<PAGE>


                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
                                          
                                     FORM 10-Q
                                          

    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                               EXCHANGE ACT OF 1934
                                          
                 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 September 30, 1998, there were outstanding 40,656,495 shares of the
Registrant's Common Stock, par value $0.001 per share. 


<PAGE>


                       OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                                          
                                       INDEX

<TABLE>


PART  I - FINANCIAL INFORMATION                                                     PAGE

<S>                                                                                 <C>
Item 1.   Financial Statements
     
          Condensed Consolidated Balance Sheets as of September 30, 1998 
             (unaudited) and June 30, 1998............................................3
          
          Condensed Consolidated Statements of Operations (unaudited) for the
             Three Months ended September 30, 1998 and 1997...........................4
          
          Condensed Consolidated Statements of Cash Flows (unaudited) for the
             Three Months Ended September 30, 1998 and 1997...........................5
          
          Notes to Condensed Consolidated Financial Statements (unaudited)............6

Item 2.   Management's Discussion and Analysis of 
             Financial Condition and Results of Operations...........................11
          
          
PART II - OTHER INFORMATION

Item 1.  Legal Proceedings...........................................................25
          

Item 6.  Exhibits and Reports on Form 8-K............................................28
          
SIGNATURES...........................................................................32

</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)

<TABLE>

                                                               (Unaudited)
                                                               SEPTEMBER 30,         JUNE 30,
                                                                   1998                1998
                                                               -------------         --------
<S>                                                            <C>                  <C>
ASSETS

Current assets:
  Cash and cash equivalents                                     $  50,998           $  59,803
  Short-term investments                                           54,343              57,422
  Accounts receivable, net of allowance for doubtful
    accounts of $812 and $809, respectively                        13,616              17,605
  Inventories                                                       3,714               7,558
  Current portion of foundry deposits                              10,771               2,944
  Prepaid expenses and other current assets                        11,063              16,323
                                                                ---------           ---------
    Total current assets                                          144,505             161,655
Property and equipment, net                                        26,468              25,114
Foundry deposits                                                    9,871              18,231
Investment in foundry venture                                      51,216              51,216
Purchased technology                                               10,345               1,567
Other assets                                                        4,050               3,628
                                                                ---------           ---------
    Total assets                                                $ 246,455           $ 261,411
                                                                ---------           ---------
                                                                ---------           ---------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable                                                 $   3,360           $   2,625
  Accounts payable                                                  4,656               6,236
  Other accrued liabilities                                        10,328               8,480
                                                                ---------           ---------
    Total current liabilities                                      18,344              17,341

Deferred income taxes                                               2,607               2,607
Other long-term liabilities                                           185                 255
                                                                ---------           ---------
    Total liabilities                                              21,136              20,203
                                                                ---------           ---------
Stockholders' equity:
 Preferred stock, $0.001 par value; 2,000,000 
  shares authorized none issued and outstanding 
  as of September 30, 1998 and June 30, 1998                           --                  --

 Common Stock, $0.001 par value; 60,000,000 
  shares authorized; 40,656,495 and 41,147,969 
  shares issued and outstanding of September 30, 
  1998 and June 30, 1998, respectively                                 41                  42

 Additional paid-in capital                                       154,755             156,464

 Retained earnings                                                 70,523              84,702
                                                                ---------           ---------
  Total stockholders' equity                                      225,319             241,208
                                                                ---------           ---------
  Total liabilities and stockholders' equity                    $ 246,455           $ 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>

                                                                    THREE MONTHS ENDED
                                                                       SEPTEMBER 30,
                                                             -------------------------------
                                                                1998                  1997
                                                             ----------            ---------
<S>                                                          <C>                   <C>
Net revenues                                                 $   19,967            $  43,293
Cost of revenues                                                 10,466               20,755
                                                             ----------            ---------
  Gross profit                                                    9,501               22,538

Research and development expenses                                13,134               10,831
Selling, general, and administrative expenses                     8,394                6,311
Acquired in-process technology                                    7,161                   --
                                                             ----------            ---------
  Operating income (loss)                                       (19,188)               5,396

Nonoperating income                                               1,952                4,131
                                                             ----------            ---------
  Income (loss) before income taxes                             (17,236)               9,527

Income taxes                                                     (3,057)               3,334
                                                             ----------            ---------
  Net income (loss)                                          $  (14,179)           $   6,193
                                                             ----------            ---------
                                                             ----------            ---------
Net income (loss) per share

  Basic                                                      $    (0.35)               $0.15
                                                             ----------            ---------
                                                             ----------            ---------
  Diluted                                                    $    (0.35)               $0.15
                                                             ----------            ---------
                                                             ----------            ---------
Shares used in a computing net income (loss) per share

  Basic                                                          40,928               41,321
                                                             ----------            ---------
                                                             ----------            ---------
  Diluted                                                        40,928               42,569
                                                             ----------            ---------
                                                             ----------            ---------

</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>
                                                                         THREE MONTHS ENDED
                                                                            SEPTEMBER 30,
                                                                       ----------------------
                                                                         1998          1997
                                                                       --------      --------
<S>                                                                    <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                   $(14,179)     $  6,193
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                                       2,827         1,577
      Inventory related adjustments                                          --         1,077
      Acquired in-process technology                                      7,161            --
      Deferred income taxes                                                (114)       (2,193)
      Foundry deposits utilized                                             533            --
      Changes in operating assets and liabilities:
         Accounts receivable                                              3,989        (2,130)
         Inventories                                                      3,844           725
         Prepaid expenses and other current assets                        5,374          (429)
         Accounts payable and accrued expenses                           (1,892)          141
                                                                       --------      --------
            Net cash provided by operating activities                     7,543         4,961
                                                                       --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of short-term investments                                  (11,102)      (21,401)
   Proceeds from matured short-term investments                          14,181        23,712
   Additions to property and equipment, net                              (3,056)       (4,131)
   Acquisition of ViewPoint, Inc., net of cash acquired                  (9,467)           --
   Acquisition of XLI Incorporated common stock                          (3,675)           --
   Payment of certain XLI Incorporated liabilities at 
         acquisition date                                                (2,094)           --
   Other assets                                                             (90)           --
                                                                       --------      --------
            Net cash used in investing activities                       (15,303)       (1,820)
                                                                       --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of debt                                                         735         1,551
   Repayment of debt                                                        (70)       (2,292)
   Issuances of common stock                                                388         1,431
   Treasury stock acquisitions                                           (2,098)           --
                                                                       --------      --------
            Net cash used in financing activities                        (1,045)          690
                                                                       --------      --------
   Net increase (decrease) in cash and cash equivalents                  (8,805)        3,831
   Cash and cash equivalents, beginning of period                        59,803        87,609
                                                                       --------      --------
   Cash and cash equivalents, end of period                            $ 50,998      $ 91,440
                                                                       --------      --------
                                                                       --------      --------
   Supplemental information:
      Cash paid (refunded) during the period:
                                                                       --------      --------
         Interest                                                      $     14      $     90
                                                                       --------      --------
                                                                       --------      --------
         Income taxes                                                  $ (8,033)     $  2,322
                                                                       --------      --------
                                                                       --------      --------
</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/ACCOUNTING POLICIES/RECENT ACCOUNTING PRONOUNCEMENTS

     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.

     ACCOUNTING POLICIES.  There have been no changes in accounting policies 
used by the Company during the quarter ended September 30, 1998, except as 
discussed below:

     Effective July 1, 1998, the Company adopted the provisions of the 
Financial Accounting Standards Boards'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 quarters ended September 30, 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 
31, 1997.  The Company does not anticipate it will change its reporting 
methodology as a result of this pronouncement.

     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 by 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>
                                              September 30,      June 30,
                                                  1998             1998
                                              -------------      ---------
<S>                                             <C>                <C>   
  Purchased parts and work in process.......    $  607             $5,612

  Finished goods............................     3,107              1,946
                                                ------             ------
                                                $3,714             $7,558
                                                ------             ------
                                                ------             ------
</TABLE>


                                       6
<PAGE>

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

     In June and November 1995, the Company entered into agreements with TSMC 
and Chartered to obtain certain additional wafer capacity through the year 
2001 (subsequently amended to 1999).  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 September 30, 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.  The Company has already utilized 
the maximum amount of prepayments allowed by the agreement against calendar 
year 1997 and 1998 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 September 30, 1998, the Company has $3.5 million of deposits with 
Chartered, under a previously amended agreement which also expires December 
31, 1999.  The previous amendments resulted in a reduction of the Company's 
future wafer purchase commitments and the elimination of required future cash 
deposits under the original agreement of approximately $36 million.  Under 
the amended agreement, the required future cash deposits of approximately $36 
million could be reinstated if certain conditions are not met.  

     The Company currently believes the terms and conditions of the TSMC and 
Chartered foundry agreements, as amended, will be met; that the remaining 
deposits will be utilized; and that the $36 million of commitments to 
Chartered will not be reinstated. However,  no assurance can be given in this 
regard, since full utilization of the remaining deposit 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 management has also stated that is 
has reached a $300 million insurance settlement for claims stemming from the 
fire and that in accordance with the coinsurance clause, UICC had to pay 
approximately $23.5 million of damages.  Despite the damages 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 before the end of 1998, 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.  Given 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 September 30, 1998


                                       7
<PAGE>

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

5.   NET INCOME (LOSS) PER SHARE/STOCKHOLDER'S EQUITY

     Basic and diluted net income (loss) per share have been computed using 
the weighted average number of shares of common stock and dilutive common 
equivalent shares from stock options and warrants outstanding during the 
period in accordance with Statement of Financial Accounting Standards #128, 
"Earnings per Share."  The following table provides a reconciliation of the 
components of the basic and diluted earnings per share computations:


<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                          ------------------
                                                        1998             1997
                                                        ----             ----
<S>                                                   <C>              <C>    
Net income (loss).............................        $(14,179)        $ 6,193
                                                      ---------        -------
                                                      ---------        -------
Weighted average shares used in computing 
  basic net income (loss) per share...........          40,928          41,321

Dilutive stock options and other common stock
  equivalents.................................             -             1,248
                                                      ---------        -------
Dilutive potential common shares..............          40,928          42,569
                                                      ---------        -------

Earnings (Loss) Per Share:
  Basic.......................................        $  (0.35)        $  0.15
                                                      ---------        -------
                                                      ---------        -------
  Diluted.....................................        $  (0.35)        $  0.15
                                                      ---------        -------
                                                      ---------        -------
</TABLE>

Approximately 119,000 of stock options were excluded from the computation for 
the three months ended September 30, 1998 since they were antidilutive during 
the loss period.  During the three months ended September 30, 1998, the 
Company repurchased 658,000 shares of its common stock for approximately $2.1 
million, pursuant to a plan authorized in fiscal year 1998 by its board of 
directors to purchase up to two million shares.  Since the plan was 
authorized, the Company has repurchased approximately 1.8 million shares.

6.   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 $10,130,000 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 
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 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 merger agreement, it was 
determined that XLI had a net deficit (for purposes of calculating the 
post-closing 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 

                                       8
<PAGE>


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

6.   ACQUISITIONS (CONTINUED)

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):

<TABLE>
               <S>                                               <C>
               Net liabilities assumed                           $   (3,090)
               In-process research and development                    2,376
               Purchased technology and other intangible assets       4,389
                                                                 ----------
                                                                 $    3,675
                                                                 ----------
                                                                 ----------
</TABLE>

     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.

7.   CONTINGENCIES
                  
     The Company and various of its current and former officers and Directors 
are parties to several lawsuits which purport to be class actions 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 putative 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 claim in state court, 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 Section 25400/25500 claim, which will be resolved in the 
DIAMOND MULTIMEDIA SECURITIES LITIGATION appeal by the California Supreme 
Court.

          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.


                                       9
<PAGE>

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

7.   CONTINGENCIES (CONTINUED)

     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.  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 and the 
Company is currently investigating the allegations.  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 
expects to incur legal and other expenses.

     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 
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.  

     This action is in the earliest stage of the proceeding.  The Company 
believes the claims 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 connection with these 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 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. 


                                      10
<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 
A 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, and are discussed further in the notes to the condensed 
consolidated financial statements. 


                                      11
<PAGE>

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. One of the world's leading merchant 
suppliers of controllers for CD-ROM and CD-R/W drives, the Company's planned 
product offerings for its three target market segments have expanded to 
include, in addition to optical storage controllers,  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 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 first 
quarter of fiscal year 1999, the Company also announced that it expects to 
record a net loss for the second quarter of fiscal year 1999 as the Company 
transitions to its next generation products for the optical storage and 
digital video disk markets 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 controller product 
line as the Company works through its product transitions. The CD-ROM 
controller market is a mature market in which the Company is experiencing 
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 controller products which 
comprised 70% and 86% of the Company's net revenues in the three months ended 
September 30, 1998 and 1997 respectively.  Net revenues decreased 54% to 
$19.9 million in the three months ended September 30, 1998 from $43.3 million 
in the comparable period of fiscal 1998.  Approximately two-thirds of the 
revenue decrease was attributable to a decrease in unit sales of CD-ROM 
controllers from the comparable period 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 
September 30, 1998 and 1997, sales to the Company's top ten customers 
accounted for approximately 79% and 82%, respectively, of the Company's net 
revenues.  International sales, principally to Taiwan, Japan, Korea, 
Singapore, and Belgium  accounted for approximately 87% and 96% of the 
Company's net revenues in each of the three months ended September 30, 1998 
and 1997, respectively.

     The Company  anticipates that existing CD-ROM controller product sales 
will continue to decline during the remainder of the current fiscal year.  
While the Company also anticipates that revenue from newer products, 
including MPEG-2 decoders, compression codecs, imaging DSPs and 
next-generation CD-RW applications will increase, on an overall basis, 
revenues for at least the forseeable future will continue to be significantly 
less than the comparable periods of the previous fiscal year, and will show 
little, if any, sequential growth. 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 
47.6% in the three month period ended September 30, 1998 as compared to 52.1% 
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 and Video CD 
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 


                                      12
<PAGE>

CD-ROM and VideoCD products and therefore, it expects gross margin 
percentages to decline for such products.  In addition, the Company believes 
that gross margins for new products in its optical storage market and the 
digital video disk player portion of the consumer markets 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 increased 20% to 
$13.1 million in the three months ended September 30, 1998 from $10.8 million 
in the comparable period in the prior year.  This increase was principally 
the result of the hiring of additional technical personnel and associated 
expenses. Research and development expenses increased significantly as a 
percentage of net revenues to 66% during the three months ended September 30, 
1998 from 25.0% in the comparable period in the prior year due primarily to 
the significant decrease in the Company's net revenues in the current period 
compared to the comparable period 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. 
The Company does expect, however, to hold  research and development expenses 
in the remaining fiscal quarters of 1999 flat or slightly less than  expenses 
incurred in the first quarter of fiscal 1999. 

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative (S,G&A) expenses increased 33% to $8.4 million in the three 
months ended September 30, 1998 from $6.3 million in the comparable period in 
the prior year. This increase was principally the result of the hiring of 
additional management and administrative personnel since the year-ago quarter 
and associated expenses, as well as increased legal expenses related 
primarily to the complaints the Company filed with the ITC on  July 21, 1997 
and April 7, 1998 (ITC Complaints) and additional litigation related to a 
settlement agreement entered into with one of the parties in the July 21 ITC 
Complaint. See "Legal Proceedings".  S,G&A expenses increased significantly 
as a percentage of net revenues to 42.0% in the three months ended September 
30, 1998 from 14.6% during the comparable period in fiscal 1997, 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 first quarter.

     ACQUIRED IN-PROCESS TECHNOLOGY.  During the first quarter of fiscal 
1999, the Company acquired ViewPoint and XLI (see note 6 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 first quarter of fiscal 1999, 
nonoperating income decreased to $2.0 million from $4.1 million during first 
quarter of fiscal 1998.  In the year-ago quarter, the Company recorded as 
nonoperating income approximately $2.6 million 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 first quarter of fiscal 
1999 than in the prior quarter due to a reduced invested cash balance and 
lower interest rates, however this was partially offset by translation gains 
recorded in the first quarter of 1999 (related primarily to the strengthening 
of the Japanese Yen).  The Company recorded translation losses in the first 
quarter of 1998 when the Yen was weakening.

     INCOME TAXES. The overall effective tax benefit rate for the three 
months ended September 30, 1998 is 17.8%.  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 30.3% 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 quarter 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.


                                      13
<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 both 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, 
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 


                                      14
<PAGE>

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.  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 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 operating results 
for the remainder of fiscal year 1999 are likely to be affected by these 
factors, as well as others. There can be no assurance that the Company will 
be able to compete successfully in the future.

      The Company and various of its current and former officers and 
Directors are parties to certain legal proceedings.  See "Legal Proceedings." 
All of these actions are in the early stages of proceedings and the Company 
is currently investigating the allegations.  Based on its current 
information, 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 Condensed 
Consolidated Financial Statements.  In connection with these legal 
proceedings, the Company has incurred, and expects to continue to incur, 
substantial legal and other expenses.  Shareholder suits of this kind are 
highly complex and can extend for a protracted period of time, which can 
substantially increase the cost of such litigation and divert the attention 
of the Company's management

     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 CD-ROM and digital video disk markets, 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. Currently, the Company's financial performance is 
dependent upon timely and successful execution of these next generation and 
new products. The Company has recently experienced some product development 
delays in its optical storage business.  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 new products successfully or the failure of new 
products 

                                      15
<PAGE>

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.  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.  Decreases in 
geometries call for sophisticated design efforts, advanced manufacturing 
equipment and cleaner fabrication environments. Due to the design complexity 
of its products, 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.  The semiconductor industry is capital 
intensive.  In order to remain competitive, the Company must continue to make 
significant investments in new facilities and capital equipment.  The Company 
spent $3.0 million on capital additions in the first quarter 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.  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.

     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. There 
can be no assurance that such additional financing, if required, will be 
available when needed or if available, will be on satisfactory terms.

     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.
     
     The Company, in order to remain competitive, must also maintain its 
ability to manage any growth effectively. 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 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 of the purchase price 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 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 amount of the recorded in-process research and development expense is 
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 eleven patents granted, forty-nine patents 
in preparation in the United States, fifty-seven patents pending in the 
United States and twenty-two international patents pending.  


                                      16
<PAGE>

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, 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 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").  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 substantial time and 
other resources.  Patent disputes in the semiconductor industry have often 
been settled through cross-licensing arrangements.  Because the Company has a 
limited portfolio of patents, 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 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 


                                      17
<PAGE>

Company's business could be adversely affected by the loss for any reason of 
certain of these third-party agreements.  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 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.  Certain of the Company's foundry agreements 
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 appears to be a 
current period of excess capacity for the immediate future. 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 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 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


                                      18
<PAGE>

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 occuring 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.  In October 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 (based on year-end 
exchange rates). UICC management has also stated that it has reached a $300 
million insurance settlement for claims stemming from the fire and that in 
accordance with the coinsurance clause, UICC had to pay $23.5 million of the 
damage.  Despite the damages payment, UICC management has represented that 
UICC's financial status has remained unaffected given significant investment 
gains made during the year. UICC has further stated that it expects to complete 
reinforcement of the building structure before the end of the year, 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.  Given 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 disposition 
of the investment are in excess of the carrying amount of the investment, no 
impairment loss has been recognized as of  September 30, 1998.  Representations 
have been made by UICC management that the facility's foundry capacity that has 
been guaranteed to the Company will be available through substitute capacity 
arrangements.  To date, the Company has not requested that UICC make such 
substitute capacity available to the Company.  Therefore, there can be no 
assurance that such substitute foundry capacity will be available to the 
Company should the Company require it.  Additionally, 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.

     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


                                      19
<PAGE>

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.

     DEPENDENCE ON CD-ROM CONTROLLER PRODUCTS.   Sales of the Company's 
CD-ROM controller products comprised 70% and 86% of the Company's net 
revenues in the quarters ended September 30, 1998 and 1997, respectively.  
Sales of CD-ROM 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 not necessarily continue to grow 
at historical rates 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 
pursuing the development of optical storage semiconductors for use in DVD-ROM 
drives, there can be no assurance that the Company will have a DVD product, 
that such product will be available within an acceptable market window, or 
that such product will be able to sustain the current level of optical 
storage product sales.  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 its next 
generation CD-RW product is available 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 controller. Therefore, the 
Company's revenues and its gross margins from its CD-ROM controller products 
will be dependent on the Company's ability to introduce such integrated 
products in a commercially competitive manner.  Although the Company 
experienced some development delays in its integrated controller, as of the 
end of the first quarter of fiscal 1999, it was available for sampling.  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 controller product, companies that 
historically provided chips with these functions are now entering the CD-ROM 
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 CD-ROM controller 
products in general, or the Company's CD-ROM 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 Company will be successful in 
the timely development of such products or 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 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 
September 30, 1998 and 1997, 87% and 96%, 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


                                      20
<PAGE>

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, 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.  With the current economic problems in 
Asia and the strengthening of the dollar, the Company has recently experienced 
a more conservative buying pattern from its customers and increased price 
pressure on its products. 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 September 30, 1998 and 1997, sales to the Company's top ten 
customers accounted for approximately  79% and 82%, respectively, of the 
Company's net revenues.  These customers were all purchasers of the Company's 
CD-ROM product.  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 such 
as Mitsumi or LG Electronics would have a material adverse effect on the 
Company's business, financial condition and operating results.  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


                                      21
<PAGE>

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 both the digital video disk market and digital office equipment market, the 
Company's most intense competition comes from captive suppliers.  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.

     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.  Three of the 
Company's most senior finance personnel, including the Chief Financial Officer, 
as well as the President of the Company's Optical Storage Group  left the 
Company in the fourth quarter of fiscal 1998.  On October 29, 1998 the Company 
announced that it had hired a new Chief Financial Officer.  The Company is in 
the process of recruiting  replacements for the other 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 data code fields will need to accept four digit entries to 
distinguish 21st century dates from 20th century dates. As a result, in less 
than two years, 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 Company is 
currently in the Inventory/Assessment phase of the project. This phase is 
scheduled to complete by December 31, 1998. The entire Year 2000 project is 
expected to complete by June 1999, the Company's fiscal year end.

     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 systems, 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 disruptions 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.

     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 does not currently have a contingency plan that addresses 
how it plans to handle any of the "worst-case" Year 2000 issues that may 
confront it. The need for such a plan will be reviewed in the Contingency 
Planning phase of the Year 2000 project as discussed 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.

                                      22
<PAGE>


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 September 30, 1998 consisted of approximately $105.3 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 September 30,
1998.  Additionally, approximately $15 million in lines of credit exist with
Japanese financial institutions, of which approximately $11.6  million was
available at September 30, 1998. Related to the Japanese line of credit, the 
Company was in violation of one of the financial covenants of the related 
agreement which specified a maximum allowable quarterly net loss. Due to the 
write-off of in-process research and development during the first quarter of 
fiscal year 1999, the maximum allowable net loss was exceeded.  The Company 
requested and received a waiver of this violation from the bank.

     In the first quarter of fiscal 1999, operating activities provided net cash
of approximately $8.4 million.  The Company's net loss of approximately $14.2
million was offset by receipt of income tax refunds totaling  $8.0 million, a
decrease in accounts receivable and inventory of $7.8 million, and the non-cash
effect of depreciation and amortization ($2.8 million) and in-process research
and development writeoffs ($7.2 million).  Investing activities utilized cash of
approximately $16.1 million primarily due to the ViewPoint and XLI acquisitions
($15.2 million, net of cash acquired) and additions to property, plant and
equipment of $3.0 million. Additionally, the Company repurchased 658,000 shares
of it common stock during the quarter, for a total of approximately  $2.1
million.

     The Company believes that its existing cash, cash equivalents, 
short-term investments and credit facilities will be sufficient to provide 
adequate working capital and to fund necessary purchases of property and 
equipment through at least the next twelve months.  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 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.

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 quarter 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.  Except as 
described in the paragraphs below, 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 
described below, 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.

     In June and November 1995, the Company entered into agreements with TSMC
and Chartered to obtain certain additional wafer capacity through the year 2001.
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.

     At September 30, 1998, the Company has unused foundry deposits totaling 
$16.7 million with TSMC.  Under the terms of the agreement with TSMC (as 
previously amended), the remaining deposits will be used against calendar 1999 
(the final year of the agreement) wafer purchases.  The Company has already 
utilized the maximum credit allowed by the agreement for calendar years 1996, 
1997 and 1998. Under the terms of the amended agreement, wafer purchases made 
by the Company subsequent to reaching the calendar 1998 maximum are being


                                      23
<PAGE>

applied against calendar 1999 requirements.  Once a certain base amount of 
wafer purchases has been made for calendar 1999, TSMC will issue credits 
against the remaining deposit on a per-wafer basis.  The Company currently 
believes the terms and conditions of the agreement, as amended, will be met 
although no assurance can be given in this regard, since full utilization of 
the remaining deposit would presume increased wafer purchasing levels than 
currently exist, based in part upon new product introductions.

     The Company's agreement with Chartered, as previously amended, also 
expires on December 31, 1999.  The Company has $3.5 million of unused foundry 
deposits with Chartered at September 30, 1998. The previous  amendments 
resulted in a reduction of the Company's future wafer purchase commitments and 
the elimination of required future cash deposits under the original agreement 
of approximately $36 million.  Under the amended agreement, the required future 
cash deposits of approximately $36 million could be reinstated if certain 
conditions are not met. The Company currently believes the terms and conditions 
of the agreement, as amended, will be met and that these commitments will not 
be reinstated although no assurance can be given in this regard, since full 
utilization of the remaining deposit is based on the assumptions that wafer 
purchasing levels will increase from current levels, in part due to new product 
introductions.

     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.

     In October 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 (based on year-end exchange rates). UICC 
management has also stated that it has reached a $300 million insurance 
settlement for claims stemming from the fire and that in accordance with the 
coinsurance clause, UICC had to pay approximately $23.5 million of the damage.  
Despite the damages payment, UICC management has represented that UICC's 
financial status has remained unaffected given significant investment gains 
made during the year. UICC has further stated that it expects to complete 
reinforcement of the building structure before the end of the year, 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.  Given 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 disposition 
of the investment are in excess of the carrying amount of the investment, no 
impairment loss has been recognized as of  September 30, 1998.  Representations 
have been made by UICC management that the facility's foundry capacity that has 
been guaranteed to the Company will be available through substitute capacity 
arrangements.  To date, the Company has not requested that UICC make such 
substitute capacity available to the Company.  Therefore, there can be no 
assurance that such substitute foundry capacity will be available to the 
Company should the Company require it.  Additionally, 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.


                                      24
<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 lawsuits which purport to be class actions 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 putative 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 claim in state court, 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 Section 25400/25500 claim, which will be resolved in the 
DIAMOND MULTIMEDIA SECURITIES LITIGATION appeal by the California Supreme 
Court.
     
     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 
plaintiff's 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.  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.  
     
      In connection with these legal proceedings, the Company expects to 
incur legal and other expenses.  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.

     The Company and certain of its current Directors are 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. 


                                      25
<PAGE>

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 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. 

     This action is in the earliest stage of the proceeding.  The Company 
believes the claims 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 connection with these legal proceedings, the Company expects to 
continue 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 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. 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


                                      26
<PAGE>

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).  On 
the same date, pursuant to UMC's request, the court ordered the consolidated 
action stayed under 28 U.S.C. Section 1659, based on the court'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).

     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.  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).  On 
the same date, pursuant to UMC's request, the court ordered the consolidated 
action stayed under 28 U.S.C. Section 1659, based on the court'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).

     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 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. and 
AOpen, Inc.  On August 28, 1998, the Administrative law Judge (ALJ) 
supervising the investigation 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.  Trial before the ALJ is presently scheduled 
to commence on January 11, 1999.  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.  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.


                                      27
<PAGE>

ITEM 2. CHANGES IN SECURITIES
        None

ITEN 3. DEFAULTS UPON SENIOR SECURITIES
        None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        None

ITEM 5. OTHER INFORMATION
        None

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


                                      28
<PAGE>

<CAPTION>
EXHIBIT
NUMBER     EXHIBIT TITLE
<S>        <C>
           Company (lease agreement for 140 Kifer Court, Sunnyvale,
           California) (3), and amendment thereto dated June 15, 1995 (5)
     
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)


                                      29
<PAGE>

<CAPTION>
EXHIBIT
NUMBER     EXHIBIT TITLE
<S>        <C>
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)**

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 by and between Taiwan Semiconductor
           Manufacturing Co., Ltd., and the Company (19)**

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

11.01      Statement regarding computation of net income (loss) per share
          
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.


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<PAGE>

(b)  Reports on Form 8-K

      The Company filed a Report on Form 8-K on July 31, 1998, making an item 5
      disclosure related to the resignation of its chief financial officer.









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<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:  November 16, 1998
     
                                   /s/ RICHARD B. BLACK
                                   ------------------------------------------
                                   Richard B.Black, President
                                   (Principal Executive Officer)






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