EXHIBIT 10.3








                          COMMUNICATIONS BUSINESS UNIT






                           DEVELOPMENT AND PRODUCTION
                                    AGREEMENT
                                 POWERDSINE LTD.









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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme


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Development and Production Agreement concluded by and between


POWERDSINE LTD.
1 HANAGAR ST., P.O. BOX 7220
45421 HOD HASHARON
ISRAEL

hereinafter "PowerDsine"


and


AUSTRIA MIKRO SYSTEME INTERNATIONAL AG
SCHLOSS PREMSTATTEN
A 8141 UNTERPREMSTATTEN
AUSTRIA

hereinafter "Austria Mikro Systeme"


(In the present  AGREEMENT,  PowerDsine  and Austria Mikro Systeme shall also be
referred to jointly as "PARTIES" or individually as "PARTY" respectively)

WHEREAS,  Austria Mikro Systeme is engaged in the  development and production of
integrated MOS circuits; and

WHEREAS,  PowerDsine  requires a design  and/or  manufacturing  of a  particular
semiconductor  product,  as described  in greater  detail in Section 3 herein to
this AGREEMENT; and

WHEREAS, Austria Mikro Systeme has the expertise in the design and manufacturing
of such  semiconductor  products,  including but not limited to analog circuits,
Austria Mikro Systeme has established  processes and practices for manufacturing
such activities and has the ability to perform the obligations described in this
AGREEMENT in accordance with their terms; and

WHEREAS, the Parties desire to develop and produce integrated MOS circuits (with
the Austria Mikro Systeme project name "Placido 4906-001" and by PowerDsine with
the project name "IDO" as more fully described herein.

NOW,  THEREFORE,  in  consideration  of their mutual  promises and  undertakings
contained herein, the parties agree as follows:

WITNESSETH


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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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1.       DEFINITIONS...........................................................4
2.       DEVELOPMENT TASKS.....................................................5
         2.1      DUTIES OF AUSTRIA MIKRO SYSTEME..............................5
         2.2      DUTIES OF POWERDSINE.........................................6
3.       SPECIFICATION.........................................................7
4.       CIRCUIT ATTRIBUTES....................................................7
5.       DEVELOPMENT...........................................................8
         5.1      DEVELOPMENT STAGES...........................................8
         5.2      DEVELOPMENT COST.............................................8
         5.3      CO-OPERATION DURING THE DEVELOPMENT..........................9
         5.4      ALTERATIONS OF THE SPECIFICATION OR CIRCUIT ATTRIBUTES.......9
         5.5      CONFIRMATION OF THE SIMULATION...............................9
         5.6      APPROVAL OF THE ENGINEERING SAMPLES.........................10
         5.7      REVISION OF THE CIRCUIT.....................................10
         5.8      REDESIGN AT POWERDSINE'S REQUEST............................10
         5.9      REDESIGN AT THE REQUEST OF BOTH PARTIES.....................11
         5.10     PROBABILITY OF A REDESIGN...................................11
         5.11     DELIVERY OF PROTOTYPES......................................11
         5.12     APPROVAL OF THE PROTOTYPES..................................11
6.       QUALITY OF THE MASS PRODUCTION CIRCUITS..............................12
         6.1      QUALITY ASSURANCE...........................................12
         6.2      AOQ (AVERAGE OUTGOING QUALITY)..............................12
7.       QUANTITIES AND CONDITIONS............................................13
         7.1      PURCHASING VOLUME AND TERM..................................13
         7.2      ORDERS......................................................13
         7.3      START OF DELIVERY...........................................14
         7.4      VARIATIONS IN QUANTITIES....................................14
8.       UNIT PRICES..........................................................14
         8.1      PRICES FOR ADDITIONAL PROTOTYPES............................14
         8.2      CIRCUIT PRICES..............................................14
9.       TERMS OF PAYMENT AND DELIVERY........................................15
10.      CO-OPERATION DURING THE TERM OF PRODUCTION...........................15
10A.     SHIPMENTS, SCHEDULE CHANGE...........................................15
10B.     PRODUCT ACCEPTANCE AND WARRANTS......................................16
10C.     TERM AND TERMINATION.................................................16
11.      FORCE MAJEURE........................................................18
12.      NONDISCLOSURE........................................................18
13.      LIABILITY LIMITATION.................................................18
14.      JURISDICTION AND APPLICABLE LAW......................................19
15.      SEVERABILITY.........................................................19
16.      MODIFICATION OF AGREEMENT............................................19
17.      LANGUAGE OF AGREEMENT................................................20
18.      AUSTRIA MIKRO SYSTEME REPRESENTATION.................................20
19.      MISCELLANEOUS........................................................20
20.      ENCLOSURES TO THIS AGREEMENT.........................................22

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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1.        DEFINITIONS

          "SPECIFICATION"

          shall mean the behaviour, function and environmental conditions of the
          Mass Production  Circuits,  Engineering Samples and Prototypes.  It is
          the working basis for the  development  and describes the objective of
          the development task.

          "ENGINEERING SAMPLES"

          shall  mean  samples  that  meet all  functional  requirements  of the
          Specification;  they  may not be used  for  the  Qualification  of the
          integrated  circuit as the production of such  Engineering  Samples is
          not realised under mass production conditions.

          "QUALIFICATION"

          shall mean the testing  procedure  to verify  whether  the  integrated
          circuit  meets  all  functional   requirements  provided  for  in  the
          Specification.

          "INTELLECTUAL PROPERTY RIGHTS"

          shall  mean,  all  rights  arising  from  patents,  copyrights,  trade
          secrets,  Confidential  Information (as defined in the confidentiality
          agreement  between the Parties and attached  hereto as Annex 2), trade
          marks, service marks, trade names, mask works,  applications and other
          proprietary  rights in any  jurisdiction,  and to (i) all  inventions,
          discoveries, works of authorship know-how, technical information, work
          product and/or other information related to the Mass Produced Circuits
          and (ii)  any  improvements,  enhancements  or  modifications  related
          thereto and developed during the term of this Agreement.

          "PROTOTYPES"

          shall  mean  integrated  circuits  meeting  all  requirements  of  the
          Specifications.  The  integrated  circuits shall be tested with a full
          production  test  program  and  may be used  for a full  qualification
          program.

          "MASS PRODUCTION CIRCUITS" OR "PRODUCTS"

          shall mean mass produced integrated  circuits.  Following the approval
          by PowerDsine of the Prototypes,  PowerDsine shall,  during the agreed
          Purchasing  Period,  acquire the Mass  Production  Circuits at a fixed
          price and at lead-time of eighteen (18) weeks ("LEADTIME").

          "PURCHASING PERIOD"

          shall mean the fifteen (15) month period  beginning after the approval
          of the Prototype by PowerDsine.

          "PURCHASE VOLUME"

          PowerDsine commits to purchase a minimum quantity of CIRCUITS within a
          defined purchasing period.

          Further  specific terms of this AGREEMENT  shall be defined when first
          used herein; such terms shall be printed in CAPITALS.


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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2.        DEVELOPMENT TASKS

2.1       DUTIES OF AUSTRIA MIKRO SYSTEME

          2.1.1     Austria Mikro Systeme shall perform the work detailed below,
                    in accordance with the terms of this AGREEMENT (the "WORK").

          2.1.2     Austria  Mikro  Systeme  shall.  provide  the  services  and
                    deliverables and their . schedule is as specified in Exhibit
                    2.2.

                    2.1.2.1   Generation  of the  Specification,  which shall be
                              comprised of the following:

                              --   Definition of inputs and outputs

                              --   Block   diagram  with   detailed   functional
                                   description

                              --   Definition of the electrical parameters

                              --   Definition of the environmental conditions

                              --   Definition of the absolute maximum ratings;

                    2.1.2.2   Provision of AHDL  description  of ADC (as defined
                              in the  Specifications),  DAC's  and  other  mixed
                              signal components.

                    2.1.2.3   Circuit design with CAD system

                              --   Design,  Layout and  Simulation  of  analogue
                                   blocks

                              --   Synthesis of VHDL

                              --   Timing simulation of gatelevel netlist

                              --   Clock tree and test insertion

                              --   Scan  insertion  and  Automatic  Test Pattern
                                   Generation Perform Place & Route

                              --   Backannotation

                              --   Static timing analysis for race conditions

                              --   Completion of Layout;

                    2.1.2.4   Definition of the absolute maximum ratings;

                    2.1.2.5   Participation in design reviews;


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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                    2.1.2.6   Preparation of the layout;

                    2.1.2.7   Preparation of the bonding diagram;

                    2.1.2.8   Manufacture of the masks;

                    2.1.2.9   Production    and   delivery   of   fifteen   (15)
                              ENGINEERING SAMPLES;

                    2.1.2.10  Development of the test program;

                    2.1.2.11  Preparation of a performance  board for production
                              test and of a probe card;

                    2.1.2.12  Installation of a test program;

                    2.1.2.13  Preparation of all production documents;

                    2.1.2.14  Testing   of    prototypes   at   hot   and   cold
                              temperatures, ESD and Latchup and;

                    2.1.2.15  Production   and  delivery  of  twenty  five  (25)
                              Prototypes.

2.2       DUTIES OF POWERDSINE

          PowerDsine   shall  assist  with  the  development  by  providing  the
          following:

          2.2.1     Provision to Austria Mikro  Systeme of the documents  listed
                    in this subsection 2.2.1 (together the "DOCUMENTS"):

                    2.2.1.1   System   specification  or  any  part  thereof  at
                              PowerDsine's  sole  discretion,  strictly  for the
                              aims of this AGREEMENT;

                    2.2.1.2   Block diagram or any part thereof at  PowerDsine's
                              sole  discretion,  strictly  for the  aims of this
                              AGREEMENT;

                    2.2.1.3   Description  of inputs and  outputs (as defined in
                              the Specifications;

                    2.2.1.4   Description of external  components (as defined in
                              the Specifications); and

                    2.2.1.5   Description  of electrical  parameters (as defined
                              in the Specifications).

          2.2.2     Examination and confirmation of the SPECIFICATION


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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                    2.2.2.1   Provision of VHDL  description  of digital part of
                              the integrated circuit;

                    2.2.2.2   Approval of timing simulation results (which shall
                              be  provided  to   PowerDsine   by  Austria  Mikro
                              Systeme);

                    2.2.2.3   Participation in design reviews;

                    2.2.2.4   Examination and approval of ENGINEERING SAMPLES;

                    2.2.2.5   Assistance   with  the  correlation  of  the  test
                              program; and

                    2.2.2.6   Examination and approval of PROTOTYPES.

3.        SPECIFICATION

3.1       Austria Mikro Systeme  shall  prepare the  SPECIFICATION  based on the
          DOCUMENTS specified in section 2.2 herein within [**] after receipt of
          the latter and present said SPECIFICATION to PowerDsine.

3.2       During these [**],  both PARTIES  shall use their best  endeavours  to
          reach an agreement concerning the SPECIFICATION.

3.3       The  agreement  concerning  the  SPECIFICATION  and - in the  event of
          technical or commercial alterations - any amendments to this AGREEMENT
          shall be confirmed in writing by both PARTIES. The SPECIFICATION shall
          be the basis for the agreed  development  Work and is an integral part
          of this AGREEMENT.  If no agreement  concerning the  Specification  is
          reached within a reasonable period of time, either PARTY may terminate
          this AGREEMENT in writing by giving 2 weeks notice.

3.4       In the case of termination as described in subsection 3.3 herein only,
          there shall be no financial  obligations  between the Parties  arising
          from such termination.

4.        CIRCUIT ATTRIBUTES

          Based on the  information  received  from  PowerDsine,  the  following
          circuit  attributes   (hereinafter  the  "CIRCUIT   ATTRIBUTES")  were
          determined by Austria Mikro Systeme.

         [** Redacted Table]


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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          [**]

5.        DEVELOPMENT

5.1       DEVELOPMENT STAGES

          The  development  of the  Product  shall  commence  when an  agreement
          concerning  the  SPECIFICATION  is  reached;  it  shall  end  when the
          PROTOTYPES are approved by PowerDsine.

          The development comprises the following phases:

          ------------------------------- ------------------------- ------------
                                          RESPONSIBILITY            DURATION
          ------------------------------- ------------------------- ------------
          Development of the Product
            including simulation          Austria Mikro Systeme     [**]
          ------------------------------- ------------------------- ------------
          Production of the
            ENGINEERING SAMPLES           Austria Mikro Systeme     [**]
          ------------------------------- ------------------------- ------------
          Approval of the
            ENGINEERING SAMPLES           PowerDsine                [**]
          ------------------------------- ------------------------- ------------
          Production of the PROTOTYPES    Austria Mikro Systeme     [**]
          ------------------------------- ------------------------- ------------
          Approval of the PROTOTYPES      PowerDsine                [**]
          ------------------------------- ------------------------- ------------

          (x)       Estimate based on the  information  available at the time of
          conclusion of the AGREEMENT.

          In addition,  the Parties hereby  represent that they shall  cooperate
          fully and in good  faith to reach the above  specified  schedule,  and
          shall take all reasonable steps to solve any circumstances  unforeseen
          at the  time of the  conclusion  of the  AGREEMENT.  If  either  party
          believes  that it shall not be able to meet the  schedule  as detailed
          above,  or if either  party has reason to believe that the other party
          is  in  breach  of  said  representation,   the  following  escalation
          procedure shall apply:

          (a)       the  senior  management  representatives  (in  the  case  of
                    PowerDsine - the project manager,  Vice President of R&D and
                    Vice President of  Operations;  in the case of Austria Mikro
                    Systeme - Director Marketing and Director Engineering of the
                    Business  Unit  Communications)  of both  parties  are to be
                    immediately notified fully of the event; and

          (b)       the senior  management  representatives  of both  parties as
                    specified above shall, as soon as feasibly possible, convene
                    whether by phone or in person,  to resolve the circumstances
                    jeopardizing  the completion of the project within the above
                    schedule  and  to   immediately   implement  all  reasonably
                    necessary steps to such effect.


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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5.2      DEVELOPMENT COS

          The development costs are [**].

          The partial  amounts of the  development  costs  listed below shall be
          payable as follows:

          -------------------------------------- --------------- ---------------
          1. Upon agreement of the
             SPECIFICATION                       [**]            US $
          -------------------------------------- --------------- ---------------
          2. Upon delivery of the
             ENGINEERING SAMPLES                 [**]            US $
          -------------------------------------- --------------- ---------------
          3. Upon delivery of the PROTOTYPES     [**]            US $
          -------------------------------------- --------------- ---------------

5.3       CO-OPERATION DURING THE DEVELOPMENT

          PowerDsine nominates the following contact persons for the realization
          of the Work:

          ----------------------- ----------------------------------------------
          Name:                   Natan Baron
          ----------------------- ----------------------------------------------
          Function:               Asic Manager
          ----------------------- ----------------------------------------------
          Tel. no.:               +972 9 7755100
          ----------------------- ----------------------------------------------
          Fax no.:
          ----------------------- ----------------------------------------------
          Address:                PowerDsine Ltd.
          ----------------------- ----------------------------------------------
                                  1 Hanagar St., P.O. Box 7220
          ----------------------- ----------------------------------------------
                                  IL-45421 Hod Hasharon
          ----------------------- ----------------------------------------------
          E-mail:                 natanb@powerdsine.com
          ----------------------- ----------------------------------------------

         Austria  Mikro Systeme  nominates  the  following  persons who shall be
         responsible to PowerDsine for the realization of the project:

          ----------------------- ----------------------------------------------
          Name:                   Karl Ilzer
          ----------------------- ----------------------------------------------
          Function:               Group Leader M/S Design Group
          ----------------------- ----------------------------------------------
          Tel. no.:               +43 3136 500 5341
          ----------------------- ----------------------------------------------
          Fax no.:                +43 3136 500 5692
          ----------------------- ----------------------------------------------
          Address:                Austria Mikro Systeme International AG
          ----------------------- ----------------------------------------------
                                  Schloss Premstaetten
          ----------------------- ----------------------------------------------
                                  A-8141 Unterpremstaetten, Austria
          ----------------------- ----------------------------------------------
          E-mail:                 karl.ilzer@amsint.com
          ----------------------- ----------------------------------------------

5.4       ALTERATIONS OF THE SPECIFICATION OR CIRCUIT ATTRIBUTES

          Both PARTIES may at any time propose  alterations to the SPECIFICATION
          in writing.  The other  PARTY may,  where  possible,  comply with such
          requests  for  alterations.  The  resulting  effects  on  the  project
          schedule,  the  development  cost,  the  CIRCUIT  ATTRIBUTES  and,  if
          applicable,  the UNIT PRICE shall be documented  in writing,  together
          with the agreed alterations,  and duly undersigned by the PARTIES as a
          supplement to this AGREEMENT.


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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5.5       CONFIRMATION OF THE SIMULATION

          At a design  review,  PowerDsine  shall  declare in  writing  that the
          results  of the  circuit  simulation  match  the  SPECIFICATION.  This
          confirmation  is a  precondition  for the  production  of  ENGINEERING
          SAMPLES.

5.6       APPROVAL OF THE ENGINEERING SAMPLES

          5.6.1     PowerDsine  shall  communicate  to Austria  Mikro Systeme in
                    writing  within  [**]  weeks  after  the  delivery  of  [**]
                    ENGINEERING SAMPLES whether the ENGINEERING SAMPLES meet the
                    functional requirements specified in the SPECIFICATION.

          5.6.2     Should    PowerDsine    note   any   deviations   from   the
                    SPECIFICATION,  it shall prepare a  comprehensive  technical
                    report of its  investigations and submit the same to Austria
                    Mikro Systeme to enable the latter to verify such deviations
                    and if necessary to rectify them without further delay.

          5.6.3     PowerDsine will do its best efforts to approve or disapprove
                    the ENGINEERING SAMPLES within the agreed [**] week period.

          5.6.4     The approval of the ENGINEERING  SAMPLES by PowerDsine shall
                    be deemed to constitute an order to Austria Mikro Systeme to
                    proceed with the production of PROTOTYPES and to prepare the
                    circuit for production pursuant to clause 2.1 herein.

          5.6.5     In default of such notification as specified in clause 5.6.2
                    above (the  "DEFAULT"),  and if PowerDsine has not given any
                    other written  notification  to Austria Mikro Systeme of any
                    problem with the approval of the Engineering  Samples within
                    the agreed period,  the Engineering  Samples shall be deemed
                    approved.  Equally the  Engineering  Samples shall be deemed
                    approved  if   PowerDsine   has  made  the  first  call  for
                    Prototypes  with the  authorized  signature of  PowerDsine's
                    Placido project manager as named in Clause 5.3 herein.

          5.6.6     In addition,  fourteen  (14) days prior to a default  event,
                    Austria Mikro Systeme shall notify PowerDsine Vice President
                    of  Operations  as  to  the  non-provision  of  approval  by
                    PowerDsine to Austria Mikro Systeme.

5.7       REVISION OF THE CIRCUIT

          If the ENGINEERING SAMPLES do not meet the functional  requirements of
          the  SPECIFICATION  and  PowerDsine  cannot be reasonably  expected to
          compensate the deviating  behaviour of the circuits by taking external
          measures,  Austria  Mikro  Systeme  shall  perform a  revision  of the
          circuit (e.g. modification of the circuit, new simulation,  production
          of new  ENGINEERING  SAMPLES,  preparation of masks,  etc.) at its own
          expense as part of a so-called "REDESIGN".


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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5.8       REDESIGN AT POWERDSINE'S REQUEST

          Austria  Mikro  Systeme  undertakes  to  redesign  the  circuit if the
          ENGINEERING SAMPLES, while meeting the SPECIFICATION,  fail to fulfill
          PowerDsine's  expectations  for any  reason  whatsoever.  In such case
          however, PowerDsine shall bear the costs of the REDESIGN.

5.9       REDESIGN AT THE REQUEST OF BOTH PARTIES

          If the ENGINEERING  SAMPLES do not fully meet the SPECIFICATION and if
          PowerDsine also requests  additional  alterations of the SPECIFICATION
          during the REDESIGN  phase,  both PARTIES  shall bear the costs of the
          REDESIGN.

          Before starting the REDESIGN, the PARTIES hereto shall agree the costs
          and the way of sharing them.

5.10      PROBABILITY OF A REDESIGN

          Because of the risks inherent to the development of complex integrated
          circuits,  it cannot be guaranteed that the first ENGINEERING  SAMPLES
          will meet all functional requirements. PowerDsine is therefore advised
          to  make  a  time   allowance   in  its   planning  for  any  REDESIGN
          requirements.

          The time required for a REDESIGN  depends on the scope  thereof.  As a
          rule, it should be less than 8 weeks.

5.11      DELIVERY OF PROTOTYPES

          Austria Mikro Systeme  shall  deliver to  PowerDsine  [**]  PROTOTYPES
          within  [**]  following  the  approval of the  ENGINEERING  SAMPLES or
          following any revision of the circuit  according to clauses 5.7 - 5.9,
          respectively.

5.12      APPROVAL OF THE PROTOTYPES

          5.12.1    PowerDsine  shall advise  Austria Mikro Systeme  within [**]
                    weeks of receipt of the [**]  PROTOTYPES in writing  whether
                    such  PROTOTYPES  meet  the  requirements  specified  in the
                    SPECIFICATION.

          5.12.2    Should    PowerDsine    note   any   deviations   from   the
                    SPECIFICATION,  it shall prepare a  comprehensive  technical
                    report of its  investigations and submit the same to Austria
                    Mikro  Systeme to enable the latter to check and rectify the
                    established defects without further delay.

          5.12.3    In  default  of such  notification  as  specified  in clause
                    5.12.2  above,  and if  PowerDsine  has not  given any other
                    written notification to Austria Mikro Systeme of any problem
                    with  the  approval  of the  Prototypes  within  the  agreed
                    period, the PROTOTYPES shall be deemed approved. Equally the
                    PROTOTYPES  shall be deemed  approved if PowerDsine has made
                    the  first  order  for  MASS  PRODUCTION  CIRCUITS  with the
                    authorized signature of PowerDsine's Placido project manager
                    as named in clause 5.3 herein.


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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          5.12.4    In  addition,  [**] days prior to a default  event,  Austria
                    Mikro  Systeme  shall notify  PowerDsine  Vice  President of
                    Operations as to the non-provision of approval by PowerDsine
                    to Austria Mikro Systeme.

6.        QUALITY OF THE MASS PRODUCTION CIRCUITS

6.1       QUALITY ASSURANCE

          Austria Mikro Systeme  represents  that it shall aspire to deliver the
          highest quality and reliable the MASS PRODUCTION CIRCUITS. The quality
          control,  quality  assurance and  reliability  of the MASS  PRODUCTION
          CIRCUITS manufactured according to this AGREEMENT are specified in the
          "Austria Mikro Systeme - Product Assurance  Reliability  Manual" QTY-1
          Rev. 13.0, May 2001.

6.2       AOQ (AVERAGE OUTGOING QUALITY)

          6.2.1     The AOQ target value for the MASS PRODUCTION  CIRCUITS to be
                    produced  according  to this  AGREEMENT  shall  be a  defect
                    density of less than 100 DPM (defects per million). This AOQ
                    target value shall refer to the  mechanical  and  electrical
                    ratings of the circuit described in the  SPECIFICATION.  The
                    MASS PRODUCTION  CIRCUITS shall be tested by means of a test
                    program developed by Austria Mikro Systeme. This test covers
                    the  Specification's  electrical values to the best possible
                    extent.

          6.2.2     PowerDsine  agrees  to  assess  the AOQ  only  with the test
                    program  having been in use at the time of production of the
                    MASS PRODUCTION  CIRCUITS.  If PowerDsine  suspects that the
                    MASS PRODUCTION  CIRCUITS may not be in full compliance with
                    the SPECIFICATION,  it may return a number of representative
                    MASS  PRODUCTION  CIRCUITS  from that batch to Austria Mikro
                    Systeme,  together  with a  description  of  the  deviation.
                    Austria  Mikro  Systeme  shall then submit to  PowerDsine  a
                    written failure analysis promptly.

6A.       INTELLECTUAL PROPERTY

          6A.1      PowerDsine  shall have all rights,  titles and  interests in
                    the  Intellectual  Property  Rights  and  the  like  it  has
                    provided to Austria  Mikro  Systeme.  Austria  Mikro Systeme
                    shall  not have any  proprietary  rights  whatsoever  in the
                    PowerDsine Intellectual Property.

          6A.2      Austria  Mikro  Systeme  shall have all  rights,  titles and
                    interests in all  Intellectual  Property Rights that it has,
                    independent of its cooperation  with  PowerDsine,  developed
                    prior to this  AGREEMENT  (collectively  the "Austria  Mikro
                    Systeme  Intellectual  Property"),  and such  Austria  Mikro
                    Systeme   Intellectual   Property  shall  be  the  sole  and
                    exclusive property of Austria Mikro Systeme.


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** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

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          6A.3      PowerDsine  shall have all rights,  titles and  interests in
                    all   Intellectual   Property  Rights   resulting  from  the
                    implementation  of  the  Specifications  and  Austria  Mikro
                    Systeme  shall  assist  PowerDsine  and  sign  any  and  all
                    documents reasonably deemed necessary by PowerDsine, for the
                    protection of such Intellectual Property Rights.

          6A.4      Austria Mikro Systeme  represents that it has all rights and
                    licenses for all third party  Intellectual  Property  Rights
                    necessary for the performance of its obligations  under this
                    AGREEMENT.

          6A.5      Austria Mikro Systeme hereby grants  PowerDsine a perpetual,
                    worldwide  royalty-free   irrevocable  license  to  use  all
                    intellectual    property,    which   is   not   PowerDsine's
                    intellectual property,  embodied or incorporated in the Mass
                    Production Circuit.

7.        QUANTITIES AND CONDITIONS

7.1       PURCHASING VOLUME AND TERM

          PowerDsine  commits  to  purchase  directly  or  indirectly  [**] MASS
          PRODUCTION  CIRCUITS   ("PURCHASING  VOLUME")  within  the  Purchasing
          Period,  if approved by PowerDsine.  MASS Production orders will begin
          only after the  approval of the  PROTOTYPES  by  PowerDsine.  Indirect
          purchase  shall be done through  PowerDsine's  contract  manufacturers
          subject to Austria Mikro Systeme's prior approval of the financial and
          commercial  good  standing  of any such  contract  manufacturer.  Such
          approval shall not be unreasonably withheld.

7.2       ORDERS

          7.2.1     The committed  delivery Lead Time by Abustria  Mikro Systeme
                    shall be [**] weeks to delivery.

          7.2.2     In the interest of an  economical  and  environment-friendly
                    use of packaging  material,  a single  call-off should be at
                    least 65.000 pieces or multiples thereof.

          7.2.3     Austria Mikro Systeme  undertakes to deliver the  quantities
                    of the Product(s),  after such Product(s) have undergone all
                    required  quality  assurance  tests,  by the  delivery  date
                    stipulated   in  the  order   acknowledgement.   Such  order
                    acknowledgement  shall be in  accordance  with the  Leadtime
                    provided  for in Section  7.2.1 If for any reason such order
                    cannot be filled by the stipulated  delivery  date,  Austria
                    Mikro Systeme shall immediately notify PowerDsine in writing
                    of the  delay  and its  reasons,  if  known,  and will  keep
                    PowerDsine informed throughout the period of delay.  Austria
                    Mikro  Systeme  shall use its best  efforts to minimize  the
                    effects of any such delays,  including  by the  selection of
                    the fastest shipping means available,  in which case Austria
                    Mikro Systeme shall bear any such  additional  expenses.  In
                    case of a delay, PowerDsine shall give Austria Mikro Systeme
                    a two week grace period from


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                    the delivery date  stipulated in the order  acknowledgement,
                    to deliver the delayed products. If after such grace period,
                    Austria Mikro Systeme has not delivered the Product pursuant
                    to the order, PowerDsine shall be entitled to reschedule the
                    delivery dates of the delayed Products for a period of up to
                    six (6) months.  The above shall be  PowerDsine's  exclusive
                    remedy for the delay in delivery  of Products  and any other
                    remedies  which  may be  available  to  PowerDsine  shall be
                    expressly excluded.

7.3       START OF DELIVERY

          In the event that PowerDsine places an order on or before the approval
          of the Prototype, Austria Mikro Systeme undertakes to be in a position
          to deliver 2.500 MASS PRODUCTION CIRCUITS,  at the latest, twelve (12)
          weeks after the approval of the  PROTOTYPES and a further 63.000 after
          fifteen (15) weeks of the order.

7.4       VARIATIONS IN QUANTITIES

          The actually delivered  quantity of MASS PRODUCTION  CIRCUITS may vary
          at the rate of +0/-10%  with  respect  to the  ordered  quantity.  Any
          deviations from the specified  delivery  quantities not exceeding this
          tolerance  band  shall be  deemed  to  constitute  fulfillment  of the
          AGREEMENT.

          If PowerDsine should be unable to meet its purchasing  obligations due
          to such deviations,  PowerDsine  shall have no financial  disadvantage
          with regard to the applicable unit price (see clause 8.2).

8.        UNIT PRICES

8.1       PRICES FOR ADDITIONAL PROTOTYPES

          Additional  PROTOTYPES may be ordered up to a maximum  quantity of two
          hundred  (200) pieces at a UNIT PRICE of [**].  The delivery  time for
          this  special  call-off  shall  be  four  (4)  weeks  at  the  latest.
          PowerDsine   shall  be  under  no  obligation   to  order   additional
          PROTOTYPES.

8.2       CIRCUIT PRICES

          [** Redacted Table]

          In SPECIFICATION  the delivery of MASS PRODUCTION  CIRCUITS in TQFP 44
          package  is  defined.  If  PowerDsine  decide  to buy MASS  PRODUCTION
          CIRCUITS  without  TQFP4  package   (die-form),   the  testsection  of
          SPECIFICATION has to be changed accordingly.


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          With its first  order of MASS  PRODUCTION  CIRCUITS  PowerDsine  shall
          choose a price band corresponding to the anticipated PURCHASING VOLUME
          for  the  current  PERIOD.  If  PowerDsine   subsequently  acquires  a
          different  quantity  associated  with  another  price band  during the
          Purchasing Period, the price shall be adjusted by recalculation at the
          PARTIES'  earliest  convenience,  but no  later  than  the  end of the
          Purchasing Period.

9.        TERMS OF PAYMENT AND DELIVERY

          Prices  shall be FCA Graz  (Incoterms  2000),  30 days net,  excluding
          customs duties and taxes but including packaging.  Any other terms and
          conditions  which  may be  printed  on  orders,  order  confirmations,
          invoices etc. shall be null and void.

10.       CO-OPERATION DURING THE TERM OF PRODUCTION

          PowerDsine   nominates   the   following   contact   persons  for  the
          co-operation with Austria Mikro Systeme during the TERM:

          ----------------------- ----------------------------------------------
          Name:                   Igal Carmi
          ----------------------- ----------------------------------------------
          Function:               Director of Material and Purchasing
          ----------------------- ----------------------------------------------
          Tel. no.:               +972 9 7755108
          ----------------------- ----------------------------------------------
          Fax no.:
          ----------------------- ----------------------------------------------
          Address:                PowerDsine Ltd.
          ----------------------- ----------------------------------------------
                                  1 Hanagar St., P.O. Box 7220
          ----------------------- ----------------------------------------------
                                  IL-45421 Hod Hasharon
          ----------------------- ----------------------------------------------
          E-mail:                 igalc@powerdsine.com
          ----------------------- ----------------------------------------------

         Austria  Mikro Systeme  nominates  the  following  persons who shall be
         responsible for the co-operation with PowerDsine during the TERM:

         ----------------------- -----------------------------------------------
         Name:                   Michaela Fricek
         ----------------------- -----------------------------------------------
         Function:               Customer Service
         ----------------------- -----------------------------------------------
         Tel. no.:               +43 3136 500 5455
         ----------------------- -----------------------------------------------
         Fax no.:                +43 3136 500 5457
         ----------------------- -----------------------------------------------
         Address:                Austria Mikro Systeme International AG
         ----------------------- -----------------------------------------------
                                 A-8141 Unterpremstatten
         ----------------------- -----------------------------------------------
         E-mail                  michaela.fricek@amsint.com
         ----------------------- -----------------------------------------------

10A.      SHIPMENTS, SCHEDULE CHANGE

10A.1     Austria  Mikro  Systeme  hereby  undertakes  to  follow   PowerDsine's
          shipping  address as it may be provided from time to time, as same may
          be provided to it from time to time.


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10A.2     Each shipment made by Austria Mikro  Systeme,  shall include a copy of
          the invoice,  a packing list,  certificate of origin and other related
          and  necessary  documents,  as  are  customary  for  shipping  similar
          products.

10A.3     All  Products  shall be packed and  prepared  for  shipment by Austria
          Mikro Systeme in a manner which: (a) follows good commercial practice;
          and (b) is  acceptable  to common  carriers for  shipment;  and (c) is
          adequate to ensure safe arrival at Customer's designated destination.

10A.4     Austria  Mikro  Systeme  shall  be   responsible   for  obtaining  all
          appropriate  licenses or permits  necessary  to export the  Product(s)
          from the country of origin.

10B.      PRODUCT ACCEPTANCE AND WARRANTS

10B.1     Austria Mikro Systeme  warrants to PowerDsine the following:  (a) that
          each Product, or any parts thereof, sold pursuant to this AGREEMENT or
          any  Order  issued  hereunder,  when  sold,  will  conform  to  all of
          PowerDsine's  Specifications,   and  will  be  free  from  defects  in
          workmanship and materia1s for a period of at least fifteen (15) months
          from the date of shipment;  (b) that each  shipment of Products  shall
          carry with it a certificate of conformance; This express warranty does
          not apply to (i)  materials  consigned by  PowerDsine to Austria Mikro
          Systeme; (ii) defects resulting from PowerDsine's faulty design of the
          Products,  insofar as applicable;  or (iii)  Product(s)  that has been
          abused,  damaged,  altered or  misused  by any person or entity  after
          title  passes to  PowerDsine.  Notwithstanding  anything  else in this
          AGREEMENT,   Austria  Mikro  Systeme   assumes  no  liability  for  or
          obligation  related to the  Specifications,  designs  or  instructions
          produced or supplied by PowerDsine and PowerDsine  shall be liable for
          direct costs or expenses  incurred by Austria Mikro Systeme  resulting
          therefrom.

10B.2     When title to the Products will pass to PowerDsine,  the Products will
          be free  from  any  security  interest  or other  lien or third  party
          rights.

10B.3     Upon any failure of the  Product to comply with the above  warranties,
          the Parties hereby undertake to execute the RMA procedure provided for
          in Enclosure 2. For the avoidance of doubt,  PowerDsine shall bear the
          cost of  transportation  of the  defective  Product to  Austria  Mikro
          Systeme and Austria Mikro Systeme shall bear the  transportation  cost
          of the  replaced  Product  to  PowerDsine  or  any  other  address  as
          PowerDsine may instruct  Austria Mikro Systeme.  Austria Mikro Systeme
          shall waive any expedite  charges to PowerDsine in order to effect the
          earliest reasonable replacement of the defective Product(s).

10C.      TERM AND TERMINATION

10C.1     This  AGREEMENT  shall be effective  from the last  signature  date of
          parties  (the  "EFFECTIVE  DATE") and shall remain in effect until the
          end of the  Purchasing  Period (the  "TERM").  This  AGREEMENT  may be
          renewed by mutual  consent of both


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          parties.  In  addition  to any  other  right  to  terminate  contained
          elsewhere  in  this  AGREEMENT  and  notwithstanding  anything  to the
          contrary,  either  party  shall  have  the  right  to  terminate  this
          AGREEMENT for cause as a result of any of the following:

          10C.1.1   The  filing  by  or  against  a  Party  of  a  petition  for
                    reorganization or liquidation under local bankruptcy laws or
                    corresponding   laws  or   procedures   of  any   applicable
                    jurisdiction; If such filing is involuntary and is contested
                    to in good faith,  this AGREEMENT shall terminate only after
                    the passage of sixty (60) days without the dismissal of such
                    proceedings; or

          10C.1.2   The  filing   against  a  Party  of  any  other   proceeding
                    concerning bankruptcy, insolvency, dissolution, cessation of
                    operations,  or  reorganization  of  indebtedness;  If  such
                    proceeding is involuntary and is contested to in good faith,
                    this  AGREEMENT  shall  terminate  only after the passage of
                    sixty (60) days without the  dismissal of such  proceedings;
                    or

          10C.1.3   The voluntary or  involuntary  execution of an assignment or
                    conveyance to a  liquidating  agent,  trustee,  mortgagee or
                    assignee  of  whatever  description  or  the  making  of any
                    judicial levy against a substantial  percentage of a Party's
                    assets, for the benefit of its creditors; or

          10C.1.4   The  appointment  of  a  receiver,   keeper,  liquidator  or
                    custodian  of  whatever  sort of  description,  for all or a
                    substantial portion of a Party's assets.

10C.2     Termination  of this  AGREEMENT  shall not affect the  obligations  of
          either  party which exist as of the date of  termination.  The parties
          agree that their respective rights, obligations and duties in sections
          6A, lOB, and 13 shall survive any expiration or  termination  thereof.
          Furthermore,  upon  termination  of this  AGREEMENT  each party  shall
          return to the other any  Confidential  Information  of the other party
          and all copies thereof.

10C.3     Termination  of  the  AGREEMENT   during   Development  and  up  until
          completion of Development. If either PARTY materially and persistently
          fails  to  perform  its  obligations   under  this  AGREEMENT   during
          Development and up until  completion of  Development,  the other PARTY
          shall be entitled to terminate  this  AGREEMENT by giving  thirty (30)
          days  notice  after first  having  granted the other PARTY a period of
          grace of sixty  (60) days to make good such  failure.  In the event of
          termination, costs of termination shall be settled according to clause
          10C.4 and 10C.5 below. -

10C.4     In the event of  termination  by Austria  Mikro  Systeme  according to
          clause 10C.3 above,  PowerDsine shall pay a lump sum  corresponding to
          the  development  cost as  compensation  as  specified  in section 5.2
          herein.  This refund  constitutes  Austria Mikro Systeme's sole remedy
          and any further  claims made by Austria  Mikro  Systeme are  expressly
          excluded.


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10C.5     In the event of  termination  by PowerDsine  according to clause 10C.3
          above, Austria Mikro Systeme shall pay PowerDsine any payments made by
          PowerDsine  to Austria Mikro  Systeme as a  compensation.  This refund
          constitutes  PowerDsine's  sole remedy and any further  claims made by
          PowerDsine are expressly excluded.

11.       FORCE MAJEURE

          Neither  PARTY  shall be  liable  to pay  damages  or be  entitled  to
          terminate the AGREEMENT on the grounds of any delay or non-performance
          during   the  term  of  this   AGREEMENT,   provided   such  delay  or
          non-performance is due to circumstances outside its control, including
          force majeure,  the  imposition of duties by a competent  authority or
          enduring domestic or international problems (such as war or rebellion,
          strikes, natural disasters, stoppage of work and embargoes).  However,
          the aforesaid shall apply with the restriction that both PARTIES shall
          be entitled to  terminate  this  AGREEMENT  in writing if the delay or
          non-performance  of the other PARTY for the above named reasons should
          last for more than three (3)  months.  If such delay  should  last for
          more than  three (3)  months,  Austria  Mikro  Systeme  shall  provide
          PowerDsine with the mask control tapes (GDSII format).

          However, Austria Mikro Systeme shall not be required to disclose trade
          secrets or confidential information except for the GDSII format.

12.       NONDISCLOSURE

          The  obligation  of  keeping  confidential  information  secret and in
          particular the protection of the intellectual  property of the parties
          are set out in a separate confidentiality agreement between PowerDsine
          and Austria Mikro Systeme dated  09/Feb/01 (see Enclosure 1) and is an
          integral part of this AGREEMENT

13.       LIABILITY LIMITATION

13.1      PowerDsine  will  indemnify and defend  Austria Mikro Systeme and keep
          Austria Mikro Systeme fully and  effectively  indemnified  against all
          direct  and  indirect   costs,   damages,   judgments  and  reasonable
          attorney's fees (the  "Expenses")  Austria Mikro Systeme incurs due to
          any  infringement or other violation by PowerDsine of any Intellectual
          Property  Rights of third parties,  provided  however,  that: (i) such
          Expenses were incurred  solely in connection  with the  performance of
          the Work by  Austria  Mikro  Systeme,  (ii) in  performing  the  Work,
          Austria Mikro Systeme strictly adhered to the Specifications  provided
          to  it  by  PowerDsine,  (iii)  Austria  Mikro  Systeme  shall  notify
          PowerDsine  promptly  in  writing  of  any  allegations  or  claim  of
          infringement  of which it has notice  and will not make any  admission
          without  PowerDsine's  prior written  consent,  and (iv) Austria Mikro
          Systeme, at PowerDsine's  request and expense,  shall allow PowerDsine
          to conduct and/or settle all  negotiations  and  litigation  resulting
          from such allegation or claim.


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13.2      Austria Mikro  Systeme  hereby  represents  and warrants to PowerDsine
          that Austria  Mikro  Systeme's  Intellectual  Property  Rights used by
          Austria  Mikro  Systeme in performing  its  obligations  hereunder and
          which is ultimately  incorporated or embodied in the Product(s),  does
          not infringe upon any Intellectual Property Rights of any third party.

13.3      Austria Mikro Systeme will  indemnify and defend  PowerDsine  and keep
          PowerDsine  fully and effectively  indemnified  against all direct and
          indirect Expenses arising out of or in connection with infringement or
          violation by Austria Mikro Systeme of any Intellectual Property Rights
          of  any  third  party  in  connection  with  the  performance  of  its
          obligations  under this AGREEMENT  provided that: (i) PowerDsine shall
          notify Austria Mikro Systeme promptly in writing of any allegations or
          claim of  infringement  of which it has  notice  and will not make any
          admission  without Austria Mikro Systeme's prior written consent;  and
          (ii) PowerDsine, at Austria Mikro Systeme's request and expense, shall
          allow Austria Mikro Systeme to conduct and/or settle all  negotiations
          and litigation  resulting from such allegation or claim. Austria Mikro
          Systeme shall not be liable for any claim to the extent arising solely
          out of or resulting solely from (i) any modification or reworking made
          by PowerDsine or upon  instruction of PowerDsine  performed by Austria
          Mikro  Systeme if such  infringement  would not have  occurred but for
          such modification or (ii) use of the Product in combination with other
          equipment or computer  programs not supplied by Austria  Mikro Systeme
          if  such   infringement   would  not  have   occurred  but  from  such
          combination.

13.4      However,  the  aggregate  liability  of  either  Party for any and all
          claims that may result  from this  Section or any other  claims  based
          upon the  infringement  of third party  Intellectual  Propet1y  Rights
          shall be limited to a maximum of USD 100.000. THE FOREGOING STATES THE
          ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER CONCERNING  INFRINGEMENT
          OF INTELLECTUAL PROPERTY RIGHTS.

14.       JURISDICTION AND APPLICABLE LAW

          All disputes arising out of or in connection with this AGREEMENT shall
          be finally settled in compliance  with the Rules of  Conciliation  and
          Arbitration  of the  International  Chamber of  Commerce  by one.  The
          arbitration  proceedings shall be held in London.  The language of the
          arbitration shall be English.

15.       SEVERABILITY

          Should  any  provision  of  this   AGREEMENT   contravene   compulsory
          regulations and become null and void as a result,  the validity of the
          remaining  provisions of the AGREEMENT  shall remain  unaffected.  The
          PARTIES  shall in this case replace the  ineffective  provisions  with
          such provisions which, while being  enforceable,  most closely reflect
          the original intention of the AGREEMENT.

          Should any provisions of this AGREEMENT  contravene  another agreement
          between the PARTIES and become  ineffective as a result, the remaining
          provisions of this AGREEMENT shall remain unaffected.


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16.       MODIFICATION OF AGREEMENT

          It is agreed  between the PARTIES that no amendment,  deletion from or
          addition  to this  AGREEMENT  shall be valid  unless  made in writing,
          signed  by  both  PARTIES  and  expressed  to be  supplemental  to the
          agreement.

17.       LANGUAGE OF AGREEMENT

          It is agreed  between  the PARTIES  that only the English  language is
          valid  for  this  AGREEMENT  or its  appendices  irrespective  whether
          translations  into other languages wholly or in part have been made or
          used for convenience  during the  establishment  and execution of this
          AGREEMENT.

18.       AUSTRIA MIKRO SYSTEME REPRESENTATION

18.1      Austria Mikro Systeme represents that it has the skills, expertise and
          experience required to perform its duties and obligations set forth in
          this AGREEMENT and its annexes,  and that such duties and  obligations
          shall be performed  diligently,  in good faith and utilizing  good and
          acceptable design, quality and manufacturing practices.

18.2      Austria Mikro Systeme  further  represents that the performance of its
          duties and  obligations  hereunder is not in violation of and will not
          violate,  is not  limited  and  will  not  be  limited  by  any  other
          obligations  Austria Mikro Systeme has or may have towards other third
          parties,  or of any  contractual  provision  by  which  Austria  Mikro
          Systeme is bound.

19.       MISCELLANEOUS

19.1      ENTIRE  AGREEMENT.  This AGREEMENT and all annexes hereto are intended
          as the  complete,  final and  exclusive  statement of the terms of the
          agreement between the parties regarding the subject matters hereof and
          supersedes  any and all other prior or  contemporaneous  agreements or
          understandings,  whether written or oral, between them relating to the
          subject matters hereof. In particular, Austria Mikro Systeme's general
          terms   and   conditions   of  sale   shall   not  apply  to  any  PO,
          acknowledgement or other instrument  submitted by PowerDsine  pursuant
          to this AGREEMENT.

19.2      RELATIONSHIP OF THE PARTIES.  Neither party shall, for any purpose, be
          deemed to be an agent of the other party and the relationship  between
          the parties shall be that of independent contractors. Each party shall
          assume  sole  and  exclusive  responsibility  for  its  employees  and
          contractors. Neither party shall have any right or authority to assume
          or create any obligations or to make any representations or warranties
          on behalf of any other party,  whether express or implied,  or to bind
          the other party in any respect whatsoever.

19.3      EXPENSES.  In any action to enforce  this  AGREEMENT or in any dispute
          arising between the parties pursuant to this AGREEMENT, the prevailing
          party shall be awarded all  arbitration or courts costs and reasonable
          attorney's  fees incurred,  including  such costs and attorney's  fees
          incurred in enforcing and collecting any judgment.


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19.4      SUCCESSORS, ASSIGNMENT. This AGREEMENT shall be binding upon and inure
          to the benefit of the parties hereto and their respective  successors,
          assigns and legal  representatives.  Both  parties  shall not have the
          right to assign or otherwise  transfer its rights or obligations under
          this  AGREEMENT   except  (i)  with  the  prior  written   consent  of
          PowerDsine,  not to be unreasonably  withheld, and (ii) PowerDsine may
          assign this AGREEMENT to any entity which is the successor to any part
          of its business  related to this AGREEMENT by merger,  or to any party
          which acquires all or substantially  all of its assets related to this
          AGREEMENT and which agrees to assume all  obligations of the assigning
          party under this AGREEMENT from and after the date of such assignment.
          Any attempted assignment in violation of this provision, shall be null
          and void as against the non-assigning party.

19.5      NOTICES.  Except  for PO's  which may be sent by normal  carrier,  all
          notices and  communications  hereunder  are required to be sent to the
          address or  telecopier  number  stated below (or such other address or
          telecopier  number as  subsequently  notified  in writing to the other
          party):  (a) by  facsimile  with  confirmation  of  transmission,  (b)
          personal same or next day delivery or (c) sent by commercial overnight
          courier with written  verification  of delivery.  All notices so given
          shall be deemed given upon the earlier of receipt or one (l) day after
          dispatch.

          Any notices sent to PowerDsine hereunder should be sent to:

          PowerDsine Ltd.

          1 Hanagar Street, Neve Nee'man B Industrial Zone
          Hod Hasharon, Israel
          Attn: Asaf Silberstein
          Fax: 972-9-7755111

          Any notices sent to Austria Mikro Systeme hereunder should be sent to:

          Austria Mikro Systeme International AG
          Schloss Premstaetten
          A-8141 Unterpremstaetten
          Attn: Heribert Hochrinner
          Fax No. +43 3136 500 5692

19.6      PHOTOCOPY  OF  ORIGINAL.  Neither  party shall  object to the use of a
          photocopy of the original of this  AGREEMENT for the purpose of making
          any required or allowed public filings.

19.7      COUNTERPARTS.   This   AGREEMENT  may  be  executed  in  two  or  more
          counterparts,  each of which shall be deemed an  original,  but all of
          which shall constitute one and the same instrument.


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Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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19.8      VISITATION.  It is agreed  that  PowerDsine  may visit  Austria  Mikro
          Systeme's  facilities  during the performance of the Work upon one (1)
          week prior co-ordination.

20.       ENCLOSURES TO THIS AGREEMENT

          Enclosure 1: Confidentiality Agreement (see clause 12)
          Enclosure 2: RMA procedure (see clause 10B.3)
          Enclosure 3: Project Schedule

-------------------------------------- -----------------------------------------
AUSTRIA MIKRO SYSTEME                  PowerDsine
INTERNATIONAL AG
-------------------------------------- -----------------------------------------

Name:            Alexander Harrer      Name:                  Ilan Atias

---------------- --------------------- ---------------------- ------------------
                 General Manager
Function:        Communication         Function:              President
                 Business Unit
---------------- --------------------- ---------------------- ------------------

Signature:                             Signature:
---------------- --------------------- ---------------------- ------------------
Date:            JUL 24 2001           Date:                  15 Aug. 2001
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------

Name:            Gernot Proske         Name:                  Igal Roten
---------------- --------------------- ---------------------- ------------------

Function:        General Counsel       Function:              C.E.O.
---------------- --------------------- ---------------------- ------------------

Signature:                             Signature:
---------------- --------------------- ---------------------- ------------------
Date:            JUL 24 2001           Date:                  28 Aug. 2001
--------------------------------------------------------------------------------


IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be executed
by their duly authorized  representatives effective as of the effective Date (as
defined above).

Enclosure 3: Project Schedule:

As agreed between the parties and sent by Austria Mikro Systeme to PowerDsine in
PDF file.


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                                                                   Page 22 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

<PAGE>


Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

--------------------------------------------------------------------------------


                      CONFIDENTIAL DISCLOSURE AGREEMENT

Entered  into  this 09 day of FEB , 2001,  by and  between  POWERDSINE  LTD.,  a
company  organized under the laws of Israel with its principal place of business
at 1 Hanagar  st.,  Hod-Hasharon,  Israel  ("the  Company"),  and AUSTRIA  MIKRO
SYSTEME  INTERNATIONAL,  a  corporation/partnership/individual,  with offices at
SCHLOSS PREMSTATTEN, A 8141 UNTERPREMSTATTEN, AUSTRIA ("Participant").

                                   WITNESSETH:

WHEREAS The Company and  Participant  desire to continue to exchange or provide,
access to their  respective  confidential  and/or  proprietary  information  and
technology  for  purposes  of  evaluation  of a possible  business  relationship
between  the  Company  and  Participant  (the  "Evaluation")  and to induce such
disclosure  desired to undertake  certain  obligations  of  confidentiality  and
nondisclosure as set forth herein;

NOW THEREFORE,  in consideration of the mutual undertakings and promises herein,
the parties hereto hereby agree as follows:

1.1       The  term  "Information"   means  any  and  all  confidential   and/or
proprietary  information  and  technology  of the  Company  or  Participant,  in
whatever   form,   including   but  not   limited  to  any  and  all   formulas,
specifications,  prototypes,  designs,  equipment,  samples, analyses,  computer
programs, trade secrets, data, methods, techniques, processes, memoranda, notes,
marketing  and  customer   information,   projections  and  any  other  data  or
information (in whatever form),  as well as  improvements  and know-how  related
thereto.  Information  shall be deemed to include any and all Information  which
has  been  or  may  be  disclosed  by or on  behalf  of  the  disclosing  party,
irrespective  of form but  which is  either  (i)  marked  "Confidential"  by the
disclosing party or otherwise  identified as confidential and proprietary to the
disclosing party, or (ii) in the case of oral disclosures,  is identified at the
time of disclosure  as being  proprietary  and  confidential  to the  disclosing
party.

1.2       "Information"  shall not  include  information  or matter that (a) was
already  known  to or  independently  developed  by the  recipient  prior to its
disclosure  by the  other  party as  demonstrated  by  reasonable  and  tangible
evidence  satisfactory to the disclosing  party;  (b) shall have appeared in any
printed  publication  or  patent  or  shall  have  become  a part of the  public
knowledge  except as a result of breach of this Agreement by the recipient;  (c)
shall have been received by the recipient  from another  person or entity having
no obligation to the disclosing  party or its affiliates;  or (d) is approved in
writing by the disclosing party for release by the recipient.

2.        Each  party  agrees to treat all the  Information  disclosed  to it as
strictly confidential and not to exploit or make use, directly or indirectly, of
such  Information  without the express written consent of the disclosing  party,
except for  purposes  of the  Evaluation.  Notwithstanding  the  foregoing,  the
recipient  may  disclose  Information  to a  person  or  entity  controlled  by,
controlling or under common control with the recipient, provided such disclosure
is for the purposes of the


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                                                                   Page 23 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

<PAGE>


Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

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Evaluation and provided that such person or entity is bound by the terms of this
Agreement.  Each party  shall  assume full  responsibility  for  enforcing  this
Agreement  and shall take  appropriate  measures  with its  employees  and other
persons  acting on its behalf to insure  that such  persons  are bound by a like
covenant of secrecy,  including but not limited to informing any employee of the
recipient  receiving  such  Information  that  such  Information  shall  not  be
disclosed  except as provided  herein.  Neither party shall reverse  engineer or
disassemble any hardware,  software or other  Information  provided by the other
party,  nor shall a party open for any purpose any item of hardware which may be
provided by the other party.

2.1       It is understood and agreed that the disclosure of the  Information by
the disclosing party shall not grant the recipient any express, implied or other
license  or rights to patents or trade  secrets of the  disclosing  party or its
suppliers,  whether or not  patentable,  nor shall it constitute or be deemed to
create a partnership,  joint venture or other undertaking.  Further,  each party
agrees that it shall not remove or otherwise alter any of the disclosing party's
trademarks or service marks, serial numbers, logos, copyrights, notices or other
proprietary  notices or indicia, if any, fixed or attached to Information or nay
part thereof.

2.2       Neither this  Agreement nor the  disclosure or receipt of  Information
shall  constitute  or imply any promise or intention by either party to make any
purchase  of  products  or  services  of the  other  or the  other's  affiliated
companies,  or any commitment by either party or its  affiliated  companies with
respect to present or future  marketing of any products or services or any other
business relationship.

3.        Unless otherwise  required by statute or government rule or regulation
all  copies  of the  Information  shall  be  returned  to the  disclosing  party
immediately upon request without retaining copies thereof.

4.        In the  event  that the  recipient  or  anyone  to whom the  recipient
transmits the Information  pursuant to this Agreement  becomes legally compelled
to disclose any of the  Information,  the recipient  will provide the disclosing
party  with  prompt  notice  thereof  so that the  disclosing  party  may seek a
protective  order or other  appropriate  remedy and/or waive compliance with the
provisions of this Agreement.

5.        This Agreement shall constitute the full Agreement between the parties
with respect to the  confidentiality  and  non-disclosure of the Information and
shall  supersede  any and  all  prior  agreements  and  understandings  relating
thereto. No change, modification,  alteration or addition of or to any provision
of this  Agreement  shall be binding  unless in writing  and  executed  by or on
behalf of both parties by a duly authorized  representative.  This Agreement may
not be assigned by either party without the consent of the other party.

6.        The  undertakings  herein  shall be binding upon the parties and their
respective affiliates,  subsidiaries or successors and shall continue until such
time as the substance of the disclosure has entered the public domain through no
fault  or  negligence  on the part of the  recipient,  or  until  permission  is
specifically  granted in writing to the  recipient  by the  disclosing  party to
release or make use of the Information otherwise than as stated herein.


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                                                                   Page 24 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

<PAGE>


Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

--------------------------------------------------------------------------------


7.        If any one or more of the terms  contained in this Agreement shall for
any reason be held to be excessively broad with regard to time, geographic scope
or  activity,  that  term  shall be  construed  in a manner  to  enable it to be
enforced to the extent compatible with applicable law. A determination  that any
term is void or unenforceable shall not affect the validity or enforceability of
any other term or condition.

8.        This  Agreement  shall be governed by and construed  under the laws of
the State of Israel.

IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
written above.

THE COMPANY                              PARTICIPANT



By:                                      By:
   -------------------------------------     -----------------------------------
Title:                                   Title:       GENERAL COUNSEL
      ----------------------------------       ---------------------------------


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                                                                   Page 25 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

<PAGE>


Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

--------------------------------------------------------------------------------


                          CUSTOMER RETURNS - GUIDELINES

Austria  Mikro  Systeme Int. AG is  committed to deploy first class  quality and
reliability  assurance  for  its  products,  delivery  performance  and  service
activities  and  to  achieve  continuous  improvement  in an its  processes  and
products.  To realize our goals every area focuses on quality in order to ensure
total  customer  satisfaction.  This enables  Austria  Mikro  Systeme Int. AG to
achieve delivery quality of 10ppm (AOQ) or even better.  However, if you do have
problems with our products, please follow the guidelines as stated below.

STEP 1:

Please contact our customer service  department and ask for a Returned Materials
Authorisation Reference Number.

AUSTRIA MIKRO SYSTEME AG
CUSTOMER SERVICE
SchloB Premstatten
A-8141 Unterpremstatten, Austria
Tel.: ++43 3136 500 0
Fax.: ++43 3136 500 5457

For correct  identification  you are kindly  requested  to provide the  original
purchase order number,  the Invoice number,  the type of material,  the affected
quantity and the reason for the complaint.  Our customer service department wi1l
then issue a Returned  Materials  Authorisation  Reference Number.

PLEASE NOTE: This Returned Materials Authorisation expires after 60 days. Do not
ship  material  after  60  days  without  obtaining  a  new  Returned  Materials
Authorisation.

STEP 2

Please prepare all necessary  documents for the return and indicate the Returned
Materials Authorisation Reference Number on all your shipping documents.

STEP 3

Please pack samples of the affected products  carefully.  Use original packaging
if possible and note the Returned  Materials  Authorisation  Reference Number on
the outside of the package. Return the samples of the affected products and send
back the rest of the complaint  quantity after  completion of failure  analysis.
PLEASE  NOTE:  Devices  with  cut or  damaged  leads  can  not be  retested  for
functionality.

RESPONSES TO YOUR COMPLAINT

1.        CUSTOMER COMPLAINT ACKNOWLEDGMENT

A  Complaint  Acknowledgement  will be  provided  to you  within 24 hours  after
receiving your samples.


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                                                                   Page 26 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.

<PAGE>


Development and Production Agreement: PowerDsine/ Austria Mikro Systeme

--------------------------------------------------------------------------------


2.        FAILURE ANALYSIS

The returned devices will be checked retested and investigated  physiochemically
if necessary.

3.        CORRECTIVE ACTION

Austria Mikro Systeme Int. AG uses the disciplined 8-D problem solving approach,
when corrective actions are necessary to be implemented.

4.        RESPONSE

Austria Mikro Systeme Int. AG will send you the detailed failure analysis report
and the 8D-Report,  when corrective  actions are required.  Defect parts will be
replaced or credited.



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                                                                   Page 27 of 27

** Represents  material  which has been redacted and  separately  filed with the
commission pursuant to a Request for Confidential Treatment pursuant to Rule 406
under he securities Act of 1933, as amended.
























<PAGE>


                                                  ENCLOSURE 3

Project Schedule
Customer:  POWERDSINE
Project:  PLACIDO (14906)
Author:  K. IIZER
Date:  JULY 9, 2001 (CW28)                            \/ 9.7.2001
<TABLE>
<CAPTION>
                                                Responsible
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Calendar week                                                    28   29   30   31    32   33   34  35   36    37   38   39
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
<S>                                                              <C>  <C>  <C>  <C>   <C>  <C>  <C> <C>  <C>   <C>  <C>  <C>
Friday of cw                                                                   3.8.                     7.9.
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Device Specification                           AMS / PowerDsine  X
---------------------------------------------- ---------------- -------------------- ---- ---- --- ---- ----- ---- ---- ----
Dev.  Spec. Signed                             AMS / PowerDsine  \/  12.7.2001
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Design, Layout                                 AMS                    X    X     X     X    X   X   X     X    X    X    X
---------------------------------------------- ---------------- ---- ---- ---- ------------------- ---- ----- ---- ---- ----
Preliminary VHDL netlist of dig. part          PowerDsine                      \/  3.8.2001
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ------------------- ---- ---- ----
Final VHDL netlist of dig. part                PowerDsine                                 \/  16.8.2001
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- -------------------- ----
Provide Backannotation Simulation              AMS                                                 \/  31.8.2001
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- --------------------
Approval of Backannotation Sim.                PowerDsine                                               \/  6.9.2001
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
PG Tape                                        AMS
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Fabrication and Assembly                       AMS
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
ES Delivery ceramic 15 pcs                     AMS
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
ES Approval (on ceramic ES)                    PowerDsine
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Generation of Prototypes                       AMS
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Prototype delivery 25 pcs                      AMS
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Qualification at PowerDsine                    PowerDsine
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----
Prototype Approval by PowerDsine               PowerDsine
---------------------------------------------- ---------------- ---- ---- ---- ----- ---- ---- --- ---- ----- ---- ---- ----

<CAPTION>
                                             Responsible
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Calendar week                                                   40   41   42   43   44     45   46   47   48   49     50   51   52
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
<S>                                          <C>               <C>  <C>  <C>  <C>  <C>    <C>  <C>  <C>  <C>  <C>    <C>  <C>  <C>
Friday of cw                                                   5.10                2.11.                      7.12.
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Device Specification                         AMS / PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Dev.  Spec. Signed                           AMS / PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Design, Layout                               AMS                X
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Preliminary VHDL netlist of dig. part        PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Final VHDL netlist of dig. part              PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Provide Backannotation Simulation            AMS
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Approval of Backannotation Sim.              PowerDsine
-------------------------------------------- ----------------  ------------------- ------ ---- ---- ---- ---- ------ ---- ---- ---
PG Tape                                      AMS               \/ 5.10.2001
-------------------------------------------- ----------------  ------------------- ------ ---- ---- ---- ---- ------ ---- ---- ---
Fabrication and Assembly                     AMS                     X    X    X     X     X    X
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- --------------------- ---- ---- ---
ES Delivery ceramic 15 pcs                   AMS                                               \/  6.11.2001
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ -------------
ES Approval (on ceramic ES)                  PowerDsine                                                             \/  13.12.2001
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Generation of Prototypes                     AMS                                                                           X    X
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Prototype delivery 25 pcs                    AMS
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Qualification at PowerDsine                  PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---
Prototype Approval by PowerDsine             PowerDsine
-------------------------------------------- ----------------  ---- ---- ---- ---- ------ ---- ---- ---- ---- ------ ---- ---- ---

<CAPTION>
                                               Responsible
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Calendar week                                                    1     2   3  4   5     6   7   8  9      10   11
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
<S>                                            <C>              <C>   <C> <C><C> <C>   <C> <C> <C><C>    <C>  <C>
Friday of cw                                                    4.1.             1.2.             1.3.
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Device Specification                           AMS / PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Dev.  Spec. Signed                             AMS / PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Design, Layout                                 AMS
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Preliminary VHDL netlist of dig. part          PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Final VHDL netlist of dig. part                PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Provide Backannotation Simulation              AMS
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Approval of Backannotation Sim.                PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
PG Tape                                        AMS
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Fabrication and Assembly                       AMS
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
ES Delivery ceramic 15 pcs                     AMS
---------------------------------------------- ---------------------  --- -- --- ----- --- --- -- ------ ---- ---
ES Approval (on ceramic ES)                    PowerDsine
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Generation of Prototypes                       AMS                X    X
---------------------------------------------- ---------------- ----  ---------------- --- --- -- ------ ---- ---
Prototype delivery 25 pcs                      AMS                    \/  11.1.2002
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -- ------ ---- ---
Qualification at PowerDsine                    PowerDsine                 X   X    X    X   X  X
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -------------- ---
Prototype Approval by PowerDsine               PowerDsine                                      \/  22.2.02
---------------------------------------------- ---------------- ----  --- -- --- ----- --- --- -------------- ---
</TABLE>