of consecutive profitable
quarters and anticipated profit in future periods, the Company released the valuation allowance recorded against its deferred tax assets of approximately $5.5 million as it believes that it is
more likely than not the deferred tax assets will be realized in the future.

At
December 31, 2007, the Company had approximately $3.7 million of federal and $0.1 million of state net operating loss carryforwards available to offset future
taxable income. If not utilized, these carryforwards will begin to expire beginning in 2022 for federal and and 2014 for state tax purposes. As

69

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. INCOME TAXES (Continued)

of
December 31, 2007, the Company also has research and other tax credit carryforwards of approximately $0.3 million and $1.6 million for federal and state income tax purposes,
respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2012. The state tax credits can be carried forward indefinitely. The Company also has a California
alternative minimum tax credit carryover of $48,000, and this credit does not expire.

The
effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:

Years Ended December 31,2007

2006

2005U.S. statutory federal taxes at statutory rate

35.0
%
35.0
%
34.0
%State taxesnet of federal benefit

1.5

1.6

5.8Research and development credits

(4.4
)
(2.6
)
(2.6
)Difference between U.S. statutory rate and foreign effective rate





0.2Stock-based compensation

1.9

1.4

3.3Other

1.2

(2.9
)
0.9Change in valuation allowance

(38.8
)
(23.6
)
(38.2
)Effective tax rate

(3.6
)%
8.9
%
3.4
%


The
Company's ability to use its federal and state net operating loss carryforwards and federal and state tax credit carryforwards to offset future taxable income and future taxes is
subject to restrictions attributable to equity transactions that result from changes in ownership as defined by Internal Revenue Code Sections 382 and 383. As a consequence, a portion of the
Company's net operating loss carryforwards are subject to an annual limitation on utilization of approximately $3 million, which is cumulative.

The
Company adopted the provisions of FIN No. 48 on January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109.As a result of the implementation of FIN No. 48, the Company recognized
no material adjustment to the January 1, 2007 balance of retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Unrecognized Tax BenefitsBalance at January 1, 2007

$
410Gross increasestax position in prior period


Gross decreasestax position in prior period


Gross increasestax positions related to the current year


198Settlements


Lapse of statute of limitations


Balance at December 31, 2007

$
608


Included
in the balance at December 31, 2007 are $0.6 million of tax positions for which the ultimate deductibility is highly certain but for which we have uncertainty
about our willingness to settle

70

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. INCOME TAXES (Continued)

with
the examiner in the case of an audit. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $0.5 million. We do not expect our
unrecognized tax benefits to change significantly over the next 12 months.

We
file U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. We have not been under examination by income tax authorities in
federal, state or other foreign jurisdictions. The 1997 through 2007 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions,
the 2002 through 2007 tax years generally remain subject to examination by their respective tax authorities.

The
Company recognizes interest related to unrecognized tax benefits in its income tax expense and penalties related to unrecognized tax benefits in operating expenses. During the year
ended December 31, 2007, the Company recognized approximately $6,000 in interest and no penalties.

United
States federal income taxes have not been provided for the undistributed earnings of the Company's foreign subsidiaries. These undistributed earnings aggregated less than
$0.2 million at December 31, 2007, and it is the Company's intention that such undistributed earnings be permanently reinvested offshore. The Company would be subject to additional
United States taxes if these earnings were repatriated. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

11. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) savings plan for all employees who meet certain eligibility requirements. Participants may contribute, on a pretax basis, an amount
of their annual compensation,
not to exceed a maximum contribution pursuant to Section 401(k) of the Internal Revenue Code. The Company may contribute to the plan on a discretionary basis, but is not required, nor has it
contributed, to the plan for the years ended December 31, 2005, 2006 and 2007. The contributions to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan.

12. RELATED PARTY TRANSACTIONS

One of the Company's Board members is a partner in a law firm that provides services to the Company. The Company incurred fees of $24,000, $0.2 million and
$0.3 million from this law firm for legal services in the years ended December 31, 2007, 2006, and 2005, respectively. The amount payable to this law firm was $4,000 and $17,000 at
December 31, 2007 and 2006, respectively.

13. SEGMENT INFORMATION

The Company currently operates in one reportable segment, the designing, marketing and selling of mixed signal integrated circuits for multiple video applications
in the consumer, security surveillance and automotive markets. The Company's chief operating decision maker is the Chief Executive Officer.

71

---



TECHWELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. SEGMENT INFORMATION (Continued)

The percentage of total revenues by geographic location are as follows:

Years Ended December 31,2007

2006

2005Taiwan

40
%
43
%
38
%South Korea

29

31

41China

26

21

16Japan

3

3

4United States

1

1

1Other

1

1




Revenues
by product line are as follows (in thousands):

Years Ended December 31,2007

2006

2005Security Surveillance(1)

$
40,571

$
27,684

$
13,804Video Decoders(2)


12,344


18,183


16,142LCD Display(3)


6,015


6,916


4,997Other(4)


957


929


1,108Total revenues

$
59,887

$
53,712

$
36,051


---

The
following is a summary of long-lived assets by geographic region (in thousands):

December 31,Country2007

2006United States

$
1,187

$
544Taiwan


67


64South Korea


39


12China


45


5Japan


133


Total

$
1,471

$
625


72

---





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

None.

ITEM 9A.    Controls and Procedures

Evaluation of disclosure controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2007. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management,
including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on
Form 10-K, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control framework and processes
are designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America.

Our
internal control over financial reporting includes those policies and procedures that:



73

---





Because
of its inherent limitations, any system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Our
management assessed the effectiveness of our internal control over financial reporting and concluded that, as of December 31, 2007, such internal control over financial
reporting is effective. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated
Framework.

Our
independent registered public accountants, Deloitte & Touche LLP, with direct access to our Board of Directors through its Audit Committee, have audited the
consolidated financial statements prepared by us and our internal control over financial reporting. Their report on the consolidated financial statements is included in Part II, Item 8.
Financial Statements and Supplementary Data. Their report on our internal control over financial reporting is included herein.

74

---



Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Stockholders of

Techwell, Inc.

San
Jose, California:

We
have audited the internal control over financial reporting of Techwell, Inc. and subsidiaries (the "Company") as of December 31, 2007, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2007 of the Company and our report dated March 12, 2008 expressed an unqualified opinion on those financial statements and included explanatory paragraph regarding
(1) the adoption of Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109, effective January 1, 2007 and (2) Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment,effective
January 1, 2006.

|/s/ DELOITTE & TOUCHE LLP
|-------------------------
|San Jose, California     
|March 12, 2008           

75

---



ITEM 9B.    Other Information

Our chief executive officer, chief financial officer, chief technical officer and a member of our board of directors entered into stock selling plans between
December 2006 and February 2007 that are intended to qualify for the safe harbor under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and
the Company's insider trading policy. Rule 10b5-1 allows corporate insiders to establish pre-arranged written stock trading plans at a time when the insider is not aware
of material, non-public information. Subsequent receipt by the insider of material, non-public information will
not prevent pre-arranged transactions under the Rule 10b5-1 plan from being executed.

PART III

ITEM 10.    Directors, Executive Officers of the Registrant and Corporate Governance

The information required by this item is included under the captions Directors and Nominees, Board Meetings, Committees of the Board of Directors, Director
Nominations, Stockholder Communications with the Board of Directors, Director Compensation, Compensation Committee Interlocks and Insider Participation, in our Proxy Statement related to the 2008
Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 11.    Executive Compensation

The information required by this item is included under the captions Compensation Discussion and Analysis, Employment, Severance and Change of Control Agreements,
Summary Compensation Table, Grant of 2006 Plan-Based Awards, Outstanding Equity Awards at Fiscal Year-End Table, Option Exercises and Stock Vesting Table, Pension Benefits,
Nonqualified Deferred Compensation, in our Proxy Statement related to the 2008 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item relating to security ownership of certain beneficial owners and management is included under the caption Security Ownership
of Certain Beneficial Owners and
Management and the information required by this item relating to securities authorized for issuance under equity compensation plans is included under the caption Equity Compensation Plan Information
in each case in our Proxy Statement related to the 2008 Annual Meeting of Stockholders, and is incorporated herein by reference.

ITEM 13.    Certain Relationships, Related Transactions and Director Independence

The information required by this item is included under the captions "Certain Relationships and Related Party Transactions" in our Proxy Statement related to the
2008 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 14.    Principal Accountant Fees and Services

The information required by this item is included under the captions Principal Accounting Fees and Services and Audit Committee Pre-Approval Policies
and Procedures in our Proxy Statement related to the 2008 Annual Meeting of Shareholders and is incorporated herein by reference.

76

---



PART IV

ITEM 15.    Exhibits and Financial Statement Schedules

(a)Documents filed as part of this report

(1)Financial Statements

The following financial statements and related report are included in Item 8 of this Report:



(2)Schedules

Schedules are omitted because they are not required or the information is included in the financial statements.

(3)Exhibits

The exhibits listed on the accompanying index to exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference into, this Report.

77

---





|Exhibit Number |  | Description                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.(i)1*        |  | Restated Certificate of Incorporation of the Registrant.                                                                                                           
|3.(ii)1*       |  | Amended and Restated Bylaws of the Registrant.                                                                                                                     
|4.1*           |  | Specimen Common Stock Certificate.                                                                                                                                 
|10.1*          |  | Form of Indemnification Agreement between the Registrant and its officers and directors.                                                                           
|10.2*          |  | 1997 Stock Plan (as amended) and form of agreements thereunder.                                                                                                    
|10.3*          |  | 2001 Stock Plan (as amended) and form of agreements thereunder.                                                                                                    
|10.4*          |  | Form of 2006 Stock Incentive Plan and form of agreements thereunder.                                                                                               
|10.5*          |  | Fourth Amended and Restated Rights Agreement, dated March 11, 2005.                                                                                                
|10.6*          |  | Offer Letter dated November 1, 2005 between the Registrant and Mark Voll.                                                                                          
|10.7*          |  | First Amendment to the Fourth Amended and Restated Rights Agreement, dated March 27, 2006.                                                                         
|10.8*          |  | Offer Letter dated September 8, 2000 between the Registrant and Dong-Wook (David) Nam.                                                                             
|10.9*          |  | Second Amendment to the Fourth Amended and Restated Rights Agreement, dated June 21, 2006.                                                                         
|10.10**        |  | Lease Agreement by and between Registrant and FSP Montague Business Center Corp. dated November 6, 2006                                                            
|10.11          |  | Form of change of control severance agreement.                                                                                                                     
|21.1           |  | List of Subsidiaries.                                                                                                                                              
|23.1           |  | Consent of Deloitte & Touche LLP, independent registered public accounting firm.                                                                                   
|24.1           |  | Power of Attorney (see signature page).                                                                                                                            
|31.1***        |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|31.2***        |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1***        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 
|32.2***        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 

---

78

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Techwell, Inc. has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|               |  | TECHWELL, INC.
|-------------- |  | --------------
|March 12, 2008 |  | By:           

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Fumihiro Kozato and Mark Voll, jointly and severally,
his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause
to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

|Name                                    |  | Title                                                                                                                 |  | Date          
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | --------------
|                                        |  |                                                                                                                       |  |               
|/s/FUMIHIRO KOZATOFumihiro Kozato       |  | President, Chief Executive Officer and Director
(Principal Executive Officer)                                         |  | March 12, 2008
|/s/MARK VOLLMark Voll                   |  | Vice President of Finance and Administration and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 12, 2008
|/s/ROBERT D. COCHRANRobert D. Cochran   |  | Director                                                                                                              |  | March 12, 2008
|/s/RICHARD H. KIMBALLRichard H. Kimball |  | Director                                                                                                              |  | March 12, 2008

79

---



|/s/C.J. KOOMENDr. C.J. Koomen                 |  | Director |  | March 12, 2008
|--------------------------------------------- |  | -------- |  | --------------
|/s/JUSTINE LIENJustine Lien                   |  | Director |  | March 12, 2008
|/s/PHILLIP J. SALSBURYDr. Phillip J. Salsbury |  | Director |  | March 12, 2008

80

---





INDEX TO EXHIBITS

|Exhibit Number |  | Description                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.(i)1*        |  | Restated Certificate of Incorporation of the Registrant.                                                                                                           
|3.(ii)1*       |  | Amended and Restated Bylaws of the Registrant.                                                                                                                     
|4.1*           |  | Specimen Common Stock Certificate.                                                                                                                                 
|10.1*          |  | Form of Indemnification Agreement between the Registrant and its officers and directors.                                                                           
|10.2*          |  | 1997 Stock Plan (as amended) and form of agreements thereunder.                                                                                                    
|10.3*          |  | 2001 Stock Plan (as amended) and form of agreements thereunder.                                                                                                    
|10.4*          |  | Form of 2006 Stock Incentive Plan and form of agreements thereunder.                                                                                               
|10.5*          |  | Fourth Amended and Restated Rights Agreement, dated March 11, 2005.                                                                                                
|10.6*          |  | Offer Letter dated November 1, 2005 between the Registrant and Mark Voll.                                                                                          
|10.7*          |  | First Amendment to the Fourth Amended and Restated Rights Agreement, dated March 27, 2006.                                                                         
|10.8*          |  | Offer Letter dated September 8, 2000 between the Registrant and Dong-Wook (David) Nam.                                                                             
|10.9*          |  | Second Amendment to the Fourth Amended and Restated Rights Agreement, dated June 21, 2006.                                                                         
|10.10**        |  | Lease Agreement by and between Registrant and FSP Montague Business Center Corp. dated November 6, 2006                                                            
|10.11          |  | Form of change of control severance agreement.                                                                                                                     
|21.1           |  | List of Subsidiaries.                                                                                                                                              
|23.1           |  | Consent of Deloitte & Touche LLP, independent registered public accounting firm.                                                                                   
|24.1           |  | Power of Attorney (see signature page).                                                                                                                            
|31.1***        |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|31.2***        |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1***        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 
|32.2***        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 

---

81

---