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

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                               ---------------

                                  FORM 10-Q


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

                 For the Quarterly Period Ended March 31, 2001

                                      OR

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

    For the transition period from                 to
                                  -----------------  ----------------

                         Commission File No. 0-25298

                             OAK TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)



               Delaware                                77-0161486
    (State or other jurisdiction                    (I.R.S. Employer
  of incorporation or organization)              Identification Number)

                               139 Kifer Court
                         Sunnyvale, California 94086
         (Address of principal executive offices, including zip code)

                               (408) 737-0888
            (Registrant's telephone number, including area code)

                                ---------------


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


As of May 11, 2001, there were outstanding 54,043,431 shares of the
Registrant's Common Stock, par value $0.001 per share.

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

                      OAK TECHNOLOGY, INC. AND SUBSIDIARIES

                                  FORM 10-Q

                                   INDEX

                      For the Quarter Ended March 31, 2001

<TABLE>
<CAPTION>

                                                                           Page
                                                                            No.
                                                                           ----
<S>     <C>                                                                <C>

                        PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

          Condensed Consolidated Balance Sheets as of March 31,
            2001 and June 30, 2000........................................   3

          Condensed Consolidated Statements of Operations for the Three
            Months and Nine Months Ended March 31, 2001 and 2000..........   4

          Condensed Consolidated Statements of Cash Flows for the Nine
            Months Ended March 31, 2001 and 2000..........................   5

          Notes to Condensed Consolidated Financial Statements............   6

Item 2. Management's Discussion and Analysis of Financial Condition and
          Results of Operations...........................................  12

Item 3. Quantitative and Qualitative Disclosures About Market Risk........  28


                          PART II. OTHER INFORMATION

Item 1. Legal Proceedings.................................................  29

Item 4. Submission of Matters to a Vote of Security Holders...............  31

Item 6. Exhibits and Reports on Form 8-K..................................  32

Signatures................................................................  33

Exhibit Index.............................................................  34


</TABLE>

                                       2

<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share data)
                                 (Unaudited)

                                   ASSETS
<TABLE>
<CAPTION>

                                                      March 31,     June 30,
                                                        2001          2000
                                                        ----          ----
<S>                                                 <C>           <C>
Current assets:
  Cash and cash equivalents                            $ 12,255      $ 19,100
  Short-term investments                                 97,718       101,704
  Accounts receivable, net of allowance for
    doubtful accounts of $1,170 and $671, respectively   21,913        18,294
  Inventories                                            15,556        20,137
  Prepaid expenses and other current assets               5,757        11,658
                                                       --------      --------
    Total current assets                                153,199       170,893
Property and equipment, net                              20,132        19,738
Intangible assets, net                                   33,016        44,053
Other assets                                                582         1,716
                                                       --------      --------
    Total assets                                       $206,929      $236,400
                                                       ========      ========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable and current portion of long-term debt  $     --      $      7
  Accounts payable                                        7,112        20,062
  Accrued expenses                                       15,489        11,357
  Deferred revenue                                        2,891         2,857
                                                       --------      --------
    Total current liabilities                            25,492        34,283
Deferred income taxes                                       643           697
Other long-term liabilities                                 155           110
                                                       --------      --------
    Total liabilities                                    26,290        35,090
                                                       --------      --------
Stockholders' equity:
  Preferred stock, $0.001 par value; 2,000,000 shares
    authorized; none issued and outstanding as of March
    31, 2001 and June 30, 2000                               --            --
  Common stock, $0.001 par value; 130,000,000 shares
    authorized; 57,957,265 shares issued and 53,659,785
    shares outstanding as of March 31, 2001 and
    55,059,984 shares issued and 52,677,504 outstanding
    as of June 30, 2000                                      58            55
  Additional paid-in capital                            227,267       217,357
  Treasury stock                                        (23,273)      (11,257)
  Retained earnings (deficit)                            (7,381)        1,171
  Accumulated other comprehensive loss                  (16,032)       (6,016)
                                                       --------      --------
    Total stockholders' equity                          180,639       201,310
                                                       --------      --------
    Total liabilities and stockholders' equity         $206,929      $236,400
                                                       ========      ========

</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>

                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share data)
                                 (Unaudited)

<TABLE>
<CAPTION>

                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>     <C>
Revenues:
  Product revenues                     $ 20,334  $ 19,119   $112,245  $ 38,118
  Software and other revenues             7,396     9,383     27,106    11,555
                                       --------  --------   --------  --------
    Total revenues                       27,730    28,502    139,351    49,673
                                       --------  --------   --------  --------
Cost of revenues:
  Cost of product revenues               14,889     9,955     68,089    20,679
  Cost of software and other revenues     1,441     2,612      5,607     3,570
                                       --------  --------   --------  --------
    Total cost of revenues               16,330    12,567     73,696    24,249
                                       --------  --------   --------  --------
      Gross profit                       11,400    15,935     65,655    25,424

Research and development expenses        12,450    12,260     39,922    35,563

Selling, general and administrative
  Expenses                                7,635     8,824     26,800    24,337
Acquired in-process technology               --    10,158         --    10,383
Restructuring charge                      1,765     1,420      1,765     3,435
Amortization of intangibles               3,679     3,588     11,037     6,626
                                       --------  --------   --------  --------
      Operating loss                    (14,129)  (20,315)   (13,869)  (54,920)
Gain on sale of business unit                --    22,378         --    22,378
Other non-operating income, net           1,735       954      6,367     5,081
                                       --------  --------   --------  --------
      Income (loss) before income taxes (12,394)    3,017     (7,502)  (27,461)

Income taxes                                267       372      1,050       372
                                       --------  --------   --------  --------
      Net income (loss)                $(12,661) $  2,645   $ (8,552) $(27,833)
                                       ========  ========   ========  ========

Net income (loss) per basic share:     $  (0.23) $   0.05   $  (0.16) $  (0.63)
                                       ========  ========   ========  ========

Net income (loss) per diluted share:   $  (0.23) $   0.04   $  (0.16) $  (0.63)
                                       ========  ========   ========  ========

Shares used in computing basic net
  income (loss) per share:               54,884    49,850     54,355    43,958
                                       ========  ========   ========  ========
Shares used in computing diluted net
  income (loss) per share:               54,884    59,573     54,355    43,958
                                       ========  ========   ========  ========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                        4


<PAGE>

                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (in thousands)
                                 (Unaudited)

<TABLE>
<CAPTION>


                                                          Nine Months Ended
                                                               March 31,
                                                     --------------------------
                                                         2001          2000
                                                         ----          ----
<S>                                                  <C>          <C>
Cash flows from operating activities:
  Net loss                                             $ (8,552)    $ (27,833)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
    Acquired in-process technology                           --        10,383
    Depreciation and amortization                        16,814        12,233
    Other                                                   106         1,381
    Gain on sale of business unit                            --       (22,378)
    Equity loss from affiliates                              --           365
    Changes in operating assets and liabilities:
      Accounts receivable                                (3,619)       (1,872)
      Inventories                                         4,581        (7,891)
      Prepaid expenses and other current assets           5,901         2,213
      Foundry deposits                                       --         9,061
      Other assets                                        1,134         1,249
      Accounts payable and accrued expenses              (8,818)       11,660
      Deferred income taxes, deferred revenue and
        other liabilities                                    26            --
                                                       --------      --------
          Net cash provided by (used in) operating
            activities                                    7,573       (11,429)
                                                       --------      --------
Cash flows from investing activities:
  Purchases of short-term investments, net              (96,017)      (97,170)
  Proceeds from matured short-term investments           89,987       135,854
  Additions to property and equipment, net               (6,216)       (3,723)
  Acquisition of Xionics, net of cash acquired               --        (9,453)
  Equity investment in Earjam                                --        (3,045)
  Proceeds from sale of business unit                        --         4,900
                                                       --------      --------
          Net cash provided by (used in) investing
            activities                                  (12,246)       27,363
                                                       --------      --------
Cash flows from financing activities:
  Repayment of debt                                          (7)          (11)
  Issuance of common stock, net                           9,851         5,622
  Treasury stock acquisitions                           (12,016)       (1,817)
                                                       --------      --------
          Net cash provided by (used in) financing
            Activities                                   (2,172)        3,794
                                                       --------      --------
Net increase (decrease) in cash and cash equivalents     (6,845)       19,728
Cash and cash equivalents, beginning of period           19,100        19,500
                                                       --------      --------
Cash and cash equivalents, end of period               $ 12,255      $ 39,228
                                                       ========      ========

Supplemental cash flow information:
  Cash paid during the period:
    Interest                                           $     58      $     13
                                                       ========      ========
    Income taxes paid                                  $    317      $    117
                                                       ========      ========
    Issuance of common stock and stock options assumed
      for business acquired                            $     --      $ 45,171
                                                       ========      ========
    Net unrealized gain (losses) on available-for-sale
      Securities                                       $(10,016)     $    784
                                                       ========      ========

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>

                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


1. Basis of Preparation
-- --------------------

     The accompanying unaudited condensed consolidated financial statements of
Oak Technology, Inc. and subsidiaries ("Oak" or the "Company") have been
prepared in conformity with accounting principles generally accepted in the
United States of America.  However, certain information or footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission").  In the opinion of
management, the condensed consolidated financial statements reflect all
adjustments considered necessary for a fair presentation of the consolidated
financial position, operating results and cash flows for the periods presented.
The results of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for the full fiscal year or in
any future period.  This quarterly report on Form 10-Q should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 2000, included in the Oak Technology, Inc.
2000 Annual Report on Form 10-K filed with the Commission.


Reclassifications
-----------------

     Certain prior period amounts have been reclassified to conform to the
current period presentation.


Derivative Instruments and Hedging Activities
---------------------------------------------

     The Company periodically enters into economic hedges by purchasing foreign
exchange contracts as a hedge against foreign currency denominated accounts
receivables or fixed sales commitments.  As of March 31, 2001, the Company had
short-term foreign currency exchange contracts with face values of
approximately $1.4 million and $1.8 million for accounts receivable in foreign
currencies and fixed purchase commitments, respectively.  The fair values of
the forward contracts and unrealized gains or losses were not material for the
periods presented.


2. Inventories
-- -----------

     Inventories are stated at the lower of cost (first in, first out) or
market and consisted of the following (in thousands):

<TABLE>
<CAPTION>



                                                      March 31,     June 30,
                                                        2001          2000
                                                        ----          ----
<S>                                                 <C>            <C>
Purchased parts and work in process                  $  9,856       $ 16,193
Finished goods                                          5,700          3,944
                                                     --------       --------
                                                     $ 15,556       $ 20,137
                                                     ========       ========

</TABLE>

                                       6

<PAGE>


                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                 (Unaudited)


3. Net Income (Loss) Per Share
-- ---------------------------

     Basic and diluted net income (loss) per share have been computed using the
weighted average number of shares of common stock and dilutive common
equivalent shares from stock options and warrants outstanding during the period
in accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share."  The following table provides a reconciliation of the
components of the basic and diluted income (loss) per share computations:


<TABLE>
<CAPTION>
                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>       <C>
Net income (loss) from continuing
  Operations                           $(12,661) $  2,645   $ (8,552) $(27,833)
                                       ========  ========   ========  ========

Basic common shares                      54,884    49,850     54,355    43,958
Effect of dilutive securities:
  Common stock options                       --     9,723         --        --
                                       --------  --------   --------  --------
Dilutive weighted average shares         54,884    59,573     54,355    43,958
                                       ========  ========   ========  ========

Net income (loss) per share from
  continuing operations:
  Basic                                $  (0.23) $   0.05   $  (0.16) $  (0.63)
                                       ========  ========   ========  ========
  Diluted                              $  (0.23) $   0.04   $  (0.16) $  (0.63)
                                       ========  ========   ========  ========

</TABLE>


     For the three and nine month periods ended March 31, 2001, there were
approximately 3,347,000 and 7,260,000 weighted average options outstanding to
purchase shares, respectively, which were excluded from the calculation of
diluted weighted average shares outstanding as inclusion of these shares would
have had an anti-dilutive effect.  Similarly, for the three and nine month
periods ended March 31, 2000, approximately 55,000 and 8,055,000 weighted
average options outstanding to purchase shares, respectively, were excluded
from the calculation of diluted average shares outstanding as the inclusion of
these shares would have had an anti-dilutive effect.


4. Share Repurchase Program
-- ------------------------

     In January 2001, the Company's Board of Directors approved a stock
repurchase program to acquire up to four million shares of its common stock.
The shares may be purchased in the open market or through private transactions.
The number of shares to be purchased and the timing of purchases will be based
on several conditions, including the price of the Company's common stock,
general market conditions and other factors.  Repurchases are to be made from
time to time at certain price thresholds over a one-year period.  In the
quarter ended March 31, 2001, 1,915,000 shares were repurchased at an average
acquisition price of $6.27 per share which represents the total shares that
have been repurchased to date under this program.


5. Contingencies
-- -------------

     The Company and various of its current and former officers and directors
are parties to a consolidated class action lawsuit filed in Santa Clara County
Superior Court in Santa Clara, California on behalf of all persons who
purchased or acquired the Company's common stock for the period from July 27,
1995 to May 22, 1996.  The plaintiffs allege the Company has violated state
securities laws, statutory provisions, deceit provisions as well as


                                       7

<PAGE>


                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                 (Unaudited)


breaches of fiduciary duty and abuse of control.  On August 5, 2000 the court
granted the Company's motion for summary judgment and entered judgment in favor
of the Company.  The plaintiffs have filed a notice of their intent to appeal
the court's decision.  Additionally, various of the Company's current and
former officers and directors are defendants in three consolidated derivative
actions pending in Santa Clara County Superior Court in Santa Clara, California
which allege a breach of fiduciary duty and a claim under California securities
laws. Based on its current information, the Company believes the class action
and derivative suits to be without merit and will defend its position
vigorously. Although it is reasonably possible the Company may incur losses
upon resolution of these claims, an estimate of loss or range of loss cannot be
made.  As such, a provision has not been recorded on the Company's financial
statements as of June 30, 2000 nor March 31, 2001 with regard to these suits.

     The Company is also a party to various other legal proceedings, including
a number of patent-related matters, and counterclaims filed by the named
defendants in the pending patent suits.  In connection with these lawsuits,
management time has been, and will continue to be, expended and the Company has
incurred, and expects to continue to incur, substantial legal and other
expenses.


6. Segment Information
-- -------------------

     SFAS No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments, products and services,
geographic areas, and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and
assessments of financial performance. The Company's chief operating decision-
maker is considered to be the Chief Executive Officer (CEO).

     For fiscal year 2001, the Company has two reportable segments which offer
different product lines to each of its target markets: Optical Storage Group
and Imaging Group.  The Consumer Group product line did not exist during the
three and nine months ended March 31, 2001 as it was divested during the third
quarter of fiscal year 2000.  The Company evaluates operating segment
performance based on net revenues and direct operating expenses of the segment.
The accounting policies of the operating segments are the same as those
described in the summary of accounting policies.  Fiscal year 2001 results for
the Imaging Group includes the operations of the Xionics business which was not
acquired nor included in the operations of the Company until January 11, 2000.
No segments have been aggregated.  The Company does not allocate assets to its
individual operating segments.


                                       8

<PAGE>


                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                 (Unaudited)


     Information about reported segment income or loss is as follows for the
three and nine months ended March 31, 2001 and 2000 (in thousands):


<TABLE>
<CAPTION>
                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>       <C>
Net Revenues:
  Optical Storage                      $ 15,454  $ 12,205   $ 92,659  $ 15,846
  Imaging                                12,276    16,297     46,692    29,563
  Consumer                                   --        --         --     4,264
                                       --------  --------   --------  --------
                                       $ 27,730  $ 28,502   $139,351  $ 49,673
                                       ========  ========   ========  ========

Cost of Goods Sold and Direct
  Operating Expenses:
  Optical Storage                      $ 20,235  $ 13,532   $ 83,836  $ 26,038
  Imaging                                 9,090    14,515     32,361    25,266
  Consumer                                   --        --         --    10,065
                                       --------  --------   --------  --------
                                       $ 29,325  $ 28,047   $116,197  $ 61,369
                                       ========  ========   ========  ========

Contribution Margin:
  Optical Storage                      $ (4,781) $ (1,327)  $  8,823  $(10,192)
  Imaging                                 3,186     1,782     14,331     4,297
  Consumer                                   --        --         --    (5,801)
                                       --------  --------   --------  --------
                                       $ (1,595) $    455   $ 23,154  $(11,696)
                                       ========  ========   ========  ========

</TABLE>

     A reconciliation of the totals reported for the operating segments to the
applicable line items in the condensed consolidated financial statements for
the three and nine months ended March 31, 2001 and 2000, is as follows (in
thousands):


<TABLE>
<CAPTION>
                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>       <C>

Contribution margin from operating
  segments                             $ (1,595) $    455   $ 23,154  $(11,696)
  Indirect operating expenses             7,090     5,604     24,221    22,780
  Acquired in-process technology             --    10,158         --    10,383
  Restructuring charge                    1,765     1,420      1,765     3,435
  Amortization of intangibles             3,679     3,588     11,037     6,626
                                       --------  --------   --------  --------
Total operating income (loss)           (14,129)  (20,315)   (13,869)  (54,920)
  Gain on sale of business unit              --    22,378         --    22,378
  Non-operating income, net               1,735       954      6,367     5,081
                                       --------  --------   --------  --------
Income (loss) before income taxes      $(12,394) $  3,017   $ (7,502) $(27,461)
                                       ========  ========   ========  ========

</TABLE>


     Indirect operating expenses include all costs and expenses not
specifically charged to the operating segments in the financial information
reviewed by the Company's CEO.  These include various overhead and indirect
sales expenses as well as corporate marketing and general and administrative
expenses.

                                       9

<PAGE>


                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                 (Unaudited)


     The Company maintains significant operations in the United States, United
Kingdom, Taiwan and Japan.  Activities in the United States consist of
corporate administration, product development, logistics and worldwide sales
management.  Foreign operations consist of regional sales and limited board-
level manufacturing and engineering support services.

     The distribution of net revenues for the three and nine months ended March
31, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>       <C>
Revenue from unaffiliated customers
  originating from:
  North America                        $  4,315  $  8,525   $ 22,522  $ 13,520
  Japan                                  15,246     6,937     55,017    15,830
  Korea                                   7,589    10,584     50,224    14,120
  Taiwan                                     --        30      9,230       338
  Other Asia                                 36       728        683     3,094
  Europe                                    544     1,698      1,675     2,771
                                       --------  --------   --------  --------
                                       $ 27,730  $ 28,502   $139,351  $ 49,673
                                       ========  ========   ========  ========

</TABLE>
     For the three months ended March 31, 2001, three customers accounted for
23%, 18% and 11% of total revenues, respectively.  For the same period of the
prior fiscal year, two customers accounted for 28% and 17% of total revenues,
respectively.  For the nine months ended March 31, 2001, two customers
accounted for 29% and 10% of total revenues, respectively.  For the same period
of the prior year, two customer accounted for 19% and 11% of total revenues,
respectively.  As of March 31, 2001, four customers accounted for 20%, 18%, 16%
and 10% of total accounts receivable, respectively and as of June 30, 2000,
three customers accounted for 17%, 11% and 11% of total accounts receivable,
respectively.


7. Comprehensive Income (Loss)
-- --------------------------

     The following table presents the calculation of comprehensive income
(loss) as required by SFAS 130.  The components of comprehensive income (loss),
net of tax, are as follows (in thousands):

<TABLE>
<CAPTION>
                                       Three Months Ended  Nine Months Ended
                                           March 31,            March 31,
                                       ------------------  -----------------
                                         2001     2000      2001       2000
                                         ----     ----      ----       ----
<S>                                   <C>       <C>        <C>       <C>

Net income (loss)                      $(12,661) $  2,645   $ (8,552) $(27,833)
Other comprehensive income (loss):
  Change in unrealized gain (loss) on
    investments, net                     (1,146)      944    (10,016)      784
                                       --------  --------   --------  --------
Total comprehensive income (loss)      $(13,807) $  3,589   $(18,568) $(27,049)
                                       ========  ========   ========  ========

</TABLE>

                                       10

<PAGE>


                    OAK TECHNOLOGY, INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                 (Unaudited)


8. Income Taxes
-- ------------

     For the three and nine months ended March 31, 2001, the Company recorded a
tax expense based on projected fiscal year 2001 operating results as well as
estimated alternative minimum tax and net operating loss limitations.


9. Restructuring
-- -------------

     During the third quarter of fiscal 2001, the Company accrued $2.6 million
as restructuring charges. Approximately $0.9 million was accrued for the
planned abandonment and sublease of the excess space resulting in the reduction
in force in its leased facility in Woburn, Massachusetts and the permanent
abandonment of the leased facility in Boise, Idaho.  Approximately $1.7 million
was accrued for employee severance and benefits. The Company expects to pay for
these charges during fiscal 2001.  These charges were offset by a $0.8 million
recovery related to a settlement of the March 31, 2000 restructuring accrual
resulting in a net charge of $1.8 million for the quarter ended March 31, 2001.
During the third quarter of fiscal 2000, the Company accrued $1.4 million as
restructuring charges.  Approximately $1.2 million was accrued for the planned
abandonment of its leased facility in Andover, Massachusetts.  The Company was
able to release this abandoned facility in a shorter time frame than originally
estimated resulting in the recovery of approximately $0.8 million in
restructuring reserve.  The Company negotiated a new lease for 82,000 square
feet of office space in Woburn, Massachusetts and combined its Imaging group at
that new location in August 2000.  Approximately $0.2 million was accrued for
employee severance and benefits.


                                      11

<PAGE>


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

Except for the historical information contained herein, the matters discussed
in this Report on Form 10-Q may be considered "forward-looking" statements
within the meaning of Section 27a of the Securities Act of 1933, as amended,
and Section 21e of the Securities Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of
the Company and its management. Such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties. Actual results could differ materially from those indicated by
such forward-looking statements as a result of certain factors, including those
set forth in this Item 2, those described elsewhere in this Quarterly Report
and those described in the Company's Annual Report on Form 10-K for the year
ended June 30, 2000, other Quarterly Reports on Form 10-Q and other reports
filed under the Exchange Act.  The Company undertakes no obligation to publicly
release the results of any revision to these forward-looking statements which
may be made to reflect events or circumstances after the dates hereof or to
reflect the occurrence of unanticipated events. Among the important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements are: (i) that the information is of a
preliminary nature and may be subject to further adjustment, (ii) variability
in the Company's quarterly operating results, (iii) general conditions in the
semiconductor industry, (iv) risks related to pending legal proceedings, (v)
development by competitors of new or superior products or the entry of new
competitors into the Company's markets, (vi) the Company's ability to diversify
its product and market base by developing and introducing new products within
designated market windows at competitive price and performance levels, (vii)
willingness of prospective customers to design the Company's products into
their products, (viii) availability of adequate foundry capacity and access to
process technologies, (ix) the Company's ability to protect its proprietary
information and obtain adequate access to third party technology on acceptable
terms, (x) risks related to use of independent manufacturers and third party
assembly and test vendors, (xi) dependence on key personnel, (xii) reliance on
a limited number of large customers, (xiii) dependence on sales of CD-RW
controller products and the PC market, (xiv) risks related to international
business operations, (xv) ability of the Company to maintain adequate price
levels and margins with respect to its products, (xvi) risks related to
acquisitions, (xvii) the ability to attract and retain qualified management and
technical personnel and (xviii) other risks identified from time to time in the
Company's reports and registration statements filed with the Securities and
Exchange Commission.

General
-------

     The Company designs, develops and markets high performance embedded
software and integrated semiconductor solutions to original equipment
manufacturers worldwide that serve the optical storage and imaging markets.
The Company's products consist primarily of embedded software, integrated
circuits and supporting software and firmware to provide a complete solution
for customers, thereby enabling them to deliver cost effective, powerful
systems to end users for home and business use.  The Company's mission is to be
a leading solutions provider for the storage and distribution of digital
content.

     For the results of operations for the three and nine months ended March
31, 2001, the Company reported a net loss of $12.7 million and $8.6 million,
respectively.  The decrease in net income in third quarter of fiscal 2001
compared to the first and second quarter of fiscal 2001 is a result of
decreased revenues caused by the recent slowdown in the PC industry as well as
a decrease in overall global economic conditions.  Oak continues to develop its
next generation CD-RW product with five of the top ten CD-RW manufacturers.
However, the Company cannot predict the future level of customer acceptance of
the product and the product's impact on operating results.

     The Company's quarterly and annual operating results have been, and will
continue to be, affected by a wide variety of factors that could have a
material adverse effect on revenues and profitability during any particular
period, including competitive pressures on selling prices, availability and
cost of foundry capacity and raw materials, fluctuations in yield, loss of any
strategic relationships, the Company's ability to introduce new products in
accordance with OEM design requirements and design cycles, new product
introductions by the Company's competitors and market acceptance of product
sold by both the Company and its customers. To date, Oak has not experienced
any material delays in its wafer deliveries from its primary manufacturers.
However, there can be no assurance that delays will not occur in the future.


                                      12

<PAGE>


     In addition, the Company's operating results are subject to fluctuations
in the markets for its customers' products, particularly the consumer
electronics and personal computer markets, which have been extremely volatile
in the past. The Company has devoted a substantial portion of its research and
development efforts in recent quarters to developing chips used in DVD systems,
CD-RW, printer drivers and inkjet multi-function peripherals.  The Company's
DVD, CD-RW, and digital imaging products are subject to the new product risks
described in the preceding paragraph, including, in particular the Company's
ability to timely introduce these products and the market's acceptance of them,
which could have a materially adverse effect on its operating results.


Results of Operations
---------------------

     Net Revenues. Net revenues decreased 3% to $27.7 million for the three
     ------------
months ended March 31, 2001 from $28.5 million in the comparable period of
fiscal 2000.  For the nine months ended March 31, 2001, net revenues increased
181% to $139.4 million from $49.7 million in the same period of the prior year.
The year over year increase in revenues is affected by the inclusion of
Xionics' results of operations beginning during the third quarter of the prior
fiscal year.  As such, the results were not part of Oak's operations in the
entire comparable nine months of fiscal 2000.

     Net revenues in the Optical Storage business segment were $15.4 million
for the third quarter of fiscal 2001, representing a 27% increase from the
segment's net revenues of  $12.2 million reported in the same period of fiscal
2000.  Net revenues in the Optical Storage business segment increased 485% to
$92.7 million for the nine months ended March 31, 2001 compared to $15.8
million recorded in the same period of the prior year.  This increase is
primarily the result of the Company's continued success with its CD-RW product
line.  The Company continued shipping the 8X (9790) and 16X (9795) products in
volume.  The Company was also able to bring four additional large OEM's into
mass production during the first nine months of fiscal 2001.

     Net revenues for the Imaging business segment were $12.3 million for the
three months ended March 31, 2001, representing a 25% decrease from the $16.3
million reported in the same quarter of fiscal 2000.  The decrease is primarily
the result of a change in business model with regard to imaging software and,
to a lesser extent, a decline in revenues of imaging hardware products due to a
recent slowdown in the industry and in the economy in general.  Over the past
year, the Company has been shifting its business model to share more completely
in the profit opportunities with our customers.  In the past, the Company has
licensed its technology to some customers and has received a fixed fee from
them over the life of the contract, at the end of which the customer would have
a paid up license to the technology.  The last of seven installments on an
approximately $20 million paid up license fee from Hewlett Packard was received
in the December 2000 quarter.  The Company's recent practice has been to
negotiate a royalty arrangement instead of a license fee, which allows it to
have a participation in its customers' success and which it believes offers
better upside potential.  The Company expects to see a period of transition
over the next few quarters as fixed contract license fees decline and royalty
revenue begins to ramp as its customers are deploying the software into their
product lines.  For the nine months ended March 31, 2001, net revenues for the
Imaging business segment increased to $46.7 million, or 58% compared to $29.6
million recorded during the same period of the prior year.  The year over year
increase in imaging revenues is affected by the inclusion of Xionics imaging
revenues in Oak's FY 2001 results which were not part of Oak's Imaging
operations for the entire comparable nine months of fiscal 2000.

     Due to the divestiture of the Consumer business during the third quarter
of fiscal 2000, there were no net revenues for the Consumer business segment
during fiscal 2001 as well as the third quarter of fiscal 2000.  Net revenues
for the Consumer business was $4.3 million during the nine months ended March
31, 2000.

     Gross Margin.  Cost of revenues includes the cost of wafer fabrication,
     ------------
assembly, and testing performed by third-party vendors and direct and indirect
costs associated with the procurement, scheduling and quality assurance
functions performed by the Company.  The Company's total gross margin decreased
to 41% for the three month period ended March 31, 2001, as compared to 56%
during the comparable period in the prior year.  For the nine months ended
March 31, 2001, the Company's total gross margin decreased to 47% compared to
51% in the same period of the prior year.


                                      13

<PAGE>

     Gross margin for the Optical Storage business segment was 17% for the
third quarter of fiscal 2001 compared to 40% for the comparable quarter of the
prior year and 34% for the nine months ended March 31, 2001 compared to 31% for
the comparable period of the prior year.  The decrease in the gross margin for
the Optical Storage business segment for the three months ended March 31, 2001
compared to the same period in the prior fiscal year is primarily due to an
increase in the inventory reserve of approximately $2.6 million which was
recorded during the quarter ended March 31, 2001.  In addition, the Company
extended certain quarter specific end of life pricing incentives which also
affected the gross margin for the three months ended March 31, 2001.  Absent
the effect of the inventory reserve and quarter specific incentives, the
Company would have reported a gross margin of 37% with respect to the Optical
Storage business segment for the three months ended March 31, 2001.  The
decline in gross margins from 40% for the March 2000 quarter, as compared to
the adjusted 37% in March 2001 was due to product mix and normal price
reductions on older technology products as they aged.

     Gross margin for the Imaging business segment was 71% for the third
quarter of fiscal year 2001, representing a slight increase from the 68%
reported in the third quarter of fiscal 2000.  Gross margin for the Imaging
business for the nine months ended March 31, 2001 was 73% compared to 65% for
the same period in the prior year.  This increase was primarily due to the
acquisition and integration of the Xionics business during the third quarter of
the prior year which resulted in the inclusion of Xionics' software with higher
gross margins for the entire nine months ended March 31, 2001.

     The Company's overall gross margin is subject to change due to various
factors, including, among others, competitive product pricing, yields, product
mix, wafer, assembly and test costs.  The Company expects that average selling
prices for its existing products will continue to decline over time and that
the average selling prices for each new product will decline significantly over
the life of the product.  Given the extremely competitive nature of the optical
storage and consumer market, the Company believes that gross margins for new
products in its optical storage market and consumer market will be lower than
historical levels and, as a result, gross margins in general will decline in
the future.

     Research and Development Expenses.  Research and development costs are
     ---------------------------------
expensed as incurred.  Research and development expenses of $12.5 million for
the quarter ended March 31, 2001 remained consistent increasing $0.2 million,
or 2%, from $12.3 million in the comparable period of the previous fiscal year.
Research and development expenses for the nine months ended March 31, 2001
increased 12% to $39.9 million from the $35.6 million in the same period of the
prior year.  The year over year increase in research and development expenses
for the nine month periods is due to the net effect of the inclusion of Xionics
expenses from the third quarter of the prior year offset by the divestiture of
the broadband business.  Research and development expenses decreased slightly
as a percentage of net revenues for the current fiscal period over the
comparable period in the prior year due primarily to the slight increase in the
Company's net revenues in the current period compared to the comparable period
of fiscal 2000.  The Company will continue to invest substantial resources in
research and development of new products in the Company's target markets:
optical storage and digital imaging.  During the third quarter of fiscal 2001,
the Company restructured its Imaging business in order to de-emphasize imaging
hardware.  The restructuring included a reduction in workforce and resulted in
a charge during the third quarter of fiscal 2001 of $2.6 million (see
"Restructuring" below).  The Company expects this action to generate ongoing
savings of approximately $1.1 million per quarter.

     Selling, General and Administrative Expenses.  Selling, general and
     --------------------------------------------
administrative (SG&A) expenses decreased by 13% to $7.6 million for the three
months ended March 31, 2001 from $8.8 million in the comparable period of the
prior year.  The amount in the prior year was greater as a result of the
initial inclusion of the operations of Xionics Document Technologies which was
acquired during January 2000.  SG&A expenses related to Xionics Document
Technologies were reduced over time as these functions were integrated into the
existing Oak infrastructure.  However, for the nine months ended March 31,
2001, SG&A expenses increased 10% to $26.8 million compared to $24.3 million in
the same period of the prior year as a result of the inclusion of Xionics
operating expenses for the entire nine months ended March 31, 2001 as compared
to only three of the nine months ended March 31, 2000.  SG&A expenses decreased
as a percentage of net revenues for the current fiscal period over the
comparable period in the prior year due primarily to an increase in the
Company's net revenues in the current year.

     Acquired In-process Technology.  During the third quarter of fiscal 2000,
     ------------------------------
the Company charged $9.9 million and $0.3 million to operations to record the
amount of the Xionics and Earjam.com purchase price allocated to in-


                                      14

<PAGE>

process research and development, respectively. For the nine months ended March
31, 2000, the Company charged $9.9 million and $0.5 million to acquired in-
process technology related to the acquisition of Xionics and to the equity
investment in Earjam.com, respectively. The amounts charged were determined
through an established valuation technique used in the high technology
industry. The amount allocated to in-process research and development was
expensed upon acquisition, as technological feasibility had not been
established and no alternative uses exist.

     Restructuring.  During the third quarter of fiscal 2001, the Company
     -------------
accrued $2.6 million as restructuring charges. Approximately $0.9 million was
accrued for the planned abandonment and sublease of the excess space resulting
in the reduction in force in its leased facility in Woburn, Massachusetts and
the permanent abandonment of the leased facility in Boise, Idaho.
Approximately $1.7 million was accrued for employee severance and benefits. The
Company expects to pay for these charges during fiscal 2001.  These charges
were offset by a $0.8 million  recovery related to a settlement of the March
31, 2000 restructuring accrual resulting in a net charge of $1.8 million for
the quarter ended March 31, 2001.  During the third quarter of fiscal 2000, the
Company accrued $1.4 million as restructuring charges.  Approximately $1.2
million was accrued for the planned abandonment of its leased facility in
Andover, Massachusetts.  The Company was able to release this abandoned
facility in a shorter time frame than originally estimated resulting in the
recovery of approximately $0.8 million in restructuring reserve.  The Company
negotiated a new lease for 82,000 square feet of office space in Woburn,
Massachusetts and combined its Imaging group at that new location in August
2000.  Approximately $0.2 million was accrued for employee severance and
benefits.

     Amortization of Intangibles.  Amortization of intangible assets was $3.7
     ---------------------------
million for the three months ended March 31, 2001, an increase of $0.1 million
or 3% from the $3.6 million recorded in the same period of the prior fiscal
year.  For the nine months ended March 31, 2001, amortization of intangible
assets increased 67% to $11.0 million from the $6.6 million recorded in the
same period of the prior year.  The increase for the nine months ended March
31, 2001 compared to the same period in the prior year is a result of the
additions to intangible assets as a result of the acquisition of Xionics in the
third quarter of fiscal 2000.

     Non-operating Income.  During the third quarter of fiscal 2001, other non-
     --------------------
operating income increased to $1.7 million from $1.0 million recorded during
the same quarter of fiscal 2000.  Other non-operating income increased 25% to
$6.4 million for the nine months ended March 31, 2001 from $5.1 million in the
same period of the prior year.  This increase is primarily due to interest
received in conjunction with an income tax refund offset by a decrease in
foreign currency translation gains recognized during the period.  During the
third quarter of fiscal 2000, the Company sold its broadband business unit
located in the United Kingdom for $24.9 million in cash and stock and recorded
a non-operating gain on sale of business unit of $22.4 million related to the
sale.

     Income Taxes.  For the third quarter of fiscal 2001 and the nine months
     ------------
ended March 31, 2001, a tax expense was recorded based on estimated fiscal 2001
results.  Management does not yet believe it is more likely than not that
sufficient future taxable income will be generated to realize all of the
Company's deferred tax assets.  Accordingly, during fiscal 1999 a full
valuation allowance against deferred tax assets was established.  Given this,
no income tax benefit was recognized with respect to operating losses incurred
in the third quarter of fiscal 2001.


Liquidity and Capital Resources
-------------------------------

     Since its inception, the Company has financed its cash requirements from
cash generated from operations, the sale of equity securities, bank lines of
credit and long-term and short-term debts.  The Company's principal sources of
liquidity as of March 31, 2001 consisted of approximately $110.0 million in
cash, cash equivalents and short-term investments.  The Company also has
approximately $8.0 million in trade lines of credit with Taiwanese financial
institutions, all of which were available at March 31, 2001.

     During the nine months ended March 31, 2001, operating activities
generated cash of approximately $7.6 million.  The Company's net loss of
approximately $8.6 million was offset by the non-cash effect of depreciation
and amortization totaling $16.8 million.  The net change in the other working
capital components resulted in a decrease to cash proceeds from operating
activities of $0.6 million.


                                      15

<PAGE>

     Investing activities utilized cash of approximately $12.2 million
primarily due to additions to property,  and equipment of $6.2 million and net
purchases of investments of $6.0 million during the nine months ended March 31,
2001.

     During the nine months ended March 31, 2001, financing activities utilized
cash of $2.1 million as a result of purchases of treasury stock of $12.0
million offset by proceeds from exercises of stock options of $9.9 million.

     The Company believes that its existing cash, cash equivalents, short-term
investments and credit facilities will be sufficient to provide adequate
working capital and to fund necessary purchases of property and equipment and
any other investments it may make through at least the next twelve months.  If,
however, during the next twelve to eighteen month period the Company fails to
continue its increase in revenue or is unable to maintain expenses below its
revenues, then the Company may be in a position where it will need to seek
additional financing.  However, there can be no assurance that the Company will
not be required to seek other financing sooner or that such financing, if
required, will be available on terms satisfactory to the Company.  The Company
may also utilize cash to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies.  From time
to time, in the ordinary course of business, the Company evaluates potential
acquisitions of such businesses, products or technologies.

Outlook
-------

     The statements contained in this outlook section and within certain
sections of management's discussion and analysis are forward-looking based on
current expectations and management's estimates.  Actual results may differ
materially from those set forth in these forward-looking statements.  In
addition to the risk factors discussed in the "Factors That May Affect Future
Results" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 2000 Annual Report on
Form 10-K for the fiscal year ended June 30, 2000 filed with the Securities and
Exchange Commission, the following factors may also affect the Company's
operating results for fiscal 2001:

     Due to a number of factors including a recent slowdown in the PC industry,
global economic conditions and regular seasonality in the business, the Company
experienced a decrease in revenues during the third quarter of fiscal 2001
compared to the prior quarter.

     o The Company expects total net revenues for the fourth fiscal quarter of
       2001 will increase by approximately 30% to 40% compared with the third
       quarter of fiscal 2001.

     o To the extent uncertainties in the market in the near term subside, the
       Company expects sequential revenue growth in the seasonally stronger
       second half of the calendar year.

     o Gross margin is expected to be in the range of 45% to 48% for the
       remainder of the calendar year.

     o The Company expects to approach breakeven pro forma net income in the
       June quarter of 2001.

      The Company's procedure for publishing and updating this outlook is as
follows. Following the publication of the outlook in its quarterly earnings
release and this Quarterly Report on Form 10-Q, Oak will continue its current
practice of having corporate representatives meet during the quarter with
investors, the media, investment analysts and others to discuss the published
outlook and publicly disclosed material related to the outlook. This outlook
will not be updated during the quarter unless Oak Technology publishes a notice
stating otherwise.


Factors That May Affect Future Results
--------------------------------------

     The following factors should be carefully considered in evaluating the
Company and its business.

The Company Has Experienced and Expects to Continue to Experience Significant
-----------------------------------------------------------------------------
Period-to-Period Fluctuations in its Revenues and Operating Results, Which May
------------------------------------------------------------------------------
Result in Volatility in the Price of the Company's Stock
--------------------------------------------------------

     The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Accordingly, you should not rely on period-to-period
comparisons as an indication of future performance. In addition, these
variations may cause the Company's stock price to fluctuate. If quarterly
results fail to meet public expectations, the price of the Company's stock may
decline.

     The Company's revenues and operating results are affected by a wide
variety of factors, including factors that generally affect everyone in its
industry and factors that are more specific to its business and product lines.
The principal risk the Company faces in its business and one which has had, and
is expected to continue to have, a significant effect on its revenues and
operating results, is its dependence on the optical storage market. Other
factors specific to its business and product lines include the following:

     o The Company's ability to diversify its product offerings and the markets
       for its products;

     o The current market for its products;

     o The loss or gain of important customers;

     o The timing of significant orders and order cancellations or
       rescheduling;

     o Pricing policy changes by the Company and its competitors and suppliers;

     o The potential for significant inventory obsolescence exposure;

     o The timing of the development and introduction of new products or
       enhanced versions of existing products;

     o Market acceptance of new products and continued demand for PC and other
       devices which utilize optical storage technology;

     o Increased competition in product lines;

     o Barriers to entry into new product lines;

     o The competitiveness of the Company's customers; and

     o The inability to obtain foundry capacity and fluctuations in inventory
       and overall demand.

     The Company is in the process of diversifying its business so that its
product offerings include not only integrated circuits, but also embedded
software and platform solutions. However, a significant portion of the
Company's revenue will continue to come from its semiconductor product
offerings. The semiconductor industry historically has been characterized by
rapid technological change and product obsolescence, cyclical market patterns
and seasonal customer demand, significant price erosion, periods of over-
capacity and under-capacity, periods of production shortages, variations in
manufacturing costs, including raw materials, and yields, and significant
expenditures for capital equipment and product development.  In addition, the
industry has experienced significant economic downturns at various times,
characterized by diminished product demand and accelerated erosion of product
prices.  Any downturns in the industry such as those which occurred in the
first quarter of 2001 may cause the Company's business, financial condition and
results of operations to suffer.

     The Company has experienced in the past and may in the future experience
substantial period-to-period fluctuations in operating results due to these
general semiconductor industry conditions. The downturns in the industry often
occur in connection with, or in anticipation of, maturing product cycles (of
both the semiconductor companies and their customers) and declines in general
economic conditions. These downturns


                                      17

<PAGE>

have been characterized by abrupt fluctuations in product demand, production
over-capacity and subsequent accelerated erosion of average selling prices, and
in some cases have lasted for more than a year. Even if customers' aggregate
demand were not to decline, the availability of additional capacity can
adversely impact pricing levels, which can also depress revenue levels.

     In addition, the Company's quarterly operating results could be materially
adversely affected by legal expenses incurred in connection with or any
judgment or settlement in the Company's ongoing stockholder legal proceedings.
See "The Company Is A Defendant in Several Lawsuits."

The Company Has a Recent History of Operating Losses and May Not Remain
-----------------------------------------------------------------------
Profitable
----------

     Although the Company experienced periods of profitability, including the
first and second quarters for fiscal 2001, and was initially profitable
following its reincorporation in Delaware in October 1994 in connection with
its initial public offering (the Company was first incorporated in California
in 1987), the Company has at times sustained significant losses and may not
continue to be profitable in the future.  The Company's operating losses
generally have been due to its dependence on its optical storage business,
which historically has accounted for approximately 80% of its business.  In
fiscal 1998, the Company failed to timely and/or adequately develop its
integrated CD-ROM controller product and second generation CD-RW product.
Consequently, for fiscal 1999, the Company was dependent on mature CD-ROM
products and its first generation CD-RW product for its revenue.  These mature
products continued to decline in both unit sales volume and average sales price
in each successive quarter.  In the third quarter of fiscal 2000, the Company
achieved volume production with its next generation CD-RW product.  However,
given certain evolving dynamics in the CD-RW market, including the rate of
adoption of this technology, competition and selling prices, the Company cannot
accurately predict the product's impact on operating results nor can any
assurance be given that revenue from this product will enable the Company to
maintain profitability.  The Company expects that the average sales prices for
its optical storage products will continue to decline over time and that
average sales prices for each new optical storage product will decline
significantly over the life of the product.  In addition, given the extremely
competitive nature of the optical storage market, the Company believes that
gross margins for new products in its optical storage market will be lower than
historical levels.  However, the Company believes that with the additional
planned software and solution product offerings from the Company's Optical
Storage and Imaging Groups, gross margins in general will increase in the
future.

     If the Company incurs losses or fails to continue profitability in the
future, this will significantly harm its business and may affect the trading
price of its common stock.

The Company's Financial Performance is Highly Dependent on the Timely and
-------------------------------------------------------------------------
Successful Introduction of New Products
---------------------------------------

     The markets for the Company's products are characterized by evolving
industry standards, rapid technological change and product obsolescence. The
Company's financial performance is highly dependent upon timely and successful
execution of next generation and new products, including those from acquired
businesses. The failure to timely and successfully introduce next generation
and new products that achieve market acceptance in the future could seriously
damage the Company's business, financial condition and results of operations.
Specifically, the Company's performance is highly dependent upon the successful
development and timely introduction of its next generation CD-RW controller,
combination DVD and CD-RW controller, MPEG-2 decoder for the DVD player market,
and embedded imaging processing solutions for the digital office market, in
particular, embedded digital color copier technology and image processing chips
for multifunction peripherals.

     In the optical storage market, particularly DVD, a variety of standards
and formats are being proposed, making it difficult to develop product to
market requirements, and making it even more difficult for the market to
develop. Product delay's in the Company's Optical Storage Group have resulted
primarily from difficulties in allocating engineering personnel among competing
projects, engineering resource limitations, and unanticipated engineering
complexity. Although the Company timely introduced its next generation CD-RW
product and refocused its Optical Storage Group on a defined product roadmap,
there can be no assurance that these or other factors will not contribute to
future delays. In the digital office market in which the Company's acquired
business competed with software products and the Company with integrated
circuits, the Company will need to address a variety of other


                                      18

<PAGE>


factors related to that market with respect to new product development. Product
delays in the past in both the Company's Imaging Group and its acquired
business have resulted from numerous factors such as changing OEM customer
product specifications, difficulties in allocating engineering personnel among
competing projects, other resource limitations, difficulties with independent
contractors, changing market or competitive requirements and unanticipated
engineering complexity. There can be no assurance that these or other factors
will not contribute to future delays; that OEM customers will tolerate those
delays; or that delayed office devices, once introduced, will meet with market
acceptance or success. Among other technological changes, embedded PDF and
color capability are rapidly emerging as market requirements for printers and
other imaging devices. Some of the Company's competitors have the capacity to
supply these solutions, and some of their solutions are well-received in the
marketplace. The Company faces the challenges of developing products that will
require greater color and image complexity capability including web-based
documents, and to work with higher performing devices in networked
environments. Any significant inability to meet these challenges with the
development of products that can effectively compete in the OEM software and
solutions market could cause future results of operations to differ materially
from current expectations.

     Due to the design complexity of the Company's products, especially with
the increased levels of integration that are required, the Company has
previously experienced delays in completing development and introduction of new
products for the optical storage and the digital office markets. In addition,
in light of the short product life cycles associated in the markets related to
acquired businesses, any delay or unanticipated difficulty associated with new
product development or introduction could result in a material adverse effect
on the Company's business, results of operations and financial condition.

     No assurance can be given that the Company will successfully identify new
product opportunities and develop and bring new products to market, such as its
new SimpliCD software in a timely manner or that its products will be selected
for design into the products of its targeted customers. Also, there can be no
assurance that the products of the Company's customers will be successfully
introduced into the market. If the Company fails in its new product development
efforts or its products fail to achieve market acceptance, its revenues will
decline and its business, financial condition and results of operations will be
severely damaged.

The Company's Future Revenues Are Highly Dependent On Sales of Its CD-RW
------------------------------------------------------------------------
Controller Product
------------------

     The Company's future revenue generation is highly dependent on its current
and next generation CD-RW product as well as its combination DVD and CD-RW
product. The Company is no longer developing any CD-ROM controllers, but since
the early part of fiscal 1999 has been instead focusing its development efforts
on controllers for CD-RW and DVD drives. If the Company's CD-RW products fail
to achieve market acceptance, it will need other sources of revenue to offset
the previous discontinuation of sales of its CD-ROM controllers.

     While the Company is currently in production with its next generation CD-
RW product with a few customers, no assurance can be given this product or its
successor will be competitive in the marketplace or carried into production by
targeted customers. In addition, even if this product proves to be competitive
and is accepted by targeted customers, there is no assurance that the Company's
customers will be successful.

     The Company also faces increased competition in the emerging CD-RW and DVD
markets in both the PC and consumer segments. In addition, the current trend
toward integrating increased functionality on the CD-RW or DVD controller
potentially adds to the development and manufacturing costs of producing the
controller. The Company's revenues and gross margins from its optical storage
controller products will be dependent on the Company's ability to introduce
integrated products for the CD-RW and DVD markets in a commercially competitive
manner.

     The decrease in the overall level of sales of, and prices for, the
Company's CD-ROM and older generation CD-RW controller product due to
introductions of newer products by competitors, the decline in demand for CD-
ROM controller products generally, product obsolescence and delays in the
Company's integrated CD-ROM controller product and its next generation CD-RW
product, have had a material adverse effect on the Company's business,
financial condition and results of operations, and will continue to have that
effect if the Company fails to successfully introduce new and next generation
products to the optical storage market.

                                      19

<PAGE>

     The Company also anticipates that the royalty streams derived from OEMs'
shipments of office equipment containing the Company's imaging products, and
the sale of related products and services to manufacturers of office equipment
will account for a significant portion of its revenue for the foreseeable
future, although not as significant as CD-RW for the remainder of fiscal 2001
and possibly fiscal 2002. In order to assure that the Company will derive
future royalty streams from the shipment of OEM devices, the Company and its
OEMs are required to develop and release on a regular and timely manner new
office products with increased speed, enhanced output resolutions, reduced
memory requirements, multiple functions, and network connectivity. The
Company's OEMs are under tremendous pressure to continually shorten the
development cycles of these products, leading to increased complexity and cost
of development to the Company and its OEMs. The Company's success will depend
on, among other things:  the rate at which OEMS serving the digital office
market outsource their technology needs, market acceptance of the Company's
technology and products and the office devices of the Company's OEMs; the
ability of the Company and its OEMs to meet industry changes and market demands
in a timely manner; achievement of new design wins by the Company; successful
implementation of the Company's technology and products in new office devices
being developed by its OEMs; and successful marketing of those devices by the
OEMs.

The Company's Markets Are Intensely Competitive and Experience Rapid
--------------------------------------------------------------------
Technological Change
--------------------

     The markets in which the Company competes are intensely competitive and
are characterized by rapid technological change, declining average unit sales
prices and rapid product obsolescence. If the Company cannot successfully
respond to the technological advances of others or if its new products or
product enhancements do not achieve market acceptance, the Company's business,
operating results and financial condition could be seriously harmed. The
Company expects competition to increase in the future from existing competitors
and from other companies that may enter the Company's existing or future
markets with solutions that may be less costly or provide higher performance or
additional features. The Company's principal competitors in the optical storage
market are MediaTek, Toshiba and Ricoh; its principal competitors in the
digital office market are Adobe Systems, Inc., Peerless Systems Corporation,
Electronics for Imaging, Inc., and in-house, captive suppliers, and the Company
expects increased competition from the merchant market in the future. Many of
these existing competitors as well as those customers expected to compete in
the future have substantially greater financial, manufacturing, technical,
marketing, distribution and other resources, broader product lines and longer
standing relationships with customers than the Company. In addition, much of
the Companies success is dependent on the success of its OEM customers. The
Company's OEM customers in both the optical storage, and digital office markets
compete fiercely with one another for market share in a market characterized by
rapid development cycles, short product life cycles and ever-increasing
consumer demand for greater performance and functionality at reduced prices.

     The markets for most of the applications for the Company's products,
especially in the optical storage market, are characterized by intense price
competition. As the markets for these products mature and competition
increases, as has been the trend for the optical storage, the Company
anticipates that average sales prices on products will decline. If the Company
is unable to reduce costs sufficiently to offset declines in average sales
prices or is unable to successfully introduce new higher performance products
with higher average sales prices, operating results will be materially
adversely affected.

      The future growth of the digital office market is highly dependent on
OEMs' continuing to outsource an increasing portion of their product
development work. While the trend toward outsourcing on the part of the
Company's OEM customers has accelerated in recent years, any reversal of this
trend could have a material adverse effect on the Company's business, financial
condition, and results of operations. Similarly, significant market trends
leading to changes in the way the Company's competitors do business may enable
them to compete more effectively against the Company than they have in the
past.  These changes, if they enable competitors to compete more effectively
for business from the Company's customers, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Additionally, changes in strategy by the Company's competitors, for example
price reductions, new product introductions or new marketing/distribution
methods, could make it more difficult for the Company to compete effectively,
cause reduced market demand for the Company's products and/or render the
Company's products obsolete.


                                      20

<PAGE>


     There can be no assurance that the Company or its OEM customers will be
able to compete successfully against current or future competitors, or that
competitive pressures faced by it and its customers will not result in reduced
revenues and profit margins and otherwise seriously harm its business,
financial condition and results of operations.

The Company May Be Unable To Protect Its Intellectual Property and Proprietary
------------------------------------------------------------------------------
Rights, Which May Affect Its Ability to Compete
-----------------------------------------------

     The Company's ability to compete is affected by its ability to protect its
proprietary information. The Company considers its technology to be proprietary
and relies on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect its
intellectual property rights. However, these measures afford only limited
protection.  The Company's competitors may be able to effectively design around
the Company's patents or independently develop competing software.  There can
be no assurance that any of the Company's patents will not be challenged,
invalidated or circumvented, or that the rights granted under those patents
will provide competitive advantages to the Company.  Moreover, while the
Company holds or has applied for patents relating to the design of its
products, some of its products are based in part on standards, for which it
does not hold patents or other intellectual property rights or under terms
dictated by the Standards Body and may be forced to grant licenses under its
patents.  In addition, the laws of certain foreign countries in which the
Company's products are or may be manufactured or sold, including various
countries in Asia, may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and thus
make the possibility of piracy of the Company's technology and products more
likely.  There can be no assurance that the steps taken by the Company to
protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology. Moreover, the Company intends to seek
additional international and United States patents on its technology. There can
be no assurance that additional patents will issue from any of the Company's
pending applications or applications in preparation, or be issued in those
countries selected by the Company where the Company's products can be sold, or
that any claims allowed from pending applications or applications in
preparation will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company.

     The Company also generally enters into confidentiality agreements with its
employees and consultants and confidentiality and license agreements with its
customers and potential customers, and limits access to and distribution of the
source and object code of its software and other proprietary information. With
respect to its page description language software and drivers for the digital
office market and in limited circumstances with respect to firmware and drivers
for its optical storage products, the Company grants licenses that give its
customers access to and restricted use of the source code of the Company's
software which increases the likelihood of misappropriation or misuse of the
Company's technology. Accordingly, despite the Company's precautions, it may be
possible for unauthorized third parties to copy certain portions of the
Company's technology or to obtain and use information that the Company regards
as proprietary. There can be no assurance that the steps the Company takes will
be adequate to prevent misappropriation of its technology or to provide an
adequate remedy in the event of a breach or misappropriation by others.

     Furthermore, the Company may initiate claims or litigation against third
parties, in addition to those referenced herein (see Item 1, Note 5
"Contingencies"), for infringement of the Company's proprietary rights or to
establish the validity of its proprietary rights and in the past has incurred
significant legal expenses in connection with claims of this type it has
initiated. Any litigation by or against the Company could result in significant
expense to the Company and divert the efforts of its technical and management
personnel, whether or not that litigation results in a favorable determination
for the Company. In the event of an adverse result in any litigation, the
Company could be required to pay substantial damages, cease the manufacture,
use and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology. There can be no assurance that the
Company would be successful in developing new technology or that those licenses
would be available on reasonable terms, or at all, and any development or
license could require the Company's expenditures of substantial time and other
resources.
                                      21

<PAGE>


The Company May Be Unable to Obtain Third Party Intellectual Property Rights
----------------------------------------------------------------------------
and/or May Be Liable For Significant Damages
--------------------------------------------

     Certain technology used in the Company's products is licensed from third
parties, and in connection with these licenses, the Company is required to
fulfill confidentiality obligations and, in some cases, pay royalties. Some of
the Company's products require various types of copy protection software that
the Company must license from third parties. Should the Company lose its rights
to, or be unable to obtain the necessary copy protection software, the Company
would be unable to sell and market certain of its products. The Company's
agreements with third parties often have no specified term and may be
terminated by either party in the event of breach by the other. The Company's
business could be adversely affected by the loss for any reason of these third-
party agreements. Given the trend to include increasing levels of functionality
on a chip, in the future it may be necessary or desirable for the Company to
seek additional licenses to intellectual property rights held by third parties
or purchase products manufactured and/or sold by third parties with respect to
some or all of its product offerings. There can be no assurance that those
licenses or purchases will be available on terms acceptable to the Company, if
at all. The inability of the Company to enter into those license arrangements
on acceptable terms or to maintain its current licenses on acceptable terms
could have a material adverse effect on the Company's business, financial
condition and results of operations.

     In addition, the semiconductor industry is characterized by vigorous
protection and pursuit of intellectual property rights, which has resulted in
significant, often protracted and expensive litigation. The Company or its
foundries may, from time to time, be notified of claims that the Company may be
infringing patents or other intellectual property rights owned by third
parties. If it is necessary or desirable, the Company may seek licenses under
those patents or other intellectual property rights. However, there can be no
assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain a license
from a third party for technology used by the Company could cause the Company
to incur substantial liabilities and suspend the manufacture of products or the
use by the Company's foundries of processes requiring the technology.

     The Company has historically indemnified its customers for certain costs
and damages of patent infringement in circumstances where the Company's product
is the factor creating the customer's infringement exposure. This practice
generally excludes coverage in circumstances where infringement arises out of
the combination of the Company's products with products of others or where
infringement arises based on modifications made by the customer to the
Company's products. This indemnification practice, however, could have a
material adverse effect on the results of operations.

     Although patent disputes in the semiconductor industry have often been
settled through cross-licensing arrangements, the Company may not be able in
any or every instance, to settle an alleged patent infringement claim through a
cross-licensing arrangement. The Company, while having expanded its patent
portfolio over the years, still has a more limited patent portfolio than many
of its competitors. If a successful claim is made against the Company or its
customers and a license is not made available to the Company on commercially
reasonable terms or the Company is required to pay substantial damages or
awards, the Company's business, financial condition and results of operations
would be materially adversely affected.

The Company Depends on Third Party Foundries and Vendors to Manufacture
-----------------------------------------------------------------------
Products
--------

     The Company contracts with independent foundries to manufacture a majority
of its products and with independent vendors to assemble and test these
products. The Company's failure to adequately manage its relationships with
these foundries and vendors could negatively impact its ability to manufacture
and sell its products and its results of operations.

     The Company relies on its foundries to allocate to the Company a portion
of their foundry capacity sufficient to meet its needs to produce products of
acceptable quality and with acceptable manufacturing yield and to deliver
products to the Company in a timely manner. These foundries fabricate products
for other companies and some manufacture products of their own design. If these
foundries fail or are unable to satisfy the Company's product, quality and
other requirements, the Company's business, financial condition and results of
operation could suffer.


                                      22

<PAGE>


     The Company also relies on third-party subcontractors to assemble and test
its products. The failure of any of these subcontractors to meet the Company's
production requirements could cause the Company's business, financial condition
and operating results to suffer.

     The Company's reliance on independent manufacturers and third party
assembly and testing vendors involves a number of additional risks, including:

     o The loss of any foundry as a supplier;

     o Inability to expand foundry capacity in a period of increased demand for
       the Company's products;

     o Inability to obtain timely and adequate deliveries from current or
       future suppliers;

     o Delays in shipments of the Company's products;

     o Disruption of operations at any of the Company's manufacturing
       facilities;

     o Product defects and the difficulty of detecting and remedying product
       defects;

     o The unavailability of, or interruption in access to, certain process
       technologies; and

     o Reduced control over delivery schedules, quality assurance and costs.

     As the Company generally does not use multiple services of supply for its
products, the consequences of these factors occurring is magnified.

The Company's Failure to Accurately Forecast Demand for Its Products Could
--------------------------------------------------------------------------
Negatively Impact Its Results of Operations
-------------------------------------------

     Under its foundry agreements, the Company is required to place non-
cancelable orders and purchase its products on an approximately three-month
rolling basis. The Company's customers, on the other hand, generally place
purchase orders with the Company less than four weeks prior to delivery that
may be rescheduled or under certain circumstances may be cancelled, without
significant penalty. This limits the Company's ability to react to fluctuations
in demand for its products. If the Company overestimates the product necessary
to fill orders, or fails to foresee a technology change that could render a
product obsolete, it will build excess inventories which could harm its gross
margins and operating results. If the Company underestimates the product
necessary to fill orders, it may not be able to obtain an adequate supply of
products which could harm its revenues. The Company has experienced inventory
write-offs of its optical storage products in the past primarily due to
unforeseen and rapid changes in its customers' demand, in particular speed
changes, and consequently experienced rapid product obsolescence.

     Product supply and demand fluctuations common to the semiconductor
industry are historically characterized by periods of manufacturing capacity
shortages immediately followed by periods of overcapacity, which are caused by
the addition of manufacturing capacity in large increments.  No assurance can
be given that the Company can or will achieve timely, cost-effective access to
that capacity when needed.

The Company Derives A Large Portion of Its Revenues from International Sales,
-----------------------------------------------------------------------------
Depends on Foreign Subcontractors and Is Subject to the Risks of Doing Business
-------------------------------------------------------------------------------
in Foreign Countries
--------------------

     A large portion of the Company's revenues are derived from international
sales. International sales, principally to Korea, Japan, Singapore and Europe,
accounted for approximately 75%, 86% and 92%, of the Company's net revenues for
fiscal 2000, 1999 and 1998, respectively. The Company also depends on foreign
subcontractors for the manufacture of its products. Most of the Company's
foreign sales and purchases are negotiated in US dollars, although invoicing is
often done in local currency. As a result, the Company may be subject to the
risks of currency fluctuations in the foreign countries in which it does
business.

                                      23

<PAGE>

     The Company also is subject to other risks of conducting business outside
of the United States. These risks include:

     o Unexpected changes in, or impositions of, foreign legislative or
       regulatory requirements;

     o Delays resulting from difficulty in obtaining export licenses for
       certain technology;

     o Tariffs, quotas and other trade barriers and restrictions;

     o Longer payment cycles;

     o Greater difficulty in collecting accounts receivable;

     o Potentially adverse taxes and adverse tax consequences;

     o The burdens of complying with a variety of foreign laws;

     o Political, social and economic instability;

     o Potential hostilities;

     o Changes in diplomatic and trade relationships; and

     o Fluctuations in foreign currencies.

     The Company's significant investment in foundry capacity in Taiwan is a
prime example of its exposure to these types of risks. Due to this investment,
the Company is subject to the risk of political instability in Taiwan,
including the potential for conflict between Taiwan and the People's Republic
of China. In addition, the fact that China is the primary market for the
Company's consumer DVD products is another example. Any political or economic
instability in China could significantly reduce the demand for these products.

     In addition, the Company has several significant OEM customers in Japan,
South Korea, and other parts of Asia.  The Company faces uncertainty in these
customers' continued willingness or ability to do business with the Company in
the future or their success in developing and launching in particular office
devices containing the Company's products.

     While these factors or the impact of these factors are difficult to
forecast, any one or more of these factors could adversely affect the Company's
operations in the future or require the Company to modify its current business
practices.

The Company Depends on a Limited Number of Customers for a Substantial Portion
------------------------------------------------------------------------------
Of Its Revenues, and a Loss Of, Or A Significant Reduction in Purchases By,
---------------------------------------------------------------------------
Current Major Customers Would Significantly Reduce Its Revenues
---------------------------------------------------------------

     The Company has derived a substantial portion of its net revenues from a
limited number of customers and expects this concentration to continue. For
fiscal 2000, 1999 and 1998 sales to the Company's top ten customers accounted
for approximately 78%, 70% and 81% of the Company's net revenues, respectively.
In addition, the Company has experienced significant changes from year to year
in the composition of its major customer base and the Company believes this
pattern of significant change may continue. Customers generally purchase the
Company's products pursuant to short-term purchase orders, and the Company has
no long-term purchase agreements with any of its customers. The loss of, or
significant reduction in purchases by, current major customers of the Company
would significantly reduce its revenues.


                                      24

<PAGE>

The Company Is A Defendant in Several Lawsuits
----------------------------------------------

     The Company and various of its current and former officers and directors
are parties to a consolidated class action lawsuit filed on behalf of all
persons who purchased or acquired the Company's common stock for the period
from July 27, 1995 to May 22, 1996, alleging state securities law and other
violations. Additionally, various of the Company's current and former officers
and directors are defendants in three consolidated derivative actions which
allege a breach of fiduciary duty and a claim under California securities laws.
Based on its current information, the Company believes the class action and
derivative suits to be without merit and will defend its position vigorously.
Although it is reasonably possible the Company may incur losses upon resolution
of these claims, an estimate of loss or range of loss cannot be made. No
provision for any liability that may result upon adjudication has been made in
the Company's financial statements. The Company is also a party to various
other legal proceedings, including a number of patent-related matters, and
counterclaims filed by the named defendants in the pending patent suits. In
connection with these lawsuits, management time has been, and will continue to
be, expended and the Company has incurred, and expects to continue to incur,
substantial legal and other expenses.

The Company Must Continue To Make Significant Capital Investments, And The
--------------------------------------------------------------------------
Inability to Raise the Additional Capital Necessary to Fund These Investments
-----------------------------------------------------------------------------
On Acceptable Terms Could Seriously Harm the Company's Business
---------------------------------------------------------------

     In order to remain competitive, the Company must continue to make
investments in new facilities and capital equipment, and significant amounts of
capital additions could be required in subsequent years. Additionally, in order
to obtain an adequate supply of wafers, especially wafers manufactured using
advanced process techniques, the Company has entered into and will continue to
consider various possible transactions, including various "take or pay"
contracts that commit the Company to purchase specified quantities of wafers
over extended periods. Manufacturing arrangements such as these may require
substantial capital investment, which may require the Company to seek
additional financing. The Company believes that existing liquid resources and
funds generated from operations, if any, combined with its ability to borrow
funds will be adequate to meet its operating and capital requirements and
obligations into the foreseeable future. The Company believes that the level of
a Company's financial resources is an important factor in its industry.
Accordingly, the Company may from time to time seek additional equity or debt
financing. There can be no assurance that those funds will be available on
terms acceptable to the Company when needed. Any future equity financing will
also lead to dilution to existing shareholders.

The Company May Make Future Acquisitions or Enter into Joint Ventures That May
------------------------------------------------------------------------------
Not Be Successful
-----------------

     In the future, the Company may acquire additional businesses, products and
technologies, or enter into joint venture arrangements, that could complement
or expand its business. Acquisitions involve numerous risks including:

     o Difficulties in integration of the operations, technologies, and
       products of the acquired companies;

     o Diverting management's attention from normal daily operations of the
       business;

     o Entering markets in which there is limited direct prior experience and
       where competitors have stronger market positions;

     o Coordination of sales, marketing and research and development;

     o Potential loss of key employees; and

     o The maintenance of corporate culture, controls, procedures and policies.

     In addition, investments in emerging technology and emerging technology
companies present risks of loss of value of one or more of the investments due
to failure of the technology to gain the predicted market acceptance. Also, any
future acquisitions could require the Company to issue dilutive equity
securities, incur debt or contingent liabilities, amortize goodwill and other
intangibles, or write-off in-process research and development and other
acquisition-related expenses. Further, the Company may not be able to integrate
acquired businesses, products or technologies with its existing operations. If
the Company is unable to fully integrate an acquired business, product or
technology, it may not receive the intended benefits of that acquisition.


                                      25


<PAGE>

The Company Will Depend On Key Personnel To Manage Its Business, and the Loss
-----------------------------------------------------------------------------
of Any Key Personnel Could Seriously Harm Its Business
------------------------------------------------------

     The Company's future performance depends, to a significant degree, on the
retention and contribution of members of the Company's senior management as
well as other key personnel including highly skilled engineering and technical
employees.  Recently, the Company laid off a number of its employees as part of
a restructuring to more effectively align the Company's resources to its
strategic objectives.  Specifically, it is important for the Company to retain
the services of Young K. Sohn, the Company's current President and Chief
Executive Officer. Competition for technical, financial and operational
personnel is intense because of the limited number of candidates and the growth
of high-tech companies, and there can be no assurance that the Company will be
able to attract and retain qualified replacements or additional technical or
operational personnel.  There is no assurance that the Company will be able to
find suitable replacements for any senior management personnel who may leave
the Company.

Provisions in The Company's Charter Documents And Rights Plan Could Make It
---------------------------------------------------------------------------
More Difficult To Acquire The Company And May Reduce The Market Price Of The
----------------------------------------------------------------------------
Company's Stock
---------------

     The Company's board of directors has the authority to issue up to 2.0
million shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of common stock, may be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of common stock. The Company has no present plans to issue
shares of preferred stock. Further, certain provisions of the Company's charter
documents, including provisions eliminating the ability of stockholders to take
action by written consent and limiting the ability of stockholders to raise
matters at a meeting of stockholders without giving advance notice, may have
the effect of delaying or preventing changes in control or management of the
Company, which could have an adverse effect on the market price of the stock.
In addition, the Company's charter documents do not permit cumulative voting
and provide that its board of directors will be divided into three classes,
each of which serves for a staggered three-year term, which may also make it
more difficult for a third-party to gain control of the board of directors.

     In addition, 400,000 shares of the Company's preferred stock are
designated as series A junior participating preferred stock under a rights
plan, commonly referred to as a "poison pill". Under certain circumstances
involving a proposed change-in-control of the Company, the rights related to
the series A junior participating preferred stock may be triggered, the effect
of which may delay or prevent a third party from gaining control of or
acquiring the Company.

Pricing Issues
--------------

     The willingness of prospective customers to design the Company's products
into their products depends, to a significant extent, upon the ability of the
Company to have product available at the appropriate market window and to price
its products at a level that is cost effective for such customers. The markets
for most of the applications for the Company's products, especially in the
consumer electronics market and the optical storage market, are characterized
by intense price competition. As the markets for the Company's products mature
and competition increases, as has been the trend for the optical storage and
digital video disk segment of the consumer electronics market, the Company
anticipates that average sales prices ("ASPs") on its products will decline.
The Company continually attempts to pursue cost reductions, including process
enhancements, in order to maintain acceptable gross profit margins. Gross
profit margins also vary reflecting the impact of changes in the general
condition of the economy, capacity utilization levels in the semiconductor
industry, customer acceptance of new technologies and products, product
functionality and capabilities, shifts in product mix, manufacturing yields and
the effect of ongoing manufacturing cost reduction activities. If the Company
is unable to reduce its costs sufficiently to offset declines in ASPs or is
unable to successfully introduce new higher performance products with higher
ASPs, the Company's operating results will be materially adversely affected. In
addition, if the Company experiences yield or other


                                      26



production problems or shortages of supply that increase its manufacturing
costs, fails to reduce its manufacturing costs, or fails to utilize its prepaid
deposits with TSMC, the result would be a material adverse effect on the
Company's business, financial condition and operating results.

Limited Customer Base
---------------------

     The Company has derived a substantial portion of its net revenues from a
limited number of customers and expects this concentration to continue. These
customers were all purchasers of the Company's CD-ROM and CD-RW products.
(Please see the discussion above under the heading "The Company's Future
Revenues Are Highly Dependent On Sales Of Its CD-RW Controller Product" for a
description of the decline in revenues the Company has experienced in
connection with sales of our CD-ROM product.)  At March 31, 2001, four
customers accounted for 20%, 18%, 16% and 10% of total accounts receivable,
respectively and at June 30, 2000, three customers accounted for 17%, 11% and
11% of total accounts receivable.  In addition, the Company has experienced
significant changes from year to year in the composition of its major customer
base.   The Company believes this pattern may continue. Customers generally
purchase the Company's products pursuant to short-term purchase orders, and the
Company has no long-term purchase agreements with any of its customers. The
loss of or significant reduction in purchases by, current major customers of
the Company would have a material adverse effect on the Company's business,
financial condition and operating results.


                                      27

<PAGE>


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Most of the Company's foreign sales are negotiated in US dollars; however,
invoicing is often done in local currency. As a result, the Company may be
subject to the risks of currency fluctuations.  Assets and liabilities which
are denominated in non-functional currencies are remeasured into the functional
currency on a monthly basis and the resulting gain or loss is recorded within
non-operating income in the statement of operations. Many of the Company's non-
functional currency receivables and payables are hedged through managing net
asset positions, product pricing and other means.  The Company's strategy is to
minimize its non-functional currency net assets or net liabilities in its
foreign subsidiaries.  The Company's policy is not to speculate in financial
instruments for profit on the exchange rate price fluctuations, trade in
currencies for which there are not underlying exposures, or enter into trades
for any currency to intentionally increase the underlying exposure.  As of
March 31, 2001 and June 30, 2000, the Company had foreign currency exchange
contracts to exchange Yen for approximately $3.2 million and $2.4 million,
respectively.  If foreign currency rates fluctuate by 10% from rates at March
31, 2001 and June 30, 2000, the effect on the Company's consolidated financial
statements would not be material.  The Company uses financial instruments,
including local currency debt arrangements, to offset the gains or losses of
the financial instruments against gains or losses on the underlying operations
cash flows or investments.  However, there can be no assurance that there will
not be a material impact in the future.

     The Company's cash equivalents and short-term investments ("investments")
are exposed to financial market risk due to fluctuation in interest rates,
which may affect its interest income and the fair values of its investments.
The Company manages the exposure to financial market risk by performing ongoing
evaluation of its investment portfolio and investing in short-term investment
grade corporate securities and U.S. government and other agencies' obligations
which mature within the next 24 months.  In addition, the Company does not use
investments for trading or other speculative purposes.  Not withstanding the
forgoing, due to the divestiture of the Broadband business in January 2000, the
Company is in the unusual position of also holding an investment in 293,794
shares of Conexant Systems, Inc. common stock which had an original book value
of $68.05 per share.  This investment is classified as being held as an
available-for-sale security, and accordingly, the reduction in the market value
of the investment at March 31, 2001 of approximately $17.4 million is included
as an item of accumulated comprehensive loss.  This is a highly volatile equity
security with market valuations in the range of $7.07 to $132.00 since mid
January 2000.  The Company intends to convert these shares into cash over time.
The Company currently does not believe that this investment has been
permanently impaired.  Management will continue to monitor this investment,
however, there is no guarantee that it will not become permanently impaired in
the future.

     Due to the short-term maturities of its investments, the carrying value
approximates the fair value.  If market rates were to increase immediately and
uniformly by 10% from levels as of March 31, 2001, the decline in the fair
value of the portfolio would not be material.  Further, the Company has the
ability to hold its fixed income investments until maturity and, therefore, the
Company would not expect to recognize such an adverse impact in income or cash
flows.


                                      28

<PAGE>



PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Company and various of its current and former officers and directors
are parties to a consolidated class action lawsuit filed on behalf of all
persons who purchased or acquired the Company's common stock (excluding the
defendants and parties related to them) for the period July 27, 1995 through
May 22, 1996. This state court proceeding, designated IN RE OAK TECHNOLOGY
SECURITIES LITIGATION, Master File No. CV758510 was filed in Santa Clara County
Superior Court in Santa Clara, California. The lawsuit originally named as
defendants several of the Company's venture capital fund investors, two of its
investment bankers and two securities analysts. The plaintiffs alleged
violations of California securities laws and statutory deceit provisions as
well as breaches of fiduciary duty and abuse of control. The plaintiffs sought
unspecified monetary damages. After several rounds of demurrers, the court
dismissed all claims except the California Corporations Code Sections
25400/25500 cause of action against the Company, four officers and the
Company's investment bankers and securities analysts.

     On July 16, 1998, the court provisionally certified a national class of
all persons who purchased the Company's stock during the class period. The
class was provisionally certified with the order held in abeyance pending
resolution of the question of whether a nationwide class may bring a California
Corporations Code Sections 25400/25500 claim. This issue was resolved in favor
of allowing such nationwide class actions by the California Supreme Court, Case
No. 5058723, on January 4, 1999, in the DIAMOND MULTIMEDIA SECURITIES
LITIGATION appeal by the California Supreme Court. On August 5, 2000 the court
granted Company's motion for summary judgment and entered judgment in favor of
the Company. The plaintiffs have filed a notice of their intent to appeal the
court's decision. Based on its current information, the Company believes this
suit to be without merit and will defend its position vigorously. Although it
is possible the court's ruling may be overturned on appeal and the Company may
incur a loss upon an adverse conclusion of these claims, an estimate of any
such loss cannot be made.

     Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE
OAK TECHNOLOGY DERIVATIVE ACTION, Master File No. CV758510. This lawsuit, which
asserts a claim for breach of fiduciary duty and a claim under California
securities law based upon the officers' and Directors' trading in securities of
the Company, has been stayed pending resolution of the above described class
actions.  The plaintiffs are seeking monetary damages, equitable relief and an
accounting for the defendants' sales of shares of the Company's common stock.
Based on its current information, the Company believes the suits to be without
merit and will defend its position vigorously. Although it is reasonably
possible the Company may incur a loss upon conclusion of these claims, an
estimate of any such loss cannot be made.

     If any of the above pending actions are decided adversely to the Company,
it would likely have a material adverse affect on the Company's financial
condition and results of operations.

     On July 21, 1997, the Company filed a complaint with the ITC based on the
Company's belief that certain Asian companies were violating U.S. trade laws by
the unlicensed importing or selling of certain CD-ROM controllers that
infringed one or more of the Company's United States patents. The complaint
seeks a ban on the importation into the United States of the named respondent's
infringing CD-ROM controllers or products containing such infringing CD-ROM
controllers. A formal investigative proceeding was instituted by the ITC
(Investigation No. 337-TA-401) on August 19, 1997, naming as respondents:
Winbond Electronics Corporation (Winbond); Winbond Electronics North America
Corporation; Wearnes Technology (Private) Ltd.; Wearnes Electronics Malaysia
Sendirian Berhad; and Wearnes Peripheral International (Pte.).

     On March 16, 1998, the Company and Winbond entered into a settlement
agreement pursuant to which Winbond obtained a nonexclusive, royalty-bearing
license to the Company's U.S. patents No.'s 5,535,327 and 5,581,715 and the
Company obtained a nonexclusive, royalty-free license to several Winbond
patents. The settlement agreement provided that the parties would jointly seek
termination and dismissal of investigation No. 337-TA-401 as to Winbond and its
four affiliated companies: Winbond Electronics North America Corporation;
Wearnes Technology (Private) Ltd.; Wearnes Electronics Malaysia Sendirian
Berhad; and Wearnes Peripheral International (Pte.). On April 15, 1998,
Investigation No. 337-TA-401 was ordered terminated as to all parties.


                                      29

<PAGE>


     As originally filed with the ITC, the Company's complaint also identified
as proposed respondents: United Microelectronics Corporation (UMC); Lite-On
Group; Lite-On Technology Corp.; Behavior Tech Computer Corp. and Behavior Tech
Computer (USA) Corp. Prior to the ITC's institution of the formal investigation
proceeding, the Company and UMC entered into a settlement agreement, effective
July 31, 1997, pursuant to which UMC agreed to cease and desist the manufacture
and/or importation into the United States of its specified CD-ROM controllers,
except under certain limited conditions which expired on January 31, 1998. The
settlement agreement additionally provided for the withdrawal of the Company's
ITC complaint against UMC and the above-named Lite-On and Behavior Tech
companies. In September 1997, October 1997, February 1998 and April 1998, the
Company received $2.6 million, $4.7 million, $0.7 million and $2.6 million,
respectively, pursuant to this settlement. Proceeds from the settlement were
recorded as miscellaneous income and included in non-operating income for the
periods ended September 30, 1997, December 31, 1997, March 31, 1998 and June
30, 1998, respectively.

     On October 27, 1997, the Company filed a complaint in the United States
District Court, Northern District of California against UMC for breach of
contract, breach of the covenant of good faith and fair dealing and fraud based
on UMC's breach of the settlement agreement arising out of the ITC action, Case
No. C-97-20959. Together with the filing of the complaint, the Company filed a
motion for a preliminary injunction against UMC, seeking to enjoin UMC from
selling the CD-ROM controllers that were the subject of the ITC action and
related settlement agreement, through or to a UMC-affiliated, Taiwanese entity
called MediaTek. On February 23, 1998, the federal court judge denied the
Company's request for a preliminary injunction based on the court's findings
that there was no evidence that UMC was presently engaged in the manufacture of
CD-ROM controllers or other products covered by the settlement agreement. On
December 24, 1997, UMC answered the Company's complaint and counterclaimed by
asserting causes of action for rescission, restitution, fraudulent concealment,
mistake, lack of mutuality, interference and declaratory judgment of non-
infringement, invalidity and unenforceability of the Oak patent that was the
subject of the original ITC action filed against UMC. The Company believes
these counterclaims to be without merit and will vigorously defend its patent.
Both the Company and UMC seek compensatory and punitive damages. In addition,
the Company seeks permanent injunctive relief. On June 11, 1998, this case was
consolidated for all purposes with a related case brought against the Company
by MediaTek (described below) under Case No. C-97-20959. On the same date,
pursuant to UMC's request, the federal court judge ordered the consolidated
action stayed under 28 U.S.C. Section 1659, based on the judge's conclusion
that the civil action involves the same issues involved in Investigation No.
337-TA-409 before the International Trade Commission, initiated by Oak
(described below). The stay was to be lifted upon final resolution of
Investigation No. 337-TA-409; however, the judge has ordered that the
consolidated action continue stayed pending the resolution of the parties
appeal of the ITC ruling to the Federal Circuit Court of Appeals. (Described
below.)

     In a related action to the lawsuit that was commenced by the Company
against UMC (described above), on December 19, 1997, MediaTek, a UMC
affiliated, Taiwanese entity, filed a complaint in the United States District
Court, Northern District of California, against the Company for declaratory
judgment of non-infringement, invalidity and unenforceability of the Oak patent
that was the subject of the original ITC action against UMC, and intentional
interference with prospective economic advantage, Case No. C-97-21126. MediaTek
seeks compensatory damages of not less than $10 million and punitive damages.
The Company filed its answer on January 8, 1998, denying all the allegations.
The Company believes the suit to be without merit and will vigorously defend
its patent. On June 11, 1998, this case was consolidated for all purposes with
a related case brought by the Company against UMC (described above) under Case
No. C-97-20959. On the same date, pursuant to UMC's request, the federal court
judge ordered the consolidated action stayed under 28 U.S.C. Section 1659,
based on the judge's conclusion that the civil action involves the same issues
involved in Investigation No. 337-TA-409 before the International Trade
Commission, initiated by Oak (described below). The stay was to be lifted upon
final resolution of Investigation No. 337-TA-409; however, the judge had
ordered that the consolidated action continue stayed pending the resolution of
the parties appeal of the ITC ruling to the Federal Circuit Court of Appeals
(Described below). The Federal Circuit rendered it decision on May 2, 2001, and
the Company anticipates the stay will be lifted and the civil actions
recommenced.  In connection with this proceeding, the Company will continue to
incur legal fees and other expenses.

     On April 7, 1998, the Company filed a new complaint with the ITC alleging
that five Asian companies are violating U.S. trade laws by the unlicensed
importing or selling of CD-ROM drive controllers that infringe a United States
patent owned by the Company. The Company's complaint is asserted against United
Microelectronics Corp., MediaTek, Inc., Lite-On Group, Lite-On Technology Corp.
and AOpen, Inc. In its complaint, the Company requests the ITC to investigate
the five above-named companies and to enter an order barring imports into the
United States


                                      30

<PAGE>


of their allegedly infringing CD-ROM controllers and products containing them,
including CD-ROM drives and personal computers. A formal investigative
proceeding was instituted by the ITC (Investigation No. 337-TA-409) on May 8,
1998 naming as respondents United Microelectronics Corp., MediaTek, Inc., Lite-
On Technology Corp. and AOpen, Inc. The following respondents, all Taiwanese
drive manufacturers, were later added to the proceeding pursuant to an Initial
Determination by the Administrative Law Judge (ALJ) supervising the
Investigation following a motion brought by the Company on August 6, 1998 to
add these respondents: Actima Technology Corp., ASUSTek Computer, Inc.,
Behavior Tech Computer Corp., Delta Electronics, Inc. Momitsu Multi Media
Technologies, Pan-International Industrial Corp. and Ultima Electronics Corp.
On August 28, 1998, the ALJ entered an Initial Determination that the
investigation be terminated as to respondent UMC. On September 4, 1998, the
Company filed a petition with the Commission for review of the Initial
Determination. On October 7, 1998, the Commission reversed the Initial
Determination of the ALJ as the Commission determined that the Company's
complaint against UMC does state an unfair trade practices claim under Section
337 of the Tariff Act. On December 23, 1998, the ALJ issued another Initial
Determination terminating the investigation as to respondent UMC for a second
time. On December 31, 1998, the Company filed a petition with the Commission
for review of the Initial Determination. On February 3, 1999, the Commission
reversed the Initial Determination of the ALJ for a second time on the grounds
that the Company's complaint against UMC does state an unfair trade practices
claim under Section 337 of the Tariff Act. On May 10, 1999, the ALJ issued
another Initial Determination terminating the investigation as to respondent
UMC for a third time, finding that UMC's activities were licensed. On May 17,
1999, the Company filed a petition with the Commission for review of the
Initial Determination and on June 28, 1999, the Commission determined to review
the Initial Determination.

     Trial before the ALJ as to all respondents except UMC commenced on January
11, 1999 and concluded on January 28, 1999.  On May 14, 1999, the ALJ entered
an Initial Determination that no unfair trade practices were committed by
Mediatek under Section 337 of the Tariff Act. On May 24, 1999, the Company
filed a petition requesting the Commission to review the Initial Determination
and on June 28, 1999 the Commission determined to review it. On September 27,
1999, the Commission affirmed the ALJ's finding that there were no unfair trade
practices committed by MediaTek under Section 337 of the Tariff Act as the
Commission determined that there was no infringement of the Company's US Patent
No. 5,581,715. On this same date, the Commission also reversed the ALJ's
findings that the Company's patent was invalid and unenforceable and held that
the Company's US Patent No. 5,581,715 was valid and enforceable. The Commission
took no position on the ALJ's Initial Determination terminating UMC from the
investigation.  On December 15, 2000 UMC filed a separate complaint in the
United States District Court, Northern District of California requesting a
review of the decisions and recommendations by the ALJ in the ITC
investigation, some of which relate to the validity the Company's patent.

     On February 24, 2000, the Company appealed the Commission's ruling that no
unfair trade practices were committed by MediaTek under Section 337 of the
Tariff Act to the Federal Circuit Court of Appeals. On May 2, 2001 the Federal
Circuit Court of Appeals affirmed the Commission's determination that there was
no infringement of the Company's US Patent No. 5,581,715.

     If any of the above pending actions with respect to UMC and MediaTek are
decided adversely to the Company, it would likely have a material adverse
affect on the Company's financial condition and results of operations.


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

     (a)     The Company's Annual Meeting was held on December 5, 2000.


     (b)     The following Directors were elected at the meeting:

<TABLE>
<CAPTION>

                                                  For        Withheld
                                               ----------    ---------
            <S>                               <C>           <C>
             Richard B. Black ............     45,722,668    3,057,240
             David D. Tsang...............     46,571,365    2,208,543


</TABLE>

                                      31

<PAGE>

     The following Directors remained on the Board of Directors subsequent to
the meeting:

                 Peter Simone
                 Young K. Sohn
                 Timothy Tomlinson
                 Ta-Lin Hsu
                 Albert Y.C. Yu
                 Richard B. Black
                 David D. Tsang



     (c)  Other matters voted on at the meeting were the following:

     To approve an amendment to the 1994 Stock Option Plan to increase the
number of shares of common stock authorized for issuance over the term of the
Option Plan by 1,900,000 shares:

<TABLE>

    <S>                                    <C>
     For.............................       27,386,743
     Against.........................       21,151,384
     Abstain.........................          241,781

</TABLE>


     To approve an amendment to the 1994 Employee Stock Purchase Plan to
increase the number of shares of common stock authorized for issuance over the
term of the Purchase Plan by 700,000 shares:

<TABLE>

    <S>                                    <C>
     For.............................       44,229,161
     Against.........................        4,320,791
     Abstain.........................          229,956

</TABLE>

     To ratify the appointment of KPMG LLP as the Company's independent public
accountants for the fiscal year ending June 30, 2001:


<TABLE>

    <S>                                    <C>
     For.............................       48,642,571
     Against.........................           46,027
     Abstain.........................           91,310

</TABLE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following exhibits are filed as part of this report:


<TABLE>
<CAPTION>

     Exhibit
     Number                Exhibit Title
     ------                -------------
     <S>    <C>
      10.1   Executive Officer Severance Agreement  (1)
      10.2   Executive Officer Severance Agreement Allowing for Acceleration of
             Option Vesting (2)

<FN>
      (1)  David Power and John Edmunds entered such agreement on March 31,
           2001 with Mr. Edmunds severance period adjusted to 12 months.
      (2)  Shlomo Waser and Simon Dolan entered into such agreement on March
           31, 2001. Mr. Waser's options will accelerate their vesting by 12
           months, Mr. Dolan's options by 6 months.
</FN>
</TABLE>

 (b)  Reports on Form 8-K:

      The Company filed no reports on Form 8-K during the quarter ended March
31, 2001


                                      32


<PAGE>


                                 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.


                                              OAK TECHNOLOGY, INC.
                                              --------------------
                                                  (Registrant)
Date: May 15, 2001

                                           /s/     JOHN S. EDMUNDS
                                           ----------------------------
                                                 John S. Edmunds
                                             Vice-President Finance
                                             Chief Financial Officer
                                            (Principal Financial and
                                               Accounting Officer)


                                      33

<PAGE>


                                Exhibit Index
                                -------------


<TABLE>
<CAPTION>

     Exhibit
     Number                Exhibit Title
     ------                -------------
     <S>    <C>
      10.1   Executive Officer Severance Agreement  (1)
      10.2   Executive Officer Severance Agreement Allowing for Acceleration of
             Option Vesting (2)

<FN>
      (1)  David Power and John Edmunds entered such agreement on March 31,
           2001 with Mr. Edmunds severance period adjusted to 12 months.
      (2)  Shlomo Waser and Simon Dolan entered into such agreement on March
           31, 2001. Mr. Waser's options will accelerate their vesting by 12
           months, Mr. Dolan's options by 6 months.
</FN>
</TABLE>

                                      34

<PAGE>