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

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FORM 10-Q

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(Mark One)


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
     15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2007

OR



For the transition period from ________to _________

Commission file number :  001-13748

ZiLOG, Inc.(Exact name of Registrant as specified in its Charter)



|Delaware                                                       | 13-3092996                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

6800 Santa Teresa Boulevard
San Jose, California      95119

(408) 513-1500

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 reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      ̈ Accelerated filer     ̈ Non-accelerated filer    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):
YES     ̈ NO    x Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.   
YES    x NO     ̈ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.

|Class                                   | Outstanding at September 29, 2007
|--------------------------------------- | ---------------------------------
|Common Stock, $0.01 par value per share | 16,860,428 shares                








Note:PDF provided as a courtesy

Some of the statements under sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  In
some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "anticipates," "believes,"
"estimates," "potential," "continue," or the negative terms or other comparable terminology.  These statements may include:

- estimates of market growth;

- estimates of capital expenditures;

- the adequacy of available cash;

- the cost or outcome of any litigation pending or threatened;

- the impact on recent accounting pronouncements;

- any gross margin improvement resulting from our research and development effort; and

- the expected cost of compliance with environmental laws.

These statements relate to future events or our future financial performance and involve known and may involve unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or implied by forward-looking statements including, but not limited
to, prospects for future market growth.  Other factors that may cause or contribute to differences include, but are not limited to: disruption to third
party services including foundry, wafer manufacturing, packaging, assembly and test support with commercially-reasonable quality and prices;
under-absorption of manufacturing costs in our test and manufacturing support facilities from under-utilization of capacity; our distributors and
customers significantly reducing their existing inventories before ordering new products and costs associated with the Microchip lawsuit.   In
evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors" in this Form
10-Q and in our Form 10-K for the fiscal year ended March 31, 2007.

Although we believe that the expectations in the forward-looking statements contained in this Form 10-Q are reasonable, we cannot
guarantee future results, levels of activity, and performance achievements. These forward-looking statements are based on our current
expectations, and we disclaim any obligation to update these forward-looking statements for subsequent events or to explain why actual results
differ unless otherwise required by law. You should not place undue reliance on these forward-looking statements.

Unless otherwise specified as a forward-looking statement, the information contained in this report is historical in nature and speaks as of
the date of this report unless otherwise clearly indicated.  We disclaim any obligation to update this information for subsequent events.

Based in San Jose, California, we established our business in 1973, later to be incorporated in California in October 1981 and
reincorporated in Delaware in April 1997.  In this report, "ZiLOG," "the Company," "our," "us,"
"we," and similar expressions refer to ZiLOG, Inc. and its subsidiaries.  However, when these expressions are used throughout this
report in connection with ZiLOG, Inc.'s reorganization, completed in May 2002, under Chapter 11 of the U.S. bankruptcy code, they are referring
only to the parent company, ZiLOG, Inc., and not to any of its subsidiaries. EZ80ACCLAIM!, CRIMZON, Zatara, ZiLOG, Z8, Z80, eZ80, Z8
ENCORE!, Encore!XP and Zneo are registered trademarks of ZiLOG, Inc. in the United States and in other countries. ARM is a registered
trademark of ARM Limited in the EU and other countries. Other product and or service names mentioned herein may be trademarks of the
companies with which they are associated.

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ZILOG, INC.
                  QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 29, 20007
                  TABLE OF CONTENTS

|PART I. FINANCIAL INFORMATION                                                                                                                           | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Item 1.Financial Statements                                                                                                                             |     
|Unaudited Condensed Consolidated Statements of Operations for the three and six months
                 ended September 29, 2007 and September 30, 2006 | 3   
|Unaudited Condensed Consolidated Balance Sheets at September 29, 2007 and March 31, 2007                                                                | 4   
|Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended 
        September 29, 2007 and September 30, 2006         | 5   
|Unaudited Condensed Consolidated Statements of Stockholders' Equity for the six months
          ended September 29, 2007 and September 30, 2006        | 6   
|Notes to Unaudited Condensed Consolidated Financial Statements                                                                                          | 7   
|Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations                                                            | 16  
|Item 3.Quantitative and Qualitative Disclosures About Market
Risk                                                                                       | 24  
|Item 4.Controls and
Procedures                                                                                                                          | 25  
|                                                                                                                                                        |     
|PART II. OTHER INFORMATION                                                                                                                              |     
|Item 1.Legal Proceedings                                                                                                                                | 26  
|Item 1A.Risk Factors                                                                                                                                    | 26  
|Item 2.Unregistered Sales of Equity Securities and Use of
Proceeds                                                                                      | 27  
|Item 3.Defaults Upon Senior Securities                                                                                                                  | 27  
|Item 4.Submission of Matters to a Vote of Security Holders                                                                                              | 27  
|Item 5.Other Information                                                                                                                                | 27  
|Item 6.Exhibits                                                                                                                                         | 28  
|                                                                                                                                                        |     

2

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PART I
                  FINANCIAL INFORMATION

Item 1.  Financial Statements

ZILOG, Inc.

                    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                          (in millions, except per share data)



|                                                |  |   | Three Months Ended |  |   | Six Months Ended
|----------------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                                |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                                |  |   | 2007               |  |   | 2006            
|Net sales                                       |  | $ | 16.7               |  | $ | 21.2            
|Cost of sales                                   |  |   | 9.0                |  |   | 11.4            
|Gross margin                                    |  |   | 7.7                |  |   | 9.8             
|Gross margin %                                  |  |   | 46%                |  |   | 46%             
|                                                |  |   |                    |  |   |                 
|Operating expenses:                             |  |   |                    |  |   |                 
|Research and development                        |  |   | 3.9                |  |   | 5.0             
|Selling, general and administrative             |  |   | 5.1                |  |   | 5.8             
|Special charges and credits                     |  |   | 0.4                |  |   | 0.9             
|Amortization of intangible assets               |  |   | 0.3                |  |   | 0.3             
|Total operating expenses                        |  |   | 9.7                |  |   | 12.0            
|Operating loss (1)                              |  |   | (2.0)              |  |   | (2.2)           
|                                                |  |   |                    |  |   |                 
|Other income:                                   |  |   |                    |  |   |                 
|Interest income                                 |  |   | 0.2                |  |   | 0.3             
|Loss before provison for income taxes           |  |   | (1.8)              |  |   | (1.9)           
|Provision for income taxes                      |  |   | 0.1                |  |   | 0.4             
|Net loss                                        |  | $ | (1.9)              |  | $ | (2.3)           
|                                                |  |   |                    |  |   |                 
|Basic and diluted net loss per share            |  | $ | (0.11)             |  | $ | (0.14)          
|                                                |  |   |                    |  |   |                 
|Weighted-average shares used in computing basic |  |   |                    |  |   |                 
|and diluted net loss per share                  |  |   | 16.9               |  |   | 16.6            

See accompanying notes to unaudited condensed consolidated financial statements.

3

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ZILOG, Inc.

                     UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                      (in millions)



|                                             |  |   | Sep. 29, |  |   | Mar. 31,
|-------------------------------------------- |  | - | -------- |  | - | --------
|                                             |  |   | 2007     |  |   | 2007    
|ASSETS                                       |  |   |          |  |   |         
|Current assets:                              |  |   |          |  |   |         
|Cash and cash equivalents                    |  | $ | 19.9     |  | $ | 19.4    
|Accounts receivable, net                     |  |   | 7.9      |  |   | 8.0     
|Inventories, net                             |  |   | 8.7      |  |   | 8.5     
|Assets held for sale                         |  |   | -        |  |   | 3.2     
|Deferred tax assets                          |  |   | 0.4      |  |   | 0.4     
|Prepaid expenses and other current assets    |  |   | 1.6      |  |   | 1.8     
|Total current assets                         |  |   | 38.5     |  |   | 41.3    
|                                             |  |   |          |  |   |         
|Property, plant and equipment, net           |  |   | 5.7      |  |   | 6.5     
|Goodwill                                     |  |   | 2.2      |  |   | 2.2     
|Intangible assets, net                       |  |   | 3.0      |  |   | 3.5     
|Other assets                                 |  |   | 1.2      |  |   | 2.3     
|Total assets                                 |  | $ | 50.6     |  | $ | 55.8    
|                                             |  |   |          |  |   |         
|LIABILITIES AND STOCKHOLDERS' EQUITY         |  |   |          |  |   |         
|Current liabilities:                         |  |   |          |  |   |         
|Accounts payable                             |  | $ | 6.9      |  | $ | 6.1     
|Income taxes payable                         |  |   | 0.5      |  |   | 0.6     
|Accrued compensation and employee benefits   |  |   | 2.4      |  |   | 2.8     
|Other accrued liabilities                    |  |   | 2.2      |  |   | 2.9     
|Deferred income on shipments to distributors |  |   | 6.6      |  |   | 7.1     
|Total current liabilities                    |  |   | 18.6     |  |   | 19.5    
|                                             |  |   |          |  |   |         
|Deferred tax liabilities                     |  |   | 0.4      |  |   | 0.4     
|Other non-current tax liabilities            |  |   | 1.0      |  |   | 1.2     
|Total liabilities                            |  |   | 20.0     |  |   | 21.1    
|                                             |  |   |          |  |   |         
|Stockholders' equity:                        |  |   |          |  |   |         
|Common stock                                 |  |   | 0.2      |  |   | 0.2     
|Additional paid-in capital                   |  |   | 125.6    |  |   | 124.5   
|Treasury stock                               |  |   | (7.4)    |  |   | (7.2)   
|Other comprehensive income                   |  |   | 0.1      |  |   | -       
|Accumulated deficit                          |  |   | (87.9)   |  |   | (82.8)  
|Total stockholders' equity                   |  |   | 30.6     |  |   | 34.7    
|Total liabilities and stockholders' equity   |  | $ | 50.6     |  | $ | 55.8    

See accompanying notes to unaudited condensed consolidated financial statements.

4

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ZILOG, Inc.

               UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    (in millions)



|                                                            |  |  |   | Six Months Ended
|----------------------------------------------------------- |  |  | - | ----------------
|                                                            |  |  |   | Sept. 29,       
|                                                            |  |  |   | 2007            
|Cash Flows from Operating Activities:                       |  |  |   |                 
|Net loss                                                    |  |  | $ | (5.0)           
|Adjustments to reconcile net loss to net cash               |  |  |   |                 
|provided by (used in) operating activities:                 |  |  |   |                 
|Amortization of fresh-start intangible assets               |  |  |   | 0.5             
|Depreciation and amortization                               |  |  |   | 1.5             
|Loss on disposition of operating assets                     |  |  |   | 0.3             
|Stock-based compensation                                    |  |  |   | 0.8             
|Changes in operating assets and liabilities:                |  |  |   |                 
|Accounts receivable, net                                    |  |  |   | 0.1             
|Inventories, net                                            |  |  |   | (0.2)           
|Prepaid expenses and other current and non-current assets   |  |  |   | 1.3             
|Accounts payable                                            |  |  |   | 0.8             
|Accrued compensation and employee benefits                  |  |  |   | (0.4)           
|Deferred income on shipments to distributors                |  |  |   | (0.5)           
|Accrued and other current liabilites                        |  |  |   | (0.7)           
|Non-current liabilities                                     |  |  |   | (0.4)           
|Net cash provided by (used in) operating activities         |  |  |   | (1.9)           
|                                                            |  |  |   |                 
|Cash Flows from Investing Activities:                       |  |  |   |                 
|Disposal of assets held for sale - MOD II property          |  |  |   | 3.2             
|Due to Mod III Preferred Series A shareholders              |  |  |   | -               
|Capital expenditures                                        |  |  |   | (0.9)           
|Net cash provided by (used in) investing activities         |  |  |   | 2.3             
|                                                            |  |  |   |                 
|Cash Flows From Financing Activities:                       |  |  |   |                 
|Proceeds from issuance of common stock under                |  |  |   |                 
|employee stock and option plans                             |  |  |   | 0.3             
|Net over funded status of Philippine employees defined      |  |  |   |                 
|benefit retirement plan - adoption of FAS 158 (see Note 10) |  |  |   | 0.1             
|Repurchase of common stock                                  |  |  |   | (0.3)           
|Net cash provided by financing activities                   |  |  |   | 0.1             
|                                                            |  |  |   |                 
|Net increase (decrease) in cash and cash equivalents        |  |  |   | 0.5             
|Cash and cash equivalents at beginning of period            |  |  |   | 19.4            
|Cash and cash equivalents at end of period                  |  |  | $ | 19.9            

See accompanying notes to unaudited condensed consolidated financial statements.

5

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ZILOG, Inc.

               UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                    (in thousands)



|                                                                                                                 |  | Common Stock |  |   | DeferredStock |  |   | AdditionalPaid-in |  |   | Treasury |  |   | OtherComprehensive |  |   | Accumulated |  |   | TotalStock-holders'
|---------------------------------------------------------------------------------------------------------------- |  | ------------ |  | - | ------------- |  | - | ----------------- |  | - | -------- |  | - | ------------------ |  | - | ----------- |  | - | -------------------
|                                                                                                                 |  | Shares       |  |   | Amount        |  |   | Compensation      |  |   | Capital  |  |   | Stock              |  |   | Income      |  |   | Deficit            
|Balance at March 31, 2006                                                                                        |  | 16.6         |  | $ | 0.2           |  | $ | (0.6)             |  | $ | 123.2    |  | $ | (7.2)              |  | $ | -           |  | $ | (73.8)             
|Adoption of SFAS 123R                                                                                            |  | -            |  |   | -             |  |   | 0.6               |  |   | (0.6)    |  |   | -                  |  |   | -           |  |   | -                  
|Issuance of common stock under employee stock                                                                    |  |              |  |   |               |  |   |                   |  |   |          |  |   |                    |  |   |             |  |   |                    
|purchase plan                                                                                                    |  | 0.1          |  |   | -             |  |   | -                 |  |   | 0.1      |  |   | -                  |  |   | -           |  |   | -                  
|Stock-based compensation expense                                                                                 |  | -            |  |   | -             |  |   | -                 |  |   | 0.7      |  |   | -                  |  |   | -           |  |   | -                  
|Cancellation of restricted shares                                                                                |  | (0.1)        |  |   | -             |  |   | -                 |  |   | -        |  |   | -                  |  |   | -           |  |   | -                  
|Net loss and comprehensive loss                                                                                  |  | -            |  |   | -             |  |   | -                 |  |   | -        |  |   | -                  |  |   | -           |  |   | (3.8)              
|Balance at September 30, 2006                                                                                    |  | 16.6         |  | $ | 0.2           |  | $ | -                 |  | $ | 123.4    |  | $ | (7.2)              |  | $ | -           |  | $ | (77.6)             
|                                                                                                                 |  |              |  |   |               |  |   |                   |  |   |          |  |   |                    |  |   |             |  |   |                    
|                                                                                                                 |  |              |  |   |               |  |   |                   |  |   |          |  |   |                    |  |   |             |  |   |                    
|Balance at March 31, 2007                                                                                        |  | 16.8         |  | $ | 0.2           |  | $ | 0.0               |  | $ | 124.5    |  | $ | (7.2)              |  | $ | -           |  | $ | (82.8)             
|Issuance of common stock under stock option plans                                                                |  | 0.2          |  |   | -             |  |   | -                 |  |   | 0.2      |  |   | -                  |  |   | -           |  |   | -                  
|Issuance of common stock under employee stock                                                                    |  |              |  |   |               |  |   |                   |  |   |          |  |   |                    |  |   |             |  |   |                    
|purchase plan                                                                                                    |  | -            |  |   | -             |  |   | -                 |  |   | 0.1      |  |   | -                  |  |   | -           |  |   | -                  
|Stock-based compensation expense                                                                                 |  | -            |  |   | -             |  |   | -                 |  |   | 0.8      |  |   | -                  |  |   | -           |  |   | -                  
|Net over funded status of Philippine employeesdefined benefit retirement plan - adoptionof FAS 158 (see Note 10) |  | -            |  |   | -             |  |   | -                 |  |   | -        |  |   | -                  |  |   | 0.1         |  |   | -                  
|Repurchase of common stock                                                                                       |  | (0.1)        |  |   | -             |  |   | -                 |  |   | -        |  |   | (0.2)              |  |   | -           |  |   | -                  
|Cumulative effect of accounting change - adoptionof FIN 48 (see Note 8)                                          |  | -            |  |   | -             |  |   | -                 |  |   | -        |  |   | -                  |  |   | -           |  |   | (0.1)              
|Net loss and comprehensive loss                                                                                  |  | -            |  |   | -             |  |   | -                 |  |   | -        |  |   | -                  |  |   | -           |  |   | (5.0)              
|Balance at September 29, 2007                                                                                    |  | 16.9         |  | $ | 0.2           |  | $ | -                 |  | $ | 125.6    |  | $ | (7.4)              |  | $ | 0.1         |  | $ | (87.9)             

See accompanying notes to unaudited condensed consolidated financial statements.

6

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ZILOG, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.	BASIS OF PRESENTATION

The accompanying interim financial information is unaudited.  In the opinion of Zilog, Inc.'s ("Zilog" or
the "Company") management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of
interim results have been included.  The results for interim periods are not necessarily indicative of results to be expected for the entire year.
These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company's annual
consolidated financial statements and notes thereto contained in the Company's 2007 Annual Report filed on Form 10-K File Number 001-13748 for
the fiscal year ended March 31, 2007, filed on June 25, 2007 with the Securities and Exchange Commission.

The Company's fiscal year ends March 31 with interim results based on fiscal quarters of approximately thirteen
weeks in duration ending on the closest Saturday to each calendar quarter end, with the exception of the fourth quarter, which ends on March
31.  The operating results for any period are not necessarily indicative of results for any subsequent period or the full fiscal year.

The condensed consolidated balance sheet at March 31, 2007 was derived from audited financial statements at that date, but does not
include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial
statements.

NOTE 2.  	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies is described in its Annual Report for the 2007 fiscal year ended March 31,
2007, filed on Form 10-K with the Securities and Exchange Commission on June 25, 2007.
Adoption of Accounting Standards.

The Company has adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), effective April 1, 2007 for the fiscal year ending March
31, 2008. See Note 8 to the Company's unaudited condensed consolidated financial statements for further detail, including the impact of the
adoption. FIN 48, issued in June 2006, clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, on a tax
return. This Interpretation also provides guidance on derecognition, classification, interest, penalties, accounting in interim periods, disclosure
and transition. The evaluation of a tax position in accordance with this Interpretation is a two-step process. The first step will determine if it is
more likely than not that a tax position will be sustained upon examination and should therefore be recognized. The second step will measure a
tax position that meets the more likely than not recognition threshold to determine the amount of benefit to recognize in the financial statements.

The Company has adopted the provisions of FASB issued Statement No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans" ("SFAS 158") effective April 1, 2007 for the fiscal year ending March 31, 2008. The Company has a defined benefit
plan in the Philippines and has recorded a net asset of $0.1 million, classified as other assets on the accompanying unaudited condensed consolidated
balance sheets, to represent the over funded status of the plan. See Note 10 to the Company's unaudited condensed consolidated financial
statements for further detail, including the impact of the adoption.

7

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NOTE 3.	INVENTORIES

Inventories are stated at the lower of cost, determined on a first-in-first-out basis, or market. The Company establishes excess and obsolete
inventory reserves when required, to record inventory at its estimated net realizable value. It is possible that estimates of net realizable value
may decline in the short-term. Inventories, net of reserves, consist of the following (in millions):

|                 |  |   | Sep. 29, |  |   | Mar. 31,
|---------------- |  | - | -------- |  | - | --------
|                 |  |   | 2007     |  |   | 2007    
|Raw materials    |  | $ | 0.4      |  | $ | 0.3     
|Work-in-progress |  |   | 6.5      |  |   | 6.2     
|Finished goods   |  |   | 1.8      |  |   | 2.0     
|Net inventory    |  | $ | 8.7      |  | $ | 8.5     

NOTE 4.	SPECIAL CHARGES AND CREDITS

The components of special charges and credits are as follows (in millions):

|                                                   |  |   | Three Months Ended |  |   | Six Months Ended
|-------------------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                                   |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                                   |  |   | 2007               |  |   | 2006            
|Special Charges and Credits:                       |  |   |                    |  |   |                 
|                                                   |  |   |                    |  |   |                 
|Severance, termination and other costs             |  | $ | 0.4                |  | $ | 0.7             
|MOD II sustaining, maintenance and selling costs   |  |   | -                  |  |   | 0.2             
|Reimbursement of retirement benefits - Philippines |  |   |                    |  |   |                 
|defined benefit plan                               |  |   | -                  |  |   | -               
|Total special charges and credits, net             |  | $ | 0.4                |  | $ | 0.9             

As part of the Company's ongoing efforts to reduce costs and streamline activities, in March 2007, a plan of action was initiated to
consolidate certain research and development activities and transfer certain of these activities from its Shanghai, China and Seattle,
Washington facilities to its San Jose, California and Meridian, Idaho facilities. During the three and six months ended September 29, 2007, the
Company incurred $0.4 million and $1.2 million, respectively, for severance, lease termination costs and other closure costs related to its
consolidation efforts. During the six months ended September 29, 2007, the Company incurred period expenses of $0.3 million related to
maintenance costs and subsequent costs associated with the sale of its MOD II facility. Additionally in May 2007, the Company received a
refund of $0.7 million from its Philippines defined benefit plan related to its prior over funded status. The refund was recorded as a credit to
special charges during the six months ended September 29, 2007.

The Company incurred period expenses to sustain the remaining assets of MOD II in a saleable condition which was classified as an asset
held for sale on the Company's consolidated balance sheets since its closure in July 2004 until it was sold in May 2007 for a net sales price of
$3.1 million.

Special charges of $0.7 million for the three and six months ended September 30, 2006 reflect severance and other costs associated with
the resignation of the Company's former Chief Executive Officer on August 30, 2006.

8

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The following table summarizes activity in accrued special charges which is included in other accrued liabilities on the condensed
consolidated balance sheets (in millions):

|                              |  |   | Accrued
|----------------------------- |  | - | -------
|                              |  |   | Special
|                              |  |   | Charges
|Balance at March 31, 2007     |  | $ | 1.2    
|Accruals                      |  |   | 0.8    
|Cash payments                 |  |   | (1.5)  
|Balance at September 29, 2007 |  | $ | 0.5    

NOTE 5.	GEOGRAPHIC AND SEGMENT INFORMATION

Segment Information. The Company's business is comprised of one operating segment and the Company engages
primarily in the design, development, manufacturing, marketing and sales of semiconductor products. The Company sells its products to
distributors, original equipment manufacturers ("OEM") and other direct customers including contract manufacturers in a broad range
of market segments. The Company performs on-going credit evaluations of its customers and generally requires no collateral.  The Company's
operations outside the United States consist of a final test facility in the Philippines and sales and support and design centers in certain foreign
countries.  Domestic operations are responsible for the design and development of its products, as well as marketing and sales. Domestic
activities also include certain production planning, quality, reliability and certain shipping and logistic activities to meet worldwide customer
commitments.  The Philippine test facility is reimbursed in relation to value added services with respect to test operations and other functions
performed. Certain foreign sales offices receive a commission on export sales within their territory.  Accordingly, for financial statement
purposes, it is not meaningful to segregate sales or operating profits for the test and foreign sales office operations.

Sales by Product Category. The following table represents the Company's net sales by product category for each of the
periods indicated (in millions):

|                                |  |   | Three Months Ended |  |   | Six Months Ended
|------------------------------- |  | - | ------------------ |  | - | ----------------
|                                |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                |  |   | 2007               |  |   | 2006            
|Net sales by product category:  |  |   |                    |  |   |                 
|                                |  |   |                    |  |   |                 
|Embedded flash microcontrollers |  | $ | 3.9                |  | $ | 3.7             
|Remote control solutions        |  |   | 4.1                |  |   | 6.0             
|8-bit microcontrollers          |  |   | 8.0                |  |   | 9.7             
|32-bit ARM products             |  |   | 0.3                |  |   | -               
|Total new products              |  |   | 8.3                |  |   | 9.7             
|8-bit classic products          |  |   | 8.4                |  |   | 11.5            
|Total net sales                 |  | $ | 16.7               |  | $ | 21.2            

9

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The following table summarizes the Company's net sales by region and by channel (in millions):

|                      |  |   | Three Months Ended |  |   | Six Months Ended
|--------------------- |  | - | ------------------ |  | - | ----------------
|                      |  |   | Sept. 29,          |  |   | Sept. 30,       
|                      |  |   | 2007               |  |   | 2006            
|Net sales by region:  |  |   |                    |  |   |                 
|Americas              |  | $ | 4.9                |  | $ | 8.3             
|Asia                  |  |   | 9.5                |  |   | 10.1            
|Europe                |  |   | 2.3                |  |   | 2.8             
|Total net sales       |  | $ | 16.7               |  | $ | 21.2            
|                      |  |   |                    |  |   |                 
|Net sales by channel: |  |   |                    |  |   |                 
|OEM/direct            |  | $ | 6.7                |  | $ | 8.6             
|Distribution          |  |   | 10.0               |  |   | 12.6            
|Total net sales       |  | $ | 16.7               |  | $ | 21.2            

Major customers:  For the three and six months ended September 29, 2007, one distributor accounted forgreater than 10% of the Company's total net sales.  This distributor accounted for approximately 35% and 33% of net sales,
respectively.  Forthe six months ended September 29, 2007, one customer accounted forapproximately 10%
of the Company's total net sales.

NOTE 6.      STOCK, OPTIONS AND STOCK-BASED COMPENSATION

Stock-based compensation. The Company has a stock-based compensation program that includes incentive and non-statutory
stock options, and restricted shares.  Stock options are generally time-based, vesting 25% on the first anniversary of the grant date
and vesting monthly thereafter over four years and expire ten years from the grant date. On September 6, 2007, the Company's shareholders
approved an additional 1,500,000 shares to be available for issuance under this plan. As of September 29, 2007, the Company had 2,622,317
shares available for grant.  Additionally, the Company has an Employee Stock Purchase Plan ("ESPP") that allows employees to
purchase shares of common stock at 85% of the fair market value at the lower of either the date of enrollment or the date of purchase. As of
September 29, 2007, the Company had approximately 988,211 shares of common stock reserved for future issuance under its ESPP plan.

The Company records stock-based compensation in accordance with the provisions of Statement of Financial
Standard No.123, "Share-Based Payment" ("SFAS 123R"), which establishes valuation and accounting resulting in the
Company's recognition of expense related to the fair value of its stock-based compensation awards.

The following table sets forth the total stock-based compensation expense resulting
from stock options, restricted stock awards and rights granted under its ESPP included in the Company's unaudited condensed consolidated
statements of operations (in millions):

|                                                          |  |   | Three Months |  |   | Six Months
|--------------------------------------------------------- |  | - | ------------ |  | - | ----------
|                                                          |  |   | Ended        |  |   | Ended     
|                                                          |  |   | Sep. 29,     |  |   | Sep. 30,  
|                                                          |  |   | 2007         |  |   | 2006      
|Research and development                                  |  | $ | 0.1          |  | $ | 0.1       
|Selling, general and administrative                       |  |   | 0.3          |  |   | 0.3       
|Stock based compensation included in operating loss       |  |   | 0.4          |  |   | 0.4       
|Total stock-based compensation expense after income taxes |  | $ | 0.4          |  | $ | 0.4       

10

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The fair value of stock-based awards was estimated on the date of grant using the Black-Scholes valuation pricing model with the following
weighted-average assumptions:

|Stock Options                             |  |   | Three Months Ended |  |   | Six Months Ended
|----------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                          |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                          |  |   | 2007               |  |   | 2006            
|Expected life (in years)                  |  |   | 5.2                |  |   | 5.2             
|Interest rate                             |  |   | 4.3%               |  |   | 4.6%            
|Volatility                                |  |   | 45.0%              |  |   | 47.9%           
|Dividend yield                            |  |   | -                  |  |   | -               
|Weighted-average fair value at grant date |  | $ | 3.86               |  | $ | 3.51            



|Employee Stock Purchase Plan              |  |   | Three Months Ended |  |   | Six Months Ended
|----------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                          |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                          |  |   | 2007               |  |   | 2006            
|Expected life (in years)                  |  |   | 0.9                |  |   | 0.5             
|Interest rate                             |  |   | 5.0%               |  |   | 5.0%            
|Volatility                                |  |   | 38.6%              |  |   | 44.0%           
|Dividend yield                            |  |   | -                  |  |   | -               
|Weighted-average fair value at grant date |  | $ | 3.08               |  | $ | 3.21            

The computation of expected volatility for the three and six months ended September 29, 2007 is based on a blended calculation of
historical and market-based implied volatility. The computation of expected life is based on a combination of historical and expected exercise
patterns. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of
grant.

11

---



Stock option activity for the six months ended September 29, 2007, is as follows:

|                                        |  |  | Shares    |  |   | Weighted-AverageExercisePrice PerShare |  |  | Weighted-AverageRemainingContractualTerm (inyears) |  |   | AggregateIntrinsicValue (inmillions)
|--------------------------------------- |  |  | --------- |  | - | -------------------------------------- |  |  | -------------------------------------------------- |  | - | ------------------------------------
|Outstanding at March 31, 2007           |  |  | 1,786,057 |  | $ | 5.55                                   |  |  | 7.99                                               |  | $ | 0.8                                 
|Grants                                  |  |  | 82,500    |  |   | 5.50                                   |  |  | -                                                  |  |   | -                                   
|Exercises                               |  |  | (48,334)  |  |   | 3.47                                   |  |  | -                                                  |  |   | -                                   
|Forfeitures or expirations              |  |  | (62,488)  |  |   | 5.08                                   |  |  | -                                                  |  |   | -                                   
|Outstanding at June 30, 2007            |  |  | 1,757,735 |  | $ | 5.62                                   |  |  | 7.38                                               |  | $ | 1.4                                 
|                                        |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|Outstanding Vested and Expected to Vest |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|at June 30, 2007                        |  |  | 1,527,860 |  | $ | 5.81                                   |  |  | 7.17                                               |  | $ | 1.1                                 
|                                        |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|Exercisable at June 30, 2007            |  |  | 623,455   |  | $ | 7.39                                   |  |  | 5.65                                               |  | $ | 0.3                                 
|                                        |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|Outstanding at June 30, 2007            |  |  | 1,757,735 |  | $ | 5.62                                   |  |  | 7.38                                               |  | $ | 1.4                                 
|Grants                                  |  |  | 115,000   |  |   | 3.86                                   |  |  | -                                                  |  |   | -                                   
|Exercises                               |  |  | (19,748)  |  |   | 2.77                                   |  |  | -                                                  |  |   | -                                   
|Forfeitures or expirations              |  |  | (198,999) |  |   | 5.22                                   |  |  | -                                                  |  |   | -                                   
|Outstanding at  September 29, 2007      |  |  | 1,653,988 |  | $ | 5.58                                   |  |  | 7.37                                               |  | $ | 0.2                                 
|                                        |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|Oustanding Vested and Expected to Vest  |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|at September 29, 2007                   |  |  | 1,431,475 |  | $ | 5.77                                   |  |  | 7.12                                               |  | $ | 0.2                                 
|                                        |  |  |           |  |   |                                        |  |  |                                                    |  |   |                                     
|Exercisable at September 29, 2007       |  |  | 590,197   |  | $ | 7.39                                   |  |  | 5.14                                               |  | $ | 0.1                                 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's
closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by
the option holders had all option holders exercised their options on September 29, 2007. This amount will change based on fluctuations of the
fair market value of the Company's stock. The total fair value of options vested was $0.2 million at September 29, 2007.

There were 19,748 and 68,082 stock options exercised

As of September 29, 2007, $1.8 million of total unrecognized compensation costs related to stock options is expected to be recognized over
a weighted-average remaining period of 2.8 years.  The total unrecognized compensation cost related to restricted shares granted as of
September 29, 2007 is $0.3 million to be recognized over a weighted-average remaining period of 1.5 years.

Common stock repurchase. On September 6, 2007, the Company's Board of Directors approved the foreclosure on 73,151 shares
of its common stock which were pledged to secure a loan to its Chief Financial Officer, Perry Grace, at the then fair market value of $3.85 per share.
The shares were used to settle an outstanding loan in the amount of $274,175, plus accrued and unpaid
interest owed to the Company by Mr. Grace. The loan originated in May 2002 prior to the adoption of the
Sarbanes-Oxley Act and had become due for repayment to the Company in accordance with the terms
outlined in the original loan agreement.

12

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NOTE 7.	CONTINGENCIES

On August 11, 2005, Microchip Technology Inc. ("Microchip") filed a patent infringement claim against the Company
in the U.S. District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that the Company has infringed and currently
infringes its patents numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of the company, including the
Z8 Encore! XP 4K Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified
damages and costs including attorneys' fees. The Company filed a response to the claims on September 15, 2005 generally denying the
claims and challenging the validity of the patents. On January 10, 2006 the Company filed a request for patent re-examination with the U.S.
PTO which was granted in February and March 2006 for all 3 patents. On March 13 2006, the Company was informed that its motion to stay
with the Federal court of Arizona was granted until such time as Microchip is informed of the outcome of the re-examinations.

The Company does not believe it is feasible to predict or determine the outcome or resolution of this litigation at this time. The Company
believes it has meritorious defenses and will defend itself against these claims vigorously. The Company may incur substantial expenses in its
defense against these claims. In the event of a determination adverse to the Company, it may incur substantial monetary liabilities, and be
required to change its business practices. Either of these could have a material adverse effect on the Company's financial position, results of
operations and/or cash flows. The Company is participating in other litigation and responding to other claims arising in the ordinary course of
business.  The Company intends to defend itself vigorously in these matters.  The Company's management believes that it is unlikely that the
outcome of these matters will have a material adverse effect on the Company's financial statements, although there can be no assurance in this
regard.

From time to time the Company has agreed to indemnify and hold harmless certain customers for potential allegations of infringement of
intellectual property rights and patents arising from the use of its products. During the ordinary course of business, in certain limited
circumstances, the Company has agreed to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally
parties with which the Company has commercial relations, in connection with certain intellectual property infringement claims by any third party
with respect to its products and services. The Company has indemnification arrangements that limit its net contingent obligation to pay for
defense costs, if any, up to a maximum of $500,000. To date, there have not been any costs incurred in connection with such indemnification
arrangements; therefore, there is no accrual of such amounts at September 29, 2007. The Company discloses indemnification liabilities
according to FASB Staff Position FIN45-1, "Accounting for Intellectual Property Infringement Indemnifications under FAS Interpretation
No. 45." Under FAS No. 5, "Loss Contingencies," a claim would be accrued when a loss is probable and the amount can be
reasonably estimated. At September 29, 2007, no such amounts are accrued.

In connection with the lease in July 2007 for its new corporate headquarters located in San Jose, California, the Company established an
Irrevocable Letter of Credit in the amount of $0.3 million with Wells Fargo Bank. This letter of credit is in lieu of a security deposit with Mission
West Properties, L.P., the landlord. The letter of credit expires in April 2008, but shall be automatically extended, without written amendment, in
each succeeding calendar year up to April 2012, and then to, but not beyond a final expiration date of  October 31, 2012.

NOTE 8.	INCOME TAXES

The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes -an interpretation of FASB Statement No. 109 ("FIN48"), effective April 1, 2007. In connection with the adoption of FIN 48, the
Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. As a result of the implementation of FIN 48, the Company recorded a cumulative effect adjustment in the
three and six months ended September 29, 2007 related to the adoption of FIN 48 resulting in a decrease in the liability for unrecognized tax
benefits of $0.1 million and a corresponding decrease in accumulated deficit. As of September 29, 2007, the total amount of unrecognized tax
benefits was approximately $3.2 million, of which $2.2 million is recorded as a deferred tax asset offset by a valuation allowance and $1.0
million, which if recognized, would effect the Company's effective tax rate. The calculation of unrecognized tax benefits involves dealing with
uncertainties in the application of complex global tax regulations.

13

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Management assesses the Company's tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the
countries in which the Company does business.

A valuation allowance is required to be recorded if in management's judgment, based on available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.  Based on available evidence, management has concluded that a
valuation allowance is necessary to reduce the net deferred tax asset.  Deferred tax assets have been recognized only to the extent of
deferred tax liabilities.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 29, 2007, the
Company had $0.1 million of accrued interest and penalties related to uncertain tax positions.

The tax years 2003 through 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company
believes that its income tax filing positions and deductions will be sustained on audit and does not currently anticipate any adjustments will
result in a material change to its financial position.  Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN 48.

During the three and six months ended September 29, 2007, the Company's income tax provision was $0.1 million and $0.6 million,
respectively, which primarily reflect amortization of  deferred charges, a tax benefit of $0.4 million related to the release of estimated tax
liabilities on which the statute of limitations expired, and provisions for taxes in certain profitable foreign jurisdictions.  The Company provides for
income tax expense in foreign jurisdictions where its foreign subsidiaries operations generate profits that are taxable.  The Company's income
tax expense reflects the estimated annual effective tax rate at that time based on projections of operations.

NOTE 9.  	SHARES OUTSTANDING

At September 29, 2007 and September 30, 2006, there were 16,860,428 and 16,574,557 common shares issued and outstanding,
respectively. No options were excluded from the computation of weighted-average shares as they were anti-dilutive.

NOTE 10.   RETIREMENT AND BENEFIT PLANS

U.S. 401(k) retirement plan: The Company has an employee savings plan that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating U.S. employees may defer a portion of
their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Company may make matching contributions on behalf of
each participating employee in an amount equal to 100% of the participant's deferral contribution, up to 1.5% of the participant's compensation
on a quarterly basis. The Company may also make additional discretionary contributions to the 401(k) Plan. Matching contributions to the 401(k)
Plan were each less than $0.1 million for the six months ended September 29, 2007 and September 30, 2006, respectively. There were no
discretionary contributions made for the six months ended September 29, 2007 and September 30, 2006, respectively.

Philippines defined benefit plan: The Company's Philippines subsidiary maintains a defined benefit pension plan for local
employees, which is consistent with local statutes and practices. As of March 31, 2007, the pension plan was over-funded by approximately
$0.8 million. The over-funded position generally reflects a decline in the number of employees who are eligible for entitlements under the plan,
coupled with increased returns on the plan assets that are greater than the increase in the employees' entitlement liabilities. In April 2007, the
Company requested, and was granted, certain contribution refunds from the pension plan administrator and in May 2007, the Company
received $0.7 million. The refund was recorded as a credit to special charges during the six months ended September 29, 2007.

Impact of adopting SFAS 158 effective April 1, 2007: The Company has adopted the provisions of SFAS 158 effective April
1, 2007 for the fiscal year ending March 31, 2008. The Company recorded a net asset of $0.1 million, classified as other assets on the
accompanying condensed consolidated balance sheets, and a corresponding decrease

14

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to other comprehensive income, to represent the over
funded status of the Philippines defined benefit plan as of September 29, 2007. There was no impact on the U.S. 401(k) retirement plan as a
result of adopting SFAS 158.

NOTE 11.   MOD III Liquidation and MOD II Asset Sale

MOD III Liquidation

In February 2006, Zilog MOD III, Inc. ("MOD III") completed the sale of its remaining assets to Micron Technology, Inc.
for a total consideration of $3.8 million. These assets included the dormant 8" wafer fabrication facility and associated land owned by MOD
III.   The cost of the transaction was $0.4 million and was apportioned on a prorated basis to the related assets sold.  The transaction
represented the sale of the remaining assets of MOD III and, as such, the shareholders voted to liquidate the special purpose entity and
distribute the remaining net proceeds to its Series A Preferred shareholders at the conclusion of that process. The remaining net proceeds of
$2.8 million were distributed to holders of MOD III Series A Preferred stock upon the liquidation of the subsidiary in October 2006.  The
distribution to the MOD III shareholders was net of reimbursement to Zilog Inc. for costs incurred to maintain the facility.

MOD II Assets Sale

In 2004, during its transition to a fabless manufacturing model, the Company sold all of its wafer manufacturing equipment and certain other
manufacturing support-related assets of its MOD II 5" wafer fabrication facility in Nampa, Idaho, to STMicroelectronics for an aggregate
cash consideration of $5.9 million, net of selling costs and expenses. The Company recorded a net gain of $1.7 million in connection with these
sales.  The remaining assets of MOD II, primarily consisting of land and buildings, were classified as assets held for sale on the Company's
condensed consolidated balance sheets at March 31, 2007.  The carrying value of these assets was estimated and recorded at $3.2 million. In
April 2007, the Company entered into an agreement to sell the MOD II facility and in May 2007, the transaction was completed. The Company
received net proceeds of $3.1 million for these assets and recorded the sale in the six months ended September 29, 2007.

NOTE 12.   Subsequent Event

The Company has initiated a plan of action to transfer its manufacturing test operations and related activities currently performed in its Philippines facility to
third party suppliers. An estimated 157 employees will be terminated upon completion of the various phases of the outsourcing initiative which is
estimated to be completed by September 30, 2008.

Total estimated costs to be incurred of $1.1 million include severance and related benefits costs, costs associated with the transition and
set-up of the outsourced third party manufacturers and related costs. These costs will be recorded as special charges as activities are
transferred and as actions are completed.

15

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

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including
those set forth in the section entitled "Risk Factors" in this quarterly report and in our Form 10-K for the year ended March 31, 2007
and in other sections of this quarterly report.
Overview

The following is management's discussion and analysis of financial condition and results of our operations
and those of our subsidiaries for the three-month and six-month periods ended September 29, 2007 and
September 30, 2006.  This discussion and analysis should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein and in our 2007 annual report
on Form 10-K. Management's discussion and analysis provides information concerning our business
environment, consolidated results of operations and liquidity and capital resources.Our fiscal year ends on March 31 with interim results based on fiscal quarters of approximately thirteen weeks in duration ending on
the closest Saturday to each calendar quarter end, with the exception of the fourth quarter, which ends on March 31.  The
operating results for any interim period are not necessarily indicative of results for any subsequent period or the full fiscal year.

Critical Accounting Estimates

We believe our critical accounting estimates are as follows:

estimating sales returns and allowances;
estimating allowance for doubtful accounts;
estimating write-downs of excess and obsolete inventories;
asset impairments;
stock-based compensation expense, and
income taxes and deferred tax estimates.On an on-going basis, we evaluate our estimates and assumptions, including those related to sales returns, allowance for doubtful
accounts, inventory write-downs, asset impairments, stock-based compensation expense and deferred taxes.  We base our estimates on
historical trends and various other assumptions that we believe to be reasonable at the time the estimates are made.  Actual results could differ
from those estimates.  Please refer to the critical accounting estimates described in our Form 10-K for the 2007 fiscal year ended March 31,
2007, filed on June 25, 2007.

Accounting for income taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our taxes in
each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included in our unaudited condensed consolidated balance sheets. We must then assess
the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must
record an expense within the tax provision included in the condensed consolidated statements of operations.

16Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation
allowance recorded against our net deferred tax assets. We have established a full valuation allowance against our deferred tax assets at
March 31, 2007 based upon our determination that it is more likely than not that all of the deferred tax assets may not be realized in the
foreseeable future due to historical operating losses. The net operating losses and research and development tax credit carryovers that make
up the vast majority of the deferred tax asset will expire at various dates through the year 2024, with the exception of the California tax credit
which can be carried forward indefinitely. Going forward, we will assess the continued need for the valuation allowance. After we have
demonstrated profitability for a period of time and begin utilizing a significant portion of the deferred tax assets, we may reverse the valuation
allowance, likely resulting in a significant benefit to the statement of operations in some future period. At this time, we cannot reasonably
estimate when this reversal might occur, if at all.
Reporting Segments
We conduct our business in one reportable segment to reflect the manner in which our chief operating decision-maker allocates
resources and assesses the performance of our business.

Results of Operations
Our net sales by region, by channel, and by product category are summarized for each period indicated, as follows (in millions):

Three Months Ended


Six Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006Net sales by region:Americas

$
4.9

$
8.3

$
11.6

$
16.2Asia


9.5


10.1


17.4


20.1Europe


2.3


2.8


4.5


5.9Total net sales

$
16.7

$
21.2

$
33.5

$
42.2Net sales by channel:OEM/direct

$
6.7

$
8.6

$
13.6

$
17.2Distribution


10.0


12.6


19.9


25.0Total net sales

$
16.7

$
21.2

$
33.5

$
42.2

Three Months Ended


Six Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006Net sales by product category:Embedded flash microcontrollers

$
3.9

$
3.7

$
7.5

$
6.1Remote control solutions


4.1


6.0


9.2


11.78-bit microcontrollers


8.0


9.7


16.7


17.832-bit ARM products


0.3


-


0.4


-Total new products


8.3


9.7


17.1


17.88-bit classic products


8.4


11.5


16.4


24.4Total net sales

$
16.7

$
21.2

$
33.5

$
42.217Key Metrics

Other key indices relevant in understanding our business and financial performance include the following metrics (unaudited):

Three Months EndedSept. 29,


Sept. 30,2007


2006Days sales outstanding


43


33Net sales to inventory ratio (annualized)


7.7


9.9Weeks of inventory at distributors


12


13Current ratio


2.1


1.8We calculate each of these key metrics based on annualized quarterly results of operations data and balance sheet data as of the end of
the period indicated. Each of these key metrics is described below:

Days sales outstanding, DSO, is a common metric used to analyze how quickly our customers pay us. This metric is influenced largely by
the timing of our customer billings, collections, and individual payment terms. At September 29, 2007, our DSO was 43 days as compared to 33
days at September 30, 2006. This increase in DSO is largely due to a decrease in our revenues, as well as less  linearity of our shipments in the
quarter ended September 29, 2007 versus the comparable quarter a year ago, thus allowing a lower portion of customer receivables to be
collected during the quarter in which they were sold.

Net sales to inventory ratio is a metric we use to analyze how quickly our investment in inventories is recovered by our sales. This metric
may not be comparable to other companies who use inventory ratios to analyze inventory and is not the same as a typical inventory turns ratio.
Our net sales to inventory ratio decreased to 7.7 from 9.9 in the quarter ended September 29, 2007 compared to the quarter ended September
30, 2006 reflecting lower sales levels from the comparative period and reflecting the build out of certain of our embedded flash inventories as
demand for these products continues to increase.

Weeks of inventory at distributors measures how quickly our distributors sell the inventories that we sell to them.  We do not recognize
revenue on shipments to distributors until our distributors resell our products. Although our distributors in various regions of the world
maintain different inventory stocking levels, globally we maintain 10 to 13 weeks of inventories at our distributors. The
weeks of inventory at distributors decreased reflecting shorter lead times for delivery on certain products experienced during the period
compared to the year ago period.

Current ratio represents current assets divided by current liabilities and is commonly used to assess a company's liquidity. We use this ratio
to make spending determinations on discretionary items.  Our current ratio as of September 29, 2007 was 2.1, an increase from 1.8 as of
September 30, 2006. This increase is primarily due to the reduction in current liabilities for accounts payable for inventory, lower accrued
restructuring balances related to our consolidation efforts, less deferred income on shipments to our distributors as their weeks of inventory on
hand decreased and the disposal of the MOD II assets held for sale.

Three Months Ended September 29, 2007 Compared to Three Months Ended September 30, 2006

Net Sales.  Net sales were $16.7 million for the quarter ended September 29, 2007, a decrease of 22% as compared to net sales
of $21.2 million for the quarter ended September 30, 2006.

Net sales of our 8-bit microcontroller products decreased by 18% to $8.0 million for the quarter ended September 29, 2007 compared to
$9.7 million for the quarter ended September 30, 2006. This decrease was primarily driven by a decrease in sales of our remote control
solutions primarily resulting from an inventory correction at one of our larger customers.  Embedded flash sales increased by 3% to $3.9 million
for the quarter ended September 29, 2007 up from $3.7 million for the quarter ended September 30, 2006 reflecting higher sales of our Encore
and Encore XP products. Sales of embedded flash microcontrollers include consumer applications as well as health and fitness, voice over IP
and battery management.

18

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Our 32-bit ARM product sales were $0.3 million for the quarter ended September 29, 2007 as sales
increased for our new microprocessors for the point-of-sale market with secured transaction capabilities.
Total new product sales, comprised of our embedded flash, 32-bit ARM and universal remote control
solutions, were $8.3 million for the quarter ended September 29, 2007 compared to $9.7 million for the
quarter ended September 30, 2006.  The increase in our 32-bit ARM and embedded flash microcontroller sales
were offset by the decrease in our remote control solution sales.

Our 8-bit classic product sales, consisting of our traditional Z8, Z80 and SCC products decreased by $3.1 million or 27% to $8.4 million for
the quarter ended September 29, 2007, down from $11.5 million for the quarter ended September 30, 2006, reflecting a decline in demand for
certain consumer, security and telecommunications applications. Compared to year ago levels, we have experienced a reduction in sales of
certain security applications reflecting what we believe is the impact of a slow down in the U.S. economy as it relates to the housing market and
housing starts.

Gross Margin.  Cost of sales primarily represents manufacturing costs relating to wafer fabrication, package assembly, product
testing operations and logistics costs. Cost of sales fluctuates, depending on materials and services prices from our vendors, manufacturing
productivity, product mix, equipment utilization and depreciation. Gross margin as a percent of net sales was consistent at 46% for the quarters
ended September 29, 2007 and September 30, 2006.

Research and Development Expenses.  Research and development expenses decreased by 22% to $3.9 million for
the quarter ended September 29, 2007 from $5.0 million for the quarter ended September 30, 2006.  Research and development spending for
the quarter ended September 29, 2007 was lower due to savings resulting from our engineering site consolidation efforts announced in April
2007 and initiated during the quarter ended June 30, 2007.  Although our costs have decreased, we continue to expand on our 8-bit embedded
flash designs and continue to invest in new products supporting our remote control solutions and our 32 -bit ARM based microprocessor family
of products.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses decreased to $5.1 million for the quarter
ended September 29, 2007 down from $5.8 million for the quarter ended September 30, 2006 due to lower overall spending for sales and
marketing and lower general and administrative costs as we continue to streamline our global support activities.

Special Charges and Credits.  Special charges and credits for the periods indicated were as follows (in millions):

|                                                   |  |   | Three Months Ended |  |   | Six Months Ended
|-------------------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                                   |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                                   |  |   | 2007               |  |   | 2006            
|Special Charges and Credits:                       |  |   |                    |  |   |                 
|                                                   |  |   |                    |  |   |                 
|Severance, termination and other costs             |  | $ | 0.4                |  | $ | 0.7             
|MOD II sustaining, maintenance and selling costs   |  |   | -                  |  |   | 0.2             
|Reimbursement of retirement benefits - Philippines |  |   |                    |  |   |                 
|defined benefit plan                               |  |   | -                  |  |   | -               
|Total special charges and credits, net             |  | $ | 0.4                |  | $ | 0.9             

During the quarter ended September 29, 2007, special charges totaled $0.4 million representing severance and termination costs
associated with the consolidation of our engineering sites. During the quarter ended September 30, 2006 special charges of $0.9 million
includes severance and other costs of $0.7 million associated with the resignation of our former Chief Executive Officer on August 30, 2006 and
$0.2 million for MOD II sustaining and maintenance costs.

Amortization of Intangible Assets.   Under the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets", goodwill and intangible assets with indefinite lives are not amortized, but are reviewed annually or more frequently if
impairment indicators arise.

19

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We performed our annual impairment test of goodwill and intangible assets during the quarter ended March 31, 2007.  As of September 29,
2007, there was no indication of impairment of our intangible assets' carrying value.

Separable intangible assets that are deemed to have defined lives have been recorded and continue to be amortized over their useful lives.
These intangible assets are being amortized utilizing the pattern-of-use method over their estimated useful lives of six years for current
technology and ten years for brand name.

The separable intangible assets identified in connection with fresh-start accounting and included in the unaudited condensed consolidated
balance sheet are as follows (in millions):

|                                         |  |   | Current    |  |   | Brand |  |   |      
|---------------------------------------- |  | - | ---------- |  | - | ----- |  | - | -----
|                                         |  |   | Technology |  |   | Name  |  |   | Total
|Gross carrying amount, recorded May 2002 |  | $ | 17.0       |  | $ | 9.2   |  | $ | 26.2 
|Accumulated amortization                 |  |   | 16.9       |  |   | 6.3   |  |   | 23.2 
|Book value at September 29, 2007         |  | $ | 0.1        |  | $ | 2.9   |  | $ | 3.0  

The anticipated remaining amortization schedule for these assets is as follows (in millions):

|      |  |   | Current    |  |   | Brand |  |   |      
|----- |  | - | ---------- |  | - | ----- |  | - | -----
|Year  |  |   | Technology |  |   | Name  |  |   | Total
|2008  |  | $ | 0.1        |  | $ | 0.4   |  | $ | 0.5  
|2009  |  |   | -          |  |   | 0.8   |  |   | 0.8  
|2010  |  |   | -          |  |   | 0.7   |  |   | 0.7  
|2011  |  |   | -          |  |   | 0.6   |  |   | 0.6  
|2012  |  |   | -          |  |   | 0.4   |  |   | 0.4  
|Total |  | $ | 0.1        |  | $ | 2.9   |  | $ | 3.0  

Interest Income and Expense.  Interest income relates to interest earned on our cash and cash equivalents.  Cash equivalents are
primarily invested in money market funds and high-grade commercial paper with maturities of 90 days or less. Interest income for the quarter
ended September 29, 2007, was $0.2 million as compared to $0.3 million for the quarter ended September 30, 2006.
The lower interest income in the quarter ended September 29, 2007 is due to lower average
invested cash balances, partially offset by higher interest rates.

Income Taxes. We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -an interpretation of FASB Statement No. 109 ("FIN48"), effective April 1, 2007. As a result of
the implementation of FIN 48, we have analyzed filing positions in all of the federal and state jurisdictions where it is required to file
income tax returns, as well as all open tax years in these jurisdictions and has recognized no material adjustment in the liability for unrecognized
income tax benefits as of September 29, 2007.

For the quarter ended September 29, 2007, our income tax provision reflects the amortization of deferred charges, provisions for taxes in
certain profitable foreign jurisdictions and the release of estimated tax liabilities on which the statue of limitations expired during the quarter. For
the quarter ended September 30, 2006, our income tax provision reflects the amortization of deferred charges and provisions for taxes in certain
profitable foreign jurisdictions.  We have operated at a loss for U.S. tax purposes and we provide for income tax expense in foreign jurisdictions
where the foreign subsidiaries' operations generate profits that are taxable.  Deferred tax assets have been recorded net of valuation
allowances. A valuation allowance is required to be recorded if in management's judgment, and based on available evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized.  Based on available evidence, we have concluded that a
valuation allowance is necessary and have reduced our net deferred tax assets to the extent of our deferred tax liabilities.

20

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Six Months Ended September 29, 2007 Compared to Six Months Ended September 30, 2006

Net Sales.  Net sales were $33.5 million for the six months ended September 29, 2007, as compared to net sales of $42.2 million
for the six months ended September 30, 2006.

Net sales of our 8-bit microcontroller products decreased by 6% to $16.7 million for the six months ended September 29, 2007 compared to
$17.8 million for the six months ended September 30, 2006. This decrease was primarily driven by a decrease in sales of our remote control
solutions.  Embedded flash sales increased by 23% to $7.5

Our 32-bit ARM product sales totaled $0.4 million for the six months ended September 30, 2007. Total
new product sales, comprised of our embedded flash, 32-bit ARM and universal remote control solutions,
were $17.1 million for the six months ended September 29, 2007 compared to $17.8 million for the six
months ended September 30, 2006.  The increase in our 32-bit ARM and embedded flash microcontroller sales
were offset by the decrease in our remote control solution sales.

Our 8-bit classic products, consisting of our traditional Z8, Z80 and SCC products, totaled $16.4 million for the six months ended
September 29, 2007 as compared to $24.4 million for the six months ended September 30, 2006, reflecting a decline in demand for certain of
our classic microcontroller products for consumer and security based applications and reflects the move by customers to alternative technology
solutions for certain of these products.

Gross Margin.  Cost of sales primarily represents manufacturing costs relating to wafer fabrication, package assembly, product
testing operations and logistics costs. Cost of sales fluctuates, depending on materials and services prices from our vendors, manufacturing
productivity, product mix, equipment utilization and depreciation. Gross margin was 45% percent of net sales for the six months ended
September 29, 2007, compared to gross margin of 48% for the six months ended September 30, 2006.

Research and Development Expenses.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased to $10.2 million for the six
months ended September 29, 2007 down from $11.8 million for the six months ended September 30, 2006.  The decrease in our selling,
general and administrative spending reflects overall lower sales and marketing costs and savings related to streamlining our general and
administrative global support activities.

Special Charges and Credits.   Special charges and credits totaled $0.8 million for the six months ended September 29, 2007
representing $1.2 million for severance and termination costs related to our engineering site consolidation efforts and $0.3 million for MOD II
maintenance and selling costs offset by the $0.7 million refund received  from our Philippines defined benefit plan. During the six months ended
September 30, 2006, special charges totaled $1.0 million and included severance and other costs of $0.7 million associated with the resignation
of our former CEO and $0.3 million for costs to sustain and maintain our MOD II facility.

Interest Income and Expense.  Interest income relates to interest earned on our cash and cash equivalents.  Cash equivalents are
primarily invested in money market funds and high-grade commercial paper with maturities of 90 days or less. Interest income for the six months
ended September 29, 2007 was $0.4 million as compared to $0.6 million for the six months ended September 30, 2006.  The lower interest
income is the result of a lower cash balance invested in short term investments yielding higher interest rates. There was no interest expense or
other income in each of the six months ended September 29, 2007 and September 30, 2006, respectively.

21

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Income Taxes.   For the six months ended September 29, 2007 and September 30, 2006, our income tax provisions were $0.6
million and $1.0 million, respectively. For the six months ended September 29, 2007, our income tax provision reflects the amortization of
deferred charges, provisions for taxes in certain profitable foreign jurisdictions
and the release of a 2003 tax reserve on which the statue of
limitation expired during the quarter ended September 29, 2007. For the six months ended September 30, 2006, our income tax provision
reflects the amortization of deferred charges and provisions for taxes in certain profitable foreign jurisdictions.  We have operated at a loss for
U.S. tax purposes and we provide for income tax expense in foreign jurisdictions where the foreign subsidiaries operations generate profits that
are taxable.

Deferred tax assets have been recorded net of valuation allowances. A valuation allowance is required to be recorded if in management's
judgment, and based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 Based on available evidence, we have concluded that a valuation allowance is necessary and have reduced our net deferred tax assets
to the extent of our deferred tax liabilities.

Liquidity and Capital Resources

As of September 29, 2007, we had no debt or bank borrowings outstanding.  We had $0.3 million in
standby letters of credit as of September 29, 2007 related to the lease for our new corporate headquarters
facility in San Jose, California and no standby letters of credit as of September 30, 2006. At September 29,
2007, we had cash and cash equivalents of $19.9 million, compared to $19.4 million as of March 31, 2007.
We believe that existing cash, cash equivalents and investments, together with any cash generated from
operations will be sufficient to meet normal operating requirements including capital expenditures for the
next twelve months.

Cash Flows From Operating Activities.  During the six months ended September 29, 2007, net
cash used in operating activities was $1.9 million compared to $1.1 million net cash provided by operating activities during the six months ended
September 30, 2006.  The $3.0 million increase in net cash used primarily relates to lower gross profit of $5.2 million, a decrease in cash
provided by accounts receivable collections of $1.7 million and an increase in cash used for restructuring activities, partially offset by less cash
used for operating expenses of $3.8 million driven by lower headcount and less cash used of $0.8 million to support higher inventory
purchases.

Cash Flows From Investing Activities.

Cash Flows From Financing Activities.  During each of the six months ended September 29, 2007 and September 30, 2006,
$0.1 million in net cash was provided by financing activities.  During the six months ended September 29, 2007, our financing activities include
$0.3 million of proceeds from the issuance of common stock under employee stock and option plans and $0.3 million for repurchases of
common stock. During the six months ended September 30, 2006, $0.1 million was provided by proceeds from the issuance of common stock
under employee stock option and purchase plans.

Non-GAAP EBITDA Measure.  We present EBITDA amounts to reflect a non-GAAP measure of our liquidity.  EBITDA
reflects our earnings before interest, taxes, depreciation and amortization.  We believe the disclosure of such information helps investors more
meaningfully evaluate our liquidity position by the elimination of non-cash related items such as depreciation and amortization.  We believe that
our investor base regularly uses EBITDA as a measure of the liquidity of our business.   Our management uses EBITDA as a supplement to
cash flow from operations as a way to assess the cash generated from our business available for capital expenditures and debt service.
However, we recommend that investors carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q,
our Annual Reports on Form 10-K, and our quarterly earnings releases,

22

---



compare GAAP financial information with the non-GAAP financial
results disclosed in our quarterly earnings releases and investor calls, and read the associated reconciliation.

Our EBITDA, reconciled to cash used in operations (the most directly comparable measure of operating cash flows under accounting
principles generally accepted in the United States) for each period presented, is as follows (in millions):

|                                                    |  |   | Three Months Ended |  |   | Six Months Ended
|--------------------------------------------------- |  | - | ------------------ |  | - | ----------------
|                                                    |  |   | Sept. 29,          |  |   | Sept. 30,       
|                                                    |  |   | 2007               |  |   | 2006            
|Reconciliation of net loss to EBITDA:               |  |   |                    |  |   |                 
|Net loss                                            |  | $ | (1.9)              |  | $ | (2.3)           
|Depreciation and amortization                       |  |   | 1.0                |  |   | 1.1             
|Interest income                                     |  |   | (0.2)              |  |   | (0.3)           
|Provision for income taxes                          |  |   | 0.1                |  |   | 0.4             
|EBITDA                                              |  | $ | (1.0)              |  | $ | (1.1)           
|                                                    |  |   |                    |  |   |                 
|Reconciliation of EBITDA to net cash provided by    |  |   |                    |  |   |                 
|(used in) operating activities:                     |  |   |                    |  |   |                 
|EBITDA                                              |  | $ | (1.0)              |  | $ | (1.1)           
|Provision for income taxes                          |  |   | (0.1)              |  |   | (0.4)           
|Interest income                                     |  |   | 0.2                |  |   | 0.3             
|Stock-based compensation                            |  |   | 0.4                |  |   | 0.4             
|Loss on disposition of operating assets             |  |   | 0.1                |  |   | -               
|Changes in operating assets and liabilities         |  |   | 1.3                |  |   | 2.2             
|Net cash provided by (used in) operating activities |  | $ | 0.9                |  | $ | 1.4             

Changes in operating assets and liabilities generally reflect changes in working capital as well as certain other non- current assets and
liability amounts. For the three and six month periods ended September 29, 2007, the changes in operating assets and liabilities primarily reflect
the reduction in accounts receivable, the changes in our overall inventory position and the decrease in our deferred income on shipments to
distributors, offset by increases in accounts payable.

Contractual Obligations. We lease certain of our facilities and equipment under non-cancelable operating leases, which expire in
fiscal 2008 through fiscal 2011. These facility lease agreements generally provide for base rental rates, which increase at various times during
the terms of the leases and also provide for renewal options at fair market rental value. We are also responsible for common area maintenance
charges on certain office leases, which are not included in the table below.  These charges are generally less than 10% of base rents.

|Fiscal Year (K$)     |  |  |  |   |  |      
|-------------------- |  |  |  | - |  | -----
|2008 Remaining       |  |  |  | $ |  | 914  
|2009                 |  |  |  |   |  | 1,473
|2010                 |  |  |  |   |  | 1,098
|2011                 |  |  |  |   |  | 204  
|2012                 |  |  |  |   |  | 166  
|Thereafter           |  |  |  |   |  | 329  
|Total lease payments |  |  |  | $ |  | 4,184

During the quarter ended September 29, 2007, we entered into a five-year lease agreement for our new San
Jose headquarters. Total lease commitments over the lease term are $2.8 million and are as follows: fiscal 2008, $0.3 million; fiscal 2009, $0.5
million; fiscal 2010, $0.5 million; fiscal 2011, $0.6 million; fiscal 2012, $0.6 million, and fiscal 2013, $0.3 million. We have 2 three-year options to
extend the lease beyond the initial lease term.

23

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We generally make purchases under cancelable purchase orders and do not enter into long-term supply agreements. Certain of our wafer
foundry, assembly, materials suppliers, software vendors and support tool manufacturers require non-cancelable purchase orders since they
often provide products and services tailored to our specifications.

From time to time, we have agreed to indemnify and hold harmless certain customers for potential allegations of infringement of intellectual
property rights and patents arising from the use of our products. During the ordinary course of business, in certain limited circumstances, we
have agreed to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally parties with which we have
commercial relations, in connection with certain intellectual property infringement claims by any third party with respect to its products and
services. We have indemnification arrangements that limit our net contingent obligation to pay for defense costs, if any, up to a maximum of
$500,000. To date, there have not been any costs incurred in connection with such indemnification arrangements; therefore, there is no accrual
of such amounts at September 29, 2007. We disclose indemnification liabilities according to FASB Staff Position FIN45-1, "Accounting for
Intellectual Property Infringement Indemnifications under FAS Interpretation No. 45." Under FAS No. 5, "Loss Contingencies," a
claim would be accrued when a loss is probable and the amount can be reasonably estimated. At September 29, 2007, no such amounts have
been accrued.

Off-Balance Sheet Arrangements

As of September 29, 2007, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a) (4)(ii) of SEC
Regulation S-K

Seasonality

Sales typically increase in the quarter ending June 30th and peak in the quarter ending September 30th driven by increased
holiday demand from our customers in the home entertainment and consumer products markets.  Our revenues are generally lower in the
quarters ending March 31st and December 31st compared to the rest of the year.  We believe and have experienced that this
historical seasonal trend could be and has been impacted by general economic conditions and reduction in sales of our products.  General
world-wide economic, political and regional instabilities may impact our results of operations in any given period.  Introductions of our embedded
flash microcontrollers, universal remote control solutions and our 32-bit ARM based family of products may positively or negatively impact this
seasonality trend in the future.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our short-term investment portfolio.  We do not use derivative
financial investments in our investment portfolio.  Our primary investment objectives are to preserve capital and maintain liquidity.  These
objectives are met by investing in high-quality credit issuances and limiting the amount of credit exposure to any one company.  Our policy is to
mitigate default risk by investing in only the highest quality securities and monitoring the credit ratings of such investments.  As of September
29, 2007, our cash and cash equivalents of $19.9 million were invested in bank time deposits and money market funds.  We have no significant
cash flow exposure due to rate changes for our cash equivalents as these instruments have very short maturities.  The annualized average
fixed interest rate in each of the three and six months ended September 29, 2007 was approximately 5.0%, respectively.

Foreign Currency Exchange Risk

We transact business in various foreign countries of which a significant portion of our consolidated net sales and purchases are
denominated in U.S. dollars. Currently, we do not employ a foreign currency hedging program to mitigate our foreign currency exchange risk as
we believe the risks to date have not been significant or economically viable to conduct such activities. We maintain local currency bank
accounts in our international offices to facilitate payment of local operating costs.

24

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Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's

Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of September 29, 2007. Based on such evaluation, the Company's  Chief Executive Officer and Chief Financial Officer have
concluded that, as of September 29, 2007, the Company's disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting. There have been no changes in the Company's internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 29, 2007 that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.



25

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PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

On August 11, 2005, Microchip Technology Inc. ("Microchip") filed a patent infringement claim against the Company in the
U.S. District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that the Company has infringed and currently infringes
its patents numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of the Company, including the Z8
Encore! XP 4K Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified damages
and costs including attorneys' fees. The Company filed a response to the claims on September 15, 2005 generally denying the claims
and challenging the validity of the patents. On January 10, 2006, the Company filed a request for patent re-examination with the U.S. PTO,
which was granted in February and March 2006 for all 3 patents. On March 13, 2006, the Company was informed that its motion to stay with the
Federal Court of Arizona was granted until such time as Microchip is informed of the outcome of the re-examinations.

The Company does not believe it is feasible to predict or determine the outcome or resolution of this litigation at this time. The Company
believes is has meritorious defenses and will defend itself against these claims vigorously. The Company may incur substantial expenses in its
defense against these claims. In the event of a determination adverse to the Company, it may incur substantial monetary liabilities, and be
required to change its business practices. Either of these could have a material adverse effect on the Company's financial position, results of
operations and/or cash flows.

The Company is participating in other litigation and responding to claims arising in the ordinary course of business. The Company intends to
defend itself vigorously in these other matters. The Company's management believes that it is unlikely that the outcome of these other matters
will have a material adverse effect on the Company's consolidated financial statements, although there can be no assurance in this regard.

Item 1A. Risk Factors

Risk Factors.
In addition to the other information set forth in this report, you should consider the risk factors discussed in Part I
"Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, which could materially affect
our business, financial condition or future results. The risk factors in our Form 10-K have not materially changed other than as set forth below.
The risk factors described in our Form 10-K, and those described below, are not the only risks facing our Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
conditions and/or operating results.

Changes in securities laws and regulations may increase our costs.

The Sarbanes-Oxley Act of 2002 (the "Act") has previously required us to make changes to some of our
corporate governance practices. For the fiscal year ended March 31, 2007, we were a non-accelerated filer
for the purposes of compliance with Sarbanes-Oxley Section 404. The measurement criteria for
determining filing status, was based on our market capitalization as of September 30, 2006, at which time,
our market capitalization was below the defined threshold for accelerated filers.   As such, we were not
required to comply with Section 404 of the Sarbanes-Oxley Act for the fiscal year ended March 31, 2007.
The Act requires annual management assessments of the effectiveness of our internal controls over
financial reporting and also a report by our independent registered public accounting firm assessing the
effectiveness of our internal controls over financial reporting. The Commission adopted rules extending the
initial compliance with Section 404 for non-accelerated filers from fiscal years ending on or after July 15,
2007, until fiscal years ending on or after December 15, 2007.  The Commission also adopted rules
extending the date in which non-accelerated filers must provide an auditor's attestation report on internal
controls over financial reporting until fiscal years ending on or after December 15, 2008.  Thus, under these newly26adopted rules, beginning with our fiscal year 2009, we will be required to provide an auditor's
attestation report on internal controls over financial reporting, which will substantially increase our general
and administrative expenses.Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.Item 3.  Defaults Upon Senior Securities
None


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

We held our Annual Meeting of stockholders on September 6, 2007.  At the meeting, the stockholders
elected each of Mr. Federico Faggin (with 14,569,501 shares voting for, zero against and 624,628
abstaining) and Mr. Darin G. Billerbeck (with 14,566,478 shares voting for, zero against and 627,651
abstaining) to serve as a Group II Director for a three-year term expiring at the Annual Meeting of
stockholders in 2010. Richard L. Sanquini and Robin A. Abrams, each an incumbent Group I Director, and
David G. Elkins, an incumbent Group III Director, will continue serving as directors.The Stockholders also approved the amendment of the 2004 Omnibus Stock Incentive Plan to (1) increase
the number of shares available for issuance by 1,500,000 shares; (2) specify that the maximum number of
shares available for award grants, including incentive stock options ("ISOs") be 3,000,000 shares; and (3)
conform the award calendar to our fiscal year with respect to the maximum award amount any individual
may be granted under it (with 8,145,740 shares voting for, 2,107,259 against, 16,846 abstaining and
4,924,284 broker non-votes).Additionally, the stockholders ratified the appointment of Armanino McKenna LLP as our independent
auditors for the fiscal year ending March 31, 2008 (with 15,178,944 shares voting for, zero against and
15,185 abstaining).Item 5.  Other Information

None.

27Item 6.  Exhibits

a)	Exhibits are filed or incorporated herein by reference as indicated below:

ExhibitNumber
Description2.1 (a)
Joint Reorganization Plan, as confirmed by order of the U.S. Bankruptcy
Court for the Northern District of California, dated April 30, 2002.3.1 (b)
Amended and Restated Certificate of Incorporation of ZiLOG, Inc., as amended and corrected.3.2 (c)
Amended and Restated Bylaws of ZiLOG, Inc.4.1 (d)
Form of Restricted Stock Purchase Agreement.4.2 (d)
Form of Non-Qualified EBITDA-Linked Option Grant Agreement.4.3(e)
Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.4.4(f)
Form of Non-Qualified Option Grant Agreement, Date of Grant (pursuant to the 2004 Omnibus Stock Incentive
Plan).4.5(f)
Form of Non-Qualified Option Grant Agreement, Date of Hire (pursuant to the 2004 Omnibus Stock Incentive
Plan).4.6(f)
Form of Non-Qualified Option Grant Agreement, Fully Vested Date of Grant (pursuant to the 2004 Omnibus Stock
Incentive Plan).31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 9, 2007.    PDF31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 9, 2007.    PDF32
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 9, 2007.    PDF_____________

(a)
Incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Commission
on May 15, 2002.(b)
Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2003.(c)
Incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Commission
on November 17, 2005.(d)
Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Commission on August 16, 2002.(e)
Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Commission on August 14, 2007.(f)
Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Commission on November 10, 2004.

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ZiLOG, Inc.

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.



| |                          
| | -------------------------
| | ZiLOG, Inc.  (Registrant)



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | /s/ Perry J. Grace
      
           Perry J. GraceExecutive Vice President and Chief Financial Officer         (Duly Authorized Officer)



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | /s/ Darin G. Billerbeck
      
           Darin G. BillerbeckPresident, Chief Executive Officer and Director         (Duly Authorized Officer)

Date:  November 9, 2007

29

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