<PAGE>

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

                                   FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998

                                      OR

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

             For the Transition Period from ___________ to __________

                           COMMISSION FILE NO. 0-25298

                              OAK TECHNOLOGY, INC.
              (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                 77-0161486
     (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

                                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 December 31, 1998, there were outstanding 40,711,495 shares of the 
Registrant's Common Stock, par value $0.001 per share.


<PAGE>


                      OAK TECHNOLOGY, INC. AND SUBSIDIARIES

                                      INDEX



<TABLE>
<CAPTION>

PART  I - FINANCIAL INFORMATION                                                                              PAGE
<S>                                                                                                          <C>
Item 1.    Financial Statements

           Condensed Consolidated Balance Sheets as of December 31, 1998 
                and June 30, 1998.........................................................................     3

           Condensed Consolidated Statements of Operations for the Three Months and
                Six Months ended December 31, 1998 and 1997 ..............................................     4

           Condensed Consolidated Statements of Cash Flows for the Six Months Ended
                December 31, 1998 and 1997................................................................     5

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

Item 2.    Management's Discussion and Analysis of Financial Condition
                     and Results of Operations ...........................................................    13

Item 3.    Quantitative and Qualitative Disclosures About Market Risk ....................................    26

PART II - OTHER INFORMATION


Item 1.    Legal Proceedings..............................................................................    27

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

Item 6.    Exhibits and Reports on Form 8-K...............................................................    33

SIGNATURES        ........................................................................................    37

EXHIBIT INDEX     ........................................................................................    38


</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>

                                                                             December 31,           June 30,
                                                                                1998                 1998
                                                                        -----------------     -----------------
Current assets:                                                             
<S>                                                                     <C>                   <C>           
   Cash and cash equivalents                                            $       34,163        $       59,803
   Short-term investments                                                       61,315                57,422
   Accounts receivable, net of allowance for doubtful accounts of
     $830 and $809, respectively                                                22,299                17,605
   Inventories                                                                   2,594                 7,558
   Current portion of foundry deposits                                          17,519                 2,944
   Prepaid expenses and other current assets                                    12,041                16,323
                                                                         -------------         -------------
     Total current assets                                                      149,931               161,655
Property and equipment, net                                                     25,734                25,114
Foundry deposits                                                                 2,712                18,231
Investment in foundry venture                                                   51,234                51,216
Purchased technology                                                             9,488                 1,567
Other assets                                                                     2,237                 3,628
                                                                         -------------         -------------
     Total assets                                                       $      241,336        $      261,411
                                                                         -------------         -------------
                                                                         -------------         -------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable and current portion of long-term debt                  $        6,104        $        2,625
   Accounts payable                                                              4,630                 6,236
   Other accrued liabilities                                                    11,538                 8,480
                                                                         -------------         -------------
     Total current liabilities                                                  22,272                17,341
Deferred income taxes                                                            2,990                 2,607
Other long-term liabilities                                                        226                   255
                                                                         -------------         -------------
     Total liabilities                                                          25,488                20,203
                                                                         -------------         -------------
Stockholders' equity:
   Preferred stock, $0.001 par value; 2,000,000 shares authorized; none issued
      and outstanding as of December 31, 1998 and
       June 30, 1998                                                              --                    --
   Common stock, $0.001 par value; 60,000,000 shares authorized;
     40,711,495 and 41,147,969 shares issued and outstanding as of
     December 31, 1998 and June 30, 1998, respectively                              41                    42
   Additional paid-in capital                                                  154,977               156,464
   Retained earnings                                                            60,830                84,702
                                                                         -------------         -------------
     Total stockholders' equity                                                215,848               241,208
                                                                         -------------         -------------
     Total liabilities and stockholders' equity                          $     241,336         $     261,411
                                                                         -------------         -------------
                                                                         -------------         -------------
</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               Six Months Ended
                                                              December 31,                    December 31,
                                                      ------------------------------  ------------------------------
                                                          1998            1997            1998             1997
                                                      --------------  --------------  --------------   -------------
<S>                                                   <C>             <C>             <C>              <C>       
Net revenues                                          $    21,861     $    49,353     $    41,828      $   92,646
Cost of revenues                                           11,559          23,233          22,025          43,988
                                                      --------------  --------------  --------------   -------------
     Gross profit                                          10,302          26,120          19,803          48,658
Research and development expenses                          12,177          12,175          25,311          23,006
Selling, general and administrative expenses                9,794           7,836          18,187          14,147
Acquired in-process technology                               --              --             7,161            --
                                                      --------------  --------------  --------------   -------------
     Operating income (loss)                              (11,669)          6,109         (30,856)          11,505
Nonoperating income, net                                    1,536           5,586           3,487            9,718
                                                      --------------  --------------  --------------   -------------
     Income (loss) before income taxes                    (10,133)         11,695         (27,369)          21,223
Income taxes (benefit)                                       (440)          4,093          (3,497)           7,428
                                                      --------------  --------------  --------------   -------------
     Net income (loss)                                $    (9,693)    $     7,602     $   (23,872)     $    13,795
                                                      --------------  --------------  --------------   -------------
                                                      --------------  --------------  --------------   -------------
Net income (loss) per share:
     Basic                                            $     (0.24)    $      0.18     $     (0.59)     $      0.33
                                                      --------------  --------------  --------------   -------------
                                                      --------------  --------------  --------------   -------------
     Diluted                                          $     (0.24)    $      0.18     $     (0.59)     $      0.32
                                                      --------------  --------------  --------------   -------------
                                                      --------------  --------------  --------------   -------------
Shares used in computing net income (loss) per share:
     Basic                                                 40,679          41,824          40,804           41,716
                                                      --------------  --------------  --------------   -------------
                                                      --------------  --------------  --------------   -------------
     Diluted                                               40,679          42,643          40,804           42,762
                                                      --------------  --------------  --------------   -------------
                                                      --------------  --------------  --------------   -------------


</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>

                                                                                     Six Months Ended
                                                                                       December 31,
                                                                        --------------------------------------------
                                                                               1998                    1997
                                                                        --------------------    --------------------
<S>                                                                     <C>                     <C>
Cash flows from operating activities:
   Net income (loss)                                                    $      (23,872)         $        13,795
   Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:
     Depreciation and amortization                                               5,682                    3,375
     Acquired in-process technology                                              7,161                      --
     Deferred income taxes                                                         383                   (2,193)
     Foundry deposits utilized                                                     944                      455
     Changes in operating assets and liabilities:
       Accounts receivable                                                      (4,694)                  (3,119)
       Inventories                                                               4,964                      138
       Prepaid expenses and other current assets                                 4,282                   (1,199)
       Accounts payable and accrued expenses                                      (730)                  (5,188)
                                                                        --------------------    -------------------
              Net cash provided by (used in) operating activities               (5,880)                   6,064
                                                                        --------------------    -------------------
Cash flows from investing activities:
   Purchases of short-term investments                                         (30,597)                 (31,773)
   Proceeds from matured short-term investments                                 26,704                   33,790
   Additions to property and equipment, net                                     (4,297)                  (8,139)
   Acquisition of ViewPoint, Inc., net of cash acquired                         (9,467)                     --
   Acquisition of XLI Inc. common stock                                         (3,675)                     --
   Payment of certain XLI Inc. liabilities at acquisition date                  (2,094)                     --
   Investment in foundry venture                                                   --                   (11,616)
   Other assets                                                                  1,705                      --
                                                                           -----------------        ----------------
              Net cash used in investing activities                            (21,721)                 (17,738)
                                                                           -----------------        ----------------
Cash flows from financing activities:
   Issuance of debt                                                              3,525                    5,146
   Repayment of debt                                                               (75)                  (5,347)
   Issuance of common stock, net                                                   609                    1,569
   Treasury stock acquisitions                                                  (2,098)                     --
                                                                        --------------------    -------------------
              Net cash provided by (used in) financing activities                1,961                    1,368
                                                                        --------------------    -------------------
Net decrease in cash and cash equivalents                                      (25,640)                 (10,306)
Cash and cash equivalents, beginning of period                                  59,803                   87,609
                                                                        --------------------    -------------------
                                                                        --------------------    -------------------
Cash and cash equivalents, end of period                                $       34,163          $        77,303
                                                                        --------------------    -------------------
                                                                        --------------------    -------------------
Supplemental information:
   Cash paid (refunded) during the period:
     Interest                                                           $           28          $           175
                                                                        --------------------    -------------------
                                                                        --------------------    -------------------
     Income taxes                                                       $       (8,033)         $        12,918
                                                                        --------------------    -------------------
                                                                        --------------------    -------------------


</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 consolidated financial statements have 
been prepared pursuant to the rules and regulations of the Securities and 
Exchange Commission (the "Commission"). In the opinion of management, the 
consolidated financial statements reflect all adjustments considered 
necessary for a fair presentation of the consolidated financial position, 
operating results and cash flows for those 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, 1998, included in the Oak Technology, Inc. (the "Company") 
1998 Annual Report on Form 10-K filed with the Commission.

     Effective July 1, 1998, the Company adopted the provisions of the 
Financial Accounting Standards Board's (FASB) Statement of Financial 
Accounting Standards (SFAS) No. 130, REPORTING OF COMPREHENSIVE INCOME. SFAS 
No. 130 established standards for the display of comprehensive income and its 
components in a full set of financial statements. Comprehensive income 
includes all changes in equity during a period except those resulting from 
the issuance of shares of stock and distributions to shareholders. There were 
no differences between net income (loss) and comprehensive income (loss) 
during the three and six month periods ended December 31, 1998 and 1997.

     RECENT ACCOUNTING PRONOUNCEMENTS. In June, 1997, the FASB issued SFAS No
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
will provide the segment information required by SFAS No. 131 beginning with its
annual financial statements for the fiscal year ended June 30, 1999.

     The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE 
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 addresses the accounting for 
derivative instruments, including certain derivative instruments embedded in 
other contracts. Under SFAS No. 133, entities are required to carry all 
derivative instruments in the balance sheet at fair value. The accounting for 
changes in fair value (i.e. gains or losses) of a derivative instrument 
depends on whether it has been designated and qualifies as part of a hedging 
relationship and, if so, the reason for holding it. The Company must adopt 
SFAS No. 133 from July 1, 1999. The Company does not anticipate that SFAS No. 
133 will have a material impact on its financial statements.

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>

                                                   December 31,        June 30,
                                                       1998              1998
                                                 ---------------     ------------
<S>                                              <C>                 <C>
  Purchased parts and work in process........... $           979     $      5,612
  Finished goods................................           1,615            1,946
                                                 ---------------     ------------
                                                 ---------------     ------------
                                                 $         2,594     $      7,558
                                                 ---------------     ------------
                                                 ---------------     ------------

</TABLE>


                                       6

<PAGE>

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

3.   FOUNDRY DEPOSITS

     In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Pte. Ltd. ("Chartered") to obtain certain additional wafer
capacity. The agreements call for the Company to commit to certain future wafer
purchases and to deposit funds with the suppliers as either a portion of the
price of the additional wafers in advance of their delivery or as a non-interest
bearing deposit to secure the availability of additional wafers. The price of
such wafers will be determined in the future periods in which specific orders
are actually placed. If the Company is not able to use, assign, or sell the
additional wafer quantities, all or a portion of the deposits may be forfeited.

     As of December 31, 1998, the Company has $16.7 million of deposits with 
TSMC which under the agreement (as previously amended) must be utilized 
against calendar year 1999 wafer purchases. Should the Company not purchase 
sufficient wafers from TSMC during calendar 1999 (the final year of the 
amended agreement) to utilize the entire amount of the remaining prepayment, 
the unused portion of the prepayment will be forfeited.

     As of December 31, 1998, the Company has $3.5 million of deposits with 
Chartered. During the third quarter of fiscal year 1999, the Company 
negotiated a new (third) amendment effective November 6, 1998, to its foundry 
agreement with Chartered. The new amendment resulted in the elimination of 
Chartered's right to reinstate required future cash deposits of approximately 
$36 million which had been suspended in a previous amendment subject to 
certain conditions being met. The new amendment extends the period of time 
over which the Company may utilize the existing $3.5 million deposit by three 
years to December 31, 2002, but provides limitations on the maximum amounts 
of the deposit which can be utilized by the Company in each of the four 
calendar years 1999-2002. Under the newly amended agreement, should the 
Company fail to utilize the maximum amount of the deposit for a given 
calendar year, the remainder of the deposit available to be utilized for that 
calendar year will be forfeited to Chartered. Additionally, should the 
Company fail to make certain minimum amounts of wafer purchases in any given 
calendar year, Chartered may elect to terminate the agreement and retain any 
unused portion of the total deposit.

     The Company currently believes the terms and conditions of the TSMC 
foundry agreement, as amended, will be met and that the remaining deposits 
will be utilized. The Company has not yet finalized its future wafer 
purchasing plans from Chartered to determine what impact, if any, the 
recently completed amendment will have on the Company's deposit with 
Chartered. No assurance can be given regarding full utilization of 
the remaining deposits with TSMC and Chartered, since full utilization is 
based on the assumption that wafer purchasing volumes will increase from 
current levels, in part due to new product introductions.

4.   INVESTMENT IN FOUNDRY VENTURE

     In October 1995, the Company entered into a series of agreements with 
United Microelectronics Corporation ("UMC") to form, along with other 
investors, a separate Taiwanese company, United Integrated Circuits 
Corporation ("UICC"), for the purpose of building and managing a 
semiconductor manufacturing facility in the Science Based Industrial Park in 
Hsin Chu City, Taiwan, Republic of China. As an investor in this venture, the 
Company has rights to a portion of the total wafer capacity for the 
manufacture of its proprietary products. The Company paid approximately $51.2 
million for approximately 9.3% of the total outstanding shares of the foundry 
venture. The investment in UICC has been accounted for under the cost method 
of accounting.

     On October 3, 1997, a fire damaged the UICC facility. UICC management 
has publicly stated that a majority of the equipment and inventory and a 
significant portion of the building were completely destroyed at an estimated 
loss of approximately $324 million. UICC reached a $300 million insurance 
settlement for claims stemming from the fire and in accordance with the 
coinsurance clause, UICC had to pay approximately $23.5 million of damages. 
Despite the damage payment, UICC management has represented that UICC's 
financial status has remained unaffected given significant realized 
investment gains made during 1998. UICC has further stated that it expects to 
complete reinforcement of the building structure and to install fab equipment 
by May 1999, and to be in production by the last quarter of calendar 1999, 
using primarily .18 micron process technology.


                                       7

<PAGE>

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


4.   INVESTMENT IN FOUNDRY VENTURE (CONTINUED)

     Given the Company's disputes with UMC (see "Legal Proceedings"), the 
Company intends to sell its interest in UICC at an appropriate time, however, 
at present, no definitive time period can be given. In light of this 
intention, as well as the fire, the Company has evaluated its investment in 
the UICC facility to determine whether there has been an impairment and as 
the Company believes that estimated future cash inflows expected to be 
generated by the facility and/or the disposition of the investment are in 
excess of the carrying amount of the investment, no impairment loss has been 
recognized as of December 31, 1998.

5.   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 in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings per Share." The following
table provides a reconciliation of the components of the basic and diluted
earnings (loss) per share computations:

<TABLE>
<CAPTION>

                                                                    Three Months Ended             Six Months Ended
                                                                       December 31,                  December 31,
                                                              ----------------------------  ---------------------------
                                                                     1998           1997           1998          1997
                                                              -------------  -------------  ------------- -------------
<S>                                                           <C>            <C>            <C>           <C>
Net income (loss)...................................          $     (9,693)  $     7,602    $   (23,872)  $    13,795
                                                              -------------  -------------  ------------- -------------
                                                              -------------  -------------  ------------- -------------
Weighted average number of common
   shares outstanding...............................               40,679          41,824        40,804         41,716
                                                              -------------  -------------  ------------- -------------
Shares used in computing basic net income (loss) per share         40,679          41,824        40,804         41,716
                                                              -------------  -------------  ------------- -------------

Weighted average number of dilutive common
   Equivalent shares used in computing diluted net
     income per share:
     Options........................................                 --               733          --              925
     Warrants.......................................                 --                86          --              121
                                                              -------------  -------------  ------------- -------------
                                                              -------------  -------------  ------------- -------------
Shares used in computing diluted net income (loss) per share       40,679          42,643        40,804         42,762
                                                              -------------  -------------  ------------- -------------
                                                              -------------  -------------  ------------- -------------
Net income (loss) per share:
     Basic..........................................          $     (0.24)   $       0.18  $      (0.59)   $      0.33
                                                              -------------  -------------  ------------- -------------
                                                              -------------  -------------  ------------- -------------
     Diluted........................................          $     (0.24)   $       0.18   $     (0.59)          0.32
                                                              -------------  -------------  ------------- -------------
                                                              -------------  -------------  ------------- -------------

</TABLE>


     Approximately 395,000 and 173,000 of stock options were excluded from 
the computation for the three and six months ended December 31, 1998, 
respectively since they were antidilutive during the loss periods.

6.   STOCKHOLDERS' EQUITY

     During the third quarter of fiscal year 1999, pursuant to a plan 
previously approved by the Company's Board of Directors on January 22, 1998 
to repurchase up to two million shares of its common stock, the Company 
repurchased approximately 200,000 shares of its common stock at a cost of 
approximately $630,000. The Company has now repurchased all two million 
shares authorized.

     On November 18, 1998, the Company amended the Rights Agreement dated as 
of August 19, 1997 between the Company and BankBoston, N.A., as Rights Agent 
to eliminate all of the "Continuing Director" provisions. The "Continuing 
Director" provisions in the Rights Plan were those provisions that required 
that certain actions, including, but not limited to, the redemption and 
termination of the Rights Plan could only be taken by those directors who 
were members of the Company's Board of Directors at the time the Rights Plan 
was adopted and any person who subsequently became a member of the Company's 
Board if such person's nomination for election to the Board was recommended 
or approved by a majority of the Continuing Directors then on the Company's 
Board. 


                                       8

<PAGE>

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

6.   STOCKHOLDERS' EQUITY (CONTINUED)

     This Amendment to the Rights Plan was made in response to the Delaware 
Court of Chancery's recent decision in Carmody v. Toll Brothers, Inc., which 
in the view of the Company's Board of Directors, based on advice of counsel, 
cast doubt on the legality under Delaware law of "Continuing Director" 
provisions.

     On August 12, 1998, the Company repriced 2,638,750 stock options to 
employees and certain officers under its 1994 Stock Option Plan to $3.25, the 
fair market value as of that date. The repriced shares were treated as 
cancelled and regranted and they did not retain their original vesting terms; 
but rather, restarted vesting over 50 months.

7.   ACQUISITIONS

     On July 2, 1998, the Company acquired ViewPoint Technology, Inc. 
(ViewPoint), a privately held company that was developing solutions for the 
CD-RW drive market.  ViewPoint had developed a controller that supports high 
encoding speeds for CD-RW drives and this component is expected to complement 
the Company's expertise in the block decoder area and be utilized in the 
Company's next generation CD-RW drives.  The Company paid approximately $10.1 
million for all the outstanding shares of ViewPoint.  The transaction was 
accounted for under the purchase method of accounting, and ViewPoint's 
development programs were integrated into the Company's overall development 
programs from the date of acquisition.  Of the $10,130,000 purchase price, 
$0.9 million was allocated to cash, fixed assets, and other tangible assets; 
$4.4 million was allocated to purchased technology and other intangible 
assets; and $4.8 million was allocated to in-process research and development 
programs and, accordingly, was charged to operations in the quarter ended 
September 30, 1998.

     On August 11, 1998 the Company acquired Xerographic Laser Images 
Corporation (XLI), a provider of print quality enhancement technology for the 
digital office equipment market.  XLI will operate as a division of the 
Company's wholly owned subsidiary, Pixel Magic, and will serve to leverage 
Pixel's position in the digital office equipment market by broadening its 
expertise in resolution enhancement technology.  The Company paid $3,675,000 
million to the XLI shareholders on the effective date of the merger, and at 
that date, the shareholders had the right to receive additional payments of 
up to $11,365,000 million subject to the achievement of certain milestones by 
XLI over a three-year period ending December 31, 2000.  Pursuant to a 
post-closing audit and related post-closing adjustment set forth in the 
acquisition agreement, it was determined that XLI had a net deficit (for 
purposes of calculating a contingent cash adjustment, as defined in the 
acquisition agreement) of $1,937,673 at the acquisition date which resulted 
in a contingent cash adjustment of $1,112,673, thereby reducing the 
contingent payment amount to $10,252,327.  The transaction was also accounted 
for under the purchase method of accounting, and XLI's operations have been 
included in the Company's consolidated financial statements from the date of 
acquisition.  The cash purchase price for XLI was allocated as follows (in 
thousands):
     
          Net liabilities assumed                                   $(3,090)
          In-process research and development                         2,376
          Purchased technology and other intangible assets            4,389
                                                                    -------
                                                                    $ 3,675
                                                                    -------
                                                                    -------

     The purchased technology and other intangible assets acquired from 
ViewPoint and XLI will be amortized over three years.  The amounts of the 
purchase price assigned to the fair market values of in-process research and 
development and purchased technology represent Company management's best 
estimate. The Company will continue to review these estimates during the 
remainder of the current fiscal year, as provided by Accounting Principles 
Board Opinion No. 16, to ensure the Company's allocation complies with 
appropriate financial reporting practices.

                                       9
<PAGE>

                        OAK TECHNOLOGY INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)
                                          
8.   CONTINGENCIES
                  
     The Company and various of its current and former officers and Directors 
are parties to several class action lawsuits filed on behalf of all persons 
who purchased or acquired the Company's stock (excluding the defendants and 
parties related to them) for the period July 27, 1995 through May 22, 1996. 
The first, a state court proceeding designated IN RE OAK TECHNOLOGY 
SECURITIES LITIGATION, Master File No. CV758510 pending in Santa Clara County 
Superior Court in Santa Clara, California, consolidates five class actions. 
This lawsuit also names as defendants several of the Company's venture 
capital fund investors, two of its investment bankers and two securities 
analysts. The plaintiffs allege violations of California securities laws and 
statutory deceit provisions as well as breaches of fiduciary duty and abuse 
of control. On December 6, 1996, the state court Judge sustained the Oak 
defendants' demurrer to all causes of action alleged in plaintiffs' First 
Amended Consolidated Complaint, but allowed plaintiffs the opportunity to 
amend. The plaintiffs' Second Amended Consolidated Complaint was filed on 
August 1, 1997. On December 3, 1997, the state court Judge sustained the Oak 
defendants' demurrer to plaintiffs' Second Amended Consolidated Complaint 
without leave to amend to the causes of action for breach of fiduciary 
duty and abuse of control, and to the California Corporations Code 
Sections 25400/25500 claims with respect to the Company, a number of the 
individual officers and directors, and the venture capital investors. The 
judge also sustained the demurrer with leave to amend to the California 
Civil code Sections 1709/1710 claims, however plaintiffs elected not to 
amend this claim. Accordingly, the only remaining claims in state court 
action, IN RE OAK TECHNOLOGY SECURITIES LITIGATION, is the California 
Corporations Code Sections 25400/25500 cause of action against four officers 
of the Company and the Company's investment bankers and securities analysts. 
On July 16, 1998, the state 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. 
Discovery has commenced in this action. Defendants and certain third parties 
have produced documents and a small number of depositions have been taken.

     The Company and various of its current and former officers and Directors 
are also parties to four putative class action lawsuits pending in the U.S. 
District Court for the Northern District of California. These actions have 
been consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case 
No. C-96-20552-SW(PVT). This action alleges certain violations of federal 
securities laws and is brought on behalf of purchasers of the Company's stock 
for the period July 27, 1995 through May 22, 1996. This action also names as 
a defendant one of the Company's investment bankers. On July 29, 1997, the 
federal court Judge granted the Oak defendants Motion to Dismiss the 
plaintiffs' First Amended Consolidated  Complaint, but granted plaintiffs 
leave to amend most  claims.  The plaintiffs'  Second Amended Consolidated 
Complaint was filed on September 4, 1997. Defendants Motion to Dismiss was 
heard on December 17, 1997. The federal court Judge took the matter under 
submission and has not yet issued a ruling.

     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 class actions.

     In all of the state and putative federal class actions, the plaintiffs are
seeking monetary damages and equitable relief.  In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company.  

     All of these actions are in the early stages of proceedings.  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 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 Consolidated 
Financial Statements.  

     In connection with the above described legal proceedings, the Company 
has incurred and expects to continue to incur legal and other expenses.

                                  10
<PAGE>


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

8.   CONTINGENCIES (CONTINUED)

     The Company and its current Directors are also parties to six putative 
class actions filed on behalf of all Oak Technology, Inc. shareholders (other 
than defendants) in the Court of Chancery of the State of Delaware in and for 
New Castle County concerning a proposal by a management-led investor group 
known as "Gold Acquisition Group" to acquire all of the outstanding shares of 
the Company for a price of $4.50 per share.  Plaintiffs have requested 
consolidation of the actions under the caption IN RE OAK TECHNOLOGY, INC. 
SHAREHOLDERS LITIGATION, C.A. No. 16789 ("Delaware Shareholders Litigation"). 
The other civil action numbers are 16792, 16793, 16794, 16818, and 16831.  
Plaintiffs allege that the offer is inadequate and that the defendants 
breached their fiduciary duties of loyalty and entire fairness.  On December 
14, 1998, a Special Committee of the Board of Directors that had been formed 
to evaluate the proposal announced that it would not recommend the proposal 
to the Company's full Board of Directors.  In addition, on December 21, 1998, 
Gold Acquisition Group announced that its proposal had expired and to date, 
it has not been renewed.  Based on its investigation to date, the Company 
believes the suits to be without merit and will defend its position 
vigorously. No provision for any liability that may result upon adjudication 
has been made in the Company's Consolidated Financial Statements.
   
     The Company and its current Directors are also parties to a putative 
class action filed on behalf of all Oak Technology, Inc. shareholders (other 
than defendants) in Santa Clara County Superior Court, designated KRIM V. OAK 
TECHNOLOGY, INC., et al., Case No. 778281.  The allegations of Plaintiffs in 
this action are nearly identical to the Delaware Shareholders Litigation.  
This action has been stayed by agreement of the parties as a result of the 
Special Committee's announcement that it would not recommend to the Company's 
full Board of Directors the proposal made by Gold Acquisition Group to 
acquire all of the outstanding shares of the Company for a price of $4.50 per 
share as well as the subsequent announcement of the expiration of the 
proposal by Gold Acquisition Group.  Based on its investigation to date, the 
Company believes the suit to be without merit and will defend its position 
vigorously. No provision for any liability that may result upon adjudication 
has been made in the Company's Consolidated Financial Statements.

     In September, 1998, the Company and certain of its current Directors 
became parties to a putative class action lawsuit pending in the Court of 
Chancery in the State of Delaware, entitled MANNING V. OAK TECHNOLOGY, ET 
AL., Civil Action No. 16656NC.  This action alleges violations of the 
Delaware General Corporation Law and breaches of fiduciary duty and is 
brought on behalf of all owners of Oak Technology common stock at any time 
between August 19, 1997 and the date of class certification.  Plaintiffs' 
claims are based upon the Board of Directors' adoption on or about August 19, 
1997 of a Stockholder Rights Plan that included a provision that limited the 
redemption or modification of the Plan to its Continuing Directors or their 
designated successors.  Plaintiffs allege that the Stockholder Rights Plan 
with the Continuing Directors provision disenfranchises public stockholders  
by forcing them to  vote for incumbent  directors who enjoy full voting 
rights; that it restricts the ability of future directors to exercise their 
full statutory prerogatives;  and that the particular provision at issue is 
an unreasonable and disproportionate response to any threatened takeover. 
Plaintiffs are seeking an injunction and a declaratory judgment that the 
Stockholder Rights Plan is invalid and unenforceable and monetary damages for 
the alleged violations of fiduciary duty. On November 18, 1998, in light of 
the change in the law due to the decision in CARMODY V. TOLL BROS., the 
Company's Board of Directors voted to amend the Shareholders Rights Plan to 
eliminate the Continuing Directors provision. On December 11, 1998, 
plaintiffs amended their complaint to include a cause of action which 
asserted that the directors elected after the adoption of the Company's 
Shareholder Rights Plan were not validly elected and another cause of action 
for breach of fiduciary duty related to the proposal by the Gold Acquisition 
Group to acquire all of the outstanding stock of the Company for $4.50 per 
share (also the subject of the DELAWARE SHAREHOLDERS LITIGATION and the KRIM 
litigation described above). A tentative settlement has been reached with the 
plaintiffs.  The settlement should not have a material effect on the 
Company's Consolidated Financial Statements.  To date, no provision for any 
loss has been made in the Company's Consolidated Financial Statements.

                                      11
<PAGE>

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


8.   CONTINGENCIES (CONTINUED)

     In connection with the above-described legal proceedings, the Company 
expects to incur legal and other expenses.

     The Company is party to various other legal proceedings, including a 
number of patent-related matters.  In the opinion of management, including 
internal counsel, these other legal proceedings will not have a material 
adverse effect on the Company's consolidated financial  position or overall 
results of operations.  In connection with these matters, however, the 
Company has incurred, and expects to continue to incur, substantial legal and 
other expenses.

     The estimate of potential impact on the Company's consolidated financial
position or overall results of operations for all of the aforementioned legal
proceedings could change in the future. 

                                      12
<PAGE>

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


EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY 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. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT ANY 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. 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 LICENSES OF 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-ROM CONTROLLER PRODUCTS, (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) MANAGEMENT OF CHANGING OPERATIONS RELATED TO THE COMPANY'S ATTEMPT TO
DIVERSIFY ITS PRODUCT AND MARKET BASE, (XVII) CURRENT DEPENDENCE ON SALES TO THE
ASIAN MARKETS, (XVIII) THE ABILITY TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT
AND TECHNICAL PERSONNEL AND (XIX) OTHER RISKS IDENTIFIED FROM TIME TO TIME IN
THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JUNE 30, 1998.

GENERAL

         The Company designs, develops and markets high performance integrated
semiconductors and related software to original equipment manufacturers
worldwide that serve the optical storage, consumer electronics and digital
office equipment markets. The Company's products consist primarily of integrated
circuits and supporting software and firmware to provide a complete solution for
customers.

         The Company contracts with independent foundries to manufacture all of
its products, enabling the Company to focus on its design strengths, minimize
fixed costs and capital expenditures and gain access to advanced manufacturing
facilities. Except pursuant to its agreements with TSMC and Chartered, the
Company's foundries generally are not obligated to supply products to the
Company for any specific period, in any specific quantity or at a specific
price.

         During the third quarter of fiscal 1998, the Company restructured its
operations along three market-focused groups: Optical Storage Group, Consumer
Group, and the Digital Office Equipment Group (Pixel Magic), at the same time
discontinuing its product development and marketing efforts in its PC audio and
3D graphics businesses. Since then, the Company has completed three acquisitions
(ODEUM Microsystems, Viewpoint Technology, Inc., and Xerographic Laser Images
Corporation), and made a joint venture investment (Omni Peripherals Pte, Ltd.),
all aimed at expanding the potential product offerings for these three target
markets. The ViewPoint and XLI acquisitions were completed during the first
quarter of fiscal year 1999 ended September 30, 1998.

         As repositioned, the Company provides high-performance, integrated 
semiconductors to original equipment manufacturers (OEMs) worldwide who serve 
the optical storage, consumer electronics and digital office equipment 
markets. The Company's products, consisting primarily of integrated circuits 
and supporting software and firmware, enable its OEM customers to deliver 
cost-effective, powerful systems to the end-user for storage, home 
entertainment and imaging applications. A leading merchant supplier of 
controllers for CD-ROM and CD-RW drives, the Company's product offerings for 
its three target market segments have expanded to

                                       13
<PAGE>


include controllers for DVD drives; MPEG-2 audio/video decoders for VideoCD 
(VCD) and DVD players; integrated circuits for digital broadcast systems such 
as cable, satellite and terrestrial set-top boxes; and multitasking imaging 
and compression processors for the emerging class of digital office 
equipment. The Company's mission is to continue to seek opportunities for 
value-added silicon in these emerging market segments where it can leverage 
its core competencies to offer powerful, cost-effective and complete 
solutions to its OEM partners.

         In its press release regarding the results of operations for the 
second quarter of fiscal year 1999, the Company announced that it expects to 
record net losses for the third and fourth quarters of fiscal year 1999 as 
the Company transitions to its next generation products for the optical 
storage market and its first generation products for the digital broadcast 
market. For fiscal year 1999, the Company expects that a majority of its 
revenue will continue to be generated by its CD-ROM and older generation 
CD-RW controller product lines. The CD-ROM controller market is a mature 
market in which the Company is experiencing declining revenues as a result of 
severe pricing and competitive pressures (see Results of Operations).

RESULTS OF OPERATIONS

     NET REVENUES. The Company's net revenues in the comparison periods were 
primarily derived from sales of its CD-ROM and CD-RW controller products 
which comprised 67% and 69% of the Company's net revenues in the three month 
and six month periods, respectively, ended December 31, 1998. Net revenues 
decreased 56% to $21.9 million in the three months ended December 31, 1998 
from $49.4 million in the comparable period of fiscal 1998. For the six month 
period ended December 31, 1998, net revenues decreased 55% to $41.8 million 
from $92.6 million in the comparable period of fiscal 1998. For both the 
three and six-month periods, approximately two-thirds of the revenue 
decrease was attributable to a decrease in unit sales of CD-ROM controllers 
from the comparable periods of fiscal 1998, with the remainder of the 
decrease due to a decline in the average selling price ("ASP") of the CD-ROM 
controllers. The decrease in unit sales is primarily the result of a loss of 
market share in Taiwan, the maturation of the CD-ROM market, and development 
delays in the Company's next-generation CD-ROM product, and to a lesser 
extent, economic downturns in the Asian markets to which a large majority of 
the Company's products are sold. In the three months ended December 31, 1998 
and 1997, sales to the Company's top ten customers accounted for 
approximately 75% and 83%, respectively, of the Company's net revenues, with 
similar percentages for the six-month periods of both fiscal years. 
International sales, principally to Japan, Taiwan, Korea, Singapore, and 
Belgium accounted for approximately 86% and 94% of the Company's net revenues 
in each of the three months ended December 31, 1998 and 1997, respectively. 
The comparable percentages for the six-month periods ended December 31, 1998 
and 1997 were 86% and 95%, respectively.

       The Company anticipates that sales of existing CD-ROM and CD-RW 
controller products will continue to decline during the remainder of the 
current fiscal year. Revenues for at least the remaining two quarters of 
fiscal year 1999 will continue to be significantly less than the comparable 
periods of the previous fiscal year. See "Factors That May Affect Future 
Results" below.

         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 gross margin 
decreased to 47.1% in the three month period ended December 31, 1998 as 
compared to 52.9% during the comparable period in the prior year. The 
decrease in gross margin is primarily the result of a decrease in ASPs for 
the Company's CD-ROM controller products which was only partially offset by a 
decrease in the Company's unit cost for the same products. The Company's 
overall gross margin is subject to change due to various factors, including, 
among others, competitive product pricing, yields, wafer costs, assembly and 
test costs and product mix. The Company expects that ASPs for its existing 
products will continue to decline over time and that ASPs for each new 
product will decline significantly over the life of the product. The Company 
continues to experience severe price pressure on its CD-ROM controller 
products and expects such price erosion to continue. The Company does not 
believe it can achieve cost reductions or sales of new products with higher 
gross margins which fully offset the expected price declines of its CD-ROM 
and VideoCD products and therefore, it expects gross margin percentages to 
decline for such products. In addition, 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 that, 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 $12.2 million 
for the three months ended December 31, 1998 were flat with the comparable 
period of the previous fiscal year. For the six months ended December 31, 
1998, R&D expenses

                                       14
<PAGE>

were $25.3 million, compared to $23.0 million for the year-ago six-month 
period. The increase in the year-to-date amounts was principally the result 
of the hiring of additional technical personnel and associated expenses since 
the previous fiscal year periods, as well as increased purchased technology 
amortization expense related to the Odeum, ViewPoint, and XLI acquisitions 
made in the fourth quarter of fiscal year 1998 and first quarter of fiscal 
year 1999. Research and development expenses increased significantly as a 
percentage of net revenues for the current fiscal periods over the comparable 
periods in the prior year due primarily to the significant decrease in the 
Company's net revenues in the current periods compared to the comparable 
periods of fiscal 1998. The Company will continue to invest substantial 
resources in research and development in an effort to complete the 
development of its new products in the Company's target markets: optical 
storage, consumer electronics and digital office equipment.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and 
administrative (S,G&A) expenses increased 25% to $9.8 million in the three 
months ended December 31, 1998 from $7.8 million in the comparable period in 
the prior year. During the second quarter of fiscal year 1999, the Company 
incurred approximately $1.6 million of consulting fees and other expenses 
related to the evaluation of a buyout proposal from Gold Acquisition Group. 
Additionally, legal expenses related to the complaint the Company filed with 
the ITC on April 7, 1998 and additional litigation were higher in the current 
fiscal quarter compared to the year-ago second quarter. See "Legal 
Proceedings". For the six months ended December 31, 1998, SG&A expenses 
increased 29% to $18.2 million from $14.1 million in the comparable period of 
the prior fiscal year. In addition to the consulting fees and legal expenses 
discussed above, the six-month period increase was also the result of the 
hiring of additional management and administrative personnel since the 
year-ago periods, and associated expenses. S,G&A expenses increased 
significantly as a percentage of net revenues for the current fiscal periods 
over the comparable periods in the prior year due primarily to a significant 
decrease in the Company's net revenues in the comparison periods. The Company 
expects to continue to incur higher S,G&A expenses as a percentage of net 
revenues during the remainder of fiscal 1999 as compared to comparable 
year-ago periods, however, the Company expects to be able to keep absolute 
dollar S,G&A expenses in the remaining quarters of fiscal 1999 flat or 
slightly less than expenses incurred in the second quarter.

         ACQUIRED IN-PROCESS TECHNOLOGY. During the first quarter of fiscal
1999, the Company acquired ViewPoint and XLI (see note 7 to the condensed
consolidated financial statements). Of the combined purchase prices of the two
companies, $7.2 million was allocated to in-process research and development
(IPR&D) and was charged to operations ($4.8 million related to ViewPoint, $2.4
million related to XLI). Substantially all of the remainder of the purchase
prices of the two companies (aside from allocations to tangible assets totaling
$0.9 million) has been allocated to purchased technology and other intangible
assets (totaling $8.8 million) recorded on the Company's balance sheet, and will
be amortized to operations on a straight-line basis over three years.

         NONOPERATING INCOME. During the second quarter of fiscal 1999,
nonoperating income decreased to $1.5 million from $5.6 million during second
quarter of fiscal 1998, and decreased to $3.5 million for the six month period
from $9.7 million in the year-ago six-month period. In the year-ago quarter and
six-month period, the Company recorded as nonoperating income approximately $4.8
million and $7.5 million, respectively, it received related to the settlement
agreement between the Company and United Microelectronics Corporation in
connection with a complaint the Company had filed with the International Trade
Commission on July 21, 1997. (See "Legal Proceedings"). Interest income (net of
expense) was lower in the three-month and six-month periods ended December 31,
1998 than in the prior year periods due to a reduced invested cash balance and
lower interest rates. Partially offsetting the reductions in settlement income
and interest income were translation gains recorded in the first two quarters of
fiscal 1999 (related primarily to the strengthening of the Japanese Yen),
compared to translation losses in the first two quarters of fiscal year 1998
when the Yen was weakening.

         INCOME TAXES. The effective tax benefit for the three months ended 
December 31, 1998 was 4.4%, reflecting an adjustment of the year-to-date 
benefit recorded to a lowered estimate of the loss carryback benefits 
available to the Company as a percentage of its estimated loss before taxes 
for the fiscal year. The overall effective tax benefit rate for the six 
months ended December 31, 1998 is 12.8%. No tax benefit has been assigned to 
the write-off of IPR&D, since it is not deductible for tax purposes. 
Excluding the impact of the IPR&D, the tax benefit recorded is 17.3% of the 
pre-tax loss, and is less than the statutory income tax rates due to 
limitations on loss carryback benefits available to the Company. The Company 
recorded a 35% effective tax rate in the first and second quarters of fiscal 
1998; the effective tax rate for fiscal 1998 as a whole was subsequently 
reduced to 15% as a result of lower taxable income and substantial R&D 
credits earned by the Company, offset by a partial valuation allowance.


                                       15
<PAGE>


FACTORS THAT MAY AFFECT FUTURE RESULTS

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

         QUARTERLY FLUCTUATIONS. The Company's quarterly revenue and operating
results have varied significantly in the past and are likely to vary
substantially from quarter to quarter in the future. The Company's operating
results are affected by a wide variety of factors, many of which are outside the
Company's control, including but not limited to, the gain or loss of significant
customers, increased competitive pressures, the timing of new product
introductions by the Company or its competitors and market acceptance of new or
enhanced versions of the Company's and its customers' products. Other factors
include the availability of foundry capacity, fluctuations in manufacturing
yields, availability and cost of raw materials, the cyclical nature of the
semiconductor industry, the market for PCs and the specific markets addressed by
the Company's products, seasonal customer demand, the Company's ability to
diversify its product offerings, the competitiveness of the Company's customers,
the timing of significant orders and order cancellations or rescheduling, and
changes in pricing policies by the Company, its competitors or its suppliers,
including decreases in ASPs of the Company's products. In addition, the
Company's quarterly operating results could be materially adversely affected by
legal expenses incurred in connection with, or any adverse judgment in, the
Company's ongoing shareholder legal proceedings. The Company's operating results
could also be adversely affected by economic conditions generally in various
geographic areas where the Company or its customers do business. These factors
are difficult to forecast, and these or other factors could materially affect
the Company's quarterly or annual operating results. There can be no assurance
as to the level of sales or earnings that may be attained by the Company in any
given period in the future.

         The semiconductor industry has historically been characterized by rapid
technological change, cyclical market patterns, significant price erosion,
periods of over-capacity and production shortages, variations in manufacturing
costs 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. The Company may experience substantial
period-to-period fluctuations in operating results due to 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 have been characterized by abrupt fluctuations in product
demand, production overcapacity and subsequent accelerated erosion of average
selling prices, and in some cases, have lasted for more than a year. The Company
may experience substantial period-to-period fluctuations in future operating
results due to general industry conditions or events occurring in the general
economy and the Company's operating results and financial condition could be
materially and adversely impacted by a significant industry-wide downturn. 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. Also, during such periods, customers benefiting from shorter
lead times may delay some purchase into future periods. There can be no
assurance the Company will not experience such downturns in the future, which
could have a material impact on the Company's operating results and financial
condition.

         In addition, the Company currently places noncancelable orders to 
purchase its products from independent foundries on an approximately three 
month rolling basis and is currently committed with two of its foundries for 
certain minimum amounts of capacity (for the next several fiscal quarters 
with one of the foundries and for the next several calendar years with the 
other foundry), while its customers generally place purchase orders with the 
Company less than four weeks prior to delivery that may be rescheduled or 
under certain circumstances may be canceled without significant penalty. Due 
to the Company's relatively narrow customer base for certain devices and the 
short product life cycles of such products, such cancellations can leave the 
Company with significant inventory exposure, which could have a material 
adverse effect on the Company's operating results. Consequently, if 
anticipated sales and shipments in any quarter are rescheduled, canceled, or 
do not occur as quickly as expected, expense and inventory levels could be 
disproportionately high and the Company's business, financial condition and 
results of operations for that quarter or for the year would be materially 
adversely affected.

         The markets in which the Company competes are intensely competitive 
and are characterized by rapid technological change, declining unit ASP's and 
rapid product obsolescence. 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 
existing and potential competitors include many large domestic and 
international companies that have substantially greater financial, 
manufacturing, technical, marketing, distribution and other resources, 
broader product lines and longer standing relationships with customers than 
the Company. The Company's competitors also


                                       16
<PAGE>


include a number of emerging companies as well as some of the Company's own 
customers and suppliers. The Company anticipates increased competition from 
the captive suppliers to the optical storage market as this market 
transitions to DVD. The Company is currently attempting to enter several new 
segments of the consumer electronics market in which the Company has not 
previously operated. These markets are intensely competitive and the Company 
will have to compete with large domestic and international companies, some of 
whom have long standing relationships with the Company's target customers. 
Certain of the Company's principal competitors maintain their own 
semiconductor foundries and may therefore benefit from certain capacity, cost 
and technological advantages. The Company believes that its ability to 
compete successfully depends on a number of factors, both within and outside 
of its control, including the price, quality and performance of the Company's 
and its customers' products, the timing and success of new product 
introductions by the Company, its customers and its competitors, the rate of 
infrastructure development in the digital broadcast market, the development 
of technical innovations, the ability to obtain adequate foundry capacity and 
sources of raw materials, the efficiency of production, the rate at which the 
Company's customers design the Company's products into their products, the 
market acceptance of the Company's customers products, the number and nature 
of the Company's competitors in a given market, the assertion of intellectual 
property rights and general market and economic conditions. The Company's 
future operating results are likely to be affected by these factors as well 
as others.

         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 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 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 the TSMC and Chartered foundries, the 
result would be a material adverse effect on the Company's business, 
financial condition and operating results.

         NEW PRODUCT INTRODUCTIONS. The markets for the Company's products 
are characterized by evolving industry standards, rapid technological change 
and product obsolescence. The Company's performance is highly dependent upon 
the successful development and timely introduction of its next generation 
CD-RW and digital video disk products as well as new products in the digital 
broadcast market and its first generation PC DVD product at competitive price 
and performance levels. The Company's financial performance is dependent upon 
timely and successful execution of these next generation and new products as 
the majority of the Company's revenue for the first half of fiscal 1999 has 
come from mature CD-ROM and CD-RW products, the sales of which are 
anticipated to further decline in the second half of fiscal 1999. In an 
effort to diversify its product and market base, the Company has invested 
substantial resources in optical storage as well as in its other core 
technologies, consumer electronics and digital imaging. There can be no 
assurance that products currently under development in these core 
technologies or any other new products will be successfully developed or will 
achieve market acceptance, thereby affecting the Company's ability to achieve 
diversification of its products and markets, and thereby revenue 
diversification. The failure of the Company to introduce these new products 
successfully or the failure of new products to achieve market acceptance 
would have a material adverse effect on the Company's business, financial 
condition and results of operations. The success of new product introductions 
is dependent on several factors, including recognition of market 
requirements, product cost, timely completion and introduction of new product 
designs, improvement of existing technologies and development and 
implementation of new process technologies in order to continue to reduce 
semiconductor die size, improve device performance and manufacturing yields, 
adapt products and processes to technological changes and adopt emerging 
industry standards. In both the optical storage and consumer electronics 
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. The Company's 
success is also dependent upon securing sufficient foundry capacity for 
volume manufacturing of wafers and achievement of acceptable manufacturing 
yields from the Company's contract manufacturers. Semiconductor design and 
process methodologies are subject to rapid technological change.

                                       17
<PAGE>


Decreases in geometries call for sophisticated design efforts, advanced 
manufacturing equipment and cleaner fabrication environments. Due to the 
design complexity of its products, especially with the increased levels of 
integration that are required, the Company has experienced delays in 
completing development and introduction of new products, and there can be no 
assurance that the Company will not encounter such delays in the development 
and introduction of future products. In particular, the Company has 
experienced delays in its products for the optical storage market and the 
digital office equipment market. There can be no assurance that the Company 
will successfully identify new product opportunities and develop and bring 
new products to market in a timely manner, that the Company's products will 
be selected for design into the products of its targeted customers or that 
products or technologies developed by others will not render the Company's 
products or technologies obsolete or noncompetitive. Furthermore, there can 
be no assurance that the products of the Company's customers will be 
successfully introduced into the market. The failure of the Company's new 
product development efforts, the failure of the Company to achieve market 
acceptance of its new products and the failure of the products of the 
Company's customers to achieve market acceptance would have a material 
adverse effect on the Company's business, financial condition and operating 
results.

         NEED FOR ADDITIONAL CAPITAL. In order to remain competitive, the 
Company must continue to make investments in new facilities and capital 
equipment. The Company spent $4.3 million on capital additions in the first 
two quarters of fiscal 1999 and although it expects to spend lesser amounts 
in the remaining quarters of fiscal year 1999, 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 (such as those described in Foundry Deposits later in this 
document) 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 a 
company's level of 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 such funds will be 
available on terms acceptable to the Company when needed. Any future equity 
financing will also lead to dilution to the existing shareholders.

         ACQUISITIONS. The Company has begun to pursue, and will continue to 
pursue, opportunities to acquire key technology to augment its technical 
capabilities or to achieve faster time to market as alternatives to 
internally developing such technology. Acquisitions involve numerous risks, 
including difficulties in integration of the operations, technologies, and 
products of the acquired companies; the risk of diverting management's 
attention from normal daily operations of the business; risks of entering 
markets in which the Company has no or limited direct prior experience and 
where competitors in such markets have stronger market positions; the 
coordination of sales, marketing and research and development; and the 
potential loss of key employees of the acquired company. In addition, 
investments in emerging technology 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.

         Failure to manage growth effectively and successfully integrate 
acquisitions made by the Company could adversely affect the Company's 
business and operating results. In addition, with such acquisitions, there is 
the risk that future operating performance may be unfavorably impacted due to 
acquisition related costs such as, but not limited to, in-process research 
and development charges, additional development expenses, lower gross margins 
generated by the sales of acquired products and restructuring costs 
associated with duplicate facilities.

         In the fourth quarter of fiscal year 1998, the Company acquired ODEUM
Microsystems, Inc. (ODEUM) and allocated approximately $1.3 million of the
purchase price to in-process research and development (which was expensed) and
approximately $2.2 million to purchased technology, goodwill and other
intangible assets which are recorded on the Company's balance sheet. In the
first quarter of fiscal year 1999, the Company acquired ViewPoint and allocated
approximately $4.8 million to in-process research and development and
approximately $4.4 million to purchased technology and other intangible assets.
Also in the first quarter of fiscal year 1999, the Company acquired XLI and
allocated approximately $2.4 million of the purchase price to in-process
research and development and approximately $4.4 million to purchased technology
and other intangible assets. For the ViewPoint and XLI acquisitions, the
valuation of the acquired in-process research and development used by the
Company in making its determination as to the amount of in-process research and
development expense was supported by valuation studies prepared by an
independent third-party appraiser. For the ODEUM acquisition, the acquired
in-process research and development valuation was based on Oak management's best
estimate based on its 


                                       18
<PAGE>


analysis of the progress of the ODEUM research and development in process at 
the acquisition date and the anticipated cash flows to be derived from the 
resulting products.

         In September 1998, a representative of the Securities and Exchange 
Commission (the "SEC") provided the American Institute of Certified Public 
Accountants with guidance as to the factors to be considered in the valuation 
of in-process research and development. Although the Company believes that 
the amounts of the recorded in-process research and development expense are 
reasonable when applying these factors, there can be no assurance that the 
SEC will not review the Company's valuations, which review could result in 
the Company making adjustments to the reported amounts of in-process research 
and development expense for the years ended June 30, 1998 and 1999. Any such 
adjustment could result in an increase in the amount of purchased technology 
and other intangibles recorded with respect to the acquisitions of ODEUM, 
ViewPoint, and XLI, which would result in higher amortization expenses, and 
therefore, adversely affect the Company's future operating results.

         INTELLECTUAL PROPERTY MATTERS. 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. The Company currently has 11 patents granted, 32 patents in 
preparation in the United States, 83 patents pending in the United States and 
three international patents granted and 19 international patents pending. The 
Company intends to seek additional international patents and additional 
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 all countries 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. Additionally, competitors of the Company may be able to design 
around the Company's patents. There can be no assurance that any patents held 
by the Company will not be challenged, invalidated or circumvented, or that 
the rights granted thereunder will provide competitive advantages to the 
Company. An action is currently pending in the Federal District Court for the 
Northern District of California seeking to invalidate one of the Company's 
patents relating to it's optical storage products. Moreover, while the 
Company holds or has applied for patents relating to the design of its 
products, some of the Company's products are based in part on standards, 
including MPEG-1, MPEG-2, JPEG and JBIG and the Company does not hold patents 
or other intellectual property rights for such standards. 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. 

         The semiconductor industry is characterized by vigorous protection 
and pursuit of intellectual property rights, which has resulted in 
significant, often protracted and expensive litigation. Although there is 
currently no pending intellectual property litigation against the Company, 
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 such 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 to suspend the 
manufacture of products or the use by the Company's foundries of processes 
requiring the technology. Furthermore, the Company may initiate claims or 
litigation against third parties for infringement of the Company's 
proprietary rights or to establish the validity of the Company's proprietary 
rights. In fiscal 1997 and again in fiscal 1998, the Company filed a 
complaint with the International Trade Commission (ITC) against certain Asian 
manufacturers of optical storage controller devices based on the Company's 
belief that such devices infringed one or more of the Company's patents. The 
complaint seeks a ban on the importation into the United States of any 
infringing CD-ROM controller or products containing such infringing CD-ROM 
controllers. (See "Legal Proceedings"). The Company has incurred significant 
legal expenses in connection with both ITC actions. Any litigation by or 
against the Company could result in significant expense to the Company and 
divert the efforts of the Company's technical and management personnel, 
whether or not such litigation results in a favorable determination for the 
Company. In the event of an adverse result in any such 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 such development or that such licenses would 
be available on reasonable terms, or at all, and any such development or 
license could require expenditures by the Company of


                                       19
<PAGE>


substantial time and other resources. Patent disputes in the semiconductor 
industry have often been settled through cross-licensing arrangements, 
however, the Company may not be able to settle an alleged patent infringement 
claim through a cross-licensing arrangement. 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.

         In addition, certain technology used in the Company's products is 
licensed from third parties, and pursuant thereto the Company is required to 
fulfill confidentiality obligations and in certain cases pay royalties. Some 
of the Company's products, particularly those targeted for the DVD (both PC 
and consumer) market, require certain 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 licenses technology from Sun Microsystems, Inc. for use in its 
consumer products under an agreement requiring royalty payments, and also has 
a number of joint development and supply arrangements, and on occasion buys 
products off the shelf for use with its own 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 certain 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 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 such licenses or purchases will be available on terms acceptable to the 
Company, if at all. The inability of the Company to enter into such 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.

         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. Under some circumstances, the Company grants 
licenses that give its customers limited access to the source code of the 
Company's software which increases the likelihood of misappropriation or 
misuse of the Company's technology. Accordingly, despite precautions taken by 
the Company, 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 taken by the Company 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.

         MANUFACTURING ISSUES. The Company contracts with independent 
foundries to manufacture all of its products, enabling the Company to focus 
on its design strengths, minimize fixed costs and capital expenditures and 
gain access to advanced manufacturing facilities. The Company's foundry 
agreements with TSMC and Chartered require up-front, nonrefundable 
prepayments or deposits and these fixed costs could affect the Company's 
operating margins if the Company is unable to utilize the minimum number of 
wafers required under the agreements. The Company is dependent on its 
foundries to allocate to the Company a portion of their foundry capacity 
sufficient to meet the Company's needs to produce products of acceptable 
quality and with acceptable manufacturing yields 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. While the 
Company believes there is adequate foundry capacity available to meet its 
current requirements, there can be no assurance that the Company will 
continue to have access to sufficient capacity to meet its needs in the 
future. If there is a decrease in available foundry capacity, it is likely 
that the lead time required to manufacture the Company's products will 
increase.

         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 additions of manufacturing capacity in large increments. The industry 
has moved from a period of capacity shortages in 1995 to what has been a 
period of excess capacity for approximately the last twelve months, although 
capacity currently appears to be tightening. During a period of industry 
overcapacity, profitability can drop sharply as factory utilization declines 
and high fixed costs of operating a wafer fabrication facility are spread 
over a lower net revenue base. Despite industry overcapacity, there can be no 
assurance that the Company can achieve timely, cost-effective access to such 
capacity when needed.

         The Company generally does not have long-term volume production 
contracts with its customers. Accordingly, customers generally buy the 
Company's products on a purchase order basis, often with short lead 


                                       20
<PAGE>


times. In periods of manufacturing capacity shortages, the Company may not be 
able to meet the customers required delivery times. Customer orders are also 
subject to rescheduling and cancellation which could result in the Company 
having excess inventory given that the Company does not enjoy such 
cancellation or rescheduling privileges with its foundries. In addition, 
whether any specific product design will result in volume production orders 
and, if so, the quantities included in any such orders, are factors beyond 
the control of the Company. Insufficient orders will result in 
underutilization of the Company's manufacturing facilities and the Company's 
prepayments and deposits with TSMC and Chartered which would adversely impact 
the Company's business, financial condition and operating results.

         The Company's results of operations could also be adversely affected if
particular suppliers are unable to provide a sufficient and timely supply of
product, whether because of raw material shortages, capacity constraints,
unexpected disruptions at the plants, delays in qualifying new suppliers or
other reasons, or if the Company is forced to purchase materials from higher
cost suppliers or to pay expediting charges to obtain additional supply, or if
the Company's test facilities are disrupted for an extended period of time.
Production could also be constrained by delays if there is a need to move
production from one facility to another. Such problems with supply could
adversely affect the Company's business, financial condition and operating
results. As the Company generally does not use multiple sources of supply for
its products, the consequences of these factors occurring is magnified.

         The Company had anticipated that it would be able to satisfy a small
portion of its manufacturing requirements from UICC; however, due to the October
1997 fire at the UICC, the Company will not be able to utilize this foundry in
the foreseeable future. UICC management has indicated that capacity will be
available through substitute capacity arrangements; however, no assurance can be
given as to the availability of such capacity. The loss of any of The Company's
foundries as a supplier, the inability of the Company in a period of increased
demand for its products to expand the foundry capacity of its current suppliers
or qualify other wafer manufacturers for additional foundry capacity, industry
overcapacity, any inability to obtain timely and adequate deliveries from the
Company's current or future suppliers or any other circumstances that would
require the Company to seek alternative sources of supply could delay shipments
of the Company's products, which could damage relationships with its current and
prospective customers, provide an advantage to the Company's competitors and
have a material adverse effect on the Company's business, financial condition
and operating results.

         Disruption of operations at any of the manufacturing facilities 
utilized by the Company or any of its subcontractors for any reason, 
including work stoppages, fire, earthquake, flooding or other natural 
disasters, would cause delays in shipments of the Company's products. There 
can be no assurance that alternative capacity would be available on a timely 
basis on terms acceptable to the Company, if at all, thereby resulting in a 
loss of customers. This could have a material adverse effect on the Company's 
business, financial condition and operating results.

         The manufacture of semiconductors is a highly complex and precise
process, with current trends in the Company's markets leading to increasingly
complex products. Minute levels of contaminants in the manufacturing
environment, defects in the masks used to print circuits on a wafer,
difficulties in the fabrication process or other factors can cause a substantial
percentage of wafers to be rejected or a significant number of die on each wafer
to be nonfunctional. Many of these problems are difficult to diagnose and time
consuming or expensive to remedy. The Company's products are particularly
complex and difficult to manufacture. The greater integration of functions and
complexity of operations of the Company's products increase the risk that latent
defects or subtle faults could be discovered by customers or end users after
volumes of product have been shipped. If such defects were significant, the
Company could incur material recall and replacement costs for product warranty.
The relationships with customers could also be adversely impacted. There can be
no assurance that the Company's foundries will not experience irregularities or
adverse yield fluctuations in their manufacturing processes. Any yield or other
production problems or shortages of supply experienced by the Company or its
foundries could have a material adverse effect on the Company's business,
financial condition and results of operations.

         The Company's reliance on independent manufacturers and third party
assembly and testing vendors involves a number of additional risks, including
the unavailability of, or interruption in access to, certain process
technologies and reduced control over delivery schedules, quality assurance and
costs. In addition, as a result of the Company's dependence on foreign
subcontractors, the Company is subject to the risks of conducting business
internationally, including foreign government regulation and general political
risks, such as political and economic instability, potential hostilities,
changes in diplomatic and trade relationships, currency fluctuations, unexpected
changes in, or imposition of, regulatory requirements, tariffs, import and
export restrictions, and other barriers and restrictions, potentially adverse
tax consequences, the burdens of complying with a variety of foreign laws and
other factors beyond the Company's control.



                                       21

<PAGE>


         DEPENDENCE ON CD-ROM CONTROLLER PRODUCTS. Sales of the Company's 
CD-ROM and CD-RW controller products comprised 69% and 80% of the Company's 
net revenues in the quarters ended December 31, 1998 and 1997, respectively. 
Sales of CD-ROM and CD-RW controller products are expected to continue to 
account for a substantial portion of the Company's total revenues for fiscal 
1999. The market for CD-ROM controller products continues to mature and 
therefore, it is expected that sales of such products will decline and will be 
influenced by the traditional seasonality and volatility associated with the 
PC market. It is further anticipated that the proliferation of CD-RW and 
eventually DVD drives will impact the demand for CD-ROM controller products. 
Due to the backward compatibility of DVD-ROM drives, it is critical that the 
Company maintain its CD-ROM customer base throughout this transition to 
DVD-ROM. Although the Company is currently sampling its first DVD-ROM 
controller, there can be no assurance that this product will be accepted by 
the customers or that such product will be able to sustain the current level 
of optical storage product sales. Given certain royalty issues related to DVD, 
it is currently unclear whether there will be a merchant market for DVD, and 
if there will be, how big it will be. Furthermore, although the Company is 
currently a leading supplier of CD-RW controllers, due to product delays the 
Company expects to experience lower unit sales from its CD-RW product until it 
is in production with its next generation CD-RW product. As the CD-ROM market 
has begun to mature and transition toward the emerging CD-RW and DVD-ROM 
markets, there have been a number of new competitors entering the market. This 
increased competition combined with the pressure from the sub-$1000 PC segment 
for lower cost components have caused tremendous price erosion on CD-ROM 
controller prices. Furthermore, there is currently a trend toward integrating 
increased functionality on the CD-ROM and CD-RW controller, potentially making 
the controller more costly through increased development costs and 
manufacturing costs. In addition, the Company's revenues and its gross margins 
from its CD-ROM and CD-RW controller products will be dependent on the 
Company's ability to introduce such integrated products in a commercially 
competitive manner. To provide integrated CD-ROM, CD-RW and DVD controller 
products, the Company has been and will continue to be required to expand the 
scope of its research and development efforts to provide these new functions, 
which will require the hiring of engineers skilled in the respective areas and 
additional management coordination among the Company's engineering and 
marketing groups. Alternatively, the Company may find it necessary or 
desirable to license or acquire technology to enable the Company to provide 
these functions, and there can be no assurance that any such technology will 
be available for license or purchase on acceptable terms to the Company. In 
addition, with new functions being added to the CD-ROM and CD-RW controller 
products, companies that historically provided chips with these functions are 
now entering the CD-ROM and CD-RW controller market with integrated products 
containing these functions as well as the controller function. Accordingly, 
given the above-stated factors, there can be no assurance that the Company 
will be able to sustain the current level of such product sales or current 
operating margins. In addition, there can be no assurance that the market for 
optical storage controller products in general, or the Company's optical 
storage controller products in particular, will support the Company's planned 
operations in the future. The Company's future revenue generation is much 
dependent on the successful introduction of its next generation CD-RW product 
and first generation PC DVD product, and there can be no assurance that the 
products will achieve customer acceptance. The Company has recently 
experienced, and continues to experience, a decrease in the overall level of 
sales of, and prices for, the Company's CD-ROM and older generation CD-RW 
controller products, due to introductions of products by competitors, a 
decline in demand for CD-ROM controller products, product obsolescence and 
delays in its integrated CD-ROM controller product which have had a material 
adverse effect on the Company's business, financial condition and results of 
operations.

         RISKS PERTAINING TO INTERNATIONAL BUSINESS. During the quarters 
ended December 31, 1998 and 1997, 86% and 94%, respectively, of the Company's 
net revenues were derived from international sales. A substantial portion of 
the Company's international revenues are derived from manufacturers of CD-ROM 
drives in Japan, Taiwan, Korean, Belgium and Singapore. 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. 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. The Company expects that there could be hedges of anticipated 
transactions or investments in foreign subsidiaries in the future. The 
Company is also subject to the additional risks of conducting business 
outside of the United States. These risks include unexpected changes in, or 
impositions of, legislative or regulatory requirements, delays resulting from 
difficulty in obtaining export licenses for certain technology, tariffs, 
quotas and other trade barriers and restrictions,

                                       22
<PAGE>


longer payment cycles, greater difficulty in accounts receivable collection, 
potentially adverse taxes, the burdens of complying with a variety of foreign 
laws and other factors beyond the Company's control. For example, the Company 
has made a significant investment in foundry capacity in Taiwan and is 
subject to the risk of political instability in Taiwan, including, but not 
limited to, the potential for conflict between Taiwan and the Peoples 
Republic of China. In addition, China is the primary market for the Company's 
DVD and cable and satellite products and therefore, any political or economic 
instability in China could reduce the demand for these products 
significantly. The Company is also subject to general geopolitical risks in 
connection with its international operations, such as political, social and 
economic instability, potential hostilities and changes in diplomatic and 
trade relationships. There can be no assurance that such factors will not 
adversely affect the Company's operations in the future or require the 
Company to modify its current business practices. In addition, the laws of 
certain foreign countries in which the Company's products are or may be 
developed, 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 one or more of the foregoing factors will not have a material 
adverse effect on the Company's business, financial condition or operating 
results or require the Company to modify its current business practices.

         LIMITED CUSTOMER BASE. A limited number of customers historically 
has accounted for a substantial portion of the Company's net revenues. In the 
quarters ended December 31, 1998 and 1997, sales to the Company's top ten 
customers accounted for approximately 75% and 83%, respectively, of the 
Company's net revenues. These customers were all purchasers of the Company's 
CD-ROM and CD-RW products. At December 31, 1998 one customer accounted for 
48% of the Company's accounts receivable. Although the Company is currently 
attempting to diversify its products, markets, and customer base, the Company 
expects that sales to a limited number of customers will continue to account 
for a substantial portion of its net revenues for the foreseeable future. The 
Company has experienced significant changes from year to year in the 
composition of its major customer base and believes this pattern will 
continue. The Company does not have long term purchase agreements with any of 
its customers. Customers generally purchase the Company's products pursuant 
to short-term purchase orders. The loss of, or significant reduction in 
purchases by, current major customers would have a material adverse effect on 
the Company's business, financial condition and operating results. Philips 
recently announced that it will cease ordering the Company's CD-RW product as 
Philips has its own solution. There can be no assurances that the Company's 
current customers will continue to place orders or that existing orders will 
not be canceled. If sales to current customers cease or are reduced, there 
can be no assurance that the Company will be able to continue to obtain the 
orders from new customers necessary to offset any such losses or reductions. 
The loss of business or cancellation of orders from any key customers, 
significant changes in scheduled deliveries to any of these customers or 
decreases in the prices of products sold to any of these customers could have 
a material adverse effect on the Company's business, financial condition and 
results of operations.

         COMPETITION. The markets in which the Company competes are intensely 
competitive and are characterized by rapid technological change, declining 
unit ASPs and rapid product obsolescence. 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 existing and potential competitors include many large domestic and 
international companies that have substantially greater financial, 
manufacturing, technical, marketing, distribution and other resources, 
broader product lines and longer standing relationships with customers than 
the Company. The Company's competitors also include a number of emerging 
companies as well as some of the Company's own customers and suppliers. The 
Company is currently attempting to enter several new markets in which the 
Company has not previously operated. These markets are intensely competitive 
and the Company will have to compete with large domestic and international 
companies that have long standing relationships with the Company's target 
customers. Specifically, the Company's ability to compete successfully in the 
PC DVD and digital broadcast markets will depend on its ability to develop 
partnerships with other companies established in the industries and to gain 
recognition in such markets. There can be no assurance that participation in 
these new markets will produce positive results for the Company. Certain of 
the Company's principal competitors maintain their own semiconductor 
foundries and may therefore benefit from certain capacity, cost and 
technological advantages. In addition, in the digital office equipment 
market, the Company's most intense competition comes from captive suppliers 
and the Company anticipates increased competition from the captive suppliers 
to the optical storage market as this market transitions to DVD. The Company 
believes that its ability to compete successfully depends on a number of 
factors, both within and outside of its control, including the price, quality 
and performance of the Company's and its customers' products, the timing and 
success of new product introductions by the Company, its customers and its 
competitors, the development of technical innovations, the ability to obtain 
adequate foundry capacity and sources of raw materials, the efficiency of 
production, the rate at which the Company's customers design the Company's 
products into their products, the market acceptance of the products of the 
Company's customers, the number and nature of the Company's competitors in a 
given market, the assertion of intellectual property rights and general 
market and economic conditions. There can be no assurance that the Company 
will be able to compete successfully in the future.


                                       23
<PAGE>


         DEPENDENCE ON KEY PERSONNEL. 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. 
The Company is in the process of recruiting replacements for certain senior 
management positions as well as additional senior managers and technical 
personnel. Competition for these persons is intense and there can be no 
assurance that the Company will be able to attract and retain qualified 
replacements or additional senior managers and technical personnel.

         YEAR 2000 RISK FACTOR. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than one year, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements.

         The Company has begun a review of its Year 2000 readiness in three 
main areas: Internal systems, external vendors and products. The review will 
consist of the following phases: Inventory/Assessment, Conversion/Vendor 
Readiness, Contingency Planning, Testing and Implementation. The 
Inventory/Assessment phase of the project was substantially completed as of 
December 31, 1998, and the Company has begun the Conversion/Vendor Readiness 
phase. The entire Year 2000 project is expected to be complete by September, 
1999.

         For internal systems, the Company will be looking at all network
components, PCs, Unix workstations, business applications, CAD systems, desktop
applications, operating systems, testers, telephone system, FAX, copiers,
security and environmental systems. With the recent implementation of the Oracle
ERP system and upgrades of PCs to Pentium CPUs and other upgrades, the Company
does not anticipate any major Year 2000 related renovation work for internal
systems. However, the failure of any internal system to achieve Year 2000
readiness could result in material disruption to the Company's operations. The
Company has begun requesting Year 2000 readiness and warranty statements from
external product and service vendors. Even where assurances are received from
third parties there remains a risk that failure of systems and products of other
companies on which the Company relies could have a material adverse effect on
the Company. The Company will examine how its products may be affected by Year
2000. The inability of any of the Company's products to properly manage and
manipulate data in the year 2000 could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material problems.

          All product related assessments and testing are expected to be 
completed by April, 1999. Updates or status on products will be available on 
the Company's web site (www.oaktech.com). The Company considers a product or 
system to be Year 2000 compliant if the date/time data is accurately 
processed (including, but not limited to, calculating, comparing, and 
sequencing) from, into and between the twentieth and twenty-first centuries, 
and the years 1999 and 2000 along with leap year calculations. To date, the 
Company has not identified any non-compliant products and therefore, no 
material costs have been incurred with respect to remediation. The Company 
expects to complete a preliminary estimate of Year 2000 costs related to 
product compliance during the first quarter of calendar 1999. The Company 
believes that it is unlikely to experience a material adverse impact on its 
financial condition or results of operations due to product related Year 2000 
compliance issues. However, since the assessment process is ongoing, Year 
2000 implications are not fully known, and potential liability issues are not 
clear. Therefore, the full potential impact of the Year 2000 on the Company 
is not known at this time.

          At this point, the Company believes that total cost of achieving Year
2000 readiness will be less than $1.5 million. At the end of the assessment
phase, the Company will be able to more accurately estimate the total costs for
Year 2000 readiness. The foregoing statements are based upon management's best
estimates at the present time, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. There can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
nature and amount of programming required to upgrade or replace each of the
affected programs, the rate and magnitude of related labor and consulting costs
and the success of the Company's external customers and suppliers in addressing
the Year 2000 issue.

         The Company is actively responding to all customer requests for 
compliance, surveys and other general information related to its Year 2000 
programs. The Company will also request assurance from its key customers that 
they, and their products which incorporate Oak products, are Year 2000 
compliant.

         As the Year 2000 project continues, the Company may discover 
additional Year 2000 problems, may not be able to develop, implement, or test 
remediation or contingency plans in a timely manner, or may find that the 
costs of these activities exceed current expectations and become material. In 
many cases, the Company is relying on assurances from suppliers and customers 
that new and upgraded information systems and other products will be Year 
2000 compliant. The Company plans to test certain third-party products, but 
cannot be sure that its tests will 
                                       24
<PAGE>

be adequate or that, if problems are identified, they will be addressed by 
the supplier in a timely and satisfactory way.

         Because the Company uses a variety of information systems and has 
additional systems embedded in its operations and infrastructure, the Company 
cannot be sure that all of its systems will work together in a Year 
2000-compliant fashion. Furthermore, the Company cannot be sure that it will 
not suffer business interruptions, either because of its own Year 2000 
problems or those of its customers or suppliers whose Year 2000 problems may 
make it difficult or impossible for them to fulfill their commitments to the 
Company. If the Company fails to satisfactorily resolve Year 2000 issues 
related to its products in a timely manner, it could be exposed to liability 
to third parties.

          If the Company or the third parties with which it has relationships 
were to cease or not successfully complete its or their Year 2000 remediation 
efforts, the Company would encounter disruptions to its business that could 
have a material adverse effect on its business, financial position and 
results of operations. The Company could be materially and adversely impacted 
by widespread economic or financial market disruption or by Year 2000 
computer system failures at third parties with which it has relationships.

         The Company has not developed a contingency plan that addresses how 
it plans to handle any of the "worst-case" Year 2000 issues that may confront 
it but instead has focused its resources on identifying material, remediable 
problems and reducing uncertainties generally, through the Year 2000 project 
described above.

         The Company's evaluation is on-going and it expects that new and
different information will become available to it as that evaluation continues.
As a result, the Company has no reasonable basis to conclude that the Year 2000
problem will not have a materially adverse effect on the Company's operations.

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 debt. The Company's principal sources of
liquidity as of December 31, 1998 consisted of approximately $95.5 million in
cash, cash equivalents and short-term investments. The Company also has
approximately $13.1 million in lines of letters of credit with Taiwanese
financial institutions, all of which was available at December 31, 1998.
Additionally, approximately $15 million in lines of credit exist with Japanese
financial institutions, of which approximately $9 million was available at
December 31, 1998.

         In the six months ended December 31, 1998, operating activities used 
net cash of approximately $5.9 million. The Company's net loss of 
approximately $23.8 million was offset by receipt of income tax refunds 
totaling $8.0 million, and the non-cash effect of depreciation and 
amortization ($5.7 million) and in-process research and development writeoffs 
($7.2 million). An increase in accounts receivable of $4.7 million, due to 
sales to Japanese customers under extended payment terms, also contributed to 
the use of cash. Investing activities utilized cash of approximately $21.7 
million primarily due to the ViewPoint and XLI acquisitions ($15.2 million, 
net of cash acquired) and additions to property, plant and equipment of $4.3 
million. Borrowings under the Company's line of credit in Japan increased by 
$3.5 million, necessitated by the accounts receivable increase at the 
Company's Japanese subsidiary. Additionally, the Company repurchased 658,000 
shares of it common stock during the first half of fiscal year 1999, for a 
total of approximately $2.1 million and repurchased an additional 200,000 
shares in the third quarter of fiscal 1999.

         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 through at least the next twelve months. If during the next 12 to 18 
month period the Company fails to increase its revenue or is unable to reduce 
its expenses below its revenues, then the Company is likely to 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. However, the Company has no present understandings, 
commitments or agreements with respect to any material acquisition of other 
businesses, products or technologies.

                                       25
<PAGE>


FOUNDRY DEPOSITS AND INVESTMENT IN FOUNDRY VENTURE

         FOUNDRY DEPOSITS. The Company contracts with independent foundries 
to manufacture all of its semiconductor products, enabling the Company to 
focus on its design strengths, minimize fixed costs and capital expenditures 
and gain access to advanced manufacturing facilities. The Company's primary 
suppliers under such arrangements during the first half of fiscal year 1999 
were TSMC, Sony, and LG Semicon Co. Ltd. in Korea. The Company also uses 
wafer fabrication facilities at Chartered, Rohm, and NEC. The foundries 
generally are not obligated to supply products to the Company for any 
specific period, in any specific quantity or at a specific price, except as 
may be provided in a particular purchase order. However, 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, such as those with TSMC and Chartered as described in Note 3 to 
the condensed consolidated financial statements 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. There can be no 
assurance that such additional financing, if required, will be available when 
needed or if available, will be on satisfactory terms.

     INVESTMENT IN FOUNDRY VENTURE. As described in Note 4 to the condensed 
consolidated financial statements, the Company has an investment in a foundry 
venture in Taiwan. Given the Company's disputes with UMC (see "Legal 
Proceedings"), the Company intends to sell its interest in UICC at an 
appropriate time. However, no definitive time period can be given. In 
addition, there can be no assurance that a market will develop for the shares 
representing the Company's equity investment at any time in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company has performed an analysis to assess the potential effect of 
reasonably possible near-term changes in interest and foreign currency 
exchange rates. The effect of such rate changes is not expected to be 
material to the Company's results of operations, cash flows or financial 
condition. Net foreign currency gains and losses were not material for the 
three or six months ended December 31, 1998.


                                       26
<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Company and various of its current and former officers and Directors 
are parties to several class action lawsuits  filed on behalf of all persons 
who purchased or acquired the Company's stock (excluding the defendants and 
parties related to them) for the period July 27, 1995 through May 22, 1996.  
The first, a state court proceeding designated IN RE OAK TECHNOLOGY SECURITIES 
LITIGATION, Master File No. CV758510 pending in Santa Clara County Superior 
Court in Santa Clara, California, consolidates five class actions.  This 
lawsuit also names as defendants several of the Company's venture capital fund 
investors, two of its investment bankers and two securities analysts.  The 
plaintiffs allege violations of California securities laws and statutory 
deceit provisions as well as breaches of fiduciary duty and abuse of control.  
On December 6, 1996, the state court Judge sustained the Oak defendants' 
demurrer to all causes of action alleged in plaintiffs' First Amended 
Consolidated Complaint, but allowed plaintiffs the opportunity to amend.  The 
plaintiffs' Second Amended Consolidated Complaint was filed on August 1, 1997. 
 On December 3, 1997, the state court Judge sustained the Oak defendants' 
demurrer to plaintiffs' Second Amended Consolidated Complaint  without leave 
to amend to the causes of action for breach of fiduciary duty and abuse of 
control, and to the California Corporations Code Sections 25400/25500 claims 
with respect to the Company, a number of the individual officers and 
directors, and the venture capital investors.  The judge also sustained the 
demurrer with leave to amend to the California  Civil code Sections 1709/1710 
claims, however plaintiffs elected not to amend this claim.  Accordingly, the 
only remaining claims in state court action, IN RE OAK TECHNOLOGY SECURITIES 
LITIGATION, is the California Corporations Code Sections 25400/25500 cause of 
action against four officers of  the Company and the Company's investment 
bankers and securities analysts. On July 16, 1998, the state 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.  Discovery has commenced in this action. Defendants 
and certain third parties have produced documents and a small number of 
depositions have been taken.

     The Company and various of its current and former officers and Directors 
are also parties to four putative class action lawsuits pending in the U.S. 
District Court for the Northern District of California.  These actions have 
been consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case 
No. C-96-20552-SW(PVT).  This action alleges certain violations of federal 
securities laws and is brought on behalf of purchasers of the Company's stock 
for the period July 27, 1995 through May 22, 1996.  This action also names as 
a defendant one of the Company's investment bankers.  On July 29, 1997, the 
federal court Judge granted the Oak defendants Motion to Dismiss the 
plaintiffs' First Amended Consolidated Complaint, but granted plaintiffs 
leave to amend most claims. The plaintiffs' Second Amended Consolidated 
Complaint was filed on September 4, 1997.  Defendants Motion to Dismiss was 
heard on December 17, 1997.  The federal court Judge took the matter under 
submission and has not yet issued a ruling.

     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 class 
actions.

     In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief.  In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company.  

     All of these actions are in the early stages of proceedings.  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 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 Consolidated 
Financial Statements. 

     In connection with these legal proceedings, the Company has incurred and 
expects to continue to incur legal and other expenses.

     The Company and its current Directors are also parties to six putative
class actions filed on behalf of all Oak Technology, Inc. shareholders (other
than defendants) in the Court of Chancery of the State of Delaware in and for


                                       27

<PAGE>

New Castle County concerning a proposal by a management led investor group 
known as "Gold Acquisition Group" to acquire all of the outstanding shares of 
the Company for a price of $4.50 per share.  Plaintiffs have requested 
consolidation of the actions under the caption IN RE OAK TECHNOLOGY, INC. 
SHAREHOLDERS LITIGATION, C.A. No. 16789 ("Delaware Shareholders Litigation"). 
 The other civil action numbers are 16792, 16793, 16794, 16818, and 16831.  
Plaintiffs allege that the offer is inadequate and that the defendants 
breached their fiduciary duties of loyalty and entire fairness.  On December 
14, 1998, a Special Committee of the Board of Directors that had been formed 
to evaluate the proposal announced that it would not recommend the proposal 
to the Company's full Board of Directors.  In addition, on December 21, 1998, 
Gold Acquisition Group announced that its proposal had expired and to date, 
it has not been renewed.  Based on its investigation to date, the Company 
believes the suits to be without merit and will defend its position 
vigorously. No provision for any liability that may result upon adjudication 
has been made in the Company's Consolidated Financial Statements

     The Company and its current Directors are also parties to a putative class
action filed on behalf of all Oak Technology, Inc. shareholders (other than
defendants) in Santa Clara County Superior Court, designated KRIM V. OAK
TECHNOLOGY, INC., et al., Case No. 778281.  The allegations of Plaintiffs in
this action are nearly identical to the Delaware Shareholders Litigation.  This
action has been stayed by agreement of the parties as a result of the Special
Committee's announcement that it would not recommend to the full Board of
Directors the proposal made by Gold Acquisition Group to acquire all of the
outstanding shares of the Company for a price of $4.50 per share as well as the
subsequent announcement of the expiration of the proposal by Gold Acquisition
Group.  Based on its investigation to date, the Company believes the suit to be
without merit and will defend it position vigorously. No provision for any
liability that may result upon adjudication has been made in the Company's
Consolidated Financial Statements

     In September, 1998 the Company and certain of its current Directors 
became parties to a putative class action lawsuit pending in the Court of 
Chancery in the State of Delaware, entitled MANNING V. OAK TECHNOLOGY, ET 
AL., Civil Action No. 16656NC.  This action alleges violations of the 
Delaware General Corporation Law and breaches of fiduciary duty and is 
brought on behalf of all owners of Oak Technology common stock at any time 
between August 19, 1997 and the date of class certification.  Plaintiffs' 
claims are based upon the Board of Directors' adoption on or about August 19, 
1997 of a Stockholder Rights Plan that included a provision that limited the 
redemption or modification of the Plan to its Continuing Directors or their 
designated successors.  Plaintiffs allege that the Stockholder Rights Plan 
with the Continuing Directors provision disenfranchises public stockholders  
by forcing them to  vote for incumbent  directors who enjoy full voting 
rights; that it restricts the ability of future directors to exercise their 
full statutory prerogatives; and that the particular provision at issue is an 
unreasonable and disproportionate response to any threatened takeover. 
Plaintiffs are seeking an injunction and a declaratory judgment that the 
Stockholder Rights Plan is invalid and unenforceable and monetary damages for 
the alleged violations of fiduciary duty.  On November 18, 1998, in light of 
the change in the law due to the decision in CARMODY V. TOLL BROS., the 
Company's Board of Directors voted to amend the Shareholders Rights Plan to 
eliminate the Continuing Directors Provision.  On December 11, 1998, 
plaintiffs amended their complaint to include a cause of action which 
asserted that the Company's Directors elected after the adoption of the 
Company's Shareholder Rights Plan were not validly elected and another cause 
of action for breach of fiduciary duty related to the proposal by the Gold 
Acquisition Group to acquire all of the outstanding stock of the Company for 
$4.50 per share (also the subject of the DELAWARE SHAREHOLDERS LITIGATION and 
the KRIM litigation described above).  A tentative settlement has been 
reached with the plaintiffs.  The settlement should not have a material 
effect on the Company's Consolidated Financial Statements.  To date, no 
provision for any has been made in the Company's Consolidated Financial 
Statements

     In connection with the above-described legal proceedings, the Company 
expects to incur legal and other expenses.

     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 any infringing CD-ROM controller or
product containing such infringing CD-ROM controller.  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 Peripheal
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 


                                      28

<PAGE>

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 Peripheal International (Pte.).  On 
April 15, 1998, Investigation No. 337-TA-401 was ordered terminated as to all 
parties.
     
     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 nonoperating 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 asserting causes of action for recission, 
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 will be lifted upon 
final resolution of Investigation No. 337-TA-409, at which time the Company 
intends to pursue its action against UMC for breach of contract, breach of the 
covenant of good faith and fair dealing and fraud.
     
     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 will be lifted upon final resolution of 
Investigation No. 337-TA-409.
     
     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 of their allegedly 
infringing products 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.

                                      29

<PAGE>


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.
     
     Trial before the ALJ as to all respondents except UMC commenced on 
January 11, 1999 and concluded on January 28, 1999.  The schedule and 
procedures for the trial before the ALJ as to respondent UMC has not yet been 
determined. In most cases, the ITC decides within 12 to 15 months after the 
filing of a complaint whether or not to issue an order excluding foreign 
products that allegedly infringe U.S. patents.  Currently, the date set for 
completion of the Investigation by the Commission is June 14, 1999, with an 
Initial Determination due from the ALJ by March 15, 1999.   These dates could 
change depending upon the schedule and procedure for the trial as to 
respondent UMC. In connection with this legal proceeding, the Company has 
incurred and will continue to incur substantial legal and other expenses.
     
     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.


                                       30

<PAGE>


ITEM 2.  CHANGES IN SECURITIES

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

     1.  (a)  The Company's Annual Meeting was held on November 24, 1998.

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

<TABLE>
<CAPTION>

                                                                        PERCENTAGE OF
                                            FOR                         VOTES RECEIVED
                                         ----------                     --------------
<S>                                      <C>                                 <C>
         Timothy Tomlinson               35,212,241                          95%
         Young K. Sohn                   36,278,428                          98%

</TABLE>


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

         Richard B. Black
         David D. Tsang
         Ta-Lin Hsu
         Timothy Tomlinson
         Young K. Sohn

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

               To approve an amendment to the 1994 Employee Stock Option Plan to
         (i) increase the number of shares of Common Stock authorized for
         issuance over the term of the Option Plan by 6,000,000 shares, (ii)
         render non-employee directors eligible to receive option grants under
         the Option Plan and (iii) eliminate the restriction that the
         individuals who serve on the Compensation Committee may not receive
         option grants under the Option Plan.
<TABLE>
         <S>                   <C>
         For                   12,583,787
         Against                8,128,142
         Abstain                  106,120

</TABLE>


                                      31

<PAGE>

              To approve an amendment to the 1994 Employee Stock Purchase Plan
         to (i) increase the number of shares of Common Stock authorized for
         issuance over the term of the Purchase Plan by 1,000,000 shares, (ii)
         extend for an additional five years the term of the Purchase Plan and
         (iii) allow employees of the Company's affiliates to participate in the
         Purchase Plan.
<TABLE>
         <S>                   <C>
         For                   17,415,000
         Against                3,613,171
         Abstain                  122,613

</TABLE>


              To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants:
<TABLE>
         <S>                   <C>
         For                   36,572,763
         Against                  206,902
         Abstain                   89,983

</TABLE>


ITEM 5.  OTHER INFORMATION

         None


                                       32
<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM  8-K

(a)      The following exhibits are filed herewith or incorporated by reference
         herein.
<TABLE>
<CAPTION>

         Exhibit
         Number            Exhibit Title
         -------           -------------
         <S>               <C>
         3.01              The Company's Restated Certificate of Incorporation,
                           as amended (1)

         3.02              The Company's Restated Bylaws (2)

         3.03              Certificate of Correction to the Restated Certificate
                           of Incorporation of the Company (16)

         4.01              Form of Specimen Certificate for the Company's Common
                           Stock (3)

         4.02              Amended and Restated Registration Rights Agreement
                           dated as of October 15, 1993 among the Company and
                           various investors (3)

         4.03              The Company's Restated Certificate of Incorporation,
                           as amended (See Exhibit 3.01)

         4.04              The Company's Restated Bylaws (See Exhibit 3.02)

         4.05              Form of Certificate of Designation of Series A Junior
                           Participating Preferred Stock of the Company dated
                           August 18, 1997 (16)

         4.06              Rights Agreement between the Company and BankBoston,
                           N.A. dated August 19, 1997 (16)

         10.01             1988 Stock Option Plan, as amended and related
                           documents (3)*

         10.02             1994 Stock Option Plan and related documents (3) and
                           amendment thereto dated February 1, 1996 (4)*

         10.03             1994 Outside Directors' Stock Option Plan and related
                           documents (3)*

         10.04             1994 Employee Stock Purchase Plan (3)*

         10.05             401(k) Plan and related documents (3) and Amendment
                           Number One and Supplemental Participation Agreement
                           thereto (5)*

         10.06             Lease Agreement dated August 3, 1988 between John
                           Arrillaga, Trustee, or his Successor Trustee, UTA
                           dated 7/20/77 (John Arrillaga Separate Property
                           Trust) as amended and Richard T. Peery, Trustee, or
                           his Successor Trustee, UTA dated 7/20/77 (Richard T.
                           Peery Separate Property Trust) as amended, and Justin
                           Jacobs, Jr., dba Siri-Kifer Investments, a joint
                           venture, and the Company, as amended June 1, 1990,
                           and Consent to Alterations dated March 26, 1991
                           (lease agreement for 139 Kifer Court, Sunnyvale,
                           California) (3), and amendments thereto dated June
                           15, 1995 and July 19, 1995 (5)

         10.07             Lease Agreement dated August 22, 1994 between John
                           Arrillaga, Trustee, or his Successor Trustee, UTA
                           dated 7/20/77 (John Arrillaga Separate Property
                           Trust) as amended and Richard T. Peery, Trustee, or
                           his Successor Trustee, UTA dated 7/20/77 (Richard T.
                           Peery Separate Property Trust) as amended, and Justin
                           Jacobs, Jr., dba Siri-Kifer Investments, a joint
                           venture, and the Company (lease agreement for 140
                           Kifer Court, Sunnyvale, California) (3), and
                           amendment thereto dated June 15, 1995 (5)


</TABLE>


                                       33
<PAGE>

<TABLE>

         <S>               <C>
         10.08             Form of Indemnification Agreement, between the
                           Company and each of its Directors and executive
                           officers (14)

         10.09             VCEP Agreement dated July 30, 1990 between the
                           Company and Advanced Micro Devices, Inc.(3)

         10.10             Product License Agreement dated April 13, 1993
                           between the Company and Media Chips, Inc., as amended
                           September 16, 1993 (3)

         10.11             Resolutions of the Board of Directors of the Company
                           dated July 27, 1994 setting forth the provisions of
                           the Executive Bonus Plan (3) (12)*

         10.12             Employee Incentive Plan effective January 1, 1995
                           (3)*

         10.13             Option Agreement between Oak Technology, Inc., and
                           Taiwan Semiconductor Manufacturing Co., Ltd. dated as
                           of August 8, 1996 (14)**

         10.14             Foundry Venture Agreement between the Company and
                           United Microelectronics Corporation dated as of
                           October 2, 1995 (6) (12)

         10.15             Fab Ven Foundry Capacity Agreement among the Company,
                           Fab Ven and United Microelectronics Corporation dated
                           as of October 2, 1995 (7) (12)

         10.16             Written Assurances Re: Foundry Venture Agreement
                           among the Company, United Microelectronics
                           Corporation and Fab Ven dated as of October 2, 1995
                           (8) (12)

         10.17             Lease Agreement dated June 15, 1995 between John
                           Arrillaga, Trustee, or his Successor Trustee, UTA
                           dated 7/20/77 (John Arrillaga Separate Property
                           Trust) as amended and Richard T. Peery, Trustee, or
                           his Successor Trustee, UTA dated 7/20/77 (Richard
                           T.Peery Separate Property Trust) as amended, and the
                           Company (lease agreement for 130 Kifer Court,
                           Sunnyvale, California) (9), and amendments thereto
                           dated June 15, 1995 and August 18, 1995 (10)

         10.18             Deposit Agreement dated November 8, 1995 between
                           Chartered Semiconductor Manufacturing Ltd. and the
                           Company (11), and Amendment Agreement (No. 1) thereto
                           dated September 25, 1996 (13)**

         10.19             Amendment Agreement (No. 2) dated April 7, 1997 to
                           Deposit Agreement dated November 8, 1995 between
                           Chartered Semiconductor Manufacturing Ltd. and the
                           Company(15) and addendum thereto dated September 26,
                           1997 (17)**

         10.20             First Amendment to Plan of Reorganization and
                           Agreement of Merger dated October 27, 1995 among the
                           Company, Oak Acquisition Corporation, Pixel Magic,
                           Inc. and the then shareholders of Pixel dated June
                           25, 1996 and Second Amendment thereto dated June 13,
                           1997 (16)

         10.21             First Amendment to Non-Compete and Technology
                           Transfer Agreement by and among the Company, Pixel
                           Magic, Inc. and Peter D. Besen dated June 13, 1997
                           (16)**

         10.22             Agreement of Termination of Employment Agreement
                           between Pixel Magic, Inc. and Peter D. Besen dated
                           June 13, 1997 (16)

         10.23             Agreement of Termination of Employment Agreement
                           between Pixel Magic, Inc. and Don Schulsinger dated
                           June 13, 1997 (16)

         10.24             Release and Settlement Agreement between the Company
                           and United Microelectronics Corporation dated July
                           31, 1997 (16)**
</TABLE>




                                       34
<PAGE>

<TABLE>

         <S>               <C>
         10.25             Sublease Agreement dated December 1, 1997 between
                           Global Village Communication, Inc. and the Company
                           (lease agreement for 1150 East Arques Avenue,
                           Sunnyvale, California) and accompanying lease and
                           amendment thereto (18)

         10.26             Amendment to Option Agreement be and between Taiwan
                           Semiconductor Manufacturing Co., Ltd., and the
                           Company (19)**

         10.27             Settlement Agreement between Winbond Electronics
                           Corporation and the Company (19)**

         10.28             Amendment Agreement (No.3) to Deposit Agreement Dated
                           November 8, 1995 between Chartered Semiconductor
                           Manufacturing Ltd. and Oak Technology Inc.

         27.01             Financial Data Schedule

</TABLE>


---------------------------
(1)      Incorporated herein by reference to exhibit 3.01 of the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.

(2)      Incorporated herein by reference to exhibit 3.05 filed with the
         Company's Registration Statement on Form S-1 (File No. 33-87518)
         declared effective by the Securities and Exchange Commission on
         February 13, 1995 (the "February 1995 Form S-1").

(3)      Incorporated herein by reference to the exhibit with the same number
         filed with the February 1995 Form S-1.

(4)      Incorporated herein by reference to Exhibit 10.1 filed with the
         Company's Registration Statement on Form S-8 (File No. 333-4334) on May
         2, 1996.

(5)      Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Annual Report on Form 10-K for the year ended
         June 30, 1996.

(6)      Incorporated herein by reference to Exhibit 2.1 filed with the
         Company's Form 8-K dated October 2, 1995 (the "October 1995 form 8-K").

(7)      Incorporated herein by reference to Exhibit 2.2 filed with the October
         1995 Form 8-K.

(8)      Incorporated herein by reference to Exhibit 2.3 filed with the October
         1995 Form 8-K.

(9)      Incorporated herein by reference to Exhibit 10.08 filed with the
         Company's Annual Report on Form 10-K for the year ended June 30, 1995.

(10)     Incorporated herein by reference to Exhibit 10.08 filed with the
         Company's Annual Report on Form 10-K for the year ended June 30, 1996.

(11)     Incorporated herein by reference to Exhibit 10.04 filed with the
         Company's Quarterly Report on Form 10-Q for the quarter ended December
         31, 1995.

(12)     Confidential treatment has been granted with respect to portions of
         this exhibit.

(13)     Incorporated herein by reference to Exhibit 10.17 filed with the
         Company's Annual Report on Form 10-K for the year ended June 30, 1996.

(14)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1996.

(15)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Quarterly Report on Form 10-Q for the quarter
         ended March 31, 1997.

(16)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Annual Report on Form 10-K for the year ended
         June 30, 1997.

(17)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1997.

(18)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Quarterly Report on Form 10-Q for the quarter
         ended December 31, 1997.

(19)     Incorporated herein by reference to the exhibit with the same number
         filed with the Company's Quarterly Report on Form 10-Q for the quarter
         ended March 31, 1998
---------------------------
*        Indicates Management incentive plan.
**       Confidential treatment granted and/or requested as to portions of the
         exhibit.


                                       35
<PAGE>

(b)      Reports on Form 8-K

         The Company filed a Report on Form 8-K on November 18, 1998, making an
         item 5 disclosure that it had amended its Rights Agreement, dated
         August 19, 1997, to eliminate those provisions that require that
         certain actions may only be taken by "Continuing Directors".

         The Company filed a Report on Form 8-K on December 14, 1998, making 
         an item 5 disclosure that it had announced in a press release that 
         the special committee appointed by the Company's Board of Directors 
         will not recommend to the full Board of Directors the proposal by 
         Gold Acquisition Group to acquire all of the outstanding shares of 
         the Company for a price of $4.50 per share regarding a buyout of the 
         Company.

                                       36
<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:  February 16, 1999
                                   /s/ ROBERT O. HERSH
                                   -------------------
                                   Robert O. Hersh, Vice-President Finance
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)




                                       37
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit
Number     Exhibit Title
------     -------------
<S>        <C>
10.28      Amendment Agreement (No.3) to Deposit Agreement Dated November 8,
           1995 between Chartered Semiconductor Manufacturing Ltd. and Oak
           Technology Inc.

27.01      Financial Data Schedule

</TABLE>



                                       38