**SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

**FORM 10-Q**

**[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended April 1, 2001**

**OR**

**[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934**

**For the transition period from ________to _________**

**Commission file number 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)

**910 East Hamilton AvenueCampbell, California   95008**(Address of principal executive offices)

**(408) 558-8500**(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X]    NO [   ]

As of April 30, 2001, there were 32,016,272 shares of the Company's Voting
Common Stock, $.01 par value, and 10,000,000 shares of the Company's Non-Voting
Common Stock, $.01 par value outstanding.

This Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), regarding future events and the Company's plans
and expectations that involve risks and uncertainties.  When used in this
Report, the words "estimate," "project," "intend," "expect," "anticipate" and
similar expressions are intended to identify such forward-looking statements.
Such statements are subject to certain risks and uncertainties, including those
discussed below, which could cause actual results to differ materially from
those projected.  Factors that may cause or contribute to such differences
include, but are not limited to, under-absorption of manufacturing costs in our
wafer fabs from under-utilization of production capacity, and ZiLOG's
distributors and customers significantly reducing their existing inventories
before ordering new products, and those discussed below under "Factors That May
Affect Future Results," as well as those discussed elsewhere in this Report.  In
light of the important factors that can materially affect results, including
those set forth in this paragraph and below, the inclusion of forward-looking
information herein should not be regarded as a representation by the Company or
any other person that the objectives or plans for the Company will be achieved.
The reader is therefore cautioned not to place undue reliance on the forward-
looking statements contained herein, which speak only as of the date hereof.
ZiLOG undertakes no obligation to publicly release updates or revisions to these
statements.







**ZiLOG, INC.
      QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 1, 2001
                                TABLE OF CONTENTS**



|**PART I.   FINANCIAL INFORMATION**                                                                                       | **Page No.**
|------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                          |             
|Item 1.   Interim Condensed Consolidated Financial Statements
                  (unaudited):                              |             
|                                                                                                                          |             
|Condensed Consolidated Statements of Operations for the
          
    three months ended April 1, 2001 and April 2, 2000 | **          
|                                                                                                                          |             
|Condensed Consolidated Balance Sheets at April 1, 2001 and
     December 31, 2000                                         | **          
|                                                                                                                          |             
|Condensed Consolidated Statements of Cash Flows for the
          
    Three months ended April 1, 2001 and April 2, 2000 | **          
|                                                                                                                          |             
|Notes to Condensed Consolidated Financial Statements                                                                      | **          
|                                                                                                                          |             
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations     | **          
|                                                                                                                          |             
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                      | **          
|                                                                                                                          |             
|**PART II.  OTHER INFORMATION**                                                                                           |             
|                                                                                                                          |             
|Item 1.   Legal Proceedings                                                                                               | **          
|                                                                                                                          |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                | **          
|                                                                                                                          |             
|**Signature**                                                                                                             | **          

---

**PART I -- FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

---

**ZILOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (in thousands)**

`Three Months Ended
                                                 ---------------------
                                                   April 1,    April 2,
                                                     2001       2000
                                                 ---------- ----------
Net sales...................................       $44,250    $55,844
Cost of sales...............................        38,171     33,855
                                                 ---------- ----------
Gross margin................................         6,079     21,989

Operating expenses:
  Research and development..................         9,085      9,761
  Selling, general and administrative.......        13,557     15,489
                                                 ---------- ----------
                                                    22,642     25,250
                                                 ---------- ----------
Operating loss..............................       (16,563)    (3,261)

Other income (expense):
  Interest income...........................           524        768
  Interest expense..........................        (7,327)    (7,278)
  Other, net................................          (256)      (316)
                                                 ---------- ----------
Loss before income taxes, equity investment
  and cumulative effect of change in
  accounting principle......................       (23,622)   (10,087)
Provision for income taxes..................           125        132
                                                 ---------- ----------
Loss before equity investment and cumulative
  effect of change in accounting principle...      (23,747)   (10,219)
Equity in loss of Qualcore Group, Inc. ......         (309)      --
                                                 ---------- ----------
Loss before cumulative effect of change in
  accounting principle.......................      (24,056)   (10,219)
Cumulative effect of change in accounting
   principle.................................         --       (8,518)
                                                 ---------- ----------
Net loss ....................................     $(24,056   $(18,737)
                                                 ========== ==========`

See accompanying notes to condensed consolidated financial statements.

---

**ZILOG, INC.

                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

              (in thousands, except shares and per share amounts)**

`April 1,   December 31,
                                                                  2001         2000
                                                             -----------  -----------
                                  ASSETS
Current assets:
  Cash and cash equivalents..............................       $26,944      $40,726
  Accounts receivable, less allowance for doubtful
    accounts of $621 at April 1, 2001 and $879
    December 31, 2000 ...................................        22,347       29,378
  Inventories............................................        22,520       27,547
  Prepaid expenses and other current assets..............        12,270       14,005
                                                             -----------  -----------
          Total current assets...........................        84,081      111,656
                                                             -----------  -----------

Property, plant and equipment, at cost...................       317,719      315,330
Less: accumulated depreciation and amortization..........      (214,237)    (205,879)
                                                             -----------  -----------
   Net property, plant and equipment.....................       103,482      109,451

Other assets.............................................        17,424       18,640
                                                             -----------  -----------
                                                               $204,987     $239,747
                                                             ===========  ===========
             LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable.......................................       $16,235      $17,098
  Accrued compensation and employee benefits.............        14,587       27,720
  Other accrued liabilities..............................        22,975       29,148
  Short term debt........................................        13,000         --
  Deferred income on shipments to distributors...........        11,718       13,998
                                                             -----------  -----------
          Total current liabilities......................        78,515       87,964

Notes Payable............................................       280,000      280,000

Other non-current liabilities............................        14,570       14,666



Stockholders' deficiency:
  Preferred Stock, $100.00 par value; 5,000,000 shares
    authorized; 1,500,000 shares designated as Series A
    Cumulative Preferred Stock; 250,000 shares of Series
    A Cumulative Preferred Stock issued and outstanding
    at April 1, 2001 and December 31, 2000; aggregate
    liquidation preference $36,808........................       25,000       25,000

  Common Stock, $0.01 par value; 70,000,000 shares
    authorized; 32,016,272 shares issued and outstanding
    at April 1, 2001 and 31,962,845 shares at December 31,
    2000. Class A Stock, $0.01 par value; 30,000,000 shares
    authorized; 10,000,000 shares issued and outstanding
    at April 1, 2001 and December 31, 2000................          420          419
  Deferred stock compensation.............................         (976)      (1,462)
  Additional paid-in capital..............................       11,735       12,151
  Accumulated deficit.....................................     (204,277)    (178,991)
                                                             -----------  -----------
          Total stockholders' deficiency..................     (168,098)    (142,883)
                                                             -----------  -----------
                                                               $204,987     $239,747
                                                             ===========  ===========`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)**

`Three Months Ended
                                                             ----------------------
                                                               April 1,    April 2,
                                                                 2001        2000
                                                             ----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................    $(24,056)   $(18,737)
  Adjustments to reconcile net loss to cash used by
     operating activities:
     Depreciation and amortization........................      10,118      10,402
     Cumulative effect of change in accounting principle..        --         8,518
     Loss from disposition of equipment...................         199           1
  Changes in assets and liabilities:
     Accounts receivable..................................       7,031         996
     Inventories..........................................       5,027      (3,850)
     Prepaid expenses and other current and noncurrent
       assets.............................................       1,721      (2,448)
     Accounts payable.....................................        (863)        639
     Accrued compensation and employee benefits...........     (13,133)       (541)
     Other accrued and noncurrent liabilities.............      (9,779)     (8,938)
                                                             ----------  ----------
           Cash used by operating activities..............     (23,735)    (13,958)
                                                             ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures...................................      (3,112)     (4,105)
   Purchase of equity interest in Qualcore Group, Inc. ...        --        (5,500)
                                                             ----------  ----------
          Cash used by investing activities...............      (3,112)     (9,605)
                                                             ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term debt...........................      13,000        --
  Proceeds from issuance of common stock..................          65       1,964
  Principal payments under capital lease .................        --          (167)
                                                             ----------  ----------
           Cash provided by operating activities..........      13,065       1,797
                                                             ----------  ----------
Decrease in cash and cash equivalents.....................     (13,782)    (21,766)
Cash and cash equivalents at beginning of period..........      40,726      60,806
                                                             ----------  ----------
Cash and cash equivalents at end of period................     $26,944     $39,040
                                                             ==========  ==========`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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 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 2000 Annual
Report filed on Form 10-K Commission File Number 001-13748 for the fiscal year
ended December 31, 2000, filed on April 2, 2001.  The condensed consolidated
balance sheet at December 31, 2000 has been derived from audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  Certain reclassifications have been made to the prior
year condensed consolidated financial statements to conform to the 2001
presentation.  Such reclassifications had no effect on previously reported
results of operations or accumulated deficit.



As described in Note 11, Stockholders' Equity (Deficiency),
to the Consolidated Financial Statements of the Company's 2000 Annual Report on
Form 10-K, ZiLOG's Series A Cumulative Preferred Stock ("Series A
Stock") accumulates dividends at a rate of 13.5% per annum, with dividends
payable quarterly at the election of the Board of Directors.  Unpaid dividends
are recognized as a charge to accumulated deficit and as an increase in the
liquidation preference of the Series A Stock.  As of April 1, 2001, the Company
has not paid any dividends on the Series A Stock and the corresponding accrued
dividends are $12.7 million.  During the three month period ended April 1, 2001,
$1.2 million of dividends on Series A Stock were accrued and charged to
accumulated deficit.



1. ACCOUNTING CHANGE - RECOGNITION OF REVENUE ON SALES TO
DISTRIBUTORS
2. RELATED PARTY TRANSACTIONS



On March 22, 2000, ZiLOG acquired a 20% equity interest of
the then outstanding common stock of Qualcore Group, Inc.
("Qualcore").  ZiLOG purchased semiconductor design services from
Qualcore totaling approximately $0.3 million and  $0.1 million for the three-
month periods ended April 1, 2001 and April 2, 2000, respectively.  ZiLOG had
payables to Qualcore of approximately $0.2 million and $0.1 million at April 1,
2001 and April 2, 2000, respectively.  Payment terms between ZiLOG and Qualcore
are net zero.



In January 1999 ZiLOG entered into an agreement with P.T.
Astra Microtronics Technology, now known as Advanced Interconnect Technologies,
or AIT, pursuant to which AIT provides the Company with semiconductor assembly
and test services through January 2003.  AIT is owned by Newbridge Asia, an
affiliate of Texas Pacific Group, which in turn is an affiliate of our principal
stockholder.  ZiLOG purchased services from AIT totaling approximately $2.7
million as of April 1, 2001, and $4.9 million as of April 2, 2000.  The Company
had payments due to AIT of approximately $0.9 million at April 1, 2001, and $2.2
million at April 2, 2000.  The Company's payment terms with AIT are net 30
days.



The Company sells products and engineering services to
GlobeSpan, Inc., of which Texas Pacific Group is a significant stockholder.  The
Company's net sales to GlobeSpan totaled approximately $2.4 million and $1.3
million during the three-month periods ended April 1, 2001 and April 2, 2000,
respectively.  As of April 1, 2001 and April 2, 2000, the Company had accounts
receivable from GlobeSpan of approximately $1.1 million and $0.8 million,
respectively.



1. INVENTORIES
2. SEGMENT REPORTING



ZiLOG has two reportable business segments: Communications
and Embedded Controls.  The Company's Embedded Controls segment is comprised of
two business units:  Field Programmable Micro-controllers and Home
Entertainment.  Consistent with the rules of Statement of Financial Accounting
Standards ("SFAS") No. 131, the Company has aggregated these two
business units into one reportable segment because these product lines have
similar gross margins and target consumer and industrial customer applications
based largely on ZiLOG's Z-8 line of 8-bit micro-controllers and digital signal
processors.  The Communications segment is predominantly based on the Company's
Z80 line of 8-bit microprocessors and serial communication devices.

Net sales, EBITDA, and depreciation and amortization,
included in Corporate and Other, were generated primarily from foundry work
performed for manufacturing partners.  EBITDA represents earnings (losses)
before interest, income taxes, depreciation, amortization of intangible assets,
non-cash stock compensation expenses, equity in loss of Qualcore, cumulative
effect of change in accounting principle and special charges.



Financial information regarding reportable segments for the
three month periods ended April 1, 2001 and April 2, 2000 are as follows (in
thousands):

`Corporate
                                 Communica-   Embedded      and         Total
                                    tions      Control     Other     Consolidated
                                 ----------- ----------- ---------- --------------
Three Months Ended
 April 1, 2001:
Net sales........................   $20,039     $23,169     $1,042        $44,250
                                                                    ==============

EBITDA...........................    (2,795)     (4,366)        96        ($7,065)
Qualcore amortization ...........      --          --          364            364
Depreciation and amortization....    (3,006)     (6,734)      (378)       (10,118)
Interest income..................      --          --          524            524
Interest expense.................      --          --       (7,327)        (7,327)
                                                                    --------------
Loss before income taxes, equity
  investment and cumulative
  effect of change in accounting
  principle........................                                      ($23,622)
                                                                    ==============

Three Months Ended
 April 2, 2000:
Net sales........................   $20,504     $35,340    $ --           $55,844
                                                                    ==============

EBITDA...........................     5,753       1,122        (50)        $6,825
Depreciation and amortization....    (2,500)     (7,902)      --          (10,402)
Interest income...............         --          --          768            768
Interest expense..............         --          --       (7,278)        (7,278)
                                                                    --------------
Loss before income taxes, equity
  investment and cumulative
  effect of change in accounting
  principle........................                                      ($10,087)
                                                                    ==============`

Major customers:  During the three month ended April 1, 2001,
one distributor, Pioneer-Standard Electronics, who buys from both segments,
accounted for approximately 14% of net sales.    For the three month periods
ended April 2, 2000, Arrow Electronics, why buys from both segments, accounted
for approximately 13% of  net sales.



1. SHORT TERM DEBT
2. COMPREHENSIVE INCOME.
3. LEGAL PROCEEDINGS
4. DERIVATIVE INSTRUMENTS AND HEDGING



Effective January 1, 2001, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 133,
"Accounting for Derivative Financial Instruments and Hedging
Activities." This statement requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value.  Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualified for hedge
accounting. The adoption of FASB Statement No. 133 did not have a significant
impact on the Company's financial position or results of operations as the
Company holds no derivative financial instruments and does not currently engage
in hedging activities.



FINANCIAL INFORMATION

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



The information presented below should be read in conjunction
with the Condensed Consolidated Financial Statements included elsewhere herein.
Interim results are based on fiscal quarters of thirteen weeks in duration
ending on the last Sunday of each quarter.  The operating results for any
quarter are not necessarily indicative of results for any subsequent quarter or
the full fiscal year.



Results of Operations



The Company's quarterly operating results have and will vary
because of a number of factors, including the timing and success of new product
introductions, customer design wins and losses, the success of cost reduction
programs, changes in product mix, volume, timing and shipment of orders,
fluctuations in manufacturing productivity and overall economic conditions.
Sales comparisons are also subject to customer order patterns and seasonality.
Because the Company's products are available from both the Company and its
distributors, the customer's decision to buy from a distributor or directly from
the Company can affect ZiLOG's quarterly sales and profitability.



In the fourth quarter of 2000, the Company changed its
accounting method for recognizing revenue on shipments to distributors who have
rights of return and price protection on unsold merchandise held by them.  The
Company previously recognized revenue upon shipment to these distributors net of
appropriate allowances for sales returns, price protection and warranty costs.
Following the accounting change, revenue recognition on shipments to these
distributors is deferred until the products are resold by the distributors to
their customers.  The Company believes that deferral of revenue recognition on
these distributor shipments and related gross margin until the product is
shipped by the distributor results in a more meaningful measurement of results
of operations as it better conforms to the changing business environment and is
more consistent with industry practice; therefore, it is a preferable method of
accounting.  The cumulative effect of the change in accounting principle was
retroactively applied beginning on January 1, 2000 and resulted in a charge of
$8.5 million, net of a zero income tax effect.



Net Sales.  Overall, we experienced a significant
decline in bookings and net sales during the fourth quarter of 2000 which has
continued into the first quarter of 2001 and has adversely affected net sales
for most of our product lines.  We believe that this overall decline in demand
for our products is reflective of general economic trends, particularly in the
high technology sector, and may continue for several quarters.  Net sales for
the first quarter of 2001 decreased 20.8% from the comparable period of 2000.
The decrease was attributable primarily to lower unit shipments in our embedded
control business segment as well as the communications segment. Net sales of
communications products in the first quarter of 2001 decreased 2.3% compared
with the same period in 2000.   The decrease in communications product sales was
the result of lower unit shipments of internet processor products, partially
offset by sales within our wireless connectivity product line that was acquired
from Calibre, Inc. during the third quarter of 2000.

Net sales of embedded control products in the first quarter
of 2001 decreased 34.4% compared to the first quarter in 2000 which reflects
reductions in unit shipments for all of our embedded control product lines,
particularly home entertainment, peripherals and military products. Compared to
the first quarter of 2000, military and peripherals products net sales declined
by 98.6% and 32.7%, respectively, in the first quarter of 2001 which reflects
the phase-out and de-emphasized status of these business lines.  We expect the
downward trend in net sales of peripherals products to continue and we expect no
further sales of military products.  During the first quarter of 2001 our
accounts receivable balance declined by $7.0 million which reflects lower sales
levels in the first quarter of 2001, compared to the fourth quarter of 2000.



Domestic and international sales (sales attributable to the
ship-to locations of ZiLOG's customers) in the first quarter of 2001 were 46.7%
and 53.3%, respectively, compared to domestic and international sales of 48.3%
and 51.7%, respectively, in the first quarter of 2000.



Gross Margin. The Company's cost of sales represents
the cost of its wafer fabrication, assembly and test operations.  Cost of sales
fluctuates, depending on manufacturing productivity, product mix, equipment
utilization, inventory reserves and depreciation. Gross margin as a percent of
net sales declined to 13.7% in the first quarter of 2001 from 39.4% in the first
quarter of 2000.  The decline in gross margin in the first quarter of 2001
compared to the first quarter of 2000 primarily resulted from lower sales,
coupled with significant under-absorption of manufacturing costs in our
fabrication facilities due to under-utilization of production capacity. During
the first quarter of 2001 our inventories declined by $5.0 million which
reflects our desire to match production levels with anticipated customer demand.
During December 2000, the book value of our five-inch wafer fabrication facility
was written down by $6.9 million, to an estimated realizable value of $3.0
million.  The Company has reclassified the assets and the remaining carrying
value of $3.0 million to other current assets, as these assets are held for sale
and ceased depreciation.  For the first quarter of 2001 depreciation expense was
reduced by approximately $0.8 million, compared to what would have been
recorded, as a result of the reclassification of these assets.



Research and Development Expenses.  Research and
development expenses were $9.1 million in the first quarter of 2001, reflecting
a 6.9% decrease from the $9.8 million reported in the first quarter of 2000.
The decrease in research and development expense was due principally to
elimination of amortization of intangible assets of our Seattle Design Center
which were written-off in December 2000.  First quarter 2001 research and
development expense also declined in comparison to the first quarter of 2000 due
to reduced headcount and payroll-related costs in our central technology
development group.



Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased to $13.6 million in the
first quarter of 2001 from $15.5 million in the first quarter of 2000.  The
decrease in our selling, general and administrative spending in 2001 was due
primarily to lower payroll-related costs as a result of reduced headcount.  In
addition, sales commissions and incentive compensation have declined compared to
the first quarter of 2000 as a result of lower sales levels.



Other Income/(Expense), Net. Interest income represents
interest earned on cash and cash equivalents with maturities of less than 90
days.  Interest expense is primarily comprised of the interest on the Company's
9.5% Senior Secured Notes ("Notes") and amortization of deferred
financing costs of $0.3 million. The Company incurs approximately $26.6 million
in interest coupon payments annually on the Notes.



Equity in Loss of Qualcore Group, Inc.  In March
2000, we acquired a 20% equity stake in Qualcore Group, Inc. for approximately
$8.1 million.  We account for this investment under the equity method.  The loss
in equity of Qualcore Group, Inc. primarily represents amortization of goodwill
associated with our equity investment.  In connection with our equity
investment, we also received an option to acquire the remaining shares of
Qualcore Group, Inc. on or prior to June 30, 2001.



Income Taxes. Our provision for income taxes in
the first quarters of both 2001 and 2000 reflects foreign income taxes for the
jurisdictions in which we were profitable as well as foreign withholding
taxes.



EBITDA.  EBITDA represents earnings (losses) before
interest, income taxes, depreciation, amortization of intangible assets, non-
cash stock compensation expenses, equity in loss of Qualcore, cumulative effect
of change in accounting principle and special charges.  EBITDA is presented
because it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness.  However, EBITDA should not be construed as a
substitute for income from operations, net income or cash flows from operating
activities in analyzing our operation performance, financial position and cash
flows.  The EBITDA measure presented herein may not be comparable to EBITDA as
presented by other companies.  For the three months ended April 1, 2001, the
Company incurred a loss of $7.3 million in EBITDA.  The Company generated $6.8
million in EBITDA in the three months ended April 2, 2000.



Liquidity and Capital Resources



Our primary cash needs are debt service, working capital,
capital expenditures and equity investments. We meet these needs with our
operating cash flow, cash on hand and available credit lines. As of April 1,
2001 we had cash and cash equivalents of approximately $26.9 million.
Additionally, we have a senior secured credit facility from a commercial lender
that provides for total borrowings of up to $40.0 million, consisting of a four-
year revolving credit facility of up to $25.0 million and a five-year capital
expenditure line of up to $15.0 million which expire on December 30, 2002 and
2003, respectively.  The ability to borrow these amounts is limited by certain
financial tests. The  total permitted borrowing under this credit facility was
$29.0 million as of  April 1, 2001.  As of April 1, 2001, we borrowed $13.0
million under the revolving credit facility, leaving a remaining availability of
$16.0 million. Our ability to borrow under the credit facility may fluctuate
such that at any time, we may not have available the difference between total
permitted borrowings of $29.0 million at April 1, 2001 and the current
borrowings of $13.0 million. Borrowings under the credit facility bear interest
at a rate per annum equal, at our option, to the commercial lender's stated
prime rate or the London Interbank Overnight Rate, commonly known as LIBOR, plus
2.0% (8.1% at April 1, 2001) for the revolving credit facility and the
commercial lender's prime rate plus 1.0% (9.0% at April 1, 2001) or LIBOR plus
3.0% (9.1% at April 1, 2001) for the capital expenditure line.



Cash used by operating activities was $23.7 millionfor the three months ended April 2, 2001, compared to $14.0 million in the
similar period of 2000. The use of cash by operating activities in the first
quarter of 2001 primarily reflects our net loss of  $24.1 million, adjusted by
depreciation and amortization of $10.1 million, an increase in accrued
compensation and employee benefits of $13.1 million, and an increase in other
accrued and noncurrent liabilities of $9.8 million, offset by decreases in
accounts receivable and inventories of $7.0 million and $5.0 million,
respectively. Included in the change in other accrued and noncurrent liabilities
was $13.3 million for a payment of interest on the Notes. We paid $10.3 million
to our former Chief Executive Officer, pursuant to a contractual obligation,
which is reflected in the change in accrued compensation and employee benefits.
The use of cash by operating activities in the first quarter of 2000 was
primarily attributable to our net loss of $18.7 million, adjusted for $10.4
million of depreciation and amortization and the $8.5 million cumulative effect
of our change in accounting principle for sales to distributors. Also during the
first three months of 2000, we used cash of $13.3 million for a payment of
interest on the Notes, which is included in the change in other accrued and
noncurrent liabilities.



Cash used by investing activities was $3.1million
for the three months ended April 1, 2001 and was $9.6 million for the three
months ended April 2, 2000. Cash used for investing activities in the first
quarter of 2001 was for capital expenditures, primarily relating to equipment in
our 0.35 micron wafer fab.  We expect capital expenditures for 2001 to total
approximately $6.0 million to $8.0 million. Cash used for investing activities
in the first quarter of 2000 related to the first payment of $5.5 million for an
equity interest in Qualcore Group, Inc. and capital expenditures of $4.1
million, primarily for manufacturing equipment and supply chain management
software.



Cash provided by investing activities was $13.1million for the three months ended April 1, 2001 reflecting primarily $13.0
million borrowings on our revolving credit facility. Cash provided by investing
activities was $1.8million for the three months ended April 2, 2000
reflecting primarily $2.0 million from issuance of common stock.



We incurred substantial indebtedness in connection with
our recapitalization merger. We currently have $280.0 million in aggregate
principal amount of Notes outstanding which are publicly registered and subject
us to the reporting requirements of the Securities Exchange Act of 1934. Our
ability to make scheduled principal payments, or to pay the interest, premium if
any, or to refinance our indebtedness, including the Notes, or to fund capital
and other expenditures will depend on our future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory, and other factors that are beyond our control. The
agreement governing our Notes contains covenants that, among other things, limit
our ability and the ability of our subsidiaries to incur particular types of
additional indebtedness, issue particular types of capital stock, pay dividends
or distributions, make investments or other payments, enter into transactions
with affiliates, dispose of particular types of assets, incur liens and engage
in mergers and consolidations. The Notes will mature on March 1, 2005. Interest
on the Notes accrues at the rate of 9.5% per annum and is payable semi-annually
in arrears on March 1 and September 1, to holders of record on the immediately
preceding February 15 and August 15, respectively.



We have financed our cash requirements for working capital
and capital expenditures primarily through internally generated cash flows,
existing cash reserves and from borrowings under our credit facility. Under the
terms of our agreement with Qualcore Group, Inc., we have the option until the
expiration date of June 30, 2001, to obtain all of the remaining outstanding
shares of common stock of Qualcore for cash and/or common stock in ZiLOG.  If we
complete a public offering of common shares prior to the expiration date, the
option will automatically be exercised.  If the option is not exercised prior to
the expiration date, we are required to pay up to $5.2 million to acquire up to
1.8 million additional shares of Qualcore common stock.  We have begun
discussions with the management of Qualcore to defer the payment of this
obligation.  It is uncertain whether this deferment will be accomplished.



Our cash needs include future requirements for working
capital, capital expenditures, and other projected expenditures, payment of our
obligations to Qualcore during 2001 and payment of scheduled interest payments
on our indebtedness. The 2001 business climate is expected to be extremely
difficult. We presently expect that anticipated cash flows from operations and
available cash, coupled with some operational restructuring activities and other
cash-savings initiatives will allow us to satisfy all of our cash needs for the
next twelve months.  Whether we are able to do so will depend primarily on our
results of operations during the next twelve months and on the success of our
other initiatives.  If we are not able to do so, we may require additional cash
resources, such as from new sources of debt or equity financing or one or more
sales of assets.  We have engaged a financial advisor to advise us with respect
to possible strategic alternatives, including raising new debt or equity
financing and possible sales of assets.



We cannot assure you that we will have or be able to raise
sufficient cash, through pursuit of strategic alternatives or otherwise, to
enable us to service our indebtedness, including the Notes, or to make
anticipated capital and other expenditures.  If not, there could be several
material adverse consequences to us.  We would be required to significantly
modify our current business plan for the remainder of 2001 and beyond, which
could result in a significant reduction in planned capital expenditures or in
reductions in force.  We might be unable to satisfy our obligations to third
parties, which could result in defaults under our debt and other financing
agreements and, after the passage of any applicable time and notice provisions,
would enable creditors in respect to those obligations to accelerate the
indebtedness and assert other remedies against us. Alternatively, we may require
a restructuring of our Notes or other obligations.



On April 19, 2001 we announced a reduction in force that
resulted in the elimination of approximately 100 positions throughout the
company.  In connection with this action we expect to incur cash payments for
severance and benefits totaling approximately $1.6 million. Special charges
associated with this action will be reflected in the results of operations for
the second quarter of 2001.



Factors That May Affect Future Results



Risks Related to Our Business and Industry



Our quarterly operating results are likely to fluctuate and may fail to
meet expectations, which may cause our bond price to decline.



Our quarterly operating results have fluctuated in the past
and will likely continue to fluctuate in the future. Our future operating
results will depend on a variety of factors and they may fail to meet
expectations. Any failure to meet expectations could cause our bond price to
fluctuate or decline significantly. In addition, a high proportion of our costs
are fixed, due in part to our significant sales, research and development and
manufacturing costs. Therefore, small declines in revenue could
disproportionately affect our operating results in a quarter. A variety of
factors could cause our quarterly operating results to fluctuate, including:



- our ability to introduce and sell new products and
technologies on a timely basis;



- changes in the prices of our products;



- technological change and product
obsolescence;



- changes in product mix or fluctuations in manufacturing
yields;



- variability of our customers' product life
cycles;



- the level of orders that we receive and can ship in a
quarter, customer order patterns and seasonality;



- increases in the cost of raw materials;
and



- gain or loss of significant customers.



In addition to causing bond price fluctuations, any
significant declines in our operating performance could harm our ability to meet
our debt service and other obligations.



We are currently experiencing a downturn in the business
cycle and our revenues, cash generation and profitability are being adversely
affected.



The semiconductor industry is highly cyclical and has
experienced significant economic downturns at various times in the last three
decades, characterized by diminished product demand, erosion of average selling
prices and production over-capacity. In the fourth quarter of 2000, another
downturn in our business cycle began and continues today.  We are experiencing a
decline in revenues as our customers are not ordering product from us in the
quantities that they previously ordered.  We are uncertain how long this decline
will last.  Similarly, in 1997 and 1998, we experienced significant declines in
customer demand for our products.  In response to these reductions in demand, we
and other semiconductor manufacturers reduced prices to avoid a significant
decline in capacity utilization. We are currently experiencing significant
declines in our capacity utilization in our manufacturing facilities and we may
be required to reduce selling prices.  Given the fixed costs associated with
such manufacturing capacity, this decline has had and will continue to have a
negative impact on our financial condition.  In addition, we are currently, and
will likely in the future experience substantial period-to-period fluctuations
in future operating results that are attributable to general industry conditions
or events occurring in the general economy. Any economic downturn could pressure
us to reduce our prices and decrease our revenues, cash generation and
profitability.



We have a history of losses, we expect future losses and we
may not achieve or maintain profitability in the future.



We have a history of net losses, we expect future net losses
and we do not expect to achieve profitability in the near future. We incurred
net losses of $58.2 million in 2000,  $37.9 million in 1999 and $87.5 million in
1998. As of April 1, 2001, we had an accumulated deficit of approximately $
204.3 million.



We have implemented and are considering implementing
significant cost cutting measures, but these cost cutting measures may not
result in increased efficiency or future profitability.



Similar to other semiconductor companies, we have implemented
and may consider implementing significant cost cutting measures which may
include:



- refocusing of business priorities;



- reallocation of personnel and responsibilities to better
utilize human resources;



- reductions in workforce; and



- temporary office and facility shut downs.



As part of our cost cutting measures, we are considering the
disposition of one or more product lines, business units or other assets. We may
not be able to consummate any divestiture at a fair market price. We may also be
unable to reinvest the proceeds from any disposition to produce the same level
of operating profit as the divested product lines or to generate a commensurate
rate of return on the amount of our investment. We may also be required to pay
some or all of the proceeds from assets sales to our senior lenders rather than
retaining such proceeds for working capital.  Our cost cutting measures may not
increase our efficiency or future profitability.



If we are unable to implement our business strategy, our
revenues and future profitability may be harmed materially.



Our future financial performance and success are largely
dependent on our ability to implement our business strategy, which is described
under "Business-Strategy" in our Form 10K. We have recently changed
our business strategy to focus more of our resources on the communications
market. We may be unable to implement our business strategy and, even if we do
implement our strategy successfully, our results of operations may fail to
improve.



In addition, although the communications market has grown
rapidly in the last few years, it is currently in a significant downturn.  Our
revenues and future profitability could be harmed seriously.  It is uncertain
for how long this slowdown will last.



We may not be able to introduce and sell new products and our
inability to do so may harm our business materially.



Our operating results depend on our ability to introduce and
sell new products. Rapidly changing technologies and industry standards, along
with frequent new product introductions, characterize the industries that are
currently the primary end-users of semiconductors. As these industries evolve
and introduce new products, our success will depend on our ability to adapt to
such changes in a timely and cost-effective manner by designing, developing,
manufacturing, marketing and providing customer support for new products and
technologies.



Our ability to introduce new products successfully depends on
several factors, including:

.

- proper new product selection;



- timely completion and introduction of new product
designs;



- complexity of the new products to be designed and
manufactured;



- development of support tools and collateral literature
that make complex products easy for engineers to understand and use;
and



- market acceptance of our products and our customers'
products.



We cannot assure you that the design and introduction
schedules for any new products or any additions or modifications to our existing
products will be met, that these products will achieve market acceptance or that
we will be able to sell these products at prices that are favorable to us.



Our future success is dependent on the release and acceptance
of our new eZ80 Internet Engine and CarteZian Communication Engine family of
products.



We announced our newest products, the eZ80 Internet
Engine and the CarteZian Communications Engine family of products, in September
1999 and November 1999, respectively. We have delivered samples of our first
eZ80 product to some of our customers. Our CarteZian family of products is still
being designed.   We are  considering simplifying the design of the initial
CarteZian family product that will be released to the marketplace. These new
products may not perform as anticipated and there may be unforeseen redesigns or
delays in their final release. Our failure to release these products as
scheduled or the failure of these products to meet our customers' expectations
would affect us adversely. We do not expect to receive significant revenues from
these products in 2001 and future revenues may be insufficient to recover the
costs associated with their development.



Products as complicated as the eZ80 Internet Engine and
CarteZian Communications Engine family of products frequently contain errors and
defects when first introduced or as new versions are released. Delivery of
products with such errors or defects, or reliability, quality or compatibility
problems, could require significant expenditures of capital and other resources
and significantly delay or hinder market acceptance of these products. Any such
capital expenditures or delays could harm our operating results materially,
damage our reputation and affect our ability to retain our existing customers
and to attract new customers.



Our industry is highly competitive and we cannot assure
you that we will be able to compete effectively.



The semiconductor industry is intensely competitive and is
characterized by price erosion, rapid technological change and heightened
competition in many markets. The industry consists of major domestic and
international semiconductor companies, many of which have substantially greater
financial and other resources than we do with which to pursue engineering,
manufacturing, marketing and distribution of their products. Emerging companies
are also increasing their participation in the semiconductor industry. Our
current and future communications products compete with, or are expected to
compete with, products offered by Advanced Micro Devices, ARM, Atmel,  Conexant,
Intel, Lucent Technologies, Maxim, MIPS Technologies, Mitel, Motorola, NEC,
NetSilicon, Philips, PMC-Sierra, , Sharp, Texas Instruments and Toshiba.  Our
current and future embedded control products compete with, or are expected to
compete with, products offered by Atmel, Hitachi, Intel, Microchip, Mitsubishi,
Motorola, NEC, Philips, Samsung, Sanyo, Sharp, ST Microelectronics and
Toshiba.



Our ability to compete successfully in our markets
depends on factors both within and outside of our control, including:



- our ability to design and manufacture new products that implement new
technologies;



- our ability to protect our products by effectively utilizing intellectual
property laws;



- our product quality, reliability, ease of use and price;



- the diversity of product line and our efficiency of production;



- the pace at which customers incorporate our devices into their products;
and



- the success of our competitors' products and general economic
conditions.



To the extent that our products achieve market acceptance, competitors
typically seek to offer competitive products or embark on pricing strategies
which, if successful, could harm our results of operations and financial
condition materially.

Unless we maintain manufacturing efficiency and avoid manufacturing
difficulties, our future profitability could be harmed.



Our semiconductors are highly complex to manufacture and our
production yields are sensitive. Our production yields may be inadequate in the
future to meet our customers' demands. Production yields are sensitive to a wide
variety of factors, including the level of contaminants in the manufacturing
environment, impurities in the materials used and the performance of personnel
and equipment. From time to time, we have experienced difficulties in effecting
transitions to new manufacturing processes and have suffered delays in product
deliveries or reduced yields. We may experience similar difficulties or suffer
similar delays in the future, and our operating results could be harmed as a
result.



For example, we may experience problems that make it
difficult to manufacture the quantities of our products that we anticipate
producing in our .35 and .65 micron wafer fabrication processes. These
difficulties may include:



- equipment being delivered later than or not performing as
expected;



- process technology changes not operating as expected; and







If we are unable to obtain adequate production capacity, our business could
be harmed.



We intend to rely on independent third-party foundry
manufacturers to fabricate some of our products, including some of our
communications products.  Industry-wide shortages in foundry capacity could harm
our financial results.  Should we be unable to obtain the requisite foundry
capacity to manufacture our complex new products, or should we have to pay high
prices to foundries in periods of tight capacity, our ability to increase our
revenues might be impaired. Any delay in initiating production at third-party
facilities, any inability to have new products manufactured at foundries or any
failure to meet our customers' demands could damage our relationships with our
customers and may decrease our sales.



Other significant risks associated with relying on these
third-party manufacturers include:



- we have reduced control over the cost of our products,
delivery schedules and product quality;



- the warranties on wafers or products supplied to us are
limited;



- we face increased exposure to potential misappropriation
of our intellectual property; and



- switching foundries may be costly or time
consuming.



We depend on third-party assemblers and the failure of these
third parties to continue to provide services to us on sufficiently favorable
terms could harm our business.



We use outside contract assemblers for packaging our
products. If we are unable to obtain additional assembly capacity on
sufficiently favorable terms, our ability to achieve continued revenue growth
may be impaired. Shortages in contract assembly capacity could cause shortages
in our products and could also result in the loss of customers. Because we rely
on these third parties, we also have less control over our costs, delivery
schedules and quality of our products and our intellectual property is at
greater risk of misappropriation.



Our international operations subject us to risks inherent in
doing business in foreign countries that could impair our results of
operations.



Approximately 54% of our net sales in 2000 were to foreign
customers and we expect that international sales will continue to represent a
significant portion of our net sales in the future. We maintain significant
operations and rely on a number of contract manufacturers in the Philippines,
Indonesia, Taiwan, Malaysia and India. Execution of our option to acquire the
remaining 80% interest in Qualcore would increase our international operations,
as a significant portion of Qualcore's human resources are also located in
India.  We cannot assure you that we will be successful in overcoming the risks
that relate to or arise from operating in international markets. Risks inherent
in doing business on an international level include:



- economic and political instability;



- changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;



- transportation delays;



- power supply shortages and shutdowns;



- difficulties in staffing and managing foreign operations
and other labor problems;



- existence of language barriers and cultural
distinctions;



- taxation of our earnings and the earnings of our
personnel; and



- other uncertainties relating to the administration of or
changes in, or new interpretation of, the laws, regulations and policies of the
jurisdictions in which we conduct our business.



In addition, our activities outside the United States are
subject to risks associated with fluctuating currency values and exchange rates,
hard currency shortages and controls on currency exchange. While our sales are
primarily denominated in U.S. dollars, worldwide semiconductor pricing is
influenced by currency rate fluctuations, and such fluctuations could harm our
operating results materially.



A significant amount of our revenues comes from
relatively few of our customers, and any decrease of revenues from these
customers, or the loss of their business, could significantly harm our financial
results.



Historically we have been, and we expect to continue to be,
dependent on a relatively small number of customers for a significant portion of
our revenues primarily because we depend on third-party distributors to market
and sell our products. These third-party distributors accounted for
approximately 40% of our sales in 1999 and 40% of our sales in 2000. Our
distributors may not continue to effectively market, sell or support our
products. Our ten largest customers accounted for approximately 48% of our net
sales in 1999 and 49% of our net sales in 2000. Arrow Electronics alone
accounted for approximately 13% of our net sales in 1999 and Pioneer-Standard
accounted for approximately 12% of our net sales in 2000. Particular customers
may change from period to period, but we expect that sales to a limited number
of customers will continue to account for a significant percentage of our
revenues in any particular period for the foreseeable future. The loss of one or
more major customers or any reduction, delay or cancellation of orders by any of
these customers or our failure to market successfully to new customers could
harm our business materially.



We have very few long-term contracts with our customers and,
like us, our customers typically compete in cyclical industries. In the future,
these customers may decide not to purchase our products at all, to purchase
fewer products than they did in the past, or to alter their purchasing patterns,
particularly because substantially all of our sales are made on a purchase order
or sales order acknowledgment basis, which permits our customers to cancel,
change or delay product purchase commitments upon 30 days notice for standard
products and 60 days notice for custom products. Customers may still cancel or
reschedule within these time periods, however they routinely incur a
cancellation or rescheduling charge. This risk is increased because our
customers can purchase some similar products from our competitors.



Changes in technologies or consumption patterns could
reduce the demand for our products.



As a result of technological changes, from time to time, our
products are designed out of some devices by our customers. Any resulting
decreased sales could reduce our profitability. For example, we have learned
that a number of our customers have changed the designs of computer mouse
pointing devices that they manufacture, and that as a result, these devices will
no longer contain our products. Because we do not have long-term supply
contracts with most of our customers, changes in the designs of their products
can have sudden and significant impacts on our sales. As a result of these
design changes, net sales of our computer mouse pointing devices and other
computer peripheral products decreased substantially from approximately $28.2
million in 1999 to approximately $15.4 million in 2000.  These reduced sales
have and may continue to harm our operating results materially.



We depend on key personnel, and the loss of our current
personnel or our failure to hire and retain additional personnel could affect
our business negatively.



We depend on our ability to attract and retain highly-skilled
technical and managerial personnel. We believe that our future success in
developing marketable products and achieving a competitive position will depend
in large part on our ability to identify, recruit, hire, train, retain and
motivate highly skilled technical, executive, managerial, marketing and customer
service personnel. Competition for these personnel is intense, especially in
Northern California, where our headquarters are located, and we may not be able
to successfully recruit, assimilate or retain sufficiently qualified personnel.
Our failure to recruit and retain necessary technical, executive, managerial,
merchandising, marketing and customer service personnel could harm our business
and our ability to obtain new customers and develop new products.



Our Chairman of the Board, President and Chief Executive
Officer, Curtis J. Crawford, resigned effective March 16, 2001.  Mr. James M.
Thorburn is currently serving as Acting Chief Executive Officer.  Our failure to
replace Mr. Crawford with a permanent Chief Executive Officer may harm our
business materially.



We may fail to protect our proprietary rights and the cost of
protecting those rights, whether we are successful or not, may harm our ability
to compete.



The measures we take to protect our intellectual property
rights may be inadequate to protect our proprietary technologies and processes
from misappropriation, and these measures may not prevent independent third
party development of competitive products. We may not be able to detect the
unauthorized use of, or take appropriate steps to enforce, our intellectual
property rights. Despite our efforts to protect our proprietary rights in both
the United States and in foreign countries, existing intellectual property laws
in the United States provide only limited protection and, in some cases, the
laws of foreign countries provide even less protection.



Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of our proprietary rights or the proprietary rights of
others. Any such litigation could require us to incur substantial costs and
divert significant valuable resources, including the efforts of our technical
and management personnel, which may harm our business materially.



We could be subject to claims of infringement of third-party
intellectual property rights, which could result in significant expense to us
and/or our loss of such rights.



The semiconductor industry is characterized by frequent
claims and related litigation regarding patent and other intellectual property
rights. Third parties may assert claims or initiate litigation against us, our
licensors, our foundries, our service providers or our customers with respect to
existing or future products. Any intellectual property litigation initiated
against us could subject us to significant liability for damages and attorneys'
fees, invalidation of our proprietary rights, injunctions or other court orders
that could prevent us from using specific technologies or engaging in specific
business activities.



These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management's time and
attention from our business. Any potential intellectual property litigation
could also force us to do one or more of the following:



- pay substantial damages;



- cease using key aspects of our technologies or processes
that incorporate the challenged intellectual property;



- cease the manufacture, use, sale, offer for sale and
importation of infringing products;



- alter our designs around a third party's
patent;



- obtain licenses to use the technology that is the subject
of the litigation from a third party;



- expend significant resources to develop or obtain non-
infringing technology;



- create new brands for our services and establish
recognition of these new brands; or



- make significant changes to the structure and the
operation of our business.



Implementation of any of these alternatives could be costly
and time-consuming and might not be possible at all. An adverse determination in
any litigation to which we were a party could harm our business, our results of
operations and financial condition. In addition, we may not be able to develop
or acquire the technologies we need, and licenses to such technologies, if
available, may not be obtainable on commercially reasonable terms. Any necessary
development or acquisition could require us to expend substantial time and other
resources.



One party has notified ZiLOG that it may be infringing
certain patents.  Four of our customers have notified us that they have been
approached by patent holders who claim that they are infringing certain patents.
The customers have asked us for indemnification.  ZiLOG is investigating the
claims of all of these parties.  We believe that we are unlikely to have
liability in any of these situations, but no assurance can be given in this
regard.  In the event ZiLOG determines that such notice may involve meritorious
claims, ZiLOG may seek a license.  Based on industry practice, ZiLOG believes
that in most cases any necessary licenses or other rights could be obtained on
commercially reasonable terms.  However, no assurance can be given that licenses
could be obtained on acceptable terms or that litigation will not occur.  The
failure to obtain necessary licenses or other rights or the advent of litigation
arising out of such claims could have a material adverse effect on ZiLOG.



We are defending several lawsuits, both in and out of the
ordinary course of business; we may lose these suits and we may be subject to
material judgments against us.



In July 1996 we filed suit against our former
insurers, Pacific Indemnity Company, Federal Insurance Company and Chubb &
Son, Inc., in the Superior Court of the State of California in and for Santa
Clara County.  Our former insurers counter-claimed, alleging that two lawsuits
brought against us were not covered by our insurance policies. In these
underlying lawsuits, some of our employees and their families claimed that they
suffered personal injuries and discrimination because of alleged exposure to
chemicals at our manufacturing facility in Idaho in 1993 and 1994. The insurers
seek reimbursement of attorneys' fees, costs and settlement funds expended on
our behalf, totaling approximately $6.3 million plus interest. Based upon
information presently known to management, we are unable to determine the
ultimate resolution of this lawsuit or whether it will materially harm our
financial condition.



The insurance coverage lawsuit has been and is likely to
continue to be time consuming and expensive to resolve. We are also
participating in other litigation and responding to claims arising in the
ordinary course of business. We intend to defend ourselves vigorously in these
matters. Our management believes that it is unlikely that the outcome of these
matters will materially harm our business, but as the results are still
undetermined, we may face liabilities that may harm our business.



We may engage in acquisitions that harm our operating
results, dilute our stockholders' equity, or cause us to incur additional debt
or assume contingent liabilities.



To grow our business and maintain our competitive position,
we have made acquisitions in the past and may acquire other businesses in the
future. In the past, for example, we acquired substantially all of the assets
and assumed the operating liabilities of Seattle Silicon Corporation in April
1999 for approximately $6.1 million. In March 2000, we acquired 20% of the
common stock of Qualcore, along with an option to acquire the remaining 80%
interest in Qualcore, for approximately $8.1 million, including expenses. We may
exercise this option to become the sole stockholder of Qualcore. In July 2000,
we acquired Calibre in exchange for 743,714 shares of our common stock,
including shares of our common stock issuable upon the exercise of vested
options, plus additional shares issuable pursuant to an earn-out provision.



Acquisitions involve a number of risks that could harm our
business and result in the acquired business not performing as expected,
including:



- insufficient experience with technologies and markets in
which the acquired business is involved that may be necessary to successfully
operate and integrate the business;



- ineffective communication and cooperation in product
development and marketing among senior executives and key technical personnel;



- problems integrating the acquired operations, personnel,
technologies or products with the existing business and products;



- diversion of management time and attention from our core
business and to the acquired business;



- potential failure to retain key technical, management,
sales and other personnel of the acquired business; and



- difficulties in retaining relationships with suppliers
and customers of the acquired business.



In addition, acquisitions could require investment of
significant financial resources and may require us to obtain additional equity
financing, which may dilute our stockholders' equity, or to incur additional
indebtedness.



We are subject to a variety of environmental laws and
regulations and our failure to comply with present or future laws and
regulations could harm our business materially.



Our manufacturing processes require us to use various
hazardous substances and, as a result, we are subject to a variety of
governmental laws and regulations related to the storage, use, emission,
discharge and disposal of such substances. Although we believe that we are in
material compliance with all relevant laws and regulations and have all material
permits necessary to conduct our business, our failure to comply with present or
future laws and regulations or the loss of any permit required to conduct our
business could result in fines being imposed on us, the limitation or suspension
of production or cessation of our operations. Compliance with any future
environmental laws and regulations could require us to acquire additional
equipment or to incur substantial other expenses. Any failure by us to control
the use of, or adequately restrict the discharge of, hazardous materials could
subject us to future liabilities that could materially harm our business. In
addition, we may be required to incur significant expense in connection with
governmental investigations and/or environmental employee health and safety
matters.



Risks Related to Our Capital Structure



Our substantial indebtedness may limit the cash flow we
have available for our operations and place us at a competitive
disadvantage.



At April 1, 2001, we had $280.0 million of consolidated long-
term indebtedness and a stockholders' deficiency of $168.1 million.



The high degree to which we are leveraged may have
important consequences to our business, including:



- our ability to obtain additional financing for working
capital, capital expenditures, product development, possible future acquisitions
or other purposes may be impaired or any such financing may not be available on
terms favorable to us;



- a substantial portion of our cash flow available from
operations after satisfying liabilities that arise in the ordinary course of
business will be dedicated to the payment of debt service obligations, thereby
reducing funds that would otherwise be available to us;



- a decrease in net operating cash flows or an increase in
expenses could make it difficult for us to meet our debt service requirements or
force us to modify our operations; and



- high  leverage may place us at a competitive
disadvantage, limit our flexibility in reacting to changes in our operating
environment and make us vulnerable to a downturn in our business or the economy
generally.



To satisfy our obligations under our indebtedness, we will be
required to generate substantial operating cash flow. Our ability to meet debt
service and other obligations or to refinance any such obligation will depend on
our future performance, which will be subject to prevailing economic conditions
and to financial, business and other factors, many of which may be beyond our
control.



The 2001 business climate is expected to be extremely
difficult. We presently expect that anticipated cash flows from operations and
available cash, coupled with some operational restructuring activities and other
cash-savings initiatives will allow us to satisfy all of our cash needs for the
next twelve months.  Whether we are able to do so will depend primarily on our
results of operations during the next twelve months and on the success of our
other initiatives.  If we are not able to do so, we may require additional cash
resources, such as from new sources of debt or equity financing or one or more
sales of assets.  We have engaged a financial advisor to advise us with respect
to possible strategic alternatives, including raising new debt or equity
financing and possible sales of assets.



We cannot assure you that we will have or be able to raise
sufficient cash, through pursuit of strategic alternatives or otherwise, to
enable us to service our indebtedness, including the Notes, or to make
anticipated capital and other expenditures.  If not, there could be several
material adverse consequences to us.  We would be required to significantly
modify our current business plan for the remainder of 2001 and beyond, which
could result in a significant reduction in planned capital expenditures or in
reductions in force.  We might be unable to satisfy our obligations to third
parties, which could result in defaults under our debt and other financing
agreements and, after the passage of any applicable time and notice provisions,
would enable creditors in respect to those obligations to accelerate the
indebtedness and assert other remedies against us. Alternatively, we may require
a restructuring of our Notes or other obligations.



The agreements governing our indebtedness may limit our
ability to finance future operations or capital needs or engage in business
activities that may be in our interest.



The terms of our indebtedness contain restrictive
covenants that may impair our ability to take corporate actions that we believe
to be in the best interests of our stockholders, including restricting our
ability to:



- dispose of assets;



- incur additional indebtedness;



- prepay other indebtedness or amend some debt
instruments;



- pay dividends or repurchase our stock;



- create liens on assets;



- enter into sale and leaseback transactions;



- make investments, loans or advances;



- make acquisitions or engage in mergers or
consolidations;



- change the business conducted by us or our
subsidiaries;



- make capital expenditures or engage in specific
transactions with affiliates; and



- otherwise restrict other corporate
activities.



Our ability to comply with these agreements may be affected
by events beyond our control, including prevailing economic, financial and
industry conditions.  The breach of any of such covenants or restrictions could
result in a default, which would permit some of our creditors to cause all
amounts we owe them to accelerate and become due and payable, together with
accrued and unpaid interest.  We may not be able to repay all of our borrowings
if they are accelerated and, in such event, our business may be harmed
materially and the value of our common stock and debt securities could decrease
significantly.



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 and long-term debt
obligations.  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.
We mitigate default risk by investing in only the highest quality securities and
monitoring the credit ratings of such investments.  We have no cash flow
exposure due to rate changes for our cash equivalents or our Notes as these
instruments have fixed interest rates.

The table below presents principal amounts and related average rates by year
of maturity for our cash equivalents and debt obligations as of April 1, 2001
(dollars in thousands):

`2001       2005      Total    Fair Value
                                                 ---------- ---------- ---------- ----------
Cash Equivalents:
  Fixed rate .........................             $26,944    $  --      $26,944    $26,944
  Average interest rate ..............                4.99%      --         4.99%      --

Long-Term Debt:
  Fixed rate .........................             $  --     $280,000   $280,000    $70,000 (1)
  Stated interest rate ...............                --         9.50%      9.50%      --`

(1)  As of May 14, 2001, the fair value of our long term debt was $50.4
million.

Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings



The Company is a party to an insurance coverage lawsuit in
the Superior Court of the State of California in and for Santa Clara County
filed on July 29, 1996, in which its former insurers, Pacific Indemnity Company,
Federal Insurance Company and Chubb & Son, Inc., claim that insurance
coverage did not exist for allegations made in an underlying lawsuit brought by
employees of the Company and their families who claimed that they suffered
personal injuries and discrimination because of alleged exposure to chemicals at
ZiLOG's manufacturing plant in Nampa, Idaho in 1993 and 1994.   The  insurers
seek  a  declaration   that  insurance  coverage  under  the applicable policies
did not exist, and they seek reimbursement of attorneys' fees, costs and
settlement funds expended on the Company's behalf.  A total of approximately six
million, three hundred thousand dollars ($6,300,000) plus interest is sought by
the insurers.  Both the insurers and the Company have each brought separate
motions for summary judgment or, in the alternative, motions for summary
adjudication.  All such motions were denied by the Superior Court, and the Court
of Appeals denied each party's respective petition for review of each denial of
their summary judgment motions.  The Company petitioned the California Supreme
Court for review of the denial of its motion for summary judgment.

The California Supreme Court denied the Company's petition
for review without making a decision on the merits of the dispute.  The insurers
have renewed their motion for summary adjudication.  The Company is opposing
that motion. No trial date has been set. Based upon information presently known
to management, the Company is unable to determine the ultimate resolution of
this lawsuit or whether it will have a material adverse effect on the Company's
financial condition.



One party has notified ZiLOG that it may be infringing
certain patents.  Four of our customers have notified us that they have been
approached by patent holders who claim that they are infringing certain patents.
The customers have asked us for indemnification.  ZiLOG is investigating the
claims of all of these parties.  In the event ZiLOG determines that such notice
may involve meritorious claims, ZiLOG may seek a license.  Based on industry
practice, ZiLOG believes that in most cases any necessary licenses or other
rights could be obtained on commercially reasonable terms.  However, no
assurance can be given that licenses could be obtained on acceptable terms or
that litigation will not occur.  The failure to obtain necessary licenses or
other rights or the advent of litigation arising out of such claims could have a
material adverse effect on ZiLOG.

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





Item 6.  Exhibits and Reports on Form 8-K



1. The following exhibits are filed herewith:



None.



b)   Reports on Form 8-K:



On January 30, 2001, we submitted a Current Report on Form 8-
K to the Securities and Exchange Commission regarding the  resignation of Curtis
Crawford as CEO and President of the Company.



On March 2, 2001, we submitted a Current Report on Form 8-K
to the Securities and Exchange Commission regarding the naming of James M.
Thorburn as Acting Chief Executive Officer of the Company.







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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)



| |     |                
| | --- | ---------------
| | By: | /s/ Gary Patten

| |                                                          
| | ---------------------------------------------------------
| |                                                          
| | Gary Patten                                              
| | Senior Vice President and Chief Financial Officer        
| | (Principal Financial Officer and
Duly Authorized Officer)

Date: May 14, 2001

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