**UNITED STATES**

**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 September 28, 2003**

**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 333-98529**

**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)

**532 Race StreetSan Jose, California   95126**(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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ]    NO [X]

The Company has voluntarily filed all reports required by section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months in accordance
with terms agreed to in its previous indenture and its plan of reorganization.

As of October 31, 2003, there were 29,090,045 shares of the Company's Common
Stock, $.01 par value outstanding.



This Report on Form 10-Q and other oral and written statements we make
contain and incorporate forward-looking statements regarding future events and
our plans and expectations that involve risks and uncertainties.  When used in
this Report, the words "estimate," "project," "intend," "expect," "anticipate,"
"believe," "may," "will," and similar expressions
are intended to identify such forward-looking statements.  Forward-looking
statements in this report include, but are not limited to, those relating to the
general direction of our business, our expected liquidity, capital expenditures
and expense levels in future periods.  Although we believe our plans,
intentions, and expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that these plans, intentions, or
expectations will be achieved.  Actual results, performance, or achievements
could differ materially from those contemplated, express or implied, by the
forward-looking statements contained in this report.  Factors that may cause or
contribute to differences include, but are not limited to: continued
availability of third-party foundry and assembly services at commercially
reasonable quality and prices; under-absorption of manufacturing costs in our
wafer fabrication facility from under-utilization of production capacity; our
distributors and customers significantly reducing their existing inventories
before ordering new products; and those factors discussed in the sections
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Risk Factors," as well as those discussed elsewhere
in this Report and in other reports filed with the Securities and Exchange
Commission.  These factors are not intended to represent a complete list of the
general or specific factors that affect us.  Other factors, including general
economic factors and business strategies, may be significant, presently or in
the future, and the factors set forth in this report may affect us to a greater
extent than indicated.  We caution the reader not to place undue reliance on the
forward-looking statements contained herein, which reflect our position as of
the date of this report.  We undertake no obligation to publicly release updates
or revisions to these statements.

Based in San Jose, California, we were 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 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.  ZiLOG and Z80, Z8Encore!® and
eZ80Acclaim!TM are registered trademarks of ZiLOG, Inc.



Extreme Connectivity © ZiLOG, Inc. 1999.







**ZiLOG, INC.
    QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2003
                                TABLE OF CONTENTS**



|**PART I.   FINANCIAL INFORMATION**                                                                                                                                                                             | **Page No.**
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                                                                                                |             
|Item 1.   Interim Condensed Consolidated Financial Statements
                  (unaudited):                                                                                                                    |             
|                                                                                                                                                                                                                |             
|Unaudited Condensed Consolidated Statements of Operations for the
          
    three months ended September 30, 2003, and three months ended September 30, 2002                                               | **          
|                                                                                                                                                                                                                |             
|Unaudited Condensed Consolidated Statements of Operations for the
          
    nine months ended September 30, 2003, five months ended September 30, 2002
          
    and four months ended April 30, 2002 | **          
|                                                                                                                                                                                                                |             
|Unaudited Condensed Consolidated Balance Sheets at September 30, 2003
          
   and December 31, 2002                                                                                                       | **          
|                                                                                                                                                                                                                |             
|Unaudited Condensed Consolidated Statements of Cash Flows for the
          
    nine months ended September 30, 2003, five months ended September 30, 2002
          
    and four months ended April 30, 2002 | **          
|                                                                                                                                                                                                                |             
|Notes to Unaudited 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                                                                                                                                            | **          
|                                                                                                                                                                                                                |             
|Item 4.   Controls and Procedures                                                                                                                                                                               | **          
|                                                                                                                                                                                                                |             
|**PART II.  OTHER INFORMATION**                                                                                                                                                                                 |             
|                                                                                                                                                                                                                |             
|Item 1.   Legal Proceedings                                                                                                                                                                                     | **          
|                                                                                                                                                                                                                |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                                                                                      | **          
|                                                                                                                                                                                                                |             
|Signature                                                                                                                                                                                                       | **          

---

**ZiLOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in millions except per share data)**

`Three Months Ended
                                                             September 30,
                                                   -------------------------
                                                       2003         2002
                                                   ------------ ------------
Net sales.........................................       $26.0        $36.0
Cost of sales.....................................        13.3         19.9
                                                   ------------ ------------
Gross margin......................................        12.7         16.1

Operating expenses:
   Research and development.......................         4.5          4.1
   Selling, general and administrative............         7.2          8.2
   Special charges and reorganization items.......         1.3          0.8
   Amortization of intangible assets..............         1.7          3.0
                                                   ------------ ------------
     Total operating expenses.....................        14.7         16.1
                                                   ------------ ------------
Operating loss....................................        (2.0)       --

Other income (expense):
   Interest income................................         0.1          0.1
   Interest expense........................ ......        (0.1)        (0.1)
   Other, net.....................................       --             0.4
                                                   ------------ ------------
Income (loss) before provision for income taxes...        (2.0)         0.4
Provision for income taxes........................       --             0.2
                                                   ------------ ------------
Net income (loss).................................       ($2.0)        $0.2
                                                   ============ ============
Basic and diluted net income (loss) per share.....      ($0.07)       $0.01
                                                   ============ ============
Weighted-average shares used in computing basic
  and diluted net income (loss) per share.........        28.6         28.7
                                                   ============ ============`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in millions except per share data)**

`Predecessor
                                                        Successor Company      Company
                                                   ------------------------- -----------
                                                   Nine Months  Five Months  Four Months
                                                      Ended        Ended        Ended
                                                     Sep. 30,     Sep. 30,    April 30,
                                                       2003         2002        2002
                                                   ------------ ------------ -----------
Net sales.........................................       $76.9        $64.1       $46.0
Cost of sales.....................................       $41.9         35.3        26.1
Cost of sales - fresh-start inventory
   adjustment.....................................       --             3.9        --
                                                   ------------ ------------ -----------
Gross margin......................................        35.0         24.9        19.9

Operating expenses:
   Research and development.......................        13.1          7.3         6.8
   Selling, general and administrative............        20.4         15.4        10.8
   Special charges and reorganization items.......         3.2          1.2         6.9
   Amortization of intangible assets..............         5.1          4.9        --
   In-process research and development............       --            18.7        --
                                                   ------------ ------------ -----------
     Total operating expenses.....................        41.8         47.5        24.5
                                                   ------------ ------------ -----------
Operating loss....................................        (6.8)       (22.6)       (4.6)
                                                   ------------ ------------ -----------
Other income (expense):
   Fresh-start adjustments........................       --           --           83.7
   Net gain on discharge of debt..................       --           --          205.7
   Interest income................................         0.2          0.1         0.1
   Interest expense (1)...........................        (0.3)        (0.4)       (5.0)
   Other, net.....................................         0.2          0.5         0.1
                                                   ------------ ------------ -----------
Income (loss) before reorganization items and
   provision for income taxes.....................        (6.7)       (22.4)      280.0
Reorganization items..............................       --           --            4.0
Provision for income taxes........................         0.2          0.7         0.1
                                                   ------------ ------------ -----------
Net income (loss).................................       ($6.9)      ($23.1)     $275.9
                                                   ============ ============ ===========
Preferred stock dividends accrued.................       --           --            1.9
                                                   ------------ ------------ -----------
Net income (loss) attributable to common
   stockholders...................................       ($6.9)      ($23.1)     $274.0
                                                   ============ ============ ===========
Basic and diluted net loss per share..............      ($0.24)      ($0.81)
                                                   ============ ============
Weighted-average shares used in computing
  basic and diluted net loss per share............        28.6         28.6
                                                   ============ ============
-------------------------------------
    (1) Excludes contractual interest of $4.2 million in the four months ended
        April 30, 2002 not recorded during reorganization.`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (in millions)**

`September 30,   December 31,
                                                                  2003           2002
                                                             -------------- --------------
                                  ASSETS
Current assets:
   Cash and cash equivalents................................         $22.0          $29.4
   Accounts receivable, less allowance for doubtful
     accounts of $0.4 at September 30, 2003 and $0.5
     at December 31, 2002...................................          11.0           10.8
   Inventories..............................................           9.9           10.6
   Prepaid expenses and other current assets................           2.7            3.4
                                                             -------------- --------------
          Total current assets..............................          45.6           54.2
                                                             -------------- --------------

MOD III, Inc. assets held for sale..........................          30.0           30.0
Net property, plant and equipment...........................          18.9           21.9
Goodwill....................................................          34.6           34.6
Intangible assets, net......................................          13.2           18.3
Other assets................................................           8.0            9.8
                                                             -------------- --------------
                                                                    $150.3         $168.8
                                                             ============== ==============
        LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS'EQUITY
Current liabilities:
   Short-term debt..........................................          $5.0           $6.9
   Accounts payable.........................................           8.9           10.2
   Income taxes payable.....................................           1.3         --
   Accrued compensation and employee benefits...............           4.1            7.4
   Other accrued liabilities................................           2.6            2.6
   Accrued special charges..................................           0.5            0.6
   Deferred income on shipments to distributors.............           5.5            7.4
                                                             -------------- --------------
          Total current liabilities.........................          27.9           35.1
                                                             -------------- --------------

Deferred income taxes.......................................          18.5           22.4
Other non-current liabilities...............................          14.5           14.5
                                                             -------------- --------------
          Total liabilities.................................          60.9           72.0
                                                             -------------- --------------

Minority interest in MOD III assets.........................          30.0           30.0

Stockholders' equity:
   Common Stock.............................................           0.3            0.3
   Deferred stock compensation..............................          (2.4)          (4.6)
   Additional paid-in capital...............................          96.1           97.1
   Treasury stock...........................................          (1.8)        --
   Accumulated deficit......................................         (32.8)         (26.0)
                                                             -------------- --------------
          Total stockholders' equity........................          59.4           66.8
                                                             -------------- --------------
Total liabilities and stockholders' equity..................        $150.3         $168.8
                                                             ============== ==============`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (in millions)**

`Predecessor
                                                                      Successor Company      Company
                                                                 -------------------------------------
                                                                 Nine Months  Five Months  Four Months
                                                                    Ended        Ended        Ended
                                                                  Sep. 30,     Sep. 30,     April 30,
                                                                     2003         2002        2002
                                                                 ------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...............................................       ($6.9)      ($23.1)     $275.9
   Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     In-process research and development........................        --           18.7         --
     Net gain on discharge of debt..............................        --           --        (205.7)
     Amortization of fresh-start adjustments....................        --           --         (83.7)
     Fresh-start inventory adjustment...........................        --            3.9         --
     Amortization of fresh-start intangible assets..............         5.1          5.0         --
     Depreciation and amortization..............................         4.3          2.8         2.5
     Impairment of equity investment............................         0.2         --           --
     Impairment of long lived assets............................         0.2         --           2.7
     Stock-based compensation...................................         1.2          2.6         0.1
   Changes in operating assets and liabilities:
     Accounts receivable, net...................................        (0.2)        (1.4)        2.1
     Inventories................................................         0.8          2.9         2.9
     Prepaid expenses and other current and
       non-current assets.......................................         1.7         (1.7)        0.1
     Accounts payable...........................................        (1.2)         0.4        (0.1)
     Accrued compensation and employee benefits.................        (3.3)         1.3        (1.8)
     Liabilities subject to comprise............................        --           --           6.6
     Other accrued liabilities, deferred income on shipments
          to distributors, deferred income taxes, income
          taxes payable and accrued special charges.............        (4.6)        (2.8)       (6.8)
                                                                 ------------ ------------ -----------
        Net cash provided (used) by operations before
           reorganization items.................................        (2.7)         8.6        (5.2)
   Reorganization items - professional fees paid................        --           --          (2.3)
                                                                 ------------ ------------ -----------
        Net cash provided (used) by operating activities........        (2.7)         8.6        (7.5)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures........................................        (1.6)        (0.8)       (1.0)
                                                                 ------------ ------------ -----------
        Cash used by investing activities.......................        (1.6)        (0.8)       (1.0)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayments of short-term debt...............................        (1.9)        (2.5)       (3.4)
    Proceeds from issuance of common stock......................        --            0.3         --
    Payments for stock redemptions..............................        (1.2)        (0.2)        --
                                                                 ------------ ------------ -----------
        Cash used by financing activities.......................        (3.1)        (2.4)       (3.4)
                                                                 ------------ ------------ -----------
Increase (decrease) in cash and cash equivalents................        (7.4)         5.4       (11.9)
Cash and cash equivalents at beginning of period................        29.4         18.8        30.7
                                                                 ------------ ------------ -----------
Cash and cash equivalents at end of period......................       $22.0        $24.2       $18.8
                                                                 ============ ============ ===========`

See accompanying notes to condensed consolidated financial statements.

---

**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 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 2002 Annual Report filed
on Form 10-K for the fiscal year ended December 31, 2002, filed on April 1, 2003
(Commission File Number 333-98529).

ZiLOG's interim results are based on fiscal quarters of thirteen weeks in
duration ending on the last Sunday of each calendar quarter.  The first and
second fiscal month of each quarter is four weeks in duration and the third
month is five weeks.  Each of ZiLOG's interim periods end on Sunday except for
the last fiscal period of each year that ends on December 31.  However, for
financial reporting purposes, interim fiscal periods are labeled as ending on
calendar month-end.  The operating results for any interim period are not
necessarily indicative of results for any subsequent period or the full fiscal
year.

The condensed consolidated balance sheet at December 31, 2002 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.

On February 28, 2002, ZiLOG and its subsidiary, MOD III, Inc., filed a
Reorganization Plan with the United States Bankruptcy Court for the Northern
District of California under Chapter 11 of the U.S. Bankruptcy Code. The
bankruptcy court subsequently confirmed the Reorganization Plan by its order
entered on April 30, 2002. The Reorganization Plan became effective on May 13,
2002 (April 30, 2002, for financial reporting purposes). The Company, prior to
emergence from bankruptcy, is referred to as the "Predecessor Company" and the
reorganized company is referred to as the "Successor Company."  The effect of
the Plan of Reorganization included conversion of the Company's $280 million
senior secured notes to common stock.

A black line has been drawn in the accompanying financial statements to
distinguish, for accounting purposes, between the Successor Company and the
Predecessor Company.  The Company's results of operations after April 30,
2002 and the consolidated balance sheets at December 31, 2002 and September 30,
2003 are not comparable to the results of operations prior to April 30,
2002 and historical balance sheets prior to April 30, 2002, due to the adoption
of "fresh-start" reporting upon emergence from bankruptcy.  However,
such differences in the results of operations relate to depreciation of
property, plant and equipment, amortization of intangible assets, in-process
research and development, interest expense and restructuring and reorganization
expenses.  Additionally, these differences in the balance sheets relate to
inventories, property, plant and equipment, intangible assets, conversion of
senior notes into common stock and minority interest.  Certain figures, such as
net sales and certain expenses, were not affected by the adoption of fresh-start
accounting and, accordingly, the Company believes them to be comparable.
Details of the events associated with the May 2002 reorganization are included
in the Company's 2002 Annual Report on Form 10-K.



NOTE 2.  	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition.  Revenue from product sales to OEM customers
is recognized upon transfer of legal title, which occurs at time of shipment or
upon delivery to the customer, depending upon the FOB terms.  Revenue on these
sales is reported net of appropriate allowances for returns which are recorded
at the time of revenue recognition and represent the Company's only post-sale
obligations. Revenue on shipments to distributors who have rights of return and
price protection on unsold merchandise held by them, is deferred until products
are resold by the distributors to end users. Although revenue is deferred until
resale, title of products sold to distributors transfers upon shipment.
Accordingly, shipments to distributors are reflected in the consolidated balance
sheets as accounts receivable and a reduction of inventories at the time of
shipment. Deferred revenue and the corresponding deferred cost of sales on
shipments to distributors are reflected in the consolidated balance sheets on a
net basis under the caption, "Deferred income on shipments to
distributors."

Goodwill and Intangible Assets.  Effective January 1, 2002, ZiLOG
adopted the provisions of FASB Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("FAS 142").  Under FAS 142,
goodwill and intangible assets with indefinite lives are not amortized, but are
reviewed annually or more frequently if impairment indicators arise.  As of
September 30, 2003, the Company reviewed these assets for impairment and no
adjustment to the carrying value was indicated.  Separable intangible assets
that are deemed to have defined lives will continue to be amortized over their
useful lives (but with no maximum life).  Intangible assets acquired prior to
July 1, 2001 were being amortized on a straight-line basis over lives ranging
from three to five years.  In connection with the Company's fresh-start
reporting, in May 2002, separable intangible assets based on independent
valuations were created with deemed defined 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 condensed consolidated balance sheets
are as follows (in millions):

`Current       Brand
                                        Technology     Name        Total
                                       ------------ ----------- -----------
Gross carrying amount.................       $17.0        $9.2       $26.2
Accumulated amortization..............        11.0         2.0        13.0
                                       ------------ ----------- -----------
Book value at September 30, 2003......        $6.0        $7.2       $13.2
                                       ============ =========== ===========`



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

`Current      Brand       Total
                                           Year     Technology      Name    Amortization
                                       ------------ ----------- ----------- ------------
                                       October to Dec-
                                        ember 2003        $1.3        $0.4         $1.7
                                           2004            2.9         1.3          4.2
                                           2005            1.1         1.1          2.2
                                           2006            0.4         1.0          1.4
                                           2007            0.2         0.8          1.0
                                        Thereafter         0.1         2.6          2.7
                                                    ----------- ----------- ------------
                                          Total           $6.0        $7.2        $13.2
                                                    =========== =========== ============`

Use of Estimates.  The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made in preparing
these financial statements include excess and obsolete inventories, allowance
for doubtful accounts, sales returns and allowances and asset impairments.
Actual results could differ from those estimates.

Research and Development Expenses.  ZiLOG's policy is to record
all research and development expenditures for items with no future alternative
use as period expenses when incurred.  In-process research and development
charges relate to partially developed semiconductor product designs that had not
reached technological feasibility and have no alternative future use on the date
they were acquired or valued for fresh-start reporting.

Fair Value of Financial Instruments and Concentration of Credit Risk.
 The carrying value of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable and short-term
debt, approximates fair value.  Financial instruments that subject the Company
to concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents
with high quality financial institutions. The Company's customer base consists
primarily of businesses in North America, Europe and Asia. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable. The Company maintains allowances for
potential credit losses. As of September 30, 2003, there
were two customers with net accounts receivable comprising more than 10% of
total net accounts receivable. Future Electronics, Inc. and Thomson Consumer
Electronics each had net accounts receivable at September 30, 2003, of
approximately $1.3 million.

Stock-based Compensation.  The Company accounts for employee
stock awards in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation--an Interpretation of APB No. 25", issued in March
2000, to account for its fixed plan options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. SFAS 123, "Accounting for Stock-
Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," established accounting and
disclosure requirements using a fair-value method of accounting described above.
The Company has adopted only the disclosure requirements of SFAS 148. For
purposes of both financial statement and pro forma disclosure, the amortization
of the stock-based compensation is allocated over the vesting period on a
straight-line basis.  The table below illustrates the effect on net loss if the
fair-value based method had been applied to all outstanding and unvested awards
in each period (in millions).

`Predecessor
                                                               Successor Company               Company
                                             ------------------------------------------------ ----------
                                                Three        Three        Nine        Five       Four
                                                Months       Months       Month      Months     Month
                                                Ended        Ended        Ended      Ended      Ended
                                               Sep. 30,     Sep. 30,    Sep. 30,    Sep. 30,  April 30,
                                                 2003         2002        2003        2002       2002
                                             ------------ ------------ ----------- ---------- ----------
Net income (loss) as reported...............       ($2.0)        $0.2       ($6.9)    ($23.1)    $275.9
Add stock-based employee  compensation
   expense included in reported net
   income (loss), net of tax................         0.4          0.6         1.2        2.6        0.1
Deduct total stock-based employee
   compensation expense determined
   under fair-value based method
   for all awards, net of tax...............        (0.3)        (0.3)       (1.3)      (2.7)      (0.3)
                                             ------------ ------------ ----------- ---------- ----------
Proforma net income (loss)..................       ($1.9)        $0.5       ($7.0)    ($23.2)    $275.7
                                             ============ ============ =========== ========== ==========`

The fair value of options granted in 2002 and 2003 under the 2002 Omnibus
Stock Incentive Plan was estimated at the date of grant using the Black-Scholes
option-pricing model.  The following weighted average assumptions were used:

`Predecessor
                                                            Successor Company             Company
                                           --------------------------------------------- ----------
                                              Three      Three       Nine        Five       Four
                                             Months      Months      Month      Months     Month
                                              Ended      Ended       Ended      Ended      Ended
                                            Sep. 30,    Sep. 30,   Sep. 30,    Sep. 30,  April 30,
                                              2003        2002       2003        2002       2002
                                           ----------- ---------- ----------- ---------- ----------
Annual average risk free interest rate....        3.0%       3.0%        3.0%       3.0%       3.5%
Estimated life in years...................         5            5          5          5           5
Dividend yield............................        0.0%       0.0%        0.0%       0.0%       0.0%
Volatility................................       84.2%      88.9%       84.2%      88.9%        N/A`

Adoption of Accounting Standards.   In November 2002, the FASB
issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which clarifies disclosure and recognition/measurement
requirements related to certain guarantees.  The disclosure requirements are
effective for financial statements issued after December 15, 2002 and the
recognition/measurement requirements are effective on a prospective basis for
guarantees issued or modified after December 31, 2002.  The application of the
requirements of FIN 45 did not have a material impact on the Company's financial
position or results of operations.

Recent Accounting Pronouncements.  In January 2003, the
Financial Accounting Standards Board issued FASB Interpretation No. 46
("FIN 46"), "Consolidation of Variable Interest Entities," which
addresses consolidation by a business of variable interest entities in which it
is the primary beneficiary.  The Interpretation is effective immediately for
certain disclosure requirements and variable interest entities created after
January 31, 2003, and for variable interest entities created before February 1,
2003, and is effective in the fourth quarter of 2003.  The adoption of FIN 46
did not have an impact on the Company's unaudited condensed consolidated
financial statements. 
Effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003, Emerging Issues Task Force ("EITF") Issue 00-21,
"Revenue Arrangements with Multiple Deliverables," addresses the accounting, by
a vendor, for contractual arrangements in which multiple revenue-generating
activities will be performed by the vendor.  In some situations, the different
revenue-generating activities (deliverables) are sufficiently separable and
there exists sufficient evidence of fair values to account separately for the
different deliverables (that is, there are separate units of accounting).  In
other situations, some or all of the different deliverables are interrelated
closely or there is not sufficient evidence of fair value to account separately
for the different deliverables.  EITF Issue 00-21 addresses when, and if so, how
an arrangement involving multiple deliverables should be divided into separate
units of accounting.  The impact from the adoption of EITF Issue 00-21 did not
have a material impact on the Company's unaudited condensed consolidated
financial statements.

In April 2003, the FASB issued FAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities."FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FAS 133, "Accounting for Derivative Instruments
and HedgingActivities."FAS 149 provides greater
clarification of the characteristics of a derivative instrument so that
contracts with similar characteristics will be accounted for consistently. In
general, FAS 149 is effective for contracts entered into or modified after June
30, 2003, and for hedging relationships designated after June 30, 2003.As the Company does not currently have any derivative financial instruments,
the adoption of FAS 149 did not have an impact on the Company's unaudited
condensed consolidated financial statements.



In May 2003, the FASB issued FAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity."  FAS 150
clarifies the accounting for certain financial instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial position. Previously, many of those
financial instruments were classified as equity. FAS 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. As the Company does not have any of these financial instruments, the
adoption of FAS 150 did not have any impact on the Company's unaudited condensed
consolidated financial statements.

NOTE 3.	   INVENTORIES

Inventories are stated at the lower of cost on a first-in-first-out basis, or
market.  Provisions, when required, are made to reduce excess and obsolete
inventories to their estimated realizable values. It is possible that estimates
of realizable value can change in the short term. Inventories, net of
provisions, consist of the following (in millions):

`Sep. 30,   December 31,
                                               2003         2002
                                           ------------ ------------
     Raw materials........................        $0.4         $0.5
     Work-in-process......................         6.5          7.5
     Finished goods.......................         3.0          2.6
                                           ------------ ------------
                                                  $9.9        $10.6
                                           ============ ============`

NOTE 4.	SPECIAL CHARGES AND REORGANIZATION ITEMS

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

`Predecessor
                                                 Successor Company       Successor Company      Company
                                             ------------------------- ---------------------- ----------
                                                Three        Three        Nine        Five       Four
                                                Months       Months       Month      Months     Month
                                                Ended        Ended        Ended      Ended      Ended
                                               Sep. 30,     Sep. 30,    Sep. 30,    Sep. 30,  April 30,
                                                 2003         2002        2003        2002       2002
                                             ------------ ------------ ----------- ---------- ----------
Asset impairments:
   Austin Texas assets......................    $ --         $ --         $ --        $ --         $1.7
   Internal use software....................      --           --           --          --          0.8
   Nampa, Idaho assets......................      --           --             0.2       --          --
   Goodwill write-offs......................      --           --           --          --          0.2
   Equity investment write-down.............         0.2       --             0.2       --         --
Restructuring of operations:
   Employee severance and
     termination benefits...................         0.6       --             1.3       --          1.2
   MOD III closure costs....................         0.4          0.3         1.0        0.6        2.3
   Lease termination costs..................      --           --           --          --          0.7
Professional fees for debt
   restructuring and S-1 filings............         0.1          0.5         0.5        0.6        4.0
                                             ------------ ------------ ----------- ---------- ----------
                                                    $1.3         $0.8        $3.2       $1.2      $10.9
                                             ============ ============ =========== ========== ==========`

The following table summarizes activity in accrued special charges (in
millions):

`Severance
                                                        and       MOD III       Debt
                                                    Termination   Closure   Restructur-
                                          Total      Benefits      Costs        ing
                                       ------------ ----------- ----------- ------------
    Balance at December 31, 2002......        $0.6        $0.5        $0.1       $ --
    Total charged to special
       charges........................         2.8         1.3         1.0          0.5
    Cash paid.........................        (2.9)       (1.5)       (1.1)        (0.3)
                                       ------------ ----------- ----------- ------------
    Balance at September 30, 2003.....        $0.5        $0.3       $ --          $0.2
                                       ============ =========== =========== ============`

During the three months ended September 30, 2003, ZiLOG incurred
approximately $1.3 million of special expenses, which included severance and
termination benefits of $0.6 million relating to a reduction-in-force at the
Company's Philippine's test facility, and severance costs associated with
elimination of certain administrative positions, primarily in San Jose.
Approximately $0.4 million of special charges for the period relate to
continuing post-closure maintenance costs of the MOD III eight-inch wafer
fabrication facility in Idaho consisting of utilities, taxes, insurance and
other maintenance costs required to maintain the facility in a condition
required for sale of the property.  Approximately $0.1 million of special
charges relate to third-party professional service fees for legal and accounting
services to register 11.7 million shares of common stock as required by the
Company's 2002 Plan of Reorganization and for legal and financial advisors
associated with actions required to be taken as a result of the Company's May
2002 debt and equity restructuring activities. Additionally, asset impairments
consisted of approximately $0.2 million of a non-cash impairment loss recognized
on the write-down of an equity investment.

Restructuring of operations during the nine-month period ended September 30,
2003 of $3.2 million included severance and termination benefits of $1.3
million, which primarily related to a reduction-in-force at the Company's Nampa,
Idaho manufacturing plant and Philippine's test facility, eliminating a total of
approximately 86 positions.  Approximately $1.0 million of special charges for
the nine-month period relate to post-closure maintenance costs of the MOD III
eight-inch wafer fabrication facility in Idaho consisting of utilities, taxes,
insurance and other maintenance costs required to maintain the facility in a
condition required for the sale of the property.  Approximately $0.5 million of
special charges relate to third-party professional fees for legal and accounting
services to register 11.7 million shares of common stock as required by the
Company's 2002 Plan of Reorganization and for legal and financial advisors
associated with actions required to be taken as a result of the Company's May
2002 debt and equity restructuring activities.

Asset impairments of $0.4 million included computer equipment with a net book
value of $0.2 million that was retired in connection with an information system
upgrade that included new equipment purchases.  The redundant equipment was
written off to special charges.  Additionally, approximately $0.2 million
impairment loss was recognized on an equity investment.

During the three months ended September 30, 2002, ZiLOG incurred special
charges of $0.8 million for restructuring of operations. Approximately $0.3
million of special charges relate to activities associated with the closure of
the MOD III eight-inch wafer fabrication facility in Idaho, referred to as the
"MOD III facility."  These charges related to post-closure maintenance
costs related to utilities, taxes, insurance and other maintenance costs
required to maintain the facility in a condition required for the sale of the
property.  Approximately $0.5 million of special charges relate to third party
professional service fees for legal and financial advisors who were assisting
with the Company's debt and equity restructuring activities.

During the five months ended September 30, 2002, ZiLOG incurred special
charges and reorganization items of $1.2 million for restructuring of
operations.  Approximately $0.6 million of special charges relate to the MOD III
closure and $0.6 million represent third party professional service fees for
debt and equity restructuring activities.  During the Chapter 11 filing of the
Reorganization Plan, such costs were classified as "Reorganization
Items."

In connection with the closure of the Company's Austin, Texas design center
in the four-month period ended April 30, 2002, furniture, fixtures and equipment
with a book value of approximately $1.7 million were surrendered to the lessor
in partial exchange for lease termination considerations.  Also in connection
with this action and the streamlining of ZiLOG's sales force, severance and
termination benefits of approximately $1.2 million were paid in the four-month
period ended April 30, 2002.  Approximately $0.8 million of computer aided
design software was impaired in the four-month period ended April 30, 2002, as a
result of the Company's decision to cancel development of its Cartezian family
of 32-bit RISC microprocessors focused on network routing and associated data
packeting technologies.  Additionally, $2.3 million of special charges incurred
during the four-month period ended April 30, 2002 relate to the closure of the
MOD III eight-inch wafer fabrication facility in Idaho.  These costs include
relocation of production activities to alternative manufacturing sites and the
closure of the MOD III facility.

In addition, professional fees of $4.0 million for debt restructuring were
recorded as non-operating reorganization items during the entire duration of the
Company's Chapter 11 proceedings.

NOTE 5.	   GEOGRAPHIC AND SEGMENT INFORMATION

The Company operates in one operating segment and engages primarily in the
design, development, manufacture and marketing of semiconductor products.  The
Company sells its products to distributors and original equipment manufacturers
("OEMs") in a broad range of market segments, 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, sales and support centers and design centers in certain
foreign countries.  Domestic operations are responsible for the design,
development and wafer fabrication of all products, as well as the coordination
of production planning and shipping to meet worldwide customer commitments.  The
Philippine test facility is reimbursed in relation to value added with respect
to test operations and other functions performed, and 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.

Prior to the consummation of the Company's reorganization, there were two
reportable business segments called communications and embedded control.  The
prior reporting structure was based on a previous operating and reporting
organization that was focused largely on development of new products targeted
32-bit microprocessors for the communications and networking sectors.  ZiLOG is
now organized and focused on its core business, which is based on 8-bit
micrologic product solutions.  The Company operates in one reporting segment and
engages primarily in the design, development, manufacture and marketing of
semiconductor products.  ZiLOG has two broad business lines called embedded
control, also referred to as micrologic, and standard products.  The following
table represents the net sales by business line for each for the periods
indicated (dollars in millions):

`Predecessor
                                                   Successor Company       Successor Company     Company
                                             ------------------------ ------------------------ -----------
                                                Three        Three       Nine         Five        Four
                                                Months      Months       Month       Months       Month
                                                Ended        Ended       Ended       Ended        Ended
                                               Sep. 30,    Sep. 30,    Sep. 30,     Sep. 30,    April 30,
                  Products                       2003        2002        2003         2002        2002
-------------------------------------------- ------------ ----------- ----------- ------------ -----------
   Embedded control products include:
      8-bit Microcontrollers
        and Microprocessors.................       $15.8       $22.5       $48.9        $41.5       $29.1
                                             ------------ ----------- ----------- ------------ -----------
        Total...............................       $15.8       $22.5       $48.9        $41.5       $29.1
                                             ------------ ----------- ----------- ------------ -----------
   Standared products include:
     Serial Communications
       Controllers..........................        $3.9        $3.6       $10.4         $6.7        $5.0
     Modems.................................         1.3         2.4         2.3          5.0         4.7
     IrDA transceivers......................         0.7         0.6         1.8          1.3         0.5
     Televesion, PC peripherals and other...         1.1         2.6         4.0          4.9         5.8
     Foundry services.......................         3.2         4.3         9.5          4.7         0.9
                                             ------------ ----------- ----------- ------------ -----------
        Total...............................       $10.2       $13.5       $28.0        $22.6       $16.9
                                             ------------ ----------- ----------- ------------ -----------
   Net sales................................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========`

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

`Predecessor
                                                 Successor Company         Successor Company     Company
                                             ------------------------ ------------------------ -----------
                                                Three        Three       Nine         Five        Four
                                                Months      Months       Month       Months       Month
                                                Ended        Ended       Ended       Ended        Ended
                                               Sep. 30,    Sep. 30,    Sep. 30,     Sep. 30,    April 30,
                                                 2003        2002        2003         2002        2002
                                             ------------ ----------- ----------- ------------ -----------
Net sales by region:
Americas....................................       $15.6       $21.8       $43.8        $38.7       $25.2
Asia........................................         7.3        10.4        23.2         18.4        13.8
Europe......................................         3.1         3.8         9.9          7.0         7.0
                                             ------------ ----------- ----------- ------------ -----------
   Total....................................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========

Net sales by channel:
OEM.........................................       $14.5       $21.3       $40.6        $36.9       $25.8
Distributor.................................        11.5        14.7        36.3         27.2        20.2
                                             ------------ ----------- ----------- ------------ -----------
   Total....................................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========`

Major Customers.  During the three months and nine months ended
September 30, 2003, one customer, Future Electronics, Inc., accounted for
approximately 17.7% and 17.6% of the Company's net sales, respectively, and a
second customer, Globespan Virata, Inc. accounted for approximately 12.2% and
12.3% of net sales, respectively during the same periods.  During the three
months ended September 30, 2002, two customers, Pioneer-Standard Electronics and
Globespan Virata, Inc. accounted for 14.4% and 11.6%, respectively.  During the
five-month period ended September 30, 2002 and the four-month period ended April
30, 2002, one customer, Pioneer-Standard Electronics, accounted for
approximately 16.0% and 10.5% of net sales, respectively.

NOTE 6.    SHORT-TERM DEBT

Upon consummation of the Reorganization Plan, ZiLOG entered into a senior
secured financing facility (the "Facility") with a commercial lender, dated May
13, 2002, for a new three-year $15.0 million senior secured revolving credit
facility.Borrowings on the Facility are secured primarily
against certain North American accounts receivable and bear interest at a rate
per annum equal, at ZiLOG's option, to the commercial lender's stated prime rate
or LIBOR, plus 2.5%.  At September 30, 2003, the Company had borrowings
outstanding of $5.0 million at a LIBOR-based rate of 3.6% and had additional
borrowing capacity available of $0.8 million. The Facility is scheduled to
expire on May 13, 2005.  As of September 30, 2003, the Company also had
$0.3 million of standby letters of credit issued to vendors under the
Facility.

The Company is subject to certain financial covenants under this Facility,
including tangible net asset value and fixed charge coverage ratio, only if the
total of the Company's cash, cash equivalents and availability on the facility
are less than $7.5 million at any month end.

NOTE 7.	CONTINGENCIES

The Company is participating in litigation and responding to claims arising
in the ordinary course of its business.  ZiLOG 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 its financial statements, although there can be no assurance in this
regard.

NOTE 8.	INCOME TAXES



The Company's provision for income taxes during the nine- and three-month
periods ended September 30, 2003, the five-month period ended September 30, 2002
and the four-month period ended April 30, 2002, reflects estimated income tax
rates for the year, including foreign income taxes for the jurisdictions in
which the Company was profitable, as well as foreign withholding taxes and state
minimum taxes.

In connection with the May, 2002  Reorganization Plan, the subsequent
cancellation of debt and issuance of new common shares to primarily new
stockholders, the Company generated significant income for book and tax
purposes. The taxable income was offset by the use of all available net
operating losses, both current and carryforward, with remaining taxable income
offset by the reduction in tax attributes of certain of the Company's non-
current assets. Deferred tax liabilities were recorded in the period ended
December 31, 2002 to reflect the net tax effect of assets that have a book basis
in excess of their tax basis.

NOTE 9.	MINORITY INTEREST

Minority interest of approximately $30.0 million is recorded on the
consolidated balance sheet in order to reflect the share of MOD III, Inc. held
by minority investors. The minority interest share represents their entitlement
to receive an aggregate liquidation preference of the first $30.0 million plus
any accrued but unpaid dividends on the MOD III, Inc. Series A preferred stock
from the net proceeds from the sale of the MOD III, Inc. assets currently held
for sale. The Company will be entitled to recoup from the net proceeds of any
sale all costs it has or will incur to sell the facility or to maintain the
facility in saleable condition subsequent to its closure and prior to transfer
of title to a buyer.  As of September 30, 2003, the Company has expensed a total
of approximately $1.0 million in order to maintain the facility in saleable
condition.  In the event the MOD III assets are sold for less than $30 million,
or external factors indicate that the MOD III assets have a fair value less than
$30 million, the Company will recognize an impairment charge.

NOTE 10.  	NET INCOME (LOSS) PER SHARE

The following table presents the calculation of basic and diluted net income
(loss) per share of common stock (in millions, except per share data):

`Successor Company
                                           ------------------------------------------------
                                              Three        Three        Nine        Five
                                              Months       Months      Months      Months
                                              Ended        Ended        Ended      Ended
                                             Sep. 30,     Sep. 30,    Sep. 30,    Sep. 30,
                                               2003         2002        2003        2002
                                           ------------ ------------ ----------- ----------
Net income (loss).........................       ($2.0)        $0.2       ($6.9)    ($23.1)
                                           ============ ============ =========== ==========
Weighted-average shares
   outstanding............................        29.1         29.9        29.2       29.7
Less: Weighted-average shares
   subject to repurchase..................         0.5          1.2         0.6        1.1
                                           ------------ ------------ ----------- ----------
Weighted-average shares used in
   computing basic and diluted
   net income (loss) per share............        28.6         28.7        28.6       28.6
                                           ============ ============ =========== ==========
Basic and diluted net income
   (loss) per share.......................      ($0.07)       $0.01      ($0.24)    ($0.81)
                                           ============ ============ =========== ==========`

At September 30, 2003 and 2002, options to purchase approximately 2.6 million
and 1.9 million shares of common stock, respectively, were excluded from the
determination of diluted net income (loss) per share, as the effect of such
options were anti-dilutive. As of September 30, 2003, the weighted average
exercise price of the options was $2.74. As of September 30, 2002, the weighted
average exercise price of the options was $2.76. At September 30, 2003, there
were 29,090,045 million shares of common stock issued and outstanding.

NOTE 11.  STOCK AND STOCK REPURCHASES

On April 17, 2003, the Company's Board of Directors approved a stock
repurchase plan under which the Company may repurchase up to one million shares
of its outstanding common stock.

The Company generally has the right of first refusal to repurchase common
shares of common stock issued under the Company's stock plan to certain
employees, former employees and contractors.   The Company's right of first
refusal generally may be exercised when such shares are offered for sale or upon
termination from employment.

The Company's common stock trades on the OTC bulletin board with a ticker
symbol of ZILG. Purchases under the program may be made, from time-to-time, in
the open market, through block trades or otherwise. Depending upon market
conditions and other factors, purchases under the stock repurchase plan may be
commenced or suspended at any time or from time-to-time without prior notice by
the Company.

On May 1, 2003, the Company repurchased on the open market 250,000 shares of
its common stock at $2.00 per share, which resulted in a net cash outlay of $0.5
million. On May 30, 2003, ZiLOG's Board of Directors approved the repurchase of
100,000 shares of common stock from ZiLOG's President, Michael Burger, at the
closing price on that day of $3.25 per share.  Mr. Burger continues to own
400,000 shares of restricted common stock.  The net cash paid to repurchase
these 350,000 shares was approximately $664,000, which is net of certain loan
repayments made to the Company by Mr. Burger. As of      September 30, 2003,
under the stock repurchase plan, the Company repurchased an additional 341,500
shares of restricted common stock from former employees for approximately
$485,000, which is net of certain loan repayments made to the Company by these
former employees. In connection with the above repurchases of shares from
employees and former employees, the Company retired approximately $623,000 of
employee loans receivable. Additionally, during the third quarter, the Company
repurchased 8,827 shares of common stock from employee stock option exercises
for approximately $34,000. All of these shares are reflected in the financial
statements of the Company as treasury stock as of September 30, 2003.  There
were no repurchases of common stock over the nine-month period ending September
30, 2002.

The Company granted 229,418 shares of common stock issuable upon exercise of
stock options to Mr. Thorburn on April 24, 2003 at an exercise price of $1.00
per share and vested May 13, 2003.  On April 24, 2003, the compensation
committee of the Board of Directors cancelled the grant of 176,465 shares of
restricted stock to which Mr. Thorburn, the Company's Chief Executive Officer,
would have been entitled in accordance with his employment agreement.  These
shares were to be fully vested on May 13, 2003 and have a purchase price of
$0.01 per share.  Additionally, Mr. Thorburn's employment agreement also
provides for a loan guarantee to finance the tax implications of the share
issuance.  This arrangement is no longer permitted pursuant to the Sarbanes-
Oxley Act of 2002 and this necessitated a change from restricted shares to stock
options.

NOTE 12.  SUBSEQUENT EVENT

The Company renewed its lease in the 54,000 square foot facility in the
Philippines. The original lease was due to expire March 31, 2004. The new lease
runs through March 31, 2009. The base annual rent and a security deposit of six
months rent for approximately $0.5 million was paid in October 2003. A majority
of the Company's final test, inventory warehousing and logistics resides at this
facility. Future commitments under this new lease are as follows:

`Year
                                                Ending
                                               Dec. 31,        $
                                             ------------ -----------
                                                 2004            0.3
                                                 2005            0.3
                                                 2006            0.4
                                                 2007            0.4
                                                 2008            0.5
                                                Beyond           0.1`

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

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" and in other sections of
this annual report.

Overview

The following is management's discussion and analysis of financial
condition and results of operations of the Company and its subsidiaries for the
nine-month and three-month periods ended September 30, 2003 and 2002.  This
discussion and analysis should be read in conjunction with the section entitled
the condensed consolidated financial statements and notes thereto included
elsewhere herein and the Company's 2002 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.

We prepare and release quarterly unaudited financial statements prepared in
accordance with generally accepted accounting principles or GAAP. We also
disclose and discuss EBITDA as a measure of liquidity herein and in our investor
conference calls. We believe the disclosure of such information helps investors
more meaningfully evaluate the results of our liquidity.  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, compare GAAP financial information with the pro
forma financial information disclosed in our quarterly earnings releases and
investor calls, and read the associated reconciliations.

A black line has been drawn in the accompanying financial statements to
distinguish, for accounting purposes, between the Successor Company and the
Predecessor Company.  The Company's results of operations after April 30,
2002 and the consolidated balance sheets at December 31, 2002 and September 30,
2003 are not comparable to the results of operations prior to April 30,
2002 and historical balance sheets prior to April 30, 2002, due to the adoption
of "fresh-start" reporting upon emergence from bankruptcy.  However,
such differences in the results of operations relate to depreciation of
property, plant and equipment, amortization of intangible assets, in-process
research and development, interest expense and restructuring and reorganization
expenses.  Additionally, these differences in the balance sheets relate to
inventories, property, plant and equipment, intangible assets, conversion of
senior notes into common stock and minority interest.  Certain figures, such as
net sales and certain expenses, were not affected by the adoption of fresh-start
accounting and, accordingly, the Company believes them to be comparable.
Details of the events associated with the May 2002 reorganization are included
in the Company's 2002 Annual Report on Form 10-K.

Our interim results are based on fiscal quarters of thirteen weeks in
duration ending on the last Sunday of each calendar quarter.  However, for ease
of reading our financial reports, we have labeled our interim fiscal periods as
ending on calendar month-end.  The operating results for any interim period are
not necessarily indicative of results for any subsequent period or the full
fiscal year, which ends on December 31 of each year.

2002 Financial Restructuring and Reorganization

Prior to February 1998, our common stock had been publicly traded on the
New York Stock Exchange under the symbol "ZLG."  On
February 27, 1998, we consummated a merger with an affiliate of Texas
Pacific Group, and in connection with that transaction, we issued $280.0 million
of registered senior secured notes and we ceased having publicly traded equity.
Since 2000, our business and financial growth had been negatively affected by
the extremely difficult business climate in which we have been operating.  We
explored a number of strategic alternatives with the assistance of our financial
advisor, Lazard Frères & Co., LLC, and an informal group of holders
of our senior notes. During the course of discussions, we concluded that the
best vehicle to achieve a restructuring of our senior notes was through
consummation of a voluntary pre-packaged plan of reorganization under Chapter 11
of the United States Bankruptcy Code.

On February 28, 2002, we and our subsidiary, ZiLOG-MOD III, Inc., (MOD III,
Inc.), filed voluntary petitions with the United States Bankruptcy Court for the
Northern District of California for reorganization under Chapter 11.  The
bankruptcy court subsequently confirmed MOD III, Inc.'s and our joint
reorganization plan by its order entered on April 30, 2002.  The joint plan
of reorganization became effective on May 13, 2002, although for financial
reporting purposes we use May 1, 2002 as the date of emergence from bankruptcy.
We refer to the company prior to emergence from bankruptcy as the
"Predecessor Company" and to the reorganized company as the
"Successor Company."

Pursuant to the joint reorganization plan, $325.7 million of liabilities were
extinguished, which included $280.0 million principal amount of our 9.5% Senior
Secured Notes due 2005, $27.2 million in accrued interest due on the notes and
$18.5 million of dividends payable on our former series A preferred stock.  The
former noteholders received substantially all of our new common stock and a
liquidation preference in the net proceeds on the sale of the assets held by MOD
III, Inc.  The Predecessor Company's equity holders received an aggregate
$200,000 in cash.  All debt and equity securities of the Predecessor Company
were cancelled.  As a consequence of these events, the Predecessor Company
recorded a $205.7 million net gain on discharge of debt.

On May 1, 2002, we adopted "fresh-start" reporting prescribed by
the American Institute of Certified Public Accountant's Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," or SOP 90-7.  Fresh-start reporting was appropriate
because our former noteholders received substantially all of our new common
stock and the reorganization value of the assets of the Successor Company were
less than the total pre-petition liabilities plus post-petition liabilities.

Critical Accounting Policies

We believe our critical accounting policies are as follows:

- fresh-start reporting;
- estimating sales returns and allowances;
- estimating allowance for doubtful accounts;
- estimating write-downs of excess and obsolete inventories; and
- asset impairments.

On an ongoing basis, we evaluate our estimates, including those related to
sales returns, allowance for doubtful accounts, inventory write-downs and asset
impairments.  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.  A brief description of each
of these policies is set forth below.

Fresh-Start Reporting.  Upon emerging from Chapter 11
proceedings, we adopted fresh-start reporting in accordance with SOP 90-7.
Accordingly, for financial reporting purposes, we valued our assets and
liabilities at fair value. With the assistance of our independent financial
advisor, Lazard Freres & Co., LLC, and in reliance upon various valuation
methods, and other applicable ratios and economic industry information relevant
to our industry and through negotiations with various creditor parties in
interest, we estimated our equity value to be $90.0 million. This estimate of
equity value was derived from a weighted average of three valuations results
based on comparable public company, precedent transaction and discounted cash
flow analyses. For the purposes of the comparable public company analysis,
Lazard analyzed the trading multiples of numerous public companies in the
semiconductor industry, including Semtech, Globespan and Zarlink (formerly
Mitel), amongt others. The comparable public company analysis yielded a
valuation range of $70 - $87 million; Lazard weighted this analysis 35% in its
estimated valuation. The precedent transaction analysis yielded a valuation
range of $88 - $109 million; Lazard weighted this analysis 30% in its estimated
valuation. The discounted cash flow analysis yielded a valuation range of $82 -
$106 million; Lazard weighted this analysis 35% in its estimated valuation.
These valuations were based on the underlying assumptions and limitations set
forth in their report. These assumptions include: the successful reorganization
of our business and finances in a timely manner; the implementation of our
business plan as a reorganized entity; the accuracy of information supplied by
management about our business and our prospects; achievement of forecasted
projections; market conditions as of December 31, 2001 continuing through an
assumed effective date of March 31, 2002; and the plan of reorganization
becoming effective in accordance with the estimates and assumptions upon which
the valuation was based. 
In connection with the overall revaluation of the company, described above, we
recorded increases in the carrying value of our assets of $83.7 million to
reflect the fair value of those assets under SOP 90-7. These increases in the
carrying value of our intangible assets were based on three valuation
approaches, depending on the specific intangible asset to be valued: the income
approach, the cost approach and the market approach. These increases in carrying
value of our tangible assets were based on physical inspections and written
appraisals that included market data and cost approaches. Results would have
varied under different assumptions or conditions.

Estimating Sales Returns and Allowances.  Our net sales from
OEM customers consist of gross product sales reduced by expected future sales
returns and allowances.  To estimate sales returns and price allowances, we
analyze historical returns and allowance activity to establish a baseline
reserve level.  Then we evaluate whether there are any underlying product
quality or other customer-specific issues that require additional specific
reserves above the baseline level.  Because the reserve for sales returns and
allowances is based on our judgments and estimates, our reserves may not be
adequate to cover actual sales returns and other allowances.  If our reserves
are not adequate, our net revenues and accounts receivable could be adversely
affected.

Allowance for Doubtful Accounts.  We maintain an allowance for
losses we may incur as a result of our customers' inability to make required
payments.  Any increase in the allowance results in a corresponding increase in
our selling, general and administrative expenses.  In establishing this
allowance, and then evaluating the adequacy of the allowance for doubtful
accounts, we consider the aging of our accounts receivable, historical bad
debts, customer concentrations and customer credit-worthiness, and, to a lesser
extent, current economic trends and changes in our customer payment terms.
Historically, we have not experienced material bad debt write-offs.  If the
financial condition of one or more of our customers unexpectedly deteriorated,
resulting in their inability to make payments, or if we otherwise underestimate
the losses we incur as a result of our customers' inability to pay us, we could
be required to increase our allowance for doubtful accounts which could
adversely affect our operating results.

Estimating Write-Downs of Excess and Obsolete Inventories.
Each inventory component is assessed for excess or obsolescence by using an
algorithm that we established.  This algorithm is based on historical trends,
demand forecasts and inventory age.  We review the result of this algorithm and
generally write-off all work-in-process inventory more than one year old and
finished goods inventory quantities in excess of our current backlog.  Write-
offs of excess and obsolete inventories are reflected as a reduction to
inventory values in the accompanying consolidated balance sheets and an increase
in cost of sales.  If actual market conditions or customer demand patterns are
less favorable than or inconsistent with our assumptions, we may be required to
take further write-downs of our inventory value, which could adversely impact
our cost of sales and operating results.

Asset Impairments.  We apply the provisions of Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."  We
assess the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.  Factors
we consider important which could trigger an impairment review include the
following:

- significant changes in the manner of our use of the acquired assets;
- significant changes in the strategy for our overall business; and
- significant negative industry or economic trends.

When we determine that the carrying value of long-lived assets may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, and the undiscounted cash flows estimated to be generated by those
assets are less than the asset's carrying value, the carrying value of the
assets are reduced to their estimated fair value.  The estimated fair value is
usually determined based on an estimate of future discounted cash flows.  Asset
impairments are recorded as a reduction in the asset value in our consolidated
balance sheets and as special charges in our consolidated statements of
operations.

The intangible assets created by the adoption of fresh-start accounting on
our emergence from bankruptcy consist of existing technology, brand name as well
as excess enterprise value, or goodwill.  The existing technology and brand name
are being amortized based on a pattern-of-use method in proportion to the
discounted cash flows from such assets.  The goodwill is not subject to
amortization, but is tested for impairment at least annually, as required by FAS
142.

We evaluate the existing technology and brand name at each reporting period
to determine whether events and circumstances continue to support the current
carrying value as well as the remaining useful life.  Additionally, goodwill is
tested for impairment at least annually and more often if events and
circumstances indicate that its fair value may be less than its carrying value.
We performed the annual impairment test for goodwill in the third quarter of
2003, and no impairment charge was recorded as no impairment of the carrying
value was indicated. We plan to perform this test in the third quarter each year
unless the existence of triggering events indicates that an earlier review
should be performed.

Adjustments to record impairment of long-lived assets or intangible assets
could have a material adverse impact on our financial condition and results of
operations in the period or periods in which such impairment is identified.

Reporting Segments

Beginning in May 2002, we consolidated our business segments into one
reportable segment to reflect the manner in which our chief operating decision-
maker allocates resources and assesses the performance of our business.

Period Comparisons

Our results of operations after April 30, 2002 and our consolidated
balance sheets at December 31, 2002 and September 30, 2003 are not comparable to
the results of operations prior to April 30, 2002 and the historical
balance sheet at December 31, 2001, due to our adoption of "fresh-
start" reporting upon our emergence from bankruptcy.  However, such
differences in our results of operations relate to depreciation of property,
plant and equipment, amortization of intangible assets, in-process research and
development, interest expense and restructuring and reorganization expenses.
Additionally, these differences in our balance sheets relate to inventory,
property, plant and equipment, intangible assets, conversion of senior notes to
common stock and minority interest.  Certain figures, such as net sales and
certain expenses, were not affected by our adoption of fresh-start accounting
and, accordingly, we believe them to be comparable.  To provide a more
meaningful analysis, in the following discussion we have compared results of our
successor company's operations for the three and nine months ended September 30,
2003 to the predecessor and successor company's results for the three and nine
months ended September 30, 2002.  The combined results are not meant to be a
presentation in accordance with generally accepted accounting principles.

Results of Operations

Our net sales by region, by channel, and by business line are summarized
in dollars and as a percentage of total net sales for each period indicated, as
follows (in millions):

`Predecessor
                                                  Successor Company       Successor Company      Company
                                             ------------------------ ------------------------ -----------
                                                Three        Three       Nine         Five        Four
                                                Months      Months       Month       Months       Month
                                                Ended        Ended       Ended       Ended        Ended
                                               Sep. 30,    Sep. 30,    Sep. 30,     Sep. 30,    April 30,
                                                 2003        2002        2003         2002        2002
                                             ------------ ----------- ----------- ------------ -----------
Net sales by region:
Americas....................................       $15.6       $21.8       $43.8        $38.7       $25.2
Asia........................................         7.3        10.4        23.2         18.4        13.8
Europe......................................         3.1         3.8         9.9          7.0         7.0
                                             ------------ ----------- ----------- ------------ -----------
   Total by region..........................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========

Net sales by channel:
OEM.........................................       $14.5       $21.3       $40.6        $36.9       $25.8
Distributor.................................        11.5        14.7        36.3         27.2        20.2
                                             ------------ ----------- ----------- ------------ -----------
   Total by channel.........................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========

Net sales by busines line:
   Embedded control products
   8-bit Microcontrollers
        and Microprocessors.................       $15.8       $22.5       $48.9        $41.5       $29.1
                                             ------------ ----------- ----------- ------------ -----------
        Total...............................       $15.8       $22.5       $48.9        $41.5       $29.1
                                             ------------ ----------- ----------- ------------ -----------
   Standared products
     Serial Communications
       Controllers..........................        $3.9        $3.6       $10.4         $6.7        $5.0
     Modems.................................         1.3         2.4         2.3          5.0         4.7
     IrDA transceivers......................         0.7         0.6         1.8          1.3         0.5
     Televesion, PC peripherals and other...         1.1         2.6         4.0          4.9         5.8
     Foundry services.......................         3.2         4.3         9.5          4.7         0.9
                                             ------------ ----------- ----------- ------------ -----------
        Total...............................       $10.2       $13.5       $28.0        $22.6       $16.9
                                             ------------ ----------- ----------- ------------ -----------
   Total by business line...................       $26.0       $36.0       $76.9        $64.1       $46.0
                                             ============ =========== =========== ============ ===========`

During the past two years, we have implemented a series of business
restructuring programs aimed at refocusing the Company on our core 8-bit
micrologic product portfolio.  In connection with these actions, we have
eliminated a significant amount of fixed costs from our business operations.
Additionally, pursuant to our plan of reorganization, which became effective on
May 13, 2002, we extinguished the entire $280.0 in million principal value of
our 9.5% Senior Secured Notes due 2005, which had required us to pay semiannual
interest payments of $13.3 million each March 15 and September 15.

Nine-Month Periods Ended September 30, 2003 and September 30, 2002

Net Sales.  Beginning in 2000 we experienced a trend of reduced
demand for many of our products that has in certain market areas continued
through the first nine months of 2003.  During this time, we have refocused our
business on our core 8-bit micrologic portfolio of embedded control products and
de-emphasized certain product offerings in our standard products area.

Our net sales of $76.9 million in the first nine months of 2003 represents a
decrease of 30.2% from net sales of $110.1 million in the first nine months of
2002. This decrease in net sales reflects lower unit shipments in both our
embedded control and standard products.  Our net sales decline during the first
nine months of 2003 compared to the same period in 2002 reflects overall lower
market demand as well as continued conversion of our older Z80 microprocessors
and Z8 microcontrollers to alternative technologies, primarily microcontrollers
with embedded flash technology.  In November 2002 and February 2003 we released
our new Z8 Encore!® and eZ80Acclaim!TM products that are focussed on
the embedded flash market, with a strategy of recapturing sales to these
customers and entering new markets.   Although we have experienced significant
customer interest in our new Z8 Encore!® and eZ80Acclaim!TM products
and related design tool-kits,  we do not expect significant volume shipments of
these products during 2003.

Net sales of our standard products for the nine months ended September 30,
2003 decreased $11.5 million or 29.1% to $28.0 million from $39.5 million in the
same period of 2002.  This decrease reflects:

- a $7.4 million decrease in net sales of modem products, primarily
reflecting technology migration by our  largest modem OEM customer from a
hardware-driven solution to an internally developed software-operated modem.
This customer accounted for $7.0 million of sales in 2002.  We expect minimal
net sales from this customer with respect to modems in 2003; and

- a $6.6 million decrease in net sales of our television and peripheral
products offset by a $3.9 million increase in our Mod II wafer foundry business.
The TV and peripheral products were de-emphasized prior to 2001 and have
continued a steady decline as customers have migrated to alternative solutions.
Despite the increase in our foundry sales during the nine month period of 2003
compared to 2002, we are not investing in this business and we expect foundry
sales to decline in the future.

Gross Margin.  Our cost of sales primarily represents the cost
of producing our products, including wafer fabrication, assembly and test
expenditures. 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 increased
to 45.5% in the first nine months of 2003, up from 40.7% in the same period of
2002. This improvement in our gross margin percentage during 2003 reflects a
$3.9 million charge for amortization of fresh-start reporting inventory
adjustments during the first nine months of 2002. (See Note 3, "Fresh-Start
Reporting," on Notes to Consolidated Financial Statements in our 2002
Annual Report filed on Form 10-K.)  Although our "gross margin as
adjusted" is a non-GAAP measure, we believe it is meaningful to investors
as excluding the bankruptcy-related inventory adjustment provides a more
accurate reflection of comparable performance. Exclusive of this one-time
amortization charge, our gross margin as adjusted was 44.2% of net sales for the
nine months ended September 30, 2002.  Lower revenue have resulted in lower
wafer production needs, although for the nine months ended September 30, 2003 we
have improved our gross margin compared to the same period in 2002. The improved
margin is a result of lower manufacturing costs driven by improved yields,
production efficiencies and lower vendor pricing.  We have continued to
rationalize our manufacturing cost structure in response to these lower demand
requirements including a reduction in force of approximately 55 positions in our
5" MOD II Nampa, Idaho facility in February 2003, and approximately 30
positions in our assembly plant in the Philippines in September 2003.  We
purchase our wafer requirements for 0.35-micron technologies from our foundry
suppliers primarily in Taiwan including our new embedded flash-based Z8
Encore!® and eZ80Acclaim!TM products.

Research and Development Expenses.  Research and development
expenses were $13.1 million in the first nine months of 2003, reflecting a 7.1%
decrease from the $14.1 million of research and development expenses reported in
the first nine months of 2002.  The decrease in research and development expense
primarily reflects lower payroll-related costs as a result of headcount
reductions, reflecting the closure, in 2002, of  our Austin, Texas design center
and the related termination of all product development activities in connection
with our development-stage CarteZian line of 32-bit microprocessors.  Our
R&D efforts during 2003 have been and will continue to be primarily directed
towards development of core micrologic products and tool support, particularly
for our Z8 Encore!® and eZ80Acclaim!TM families of 8-bit embedded-flash
microcontrollers.



Selling, General and Administrative Expenses.  Selling, general
and administrative expenses decreased to $20.4 million in the first nine months
of 2003 from $26.2 million in the first nine months of 2002.  The decrease in
our selling, general and administrative spending in the first nine months of
2003 reflects lower payroll-related costs as a result of lower headcount, a
decline of stock-based compensation expense, reduced sales commissions and
elimination of bonus compensation as a result of lower sales levels.

Special Charges.  Special charges for each period indicated
were as follows (in millions):

`Three Months Ended          Nine Months Ended
                                             ------------------------ ------------------------
                                               Sep. 30,    Sep. 30,    Sep. 30,     Sep. 30,
                                                 2003        2002        2003         2002
                                             ------------ ----------- ----------- ------------
Asset impairments:
   Austin, Texas assets.....................     $   --       $   --      $   --         $1.7
   Internal use software....................         --           --          --          0.8
   Nampa, Idaho assets......................         --           --         0.2          --
   Goodwill write-offs......................         --           --          --          0.2
   Equity investment write-down.............         0.2          --         0.2          --
Restructuring of operations:
   Employee severance and
      termination benefits..................         0.6          --         1.3          1.2
   MOD III closure costs....................         0.4         0.3         1.0          2.9
   Lease termination costs..................         --           --          --          0.7
Professional fees for debt
   restructuring and S-1 filings............         0.1         0.5         0.5          4.6
                                             ------------ ----------- ----------- ------------
                                                    $1.3        $0.8        $3.2        $12.1
                                             ============ =========== =========== ============
------------------------
Note: The period ended September 30, 2002 reflects combined results of the Predecessor and the
      Successor Company. The three-months ended September 30, 2003 and 2002, and the nine-month
      period ended September 30, 2003, reflect only the results of the Successor Company.`

The following table summarizes activity in accrued special charges (in
millions):

`Severance
                                                        and       MOD III       Debt
                                                    Termination   Closure   Restructur-
                                          Total      Benefits      Costs        ing
                                       ------------ ----------- ----------- ------------
    Balance at December 31, 2002......        $0.6        $0.5        $0.1       $ --
    Total charged to special
       charges........................         2.8         1.3         1.0          0.5
    Cash paid.........................        (2.9)       (1.5)       (1.1)        (0.3)
                                       ------------ ----------- ----------- ------------
    Balance at September 30, 2003.....        $0.5        $0.3       $ --          $0.2
                                       ============ =========== =========== ============`

During the nine months ended September 30, 2003, special charges totaled $3.2
million, which was comprised of $2.3 million of restructuring of operations
expenses, long-lived asset impairments of $0.2 million, and equity investment
impairment of $0.2 million and professional fees of $0.5 million in connection
with the registration of common stock required by our reorganization plan.  The
restructuring of operations relates to severance and benefit costs in connection
with the reduction of a total of approximately 86 positions that were eliminated
in our MOD II wafer fabrication facility and our Philippine assembly plant, and,
the ongoing costs of maintaining our MOD III facility which is being held for
sale.

In connection with the closure of our Austin, Texas design center in the
first nine months of 2002, we abandoned furniture, fixtures and equipment with a
book value of approximately $1.7 million.  Also in connection with this action
and the streamlining of our sales force, we paid severance and termination
benefits of approximately $1.2 million.  Approximately $0.8 million of
computer aided design software was impaired in the first nine months of 2002 as
a result of our decision to cancel development of the CarteZian family of 32-bit
RISC microprocessors.  Additionally, we incurred $2.9 million of special charges
during the first nine months of 2002 in connection with the closure of our MOD
III eight-inch wafer fabrication facility in Idaho as well as $0.7 million
of lease termination costs related to the closure and relocation of certain
sales offices.  These costs include relocation of production to alternative
manufacturing sites and the cost of closing of the facilities. Chapter 11
reorganization-related costs of $4.6 million for the nine months ended
September 30, 2002 relate primarily to legal and other professional service
fees.  In addition $0.2 million of unamortized goodwill relating to our 2000
acquisition of PLC Corporation was deemed to be of no future value and was
written off during the nine months ended September 30, 2002.

Stock-Based Compensation.  During the nine-month periods ended
September 30, 2003 and 2002, we recognized $1.2 and $2.6 million of stock-based
compensation, respectively, in connection with the award of restricted stock and
stock options to certain executives, employees and consultants.  These non-cash
charges are primarily included in our selling, general and administrative
expenses.  Our right to repurchase shares of restricted stock for $0.01 per
share generally lapses 25% on the award date and 25% on each of the first three
anniversaries following the award date.  Compensation expense for employee stock
awards was measured on the award date and will be recognized over each of the
next three years as these restrictions lapse.  Charges for stock awards to
consultants is measured as the awards vest and will be recognized over the
periods that the restrictions lapse.  Based on the employee stock and option
awards we made during May 2002, we anticipate that we will recognize stock
compensation charges of $1.6 million, $1.4 million and $0.7 million for the
years ending December 31, 2003 through 2005, respectively

In-Process Research and Development.  During the first nine
months of 2002, we recorded an $18.7 million charge for in-process research and
development relating to our fair value allocation of the Company's
reorganization value determined by an independent appraiser.  The projects
related to the research and development (partially developed semiconductor
product designs), had not reached technological feasibility as of the effective
date of our reorganization and have no alternative future use.  The nature of
efforts required to develop the in-process technology into commercially viable
products primarily relates to completion of design, prototyping and testing to
ensure the products can be produced to meet customer design specifications,
including functions, features and performance requirements.  There can be no
assurance that these products will ever achieve commercial success.

Factors considered in valuing in-process research and development included
the stage of development of each project, target markets and associated risks of
achieving technological feasibility and market acceptance of the products.  The
value of the in-process technology was determined by estimating the projected
net cash flows after deducting the costs to complete the projects arising from
commercialization of the products over periods ranging from four to six years.
These cash flows were then discounted to their net present value using a
discount rate of 25%.  The estimated stage of completion was applied to the net
present value of future discounted cash flows to arrive at the in-process
research and development amount that was immediately expensed subsequent to the
adoption of fresh-start reporting.

Amortization of Intangible Assets.  Effective January 1, 2002,
we adopted the provisions of FASB Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142").  Under FAS 142,
goodwill and intangible assets with indefinite lives are not amortized, but are
reviewed annually or more frequently if impairment indicators arise.  Separable
intangible assets that are deemed to have defined lives will continue to be
amortized over their useful lives (but with no maximum life).  Intangible assets
acquired prior to July 1, 2001 were being amortized on a straight-line basis
over lives ranging from three to five years.  In connection with the Company's
fresh-start reporting, separable intangible assets based on independent
valuations were created with deemed defined 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.  We
evaluate the existing technology and brand name at each reporting period to
determine whether events and circumstances continue to support the current
carrying value as well as the remaining useful life.  Additionally, goodwill is
tested for impairment at least annually and more often if events and
circumstances indicate that its fair value may be less than its carrying value.
We performed the annual impairment test for goodwill in the third quarter of
2003, and no impairment change was recorded as no impairment of the carrying
value was indicated. We plan to perform this test in the third quarter each year
unless the existence of triggering events indicates that an earlier review
should be performed.

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

`Current       Brand
                                        Technology     Name        Total
                                       ------------ ----------- -----------
Gross carrying amount.................       $17.0        $9.2       $26.2
Accumulated amortization..............        11.0         2.0        13.0
                                       ------------ ----------- -----------
Book value at September 30, 2003......        $6.0        $7.2       $13.2
                                       ============ =========== ===========`

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

`Current      Brand       Total
                                           Year     Technology      Name    Amortization
                                       ------------ ----------- ----------- ------------
                                       October to Dec-
                                        ember 2003        $1.3        $0.4         $1.7
                                           2004            2.9         1.3          4.2
                                           2005            1.1         1.1          2.2
                                           2006            0.4         1.0          1.4
                                           2007            0.2         0.8          1.0
                                        Thereafter         0.1         2.6          2.7
                                                    ----------- ----------- ------------
                                          Total           $6.0        $7.2        $13.2
                                                    =========== =========== ============`

Other Income (Expense).  During the nine-month period ended
September 30, 2002, our other income and expense was primarily comprised of
$205.7 million of net gain on discharge of debt and $83.7 million of fresh-start
adjustments.

Pursuant to the 2002 financial restructuring and reorganization, we filed
voluntary petitions with the United States Bankruptcy Court for the Northern
District of California for reorganization under chapter 11.  The bankruptcy
court subsequently confirmed the reorganization plan, which became effective on
May 13, 2002. We refer to the company prior to emergence from bankruptcy as the
"Predecessor Company" and to the reorganized company as the
"Successor Company."  Pursuant to our reorganization plan, we
extinguished $325.7 million of liabilities, which included $280.0 million
principal amount of our 9.5% Senior Secured Notes due 2005, $27.2 million in
accrued interest due on the notes and $18.5 million of dividends payable on our
former series A preferred stock.  These debts were offset by the $30.0 million
of minority interest in MOD III, Inc. assets, acquired by the former
bondholders, and $90.0 million of reorganization equity value. As a consequence
of these events, the Predecessor Company recorded a $205.7 million net gain on
discharge of debt.

On May 1, 2002, we adopted "fresh-start" accounting principles
prescribed by the American Institute of Certified Public Accountants' Statement
of Position 90-7, " Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code," or SOP 90-7.  As a result, we recorded a gain of
$83.7 million in the Predecessor Company's financial statements, consisting of
the effect of fresh-start adjustments of $66.7 million and the revaluation of
fixed and tangible assets to fair value of $17.0 million.

Interest Expense.  During the nine-month period ended September 30,
2002, our interest expense was primarily accrued in connection with our 9.5%
senior secured notes payable, which notes and related accrued interest were
extinguished in connection with our reorganization effective May 13, 2002.

Income Taxes.   Our provision for income taxes during the nine-
month periods ended September 30, 2003 and 2002 reflects the estimated income
tax rate for the year, including foreign income taxes for the jurisdictions in
which our business was profitable as well as foreign withholding taxes and state
minimum taxes.  In connection with the May, 2002 Reorganization Plan, the
subsequent cancellation of debt and issuance of new common shares to primarily
new stockholders, we generated significant income for book and tax purposes.
This taxable income was offset by the use of all available net operating losses,
both current and carryforward, with remaining taxable income offset by the
reduction in tax attributes of certain of our non-current assets. Deferred tax
liabilities were recorded in the period ended December 31, 2002 to reflect the
net tax effect of our assets that have a book basis in excess of their tax
basis.

Three Month Periods Ended September 30, 2003 and September 30, 2002

Net Sales.  Overall, our net sales during the three months ended
September 30, 2003 were $26.0 million, which represents a 27.8% decline from our
net sales of $36.0 million during the same period of 2002. This decrease in net
sales is the result of lower unit shipments in both our embedded control and
standard product offerings.  Our quarterly net sales decline reflects the
overall lower market demand as well as continued conversion of our older Z80 and
Z8 micrologic products to alternative technologies, primarily microcontrollers
with embedded flash technology.  In November 2002 and February 2003 we released
our new Z8 Encore!® and eZ80Acclaim!TM products that are focused on the
embedded flash market, with a strategy of recapturing sales to these customers
and entering new markets.  Although we have experienced significant customer
interest in our new Z8 Encore!® and eZ80AcclaimTM products and related
design tool-kits,  we do not expect volume shipments of these products during
2003.

Net sales of our standard products for the three months ended September 30,
2003 were $10.2 million, reflecting a $3.3 million or 24.4% decline from net
sales of $13.5 million in the same period of 2002.  This decrease reflects:

- a $1.1 million decrease in net sales of modem products, primarily reflecting
technology migration by our largest modem OEM customer from a hardware driven
solution to an internally developed software operated modem. This customer
accounted for $7.0 million of sales in 2002. We expect minimal net sales from
this customer with respect to modems in 2003; and

- a $2.6 million decrease in net sales of our  television, peripheral products
and wafer foundry business. The TV and peripheral products were de-emphasized
prior to 2001 and have continued a steady decline as customers have migrated to
alternative solutions.  We also expect further sales declines in our foundry
business.

Gross Margin.  Our gross margin as a percentage of net sales
increased to 48.8% in the third quarter of 2003 as compared to 44.7% in the same
period of 2002.  The increase in our gross margin as a percentage of sales for
the three months ended September 30, 2003 as compared to the same period in
2002, reflects our continued rationalization of our manufacturing cost structure
including our 5" MOD II Nampa, Idaho facility and our test facility in the
Philippines.  We continue to purchase our wafer requirements for 0.35-micron
wafer technologies from our foundry suppliers primarily in Taiwan, including our
new embedded flash-based Z8 Encore!® and eZ80Acclaim!TM products.

Research and Development Expenses.  Research and development
expenses were $4.5 million in the third quarter of 2003 and $4.1 million in the
third quarter of 2002. Our R&D efforts during 2003 have been and will
continue to be primarily directed towards development of products and tool
support for our Z8 Encore!® and eZ80Acclaim!TM families of 8-bit
embedded-flash microcontrollers.

Selling, General and Administrative Expenses.  Selling, general
and administrative expenses decreased to $7.2 million in the third quarter of
2003, reflecting a 12.2% decrease from the $8.2 million in the third quarter of
2002.  This decrease in our selling, general and administrative spending in the
third quarter of 2003 reflects lower payroll-related costs as a result of lower
headcount, a decline of stock-based compensation expenses, reduced sales
commissions and elimination of bonus compensation as a result of lower sales
levels compared to the third quarter of 2002.



Special Charges. During the quarter ended September 30, 2003,
we incurred special charges $1.3 million.  Approximately $0.6 million of these
special charges related to restructuring of operations for severance and
benefits costs in connection with the reduction-in-force at our Philippine
assembly plant and contractual obligations to a former Company vice president.
Approximately $0.4 million of these special charges relate to activities
associated with maintaining the assets of our idle MOD III eight-inch wafer
fabrication facility in Idaho.  These costs included post-closure maintenance as
well as utilities, taxes, insurance and other costs required to maintain the
facility in a condition required for the sale of the property in saleable
condition.  During the three months ended September 30, 2003 we also recorded a
$0.2 million charge for impairment in the value of an equity investment and
approximately $0.1 million professional service fees for legal and accounting
services to register shares of common stock as required by our 2002 Plan of
Reorganization.

During the three months ended September 30, 2002 our special charges totaled
$0.8 million.  This amount included $0.3 million of MOD III closure costs and
professional service fees of $0.5 million in connection with our reorganization.

Amortization of Intangible Assets for the three-month periods ended September
30, 2003 and 2002, relate to our fresh-start reporting and is described in the
previous section entitled "Nine-Month Periods Ended September 30, 2003 and
September 30, 2002."

Other Income/(Expense) Net.  During the quarter ended September
30, 2002, our other income and expense was primarily comprised of miscellaneous
income from sales of scrap equipment.

Income TaxesOur provision for income taxes during the three-
month periods ended September 30, 2003 and 2002 reflects the estimated income
tax rate for the year, including foreign income taxes for the jurisdictions in
which our business was profitable as well as foreign withholding taxes and state
minimum taxes.  In connection with the May, 2002 Reorganization Plan, the
subsequent cancellation of debt and issuance of new common shares to primarily
new stockholders, we generated significant income for book and tax purposes.
This taxable income was offset by the use of all available net operating losses,
both current and carryforward, with remaining taxable income offset by the
reduction in tax attributes of certain of our non-current assets. Deferred tax
liabilities were recorded in the period ended December 31, 2002 to reflect the
net tax effect of our assets that have a book basis in excess of their tax
basis.

Liquidity and Capital Resources

As a result of the economic downturn and decline in our results of operations
that began in 2000, we became unable to continue servicing the interest on our
debt.  As described in Note 1, on February 28, 2002, we filed a voluntary
prepackaged plan of reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code.  The bankruptcy court confirmed our reorganization plan on
April 30, 2002.  The plan of reorganization became effective on May 13, 2002 and
resulted in the extinguishment of $325.7 million of liabilities.

Upon emergence from bankruptcy, we entered into a new credit facility with
the same commercial lender as our previous credit facility. The previous
revolving credit facility and capital expenditure line was cancelled. Our
current credit facility is a three-year $15.0 million senior secured revolving
line of credit facility.  Borrowings on the facility bear interest at a rate per
annum equal, at our option, to the commercial lender's stated prime rate or
LIBOR, plus 2.5%.  We have elected the LIBOR interest rate option, which bears
interest on borrowings at 3.6% per annum as of September 30, 2003.  As of
September 30, 2003, we had outstanding borrowings of $5.0 million and
standby letters of credit of $0.3 million.  Our ability to borrow under the
facility is based on a monthly borrowing base calculation that is determined as
a percentage of eligible accounts receivable.  As of September 30, 2003, our
availability for additional borrowing under the facility totaled $0.8 million.
If we were to pay the necessary fees to qualify certain foreign accounts
receivable in our borrowing base, we could theoretically borrow up to an
additional $2.1 million under our revolving credit facility as of September 30,
2003.

We are subject to certain financial covenants under this facility, including
tangible net asset balance and fixed charge coverage ratios.  Such covenants are
only tested if the total of our cash, cash equivalents and availability on the
revolving credit facility are less than $7.5 million at any month end.

At September 30, 2003, we had cash and cash equivalents of $22.0 million,
compared to $29.4 million at December 31, 2002.  Cash used by operating
activities was $2.1 million for the nine months ended September 30, 2003,
compared to $1.1 million of cash provided by operating activities in the nine
months ended September 30, 2002.

During the nine-month period ended September 30, 2003, cash used by operating
activities of $2.7 million primarily reflects our net loss of $6.9 million
offset by non-cash charges of $11.0 million. Non-cash charges include $5.1
million for amortization of fresh-start intangible assets, $4.3 million in
depreciation and other amortization charges, $0.2 million of asset impairments,
$0.2 million of equity investment impairment and stock-based compensation
expense of $1.2 million. The primary use of cash for operating activities in the
nine months ended September 30, 2003 was a result of changes in working capital
driven by:

- payout of the 2002 annual employee incentive bonuses of $3.3 million;
- payments pertaining to accrued special charges of $2.9 million; and
- reduction of accrued vacation, reflecting shut-downs and mandatory time-off
taken by employees during the nine-month period ended September 30, 2003
totaling approximately $0.7 million.

Cash provided by operating activities of $1.1 million in the nine-month
period ended September 30, 2002,  primarily reflects adjustments to the net loss
of the Successor Company of $23.1 million and the net income of the Predecessor
Company of $275.9 million by items originating from our financial restructuring
and reorganization activities.  The Successor Company net loss of $23.1 million
was adjusted for an in-process research and development charge of $18.7 million
and a fresh-start inventory charge of $3.9 million.  The Predecessor Company net
income of $275.9 million was adjusted by reductions for a net gain on discharge
of debt of $205.7 million and positive fresh-start adjustments of $83.7 million.
The nine-month period ended September 30, 2002 was further adjusted for
depreciation and amortization of $10.3 million. During the nine-month period
ended September 30, 2002, our significant use of operating cash included cash
payments for special charges of $18.3 million.

Cash used by investing activities was $1.6 million and $1.8 million for the
nine-month periods ended September 30, 2003 and 2002, respectively. Cash used by
investing activities in both the 2003 and 2002 nine-month periods reflects
capital expenditures.

Cash used by financing activities was $3.1 million and $5.8 million for the
nine-month periods ended September 30, 2003 and 2002, respectively. Cash used
for financing activities in both periods reflects repayments of borrowings under
our revolving line of credit, and payments of $1.2 million for stock purchases
during the nine-month period ended September 30, 2003.

On April 17, 2003, the Company's Board of Directors approved a stock
repurchase plan under which the Company may repurchase up to one million shares
of its outstanding common stock.

On May 1, 2003, the Company repurchased 250,000 shares at $2.00 per share. On
May 30, 2003, ZiLOG's Board of Directors approved the repurchase of 100,000
shares of common stock from ZiLOG's President, Michael Burger, at the closing
price on that day of $3.25 per share.  Mr. Burger sold these shares for personal
financial reasons and he continues to hold 400,000 shares of restricted common
stock.  The net cash paid to repurchase these 350,000 shares was approximately
$0.7 million, which is net of certain loan repayments made to the Company by Mr.
Burger. Additionally, the Company repurchased 350,327 shares of common stock
from former employees for net cash of approximately $0.5 million, which is net
of certain loan repayments made to the Company by these former employees. In
connection with the above repurchases of shares from Mr. Burger and the former
employees, the Company retired approximately $0.6 million of employee loans
receivable.  All of the shares repurchased are reflected in the accompanying
financial statements as treasury stock as of September 30, 2003.

In addition to GAAP measures of liquidity, we also use internally defined
measures of liquidity called adjusted EBITDA and EBITDA. The EBITDA figures
presented below reflect a non-GAAP measure of our liquidity.  These figures
reflect our net income (loss) adjustment for non-cash items, interest and income
taxes.  Our management uses separate "adjusted EBITDA" calculations
for purposes of determining certain employees' incentive compensation and,
subject to meeting specified adjusted EBITDA amounts, for accelerating the
vesting of EBITDA-linked stock options. This measure of adjusted EBITDA was
approved by our creditors as part of our plan of reorganization. EBITDA is
presented because the Company believes it is a measure of liquidity, which
provides its investors with better compatibility and additional insights into
its underlying operating results and cash flows.  We may not define EBITDA the
same as other companies and it should not be used to replace GAAP measures such
as cash flow from operations.

The differences between the EBITDA figures below and our adjusted EBITDA
relate to the following cash-settled reorganization and special items that are
added-back in our adjusted EBITDA computations:

- Employee retention bonuses, severance pay and termination benefits;
- Professional fees for debt restructuring;
- Lease termination costs;
- Termination and exit charges, and
- MOD III closure costs.

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

`Three Months Ended          Nine Months Ended
                                             ------------------------ ------------------------
                                               Sep. 30,    Sep. 30,    Sep. 30,     Sep. 30,
                                                 2003        2002        2003         2002
                                             ------------ ----------- ----------- ------------
Reconciliation of cash provided (used)
   by operations to EBITDA:
      Cash flow from operations.............        $1.1        $8.9       ($2.1)        $1.1
      Interest paid.........................         0.1         0.1         0.3          0.8
      Income taxes paid.....................         0.8         0.1         1.7          0.3
      Changes in operating assets and
         liabilities........................        (0.3)       (3.4)        4.5          5.4
                                             ------------ ----------- ----------- ------------
EBITDA......................................        $1.7        $5.7        $4.4         $7.6
                                             ============ =========== =========== ============
------------------------
Note: The period ended September 30, 2002 reflects combined results of the Predecessor and
      the Successor Company. Figures for the September 30, 2003 period reflect only the
      Successor Company.`

Our cash needs for 2003 include working capital and capital expenditures.  In
March 2003, we announced and completed a restructuring of our MOD II wafer
fabrication operations that resulted in the elimination of approximately 56
positions and cost approximately $0.6 million in severance benefits. In
September 2003, we also completed a further restructuring of our Philippine
assembly plant that resulted in the elimination of approximately 30 positions
and cost approximately $0.3 million in severance benefits. These actions were
intended to more closely align our production output capacity with current
customer demand.  Based on our current business outlook, we currently anticipate
that available cash and cash provided by operating activities will be adequate
to satisfy our cash requirements for at least the next twelve months.

We expect fiscal 2003 capital expenditures will total approximately $2.0
million, primarily for test equipment, building improvements and internal use
software.  Decisions related to cash requirements for investing activities are
influenced by our expected cash, provided by operations. Additionally, we used
approximately $0.5 million in cash to repurchase 250,000 shares of stock as of
September 30, 2003. Further cash may be used for stock repurchases in the future
in accordance with the program approved by the Board of Directors, although the
maximum number of shares that may be repurchased is one million.  In addition,
we used approximately $0.7 million of cash to repurchase 456,500 restricted
shares and 8,827 common shares from four current and former employees, net of
approximately $0.6 million of related employee loans receivable retired during
the nine-month period ended September 30, 2003.

Effects of Inflation and Changing Prices

We believe that inflation and/or deflation had a minimal impact on our
overall operations during the periods included in these financial
statements.

Seasonality

Sales typically increase in the second quarter and peak in the third quarter
driven by increased holiday demand from our customers in the home entertainment
and consumer products markets.  Our revenues are generally lower in the first
and fourth quarters compared to the rest of the year.  We believe that this
historical seasonal trend could be impacted by general economic conditions and
reduction in sales of our previously de-emphasized products.  Additionally,
general worldwide economic, political and regional instabilities may impact our
results of operations in any given period.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
addresses consolidation by a business of variable interest entities in which it
is the primary beneficiary.  The Interpretation is effective immediately for
certain disclosure requirements and variable interest entities created after
January 31, 2003, and will be effective in the fourth quarter of 2003 for
variable interest entities created before February 1, 2003.  The Company does
not expect the Interpretation to have a material impact on the Company's
consolidated financial statements. 
Effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003, Emerging Issues Task Force ("EITF") Issue 00-21,
"Revenue Arrangements with Multiple Deliverables," addresses the accounting, by
a vendor, for contractual arrangements in which multiple revenue-generating
activities will be performed by the vendor.  In some situations, the different
revenue-generating activities (deliverables) are sufficiently separable and
there exists sufficient evidence of fair values to account separately for the
different deliverables (that is, there are separate units of accounting).  In
other situations, some or all of the different deliverables are interrelated
closely or there is not sufficient evidence of fair value to account separately
for the different deliverables.  EITF Issue 00-21 addresses when and, if so, how
an arrangement involving multiple deliverables should be divided into separate
units of accounting.  The Company has determined that the impact from the
adoption of EITF Issue 00-21 will not have a material impact on its consolidated
financial statements.

In April 2003, the FASB issued FAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities".FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FAS 133, "Accounting for Derivative Instruments
and HedgingActivities."FAS 149 provides greater
clarification of the characteristics of a derivative instrument so that
contracts with similar characteristics will be accounted for consistently. In
general, FAS 149 is effective for contracts entered into or modified after June
30, 2003, and for hedging relationships designated after June 30, 2003.As the Company does not currently have any derivative financial instruments,
the adoption of FAS 149 did not have an impact on the Company's consolidated
financial statements.



In May 2003, the FASB issued FAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." FAS 150
clarifies the accounting for certain financial instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial position. Previously, many of those
financial instruments were classified as equity. FAS 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. As the Company does not have any of these financial instruments, the
adoption of FAS 150 did not have any impact on the Company's consolidated
financial statements.

RISK FACTORS

Risks Related to the Restructuring

On May 13, 2002 we effectuated a reorganization pursuant to a prepackaged
plan under Chapter 11 of the United States Bankruptcy Code, which does not
assure our continued success.

On February 28, 2002, we filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code.  The United States
Bankruptcy Court for the Northern District of California confirmed our
prepackaged plan of reorganization on April 30, 2002 and we emerged from
bankruptcy on May 13, 2002.  Pursuant to the financial restructuring, our
formerly publicly traded 9.5% Senior Secured Notes due 2005, accrued interest
related to such notes and all of our previously existing equity securities were
canceled.  Our completion of bankruptcy proceedings does not assure our
continued success.

Our revolving credit facility restricts our ability to take certain
actions that we may determine to be in our best interests.

In connection with our reorganization, we replaced our previous credit
facility with a three-year $15.0 million senior secured revolving credit
facility.  Borrowings under this credit facility are secured by substantially
all of our assets.  This facility places various restrictions on us, including,
but not limited to, restrictions on our ability to incur indebtedness and engage
in certain corporate transactions, and requires us to maintain financial ratios.
As of September 30, 2003, we had additional borrowing capacity of approximately
$ 0.8 million under this facility.  This credit facility is scheduled to expire
on May 13, 2005, at which time we may be required to renew, refinance, or modify
the credit facility with our lender or locate alternative financing.  These
restrictions and provisions could have an adverse impact on our future liquidity
and ability to implement our business plan.

Our reorganization may have negatively affected some of our relationships
with our customers, suppliers and employees.

The effect, if any, of our Chapter 11 case and plan of reorganization may
have had, and may continue to have, upon our continued operations cannot be
reasonably estimated, predicted or quantified.  Some entities may be
uncomfortable doing business with a company that has recently emerged from
bankruptcy.  Our Chapter 11 case could adversely affect our relationships with
our customers, suppliers and employees.

As a result of the adoption of "fresh-start" accounting, you will not be
able to compare our historical financial statements with the financial results
disclosed in this quarterly report.

As a result of the consummation of our plan of reorganization and the
transactions contemplated thereby, we are operating our business under a new
capital structure.  In addition, we adopted fresh-start reporting in accordance
with the American Institute of Certified Public Accountants Statement of
Position 90-7 upon emerging from bankruptcy.  Because SOP 90-7
required us to reset our assets and liabilities to current fair values, our
financial condition and results of operations disclosed in our financial
statements for periods after May 2002 are not comparable to the financial
condition or results of operations reflected in our historical financial
statements prior to that date.

Risk Related to Our Business and Industry

Our quarterly operating results are likely to fluctuate and may fail to meet
expectations, which may cause the price of our securities 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 the price of our securities to
fluctuate or decline significantly.  In addition, high proportions 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, such as our Z8 Encore!® and eZ80Acclaim!TM product families and
extensions of these product families;
- any shortage of wafer or assembly manufacturing capacity at our third party
vendors;
- change 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 or availability of raw materials; and
- gain or loss of significant customers.

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 the effects are continuing today.  The terrorist acts of
September 2001 in New York City, Washington, D.C. and Pennsylvania, and the
United States' military response, have exacerbated the downturn and created an
uncertain economic environment.  We cannot predict the impact of these events,
any subsequent terrorist acts or of any related military action, on our
customers or business.  We believe that, in light of these events, some of our
customers have curtailed and may in the future delay or further curtail spending
on technology, which could also negatively affect our quarterly results or
financial condition in the future.

We are experiencing a decline in revenues, as our customers are not ordering
product from us in the quantities that they previously ordered from us in
previous years.  This decline in revenue has been accentuated by our decision in
2000 to de-emphasize certain product offerings in the television, military and
PC peripheral markets.  We are uncertain how long this decline in our net sales
will last.  Additionally, we have in the past and may be in the future required
to reduce selling prices in response to competition, which could lower our gross
margin.  Such a decline in selling prices would have a negative impact on our
future results of operations and our financial condition.  As a result of our
under-utilization of our manufacturing capacity, in January 2002 we closed one
of our two wafer fabrication facilities.  We are currently, and will likely in
the future experience substantial period-to-period fluctuations in future
operating results that are attributable to semiconductor 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, and we may not be profitable in the future.

We have a history of losses including for the nine-month period ended
September 30, 2003 and for each of the years in the five-year period ended
December 31, 2002, excluding the accounting effects of our reorganization in
2002.  If our new business strategy is not successful, we may not be profitable
in the future.

We have implemented significant cost cutting measures, and we may be
required to implement additional cost cutting measures depending upon our future
revenues and operating results.

Similar to other semiconductor companies, we have implemented significant
cost cutting measures in the past.  These cost cutting efforts have
included:

- restructuring our manufacturing operations, which included consolidating our
wafer fabrication facilities, outsourcing significant wafer and assembly
operations and consolidating probe and final test operations at our Philippines
site;
- refocusing of strategic priorities;
- reallocating personnel and responsibilities to better utilize human
resources;
- reducing research and development and capital expenditure spending;
- reducing our workforce; and
- instituting temporary office and facility shutdowns.

Cost-cutting measures may not increase our efficiency or future profitability
and our reduction in research and development spending could harm our ability to
introduce new products in the future.  If our revenue or operating results
significantly decline in the future, we may be required to institute further
cost reduction measures.

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.  In third quarter of 2001 we revised
our business strategy to refocus on our core 8-bit micrologic business and to
increase our use of external wafer fabrication facilities.  We may be unable to
implement this new business strategy sucessfully, including planning for and
responding to lack of external wafer fabrication capacity and dealing with
unforeseen quality issues, and, even if we do implement our strategy
successfully, our results of operations may fail to improve.

In addition, although the semiconductor micrologic market has grown in prior
years, our business is still depressed compared to previous years.  Our revenues
and future profitability could be harmed seriously.  It is uncertain for how
long this slowdown in our business 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:

- development of support tools and collateral literature that make complex
products easy for engineers to understand and use;
- proper new product selection;
- timely completion and introduction of new product designs;
- support from foundry services;
- complexity of the new products to be designed and manufactured; 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.

Acts of war or terrorism could harm our business.

The September 11, 2001 terrorist attacks on the United States created
immediate significant economic and political uncertainty.  The long-term effects
of such attacks on the world economy and our business are unknown, but could be
material to our business.  Further terrorists acts or acts of war, whether in
the United States or abroad, also could cause damage or disruption to our
business, our suppliers, our freight carriers, or our customers, or could create
political or economic instability, any of which could have a material adverse
effect on our business.  Continuing tensions between India and Pakistan
particularly pose an increased risk to our design operations in India, which
could be disrupted in the event of the outbreak of war between the two
countries.

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 products compete with, or may compete with, products offered by Advanced
Micro Devices, ARM, Atmel, Conexant, Intel, Lucent Technologies, Microchip,
Motorola, NEC, Philips, Sharp, ST Microelectronics, Texas Instruments and
Toshiba, among others.  Some of our principal products such as the Z80
microprocessor are licensed by our competitors or are in the public domain and
can be manufactured and sold to our customers by our competitors, possibly with
added features or at lower prices than we charge.  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, including our eZ80® and Z8® product families;
- 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 wafer
fabrication facility.  These difficulties may include:

- equipment not performing as expected;
- production outsourcing difficulties;
- process technology changes not operating as expected; and
- production personnel not operating equipment as expected.

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

We rely on independent third-party foundry manufacturers to fabricate an
increasing percentage of our products.  Industry-wide shortages in foundry
capacity could harm our financial results.  For example, a significant amount of
our sales are of products which cannot be manufactured at our Nampa, Idaho wafer
fabrication facility.   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:

- reduced control over the cost of our products, delivery schedules and
product quality;
- the warranties on wafers or products supplied to us are limited;
- increased exposure to potential misappropriation of our intellectual
property; and
- the cost and consumption of time associated with switching
foundries.

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 might 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 68% of our net sales for the nine-month period ended September
30, 2003 were made 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 or rely on a number of contract manufacturers
in the Philippines, Indonesia, Taiwan and other locations in Asia.  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;
- acts of God, including floods, typhoons and earthquakes;
- 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.

The risks inherent in our international operations have been increased by the
terrorist attacks of September 2001.  These attacks, coupled with the
international military response, have created an uncertain economic environment
and we cannot predict the impact of these events, any subsequent terrorist acts
or of any related military action, on our customers or our business.

We have changed our North American distributors, and we may lose some of
our customers as a result.

In September 2002, we announced our intention to terminate our existing
relationship with our Pioneer Standard, our full-service distributor in North
America.  We completed the termination of our relationship with Pioneer Standard
in the fourth quarter of 2002.  For the year ended December 31, 2002, Pioneer
Standard purchased approximately $17.9 million of our products. In their place,
we have franchised Future Electronics as our sole exclusive full-service
distributor in North America. For nine months ended September 30, 2003, Future
Electronics purchased approximately $13.5 million of our products. We expect
that Future Electronics will take over the majority of the business that we
previously conducted with Pioneer Standard.  Pioneer Standard may try to direct
their customers to purchase competing products instead of ours.  Other customers
may not wish to transfer their business to Future Electronics.  As a result, we
may lose some of the business that we used to sell through our prior
distributor, which could harm our operating results materially.  Future
Electronics also distributes products of our competitors that may directly
compete with our product offerings.  If Future Electronics chooses to promote
those products over our products, our operating results could be harmed
significantly.  In addition, if Future Electronics were to terminate our
distribution agreement, we could experience a period of significant interruption
of our business while we obtained other distribution channels.

A significant amount of our revenues comes from relatively few of our
customers and distributors, and any decrease of revenues from these customers
and distributors, 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 and distributors for a significant
portion of our revenues.  We depend on third-party distributors to market and
sell our products and these third-party distributors accounted for approximately
44% of our net sales for the year ended December 31, 2002 and approximately 47%
of our net sales for the nine-month period ended September 30, 2003.  Our
distributors may not continue to effectively market, sell or support our
products.  Our ten largest customers, including our distributors, accounted for
approximately 54% of our net sales for the year ended December 31, 2002, and
approximately 65% and 62% of our net sales for the three-month period and nine-
month period September 30, 2003, respectively.  Future Electronics, Inc. and
Globespan Virata, Inc. accounted for approximately 18% and 12%, respectively, of
our net sales for the nine-month period ended September 30, 2003.  Concentration
of net sales to 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 customers design
our products out of some devices.  Any resulting decreased sales could reduce
our profitability.  For example, in 1999 and 2000, a number of our customers
changed the designs of computer mouse pointing devices that they manufacture,
and as a result, these devices 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.
For example, net sales of our computer mouse pointing devices and other computer
peripheral products decreased substantially from approximately $15.4 million in
2000 to approximately $4.9 million in 2001, to approximately $2.4 million
for the year ended December 31, 2002 and to approximately $0.7 million for the
nine-month period ended September 30, 2003. These reduced sales
due to design changes have harmed us in the past and additional design changes
could harm our operating results in the future.

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.  In addition,
our current financial condition could have a negative impact on our ability to
recruit and retain employees.

In January 2002, we entered into an employment agreement with James M.
Thorburn, our Chairman and Chief Executive Officer, pursuant to which we were
required to make awards of 176,365 shares of restricted common stock on each of
May 13, 2002, 2003, 2004 and 2005.  The restricted stock award of May 13, 2003
was cancelled and replaced with 209,418 options to purchase common stock at an
exercise price of $1.00.  We still have an obligation to award Mr. Thorburn
restricted stock on May 13, 2004 and May 13, 2005.  We committed to loan Mr.
Thorburn the funds to pay the income taxes due with respect to his restricted
stock awards, as we have done with other employees that previously received
awards of restricted stock.  In July 2002, however, Congress enacted the
Sarbanes-Oxley Act of 2002, which prohibits such loans.  As a result of this
development, we converted Mr. Thorburn's May 13, 2003 restricted stock grant to
stock options and will need to revisit the terms of our employment arrangement
with Mr. Thorburn as it pertains to his future awards of restricted stock.
There can be no assurance that we will be able to reach a mutually satisfactory
arrangement with Mr. Thorburn.

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 be time-consuming and expensive for us to
defend.

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.

If an infringement against us is successful and we are unable to license the
infringed technology, our business and operating results would be harmed
significantly.

We may engage in acquisitions that could adversely affect 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 do so in the future.  For example, in April
1999, we acquired substantially all of the assets and assumed the operating
liabilities of Seattle Silicon Corporation and in July 2000, we acquired
Calibre, Inc.

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;
- 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;
- difficulties in retaining relationships with suppliers and customers of the
acquired business; and
- acquired assets, including intangible assets, may subsequently become
impaired.

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.

Our reported financial results may be adversely affected by changes in
accounting principles generally accepted in the United States.

We prepare our financial statements in conformity with accounting principles
generally accepted in the United States. These accounting principles are subject
to interpretation by the Financial Accounting Standards Board, the American
Institute of Certified Public Accountants, the Securities and Exchange
Commission and various bodies formed to interpret and create appropriate
accounting policies. A change in these policies or interpretations could have a
significant effect on our reported financial results, and could affect the
reporting of transactions completed before the announcement of a change. For
example, while current accounting rules allow us to exclude the expense of stock
options from our financial statements, influential business policy groups,
including the Financial Accounting Standards Board, have suggested that the
rules be changed to require these options to be expensed. Technology companies
generally, and our company, specifically, rely heavily on stock options as a
major component of our employee compensation packages. If we are required to
expense options, we may be less likely to achieve profitability or we may have
to decrease or eliminate options grants. Decreasing or eliminating option grants
may negatively impact our ability to attract and retain qualified employees.

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. Specifically, the existing process of manufacturing silicon
wafers is based on use of large amounts of corrosive chemicals and huge
quantities of distilled, de-ionized water. 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.

Recently enacted and proposed changes in securities laws regulations will
increase our costs.

The Sarbanes-Oxley Act of 2002 that became law in July 2002 requires changes
in some of our corporate governance practices.  The Act also requires the SEC to
promulgate new rules on a variety of subjects.  We expect these new rules and
regulations to increase our legal and financial compliance costs, and to make
some activities more difficult, time consuming and/or more costly.  We also
expect that these new rules and regulations may make it more costly to obtain
director and officer liability insurance coverage, and we may be required to
accept reduced coverage or incur substantially higher costs to obtain coverage.
These new rules and regulations could also make it more difficult for us to
attract and retain qualified members of our board of directors, particularly to
serve on our audit committee, and qualified executive officers.

Risks Related to Our Capital Structure



The agreements governing our credit facility 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 credit facility 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 the ability to:

- dispose of assets;
- incur additional debt;
- prepay other debts or amend some debt instruments;
- pay dividends or repurchase stock;
- create liens on assets;
- enter into sale-leaseback transactions;
- make investments, loans or advances;
- make acquisitions or engage in mergers or consolidations;
- change the business activities conducted by us or our subsidiaries;
- make capital expenditures or engage in specific transactions with
affiliates; and
- otherwise restrict corporate activities.

Our ability to comply with these borrowing terms may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions.  The breach of any of such covenants or restricitons could result in
a default, which would permit our lender to cause all amounts we owe them to
accelerate and become due and payable, together with accrued and unpaid
interest.  In the future, we may not be able to repay all of our borrowings if
they were accelerated, and in such event, our business may be harmed materially
and the value of our common stock 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 cash equivalents portfolio and borrowings under our revolving credit
facility.  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 30, 2003, our cash equivalents 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 table below presents principal amounts and related average rates for our
cash equivalents and debt obligations as of September 30, 2003 (dollars in
millions):

`Carrying
                                                      Value      Fair Value
                                                   ------------ ------------
Cash Equivalents:
  Fixed rate .....................................       $19.2        $19.2
  Average interest rate ..........................        0.80%      --

Short Term Debt:
  Variable-rate debt..............................        $5.0         $5.0
  Interest rate...................................         3.6%      --`

Item 4. Controls and Procedures

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 the end of the period covered by this report.  Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, 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.

Internal Control Over Financial Reporting.  There have not been
any changes in the Company's internal control over financial reporting (as such
item is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act)
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

PART II



OTHER INFORMATION

Item 1.  Legal Proceedings

We are participating in 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 have a material adverse effect on our
financial statements, although there can be no assurance in this regard.

Item 6.  Exhibits and Reports on Form 8-K

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

 Exhibit
  Number                          Description
---------- ------------------------------------------------------------------------------
 2.1 (a)   Joint Reorganization Plan, as confirmed by order of the U.S. Bankruptcy
           Court for the Nothern District of California, dated April 30, 2002.

 3.1 (b)   Amended and Restated Certificate of Incorporation of ZiLOG, Inc.

 3.2 (b)   Amended and Restated Bylaws of ZiLOG, Inc.

 4.1 (c)   Form of Restricted Stock Purchase Agreement.

 4.2 (c)   Form of Non-Qualified EBITDA-Linked Option Grant Agreement.

 4.3 (c)   Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.

10.1       Contract of Lease, dated October 16, 2003, by and between Zilog Electronics
           Philippines, Inc. and Fruehauf Electronics Phils. Corporation.

31         Certification of Chief Executive Officer and 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 11, 2003.

32         Certification of Chief Executive Officer and Chief Financial Officer pursuant
           to section 18 U.S.C. section 1350, as Adoptrd Pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002 dated November 11, 2003.

-----------------------------
(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 registration statement on Form S-8 (File No. 333-88416) filed
    with the Commission on May 15, 2002.

(c) 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 for the Quarter ended June 30, 2002.`

b)   Reports on Form 8-K:





- On July 23, 2003, ZiLOG, Inc. furnished a Current Report on Form 8-K regarding
the press release announcing the Company's financial results for the fiscal
quarter ended June 30, 2003.

- On October 23, 2003, ZiLOG, Inc. furnished a Current Report on Form 8-K regarding
the press release announcing the Company's financial results for the fiscal
quarter ended September 30, 2003.

---

**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/ Perry J. Grace

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



| |     |                      
| | --- | ---------------------
| | By: | /s/ James M. Thorburn

| |                                               
| | ----------------------------------------------
| |                                               
| | James M. Thorburn                             
| | Chairman, Chief Executive Officer and Director
| | (Duly Authorized Officer)                     

Date: November 11, 2003