<PAGE>   1

================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------
                                   FORM 10-Q
                                ----------------

(Mark One)

[X]     Quarterly report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the period ended March 31, 2001

                                       OR

[ ]     Transition report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934

Commission file number: 000-23649

                            ARTISAN COMPONENTS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                      <C>
            DELAWARE                                  77-0278185
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)
</TABLE>

                               1195 Bordeaux Drive
                           Sunnyvale, California 94089
                    (Address of principal executive offices)

                         Telephone Number (408) 734-5600
              (Registrant's telephone number, including area code)


        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                 Yes [X]      No [ ]

As of April 30, 2001 there were 16,380,611 shares of the Registrant's Common
Stock outstanding.

================================================================================
<PAGE>   2

                            ARTISAN COMPONENTS, INC.
                                    Form 10-Q

                                      INDEX


<TABLE>
<CAPTION>
                                                                                Page No.
                                                                                --------
<S>                                                                             <C>
Cover Page ...................................................................     1
Index ........................................................................     2

PART I - Financial Information

     ITEM 1 - Financial statements

     Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited)
                  and September 30, 2000 .....................................     3
     Condensed Consolidated Statements of Operations, unaudited,
                  for the Three and Six Months Ended March 31,
                  2001 and 2000 ..............................................     4
     Condensed Consolidated Statements of Cash Flows, unaudited,
                  for the Six Months Ended March 31, 2001 and 2000 ...........     5
     Notes to Unaudited Condensed Consolidated Financial Statements ..........     6

     ITEM 2 - Management's Discussion and Analysis of Financial
                   Condition and Results of Operations .......................    11

     ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk .....    19

PART II - Other Information

     ITEM 1 - Legal Proceedings ..............................................    31
     ITEM 2 - Changes in Security and Use of Proceeds ........................    31
     ITEM 3 - Defaults Upon Senior Securities ................................    31
     ITEM 4 - Submission of Matters to a Vote of Security Holders ............    31
     ITEM 5 - Other Information ..............................................    31
     ITEM 6 - Exhibits and Reports on Form 8-K ...............................    32

Signatures ...................................................................    33
</TABLE>



                                       2
<PAGE>   3

                            ARTISAN COMPONENTS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                March 31,    September 30,
                                                                  2001           2000
                                                                ---------    ------------
                                                               (unaudited)
<S>                                                            <C>           <C>
                           ASSETS
Current Assets:
 Cash and cash equivalents .................................      $29,329      $33,278
 Marketable securities .....................................       11,177       20,738
 Contract receivables, net .................................       11,307        7,722
 Prepaid expenses and other current assets .................        1,723        1,129
 Deferred tax asset, current portion .......................        2,443        2,443
                                                                  -------      -------
    Total current assets ...................................       55,979       65,310
Property and equipment, net ................................        4,237        4,809
Deferred tax asset, long-term portion ......................        2,971        1,608
Goodwill and other intangible assets, net ..................       21,942           --
Other assets ...............................................          203          203
                                                                  -------      -------
    Total assets ...........................................      $85,332      $71,930
                                                                  =======      =======

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable and accrued expenses .....................      $ 3,867      $ 3,651
 Deferred revenue, current portion .........................        6,595        4,590
                                                                  -------      -------
    Total current liabilities ..............................       10,462        8,241
Deferred revenue, long-term portion ........................          645          117
Other liabilities ..........................................          118          118
                                                                  -------      -------
    Total liabilities ......................................       11,225        8,476
                                                                  -------      -------

Stockholders' Equity
   Common Stock, $0.001 par value:
      Authorized: 50,000;
      Issued and outstanding: 16,379 and 14,730
        shares at March 31, 2001 and September 30, 2000,
        respectively .......................................           16           15
 Additional paid in capital ................................       72,294       59,609
 Retained earnings .........................................        1,797        3,830
                                                                  -------      -------
    Total stockholders' equity .............................       74,107       63,454
                                                                  -------      -------
    Total liabilities and stockholders' equity .............      $85,332      $71,930
                                                                  =======      =======
</TABLE>

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.



                                       3
<PAGE>   4

                            ARTISAN COMPONENTS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                             Three Months                   Six Months
                                                            Ended March 31,               Ended March 31,
                                                        -----------------------       -----------------------
                                                          2001           2000           2001           2000
                                                        --------       --------       --------       --------
<S>                                                     <C>            <C>            <C>            <C>
Revenue:
 License .........................................      $  5,555       $  4,586       $ 10,017       $  9,031
 Net royalty .....................................         1,140            783          2,232          1,399
                                                        --------       --------       --------       --------
  Total revenue ..................................         6,695          5,369         12,249         10,430
                                                        --------       --------       --------       --------

Cost and expenses:
 Cost of revenue .................................         1,512          1,358          2,533          2,812
 Amortization of acquired technology .............           397             --            397             --
 Product development .............................         3,220          1,591          5,499          3,233
 Sales and marketing .............................         1,581          1,881          3,007          3,554
 General and administrative ......................           656            607          1,325          1,147
 In process research and development .............         2,441             --          2,441             --
 Amortization of goodwill and other intangible
  assets .........................................         1,615             --          1,615             --
                                                        --------       --------       --------       --------
  Total cost and expenses ........................        11,422          5,437         16,817         10,746
                                                        --------       --------       --------       --------
Operating loss ...................................        (4,727)           (68)        (4,568)          (316)
Other income, net ................................           588            692          1,488          1,376
                                                        --------       --------       --------       --------
Income (loss) before provision for income
    taxes ........................................        (4,139)           624         (3,080)         1,060
Provision (benefit) for income taxes .............        (1,407)           206         (1,047)           350
                                                        --------       --------       --------       --------
Net income (loss) ................................      $ (2,732)      $    418       $ (2,033)      $    710
                                                        ========       ========       ========       ========
Basic and diluted net income (loss) per
    share ........................................      $  (0.17)      $   0.03       $  (0.13)      $   0.05
                                                        ========       ========       ========       ========

Shares used in computing:
  Basic net income (loss) per share ..............        16,280         14,246         15,516         14,119
  Diluted net income (loss) per share ............        16,280         15,745         15,516         15,527
</TABLE>


The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.



                                       4
<PAGE>   5

                            ARTISAN COMPONENTS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                       March 31,
                                                                -----------------------
                                                                  2001           2000
                                                                --------       --------
<S>                                                             <C>            <C>
Cash flows from operating activities:
 Net income (loss) .......................................      $ (2,033)      $    710
 Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
  Depreciation and amortization ..........................         1,233          1,452
  Amortization of goodwill and other intangible
      assets .............................................         2,012             --
  Gain on sale of fixed assets ...........................           (33)           (45)
  Compensation expense for options granted ...............             8             34
  In process research and development ....................         2,441             --
  Changes in assets and liabilities:
    Contract receivables, net ............................        (3,585)          (105)
    Prepaid expenses and other assets ....................            --            (21)
    Deferred taxes .......................................        (1,363)            --
    Accounts payable and accrued liabilities .............           136           (895)
    Deferred rent ........................................            --             10
    Deferred revenue and long-term liabilities ...........         1,220            221
                                                                --------       --------
    Net cash provided by operating activities ............            36          1,361
                                                                --------       --------
Cash flows from investing activities:
 Purchase of property and equipment ......................          (314)          (819)
 Proceeds from sale of property and equipment ............            50             60
 Acquisition of Physical Library Business of Synopsys ....       (14,451)            --
 Purchase of marketable securities .......................       (17,524)       (25,108)
 Proceeds from sale of marketable securities .............        27,085         43,846
                                                                --------       --------
    Net cash provided by (used in) investing
      activities .........................................        (5,154)        17,979
                                                                --------       --------
Cash flows from financing activities:
    Proceeds from issuance of common stock ...............         1,169          2,406
                                                                --------       --------
    Net cash provided by financing activities ............         1,169          2,406
                                                                --------       --------

Net increase (decrease) in cash and cash equivalents .....        (3,949)        21,746
Cash and cash equivalents, beginning of period ...........        33,278         15,233
                                                                --------       --------
Cash and cash equivalents, end of period .................      $ 29,329       $ 36,979
                                                                ========       ========

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
  Fixed asset acquisitions in exchange for accounts
    payable ..................................................  $     80       $     --
  Issuance of common stock in acquisition of  Physical Library
    Business of Synopsys .....................................  $ 11,509       $     --
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.



                                       5
<PAGE>   6

                            ARTISAN COMPONENTS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1. BASIS OF CONSOLIDATION AND PRESENTATION:

The accompanying consolidated financial statements include the accounts of
Artisan Components, Inc. ("Artisan" or the "Company") and its wholly owned
subsidiary after elimination of all inter-company transactions. The Company's
fiscal year ends September 30.

The accompanying unaudited condensed consolidated financial statements of
Artisan have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and in accordance with the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The September 30, 2000 fiscal year
end consolidated balance sheet data was derived from the audited financial
statements and does not include all disclosures required by GAAP. Operating
results for the three month and six month periods ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2001 or any other future period. The unaudited condensed
consolidated interim financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and footnotes for
the year ended September 30, 2000 included in the Company's Annual Report on
Form 10-K as filed with the SEC.

2. USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and to disclose contingent liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.

3. EARNINGS PER SHARE ("EPS") DISCLOSURES:

Basic and diluted EPS are computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128. Basic EPS is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed giving effect
to all dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares consist of the incremental common shares
issuable upon the conversion of convertible preferred stock (using the "if
converted" method) and exercise of stock options and warrants for all periods.
Dilutive potential common shares are not included during periods in which the
Company experienced a net loss, as the impact would be anti-dilutive.



                                       6
<PAGE>   7

                            ARTISAN COMPONENTS, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                   (unaudited)

In accordance with the disclosure requirements of SFAS No. 128, a reconciliation
of the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                  Three Months                  Six Months
                                                 Ended March 31,             Ended March 31,
                                              ----------------------      ----------------------
                                                2001          2000          2001          2000
                                              --------       -------      --------       -------
<S>                                           <C>            <C>          <C>            <C>
Numerator--Basic and Diluted EPS
  Net income (loss) ....................      $ (2,732)      $   418      $ (2,033)      $   710
                                              ========       =======      ========       =======
Denominator--Basic EPS
  Common stock outstanding .............        16,280        14,246        15,516        14,119
                                              --------       -------      --------       -------
Basic net income (loss) per share ......      $  (0.17)      $  0.03      $  (0.13)      $  0.05
                                              ========       =======      ========       =======
Denominator--Diluted EPS
  Denominator--Basic EPS ...............        16,280        14,246        15,516        14,119
  Effect of Dilutive Securities
    Common stock options(1) ............            --         1,499            --         1,408
                                              --------       -------      --------       -------
                                                16,280        15,745        15,516        15,527
                                              --------       -------      --------       -------
Diluted net income (loss) per share ....      $  (0.17)      $  0.03      $  (0.13)      $  0.05
                                              ========       =======      ========       =======
</TABLE>

(1) 3,515,583 shares of common stock options outstanding were not included in
the per share calculation in the three and six month periods ended March 31,
2001. 6,000 and 98,583 shares of common stock options outstanding were not
included in the per share calculation in the three and six month periods ended
March 31, 2000, respectively.

4. NEW ACCOUNTING STANDARDS:

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Investments and Hedging Activities." The
statement establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or a
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The adoption of SFAS No. 133 on
October 1, 2000 did not have a material effect on the Company's financial
position or results of operations.

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on
applying GAAP to revenue recognition issues in financial statements. The
adoption of SAB 101 on October 1, 2000 did not have a material effect on the
Company's financial position or results of operations.



                                       7
<PAGE>   8

                            ARTISAN COMPONENTS, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                   (unaudited)

5. COMPREHENSIVE INCOME:

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes requirements for disclosure of comprehensive income
and became effective for the Company for its fiscal year 1999, with
reclassification of earlier financial statements for comparative purposes.
Comprehensive income generally represents all changes in stockholders' equity
except those resulting from investments of contributions by stockholders. SFAS
No. 130 requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. The Company has adopted
SFAS No. 130; however, the effect of the adoption was immaterial to all periods
presented.

6. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION:

The Company currently operates in one industry segment, the semiconductor
intellectual property segment, for financial reporting purposes, and uses one
measure of profitability for its business. The Company markets its products to
customers in North America, Europe and Asia.

<TABLE>
<CAPTION>
                                                   Three Months              Six Months
                                                  Ended March 31,           Ended March 31,
                                                -------------------      --------------------
($ In Thousands)                                 2001        2000         2001         2000
                                                ------      -------      -------      -------
<S>                                             <C>         <C>          <C>          <C>
Revenue from Unaffiliated Customers:
 Japan ...................................      $2,097      $ 1,443      $ 4,082      $ 2,576
 Taiwan ..................................       1,865        2,788        3,981        4,576
 United States ...........................       1,793          519        2,396        1,248
 Germany .................................         739          333        1,272          503
 Other ...................................         201          286          518        1,527
                                                ------      -------      -------      -------
                                                $6,695      $ 5,369      $12,249      $10,430
                                                ======      =======      =======      =======
</TABLE>

7. ACQUISITION OF PHYSICAL LIBRARY BUSINESS OF SYNOPSYS

On January 4, 2001, the Company completed the acquisition of certain assets of
the physical library business of Synopsys, Inc. ("Physical Library Business")
for $27.3 million including $13.4 in cash, 1,450,000 shares of the Company's
common stock valued at $11.5 million and transaction costs and expenses.

The transaction was accounted for under the purchase method of accounting, in
accordance with Accounting Principles Board Opinion ("APB") No. 16. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values as of the
date of the acquisition.



                                       8
<PAGE>   9

                            ARTISAN COMPONENTS, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                   (unaudited)

The Company's allocation of the aggregate purchase price is based on
management's preliminary analysis and estimates of the fair value of the
tangible assets and intangible assets of the Physical Library Business as
follows (in thousands):

<TABLE>
<CAPTION>
                                                             Useful
                                                  Amount   lives (years)
                                                  -------  ------------
<S>                                               <C>      <C>
Tangible assets acquired ...................      $   914      N/A
Identifiable intangibles acquired:
  In-process research and development ......        2,441      N/A
  Existing technology ......................        4,766      3
  Noncompete agreements ....................          376      2
  Acquired workforce .......................        1,368      3
  Goodwill and other intangible assets .....       17,445      3
                                                  -------
    Net assets acquired ....................      $27,310
                                                  =======
</TABLE>

The fair value allocation to in-process research and development was determined
by identifying the research projects for which technological feasibility has not
been achieved and which have no alternative future use at the acquisition date,
assessing the stage and expected date of completion of the research and
development effort at the acquisition date, and calculating the net present
value of the cash flows expected to result from the successful deployment of the
new technology resulting from the in-process research and development effort.

The stages of completion were determined by estimating the costs and time
incurred to date relative to the costs and time incurred to develop the
in-process technology into a commercially viable technology or product, while
considering the relative difficulty of completing the various tasks and over-
coming the obstacles necessary to attain technological feasibility. As of the
date of the acquisition, the Physical Library Business had two projects in
process that on average were 75% complete.

The estimated net present value of cash flows was based on incremental future
cash flows from revenues expected to be generated by the technologies in the
process of development, taking into account the characteristics and applications
of the technologies, the size and growth rate of existing and future markets and
an evaluation of past and anticipated technology and product life cycles.
Estimated net future cash flows included allocations of operating expenses and
income taxes but excluded the expected completion costs of the in-process
projects, and were discounted at a rate of 30% to arrive at a net present value.
The discount rate included a factor that took into account the uncertainty
surrounding the successful deployment of in-process technology projects. This
net present value was allocated to in-process research and development based on
the percentage of completion at the date of the acquisition.

The following unaudited pro forma financial information has been prepared as if
the acquisition had occurred at the beginning of the periods presented. Net
revenue, net loss and net loss per share data for the six month periods ended
March 31, 2001 and 2000 are based on the respective historical financial
statements of the Company and the Physical Library Business and reflect the
consolidated results of operations, including amortization of the resulting
goodwill and other intangible assets. The pro forma data excludes the charge for
in-process research and development. The pro forma financial data presented are
not necessarily indicative of the Company's results of operations that might
have occurred had the transaction been completed at the beginning of the periods



                                       9
<PAGE>   10

                            ARTISAN COMPONENTS, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                   (unaudited)


specified, and do not purport to represent what the Company's consolidated
results of operations might be for any future period.

<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED
                                                      MARCH 31,
                                                -----------------------
                                                  2001           2000
($ In Thousands, except per share data)         --------       --------
<S>                                             <C>            <C>
Net revenue ..............................      $ 12,708       $ 13,275
Net loss .................................      $ (3,792)      $ (4,739)
Basic and diluted net loss per share .....      $  (0.23)      $  (0.30)
Shares used in basic and diluted net
  loss per share calculation .............        16,273         15,569
</TABLE>



                                       10
<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the Unaudited
Condensed Consolidated Interim Financial Statements and the Notes thereto
included elsewhere herein and the audited consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000 as filed with the Securities and Exchange Commission. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The forward-looking statements
contained herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. Forward looking statements can
often be identified by the use of forward looking words such as "may," "will,"
"could," "should," "expect," "believe," "anticipate," "estimate," "continue,"
"plan," "intend," "project," or other similar words. For a more detailed
discussion of these and other business risks, see "--Factors Affecting Future
Operating Results."

OVERVIEW

Artisan Components, Inc. ("Artisan" or the "Company") is a leading developer of
high performance, high density and low power embedded memory, standard cell and
input/output ("I/O") intellectual property ("IP") components for the design and
manufacture of complex integrated circuits ("ICs"). The Company licenses its
products to semiconductor manufacturers and fabless semiconductor companies for
the design of ICs used in complex, high volume applications, such as portable
computing devices, cellular phones, consumer multimedia products, automotive
electronics, personal computers and workstations.

The Company's customers include foundries, which only manufacture ICs, and
Integrated Device Manufacturers ("IDMs"), which both design and manufacture ICs.
These companies invest significant resources in libraries that are designed to
match their specific manufacturing processes. Artisan's IP library products are
designed to enable these manufacturers to achieve the best combination of
performance, density, power and yield for a given manufacturing process.
Typically, a customer licenses one or more products designed for its
manufacturing process that are accompanied by layout databases, views to support
a customer's IC design tool environment and design methodology documentation.
The Company generally licenses its products on a nonexclusive, worldwide basis
to these major semiconductor manufacturers and grants these manufacturers the
right to distribute the Company's IP components to their internal design teams
and to distribute and sublicense the Company's IP components to semiconductor
design companies that manufacture at the same facility. License fees and
royalties are received under the terms of license agreements with such
manufacturers.

In cases where a foundry does not have the infrastructure necessary to
distribute and support the Company's IP components, the Company performs the
distribution function directly to semiconductor design companies that are
customers of the semiconductor manufacturer ("End Users"). As a result, certain
of the Company's libraries are available through distribution programs in place
between Artisan and the foundries. Eligible End Users can obtain libraries
through these programs at no cost to them. As part of the license agreement that
is entered into by the End User to obtain these libraries, they agree to
manufacture any semiconductor design using any of these libraries at the
particular foundry for which the library was developed. The foundry then pays a



                                       11
<PAGE>   12

royalty to Artisan based on the volume of the foundry's sales containing the
Company's IP. Additionally, the End Users can order modified products and
support from the Company for a separate license and support fee payable directly
by the End User.

The following diagram pictorially represents the Company's business model.
[Insert diagram in attached file]

The license of the Company's products to a semiconductor manufacturer typically
involves a sales cycle of six to 12 months and often coincides with a customer's
migration to a new manufacturing process. The Company's contracts generally
require a customer to pay a license fee to Artisan ranging from approximately
$250,000 to $700,000 for each product delivered under a contract. The Company's
contracts generally require a customer to pay a portion of the license fees upon
signing of the contract with the final payment due within 30 to 60 days after
the completion of customization, which generally takes three to six months.
Royalty revenue is calculated based on unit sales by manufacturers of ICs or
wafers containing the Company's IP components. Given that the Company provides
its products early in the customer's IC design process, there is a significant
delay between the delivery of a product and the generation of royalty revenue.

To date, the substantial majority of the Company's license revenue has been
recognized using the percentage of completion method of accounting. Provisions
for estimated losses on uncompleted contracts are recognized in the period in
which such losses are determined to be likely. As the completion period for a
project ranges from three to six months, revenue in any quarter is dependent on
the Company's progress toward completion of the project. There can be no
assurance that the Company's estimates will be accurate, and, in the event they
are not, the Company's business, operating results and financial condition in
subsequent periods could be materially adversely affected. See "--Factors
Affecting Future Operating Results--Lengthy Sales Cycle and Design Process."

As described above, the Company's business model is intended to generate revenue
from both license fees and royalties paid by foundries and IDMs. To date, a
substantial portion of royalty revenue has been derived from one customer. Net
royalty revenue was 17% and 15% of total revenue in the three month periods
ended March 31, 2001 and 2000, respectively and was 18% and 13% in the six month
periods ended March 31, 2001 and 2000, respectively. The Company expects royalty
revenue to continue to grow as a percent of total revenue, however the growth
rate may fluctuate from quarter to quarter and will likely decline over time.
For example, net royalty revenue grew by 77% in the first quarter of fiscal 2001
and by 46% in the second quarter of fiscal 2001.

According to contract terms, a portion of each royalty payment is credited back
to the customer's account for use as payment of license fees for future orders
placed with the Company. The remaining portion of the royalty is reported as net
royalty revenue. The amount of credits that can be earned by a customer is
limited to the cumulative amount of orders placed by that customer for a given
process technology. A customer has a limited time to use the credits before they
expire, generally between 12 and 24 months. If the customer does not use the
credits within this period, the Company takes the amount of expired credits as
revenue and no longer has an obligation to provide any future products in return
for such credits. The Company's success will depend, in part, on its ability to
generate royalty revenue from a substantially larger number of designs and on
many of these designs achieving large manufacturing volumes. See "--Factors
Affecting Future Operating Results--Fluctuations in Operating
Results--Dependence on License Fee- and Royalty-Based Business Model."



                                       12
<PAGE>   13

As indicated by the following table, the Company has been dependent on a
relatively small number of customers for a substantial portion of its revenue,
although the customers comprising this group have changed from time to time.

<TABLE>
<CAPTION>
                                              Three Months         Six Months
                                             Ended March 31,     Ended March 31,
                                             --------------      ---------------
(% of Total Revenue)                         2001      2000      2001      2000
                                             ----      ----      ----      ----
<S>                                          <C>       <C>       <C>       <C>
Taiwan Semiconductor Manufacturing
   Corporation ........................       27%       47%       31%       36%
 NEC Electronics, Inc. ................       12        13        11        14
 Sanyo Electric Company ...............       11        --        --        --
 Infineon Technologies AG .............       11        --        10        --
 National Semiconductor Company .......       10        --        --        --
 Sharp Corporation ....................       --        15        --        12
 Other ................................       29        25        48        38
                                             ---       ---       ---       ---
                                             100%      100%      100%      100%
                                             ===       ===       ===       ===
</TABLE>

The Company anticipates that its revenue will continue to depend on a limited
number of major customers for the foreseeable future, although the companies
considered to be major customers and the percentage of revenue represented by
each major customer may vary from period to period depending on the addition of
new contracts and the number of designs utilizing the Company's products. See
"--Factors Affecting Future Operating Results--Customer Concentration; Limited
Customer Base."

Historically, a substantial portion of the Company's total revenue has been
derived from customers outside the United States, primarily from Asia and Europe
("international revenue"). In the three and six month periods ended March 31,
2001, international revenue represented approximately 73% and 80%, respectively,
of the Company's total revenue. In the three and six month periods ended March
31, 2000, international revenue represented approximately 90% and 88%,
respectively, of the Company's total revenue. The Company anticipates that
international revenue will remain a substantial portion of its total revenue in
the future. To date, all of the revenue from international customers has been
denominated in U.S. dollars. See "--Factors Affecting Future Operating
Results--Risks Associated with International Customers."

The Company derives a substantial majority of all of its revenue from license
fees associated with the sale of products, including support and maintenance,
that together accounted for 83% and 82% of total revenue in the three and six
month periods ended March 31, 2001, respectively, and accounted for 85% and 87%
for the three and six month periods ended March 31, 2000. Although the percent
of revenue represented by license revenue has declined slightly, the Company
expects that license revenue will continue to account for a substantial portion
of the Company's total revenue for the foreseeable future. See "--Results of
Operations" and "--Factors Affecting Future Operating Results--Product
Concentration"."

In connection with the grant of options for the purchase of 96,200 shares of
Common Stock to employees during the period from December 1996 through March
1997 and 15,000 shares of Common Stock to non-employees in January 1998, the
Company recorded aggregate deferred compensation of approximately $281,000,
representing the difference between the deemed fair value of the Common Stock
and the option exercise price at the date of grant. Such deferred compensation
is amortized over the vesting period relating to the options. As of March 31,
2001, such deferred compensation has been fully amortized.



                                       13
<PAGE>   14

ACQUISITION OF PHYSICAL LIBRARY BUSINESS OF SYNOPSYS

On January 4, 2001, the Company acquired certain assets of the physical library
business of Synopsys, Inc. ("Physical Library Business") for approximately $27.3
million, including $13.4 million in cash, issuance of 1,450,000 shares of
Artisan Components common stock valued at $11.5 million and transaction costs
and expenses. The acquisition was accounted for under the purchase method of
accounting in accordance with APB No. 16. Note 7 to the Condensed Consolidated
Financial Statements outlines the details of the purchase price allocation and
pro forma financial information related to the acquisition.

Upon consummation of the Company's acquisition of the Physical Library Business,
the Company immediately charged to the expense $2.4 million representing
acquired in-process technology that had not yet reached technological
feasibility and had no alternative future use. At the time of its acquisition by
the Company, the Physical Library Business was working on two development
projects. The nature of the efforts to complete these in-process research and
development projects relate, in varying degrees, to the completion of all
planning, designing, prototyping, verification, and testing activities that are
necessary to establish that the proposed in-process technologies meet their
design specifications, which include functional, technical, and economic
performance requirements.

The Company has begun to integrate the workforce and operations of the acquired
business and has established an organizational structure that it believes will
effectively utilize the additional workforce. The acquired technology is being
integrated with the Company's existing business. Due to the nature of the
business acquired, incremental revenue resulting from the acquisition can not be
separately measured. The costs related to the workforce acquired are reflected
in Engineering costs and to a much lesser extent in Sales and Marketing costs.
The one-time and recurring charges are shown separately in the Results of
Operations below. The Company expects to incur charges of $2.0 million per
quarter primarily related to the amortization of acquired goodwill and other
intangibles over a 3 year period. See "--Factors Affecting Future Operating
Results -- Risks Associated with the Acquisition of Certain Assets of the
Physical Library Business of Synopsys, Inc."

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected statements
of operations data as a percentage of total revenue:

<TABLE>
<CAPTION>
                                                  Three Months              Six Months
                                                 Ended March 31,           Ended March 31,
                                               ------------------        ------------------
                                                2001         2000         2001         2000
                                               -----        -----        -----        -----
<S>                                            <C>          <C>          <C>          <C>
Revenue:
 License ................................       83.0%        85.4%        81.8%        86.6%
 Net royalty ............................       17.0         14.6         18.2         13.4
                                               -----        -----        -----        -----
  Total revenue .........................      100.0        100.0        100.0        100.0
                                               -----        -----        -----        -----

Cost and expenses:
 Cost of revenue ........................       22.5         25.3         17.9         27.0
 Amortization of acquired technology ....        6.0           --          6.0           --
 Product development ....................       48.1         29.6         44.9         31.0
 Sales and marketing ....................       23.6         35.1         24.6         34.0
 General and administrative .............        9.8         11.3         10.8         11.0
 In process research and development ....       36.5           --         19.9           --
 Amortization of goodwill and
  other intangible assets ...............       24.1           --         13.2           --
                                               -----        -----        -----        -----
  Total cost and expenses ...............      170.6        101.3        137.3        103.0
                                               -----        -----        -----        -----
Operating loss ..........................      (70.6)        (1.3)       (37.3)        (3.0)
Other income, net .......................        8.8         12.9         12.2         13.2
                                               -----        -----        -----        -----
Income (loss) before provision
 for income taxes .......................      (61.8)        11.6        (25.1)        10.2
Provision (benefit) for income
 taxes ..................................      (21.0)         3.8         (8.5)         3.4
                                               -----        -----        -----        -----
Net income (loss) .......................      (40.8)%        7.8%       (16.6)%        6.8%
                                               =====        =====        =====        =====
</TABLE>



                                       14
<PAGE>   15

REVENUE

<TABLE>
<CAPTION>
                               Three Months Ended                   Six Months Ended
                                    March 31,                           March 31,
                          -----------------------------      -------------------------------
($ In Thousands)           2001     Inc/(Dec)     2000        2001      Inc/(Dec)      2000
                          ------      ----       ------      -------      ----       -------
<S>                       <C>       <C>          <C>         <C>        <C>          <C>
License ............      $5,555      21.1%      $4,586      $10,017      10.9%      $ 9,031
Net royalty ........       1,140      45.6%         783        2,232      59.5%        1,399
                          ------      ----       ------      -------      ----       -------
Total revenue ......      $6,695      24.7%      $5,369      $12,249      17.4%      $10,430
                          ======      ====       ======      =======      ====       =======
</TABLE>

Total revenue increased 25% in the second quarter of fiscal 2001 as compared to
the second quarter of fiscal 2000 due to an overall increase in license revenue
for the Company's memory, standard cell and I/O products, higher net royalty
revenue and higher maintenance and support revenue. Total revenue increased 17%
in the six month period ended March 31, 2001, as compared to the same period in
fiscal 2000, due to increases in net royalty revenue, license revenue and
support revenue. Gross royalty revenue is calculated based on per unit sales by
Artisan customers of ICs or wafers containing the Company's IP components. Total
gross royalties for the second quarters of fiscal 2001 and 2000 were $1.7
million and $1.2 million, respectively. Total gross royalties for the six month
periods ended March 31, 2001 and 2000 were $3.3 million and $2.2 million,
respectively. From gross royalties, a portion was credited back to the
customer's account for use as payment of license fees for future orders to be
placed with the Company. The remaining portion of gross royalty revenue was
reported as net royalty revenue.

COSTS AND EXPENSES

<TABLE>
<CAPTION>
                                   Three Months Ended                   Six Months Ended
                                         March 31,                          March 31,
                              ------------------------------      -------------------------------
($ In Thousands)               2001      Inc/(Dec)     2000        2001      Inc/(Dec)      2000
                              ------       ----       ------      ------       ----        ------
<S>                           <C>        <C>          <C>         <C>        <C>           <C>
Cost of revenue ........      $1,512       11.3%      $1,358      $2,533       (9.9)%      $2,812
Amortization of acquired
   technology ..........         397        N/A           --         397        N/A            --
Product development ....       3,220      102.4%       1,591       5,499       70.1%        3,233
                              ------       ----       ------      ------       ----        ------
Engineering costs ......      $5,129       73.9%      $2,949      $8,429       39.4%       $6,045
                              ======       ====       ======      ======       ====        ======
</TABLE>

Engineering costs are allocated between cost of revenue and product development
expenses. Engineering efforts devoted to developing products as part of specific
customer projects are recognized as cost of revenue. The balance of engineering
costs, incurred for general development of Artisan's technology, is charged to
product development. Engineering costs generally are expensed as incurred.
Engineering costs increased 74% in the second quarter of fiscal 2001 as compared
to the same period in fiscal 2000. The absolute dollar increase in engineering
costs of $2.2 million was due to increased headcount and personnel-related
expenses of $1.6 million, the addition of amortization of purchased technology
of $397,000, increased computer and networking related costs of $171,000 and
increased usage of external contractors and outside services of $63,000,
partially offset by decreased warranty expense of $28,000. Engineering costs
increased 39% in the six month period ended March 31, 2001, as compared to the
same period in fiscal 2000. The absolute dollar increase in engineering costs of
$2.4 million was due to increased headcount and personnel-related expenses of
$2.0 million, the addition of amortization of purchased technology of $397,000
and increased usage of external contractors and outside services of $118,000,
partially offset by decreased warranty expense of $101,000. The increase in



                                       15
<PAGE>   16

headcount related costs in both the three and six month periods ended March 31,
2001, as compared to the same periods in fiscal 2000, was primarily due to the
acquisition of Physical Library Business of Synopsys.

        Cost of revenue increased 11% in the second quarter of fiscal 2001 as
        compared to the same period in fiscal 2000. The absolute dollar increase
        of cost of revenue of $154,000 in the second quarter of fiscal 2001, as
        compared to the same period in fiscal 2000, was due to increased
        engineering hours allocated to revenue-generating projects of $253,000,
        partially offset by a decreased usage of external contractors of $71,000
        and decreased warranty expense of $28,000. Cost of revenue decreased 10%
        in the six month period ended March 31, 2001 as compared to the same
        period in fiscal 2000. The absolute dollar decrease of cost of revenue
        of $279,000 in the six month period ended March 31, 2001, as compared to
        the same period in fiscal 2000, was due to decreased use of external
        contractors of $235,000 and decreased warranty expense of $101,000,
        partially offset by increased engineering hours allocated to
        revenue-generating projects of $57,000.

        Product development expenses increased 102% in the second quarter of
        fiscal 2001 as compared to the same period in fiscal 2000. The absolute
        dollar increase of $1.6 million in the second quarter of fiscal 2001, as
        compared to the same period in fiscal 2000, was due to increased
        headcount and personnel-related expenses of $1.6 million, increased
        usage of external contractors and outside services of $135,000 and
        increased computer and networking related costs of $171,000, partially
        offset by decreased engineering hours allocated to revenue-generating
        projects of $253,000. Product development expenses increased 70% in the
        six month period ended March 31, 2001 as compared to the same period in
        fiscal 2000. The absolute dollar increase of $2.3 million in the six
        month period of fiscal 2001, as compared to the same period in fiscal
        2000, was due to increased headcount and personnel-related expenses of
        $2.0 million, increased usage of external contractors and outside
        services of $354,000 and increased computer and networking related costs
        of $22,000, partially offset by decreased engineering hours allocated to
        revenue-generating projects of $57,000. The Company expects that product
        development expenses will continue to increase in absolute dollars.

<TABLE>
<CAPTION>
                                    Three Months Ended                  Six Months Ended
                                         March 31,                           March 31,
                               ------------------------------      ------------------------------
($ In Thousands)                2001     Inc/(Dec)      2000        2001     Inc/(Dec)      2000
                               ------      -----       ------      ------      -----       ------
<S>                            <C>       <C>           <C>         <C>       <C>           <C>
Sales and marketing
   expense ..............      $1,581      (15.9)%     $1,881      $3,007      (15.4)%     $3,554
                               ======                  ======      ======                  ======
</TABLE>

Sales and marketing expenses include salaries, commissions, travel expenses and
costs associated with trade shows, advertising and other marketing efforts.
Sales and marketing expenses decreased by 16% in the second quarter of fiscal
2001, compared to the second quarter of fiscal 2000. The decrease in absolute
dollars in sales and marketing expenses of $300,000 in the second quarter of
fiscal 2001, as compared with the second quarter of fiscal 2000, was
attributable to decreased headcount and personnel-related expenses of
approximately $134,000 and decreased travel expenses of $184,000, partially
offset by increased other expenses of $18,000. Sales and marketing expenses
decreased 15% in the six month period ended March 31, 2001 as compared to the
same period in fiscal 2000. The decrease in absolute dollars in sales and
marketing expenses of $547,000 in the six month period ended March 31, 2001, as



                                       16
<PAGE>   17

compared to the same period in fiscal 2000, was due to decreased headcount and
personnel-related expenses of $316,000, decreased travel and entertainment of
$284,000 and decreased outside services of $53,000, partially offset by
increased marketing program expenses of $58,000 and increased other expenses of
$48,000. Headcount and personnel-related costs and travel and entertainment
costs decreased in both the three and six month periods ended March 31, 2001 as
compared to the same periods in fiscal 2000 due to a decrease in sales personnel
employed with the Company.

<TABLE>
<CAPTION>
                                       Three Months Ended               Six Months Ended
                                            March 31,                       March 31,
                                    -------------------------      -----------------------------
($ In Thousands)                    2001    Inc/(Dec)    2000       2001    Inc/(Dec)      2000
                                    ----       ---       ----      ------      ----       ------
<S>                                 <C>     <C>          <C>       <C>      <C>           <C>
General and administrative
   expenses ..................      $656       8.1%      $607      $1,325      15.5%      $1,147
                                    ====       ===       ====      ======      ====       ======
</TABLE>

General and administrative expenses increased 8% and 16% in the three and six
month periods ended March 31, 2001 as compared to the same periods in fiscal
2000. The absolute dollar increase in general and administrative expenses of
$49,000 and $178,000 in the three and six month period ended March 31, 2001 as
compared to the same periods in fiscal 2000 was due to an increase in headcount
and personnel-related expenses. The Company expects general and administrative
expenses to grow in absolute dollars in future periods.

<TABLE>
<CAPTION>
                                              Three Months Ended              Six Months Ended
                                                   March 31,                       March 31,
                                          -------------------------        ------------------------
($ In Thousands)                          2001     Inc/(Dec)   2000       2001     Inc/(Dec)   2000
                                          ----     --------    ----       ----      -------    ----
<S>                                      <C>       <C>         <C>       <C>       <C>         <C>
In process research and
   development ....................      $2,441       N/A      $ --      $2,441       N/A      $ --
Amortization of goodwill and
   purchased intangible
   assets .........................       1,615       N/A        --       1,615       N/A        --
                                          -----                  --       -----                  --
Acquisition-related
   costs ..........................      $4,056       N/A      $ --      $4,056       N/A      $ --
                                          =====                  ==       =====                  ==
</TABLE>

The one-time in process research and development charge and the recurring
amortization of goodwill and other intangible assets are both due to the
acquisition of the Physical Library Business of Synopsys.

OTHER INCOME

<TABLE>
<CAPTION>
                                       Three Months Ended               Six Months Ended
                                            March 31,                       March 31,
                                    -------------------------      -----------------------------
($ In Thousands)                    2001    Inc/(Dec)    2000       2001    Inc/(Dec)      2000
                                    ----       ---       ----      ------      ----       ------
<S>                                 <C>     <C>          <C>       <C>      <C>           <C>
Other income, net.....              $588      (15.0)%    $692      $1,488       8.1%      $1,376
                                    ====                 ====      ======                 ======
</TABLE>

Other income decreased by 15% in the second quarter of fiscal 2001 as compared
to the second quarter of fiscal 2000. Other income increased 8% in the six month
period ended March 31, 2001 as compared to the six month period ended March 31,
2000. The decrease in other income in the second quarter of fiscal 2001, as
compared to the same period in fiscal 2000, was primarily due to lower
investment balances as a result of cash paid for the Physical Library Business
of Synopsys as well as decreased average interest rates. The increase in other



                                       17
<PAGE>   18

income in the six month period ended March 31, 2001, as compared to the same
period in fiscal 2000, was primarily due to higher interest rates on the
Company's investments, partially offset by the lower investment balances in the
three months ended March 31, 2001 due to the acquisition of the Physical Library
Business of Synopsys as well as decreased average interest rates.

INCOME TAXES

<TABLE>
<CAPTION>
                                  Three Months Ended               Six Months Ended
                                       March 31,                        March 31,
                               -------------------------       -------------------------
($ In Thousands)               2001     Inc/(Dec)   2000       2001     Inc/(Dec)   2000
                               ----     --------    ----       ----      -------    ----
<S>                          <C>        <C>         <C>       <C>       <C>         <C>
Provision (benefit) for
   income taxes .......      $(1,407)      N/A      $206      $(1,047)      N/A      $350
                               =====                 ===        =====                 ===
</TABLE>

The effective tax rate was 34% in the three and six month periods ended March
31, 2001 and 33% in the three and six month periods ended March 31, 2000. The
increase in the effective tax rate was due to a lower ratio of research and
development credits and tax-free interest income to taxable income.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily from license revenue received
from inception to March 31, 2001, the net proceeds of $27.1 million from its
February 1998 initial public offering of Common Stock, the net proceeds of $15.8
million from its April 1998 secondary offering of Common Stock and, to a lesser
extent, the proceeds of approximately $7.7 million from the sale of Preferred
Stock and a warrant.

Net cash provided by operating activities was $36,000 and $1.4 million in the
six month periods ended March 31, 2001 and 2000, respectively. Net cash provided
by operating activities in the six month period ended March 31, 2001 was
primarily due to depreciation and amortization, amortization of goodwill and
other intangible assets, the one-time charge for in process research and
development related to the acquisition of the Physical Library Business of
Synopsys and an increase in deferred revenue and other long-term liabilities,
partially offset by the Company's net loss, an increase in contract receivables
and an increase in deferred taxes. Net cash provided by operating activities in
the six month period ended March 31, 2000 was primarily due to depreciation and
amortization plus the Company's net income, partially offset by an increase in
accounts payable and other liabilities.

Net cash used in investing activities was $5.2 million in the six month period
ended March 31, 2001. Net cash provided by investing activities was $18.0
million in the six month period ended March 31, 2000. In the six months ended
March 31, 2001, investing activities consisted primarily of the acquisition of
the Physical Library Business of Synopsys and the purchase of property and
equipment, partially offset by net sales of marketable securities. In the six
months ended March 31, 2000 investing activities consisted primarily of net
sales of marketable securities, partially offset by the purchase of property and
equipment.

Net cash provided by financing activities was $1.2 million and $2.4 million in
the six month periods ended March 31, 2001 and 2000, respectively. Net cash
provided by financing activities in both periods consisted of proceeds from the
issuance of common stock to employees upon the exercise of stock options and the
purchase of stock through the employee stock purchase plan.



                                       18
<PAGE>   19

At March 31, 2001, the Company had cash, cash equivalents and current marketable
securities of $40.5 million. As of March 31, 2001, the Company had retained
earnings of $1.8 million and working capital of $45.5 million.

The Company intends to continue to invest heavily in the development of new
products and enhancements to its existing products. The Company's future
liquidity and capital requirements will depend upon numerous factors, including
the costs and timing of expansion of product development efforts and the success
of these development efforts, the costs and timing of expansion of sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, competing technological and market
developments, the costs involved in maintaining and enforcing patent claims and
other intellectual property rights, the level and timing of license and royalty
revenue, available borrowings under line of credit arrangements and other
factors. The Company believes that its current cash and investment balances and
any cash generated from operations and from available or future debt financing
will be sufficient to meet the Company's operating and capital requirements for
at least the next 12 months. However, from time to time, the Company may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. There can be no assurance that
such funding, if needed, will be available on terms attractive to the Company,
or at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Strategic arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its technologies or
products. The failure of the Company to raise capital when needed could have a
material adverse effect on the Company's business, operating results and
financial condition. See "-Factors Affecting Future Operating Results-Future
Capital Needs; Uncertainty of Additional Funding."

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Investments and Hedging Activities." The
statement establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or a
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The adoption of SFAS No. 133 on
October 1, 2000 did not have a material effect on the Company's financial
position or results of operations.

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on
applying GAAP to revenue recognition issues in financial statements. The
adoption of SAB 101 on October 1, 2000 did not have a material effect on the
Company's financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes and changes in the
market values of its investments.

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company has not used
derivative financial instruments in its investment portfolio. The Company
invests its excess cash in high-quality corporate issuers and in debt
instruments of the U.S. Government and, by policy, limits the amount of credit



                                       19
<PAGE>   20

exposure to any one issuer. As stated in its policy, the Company is averse to
principal loss and seeks to preserve its invested funds by limiting default
risk, market risk and reinvestment risk. The Company mitigates default risk by
investing in high credit quality securities and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.

Investments in both fixed and floating rate interest-earning instruments carry a
degree of interest rate risk. Fixed rate securities may have their fair market
value adversely impacted due to rising interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, the Company's future investment income may fall short of
expectations due to changes in interest rates or the Company may suffer losses
in principal if forced to sell securities which have declined in market value
due to changes in interest rates.

The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying values
approximate fair values at March 31, 2001 and September 30, 2000. All
investments mature in one year or less.

<TABLE>
<CAPTION>
                                    CARRYING    AVERAGE RATE       CARRYING      AVERAGE RATE
                                    VALUE AT    OF RETURN AT       VALUE AT      OF RETURN AT
                                    MARCH 31,     MARCH 31,      SEPTEMBER 30,   SEPTEMBER 30,
                                      2001          2001             2000            2000
                                    --------     -----------      ------------    -------------
                               (IN THOUSANDS)   (ANNUALIZED)   (IN THOUSANDS)   (ANNUALIZED)
<S>                            <C>              <C>            <C>              <C>
INVESTMENT SECURITIES:
Cash Equivalents -
         variable rate .....         $ 2,174          5.6%          $ 4,544            5.8%
Money market funds -
         variable rate .....           2,092          6.5%              618            6.3%
Cash Equivalents -
         fixed rate ........          25,063          5.3%           28,116            6.6%
Short-term investments -
         fixed rate ........          11,177          6.2%           20,738            6.7%
                                     -------                        -------
Total ......................         $40,506                        $54,016
                                     =======                        =======
</TABLE>

FACTORS AFFECTING FUTURE OPERATING RESULTS

Fluctuations in Operating Results

The Company's operating results have fluctuated in the past as a result of a
number of factors including the relatively large size and small number of
customer orders during a given period; the timing of customer orders; delays in
the design process due to changes by a customer to its order after it is placed;
the Company's ability to achieve progress on percentage of completion contracts;
the length of the Company's sales cycle; the Company's ability to develop,
introduce and market new products and product enhancements; the timing of new
product announcements and introductions by the Company and its competitors;
market acceptance of the Company's products; the demand for semiconductors and
end-user products that incorporate semiconductors and general economic
conditions. For example, economic growth has slowed significantly in recent
months and many commentators believe the U.S. economy will experience a
recession. Weakness in the U.S. and world economy could have a material adverse
effect on our orders and revenue. The Company's future operating results may
fluctuate from quarter to quarter and on an annual basis as a result of these
and other factors, in particular the relatively large size and small number of
customer orders during a given period and the amount of royalties recognized in
a given period. Accordingly, it is likely that in some future quarters the



                                       20
<PAGE>   21

Company's operating results will be below the expectations of public market
analysts and investors. In that event, the price of the Company's Common Stock
would likely decline, perhaps substantially.

The limited number of semiconductor manufacturers to which the Company can
license its products may also have a material adverse effect on the Company's
business, operating results and financial condition if any of the Company's
customers suffers a deterioration in financial condition or there is a decline
in the demand for the semiconductors produced by such manufacturers. The
Company's business, operating results and financial condition may also be
materially adversely affected if customers experience project delays and/or new
or existing customers delay new bookings or fail to place anticipated orders.

Revenue in any quarter is dependent on a number of factors and is not
predictable with any degree of certainty. Since the Company's expense levels are
based in part on management's expectations regarding future revenue, if revenue
is below expectations in any quarter, the adverse effect may be magnified by the
Company's inability to adjust spending in a timely manner to compensate for any
revenue shortfall. Accordingly, if the Company does not realize its expected
revenue, its business, operating results and financial condition could be
materially adversely affected. The Company intends to continue its investment in
research and development as well as in product promotion, licensing and support
programs in an effort to maximize the growth of future royalties.

The Company's sales cycle can be lengthy and is subject to a number of risks
over which the Company has little or no control. As a result of the significant
dollar amounts represented by a single customer order, the timing of the receipt
of an order can have a significant impact on the Company's revenue for a
particular period. In addition, because the Company's revenue is concentrated
among a small number of customers, a decline or a delay in the recognition of
revenue from one customer in a period may cause the Company's business,
operating results and financial condition in such period to be materially
adversely affected and may lead to significant fluctuations from quarter to
quarter. Any significant or ongoing failure to obtain new orders from customers
or to collect outstanding accounts receivable would have a material adverse
effect on the Company's business, operating results and financial condition. The
Company has, in the past, experienced periods of negative growth as well as
declines in the rate of growth of its revenue as compared with prior periods.
For example, the rate of quarter over quarter growth of net royalty revenues
decreased to 45.6% in the second quarter of fiscal 2001 from 77% in the first
quarter of fiscal 2001 due, in part, to the recent slowdown in the semiconductor
industry and the overall U.S. economy. There can be no assurance that the
Company will experience stable or increasing revenues in the future.

To date, a substantial majority of the Company's license revenue has been
recognized on a percentage of completion method of accounting. Provisions for
estimated losses on the uncompleted contracts are recognized in the period in
which such losses are determined to be likely. As the completion period ranges
from three to six months, revenue in any quarter is dependent on the Company's
progress toward completion of the project. There can be no assurance that the
Company's estimates will be accurate, and, in the event they are not, the
Company's business, operating results and financial condition in subsequent
periods could be materially adversely affected. From time to time, the Company
experiences delays in the progress of certain projects, and there can be no
assurance that such delays will not occur in the future. Any delay or failure to
achieve progress could result in damage to customer relationships and the
Company's reputation, under-utilization of engineering resources or a delay in
the market acceptance of the Company's products, any of which could have a



                                       21
<PAGE>   22

material adverse effect on the Company's business, operating results and
financial condition. See "--Results of Operations."

Dependence on License Fee- and Royalty-Based Business Model

The Company's customers include foundries, which only manufacture ICs, and
Integrated Device Manufacturers ("IDMs"), which both design and manufacture ICs.
Artisan's IP library products are designed to enable these manufacturers to
achieve the best combination of performance, density, power and yield for a
given manufacturing process. Typically, a customer licenses one or more products
designed for its manufacturing process that are accompanied by layout databases,
views to support a customer's IC design tool environment and design methodology
documentation. The Company generally licenses its products on a nonexclusive,
worldwide basis to these major semiconductor manufacturers and grants these
manufacturers the right to distribute the Company's IP components to their
internal design teams and to distribute and sublicense the Company's IP
components to semiconductor design companies that manufacture at the same
facility. License fees and royalties are received under the terms of license
agreements with such manufacturers.

In the third quarter of fiscal 1999, the Company received its first royalty
revenue. Royalty payments are calculated based on per unit sales by Artisan
customers of ICs or wafers containing the Company's IP. A portion of these
payments is credited back to the customer's account for use as payment of
license fees for future orders to be placed with the Company. Given that the
Company provides its products early in the IC design process, there is a
significant delay between the delivery of a product and the generation of
royalty revenue. Additionally, the quarter in which Company recognizes royalty
revenue is lagged one quarter from the time it is sold by the Company's
customer. The Company's success will depend, in part, on its ability to generate
royalty revenue from a substantially larger number of designs and on many of
these designs achieving large manufacturing volumes. The Company's ability to
generate such royalty revenue will in turn depend, in part, on its ability to
negotiate, structure, monitor and enforce agreements for the determination and
payment of royalties. There can be no assurance that the Company will be
successful in expanding the number of royalty bearing contracts with customers,
and there can be no assurance that the Company will receive significant royalty
revenue in the future. See "--Dependence on Semiconductor Manufacturers;
Dependence on Semiconductor and Electronics Industries" and "--Customer
Concentration; Limited Customer Base."

The Company believes that its long-term success will be substantially dependent
on future royalties. In addition, the Company will face risks inherent in a
royalty-based business model. In particular, the Company's ability to forecast
royalty revenue will be limited by factors that are beyond the Company's ability
to control or assess in advance. Royalties will be recognized in the quarter in
which the Company receives a royalty report from its customers and will be
dependent upon fluctuating sales volumes. For example, the rate of quarter over
quarter growth of net royalty revenues decreased to 45.6% in the second quarter
of fiscal 2001 from 77% in the first quarter of fiscal 2001 due, in part, to the
recent slowdown in the semiconductor industry and the overall U.S. economy. In
addition, under the royalty-based business model, the Company's revenue will be
dependent upon the sales by its customers of products that incorporate the
Company's technology. Even if the Company's technology is adopted, there can be
no assurance that it will be used in a product that is ultimately brought to
market, achieves commercial acceptance or results in significant royalties to
the Company.

The Company also faces risks relating to the accuracy and completeness of the
royalty collection process. The Company currently has only limited experience



                                       22
<PAGE>   23

and systems in place to conduct reviews of the accuracy of the royalty reports
it receives from its licensees. The Company has the right to audit its
licensees' records to ensure the integrity of their royalty reporting systems;
however, such audits may only be conducted periodically and may be at the
expense of the Company. There can be no assurance that the costs incurred by the
Company to improve its systems and processes and in conducting these audits will
not exceed the royalty derived from these efforts. See "--Results of
Operations."

Dependence on Emergence of Merchant IP Component Market and Broad Market
Acceptance of the Company's Products

The market for merchant IP components has only recently emerged. The Company's
ability to achieve sustained revenue growth and profitability in the future will
depend on the continued development of this market and, to a large extent, on
the demand for System-on-a-Chip ICs. System-on-a-Chip ICs are characterized by
rapid technological change and competition from an increasing number of
alternate design strategies such as multi-chip system-on-package and chip size
packaging designs. There can be no assurance that the merchant IP component and
System-on-a-Chip markets will continue to develop or grow at a rate sufficient
to support the Company's business. If either of these markets fails to grow or
develops slower than expected, the Company's business, operating results and
financial condition would be materially adversely affected. To date, the
Company's IP products have been licensed only by a limited number of customers.
The vast majority of the Company's existing and potential customers currently
rely on components developed internally and/or by other vendors. The Company's
future growth, if any, is dependent on the adoption of, and increased reliance
on, merchant IP components by both existing and potential customers. Moreover,
if the Company's products do not achieve broad market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected.

Competition

The Company's strategy of targeting semiconductor manufacturers that participate
in, or may enter, the System-on-a-Chip market requires the Company to compete in
intensely competitive markets. Within the merchant segment of the IP component
market, the Company primarily competes against Avant! Corporation, Nurlogic
Corporation, Virage Logic Corporation and Virtual Silicon Technology. In
addition, the Company may face competition from consulting firms and companies
that typically have operated in the generic library segment of the IP market and
that now seek to offer customized IP components as enhancements to their generic
solutions. The Company also faces significant competition from the internal
design groups of semiconductor manufacturers that are expanding their
manufacturing capabilities and portfolio of IP components to participate in the
System-on-a-Chip market. These internal design groups compete with the Company
for access to the parent's IP component requisitions and may eventually compete
with the Company to supply IP components to third parties on a merchant basis.
There can be no assurance that internal design groups will not expand their
product offerings to compete directly with those of the Company or will not
actively seek to participate as merchant vendors in the IP component market by
selling to third party semiconductor manufacturers or, if they do, that the
Company will be able to compete against them successfully. In addition to
competition from companies in the merchant IP component market, the Company
faces competition from vendors that supply electronic design automation ("EDA")
software tools, including certain of those mentioned above, and there can be no
assurance that the Company will be able to compete successfully against them.

The Company expects competition to increase in the future from existing
competitors and from new market entrants with products that may be less



                                       23
<PAGE>   24

expensive than the Company's IP components or that may provide better
performance or additional features not currently provided by the Company. Many
of the Company's current and potential competitors have substantially greater
financial, technical, manufacturing, marketing, distribution and other
resources, greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the Company. As
a result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. In addition, certain of the Company's
principal competitors offer a single vendor solution, since, in the case of EDA
tool companies, they maintain their own EDA design tools and IP libraries or, in
the case of internal design groups, they provide IP components developed to
utilize the qualities of a given manufacturing process, and may therefore
benefit from certain capacity, cost and technical advantages. The Company's
ability to compete successfully in the emerging market for IP components will
depend upon certain factors, many of which are beyond the Company's control
including, but not limited to, success in designing new products; implementing
new designs at smaller process geometries; access to adequate EDA tools (many of
which are licensed from the Company's current or potential competitors); the
price, quality and timing of new product introductions by the Company and its
competitors; the emergence of new IP component interchangeability standards; the
widespread licensing of IP components by semiconductor manufacturers or their
design groups to third party manufacturers; the ability of the Company to
protect its intellectual property; market acceptance of the Company's IP
components; success of competitive products; market acceptance of products using
System-on-a-Chip ICs and industry and general economic conditions. There can be
no assurance that the Company will be able to compete successfully in the
emerging merchant IP component market.

Dependence on Semiconductor Manufacturers; Dependence on Semiconductor and
Electronics Industries

The Company's success is substantially dependent both on the adoption of the
Company's technology by semiconductor manufacturers and on an increasing demand
for products requiring complex System-on-a-Chip ICs, such as portable computing
devices, cellular phones, consumer multimedia products, automotive electronics,
personal computers and workstations. The Company is subject to many risks beyond
its control that influence the success of its customers including, among others,
competition faced by each customer in its particular industry, market acceptance
of the customer's products that incorporate the Company's technology, the
engineering, sales and marketing capabilities of the customer and the financial
and other resources of the customer. Demand for the Company's products may also
be affected by mergers in the semiconductor and systems industries, which may
reduce the aggregate level of purchases of the Company's products and services
by the combined companies. Faltering growth in the semiconductor and systems
industries, a reduced number of designs starts, shifts in the types of
integrated circuits manufactured, tightening of customers' operating budgets or
consolidation among the Company's customers could have a material adverse effect
on the Company's business, financial condition and results of operations.

The semiconductor and electronics products industries are characterized by rapid
technological change, frequent introductions of new products, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Each of these industries is highly cyclical and has periodically
experienced significant downturns, often in connection with or in anticipation
of decline in general economic conditions during which the number of new IC
design projects often decreases. Revenue from licenses of the Company's products
is influenced by the level of design efforts by its customers, and factors
negatively affecting these industries could have a material adverse effect on
the Company's business, operating results and financial condition. The Company's
business, operating results and financial condition may fluctuate in the future



                                       24
<PAGE>   25

from period to period as a consequence of general economic conditions in the
semiconductor and electronics industries.

The semiconductor industry has recently suffered a sharp decline in orders and
revenue. Many semiconductor manufacturers and vendors of products incorporating
semiconductors have recently announced earnings shortfalls and employee layoffs.
Overall, customer spending is getting tighter and spending decisions are being
more carefully scrutinized. Due in part to this general slowdown, the Company
has experienced a decline in the quarter over quarter rate of growth of net
royalty revenues from 77% for the three months ended December 31, 2000 to 45.6%
for the three months ended March 31, 2001. The outlook for the electronics
industry is uncertain and it is very difficult to predict how long the current
slowdown will last or whether the Company will be materially adversely affected
by such slowdown. Slower growth in the semiconductor and electronics industries,
a reduced number of design starts, tightening of customers' operating budgets,
continued consolidation among customers or a shift toward field-programmable
gate arrays (FPGAs) or other types of semiconductors that can be designed with
less-expensive EDA software, all could have a material adverse effect on the
Company's business, financial condition and results of operations.

Customer Concentration; Limited Customer Base

As indicated by the following table, the Company has been dependent on a
relatively small number of customers for a substantial portion of its revenue,
although the customers comprising this group have changed from time to time.

<TABLE>
<CAPTION>
                                                  Three Months               Six Months
                                                 Ended March 31,           Ended March 31,
                                                -----------------         -----------------
(% of Total Revenue)                            2001         2000         2001         2000
                                                ----         ----         ----         ----
<S>                                             <C>          <C>          <C>          <C>
Taiwan Semiconductor Manufacturing .....          27%          47%          31%          36%
   Corporation
 NEC Electronics, Inc. .................          12           13           11           14
 Sanyo Electric Company ................          11           --           --           --
 Infineon Technologies AG ..............          11           --           10           --
 National Semiconductor Company ........          10           --           --           --
 Sharp Corporation .....................          --           15           --           12
 Other .................................          29           25           48           38
                                                 ---          ---          ---          ---
                                                 100%         100%         100%         100%
                                                 ===          ===          ===          ===
</TABLE>

The Company anticipates that its revenue will continue to depend on a limited
number of major customers for the foreseeable future, although the companies
considered to be major customers and the percentage of revenue represented by
each major customer may vary from period to period depending on the addition of
new contracts and the number of designs utilizing the Company's products.

None of the Company's customers has a written agreement with the Company that
obligates it to license future generations of products or new products, and
there can be no assurance that any customer will license IP components from the
Company in the future. In addition, there can be no assurance that any of the
Company's customers will ship products incorporating the Company's technology or
that, if such shipments occur, they will generate significant revenue. The loss
of one or more of the Company's major customers, reduced orders by one or more
of such customers, the failure of one or more customers to pay license or
royalty fees due to the Company or the failure of a customer to ship products
containing the Company's IP components could materially adversely affect the
Company's business, operating results and financial condition. The Company's
business, operating results and financial condition may also be materially



                                       25
<PAGE>   26

adversely affected if customers experience project delays and/or new or existing
customers delay new bookings or fail to place anticipated orders.

The Company faces numerous risks in successfully obtaining orders from customers
on terms consistent with the Company's business model, including, among others,
the lengthy and expensive process of building a relationship with a potential
customer before reaching an agreement with such party to license the Company's
products; persuading large semiconductor manufacturers to work with, to rely for
critical technology on, and to disclose proprietary information to a smaller
company, such as the Company, and persuading potential customers to bear certain
development costs associated with development of customized components. There
are a relatively limited number of semiconductor manufacturers to which the
Company can license its technology in a manner consistent with its business
model and there can be no assurance that such manufacturers will rely on
merchant IP components or adopt the Company's products. See "-Competition."

Product Concentration

The Company derives a substantial majority of all of its revenue from license
fees associated with the sales of its products, including support and
maintenance, that together accounted for 83% and 82% of total revenue in the
three and six month periods ended March 31, 2001, respectively, and accounted
for 85% and 87% for the three and six month periods ended March 31, 2000.
Although the percent of revenue represented by license revenue has declined
slightly, the Company expects that license revenue will continue to account for
a substantial portion of the Company's revenue for the foreseeable future. There
can be no assurance that the Company will continue to derive revenue from
license revenue and a decline in license revenue would have a material adverse
effect on the Company's business, operating results and financial condition. The
Company's future financial performance will depend in significant part on the
successful development, introduction and customer acceptance of new products.

Lengthy Sales Cycle and Design Process

The license of the Company's products typically involves a significant
commitment of capital by the customer and a purchase will often be timed to
coincide with a customer's migration to a new manufacturing process. Potential
customers generally commit significant resources to an evaluation of available
IP solutions and require the Company to expend substantial time, effort and
resources to educate them about the value of the Company's products. A variety
of factors, including factors over which the Company has little or no control,
may cause potential customers to favor an alternate solution or to delay or
forego a license of the Company's products. As a result of these and other
factors, the sales cycle for the Company's products is long, typically ranging
from six to 12 months. The Company's ability to forecast the timing and scope of
specific sales is limited, and delay of or failure to complete one or more large
contracts could have a material adverse effect on the Company's business,
operating results and financial condition and could cause the Company's
operating results to fluctuate significantly from quarter to quarter.

Once the Company receives and accepts an order from a customer, the Company must
commit significant resources to customizing its products for the customer's
manufacturing process. This customization is complex and time consuming and is
subject to a number of risks over which the Company has little or no control,
including the customer's adjustments and alterations of its manufacturing
process or the timing of migration to a new process. Typically, this
customization takes from three to six months to complete. Delays in product
customization could have a material adverse effect on the Company's business,
operating results and financial condition and could cause the Company's
operating results to vary significantly from quarter to quarter.



                                       26
<PAGE>   27

Risks Associated with International Customers

Historically, a substantial portion of the Company's total revenue has been
international revenue. In the three and six month periods ended March 31, 2001,
international revenue represented approximately 73% and 80%, respectively, of
the Company's total revenue. The Company anticipates that international revenue
will remain a substantial portion of its total revenue in the future. To date,
all of the revenue from international customers has been denominated in U.S.
dollars. In the event that the Company's competitors denominate their sales in a
currency that becomes relatively inexpensive in comparison to the U.S. dollar,
the Company may experience fewer orders from international customers whose
business is based primarily on the less expensive currency. There can be no
assurance that present or future dislocations with respect to international
financial markets will not have a material adverse effect on the Company's
business, operating results and financial condition. The Company intends to
continue to expand its sales and marketing activities in Asia and Europe. The
Company's expansion of its international business involves a number of risks
including the impact of possible recessionary environments in economies outside
the United States; political and economic instability; exchange rate
fluctuations; longer accounts receivable collection periods and greater
difficulty in accounts receivable collection; unexpected changes in regulatory
requirements; reduced or limited protection for intellectual property rights;
export license requirements; tariffs and other trade barriers and potentially
adverse tax consequences. There can be no assurance that the Company will be
able to sustain or increase revenue derived from international customers or that
the foregoing factors will not have a material adverse effect on the Company's
business, operating results and financial condition.

New Product Development and Technological Change

The Company's customers compete in the semiconductor industry, which is subject
to rapid technological change, frequent introductions of new products, short
product life cycles, changes in customer demands and requirements and evolving
industry standards. The development of new manufacturing processes, the
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable.
Accordingly, the Company's future success will depend on its ability to continue
to enhance its existing products and to develop and introduce new products that
satisfy increasingly sophisticated customer requirements and that keep pace with
new product introductions, emerging manufacturing process technologies and other
technological developments in the semiconductor industry. Any failure by the
Company to anticipate or respond adequately to changes in manufacturing
processes or customer requirements, or any significant delays in product
development or introduction would have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and sale of new or enhanced
products or that such new or enhanced products will achieve market acceptance.
Any delay in release dates of new or enhanced products could materially
adversely affect the Company's business, operating results and financial
condition. The Company could also be exposed to litigation or claims from its
customers in the event that it does not satisfy its delivery commitments. There
can be no assurance that any such claim would not have a material adverse effect
on the Company's business, operating results and financial condition.

Dependence on Key Personnel

The Company's success depends in large part on the continued contributions of
its key management, engineering, sales and marketing personnel, many of whom are
highly skilled and would be difficult to replace. None of the Company's senior



                                       27
<PAGE>   28

management or key technical personnel is bound by an employment contract. In
addition, the Company does not currently maintain key man life insurance
covering its key personnel. The Company believes that its success depends, to a
significant extent, on the ability of its management to operate effectively,
both individually and as a group. The Company must also attract and retain
highly skilled managerial, engineering, sales, marketing and finance personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel. The
loss of the services of any key personnel, the inability to attract or retain
qualified personnel in the future or delays in hiring required personnel,
particularly engineers, could have a material adverse effect on the Company's
business, operating results and financial condition.

Management of Growth

The ability of the Company to license its products and manage its business
successfully in a rapidly evolving market requires an effective planning and
management process. The Company's growth has placed, and is expected to continue
to place, a significant strain on the Company's managerial, operational and
financial resources. As of March 31, 2001, the Company had 143 employees or
full-time equivalents including those joining Artisan as part of the Company's
acquisition of the Physical Library Business of Synopsys. The Company's
customers rely heavily on the Company's technological expertise in designing,
testing and manufacturing products incorporating the Company's IP components.
Relationships with new customers generally require significant engineering
support. As a result, any increase in the demand for the Company's products will
increase the strain on the Company's personnel, particularly its engineers. The
Company's financial and management controls, reporting systems and procedures
are also limited. Although some new controls, systems and procedures have been
implemented, the Company's future growth, if any, will depend on its ability to
continue to implement and improve operational, financial and management
information and control systems on a timely basis, together with maintaining
effective cost controls, and any failure to do so would have a material adverse
effect on the Company's business, operating results and financial condition.
Further, the Company will be required to manage multiple relationships with
various customers and other third parties and must successfully implement its
royalty business model. There can be no assurance that the Company's systems,
procedures or controls will be adequate to support the Company's operations or
that the Company's management will be able to achieve the rapid execution
necessary to offer its services and products successfully and to implement its
business plan. The Company's inability to manage any future growth effectively
would have a material adverse effect on the Company's business, operating
results and financial condition.

Risks Associated with the Acquisition of Certain Assets of the Physical Library
Business of Synopsys, Inc.

The Company's January 2001 acquisition of certain assets of the Physical Library
Business of Synopsys may reduce the Company's revenue growth rate and make
prediction of the Company's future revenues, costs and expenses and operating
results more difficult as the Company integrates the Physical Library Business
with its existing business. In the three month period ended March 31, 2001, the
acquisition has resulted in a significant increase in the Company's costs and
expenses relating primarily to the increased headcount and amortization of
goodwill and other intangibles associated with the acquisition.

The Company has begun to integrate the workforce and operations of the acquired
business and has established an organizational structure that it believes will
effectively utilize the additional workforce. There is significant risk
associated with the completion of the projects in process at the Physical
Library Business and there is no assurance that each will in fact be
successfully completed, or upon completion, meet with either technological or
commercial success. If these projects are not successfully developed and
commercially exploited, the Company's business, operating results, and financial
condition may be adversely affected in future periods. In addition, the value of
other intangible assets acquired may become impaired.



                                       28
<PAGE>   29

The Company expects the strategic and operational integration of the Physical
Library Business into the Company to make prediction of the Company's future
revenues, costs and expenses and operating results more difficult because the
Company's results of operations in future periods will reflect an expanded
workforce and research and development effort. The Company may not be able to
accurately predict how the combined business will evolve. Further, the Company
may not be able to accurately predict the possible impairment of relationships
with employees and customers as a result of the integration of the combined
businesses, and the impairment of goodwill resulting from the acquisition. The
Company may also not be able to accurately forecast the effect on future
operating results from amortization of goodwill and other intangible assets due
to new accounting standards or future policy changes directed by the Financial
Accounting Standard Board or other regulatory body.

The Company also faces various risks as a result of the acquisition of the
Physical Library Business including, but not limited to, difficulty in combining
the technology, operations or work force of the Physical Library Business;
difficulty in realizing the potential financial or strategic benefits of the
acquisition; substantial unanticipated integration costs; and disruption of the
Company's on-going business.

If the Company's efforts to refocus the Physical Library Business and integrate
it with that of the Company are not successful, the Company's future revenue
growth rates could be substantially less than the Company's historic growth
rates, and the Company's future revenues and operating results could be
adversely affected.

Risks Associated with Protection of Intellectual Property

The Company relies primarily on a combination of nondisclosure agreements and
other contractual provisions and patent, trademark, trade secret and copyright
law to protect its proprietary rights. Failure of the Company to enforce its
patents, trademarks or copyrights or to protect its trade secrets could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that such intellectual property
rights can be successfully asserted in the future or will not be invalidated,
circumvented or challenged. From time to time, third parties, including
competitors of the Company, may assert patent, copyright and other intellectual
property rights to technologies that are important to the Company. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future, that assertions by third parties will not result in
costly litigation or that the Company would prevail in any such litigation or be
able to license any valid and infringed patents from third parties on
commercially reasonable terms. Litigation, regardless of the outcome, could
result in substantial cost and would divert resources of the Company. Any
infringement claim or other litigation against or by the Company could
materially adversely affect the Company's business, operating results and
financial condition.

In certain instances, the Company has elected to rely on trade secret law rather
than patent law to protect its proprietary technology. However, trade secrets
are difficult to protect. The Company protects its proprietary technology and



                                       29
<PAGE>   30

processes, in part, through confidentiality agreements with its employees and
customers. There can be no assurance that these contracts will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known or be independently
discovered by competitors. In addition, effective trade secret protection may be
unavailable or limited in certain foreign countries.

In addition, there can be no assurance that competitors of the Company, many of
which have substantial resources and have made substantial investments in
competing technologies, do not have, or will not seek to apply for and obtain,
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings declared by the United States Patent and Trademark Office ("USPTO")
to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Any such suit
or proceeding involving the Company could have a material adverse effect on the
Company's business, operating results and financial condition.

Future Capital Needs; Uncertainty of Additional Funding

The Company intends to continue to invest heavily in the development of new
products and enhancements to its existing products. The Company's future
liquidity and capital requirements will depend upon numerous factors, including
the costs and timing of expansion of product development efforts and the success
of these development efforts, the costs and timing of expansion of sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, competing technological and market
developments, the costs involved in maintaining and enforcing patent claims and
other intellectual property rights, the level and timing of license and royalty
revenue, available borrowings under line of credit arrangements and other
factors. The Company believes that its current cash and investment balances and
any cash generated from operations and from available or future debt financing
will be sufficient to meet the Company's operating and capital requirements for
at least the next 12 months. However, from time to time, the Company may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. There can be no assurance that
such funding, if needed, will be available on terms attractive to the Company,
or at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Strategic arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its technologies or
products. The failure of the Company to raise capital when needed could have a
material adverse effect on the Company's business, operating results and
financial condition. See "-Liquidity and Capital Resources."

Potential Volatility of Stock Price

The trading price of the Company's Common Stock has in the past been and could
in the future be subject to significant fluctuations in response to quarterly
variations in the Company's results of operations; announcements regarding the
Company's product developments; announcements of technological innovations or
new products by the Company, its customers or competitors; release of reports by
securities analysts; changes in security analysts' recommendations; developments
or disputes concerning patents or proprietary rights or other events. Also, at
some future time, the Company's revenues and results of operations may be below
the expectations of public market securities analysts or investors, resulting in
significant fluctuations in the market price of the Company's Common Stock. In



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<PAGE>   31

addition, the securities markets have, from time to time, experienced
significant price and volume fluctuations, which have particularly affected the
market prices for high technology companies and which often, are unrelated and
disproportionate to the operating performance of particular companies. These
broad market fluctuations, as well as general economic, political and market
conditions, may adversely affect the market price of the Company's Common Stock.
In the past, following periods of volatility in the market price of a company's
stock, securities class action litigation has occurred against that company.
Such litigation could result in substantial costs and would at a minimum divert
management's attention and resources, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
adverse determination in such litigation could also subject the Company to
significant liabilities.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

During the quarter ended March 31, 2001, the Company issued an aggregate of
approximately 1,450,000 shares of its common stock to Synopsys, Inc. in
connection with the acquisition by the Company of certain assets of the physical
library business of Synopsys. The shares were issued pursuant to exemptions
under Section 4(2), Rule 506(b) and Section 3(a)(11) of the Securities Act of
1933, as amended. These issuances were effected without general solicitation or
advertising, and Synopsys was an accredited investor with access to information
regarding the Company, its business and its common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

At the Annual Meeting of Stockholders held March 7, 2001, the stockholders of
the Company approved the following matters:

    1.   A proposal to elect five (5) directors of the Company to serve for the
         ensuing year and until their successors are elected or until such
         director's earlier resignation or removal.

<TABLE>
<CAPTION>
            Nominee                                 In Favor           Withheld
           --------------------------------------------------------------------
           <S>                                      <C>                 <C>
           Mark R. Templeton.................       15,061,677            6,821
           Scott T. Becker...................       15,061,901            6,597
           Lucio Lanza.......................       15,048,016           20,485
           Leon Malmed.......................       15,061,751            6,747
           Morio Kurosaki....................       15,061,901            6,597
</TABLE>

    2.   A proposal for the ratification of the appointment of
         PricewaterhouseCoopers LLP as independent public accountants of the
         Company for the fiscal year ending September 30, 2001 was approved by a
         vote of 15,063,023 for, 2,800 opposed, and 2,675 withheld.

ITEM 5. OTHER INFORMATION.

None.



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<PAGE>   32

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Reports on Form 8-K.

The Company filed its report on Form 8-K regarding the acquisition of certain
assets of the physical library business of Synopsys, Inc. on January 19, 2001.
An amended Form 8-K/A was filed on March 12, 2001.



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<PAGE>   33

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Dated: May , 2001


                                       ARTISAN COMPONENTS, INC.
                                       (Registrant)

                                   By: /s/ Mark R. Templeton
                                       -----------------------------------------
                                       Mark R. Templeton
                                       President, Chief Executive Officer and
                                       Director
                                       (Principal Executive Officer)


                                   By: /s/ Joy E. Leo
                                       -----------------------------------------
                                       Joy E. Leo
                                       Vice President, Finance and
                                       Administration and Chief
                                       Financial Officer
                                       (Principal Financial and Accounting
                                       Officer)



                                       33