<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 June 30, 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 July 31, 2001 there were 16,465,265 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 June 30, 2001, unaudited,
                 and September 30, 2000.....................................3
     Condensed Consolidated Statements of Operations, unaudited, for the
                 Three and Nine Months Ended June 30, 2001 and 2000.........4
     Condensed Consolidated Statements of Cash Flows, unaudited, for the
                 Nine Months Ended June 30, 2001 and 2000...................5
     Notes to 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.....22

PART II - Other Information

   ITEM 6 - Exhibits and Reports on Form 8-K...............................34

Signatures.................................................................35
</TABLE>

                                       2
<PAGE>   3

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

<TABLE>
<CAPTION>
                                                             June 30,   September 30,
                                                               2001         2000
                                                             --------   -------------
                                                           (unaudited)
                                     ASSETS

<S>                                                          <C>          <C>
Current Assets:
 Cash and cash equivalents ............................      $20,361      $33,278
 Marketable securities ................................       20,629       20,738
 Contract receivables, net ............................       11,121        7,722
 Prepaid expenses and other current assets ............        1,276        1,129
 Deferred tax asset, current portion ..................        2,443        2,443
                                                             -------      -------
  Total current assets ................................       55,830       65,310
Property and equipment, net ...........................        3,759        4,809
Deferred tax asset ....................................        3,630        1,608
Goodwill and other intangible assets, net .............       19,997         --
Other assets ..........................................          263          203
                                                             -------      -------
  Total assets ........................................      $83,479      $71,930
                                                             =======      =======

                       LIABILITIES AND STOCKHOLDERS'EQUITY

Current liabilities:
 Accounts payable and accrued expenses ................      $ 4,684      $ 3,651
 Deferred revenue, current portion ....................        5,410        4,590
                                                             -------      -------
  Total current liabilities ...........................       10,094        8,241
Deferred revenue ......................................          423          117
Other liabilities .....................................          118          118
                                                             -------      -------
  Total liabilities ...................................       10,635        8,476
                                                             -------      -------

Stockholders' Equity
 Common Stock, $0.001 par value:
   Authorized: 50,000;
  Issued and outstanding: 16,384 and 14,730
        shares at June 30, 2001 and September 30, 2000,
        respectively
                                                                  16           15
 Additional paid in capital ...........................       72,310       59,609
 Retained earnings ....................................          518        3,830
                                                             -------      -------
  Total stockholders' equity ..........................       72,844       63,454
                                                             -------      -------
  Total liabilities and stockholders' equity ..........      $83,479      $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                 Nine Months
                                                        Ended June 30,               Ended June 30,
                                                   -----------------------       -----------------------
                                                     2001           2000           2001           2000
                                                   --------       --------       --------       --------
<S>                                                <C>            <C>            <C>            <C>
Revenue:
 License ....................................      $  5,942       $  3,950       $ 15,959       $ 12,981
 Net royalty ................................         1,170            952          3,402          2,351
                                                   --------       --------       --------       --------
   Total revenue ............................         7,112          4,902         19,361         15,332
                                                   --------       --------       --------       --------
Costs and expenses:
 Cost of revenue ............................         1,871          1,207          4,404          4,019
 Amortization of acquired technology ........           397           --              794           --
 Product development ........................         2,993          1,811          8,492          5,044
 Sales and marketing ........................         1,812          1,675          4,819          5,229
 General and administrative .................           762            663          2,087          1,810
 In process research and development ........          --             --            2,441           --
 Amortization of goodwill and other
  intangible assets .........................         1,627           --            3,242           --
                                                   --------       --------       --------       --------
   Total costs and expenses .................         9,462          5,356         26,279         16,102
                                                   --------       --------       --------       --------
Operating loss ..............................        (2,350)          (454)        (6,918)          (770)
Interest income and other, net ..............           412            791          1,900          2,167
                                                   --------       --------       --------       --------
Income (loss) before provision for income
     taxes ..................................        (1,938)           337         (5,018)         1,397
Provision (benefit) for income taxes ........          (659)           111         (1,706)           461
                                                   --------       --------       --------       --------
Net income (loss) ...........................      $ (1,279)      $    226       $ (3,312)      $    936
                                                   ========       ========       ========       ========
Basic net income (loss) per share ...........      $  (0.08)      $   0.02       $  (0.21)      $   0.07
                                                   ========       ========       ========       ========
Diluted net income (loss) per share .........      $  (0.08)      $   0.01       $  (0.21)      $   0.06
                                                   ========       ========       ========       ========
Shares used in computing:
  Basic net income (loss) per share .........        16,382         14,431         15,804         14,222
  Diluted net income (loss) per share .......        16,382         15,223         15,804         15,461
</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>
                                                                          Nine Months Ended
                                                                               June 30,
                                                                       -----------------------
                                                                         2001           2000
                                                                       --------       --------
<S>                                                                    <C>            <C>
Cash flows from operating activities:
  Net income (loss) .............................................      $ (3,312)      $    936
  Adjustments to reconcile net income (loss) to net
    Cash provided by operating activities:
    Depreciation and amortization ...............................         5,898          2,095
    Gain (Loss) on sale of fixed assets .........................            18            (67)
    Compensation expense related to options granted .............             8             45
    In process research and development .........................         2,441           --
    Changes in assets and liabilities:
        Contract receivables, net ...............................        (3,399)          (189)
        Prepaid expenses and other assets .......................           446            240
        Deferred taxes ..........................................        (2,022)          --
        Other assets ............................................           (60)          --
        Accounts payable and accrued liabilities ................           827         (1,425)
        Deferred revenue and long-term liabilities ..............          (187)          (308)
                                                                       --------       --------
        Net cash provided by operating activities ...............           658          1,327
                                                                       --------       --------
Cash flows from investing activities:
  Purchase of property and equipment ............................          (389)        (1,067)
  Proceeds from sale of property and equipment ..................            50             90
  Acquisition of the Physical Library Business of Synopsys,
  net of cash acquired ..........................................       (14,530)          --
  Purchase of marketable securities .............................       (32,900)       (34,719)
  Proceeds from sale of marketable securities ...................        33,009         51,540
                                                                       --------       --------
         Net cash provided by (used in) investing
         activities .............................................       (14,760)        15,844
                                                                       --------       --------
Cash flows from financing activities:
        Proceeds from issuance of common stock ..................         1,185          2,586
                                                                       --------       --------
        Net cash provided by financing activities ...............         1,185          2,586
                                                                       --------       --------
Net increase (decrease) in cash and cash equivalents ............       (12,917)        19,757
Cash and cash equivalents, beginning of period ..................        33,278         15,233
                                                                       --------       --------
Cash and cash equivalents, end of period ........................      $ 20,361       $ 34,990
                                                                       ========       ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
   Fixed asset acquisitions in exchange for accounts
   payable ......................................................      $    206       $   --
   Issuance of common stock and assumption of obligations
   in connection with the acquisition of the Physical Library
   Business of Synopsys .........................................      $ 12,859       $   --
CASH PAID FOR:
  Income taxes ..................................................      $   --         $    495
</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 financial statements of Artisan have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("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 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 nine month periods ended June 30, 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 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.  NET INCOME (LOSS) DISCLOSURES:

Basic and diluted net income (loss) are computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128. Basic net income (loss) is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted net
income (loss) 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               Nine Months
                                                   Ended June 30,             Ended June 30,
                                              ----------------------      ----------------------
                                                2001           2000         2001          2000
                                              --------       -------      --------       -------
<S>                                           <C>            <C>          <C>            <C>
Numerator--Basic and Diluted
  Net income (loss) ....................      $ (1,279)      $   226      $ (3,312)      $   936
                                              ========       =======      ========       =======
Denominator--Basic
  Common stock outstanding .............        16,382        14,431        15,804        14,222
                                              --------       -------      --------       -------
Basic net income (loss) per share ......      $  (0.08)      $  0.02      $  (0.21)      $  0.07
                                              ========       =======      ========       =======
Denominator--Diluted
  Denominator--Basic ...................        16,382        14,431        15,804        14,222
  Effect of Dilutive Securities
    Common stock options(1) ............          --             792          --           1,239
                                              --------       -------      --------       -------
                                                16,382        15,223        15,804        15,461
                                              --------       -------      --------       -------
Diluted net income (loss) per share ....      $  (0.08)      $  0.01      $  (0.21)      $  0.06
                                              ========       =======      ========       =======
</TABLE>

(1) 3,903,481 shares of common stock options outstanding were not included in
the per share calculation in the three and nine month periods ended June 30,
2001. 604,991 and 138,791 shares of common stock options outstanding were not
included in the per share calculation in the three and nine month periods ended
June 30, 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. In July, 1999, FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date for FASB NO. 133." SFAS No. 137 deferred the effective date
of SFAS No. 133 until the first fiscal year beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138 "Accounting for Derivative Instruments
and Hedging Activities - An Amendment of SFAS No. 133." SFAS No. 138 amends the
accounting and reporting standards for certain derivatives and hedging
activities such as net settlement contracts, foreign currency translations and
intercompany derivatives. The Company does not currently hold derivative
instruments or engage in hedging activities. The adoption of SFAS No. 133, as
amended by SFAS No. 137 and 138, on October 1, 2000 did not have a material
effect on the Company's financial position, results of operations or cash flows.


                                       7
<PAGE>   8
                            ARTISAN COMPONENTS, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                   (unaudited)

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, results of operations or cash flows.

In June 2001, the FASB unanimously approved the issuance of two statements, SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for business combinations and amends APB No. 16 "Business Combinations." All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB No. 17, "Intangible Assets. " It changes the accounting for
goodwill from an amortization method to an impairment only approach. The Company
will cease the amortization of goodwill that was recorded in past business
combinations on September 30, 2001, as required by SFAS No. 142. The Company is
still evaluating the impact of adopting these pronouncements on its results of
operations.

5.  COMPREHENSIVE INCOME:

Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income (loss) approximates net income
(loss) for the three and nine month periods ended June 30, 2001 and 2000.

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             Nine Months
                                                Ended June 30,           Ended June 30,
                                             -------------------      --------------------
($ In Thousands)                              2001        2000         2001         2000
                                             ------      -------      -------      -------
<S>                                          <C>         <C>          <C>          <C>
Revenue from Unaffiliated Customers:
United States .........................      $2,549      $   640      $ 5,534      $ 1,888
Taiwan ................................       2,473        1,978        6,455        6,554
Japan .................................       1,290        1,194        5,372        3,770
Germany ...............................          76          818          759        1,320
Other .................................         724          272        1,241        1,800
                                             ------      -------      -------      -------
                                             $7,112      $ 4,902      $19,361      $15,332
                                             ======      =======      =======      =======
</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")


                                       8
<PAGE>   9




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

for $27.4 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.

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>
                                                                   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 ........       17,525         3
                                                     -------
    Net assets acquired .......................      $27,390
                                                     =======
</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
overcoming 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


                                       9
<PAGE>   10

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 nine month periods ended
June 30, 2001 and 2000 are based on the respective historical financial
statements of the Company and the Physical Library Business of Synopsys 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 specified, and do not purport to represent what the Company's
consolidated results of operations might be for any future period.

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED
                                                                 JUNE 30,
                                                         ---------------------
                                                            2001        2000
   ($ In Thousands, except per share data)               ---------   ---------
<S>                                                      <C>         <C>
     Net revenue......................................   $  19,820   $  19,212
     Net loss.........................................   $  (5,071)  $  (8,053)
     Basic and diluted net loss per share.............   $   (0.30)  $   (0.51)
     Shares used in basic and diluted net
       loss per share calculation.....................      16,711      15,672
</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 worldwide electronics industry has experienced expansion driven by the
networking and wireless communications markets. However, the electronics
industry began to experience a slowdown in 2000, which has continued in 2001.
This slowdown, particularly in the semiconductor industry, may have a material
adverse effect on the Company's results of operations.

The Company's customers include foundries, which only manufacture ICs, and
integrated device manufacturers, 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.


                                       11
<PAGE>   12

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
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.

In addition, Artisan has several industry partner programs whereby members
provide a wide variety of IP solutions, design services and tool support to
streamline the design process for Artisan library users. Through these programs,
Artisan provides products and support to over 150 companies who agree to limit
the use and distribution of such libraries to End Users. These End Users agree
to manufacture the semiconductor designs using these libraries at the particular
foundry for which the library was developed. These leading partner programs have
given our products additional value as customers are increasingly demanding
streamlined and integrated design solutions to accelerate their time to market.

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 integrated device
manufacturers. To date, a substantial portion of royalty revenue has been


                                       12
<PAGE>   13

derived from one customer. Net royalty revenue was 16% and 19% of total revenue
in the three month periods ended June 30, 2001 and 2000, respectively and was
18% and 15% in the nine month periods ended June 30, 2001 and 2000,
respectively. The Company expects royalty revenue 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, quarter over quarter net royalty revenue
grew by 21% in the first fiscal quarter of 2001, by 4% in the second fiscal
quarter 2001 and by 3% in the third fiscal quarter of 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."

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. In the three month period ended June 30, 2001,
UMC Group ("UMC"), National Semiconductor Corporation ("NSC"), Taiwan
Semiconductor Manufacturing Corporation ("TSMC") and Synopsys, Inc. accounted
for 19%, 18%, 15% and 12% of revenue, respectively. In the nine month period
ended June 30, 2001, TSMC and NSC accounted for 25% and 10% of revenue,
respectively. In the three month period ended June 30, 2000, TSMC, Infineon
Technologies AG and Sharp Corporation ("Sharp") accounted for 34%, 17% and 16%
of revenue, respectively. In the nine month period ended June 30, 2000, TSMC,
Sharp and NEC Electronics, Inc. accounted for 35%, 13% and 12% of revenue,
respectively. 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 nine month periods ended June 30,
2001, international revenue represented approximately 64% and 71%, respectively,
of the Company's total revenue. In the three and nine month periods ended June
30, 2000, international revenue represented approximately 87% 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."


                                       13
<PAGE>   14

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 84% and 82% of total revenue in the three and nine
month periods ended June 30, 2001, respectively, and accounted for 81% and 85%
for the three and nine month periods ended June 30, 2000. 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"."

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 $27.4
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 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 continues to integrate the workforce and operations of the acquired
business into the organizational structure established last quarter and work
towards the effective utilization of 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. 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              Nine Months
                                                   Ended June 30,            Ended June 30,
                                                -------------------       -------------------
                                                 2001         2000         2001         2000
                                                ------       ------       ------       ------
<S>                                              <C>          <C>          <C>          <C>
Revenue:
 License ...............................         83.5%        80.6%        82.4%        84.7%
 Net royalty ...........................         16.5         19.4         17.6         15.3
                                                -----        -----        -----        -----
  Total revenue ........................        100.0        100.0        100.0        100.0
                                                -----        -----        -----        -----
</TABLE>

<PAGE>   15

<TABLE>
<S>                                              <C>          <C>          <C>          <C>
Costs and expenses:
 Cost of revenue .......................         26.3         24.6         22.7         26.2
 Amortization of acquired technology ...          5.6           --          4.1           --
 Product development ...................         42.1         37.0         43.9         32.9
 Sales and marketing ...................         25.5         34.2         24.9         34.1
 General and administrative ............         10.7         13.5         10.8         11.8
 In process research and development ...           --           --         12.6           --
 Amortization of goodwill and
 other intangible assets ...............         22.9           --         16.7           --
                                                -----        -----        -----        -----
  Total costs and expenses .............        133.1        109.3        135.7        105.0
                                                -----        -----        -----        -----
Operating loss .........................        (33.1)        (9.3)       (35.7)        (5.0)
Other income, net ......................          5.8         16.2          9.8         14.1
                                                -----        -----        -----        -----
Income (loss) before provision
 for income taxes ......................        (27.3)         6.9        (25.9)         9.1
Provision (benefit) for income
 taxes .................................         (9.3)         2.3         (8.8)         3.0
                                                -----        -----        -----        -----
Net income (loss) ......................        (18.0)%        4.6%       (17.1)%        6.1%
                                                =====        =====        =====        =====
</TABLE>

REVENUE

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
License ..................          $5,942       50%        $3,950     $15,959       23%         $12,981
Net royalty ..............           1,170       23%           952       3,402       45%           2,351
                                    ------                  ------     -------                   -------
Total revenue ............          $7,112       45%        $4,902     $19,361       26%         $15,332
                                    ======                  ======     =======                   =======
</TABLE>

Total revenue increased 45% in the third quarter of fiscal 2001, as compared to
the third quarter of fiscal 2000, primarily due to an increase in license
revenue for the Company's memory products and support and maintenance, as well
as higher net royalty revenue. Total revenue increased 26% in the nine month
period ended June 30, 2001, as compared to the same period in fiscal 2000,
primarily due to increases in license revenue for the Company's memory products
and support and maintenance, as well as higher net royalty 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 third quarters of fiscal 2001 and 2000 were $1.6 million and $1.4 million,
respectively. Total gross royalties for the nine month periods ended June 30,
2001 and 2000 were $4.9 million and $3.6 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.
Net royalty revenue decreased as a percentage of revenue from 19% for the three


                                       15
<PAGE>   16

months ended June 30, 2000 to 16% for the three months ended June 30, 2001,
primarily due to increased license revenue in the latter period.

COSTS AND EXPENSES

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
Cost of revenue ..............      $1,871       55%        $1,207      $ 4,404      10%         $4,019
Amortization of acquired
    technology ...............         397       N/A            --          794      N/A             --
Product development ..........       2,993       65%         1,811        8,492      68%          5,044
                                    ------                  ------      -------                   -----
Engineering costs ............      $5,261       74%        $3,018      $13,690      51%         $9,063
                                    ======                  ======      =======                  ======
</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 third 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 an increase in engineering headcount and
personnel-related expenses of $1.6 million, the addition of amortization of
purchased technology of $397,000, an increase in computer and networking related
costs of $247,000, partially offset by a decrease in warranty expense of
$29,000. Engineering costs increased 51% in the nine month period ended June 30,
2001, as compared to the same period in fiscal 2000. The absolute dollar
increase in engineering costs of $4.6 million was due to an increase in
engineering headcount and personnel-related expenses of $3.5 million, the
addition of amortization of purchased technology of $794,000, an increase in
computer and networking related costs of $274,000 and an increase in the usage
of external contractors and outside services of $97,000, partially offset by a
decrease in warranty expense of $73,000. The increase in engineering headcount
related costs in both the three and nine month periods ended June 30, 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 55% in the third quarter of fiscal 2001 as
     compared to the same period in fiscal 2000. The absolute dollar increase of
     cost of revenue of $664,000 in the third quarter of fiscal 2001, as
     compared to the same period in fiscal 2000 was due to an increase in
     engineering hours allocated to revenue-generating projects of $644,000 and
     an increase in warranty expense of $29,000, partially offset by a decrease
     in usage of external contractors of $9,000. Cost of revenue increased 10%
     in the nine month period ended June 30, 2001 as compared to the same period
     in fiscal 2000. The absolute dollar increase in cost of revenue of $385,000
     in the nine month period ended June 30, 2001, as compared to the same
     period in fiscal 2000, was due to an increase in engineering hours
     allocated to revenue-generating projects of $702,000, partially offset by a
     decrease in the use of external contractors of $244,000 and a decrease in
     warranty expense of $73,000.

                                       16
<PAGE>   17

     Product development expenses increased 65% in the third quarter of fiscal
     2001 as compared to the same period in fiscal 2000. The absolute dollar
     increase of $1.2 million in the third quarter of fiscal 2001, as compared
     to the same period in fiscal 2000, was due to an increase in headcount and
     personnel-related expenses of $1.6 million and an increase in computer and
     networking related costs of $247,000, partially offset by an increase in
     engineering hours allocated to revenue-generating projects of $644,000.
     Product development expenses increased 68% in the nine month period ended
     June 30, 2001 as compared to the same period in fiscal 2000. The absolute
     dollar increase of $3.4 million in the nine month period of fiscal 2001, as
     compared to the same period in fiscal 2000, was due to an increase in
     headcount and personnel-related expenses of $3.5 million, an increase in
     usage of external contractors and outside services of $341,000 and an
     increase in computer and networking related costs of $274,000, partially
     offset by an increase in engineering hours allocated to revenue-generating
     projects of $702,000. The Company expects that product development expenses
     will continue to increase in absolute dollars.

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
Sales and marketing
    expense.................        $1,812       8%         $1,675     $4,819        (8)%        $5,229
                                    ======                  ======     ======                    ======
</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 increased by 8% in the third quarter of fiscal
2001, compared to the third quarter of fiscal 2000. The increase in absolute
dollars in sales and marketing expenses of $137,000 in the third quarter of
fiscal 2001, as compared with the third quarter of fiscal 2000, was primarily
attributable to an increase in commission expense of approximately $134,000
related to revenue taken during the quarter. Sales and marketing expenses
decreased 8% in the nine month period ended June 30, 2001 as compared to the
same period in fiscal 2000. The decrease in absolute dollars in sales and
marketing expenses of $410,000 in the nine month period ended June 30, 2001, as
compared to the same period in fiscal 2000, was due to a decrease in travel and
entertainment expenses of $349,000, a decrease in sales and marketing headcount
and personnel-related expenses of $150,000 and a decrease in outside services of
$35,000, partially offset by an increase in expenses related to international
offices of $80,000 and an increase in marketing program expenses of $47,000.
Sales and marketing related headcount and personnel-related costs and travel and
entertainment costs decreased in both the three and nine month periods ended
June 30, 2001 as compared to the same periods in fiscal 2000 due to a decrease
in sales personnel employed with the Company.


                                       17
<PAGE>   18
<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
General and administrative
    expenses................        $  762       15%        $  663     $2,087        15%         $1,810
                                    ======                  ======     ======                    ======
</TABLE>

General and administrative expenses increased 15% in both the three and nine
month periods ended June 30, 2001 as compared to the same periods in fiscal
2000. The absolute dollar increase in general and administrative expenses of
$99,000 in the three month period ended June 30, 2001, as compared to the same
period in fiscal 2000, was due to an increase in outside service costs. The
absolute dollar increase in general and administrative expenses of $277,000 in
the nine month period ended June 30, 2001 was due to an increase in outside
service expenses of $168,000, an increase in general and administrative
headcount and personnel-related expenses of $91,000 and an increase in other
expenses of $18,000. The Company expects general and administrative expenses to
grow in absolute dollars in future periods.

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
In-process research and
    development................     $   --       N/A        $  --       $2,441       N/A         $   --
Amortization of goodwill
    and purchased intangible
    assets.....................      1,627       N/A           --        3,242       N/A             --
                                    ------                  ------      ------                   ------
Acquisition-related
    costs......................     $1,627       N/A        $  --       $5,683       N/A         $   --
                                    ======                  ======      ======                   ======
</TABLE>

The 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. The in-process research and development
charge was a one-time expense taken in the three month period ended March 31,
2001.

OTHER INCOME

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
Other income, net..............     $  412       (48)%      $  791     $1,900        (12)%       $2,167
                                    ======                  ======     ======                    ======
</TABLE>

Other income decreased by 48% and 12% in the three and nine month periods ended
June 30, 2001, as compared to the corresponding periods in fiscal 2000. The
decrease in other income in the three and nine month periods ended June 30,
2001, as compared to the periods 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.


                                       18
<PAGE>   19

INCOME TAXES

<TABLE>
<CAPTION>
                                         Three Months Ended                   Nine Months Ended
                                              June 30,                             June 30,
                                    ------------------------------     ---------------------------------
($ In Thousands)                     2001     Inc/(Dec)      2000       2001       Inc/(Dec)      2000
                                    ------    ---------     ------     -------     ---------     -------
<S>                                 <C>          <C>        <C>        <C>           <C>         <C>
Provision (benefit) for income
    taxes.......................    $ (659)      N/A        $  111     $(1,706)      N/A         $  461
                                    ======                  ======     =======                   ======
</TABLE>

The effective tax rate was 34% in the three and nine month periods ended June
30, 2001 and 33% in the three and nine month periods ended June 30, 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 and royalty revenue
received from inception to June 30, 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 $658,000 and $1.3 million in the
nine month periods ended June 30, 2001 and 2000, respectively. Net cash provided
by operating activities in the nine month period ended June 30, 2001 was
primarily due to depreciation and amortization, 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 accounts payable and accrued
liabilities, partially offset by the Company's net loss, an increase in contract
receivables and an increase in the deferred tax asset. Net cash provided by
operating activities in the nine month period ended June 30, 2000 was primarily
due to depreciation and amortization and the Company's net income, partially
offset by a decrease in accounts payable and accrued liabilities.

Net cash used in investing activities was $14.8 million in the nine month period
ended June 30, 2001. Net cash provided by investing activities was $15.8 million
in the nine month period ended June 30, 2000. In the nine months ended June 30,
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 nine
months ended June 30, 2000, investing activities consisted primarily of net
sales of marketable securities partially offset by purchases of property and
equipment.

Net cash provided by financing activities was $1.2 million and $2.6 million in
the nine month periods ended June 30, 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.

At June 30, 2001, the Company had cash, cash equivalents and current marketable
securities of $41.0 million and working capital of $45.7 million.


                                       19
<PAGE>   20

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."

Recently, economic growth in the United States has slowed to the point where
industries are delaying or reducing technology purchases. Overall, customer
spending is getting tighter and spending decisions are being more carefully
scrutinized. These conditions have negatively affected our business and revenues
in the first six months of calendar 2001 and will in the future if these
conditions persist. The outlook for the electronics industry is uncertain and it
is very difficult to predict how long the current slowdown will last.

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. In July, 1999, FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date for FASB NO. 133." SFAS No. 137 deferred the effective date
of SFAS No. 133 until the first fiscal year beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138 "Accounting for Derivative Instruments
and Hedging Activities - An Amendment of SFAS No. 133." SFAS No. 138 amends the
accounting and reporting standards for certain derivatives and hedging


                                       20
<PAGE>   21

activities such as net settlement contracts, foreign currency translations and
intercompany derivatives. The Company does not currently hold derivative
instruments or engage in hedging activities. The adoption of SFAS No. 133, as
amended by SFAS No. 137 and 138, on October 1, 2000 did not have a material
effect on the Company's financial position, results of operations or cash flows.

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, results of operations or cash flows.

In June 2001, the FASB unanimously approved the issuance of two statements, SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for business combinations and amends APB No. 16 "Business Combinations." All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB No. 17, "Intangible Assets." It changes the accounting for
goodwill from an amortization method to an impairment only approach. The Company
will cease the amortization of goodwill that was recorded in past business
combinations on September 30, 2001, as required by SFAS No. 142. The Company is
still evaluating the impact of adopting these pronouncements on its results of
operations.


                                       21
<PAGE>   22

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
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 June 30, 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
                                                         JUNE 30,      JUNE 30,      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 .........................          $ 2,154       3.9%             $ 4,544       5.8%
Money market funds -
         variable rate .........................              847       3.9%                 618       6.3%
Cash Equivalents -
         fixed rate ............................           17,360       4.1%              28,116       6.6%
Short-term investments -
         fixed rate ............................           20,629       4.5%              20,738       6.7%
                                                          -------                       --------
Total ..........................................          $40,990                        $54,016
                                                          =======                        =======
</TABLE>


                                       22
<PAGE>   23

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. Accordingly, it is likely that in some future quarters the 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 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 quarters the 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.

Economic growth has slowed significantly in recent months and many commentators
believe the U.S. economy will experience a recession. Overall, customer spending
is getting tighter and spending decisions are being more carefully scrutinized.
These conditions have negatively affected our business in the first six months
of calendar 2001 and will in the future if these conditions persist. The outlook
for the electronics industry is uncertain and it is very difficult to predict
how long the current slowdown will last.

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.


                                       23
<PAGE>   24

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.
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
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, 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


                                       24
<PAGE>   25

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 from 21% in the first quarter
of fiscal 2001 to 4% in the second quarter of fiscal 2001 and 3% in the third
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
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


                                       25
<PAGE>   26

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
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


                                       26
<PAGE>   27

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
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. These conditions have negatively affected our
business in the first six months of calendar 2001 and will continue to do so in
the future if these conditions persist. Due in part to this general slowdown,
the Company has experienced a decline in the rate of quarter over quarter growth
of net royalty revenues from 21% for the first quarter of fiscal 2001 to 4% in
the second quarter of fiscal 2001 and 3% in the third quarter of fiscal 2001.
The outlook for the electronics industry is uncertain and it is very difficult


                                       27
<PAGE>   28

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

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. In the three month period ended June 30, 2001,
UMC Group ("UMC"), National Semiconductor Corporation ("NSC"), Taiwan
Semiconductor Manufacturing Corporation ("TSMC") and Synopsys, Inc. accounted
for 19%, 18%, 15% and 12% of revenue, respectively. In the nine month period
ended June 30, 2001, TSMC and NSC accounted for 25% and 10% of revenue,
respectively. In the three month period ended June 30, 2000, TSMC, Infineon
Technologies AG and Sharp Corporation ("Sharp") accounted for 34%, 17% and 16%
of revenue, respectively. In the nine month period ended June 30, 2000, TSMC,
Sharp and NEC Electronics, Inc. accounted for 35%, 13% and 12% of revenue,
respectively. 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
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."


                                       28
<PAGE>   29

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 84% and 82% of total revenue in the
three and nine month periods ended June 30, 2001, respectively, and accounted
for 81% and 85% for the three and nine month periods ended June 30, 2000,
respectively. 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.

Risks Associated with International Customers

Historically, a substantial portion of the Company's total revenue has been
international revenue. In the three and nine month periods ended June 30, 2001,
international revenue represented approximately 64% and 71%, 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


                                       29
<PAGE>   30

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
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


                                       30
<PAGE>   31

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 June 30, 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 continues to integrate the Physical
Library Business with its existing business. In the three and nine month periods
ended June 30, 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 continues to integrate the workforce and operations of the acquired
business into the organizational structure established last quarter and work
towards the effective utilization of the additional workforce. There is 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


                                       31
<PAGE>   32

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.

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 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
processes, in part, through confidentiality agreements with its employees and


                                       32
<PAGE>   33

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


                                       33
<PAGE>   34

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
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 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Reports on Form 8-K.

None.

(b)      Exhibits

*10.26 Master License Agreement dated February 28, 2001 (the "License
Agreement") between the Company and National Semiconductor Corporation.

10.27 Severence Agreement dated June 7, 2001 between the Company and Harry
Dickinson.

*Certain information in this exhibit has been omitted and filed separately with
the Securities and Exchange Commission pursuant to a confidential treatment
request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 240.24b-2.


                                       34
<PAGE>   35

                                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:  August 14, 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)


                                       35
<PAGE>   36

                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
<S>            <C>
*10.26         Master License Agreement dated February 28, 2001 (the "License
               Agreement") between the Company and National Semiconductor
               Corporation.

10.27          Severence Agreement dated June 7, 2001 between the Company and
               Harry Dickinson.
</TABLE>

*    Certain information in this exhibit has been omitted and filed separately
     with the Securities and Exchange Commission pursuant to a confidential
     treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and
     240.24b-2.