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

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM 10-Q


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

               For the Quarterly Period Ended December 31, 2002

                                      OR

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

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

                         Commission File No. 0-25298

                             OAK TECHNOLOGY, INC.

           (Exact name of registrant as specified in its charter)


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


                                1390 Kifer Road
                           Sunnyvale, California 94086
         (Address of principal executive offices, including zip code)

                                (408) 523-6500
             (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 February 12, 2003, there were outstanding 56,045,238 shares of the
Registrant's Common Stock, par value $0.001 per share.


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

<PAGE>


                     OAK TECHNOLOGY, INC. AND SUBSIDIARIES

                                   FORM 10-Q

                                     INDEX

                    For the Quarter Ended December 31, 2002


<TABLE>
<CAPTION>
                                                                          Page
                                                                           No.
                                                                           ---
<S>    <C>                                                                <C>
                         PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

         Condensed Consolidated Balance Sheets as of December 31,
           2002 and June 30, 2002..........................................  3

         Condensed Consolidated Statements of Operations for the Three
           Months and Six Months Ended December 31, 2002 and 2001..........  4

         Condensed Consolidated Statements of Cash Flows for the Six
           Months Ended December 31, 2002 and 2001.........................  5

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

Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations........................................... 20

Item 3.  Quantitative and Qualitative Disclosures About Market Risk........ 37

Item 4.  Controls and Procedures........................................... 37


                          PART II. OTHER INFORMATION

Item 1.  Legal Proceedings................................................. 38

Item 4.  Submission of Matters to a Vote of Security Holders............... 40

Item 5.  Other Events...................................................... 41

Item 6.  Exhibits and Reports on Form 8-K.................................. 41

Signatures................................................................. 42


</TABLE>

                                       2

<PAGE>










PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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


                                                       December 31,   June 30,
                                                          2002         2002
                                                          ----         ----
<S>                                                    <C>         <C>
    ASSETS
Current assets:
  Cash and cash equivalents............................ $  15,990    $  38,252
  Short-term investments...............................    64,394      104,414
  Accounts receivable, net of allowance for doubtful
    accounts of $3,704 and $3,604, respectively........    10,485       10,096
  Inventories..........................................     3,883        4,929
  Prepaid expenses and other current assets............     5,583        5,535
                                                        ---------    ---------
      Total current assets.............................   100,335      163,226
Property and equipment, net............................    23,100       18,961
Intangible assets, net.................................    33,476        6,611
Goodwill...............................................    27,084       13,275
Other assets...........................................     1,466          803
                                                        ---------    ---------
Total assets........................................... $ 185,461    $ 202,876
                                                        =========    =========


    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..................................... $   8,688    $  14,065
  Accrued expenses.....................................    25,981       16,951
  Deferred revenue.....................................     5,105        2,970
                                                        ---------    ---------
     Total current liabilities.........................    39,774       33,986
Other long-term liabilities............................     5,070          899
                                                        ---------    ---------
Total liabilities......................................    44,844       34,885
                                                        ---------    ---------

Contingencies (Note 6)

Stockholders' equity:
  Preferred stock, $0.001 par value; 2,000,000 shares
    authorized; none issued and outstanding as of
    December 31, 2002 and June 30, 2002................        --           --
  Common stock, $0.001 par value; 130,000,000 shares
    authorized at December 31, 2002 and June 30, 2002;
    60,514,733 shares issued and 55,802,253 shares
    outstanding as of December 31, 2002; and 60,285,392
    shares issued and 55,987,912 shares outstanding as
    of June 30, 2002...................................        61           60


Additional paid-in capital.............................   251,576      246,587
Treasury stock.........................................   (24,902)     (23,273)
Accumulated other comprehensive income.................       899        1,028
Deferred stock compensation............................    (1,976)          --
Accumulated deficit....................................   (85,041)     (56,411)
                                                        ---------    ---------
     Total stockholders' equity........................   140,617      167,991
                                                        ---------    ---------
Total liabilities and stockholders' equity............. $ 185,461    $ 202,876
                                                        =========    =========

</TABLE>

See accompanying notes to consolidated financial statements.


                                       3

<PAGE>


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


<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
Revenues:
  Product revenues..................... $ 19,743  $ 28,318  $ 42,157  $ 53,885
  Software and other revenues...........   8,657     7,970    16,452    15,704
                                        --------  --------  --------  --------
    Total revenues.....................   28,400    36,288    58,609    69,589
                                        --------  --------  --------  --------
Cost of revenues and operating
  expenses:
  Cost of product revenues.............    9,854    17,213    20,819    32,905
  Cost of software and other revenues..    1,624       731     3,832     2,097
  Research and development expenses....   16,994    12,901    30,681    26,006
  Selling, general and administrative
    expenses...........................   10,373     7,737    18,192    15,094
  Amortization of intangibles..........    2,759     3,046     4,510     6,474
  Restructuring charge.................    3,161     2,028     3,161     2,028
  Acquisition related charges..........    7,754        --     7,754        --
                                        --------  --------  --------  --------
    Total cost of revenues and
      operating expenses...............   52,519    43,656    88,949    84,604
                                        --------  --------  --------  --------
      Operating loss...................  (24,119)   (7,368)  (30,340)  (15,015)
Non-operating income, net..............    1,760     1,512     2,921     3,633
                                        --------  --------  --------  --------
      Loss before income taxes.........  (22,359)   (5,856)  (27,419)  (11,382)
Income taxes...........................      583       408     1,211     1,131
                                        --------  --------  --------  --------
      Net loss......................... $(22,942) $ (6,264) $(28,630) $(12,513)
                                        ========  ========  ========  ========

Net loss per basic share............... $  (0.41) $  (0.11) $  (0.51) $  (0.23)
                                        ========  ========  ========  ========

Net loss per diluted share............. $  (0.41) $  (0.11) $  (0.51) $  (0.23)
                                        ========  ========  ========  ========

Shares used in computing basic net loss
  per share............................   55,802    55,027    55,857    54,784
                                        ========  ========  ========  ========

Shares used in computing diluted net
  loss per share.......................   55,802    55,027    55,857    54,784
                                        ========  ========  ========  ========

</TABLE>

See accompanying notes to consolidated financial statements.


                                       4

<PAGE>

<TABLE>
<CAPTION>

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

                                                         Six Months Ended
                                                            December 31,
                                                      -----------------------
                                                          2002         2001
                                                          ----         ----
<S>                                                     <C>         <C>
Cash flows from operating activities:
  Net loss.............................................. $ (28,630)  $ (12,513)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization.....................     8,835       9,830
      Amortization of deferred stock compensation.......        82          --
      In-process research and development...............     6,960          --
      Loss on disposal of property and equipment........        94          85
      Changes in operating assets and liabilities:
        Accounts receivable.............................     1,782       3,312
        Inventories.....................................     3,569         782
        Prepaid expenses, other current assets and other
          assets........................................     2,468       1,860
        Accounts payable and accrued expenses...........    (9,435)      3,385
        Deferred income taxes, deferred revenue and
          other liabilities.............................     2,092        (100)
                                                         ---------   ---------
          Net cash provided by (used in) operating
            activities..................................   (12,183)      6,641
                                                         ---------   ---------

Cash flows from investing activities:
  Purchases of short-term investments...................   (85,119)    (43,586)
  Proceeds from matured short-term investments..........   125,010      39,276
  Additions to property and equipment...................    (4,649)     (5,275)
  Acquisition of Accel, net of cash acquired............        --      (3,238)
  Acquisition of TeraLogic, net of cash acquired........   (44,959)         --
                                                         ---------   ---------
          Net cash used in investing activities             (9,717)    (12,823)
                                                         ---------   ---------

Cash flows from financing activities:
  Treasury stock acquisitions...........................    (1,629)         --
  Issuance of common stock, net.........................     1,267       3,774
                                                         ---------   ---------
          Net cash provided by (used in) financing
            activities..................................      (362)      3,774
                                                         ---------   ---------

Net decrease in cash and cash equivalents...............   (22,262)     (2,408)
Cash and cash equivalents, beginning of period..........    38,252      25,141
                                                         ---------   ---------
Cash and cash equivalents, end of period................ $  15,990   $  22,733
                                                         =========   =========

Supplemental information:
Cash paid during the period:
  Income taxes.......................................... $   1,187   $   2,360
                                                         =========   =========

</TABLE>

See accompanying notes to consolidated financial statements.


                                       5

<PAGE>


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

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

     The accompanying unaudited condensed consolidated financial statements of
Oak Technology, Inc. and subsidiaries ("Oak" or the "Company") have been
prepared in conformity with accounting principles generally accepted in the
United States of America.  However, certain information or footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission").  In the opinion of
management, the condensed consolidated financial statements reflect all
adjustments considered necessary for a fair presentation of the consolidated
financial position, operating results and cash flows for the periods presented.
The results of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for the full fiscal year or in
any future period.  This quarterly report on Form 10-Q should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 2002, included in the Oak Technology, Inc.
2002 Annual Report on Form 10-K filed with the Commission.


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

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


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

     The Company periodically enters into economic hedges by purchasing foreign
exchange contracts as a hedge against foreign currency denominated accounts
receivables or fixed sales commitments.  The Company does not enter into
foreign exchange contracts for speculative or trading purposes.  As of December
31, 2002, the Company did not have any foreign currency exchange contracts
outstanding.


Recently Issued Accounting Standards
------------------------------------

     The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", or SFAS 142, in the first quarter of
fiscal 2003.  SFAS 142 supersedes Accounting Principles Board Opinion No. 17,
Intangible Assets, and discontinues the amortization of goodwill.  In addition,
SFAS 142 includes provisions regarding: 1) the reclassification between
goodwill and identifiable intangible assets in accordance with the new
definition of intangible assets set forth in Statement of Financial Accounting
Standards No. 141, Business Combinations; 2) the reassessment of the useful
lives of existing recognized intangibles; and 3) the testing for impairment of
goodwill and other intangibles.

     In accordance with SFAS 142, beginning July 1, 2002, goodwill is no longer
amortized, but is reviewed periodically for impairment on at least an annual
basis and upon the initial adoption of SFAS No. 142. This impairment review
involves a two-step process as follows:

Step 1 - The Company compares the fair value of its reporting units to the
carrying value, including goodwill of each of those units.  If a unit's fair
value exceeds the carrying value, no further work is performed and no
impairment charge is necessary.  For each reporting unit where the fair value
is less than the carrying value, including goodwill, the Company must perform
Step 2.

Step 2 - The Company performs an allocation of the fair value of the reporting
unit to its identifiable tangible and non-goodwill intangible assets and
liabilities.  This derives an implied fair value for the reporting unit's
goodwill. The Company then compares the implied fair value of the reporting
unit's goodwill with the carrying amount of the reporting unit's goodwill. If
the carrying amount of the reporting unit's goodwill is greater than the
implied fair value of its goodwill, an impairment charge would be recognized
for the excess.


                                       6

<PAGE>

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


     The Company performed Step 1 of the goodwill impairment analysis required
by SFAS 142 as of July 1, 2002 during the quarter ended December 31, 2002 and
concluded that goodwill was not impaired, as the fair value of each reporting
unit exceeded its carrying value, including goodwill.  Accordingly, Step 2 was
not performed.  For purposes of this analysis, the Company defines reporting
units as its operating segments, or where the Company so measures, a lower
level unit or component that more discretely measures the results of an
acquired business within an operating segment.  For instance the Company
measures the Imaging Business Segment in two discrete components, the Hardware
group and the Software group.  The Company's other operating segments do not
have subcomponents.  The fair value of the reporting units was estimated using
the average of the expected present value of future cash flows and of the
market multiple value.  The Company will continue to test for impairment on an
annual basis and on an interim basis if an event occurs or circumstances change
that would more likely than not reduce the fair value of the Company's
reporting units below their carrying amounts.

     Based on criteria set out in SFAS 142, the Company reclassified $0.7
million of net assets previously classified as acquired workforce to goodwill
resulting in total goodwill of $13.3 million as of July 1, 2002.  Intangible
assets subject to amortization are being amortized using the straight-line
method over the following useful lives: purchased technology, three to five
years; patents, five years; and tradenames and others, one to five years.  No
changes were made to the useful lives of amortizable intangible assets in
connection with the adoption of SFAS 142.

     Goodwill and intangible assets are comprised of the following (in
thousands):

<TABLE>
<CAPTION>

                             December 31, 2002    June 30, 2002
                             -----------------    -------------
                      Gross Carrying  Accumulated  Gross Carrying  Accumulated
                           Amount     Amortization     Amount      Amortization
                           ------     ------------     ------      ------------
<S>                    <C>           <C>           <C>            <C>
Amortized intangible
  assets:
  Purchased technology   $  50,369     $ (20,679)    $  21,989      $ (16,444)
  Patents                    1,448          (868)        1,448           (724)
  Tradename and others       3,679          (473)          684           (342)

Unamortized intangible
  assets:
  Goodwill (*)              27,084            --        13,275             --
                         ---------     ---------     ---------      ---------
Total                    $  82,580     $ (22,020)    $  37,396      $ (17,510)
                         =========     =========     =========      =========

</TABLE>

     (*)  Goodwill is net of accumulated amortization immediately prior to the
adoption of SFAS No. 142


     Reconciliation of net loss excluding amortization of goodwill is as
follows (in thousands, except per share data):


<TABLE>
<CAPTION>
                                    Three Months Ended     Six Months Ended
                                        December 31,          December 31,
                                    --------------------  --------------------
                                      2002       2001       2002       2001
                                      ----       ----       ----       ----
<S>                                 <C>        <C>        <C>        <C>
Net loss as reported                    $(22,942) $ (6,264) $(28,630) $(12,513)
  Add back amortization of goodwill          --      1,294        --     2,693
                                        --------  --------  --------  --------
Total adjusted net loss                 $(22,942) $ (4,970) $(28,630) $ (9,820)
                                        ========  ========  ========  ========

Basic and diluted earnings per share:
  As reported                           $  (0.41) $  (0.11) $  (0.51) $  (0.23)
                                        ========  ========  ========  ========

  As adjusted                           $  (0.41) $  (0.09) $  (0.51) $  (0.18)
                                        ========  ========  ========  ========

</TABLE>

                                       7


<PAGE>

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

<TABLE>
<CAPTION>
                                             Fiscal Year Ended
                                                   June 30,
                                   ---------------------------------------
                                      2002           2001          2000
                                      ----           ----          ----
<S>                                <C>           <C>           <C>
Net loss as reported                $ (26,950)    $ (30,632)    $ (32,862)
  Add back amortization of goodwill     5,179         5,179         2,589
                                    ---------     ---------     ---------
Total adjusted net loss             $ (21,771)    $ (25,453)    $ (30,273)
                                    =========     =========     =========

Basic and diluted earnings per share:
  As reported                       $   (0.49)    $   (0.56)    $   (0.71)
                                    =========     =========     =========

  As adjusted                       $   (0.39)    $   (0.47)    $   (0.66)
                                    =========     =========     =========


</TABLE>


     Estimated future intangible amortization expense, based on current
balances, as of December 31, 2002 is as follows (in thousands):


<TABLE>
<CAPTION>

     Fiscal Year                                            Amount
     -----------                                            ------
<S>                                                        <C>
     2003 (remaining six months)                            $ 4,929
     2004                                                     8,166
     2005                                                     6,263
     2006                                                     6,050
     2007                                                     6,050
     2008                                                     2,018
                                                            -------
     Total                                                  $33,476
                                                            =======

</TABLE>


     The changes in the carrying amount of goodwill for the six months ended
December 31, 2002 are as follows (in thousands):


<TABLE>
<CAPTION>
                               Optical
                               Storage   Imaging   TeraLogic     Total
                               -------   -------   ---------     -----
<S>                           <C>       <C>        <C>         <C>
Balance at June 30, 2002       $ 3,113   $ 10,162   $     --    $ 13,275
Acquisition                         --         --     13,809      13,809
                               -------   --------   --------    --------
Balance at December 31, 2002   $ 3,113   $ 10,162   $ 13,809    $ 27,084
                               =======   ========   ========    ========

</TABLE>

     On October 3, 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of." The primary objectives of SFAS 144 are to develop one
accounting model based on the framework established in SFAS 121 for long-lived
assets to be disposed of by sale, and to address significant implementation
issues. The Company has adopted SFAS 144 for its fiscal year beginning July 1,
2002.  The adoption of SFAS 144 did not have a material effect on the Company's
financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS 146").  SFAS 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are


                                       8

<PAGE>


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


associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)."  The scope
of SFAS 146 also includes costs related to terminating a contract that is not a
capital lease and termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is
not an ongoing benefit arrangement or an individual deferred-compensation
contract.  SFAS 146 will be effective for exit or disposal activities that are
initiated after December 31, 2002 and early application is encouraged.  The
Company will adopt SFAS 146 for the third fiscal quarter beginning January 1,
2003 and does not expect that the adoption will have a material impact on its
financial position, results of operations, or cash flows.

     In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables."  EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003.  The Company believes that the adoption of this standard
will have no material impact on its financial statements.

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others."  FIN 45 requires that a
liability be recorded in the guarantor's balance sheet upon issuance of a
guarantee.  In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entity's
product warranty liabilities.  The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end.  The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002.  The
adoption of this standard did not have a material impact on our financial
statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation, Transition and Disclosure."   SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation.  SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format.  Additionally, SFAS No. 148 requires
disclosure of the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ended after December 15, 2002.  The interim disclosure
requirements are effective for interim periods beginning after December 15,
2002.  The Company believes that the adoption of this standard will have no
material impact on its financial statements.

     In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.  FIN 46 is
effective immediately for all new variable interest entities created or
acquired after January 31, 2003.  For variable interest entities created or
acquired prior to February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after June 15, 2003.  The
Company believes that the adoption of this standard will not have a material
impact on its financial statements.


                                       9

<PAGE>


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


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

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

<TABLE>
<CAPTION>

                                                       December 31,   June 30,
                                                          2002         2002
                                                          ----         ----
<S>                                                    <C>         <C>
Purchased parts and work in process                     $   1,676    $   1,056
Finished goods                                              2,207        3,873
                                                        ---------    ---------
                                                        $   3,883    $   4,929
                                                        =========    =========

</TABLE>


3. Net Loss Per Share
   ------------------

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

<TABLE>
<CAPTION>
                                    Three Months Ended     Six Months Ended
                                        December 31,          December 31,
                                    --------------------  --------------------
                                      2002       2001       2002       2001
                                      ----       ----       ----       ----
<S>                                    <C>       <C>       <C>       <C>
Net loss from continuing operations     $(22,942) $ (6,264) $(28,630) $(12,513)

Basic common shares                       55,802    55,027    55,857    54,784
Effect of dilutive securities:
  Common stock options                        --        --        --        --
                                        --------  --------  --------  --------
Dilutive weighted average shares          55,802  5  5,027    55,857    54,784
                                        ========  ========  ========  ========

Net loss per share from continuing
  operations:

  Basic                                 $  (0.41) $  (0.11) $  (0.51) $  (0.23)
                                        ========  ========  ========  ========

  Diluted                               $  (0.41) $  (0.11) $  (0.51) $  (0.23)
                                        ========  ========  ========  ========

</TABLE>

     For the three and six month periods ended December 31, 2002, there were
approximately 12,471,000 and 10,039,000 anti-dilutive weighted shares,
respectively, which were excluded from the calculation of diluted weighted
average shares outstanding as inclusion of these shares would have had an anti-
dilutive effect.

     Similarly, for the three and six month periods ended December 31, 2001,
there were approximately 2,033,000 and 2,496,000 anti-dilutive weighted shares,
respectively, which were excluded from the calculation of diluted weighted
average shares outstanding as inclusion of these options would have had an
anti-dilutive effect.


                                      10


<PAGE>

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

4. Stockholder's Equity and Stock Repurchase Program
   -------------------------------------------------

     On July 29, 2002, the Company's Board of Directors approved a stock
repurchase authorizing the repurchase of up to four million shares of Oak
Technology common stock in the open market or privately negotiated transactions
over a two-year period, unless further extended by the Board.  The plan
authorized but does not require the Company to repurchase all four million
shares.  The number of shares to be purchased and the timing of purchases will
be based on several conditions, including the price of the Company's common
stock, general market conditions and other factors.  During the six months
period ended December 31, 2002, the Company repurchased 415,000 shares at an
average acquisition price of approximately $3.92 per share which represents the
total shares that have been repurchased to date under this program.

     The Company's Chief Executive Officer paid $550,000 to the Company in
December 2002 as reimbursement under Section 16(b) of the Securities Exchange
Act of 1934.  The executive determined to make the payment, resulting from an
inadvertent profit in his sale and purchase of Company shares in 2002, without
admitting liability for a violation and in order to resolve the matter without
the expense and diversion of litigation.  The Board of Directors approved the
settlement as fair, reasonable and adequate.


5. Acquisitions
   ------------

     On October 25, 2002, Oak concluded the acquisition of TeraLogic, Inc.
("TeraLogic") pursuant to an acquisition agreement entered into on October 7,
2002.  The acquisition is comprised of a cash payment of approximately $38
million, the repayment of a debt obligation of approximately $5 million, and
the assumption of approximately $4 million of TeraLogic's debt and obligations
by Oak.  In addition, Oak reserved approximately 2.3 million shares of the
Company's common stock for future issuance to the employees of TeraLogic
pursuant to options granted to them upon closing the transaction.  The
transaction is accounted for under SFAS No. 141, "Business Combinations," using
the purchase method of accounting and accordingly the results of operations of
TeraLogic have been included in the Company's financial statements since the
date of acquisition.

     The unaudited pro forma combined financial statements reflect an estimated
purchase price of approximately $49.2 million, as follows (in thousands):

<TABLE>
<S>                                           <C>
Cash payments                                  $  43,045
Fair value of stock options granted                3,723
Acquisition costs                                  2,473
                                               ---------
Total consideration                            $  49,241
                                               =========

</TABLE>

     Non-qualified options to purchase approximately 2.3 million shares of Oak
common stock with a term of ten years were granted to TeraLogic employees as
part of the acquisition and the corresponding fair value of these options of
$3.7 million was included in the purchase price.  The fair value of stock
options was determined using the Black-Scholes option pricing model, applying a
weighted average expected life of 5.4 years, a weighted average risk-free rate
of 4.37%, an expected dividend yield of zero percent, a volatility of 92% and a
fair value of $2.04 per share.  The intrinsic value of these unvested options,
totaling approximately $2.1 million, has been recorded as Deferred Stock
Compensation and will be amortized over the vesting period of 50 months on a
straight line basis.

     Acquisition costs include $1.1 million of payments to certain shareholders
of TeraLogic for covenants not to compete, $1.0 million of investment banker
fees and $0.4 million of legal and accounting fees.


                                      11


<PAGE>

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

     The final purchase price allocation will be determined upon finalization
of the closing balance sheet, finalization of estimates for direct acquisition
costs and a comprehensive final evaluation of the fair value of all assets and
liabilities.  The purchase price allocation, which is subject to change based
on the Company's final analysis, is as follows (in thousands):


<TABLE>
<S>                                              <C>
Net Liabilities Acquired                          $    (960)
Customer Advance Assumed                             (4,000)
Deferred Stock Compensation                           2,058
In-Process Research and Development                   6,960
Intangible Assets                                    31,375
Goodwill                                             13,808
                                                  ---------
                                                  $  49,241
                                                  =========

</TABLE>

     The following table summarizes the estimated fair value of the tangible
assets acquired and liabilities assumed at the date of acquisition (in
thousands):


<TABLE>
<S>                                           <C>
Cash and short-term investments	           $     559
Other current assets	                           4,187
Inventory	                                       2,523
Property, plant and equipment	                     3,909
Other assets	                                   125
Current liabilities 	                         (12,263)
                                               ---------
Net liabilities acquired	                 $    (960)
                                               =========

</TABLE>

     Tangible assets were valued at their respective carrying amounts as the
Company believes that these amounts approximate their current fair values.  The
valuation of the acquired intangible assets which was based on management's
estimates and considered various factors including appraisals, resulted in a
value of purchased technology of approximately $28.4 million, trademarks and
others of approximately $1.9 million and covenants not to compete of
approximately $1.1 million.  Purchased technology and trademarks and others
will be amortized over their estimated useful lives of 5 years and the
covenants not to compete will be amortized over their useful lives of 12 to 18
months.  In accordance with SFAS 142, goodwill of approximately $13.8 million
is not amortized and will be tested for impairment at least annually.

     As a result of the acquisition of TeraLogic, the Company incurred
acquisition related charges of approximately $7.8 million during the quarter
ended December 31, 2002 which includes an in-process research and development
charge of $7.0 million and amortization of deferred stock compensation and
other deferred compensation attributable to the acquisition of TeraLogic of
$0.8 million.

     Approximately $7.0 million of the purchase price represents the estimated
fair value of an acquired in-process research and development project that had
not yet reached technological feasibility and had no alternative future use.
Accordingly, this amount was immediately expensed upon the acquisition date.
The Company expects that the technology will be successfully completed by the
fourth quarter of fiscal 2003 with approximately $4 million in remaining costs.
At the time of acquisition, TeraLogic had one material project in process,
Generation 9, an integrated System on a Chip that integrates a previous
generation of the technology with a new Audio DSP Core as well as a MIPS 64 bit
processor and certain other video processing features.  The value of in-process
research and development was determined using the multi-period excess earnings
method by estimating the expected net cash flows from the Generation 9 project
once commercially viable, discounting the net cash flows back to their present
value using a discount rate of 23%.  This rate was based on the industry
segment for the technology, nature of the products to be developed, length of
time to complete the project and overall maturity and history of the
development team.  The net cash flows from the identified project were based on
estimates of revenue, cost of revenue, research and development expenses,
selling general and administrative expenses, and applicable income taxes.
These estimates did not take into account any potential synergies that could be
realized as a result of the acquisition.  Revenues for Generation 9 and the
incremental core technology developed are expected to commence in the fourth
quarter of fiscal 2003 and extend through 2009. We based our revenue
projections on estimates of market size and growth, expected trends in
technology and the expected timing of new product introductions.

     As of December 31, 2002, the Company has incurred approximately $1.6
million of the estimated $4 million in remaining costs to complete the
development of the Generation 9 project.  As of December 31, 2002, there have
been no material variations from the underlying assumptions that were used in
the original computation of the acquired in-process research and development
amount.

     The following unaudited pro forma financial information presents the
combined results of operations of Oak and TeraLogic as if the acquisition had
occurred as of the beginning of fiscal 2002 and 2003, after giving effect to
certain adjustments, including amortization of intangibles.  The in-process
research and development charge of $7.0 million is not reflected in the
unaudited pro forma combined condensed statement of operations.  The unaudited
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had the


                                      12


<PAGE>



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

combined companies constituted a single entity during such periods, and is not
necessarily indicative of results which may be obtained in the future.

<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
In thousands except for per
  share data:
  Pro forma revenues                    $ 29,333  $ 38,830  $ 64,643  $ 75,204
                                        ========  ========  ========  ========

  Pro forma net loss                    $(25,320) $(14,207) $(37,606) $(28,383)
                                        ========  ========  ========  ========

Pro forma basic and diluted loss
  per share                             $  (0.45) $  (0.26) $  (0.67) $  (0.52)
                                        ========  ========  ========  ========

</TABLE>

     On July 5, 2001, the Company acquired privately held Accel Technology,
K.K. ("Accel") a Company based in Osaka, Japan which develops the mechanical
construction and design of computers and relevant equipment, such as CD-R/RW
drives and DVD players.  This acquisition allows Oak to move more quickly into
the consumer space by providing turnkey platforms to consumer electronics
customers to minimize their development efforts.  The Company paid
approximately $3.2 million in cash for all the outstanding common shares and
stock options of Accel.  The transaction has been accounted for under SFAS No.
141, "Business Combinations," using the purchase method of accounting.  The
results of operations of Accel have been included in the results of Oak's
consolidated financial statements from July 12, 2001.  The historical
operations of Accel are not material to the financial position or results of
operations of the Company; therefore, no pro forma information is presented.
The acquisition resulted in goodwill of approximately $3.1 million, which will
not be amortized in accordance with the provisions of SFAS 142.


6. Contingencies
   -------------

     Oak and various of its directors and former officers are parties to a
consolidated class action lawsuit filed on behalf of all persons who purchased
or acquired Oak common stock (excluding the defendants and parties related to
them) for the period July 27, 1995 through May 22, 1996.  This state court
proceeding, designated IN RE OAK TECHNOLOGY SECURITIES LITIGATION, Master File
No. CV758510 was filed in Santa Clara County Superior Court in Santa Clara,


                                      13


<PAGE>

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

California.  The plaintiffs alleged violations of California securities laws
and statutory deceit provisions as well as breaches of fiduciary duty and abuse
of control.  The plaintiffs sought unspecified monetary damages.  The court
dismissed all claims except the California Corporations Code Sections
25400/25500 cause of action against Oak and four former officers. On August 5,
2000 the court granted defendant's motion for summary judgment and entered
judgment in favor of Oak and the former officers.  The plaintiffs appealed the
court's decisions. On February 3, 2003, the Sixth District Court of Appeals
affirmed the trail court's dismissal.  Based on its current information, Oak
believes this suit to be without merit and will continue to defend its position
vigorously.  Although it is a remote possibility, the rulings may be overturned
by the California Supreme Court and Oak may incur a loss upon an adverse
conclusion of these claims, an estimate of any such loss cannot be made.

     On July 16, 1998, the court provisionally certified a national class of
all persons who purchased Oak stock during the class period.  On August 5, 2000
the court granted Company's motion for summary judgment and entered judgment in
favor of Oak.  The plaintiffs have appealed the court's decision which is
currently under review by the Sixth District Court of Appeal.  Based on its
current information, Oak believes this suit to be without merit and will
continue to defend its position vigorously.  Although it is a remote
possibility, the court's ruling may be overturned on appeal and Oak may incur a
loss upon an adverse conclusion of these claims, an estimate of any such loss
cannot be made.

     Additionally, various Oak's directors and former officers are defendants
in three consolidated derivative actions pending in Santa Clara County Superior
Court in Santa Clara, California, entitled IN RE OAK TECHNOLOGY DERIVATIVE
ACTION, Master File No. CV758510.  This lawsuit, which asserts a claim for
breach of fiduciary duty and a claim under California securities law based upon
the officers' and directors' trading in securities of Oak during the period
July 27, 1995 through May 22, 1996, has been stayed pending resolution of the
above described class actions.  The plaintiffs are seeking monetary damages,
equitable relief and an accounting for the defendants' sales of shares of Oak
common stock.  Based on its current information, Oak believes the suits to be
without merit and will defend its position vigorously.  Although it is
reasonably possible Oak may incur a loss upon conclusion of these claims, an
estimate of any such loss cannot be made.

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

     On October 27, 1997, Oak 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 a settlement agreement entered into by Oak and UMC as a means to
resolve an ITC action filed by Oak based on Oak's belief that UMC was violating
U.S. trade laws by the unlicensed importing or selling of certain CD-ROM
controllers that infringed one or more of Oak's United States patents. Under
the terms of the settlement agreement, effective July 31, 1997, 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 Oak's ITC complaint against UMC.

     On December 24, 1997, UMC answered Oak's complaint and counterclaimed by
asserting causes of action for rescission, restitution, fraudulent concealment,
mistake, lack of mutuality, interference and declaratory judgment of non-
infringement, invalidity and unenforceability of the Oak patent that was the
subject of the ITC action filed against UMC.

     In a related action to the lawsuit that was commenced by Oak against UMC,
on December 19, 1997, MediaTek, a UMC affiliated, Taiwanese entity, filed a
complaint in the United States District Court, Northern District of California,
against Oak 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.   Oak filed its answer on January 8, 1998, denying all the
allegations.  Oak believes UMC's counterclaims and Mediatek's claims to be
without merit.

                                      14


<PAGE>

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

     On June 11, 1998, the cases were consolidated for all purposes and stayed
under 28 U.S.C. Section 1659, based on the judge's conclusion that the civil
action involves the same issues before the International Trade Commission,
initiated by Oak a second time as a result of the alleged breach of the
settlement agreement.  The stay was lifted due to the final resolution of the
second ITC investigation and the decision of the Federal Circuit Court of
Appeals on May 2, 2001 affirming the Commission's determination that there was
no infringement of Oak's U.S. Patent No. 5,581, 715. The Federal Circuit Court
of Appeals did not review the Commission's determination that Oak's U.S. Patent
No. 5,581,715 was valid and enforceable.  As a result of the decision rendered
by the Federal Circuit Court of Appeals, and the lifting of the stay on the
consolidated action pending in the United States District Court, Northern
District of California, the parties are proceeding with the litigation.  The
trial was scheduled to commence in February 2003; based on the complex
technical issues in the case the judge postponed the February trial in order to
secure a Court appointed technical expert to assist the judge in understanding
the technical merits of the case. Currently, no new trial date has been set.

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

     On January 4, 2001 Samsung Electronics, a customer of Oak's Imaging Group,
received a notification from Pitney Bowes alleging that the resolution
enhancement technology (iRET) Samsung acquired from Xerographic Laser Images
Corporation, Inc. ("XLI") in 1996 infringes Pitney Bowes U.S. Patent No.
4,386,272 ("272 patent").  XLI is a subsidiary of Oak as a result of an
acquisition in the first quarter of fiscal year 1999.  The terms of the
agreement for the licensing of the iRET technology to Samsung require Oak, as
successor in interest to XLI's assets and liabilities, to defend and indemnify
Samsung from claims alleging the iRET technology supplied to Samsung infringes
the intellectual property rights of a third party.  On June 18, 2001 Pitney
Bowes filed a complaint in the District Court of Connecticut, naming Samsung
and others, claiming infringement of the '272 patent.  On June 28, 2001 Samsung
formally requested Oak to defend Samsung and Oak agreed to do so.  Other XLI
customers are also subject to Pitney Bowes allegation of infringement of the
'272 patent.  On September 7, 2001, Oak filed a motion to intervene on behalf
of ourselves and for the benefit of any of our customers who may be subject to
the Pitney Bowes allegations, in the District Court of Connecticut.  The motion
to intervene was granted on December 12, 2001.  On February 5, 2002, this
action was transferred to the United States District Court, District of
Kentucky.  The parties are proceeding with this litigation.

     If the above pending action, with respect to Oak's indemnification
obligation in such action, is decided adversely, it would likely have a
material adverse affect on Oak's financial condition, cash flows and results of
operations.

     In January of 2002, Oak received a notice letter of infringement from
Syndia Corporation, an assignee of U.S. Patent No. 4,702, 808 (" '808 patent")
and U.S. Patent No. 5,131,941(" '941 patent") issued to Mr. Jerome Lemelson.
The '808 and '941 patents claim certain plasma enhanced chemical vapor
deposition etch processes that are used in the manufacture of semiconductor
chips.  The notice letter asserts that Oak's use and sale of semiconductor
chips manufactured using processes claimed by the '808 and '941 patents
constitutes an infringement.  Oak uses TSMC to manufacture its semiconductor
products, and has notified TSMC of the claims made by Syndia.  The terms of an
indemnification agreement between Oak and TSMC require TSMC to indemnify Oak
from claims alleging the manufacturing processes used by TSMC infringes the
intellectual property rights of a third party.  Pursuant to the terms of the
indemnification agreement between the parties, TSMC has agreed to indemnify and
hold Oak harmless against the claims made by Syndia.

     If TSMC fails to indemnify and hold Oak harmless, and Syndia is successful
in its claim for infringement, it would likely have a material adverse affect
on Oak's financial condition, cash flows and results of operations.


                                      15


<PAGE>

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



7. Restructuring
   -------------

     During the quarter ended December 31, 2002, the Company recorded
restructuring expenses of $3.2 million related to the reduction in force of
approximately 20 employees due to the initiation of the restructuring of the
Optical Storage business, an adjustment of a loss on lease of a previously
abandoned leased office space, and the impairment of two additional existing
facilities owned and held for sale by the Company.  The impairment charge of
$1.4 million attributable to facilities owned and held for sale by the Company
is a result of a decline in fair market value compared to the net book value.
This amount is expected to offset the estimated loss to be incurred by the
Company on the disposal of the two facilities within the next twelve-month
period.  The adjustment of a loss on lease of a previously abandoned leased
office space was updated during the quarter ended December 2002 due to a change
in circumstances, specifically the continued slow down of the economy after a
one year period which resulted in a more likely outcome of a significant
reduction of potential sublease rental rates during the remaining lease term of
42 months.

This resulted in a charge of $1.2 million during the second quarter of fiscal
2003 which is expected to reduce the remaining loss on lease net of any
expected sub-lease income.

     During the second quarter of fiscal 2002, Oak recorded restructuring
charges of $2.0 million related to the reduction in force due to the
restructuring of the overall business and the planned abandonment of an
existing office space.  This represented the reduction in force of
approximately 30 employees.

     The expenses relating to the restructuring charges are summarized as
follows (in thousands):


<TABLE>
<CAPTION>
                                       Severance  Facilities   Other    Total
                                       ---------  ----------   -----    -----
<S>                                    <C>         <C>        <C>     <C>
Balance, June 30, 2002                  $   384     $ 1,657    $  16   $ 2,057

Provision recorded during the six
  month period ended December 31, 2002      585       2,576       --     3,161
Provision utilized during the six month
  period ended December 31, 2002           (224)     (2,042)      --    (2,266)
                                        -------     -------    -----   -------
Balance, December 31, 2002              $   745     $ 2,191    $  16   $ 2,952
                                        =======     ======     =====   =======

</TABLE>

     All remaining balances at December 31, 2002 are expected to be paid out in
cash.  Amounts related to facilities will be paid over the lease terms through
June 2006 and the remaining amounts are expected to be paid by the end of
fiscal 2003.


8. Segment Information
   -------------------

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

     For fiscal year 2002 and 2001, the Company had two reportable segments
which offer different product lines to each of its target markets: Optical
Storage Group and Imaging Group.  The Optical Storage Group provides high-
performance controllers for CD-ROM, CD-RW, and DVD based technologies to OEM's
who serve the optical storage market.  The Imaging Group provides high-
performance imaging systems for the digital imaging environment, including
products used in digital laser copiers and printers as well as multifunction
peripherals.   As a result of the acquisition of TeraLogic on October 25, 2002,
the Company has added a third reportable segment starting in the second quarter
of fiscal 2003, the TeraLogic Group.  The TeraLogic Group provides products
used in advanced video/audio and display processing technology for digital TV,
HDTV, and personal digital video recorders (PVR).  The Company evaluates
operating segment performance based on net revenues and direct operating
expenses of the segment.  The accounting policies of the operating segments are
the same as those described in the summary of accounting policies.  No segments
have been aggregated.  The Company does not allocate assets to its individual
operating segments.


                                      16

<PAGE>


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

     Information about reported segment income or loss is as follows for the
three and six months ended December 31, 2002 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
Net Revenues:
  Optical Storage                       $ 11,825  $ 24,747  $ 29,329  $ 45,826
  Imaging                                 12,295    11,541    25,000    23,763
  TeraLogic                                4,280        --     4,280        --
                                        --------  --------  --------  --------
                                        $ 28,400  $ 36,288  $ 58,609  $ 69,589
                                        ========  ========  ========  ========

Cost of Goods Sold and Direct
  Operating Expenses:
  Optical Storage                       $ 15,885  $ 22,456  $ 33,949  $ 44,610
  Imaging                                  7,568     7,319    15,905    14,973
  TeraLogic                                4,912        --     4,912        --
                                        --------  --------  --------  --------
                                        $ 28,365  $ 29,775  $ 54,766  $ 59,583
                                        ========  ========  ========  ========
Contribution Margin:
  Optical Storage                       $ (4,060) $  2,291  $ (4,620) $  1,216
  Imaging                                  4,727     4,222     9,095     8,790
  TeraLogic                                 (632)       --      (632)       --
                                        --------  --------  --------  --------
                                        $     35  $  6,513  $  3,843  $ 10,006
                                        ========  ========  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
Contribution margin from operating
  segments                              $     35  $  6,513  $  3,843  $ 10,006
  Indirect operating expenses              8,052     7,103    14,433    13,163
  Depreciation expense                     2,428     1,704     4,325     3,356
  Amortization of intangibles              2,759     3,046     4,510     6,474
  Restructuring charge                     3,161     2,028     3,161     2,028
  Acquisition related charges              7,754        --     7,754        --
                                        --------  --------  --------  --------
Total operating loss                     (24,119)   (7,368)  (30,340)  (15,015)
  Non-operating income, net                1,760     1,512     2,921     3,633
                                        --------  --------  --------  --------
Loss before income taxes                $(22,359) $ (5,856) $(27,419) $(11,382)
                                        ========  ========  ========  ========

</TABLE>

                                      17


<PAGE>


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


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

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

     The distribution of net revenues for the three and six months ended
December 31, 2002 and 2001 are as follows (in thousands):


<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
Revenue from unaffiliated customers
  originating from:
  North America                         $  6,010  $  4,423  $  9,553  $ 10,388
  Japan                                   10,334    14,023    21,944    27,720
  Korea                                    1,908     7,097     3,413    14,996
  Taiwan                                   8,428     4,516    19,537     7,813
  Philippines                                911     5,460     1,755     5,460
  Europe                                     717       394     2,165       987
  Other                                       92       375       242     2,225
                                        --------  --------  --------  --------
                                        $ 28,400  $ 36,288  $ 58,609  $ 69,589
                                        ========  ========  ========  ========

</TABLE>

     For the three months ended December 31, 2002, one customer accounted for
15% of total revenues. For the same period of the prior fiscal year, three
customers accounted for 19%, 15% and 12% of total revenues, respectively.

     For the six months ended December 31, 2002 two customers accounted for 14%
and 11% of total revenues, respectively.  For the same period of the prior
fiscal year two customers accounted for 20% and 10% of total revenues,
respectively.

     As of December 31, 2002, two customers accounted for 33% and 14% of total
net accounts receivable, respectively, and as of June 30, 2002, four customers
accounted for 34%, 24%, 14% and 12% of total net accounts receivable,
respectively.

                                      18

<PAGE>


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


9. Comprehensive Loss
   ------------------

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

<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                          December 31,          December 31,
                                       -------------------  ------------------
                                         2002       2001      2002      2001
                                         ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>
Net loss                                $(22,942) $ (6,264) $(28,630) $(12,513)
  Other comprehensive income (loss):
  Change in unrealized gain on
    investments, net                        (328)    1,416      (129)    2,145
                                        --------  --------  --------  --------
Total comprehensive loss                $(23,270) $ (4,848) $(28,759) $(10,368)
                                        ========  ========  ========  ========
</TABLE>


10. Income Taxes
    ------------

     For the three and six months ended December 31, 2002 and 2001, the Company
recorded tax expense based on actual taxes incurred.


11. Subsequent Events
    -----------------

          On February 5, 2003, Oak announced that it had signed a definitive
agreement with Sunplus Technology Co. Ltd., a publicly held fabless
semiconductor company focused on the consumer market, based in Taiwan.  Under
the terms of the Agreement, Oak will transfer its Optical Storage business and
certain optical storage assets to Sunplus in return for approximately $30
million, comprised of $16 million in cash and shares of Sunplus common stock
having a value of $14 million.  Sunplus shares are traded on the Taiwan Stock
Exchange.  The agreement contemplates that at Closing, Oak and Sunplus would
enter into a number of ancillary agreements on mutually agreeable terms,
including a license agreement relating to the use by Sunplus of certain Oak
patents.  There can be no assurance that these additional agreements can be
reached on terms mutually satisfactory to Oak and SunPlus and that the
transactions contemplated by the Agreement will be consummated.  We anticipate
closing the sale on or about March 31, 2003, subject to closing conditions.



                                      19

<PAGE>


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

This Report on Form 10-Q contains  "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 Oak and
its management.  Such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties.  Actual results
could differ materially from those indicated by such forward-looking
statements.  Among the important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements
include those discussed below under the subheading "Factors That May Affect
Future Results" and elsewhere in this report.  Oak undertakes no obligation to
publicly release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after the dates
hereof or to reflect the occurrence of unanticipated events.  Readers should
carefully review the risk factors described in "Factors That May Affect Future
Results" below and any subsequently filed SEC reports.


General
-------

     Oak designs, develops and markets high performance integrated
semiconductors, software and platform solutions to original equipment
manufacturers ("OEMs") worldwide that serve the optical storage, digital
television and digital imaging equipment markets.  Our digital imaging products
consist of semiconductor hardware and software that enables users to print,
scan, process and transmit documents to computer peripherals that perform
printing functions.  Our optical storage products consist primarily of
integrated circuits and supporting software and firmware, all designed to store
and distribute digital content, thereby enabling our customers to deliver cost
effective, powerful systems to the end users for the home and enterprise.  Our
digital television products consists of integrated circuits, software and
platforms for digital television that enable the delivery and display of
digital video content through a set top box or television.  Our mission is to
be a leading solutions provider for the storage, distribution and display of
digital content.

     Oak's operations were previously organized along its two market-focused
groups: the Optical Storage Group and the Imaging Group.  With the acquisition
of TeraLogic, Inc., during the quarter ended December 31, 2002, Oak's
operations are now organized along three market focused groups: Optical Storage
Group, Imaging Group, and TeraLogic Group.

     For the results of operations for the three and six months ended December
30, 2002, the Company reported a net loss of $22.9 million and $28.6 million,
respectively compared to a net loss of $6.3 million and $12.5 million recorded
for the three and six month periods, respectively, of the prior fiscal year.
The Company continues to experience the effects of decreased revenues caused by
the slowdown in the PC industry as well as a decrease in overall global
economic conditions.

     Oak's quarterly and annual operating results have been, and will continue
to be, affected by a wide variety of factors that could have a material adverse
effect on revenues and profitability during any particular period, including
competitive pressures on selling prices, availability and cost of foundry
capacity and raw materials, fluctuations in yield, loss of any strategic
relationships, its ability to introduce new products in accordance with OEM
design requirements and design cycles, rate of adoption of new technology, rate
of growth of the digital television market, changes in product mix or
distribution channels, demand for semiconductors and end-user products
incorporating semiconductors, technological difficulties and resource
constraints encountered in developing and/or using new products, new product
introductions by its competitors, and market acceptance of product sold by both
Oak and its customers.

     In addition, our operating results are subject to fluctuations in the
markets for our customers' products, particularly the consumer electronics and
personal computer markets, which have been severely impacted by the current
slow down in the semiconductor industry and the overall weak macro-economic
environment.  Although Oak had devoted a substantial portion of its research
and development efforts to developing chips used in DVD systems, CD-RW drives
and inkjet and laser imaging devices, the Company expects to shift its focus to
the development of chips and platforms used in digital television products
while it continues the development of


                                      20


<PAGE>

inkjet and laser imaging devices.  Our optical storage, digital television, and
digital imaging products are subject to the new product risks described in the
preceding paragraph, including in particular our ability to timely introduce
these products and the market's acceptance of them, which could have a
materially adverse effect on our operating results.

     Finally, the Company will continue to pursue opportunities to acquire key
technology to augment its technical capabilities or achieve faster time to
market as an alternative to developing such technology internally.  The
TeraLogic acquisition is part of the implementation of this strategy.

     Acquisitions involve numerous risks, including difficulties in integration
of the operation, 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.  As a result of the acquisition of TeraLogic, the
Company incurred acquisition related charges of approximately $7.8 million
during the quarter ended December 31, 2002 which includes an in-process
research and development charge of $7.0 million and amortization of deferred
stock compensation and other deferred compensation attributable to the
acquisition of TeraLogic of $0.8 million.

     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.

Definitive Agreement to Sell Certain Assets of the Optical Storage Business
---------------------------------------------------------------------------

     On February 5, 2003, Oak announced that it had signed a definitive
agreement with Sunplus Technology Co. Ltd., a publicly held fabless
semiconductor company focused on the consumer market, based in Taiwan.  Under
the terms of the Agreement, Oak will transfer its Optical Storage business and
certain optical storage assets to Sunplus in return for approximately $30
million, comprised of $16 million in cash and shares of Sunplus common stock
having a value of $14 million.  Sunplus shares are traded on the Taiwan Stock
Exchange.  The agreement contemplates that at Closing, Oak and Sunplus would
enter into a number of ancillary agreements on mutually agreeable terms,
including a license agreement relating to the use by Sunplus of certain Oak
patents.  There can be no assurance that these additional agreements can be
reached on terms mutually satisfactory to Oak and SunPlus and that the
transactions contemplated by the Agreement will be consummated.  We anticipate
closing the sale on or about March 31, 2003, subject to closing conditions.

     As a result of this transaction, Oak expects the revenue and expense of
the Optical Storage Group to transfer over to Sunplus at the time of close
which is currently targeted to March 31, 2003.  In the interim, as a result of
the transition and as previously discussed in the Company's earnings release,
the Company has provided guidance that it expects Optical Storage revenues to
be sequentially down in the March quarter by $1.5 to $ 3.0 million.

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

     Net Revenues. Net revenues decreased 22% to $28.4 million for the three
     ------------
months ended December 31, 2002 from $36.3 million in the comparable period of
fiscal 2002.  For the six months ended December 31, 2002, net revenues
decreased 16% to $58.6 million from $69.6 million in the same period of the
prior year.  The year over year decrease in revenues is a result of a number of
factors including the global economic slowdown, more specifically the slowdown
in PC related markets and increased competition in CD-RW.

                                      21

<PAGE>

     Net revenues in the Optical Storage business segment were $11.8 million
for the second quarter of fiscal 2003, representing a 52% decrease from the
segment's net revenues of  $24.7 million reported in the same period of fiscal
2002.  Net revenues in the Optical Storage business segment decreased 36% to
$29.3 million for the six months ended December 31, 2002 compared to $45.8
million recorded in the same period of the prior year.  The decrease in
revenues during the quarter ended December 31, 2002 compared to the same period
of the prior fiscal year is primarily attributable to a decline in volume of
shipments of controller products and ASP erosion. This decline is the result of
several factors including a loss of market share during transitions to newer
generations of product, absence of a next generation companion AFE chip to go
with the controller, a weaker economy and weaker PC Market coupled with intense
competition between component suppliers, drive manufacturers and PC-OEM's which
have driven in excess of 20% ASP erosion over the course of a year.  The
Company also had a major customer in Philips formally announce their withdrawal
from the PC-OEM Optical Storage supplier market during the December 2002
quarter. This withdrawal alone accounted for approximately one third of the
year over year decline in quarterly revenues.

     On February 5, 2003, Oak announced that it had signed a definitive
agreement with Sunplus, a publicly held fabless semiconductor company focused
on the consumer market, based in Taiwan.  Under the terms of the Agreement, Oak
will transfer its Optical Storage business and certain optical storage assets
to Sunplus in return for approximately $30 million, comprised of $16 million in
cash and shares of Sunplus common stock having a value of $14 million.  Sunplus
shares are traded on the Taiwan Stock Exchange.  As a result of this
transition, Oak expects to see a decline in Optical Storage revenues in the
March quarter of $1.5 - $3.0 million in revenues in Optical Storage.  The
revenues and expenses of the business are currently expected to transfer over
to Sunplus when the transaction closes, which is currently targeted for March
31, 2003.

     Net revenues for the Imaging business segment were $12.3 million for the
three months ended December 31, 2002, representing a 7% increase over the $11.5
million reported in the same quarter of fiscal 2002.  Net revenues for the
Imaging business segment increased to $25.0 million, or 5% for the six months
ended December 31, 2002 compared to $23.8 million recorded during the same
period of the prior year.  The slight increase is primarily the result of
higher revenues related to Imaging hardware products during the three and six
month periods ended December 31, 2002 compared to the same periods of the prior
year.  This increase was offset by a decline in software revenues for the six
month period of approximately $0.5 million due to a decline in revenues
associated with developing print drivers for a specific OEM manufacturer, a
business which has been deemphasized by Oak.

     As a result of the acquisition of TeraLogic which was completed during the
quarter ended December 31, 2002, Oak has added a third business segment, the
TeraLogic group.  Revenues for the TeraLogic group from the date of acquisition
of October 25, 2002 through December 31, 2002 were $4.3 million.  The Company
expects that revenues for the TeraLogic group will grow over time as digital
television and HDTV become more widespread.

     Cost of Revenues.  Cost of revenues includes the cost of wafer
     ----------------
fabrication, assembly, and testing performed by third-party vendors and direct
and indirect costs associated with the procurement, scheduling and quality
assurance functions performed by the Company.  The Company's total gross margin
increased to 60% for the quarter ended December 31, 2002, as compared to 51%
during the comparable period in the prior year.  For the six months ended
December 31, 2002, the Company's total gross margin increased to 58% compared
to 50% in the same period of the prior year.  The overall increase in total
gross margins year over year is attributable to the decrease in Optical Storage
revenues which historically has a lower gross margin than Imaging revenues.

     Gross margin for the Optical Storage business segment was 44% for the
second quarter of fiscal 2003 compared to 37% for the comparable quarter of the
prior fiscal year and 43% for the six months ended December 31, 2002 compared
to 35% for the comparable period of the prior fiscal year.  The increase in the
gross margin for the Optical Storage business segment for the three and six
month periods ended December 31, 2002 compared to the same period in the prior
year is due to a change in the product mix in which the Company stopped selling
a low margin discrete AFE and at the same time sold a higher relative mix of
high margin combo products.

     Gross margin for the Imaging business segment was 77% for the second
quarter of fiscal year 2003, representing a slight decrease from the 80%
reported in the second quarter of fiscal 2002.  Gross margin for the Imaging


                                      22


<PAGE>


business for the six months ended December 31, 2002 was 76% compared to 77% for
the same period in the prior year.  This was due to a change in the hardware
product mix in which there was an increase in sales of higher margin hardware
products during the three and six month periods ended December 31, 2002
compared to the same periods in the prior year.

     Gross margin for the TeraLogic business segment was 52% from the date of
acquisition through December 31, 2002.  Although Oak expects gross margins for
the TeraLogic business segment to fluctuate based on changes in product mix
each quarter this is reflective of the range of average gross margins that are
expected to continue for this segment in future periods.

     During fiscal 2001 and 2002, the Company provided a full reserve for
certain quantities of inventory primarily related to Optical Storage of $5.6
million and $4.1 million, respectively.  Approximately $4.1 million in fully
reserved gross inventory was physically disposed of during the quarter ended
December 31, 2002 which had no impact to the Company's net loss.  At December
31, 2002 there was approximately $5.9 million of fully reserved inventory which
if not sold would be disposed of in the future.

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

     Research and Development Expenses.  Research and development costs are
     ---------------------------------
expensed as incurred.  Research and development expenses of $17.0 million for
the quarter ended December 31, 2002 increased $4.1 million, or 32%, from the
$12.9 million recorded in the comparable period of the previous fiscal year.
Research and development expenses for the six months ended December 31, 2002
increased 18% to $30.7 million from the $26.0 million recorded in the same
period of the prior year.  The increase in research and development expenses
for the quarter ended December 31, 2002 compared to the same period of the
prior year was attributable to the inclusion of TeraLogic from October 25, 2002
which accounted for $2.6 million as well as an increase in tape-out related
costs of $1.1 million due to the timing of product developments.  The increase
in research development expenses for the year ended December 31, 2002 compared
to the same period of the prior year was also attributable to the inclusion of
$2.6 million attributable to TeraLogic from October 25, 2002 and an increase in
tape-out related costs of $2.3 million due to the timing of product
developments.

     Selling, General and Administrative Expenses.  Selling, general and
     --------------------------------------------
administrative (SG&A) expenses increased by 35% to $10.4 million for the three
months ended December 31, 2002 from $7.7 million in the comparable period of
the prior year.  SG&A expenses increased 21% to $18.2 million for the six
months ended December 31, 2002 compared to $15.1 million in the same period of
the prior year.  The increase in SG&A expenses for the quarter ended December
31, 2002 and the six months ended December 31, 2002 compared to the same
periods of the prior year was primarily attributable to the inclusion of
TeraLogic starting October 25, 2002 which accounted for $1.2 million.  The
increases were also attributable to an increase in legal expense of $1.5
million for the quarter ended December 31, 2002 and $2.3 million for the six
months ended December 31, 2002 compared to the same periods of the prior year
which is related to an ongoing litigation which we expect to continue over the
next several quarters.

     Amortization of Intangibles.  Amortization of intangible assets was $2.8
     ---------------------------
million for the three months ended December 31, 2002, a decrease of $0.2
million from the $3.0 million recorded in the same period of the prior fiscal
year.  For the six months ended December 31, 2002, amortization of intangible
assets decreased 31% to $4.5 million from the $6.5 million recorded in the same
period of the prior year.  The decrease in the six-month periods year over year
is a result of the completion of amortization of certain intangible assets as
they became fully amortized.  During the quarter ended December 31, 2002, this
decrease was offset by the acquisition of TeraLogic which resulted in the
addition of approximately $30.3 million in intangible assets which will be
amortized over one to five year lives.


                                      23


<PAGE>


     Restructuring Charge.  During the quarter ended December 31, 2002, the
     --------------------
Company recorded restructuring expenses of $3.2 million related to the
reduction in force of approximately 20 employees due to the initiation of the
restructuring of the Optical Storage business, an adjustment of a loss on lease
of a previously abandoned office space, and the impairment of additional
existing facilities owned by the Company.  The Company expects the
restructuring charge of $0.6 million related to the reduction in headcount to
result in future cash savings and reduction in SG&A expense of approximately
$0.3 million per quarter.  The impairment charge of $1.4 million attributable
to facilities owned and held for sale by the Company is expected to approximate
the estimated loss to be incurred by the Company on the disposal of two
facilities within the next twelve-month period.  The adjustment of a loss on
lease of a previously abandoned leased office space was updated during the
quarter ended December 31, 2002 due to a change in circumstances, specifically
the continued slow down of the economy after a one year period which resulted
in a more likely outcome of a significant reduction of potential sublease
rental rates during the remaining lease term of 42 months.   This resulted in a
charge of $1.2 million during the second quarter of fiscal 2003 which is
expected to reduce the remaining loss on lease net of any expected sub-lease
income.

     During fiscal 2002, the Company recorded total restructuring charges of
$3.2 million related to the reduction in force of approximately 70 employees
and the additional loss on leasehold as a result of a sub-tenant that
experienced financial difficulties and abandoned the facility with
approximately 5 years remaining.   Of this amount, $2.0 million was recorded
during the second quarter of fiscal 2002 attributable to the reduction in force
of approximately 30 employees and the planned abandonment of an existing office
space.  The total reduction in headcount as a result of the fiscal 2002
restructuring charge resulted in cash savings and reduced R&D expense of
approximately $1.0 million per quarter while the charge attributable to the
loss on leasehold reduced lease expense by approximately $200,000 per quarter.
We expect that the total charge related to the loss on leasehold including the
adjustment made in the second quarter of fiscal 2003 will be sufficient to
reduce the remaining lease expense net of any future sublease income.

     Acquisition related expenses.  For the quarter and six months ended
     ----------------------------
December 31, 2002, the Company recorded acquisition related expenses of $7.8
million.  This amount includes approximately $7.0 million of in-process
research and development charges related to the acquisition of TeraLogic during
the quarter ended December 31, 2002 which represents the estimated fair value
of an acquired in-process research and development project that had not yet
reached technological feasibility and had no alternative future use.
Accordingly, this amount was immediately expensed upon the acquisition date.
The Company expects that the technology will be successfully completed by the
fourth quarter of fiscal 2003 with approximately $4 million in remaining costs.
At the time of acquisition, TeraLogic had one material project in process,
Generation 9, an integrated System on a Chip that integrates a previous
generation of the technology with a new Audio DSP Core as well as a MIPS 64 bit
processor and certain other video processing features.  The value of in-process
research and development was determined using the multi-period excess earnings
method by estimating the expected net cash flows from the Generation 9 project
once commercially viable, discounting the net cash flows back to their present
value using a discount rate of 23%.  This rate was based on the industry
segment for the technology, nature of the products to be developed, length of
time to complete the project and overall maturity and history of the
development team.  The net cash flows from the identified project were based on
estimates of revenue, cost of revenue, research and development expenses,
selling general and administrative expenses, and applicable income taxes.
These estimates did not take into account any potential synergies that could be
realized as a result of the acquisition.  Revenues for Generation 9 and the
incremental core technology developed are expected to commence in the fourth
quarter of fiscal 2003 and extend through 2009.  We based our revenue
projections on estimates of market size and growth, expected trends in
technology and the expected timing of new product introductions.  In addition,
the acquisition related expenses includes the amortization of deferred stock
compensation and other deferred compensation attributable to the acquisition of
TeraLogic of $0.8 million.


     Other Non-operating Income.  During the second quarter of fiscal 2003,
     --------------------------
non-operating income increased 20% to $1.8 million from the $1.5 million
recorded during the same quarter of fiscal 2002.  Non-operating income
decreased 19% to $2.9 million for the six months ended December 31, 2002 from
$3.6 million recorded in the same period of the prior year.  The decrease in
the six-month periods year over year is a result of the decrease in interest
income as a result of lower interest rates and a decline in cash and short-term
investment balances.  The decrease in interest income was offset in the quarter
ended December 31, 2002 as a result of the sale of marketable securities which
resulted in a gain of $0.7 million.


                                      24

<PAGE>


     Income Taxes.  For the second quarter of fiscal 2003 and for the six
     ------------
months ended December 31, 2002, tax expense was based on actual taxes incurred.
Management does not yet believe it is more likely than not that sufficient
future taxable income will be generated to realize all of the Company's
deferred tax assets.  Accordingly, a full valuation allowance existed against
deferred tax assets as of June 30, 2002 and December 31, 2002.  No income tax
benefit was recognized with respect to operating losses incurred in the second
quarter of fiscal 2003 and for the six months ended December 31, 2002.


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

     Since its inception, Oak 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.  Oak's principal sources of liquidity as of
December 31, 2002 consisted of approximately $80.4 million in cash, cash
equivalents and short-term investments.

     Oak's working capital decreased by $68.6 million to $60.6 million as of
December 31, 2002 from $129.2 million as of June 30, 2002.  The decrease was
primarily attributable to the acquisition of TeraLogic which was completed
during the second quarter of fiscal 2002.  Approximately $45 million was used
in the acquisition of TeraLogic along with an additional $12.2 million used in
operating activities during the six months ended December 31, 2002.  Oak's
short-term investments were principally invested in investment grade, interest-
bearing securities.

     Oak's cash used by operating activities was $12.2 million for the six
months ended December 31, 2002 compared to cash provided by operating
activities of $6.6 million for the same period of the prior fiscal year.  The
decline during the six months ended December 31, 2002 was primarily
attributable to a net loss of $28.6 million during the period and increases in
accounts payable and accrued expenses of $9.4 million, and increases in
deferred income taxes, deferred revenue and other liabilities of $2.0 million.
This was offset by, decreases in accounts receivable, inventories, prepaid
expenses, other current assets and other assets totaling $7.8 million.  The
loss was also offset by the add back of depreciation and amortization of $8.8
million as well as the in-process research and development charge of $7.0
million recorded during the period.

     Oak's investing activities during the six months ended December 31, 2002
used cash of $9.7 million compared to $12.8 million during the same period of
the prior year.  Cash used in investing activities during the current period
resulted primarily from the acquisition of TeraLogic which used $45 million and
purchases of property and equipment of $4.6 million.  This was offset by net
proceeds from the maturities of short-term investments of $39.9 million.

     Oak's financing activities during the six months ended December 31, 2002
was minimal compared to proceeds of $3.7 million during the same period of the
prior year.  Financing activities during the six months ended December 31, 2002
was a result of issuances of common stock through the exercise of employee
stock options and the employee stock purchase plan which was offset by treasury
stock acquisitions during the period.


As discussed above, Oak has entered into a definitive agreement to transfer its
Optical Storage business to SunPlus.  However, there can be no assurance that
the conditions to closing will be satisfied and that  we will be able to close
the SunPlus transaction.


                                      25


<PAGE>


     The following table summarizes our contractual payment obligations and
commitments as of June 30, 2002:

                 Payment Obligations by Year (in thousands)

<TABLE>
<CAPTION>
                      2003     2004     2005     2006    2007   Beyond  Total
                      ----     ----     ----     ----    ----   ------  -----
<S>                 <C>      <C>      <C>      <C>     <C>     <C>    <C>
Operating leases     $ 6,536  $ 6,308  $ 6,316  $ 6,602 $ 4,149 $  295 $30,206
Inventory purchase
  commitments          5,292       --       --       --      --     --   5,292
                     -------  -------  -------  ------- -------- ----- -------
  Total              $11,828  $ 6,308  $ 6,316  $ 6,602 $  4,149 $ 295 $35,498
                     =======  =======  =======  ======= ======== ===== =======

</TABLE>

     The acquisition of TeraLogic which was completed during the quarter ended
December 31, 2002 did not have a material effect on the obligations as shown
above.

     We believe that our existing cash, cash equivalents, short-term
investments and credit facilities will be sufficient to provide adequate
working capital and to fund operations over the next twelve months.  If,
however, during the next twelve to eighteen month period we fail to increase
our revenue or are unable to reduce our expenses below our revenues, then we
may be in a position where we will need to seek additional financing.  However,
there can be no assurance that we will not be required to seek other financing
sooner or that such financing, if required, will be available on terms
satisfactory to us.  We 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, we evaluate potential acquisitions of such businesses, products or
technologies.  However, Oak has no present understandings, commitments or
agreements with respect to any material acquisition of other businesses,
products or technologies, other than those disclosed above or elsewhere in the
Annual Report on Form 10-K for the fiscal year ended June 30, 2002 and on this
Form 10-Q for the quarter ended December 31, 2002 filed with the Securities and
Exchange Commission.


Critical Accounting Policies
----------------------------

     The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.  Note 2 of the Notes to Consolidated Financial Statements which
has been included in the Company's 2002 Annual Report on Form 10-K describes
the significant accounting policies essential to the consolidated financial
statements.  The preparation of these financial statements requires estimates
and assumptions that affect the reported amounts and disclosures.

     We believe the following to be critical accounting policies as they
require more significant judgments and estimates used in the preparation of our
consolidated financial statements.  Although we believe that our judgments and
estimates are appropriate and correct, actual future results may differ from
our estimates.

     In general the critical accounting policies that may require judgments or
estimates relate specifically to Distributor Revenue Recognition, the Allowance
for Doubtful Accounts, Inventory Reserves for Obsolescence and Declines in
Market Value, Loss on Engineering Service Contracts, Restructuring Charges for
Severance or Facilities and Income Tax Accruals.

     We recognize product revenues when a persuasive evidence of an arrangement
exists, delivery has occurred, the price is fixed and determinable and
collection is reasonably assured.  The Company ships products based on either
FOB shipping point or FOB customer site.  Product revenue is recognized upon
transfer of title and shipment of product to customers, net of accruals for
estimated sales returns and allowance.  The Company has not had a history of
significant returns.  The Company does not have post shipment obligation or
other acceptance criteria to fulfill after shipment has been completed.  During
fiscal year 2002, approximately 6% of the Company's total revenues were sold
through certain distributors that are subject to agreements allowing for
limited rights of exchange of up


                                      26

<PAGE>

to 5% of the total amounts sold in the previous six-month period.  Accordingly,
we do not recognize revenue for estimated returns from all amounts sold to
these distributors until the right of exchange has expired.

     The Allowance for Doubtful Accounts is established for estimated losses
resulting from the inability of our customers to make required payments.  The
assessment of specific receivable balances and required reserves is performed
by management and discussed with the audit committee.  We have identified
specific customers where collection is probable and have established specific
reserves, but to the extent collection is made, the allowance will be released.
Additionally, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

     Reserves are provided for excess and obsolete inventory, which are
estimated based on a comparison of the quantity and cost of inventory on hand
to management's forecast of customer demand.  Customer demand is dependent on
many factors and requires us to use significant judgment in our forecasting
process.  We must also make assumptions regarding the rate at which new
products will be accepted in the marketplace and at which customers will
transition from older products to newer products. Generally, inventories in
excess of six months demand are reserved and the related charge is recorded as
a cost of revenue.  Once a reserve is established, it is maintained until the
product to which it relates is sold or otherwise disposed of, even if in
subsequent periods we forecast demand for the product.  This treatment is in
accordance with Accounting Research Bulletin 43 and Staff Accounting Bulletin
100 "Restructuring and Impairment Charges."

     We enter into engineering service agreements from time to time and use
either percentage of completion or completed contract methods in recognizing
the project based revenues.  Estimates of remaining costs are prepared every
quarter and compared to the estimated revenues to determine if any reserve for
loss on contracts may be required.  Estimated losses on engineering contracts
are not material to our financial position at this time.

     Restructuring Charges for Severance and Facility Abandonment have been
accrued based on specific plans for cost reduction that are established by
management prior to the end of the quarter.  The severance accrual is tied to a
plan that is generally specific by person or position that will be eliminated.
The facility abandonment reserve is established by estimating how long a
facility may be vacant and under what market based terms might it be released.
Estimates for each given facility generally range from $200,000 to $800,000.
As a result of the TeraLogic acquisition, we now have four facilities, leased
by the Company, which we are attempting to sublease at this time with a
resulting reserve of $5.1 million as of December 31, 2002.  Some portion of
these reserves may prove to be too little, or in excess, which could result in
an adjustment to restructuring reserves in a future quarter.  In general, we
expect that these reserves will be used as payments are made for rent on these
abandoned facilities.  At this time we do not expect any additional adjustments
to be material to the Company's operating results.

     In general, we are in a loss position for tax purposes, and have
established a valuation allowance against deferred tax assets, as we do not
believe it is likely that we will generate sufficient taxable income in future
periods to realize the benefit of our deferred tax assets.  Predicting future
taxable income is difficult, and requires the use of significant judgment.  At
December 31, 2002, all of our deferred tax assets were reserved.  Accruals are
made for specific tax exposures and are generally not material to our operating
results or financial position, nor do we anticipate material changes to these
reserves going forward.


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

     You should read the following factors in conjunction with the factors
discussed elsewhere in this and our other filings with the SEC and in materials
incorporated by reference in these filings.  The following is intended to
highlight certain factors that may affect the financial condition and results
of operations of Oak and are not meant to be an exhaustive discussion of risks
that apply to companies with broad international operations, such as Oak.  Like
other businesses, Oak is susceptible to macroeconomic downturns in the United
States or abroad, as were experienced in fiscal year 2002, and continues into
fiscal year 2003, that may affect the general economic climate and performance
of Oak or its customers.


                                      27


<PAGE>


     Oak Has Experienced and Expects to Continue to Experience Significant
     ---------------------------------------------------------------------
Period-to-Period Fluctuations in Its Revenues and Operating Results, Which May
------------------------------------------------------------------------------
Result in Volatility in the Price of Its Stock.  Oak's quarterly revenues and
----------------------------------------------
operating results have varied significantly in the past and are likely to vary
substantially from quarter to quarter in the future.  Accordingly, you should
not rely on period-to-period comparisons as an indication of future
performance.  In addition, these variations may cause our stock price to
fluctuate.  If quarterly results fail to meet public expectations, the price of
our stock may decline.

     Oak's revenues and operating results are affected by a wide variety of
factors, including factors that generally affect everyone in its industry and
factors that are more specific to its business and product lines.  The
principal risk we face in our business is our dependence on the optical
storage, digital television and digital imaging markets.  Other factors
specific to our business and product lines include the following:

     o Our ability to diversify our product offerings and the markets for our
       products;

     o Fluctuations in manufacturing costs;

     o The loss or gain of important customers;

     o The timing of significant orders and order cancellations or re-
       scheduling;
     o Pricing policy changes by Oak and its competitors and suppliers;

     o The potential for cancellation of customer orders and the resulting
       significant inventory exposure;

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

     o Market acceptance of new products;

     o Increased competition in product lines, and competitive pricing
       pressure;

     o Failure to anticipate changing customer product requirements;

     o The competitiveness of our customers;

     o Cyclical semiconductor industry conditions;

     o Failure to effectively integrate operations of recent acquisitions;

     o Acts of terrorism and international conflicts;

     o Changes in industry standards; and

     o The inability to obtain foundry capacity.

     The above factors have affected our business in the past and may affect us
in the future.  In addition, our quarterly operating results could be
materially adversely affected by legal expenses incurred in connection with, or
any judgment or settlement in, our current or future legal proceedings.  See
"Oak is a Defendant in Several Lawsuits."

     It is difficult for us to forecast the level or source of our revenues.
     ----------------------------------------------------------------------
Historically, our business has depended largely on the success of our Optical
Storage products, including our CD-RW products as well as our Combo
(combination DVD and CD-RW) and DVD RW products.  Following the proposed
transfer of the Optical Storage business, our digital imaging and digital
television businesses will serve as the primary source of revenue.  We
anticipate that Optical Storage revenues will decline $1.5 to $3.0 million in
the March quarter and will continue to decline following such quarter.

     Oak Has a Recent History of Operating Losses and May Not Become or Remain
     -------------------------------------------------------------------------
Profitable. Oak has sustained significant losses in recent years and may not
------------
become profitable in the future.  While Oak had net income of $5.9 million in
fiscal 1998, its current loss trend began in calendar year 1998, resulting in
an operating loss of $9.1 million for fiscal 1998, an operating loss of $61.9
million for fiscal 1999, an operating loss of $61.1 million for fiscal 2000, an
operating loss of $19.6 million for fiscal 2001 and an operating loss of $29.9
million for fiscal 2002 (in each case before adjustments for non-operating
income or loss, or income tax expense or benefit).  Oak's operating losses


                                      28


<PAGE>


generally have been due to its dependence on its Optical Storage business,
which historically has accounted for approximately 67% of its business.   As a
result, it is not possible to use our historical financial information to
predict our future operating results.  If Oak incurs additional losses or fails
to achieve profitability in the future, this will significantly harm our
business and may affect the trading price of our common stock.

     Oak's Financial Performance Is Highly Dependent On The Timely And
     -----------------------------------------------------------------
Successful Introduction Of New Products.  Our financial performance depends in
---------------------------------------
large part on our ability to successfully develop and market next generation
and new products in a rapidly changing technological environment.  If we fail
to successfully identify new product opportunities and timely develop and
introduce new products that achieve market acceptance, we may lose our market
share and our future revenue and earnings may suffer.  Historically, our
financial performance depended largely on the success of our optical storage
products, such as CD-RW controller, Combo (combination DVD and CD-RW) and DVD
RW controller products.  As described earlier, we have entered into an
agreement to transfer our Optical Storage business to SunPlus.  Accordingly,
our future financial performance will increasingly depend on our ability to
successfully develop and market next generation and new products in the digital
television, HDTV and digital imaging markets.

     In the consumer electronics market, our performance is highly dependent
upon the successful development and timely introduction of new products and
solutions for broadband digital television and HDTV.  In the digital office
market, our performance depends on our ability to successfully develop embedded
image processing SOC solutions for the digital office market, in particular,
embedded digital color copier technology and image processing chips a variety
of imaging peripherals, including printers and MFP's.  Among other
technological changes, embedded PDF and color capability are rapidly emerging
as market requirements for printers and other imaging devices.  Some of our
competitors have the capacity to supply these solutions, and some of their
solutions are well received in the marketplace.  We face the challenges of
developing products that will require greater color and image complexity
capability including web-based documents, and to work with higher performing
devices in networked environments.  If we are unable to meet these challenges
with the development of products that can effectively compete in the OEM
software and solutions market, our future results of operations could differ
materially from current expectations.


     We must keep pace with rapid technological changes and evolving industry
     ------------------------------------------------------------------------
standards in the broadband communications and digital imaging markets to remain
-------------------------------------------------------------------------------
competitive.  Our future success will depend on our ability to anticipate and
-----------
adapt to changes in technology and industry standards and our customers'
changing demands. The consumer electronics market, in particular, is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions, short product life cycles and increasing
demand for higher levels of integration.  Our ability to adapt to these changes
and to anticipate future standards, and the rate of adoption and acceptance of
those standards, will be a significant factor in maintaining or improving our
competitive position and prospects for growth. If new industry standards
emerge, our products or our customers' products could become unmarketable or
obsolete, and we could lose market share. We may also have to incur substantial
unanticipated costs to comply with these new standards.   A significant
slowdown in the broadband communications market could materially and adversely
affect our business, financial condition and results of operations. Our success
will also depend on the ability of our customers to develop new products and
enhance existing products for the broadband digital television and HDTV markets
and to introduce and promote those products successfully.  The digital
television and HDTV markets may not continue to develop to the extent or in the
time periods that we anticipate.  If new markets do not develop as we
anticipate, or if our products do not gain widespread acceptance in these
markets, our business, financial condition and results of operations could be
materially and adversely affected.

     If we do not anticipate and adapt to evolving industry standards in
     -------------------------------------------------------------------
broadband digital television and HDTV markets, our products could become

---------------------------------------------------------------------------
obsolete and we could lose market share.  Consumer electronic products,
---------------------------------------
particularily in the digital television and HDTV markets, are generally are
based on industry standards that are continually evolving. If new industry
standards emerge, our products or our customers' products could become
unmarketable or obsolete. We may also have to incur substantial unanticipated
costs to comply with these new standards. Our sales and profitability will
depend, to a large extent, on our ability to anticipate changes in technology
and industry standards and to develop and introduce new and enhanced products
incorporating the new standards.  Our ability to adapt to these changes and to
anticipate future standards, and the rate of adoption and acceptance of those
standards, will be a significant factor in maintaining or improving our
competitive position and prospects for growth.  Our inability to anticipate the
evolving standards in the broadband digital television and HDTV markets, or to
develop and introduce


                                      29

<PAGE>


new products successfully into this market could materially and adversely
affect our business, financial condition and results of operations.

     Oak's Future Imaging Revenues Will Depend on Future Royalties from
     ------------------------------------------------------------------
Shipment of OEM Devices.  We anticipate that the royalty streams derived from
-----------------------
OEMs' shipments of office equipment containing Oak products, and the sale of
related products and services to manufacturers of office equipment will account
for a significant portion of our Imaging Group revenue for the foreseeable
future.  In order to assure that Oak will derive future royalty streams from
the shipment of OEM devices, Oak and its OEMs are required to develop and
release in a regular and timely manner new office products with increased
speed, enhanced output resolutions, reduced memory requirements, multiple
functions, and network connectivity.  OEMs are under tremendous pressure to
continually shorten the development cycles of these products, leading to
increased complexity and development costs to Oak and its OEMs.  Our success
will depend on, among other things, the rate at which OEMs serving the digital
office market outsource their technology needs, market acceptance of our
technology and products and the office devices of our OEMs; the ability of Oak
and its OEMs to meet industry changes and market demands in a timely manner;
achievement of new design wins by Oak; successful implementation of Oak's
technology and products in new office devices being developed by its OEMs; and
successful marketing of those devices by the OEMs.

     Oak's Markets Are Intensely Competitive and Experience Rapid Technological
     --------------------------------------------------------------------------
Change.   We face intense competition in the markets in which we compete.  We
------
expect that the level of competition will increase in the future from existing
competitors and from other companies that may enter our existing or future
markets with solutions that may be less costly or provide higher performance or
additional features. Our principal competitors in the broadband digital
television market include Broadcom and ST Microelectronics.  We expect
competition to continue to increase as industry standards become well known and
as other competitors enter our target market.  Our principal competitors in the
digital office market include Adobe Systems, Inc., Peerless Systems
Corporation, Electronics for Imaging, Inc., Oasis Semiconductor, Analog
Devices, Agilent, TAK ASIC, and in-house, captive suppliers.  We also expect
increased competition from the merchant market in the future.  Many of these
existing competitors as well as those customers expected to compete in the
future have substantially greater financial, manufacturing, technical,
marketing, distribution and other resources, broader product lines and longer
standing relationships with customers than we do.  In addition, much of our
success is dependent on the success of our OEM customers.  Our OEM customers in
both the optical storage and digital imaging markets compete fiercely with one
another for market share in a market characterized by rapid development cycles,
short product life cycles and ever-increasing consumer demand for greater
performance and functionality at reduced prices.

     We anticipate that we will have to continue to lower the prices of many of
our products to stay competitive.  The markets for most of the applications for
our products are characterized by intense price competition.  As the markets
for these products mature and competition increases, we anticipate that average
sales prices on products will decline.  If we are unable to reduce costs
sufficiently to offset declines in average sales prices or are unable to
successfully introduce new higher performance products with higher average
sales prices, our operating results will suffer greatly.

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

     Oak and its OEM customers may be unable to compete successfully against
current or future competitors.  Competitive pressures faced by Oak and its
customers may result in reduced revenues and profit margins and otherwise
seriously harm our business, financial condition and results of operations.

     Oak May Be Unable to Protect Its Intellectual Property and Proprietary
     ----------------------------------------------------------------------
Rights, Which May Affect Its Ability to Compete.   We consider our technology
-----------------------------------------------
to be proprietary and rely on a combination of patents, trademarks, copyrights,


                                      30

<PAGE>


trade secret laws, confidentiality procedures and licensing arrangements to
protect our intellectual property rights.  However, these measures afford only
limited protection.  The steps that we take to protect our proprietary
information may not be adequate to prevent misappropriation of our technology.
For example, our competitors may be able to effectively design around our
patents, or our patents may be challenged, invalidated or circumvented.  Our
competitors may also independently develop technologies that are substantially
equivalent or superior to our technology.  In addition, the rights granted
under those patents may not necessarily provide competitive advantages.
Moreover, while Oak holds or has applied for patents relating to the design of
its products, some of its products are based in part on standards, for which it
does not hold patents or other intellectual property rights.  The laws of
certain foreign countries in which our products are or may be manufactured or
sold, including various countries in Asia, may not protect our 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 our technology and products
more likely.

     While we intend to seek additional international and United States patents
on our technology, it is possible that no additional patents may be issued from
any of our applications that are pending or in the process of being prepared.
Additional patents may not be issued in all countries where our products can be
sold.  Any claims allowed from pending applications or applications in
preparation may not be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to us.

     Oak also generally enters into confidentiality agreements with its
employees and consultants and confidentiality and license agreements with its
customers and potential customers.  We generally limit access to and
distribution of the source and object code of our software and other
proprietary information.  With respect to our page description language
software and drivers for the digital office market and in limited circumstances
with respect to firmware and drivers for our Optical Storage products, we grant
licenses that give our customers access to and restricted use of the source
code of our software.  This increases the likelihood of misappropriation or
misuse of our technology.  Accordingly, despite our precautions, it may be
possible for unauthorized third parties to copy certain portions of our
technology or to obtain and use information that we regard as proprietary.  The
steps we take may not be adequate to prevent misappropriation of our technology
or to provide an adequate remedy in the event of a breach or misappropriation
by others.  Furthermore, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights and in the past has incurred significant legal
expenses in connection with claims of this type we have initiated.
Additionally, we may be required to defend and indemnify against third party
infringement claims pursuant to terms of existing agreements with our
customers.  In January 2001, Samsung was notified by Pitney Bowes that its use
of our iRET technology infringed Pitney Bowes U.S. Patent No. 4,386,272.  Oak
is defending Samsung against this allegation of infringement pursuant to its
indemnification obligation under an earlier license agreement between Samsung
and XLI, a subsidiary of Oak.

     Any litigation by or against Oak could result in significant expense to
Oak and divert the efforts of its technical and management personnel, whether
or not that litigation results in a favorable determination for us.  In the
event of an adverse result in any litigation, we 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.  We may not be able to develop new technology or license the
infringing technology on reasonable terms, or at all.  Any development or
license of the technology could require us to expend substantial time and other
resources.

     Oak May Be Unable to Obtain Third Party Intellectual Property Rights or
     -----------------------------------------------------------------------
May Be Liable For Significant Damages.  Certain technology used in Oak's
-------------------------------------
products is licensed from third parties, and in connection with these licenses,
Oak is required to fulfill confidentiality obligations and, in some cases, pay
royalties.  Some of our products require various types of copy protection
software that we must license from third parties.  Should we lose our rights
to, or be unable to obtain the necessary copy protection software, we would be
unable to sell and market these products.  Oak'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.  Our business could be adversely affected by the loss
for any reason of these third-party agreements.  Given the trend to include
increasing levels of functionality on a chip, in the future it may be necessary
or desirable for Oak to seek additional licenses to intellectual property
rights held by third parties or purchase products manufactured or sold by third
parties with respect to some or all of its product offerings.  However, those
licenses or purchases may not be available on terms acceptable to Oak, if at


                                      31

<PAGE>


all.  If we are unable to enter into those license arrangements on acceptable
terms or to maintain our current licenses on acceptable terms, our business,
financial condition and results of operations could suffer.

     In addition, the broadband digital television, digital imaging and
semiconductor industry as a whole is characterized by vigorous protection and
pursuit of intellectual property rights, which has resulted in significant,
often protracted and expensive litigation.  Oak or its foundries may, from time
to time, be notified of claims that we may be infringing patents or other
intellectual property rights owned by third parties.  If necessary or
desirable, we may seek licenses under those patents or other intellectual
property rights.  However, these licenses may not be offered or the terms of
any offered licenses might not be acceptable to us.  If we fail to obtain a
license from a third party for technology used by Oak, we may incur substantial
liabilities and suspend the manufacture of products or the use by our foundries
of processes requiring the technology.

     Oak has historically indemnified its customers for certain costs and
damages of patent infringement in circumstances where an Oak product is the
factor creating the customer's infringement exposure.  This practice generally
excludes coverage in circumstances where infringement arises out of the
combination of Oak products with products of others or where infringement
arises based on modifications made by the customer to Oak's products.  In
January 2001, Samsung was notified by Pitney Bowes that its use of Oak's iRET
technology infringed Pitney Bowes U.S. Patent No. 4,386,272.  Oak is defending
Samsung against this allegation of infringement pursuant to its indemnification
obligation under an earlier license agreement between Samsung and XLI, a
subsidiary of Oak.  This indemnification practice, however, could have a
material adverse effect on the results of operations.

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

     Oak Depends on Third Party Foundries And Vendors to Manufacture Products.
     ------------------------------------------------------------------------
Oak contracts with independent foundries to manufacture a majority of its
products and with independent vendors to assemble and test these products.  If
we fail to adequately manage our relationships with these foundries and
vendors, our ability to manufacture and sell our products and our results of
operations would be negatively impacted.  We rely on our foundries to allocate
to us a portion of their foundry capacity sufficient to meet our needs to
produce products of acceptable quality and with acceptable manufacturing yield
and to deliver products to us in a timely manner.  These foundries fabricate
products for other companies and some manufacture products of their own design.
If these foundries fail or are unable to satisfy our product, quality and other
requirements, our business, financial condition and results of operation could
suffer.

     We also rely on third-party subcontractors to assemble and test our
products.  If these subcontractors fail to meet our production requirements,
our business, financial condition and operating results would suffer.

     Our reliance on independent manufacturers and third party assembly and
testing vendors involve a number of additional risks, including:

     o The loss of any foundry as a supplier;

     o Inability to expand foundry capacity in a period of increased demand for
       our products;

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

     o Delays in shipments of our products resulting in delay;

     o Disruption of operations at any of our manufacturing facilities;

     o Product defects and the difficulty of detecting and remedying product
       defects resulting in a delay of shipment to customers or customer
       rejection;

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


                                      32

<PAGE>


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

     Oak generally does not use multiple sources of suppliers for its products.
As a result, the likelihood of and the consequences from the occurrence of
these factors are magnified.  In fiscal year 2002, Oak did not experience any
material delays of its wafer deliveries from its primary manufacturer.  While
we believe we have sufficient capacity to meet our needs through calendar 2002,
we have no firm commitments in place.  We may not be able to secure capacity
for our manufacturing needs or may experience delays in the future.

     Oak's Failure to Accurately Forecast Demand for Its Products Could
     ------------------------------------------------------------------
Negatively Impact Its Results of Operations.  Under its foundry agreements, Oak
-------------------------------------------
is required to place non-cancelable orders and purchase its products on an
approximately three-month rolling basis.  Our customers, on the other hand,
generally place purchase orders with us less than four weeks prior to delivery
that may be rescheduled or under certain circumstances may be cancelled,
without significant penalty.  This limits our ability to react to fluctuations
in demand for our products.  If we overestimate the product necessary to fill
orders, or fail to foresee a technology change that could render a product
obsolete, we will build excess inventories, which could harm our gross margins
and operating results.  If we underestimate the product necessary to fill
orders, we may not be able to obtain an adequate supply of products which could
harm our revenues.

     Product supply and demand fluctuations common to the semiconductor
industry are historically characterized by periods of manufacturing capacity
shortages immediately followed by periods of overcapacity, which are caused by
the addition of manufacturing capacity in large increments.  The industry has
moved from a period of capacity shortages in the first half of calendar year
2000, to the current condition of excess capacity.  We cannot predict whether
Oak can or will achieve timely, cost-effective access to that capacity when
needed, or if there will be a capacity shortage again in the future.

     Oak Derives a Large Portion of Its Revenues from International Sales,
     ---------------------------------------------------------------------
Depends on Foreign Subcontractors and is Subject to the Risks of Doing Business
-------------------------------------------------------------------------------
in Foreign Countries.  A large portion of our revenues are derived from
--------------------
international sales.  International sales, principally to Korea, Japan, and
Europe, accounted for approximately 89%, 84% and 75% of our net revenues for
fiscal 2002, 2001 and 2000, respectively.  Oak also depends on foreign
subcontractors for the manufacture of its products.  Most of our foreign sales
and purchases are negotiated in US dollars, although invoicing is occasionally
done in local currency.  As a result, we may be subject to the risks of
currency fluctuations in the foreign countries in which we do business.

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

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

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

     o Tariffs, quotas and other trade barriers and restrictions;

     o Longer payment cycles;

     o Greater difficulty in collecting accounts receivable;

     o Potentially adverse taxes and adverse tax consequences;

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

     o Political, social and economic instability;

     o Potential hostilities;

     o Changes in government, diplomatic or trade relationships; and

     o Fluctuations in foreign currencies

     As an example, Oak's significant concentration of manufacturing activities
with a third party foundry in Taiwan exposes it to the risk of political


                                      33

<PAGE>


instability in Taiwan, including the potential for conflict between Taiwan and
the People's Republic of China.  We have several significant OEM customers in
Japan, South Korea, and other parts of Asia.  Adverse economic circumstances in
Japan and elsewhere in Asia could affect these customers' willingness or
ability to do business with Oak in the future or their success in developing
and launching devices containing our products.

     Oak Depends on a Limited Number of Customers for a Substantial Portion of
     -------------------------------------------------------------------------
Its Revenues, and a Loss of, or a Significant Reduction in Purchases by,
-----------------------------------------------------------------------
Current Major Customers Which is not Offset by a Gain or, or a Significant
--------------------------------------------------------------------------
Increase in Purchases by, New or Current Customers, Would Significantly Reduce
------------------------------------------------------------------------------
Oak's Revenues. A limited number of customers historically have accounted for a
--------------
substantial portion of Oak's net revenues.  In fiscal 2002, 2001 and 2000,
sales to our top ten customers accounted for approximately 69%, 82% and 78%,
respectively, of our net revenues.  In fiscal 2002, LG Electronics accounted
for 20% of total net revenues while Mitsumi and Ionics accounted for 11% of
total net revenues individually.  In fiscal 2001, LG Electronics accounted for
31% of total net revenues. In fiscal 2000, LG Electronics accounted for 26% of
total net revenues and Hewlett-Packard Company accounted for 16%.

      We expect that sales to a limited number of customers will continue to
account for a substantial portion of our net revenues for the foreseeable
future.  We do not have long-term purchase agreements with any of our
customers.  Customers generally purchase our products subject to cancelable
short-term purchase orders.  We cannot predict whether our current customers
will continue to place orders, whether existing orders will be canceled, or
whether customers who have ordered products will pay invoices for delivered
products.  Our policy in Taiwan is to secure a letter of credit prior to
product shipment to minimize the risk of non-payment.  We have experienced
significant changes from year to year in the composition of our major customer
base and believe this pattern will continue.   We are continuing our efforts to
increase penetration in existing large customers as well as engage new large
OEM customers. The current weakness in demand being experienced in
semiconductor and PC markets, and our recent entry into the digital television
and HDTV, coupled with the overall poor macroeconomic environment, however,
makes it difficult to forecast future financial performance.  In addition, some
of our customers have chosen, and may continue to choose, to award their design
wins and business on a project-by-project basis to different vendors.  The
current economic recession notwithstanding, the loss of, or a significant
reduction in, purchases or commitments by current major customers which is not
offset by corresponding increases from other current or future customers would
have a material adverse effect on our business, financial condition and results
of operations.  If sales to current customers cease or are reduced, we may be
unable to obtain the orders from new customers necessary to offset any such
losses or reductions.  Moreover, we may not be able to qualify our independent
foundries for potential new customers or do so in a timely manner.

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

     Oak May Need to Continue to Invest Cash Flow in Operations as well as
     ---------------------------------------------------------------------
Capital Purchases for Tools and Equipment, and The Inability to Raise the
-------------------------------------------------------------------------
Additional Capital Necessary to Fund These Investments on Acceptable Terms
--------------------------------------------------------------------------
Could Seriously Harm Our Business.  In order to remain competitive, Oak must
----------------------------------
continue to make investments Research and Development, development tools in new
facilities and capital equipment.  Significant amounts of capital additions
could be required in subsequent years.  Additionally, in order to obtain an
adequate supply of wafers, especially wafers manufactured using advanced
process techniques, we have entered into and will continue to consider various
possible transactions, including various "take or pay" contracts that commit
Oak to purchase specified quantities of wafers over extended periods.
Manufacturing arrangements such as these may require substantial capital
investment, which may require us to seek additional financing.  We believe that


                                      34


<PAGE>


existing liquid resources and funds generated from operations, if any, combined
with the ability to borrow funds will be adequate to meet our operating and
capital requirements and obligations into the foreseeable future.   We may,
from time to time, seek additional equity or debt financing.  However, those
funds, when needed, might not be available on terms that we find acceptable.
Any future equity financing will also lead to dilution to existing
shareholders.

     If We Do Not Complete Our Announced Transfer Of The Optical Storage
     -------------------------------------------------------------------
Business As Expected, Or Even If We Do So, We May Not Achieve All The Benefits
------------------------------------------------------------------------------
We Anticipate.  Because of the closing conditions in the asset purchase
--------------
agreement and the possibility that Oak or SunPlus may terminate the agreement
in specific instances, we can not be sure when, or even if, the sale
transaction will be completed.  The closing of the sale of certain assets of
our Optical Storage business is subject to the satisfaction of a number of
closing conditions.  We cannot guarantee that we will be able to meet the
closing conditions of the asset purchase agreement.  If we are unable to meet
the conditions, SunPlus does not have to purchase the Optical Storage business.
We also cannot be sure that other circumstances, such as a material adverse
event, will not arise that give the purchaser the right to terminate the
agreement prior to closing.  If the sale to SunPlus does not close, our board
of directors will be forced to evaluate other alternatives, which may be less
favorable to us than the sale to SunPlus.  At this time, the board of directors
does not know which alternatives might be considered, or what impact any
alternative might have on stockholder value. Any alternative we select may have
unanticipated negative consequences.

     Furthermore, even if the sale to SunPlus closes, there can be no assurance
that the transaction will have a positive effect on our cash position,
financial results, operations, and the market price of our common stock or
public perception of us in the marketplace.

    Oak May Make Future Acquisitions or Enter into Joint Ventures That May Not
    --------------------------------------------------------------------------
Be Successful.  As part of its business strategy, Oak may investigate and may
-------------
thereafter acquire additional businesses, products and technologies, or enter
into joint venture arrangements, that could complement or expand its business.
During the quarter ended December 31, 2002, Oak completed the acquisition of
TeraLogic Inc.  Acquisitions involve numerous risks and costs including:

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

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

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

     o Coordination of sales, marketing and research and development;

     o Potential loss of key employees; and

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

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

     Regulation Of Our Customers' Products May Slow The Process Of Introducing
     -------------------------------------------------------------------------
New Products And Could Impair Our Ability To Compete. The Federal
----------------------------------------------------
Communications Commission, or the FCC, has broad jurisdiction over our target
markets in our digital television business.  Various international entities or
organizations may also regulate aspects of our business or the business of our
customers. Although our products are not directly subject to regulation by any
agency, the transmission pipes, as well as much of the equipment into which our
products are incorporated, are subject to direct government regulation.  For
example, before they can be sold in the United States, advanced televisions and
emerging interactive displays must be tested and certified by Underwriters
Laboratories and meet FCC regulations.  Accordingly, the effects of regulation
on our customers or the industries in which our customers operate may in turn
harm our business.  FCC regulatory policies affecting the ability of cable
operators or telephone


                                      35


<PAGE>


companies to offer certain services and other terms on which these companies
conduct their business may impede sales of our products.  In addition, our
digital television business may also be adversely affected by the imposition of
tariffs, duties and other import restrictions on systems of suppliers or by the
imposition of export restrictions on products that we sell internationally.
Changes in current laws or regulations or the imposition of new laws or
regulations in the United States or elsewhere could harm our business.

     Oak Will Depend on Key Personnel to Manage Its Business, and the Loss of
     ------------------------------------------------------------------------
Any Key Personnel Could Seriously Harm Its Business.  Our future performance
---------------------------------------------------
depends, to a significant degree, on the retention and contribution of members
of Oak's senior management as well as other key personnel including highly
skilled engineering and technical employees.  In particular, it is important
for Oak to retain the services of Young K. Sohn, our current chairman and chief
executive officer.  We continue to recruit financial, technical and operational
personnel.  Competition for these people is intense, and we may not be able to
attract and retain qualified replacements or additional technical or
operational personnel.  We may not be successful in finding suitable
replacements for any senior management personnel who may leave Oak.

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

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


                                      36


<PAGE>


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Most of Oak's foreign sales are negotiated in US dollars; however,
invoicing is often done in local currency.  As a result, Oak may be subject to
the risks of currency fluctuations.  Assets and liabilities which are
denominated in non-functional currencies are re-measured into the functional
currency on a monthly basis and the resulting gain or loss is recorded within
non-operating income in the statement of operations.  Many of Oak's non-
functional currency receivables and payables are hedged through managing net
asset positions, product pricing and other means.  Our strategy is to minimize
its non-functional currency net assets or net liabilities in our foreign
subsidiaries.  Our policy is not to speculate in financial instruments for
profit on the exchange rate price fluctuations, trade in currencies for which
there are not underlying exposures, or enter into trades for any currency to
intentionally increase the underlying exposure.  As of December 31, 2002, Oak
did not have any foreign currency forward exchange contracts outstanding.  Oak
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.  If foreign currency
rates fluctuate by 10% from rates at December 31, 2002, the effect on our
consolidated financial statements would not be material.  However, there could
be a material effect on our financial statements in the future.

     Oak's cash equivalents and short-term investments ("debt and equity
investments") are exposed to financial market risk due to fluctuation in
interest rates, which may affect its interest income and the fair values of its
investments.  Oak manages the exposure to financial market risk by performing
ongoing evaluation of its investment portfolio and investing in short-term
investment grade corporate securities and U.S. government and other agencies'
obligations, which mature within the next 24 months.  In addition, Oak does not
use investments for trading or other speculative purposes.  Not withstanding
the foregoing, the Company has previously held marketable equity securities
that it received as part of a divestiture of one of its businesses.  These
securities were sold in December 2002 and no longer represent a market risk to
the Company. The stock which the Company will receive as part of the Sunplus
transaction will be priced at the time of transfer and will not have
restrictions that prevent resale at the time of receipt. The Company does not
currently intend to expose itself to market risk with respect to the Sunplus
securities.

     Due to the short maturities of its investments, the carrying values
generally approximate the fair value. If market interest rates were to increase
immediately and uniformly by 10% from levels as of December 31, 2002, the
decline in the fair value of the portfolio would not be material.  Further, Oak
has the ability to hold its fixed income investments until maturity and,
therefore, we would not expect to recognize such an adverse impact in income or
cash flows.

ITEM 4.    CONTROLS AND PROCEDURES

     Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, the Company's President and Chief
Executive Officer along with the Chief Financial Officer have concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in our periodic SEC filings.

     There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date we carried out this evaluation.


                                      37

<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Oak and various of its directors and former officers are parties to a
consolidated class action lawsuit filed on behalf of all persons who purchased
or acquired Oak common stock (excluding the defendants and parties related to
them) for the period July 27, 1995 through May 22, 1996.  This state court
proceeding, designated IN RE OAK TECHNOLOGY SECURITIES LITIGATION, Master File
No. CV758510 was filed in Santa Clara County Superior Court in Santa Clara,
California.  The plaintiffs alleged violations of California securities laws
and statutory deceit provisions as well as breaches of fiduciary duty and abuse
of control.  The plaintiffs sought unspecified monetary damages.  The court
dismissed all claims except the California Corporations Code Sections
25400/25500 cause of action against Oak and four former officers. On August 5,
2000 the court granted defendant's motion for summary judgment and entered
judgment in favor of Oak and the former officers.  The plaintiffs appealed the
court's decisions. On February 3, 2003, the Sixth District Court of Appeals
affirmed the trail court's dismissal.  Based on its current information, Oak
believes this suit to be without merit and will continue to defend its position
vigorously.  Although it is a remote possibility, the rulings may be overturned
by the California Supreme Court and Oak may incur a loss upon an adverse
conclusion of these claims, an estimate of any such loss cannot be made.

     On July 16, 1998, the court provisionally certified a national class of
all persons who purchased Oak stock during the class period.  On August 5, 2000
the court granted Company's motion for summary judgment and entered judgment in
favor of Oak.  The plaintiffs have appealed the court's decision which is
currently under review by the Sixth District Court of Appeal.  Based on its
current information, Oak believes this suit to be without merit and will
continue to defend its position vigorously.  Although it is a remote
possibility, the court's ruling may be overturned on appeal and Oak may incur a
loss upon an adverse conclusion of these claims, an estimate of any such loss
cannot be made.

     Additionally, various Oak's directors and former officers are defendants
in three consolidated derivative actions pending in Santa Clara County Superior
Court in Santa Clara, California, entitled IN RE OAK TECHNOLOGY DERIVATIVE
ACTION, Master File No. CV758510.  This lawsuit, which asserts a claim for
breach of fiduciary duty and a claim under California securities law based upon
the officers' and directors' trading in securities of Oak during the period
July 27, 1995 through May 22, 1996, has been stayed pending resolution of the
above described class actions.  The plaintiffs are seeking monetary damages,
equitable relief and an accounting for the defendants' sales of shares of Oak
common stock.  Based on its current information, Oak believes the suits to be
without merit and will defend its position vigorously.  Although it is
reasonably possible Oak may incur a loss upon conclusion of these claims, an
estimate of any such loss cannot be made.

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

    On October 27, 1997, Oak 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 a settlement agreement entered into by Oak and UMC as a means to
resolve an ITC action filed by Oak based on Oak's belief that UMC was violating
U.S. trade laws by the unlicensed importing or selling of certain CD-ROM
controllers that infringed one or more of Oak's United States patents. Under
the terms of the settlement agreement, effective July 31, 1997, 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 Oak's ITC complaint against UMC.

     On December 24, 1997, UMC answered Oak's complaint and counterclaimed by
asserting causes of action for rescission, restitution, fraudulent concealment,
mistake, lack of mutuality, interference and declaratory judgment of non-
infringement, invalidity and unenforceability of the Oak patent that was the
subject of the ITC action filed against UMC.

     In a related action to the lawsuit that was commenced by Oak against UMC,
on December 19, 1997, MediaTek, a UMC affiliated, Taiwanese entity, filed a
complaint in the United States District Court, Northern District of California,


                                      38

<PAGE>


against Oak 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.  Oak filed its answer on January 8, 1998, denying all the
allegations.  Oak believes UMC's counterclaims and Mediatek's claims to be
without merit.

    On June 11, 1998, the cases were consolidated for all purposes and stayed
under 28 U.S.C. Section 1659, based on the judge's conclusion that the civil
action involves the same issues before the International Trade Commission,
initiated by Oak a second time as a result of the alleged breach of the
settlement agreement.  The stay was lifted due to the final resolution of the
second ITC investigation and the decision of the Federal Circuit Court of
Appeals on May 2, 2001 affirming the Commission's determination that there was
no infringement of Oak's U.S. Patent No. 5,581, 715. The Federal Circuit Court
of Appeals did not review the Commission's determination that Oak's U.S. Patent
No. 5,581,715 was valid and enforceable.  As a result of the decision rendered
by the Federal Circuit Court of Appeals, and the lifting of the stay on the
consolidated action pending in the United States District Court, Northern
District of California, the parties are proceeding with the litigation.  The
trial was scheduled to commence in February 2003; based on the complex
technical issues in the case the judge postponed the February trial in order to
secure a Court appointed technical expert to assist the judge in understanding
the technical merits of the case. Currently, no new trial date has been set.

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

     On January 4, 2001 Samsung Electronics, a customer of Oak's Imaging Group,
received a notification from Pitney Bowes alleging that the resolution
enhancement technology (iRET) Samsung acquired from Xerographic Laser Images
Corporation, Inc. ("XLI") in 1996 infringes Pitney Bowes U.S. Patent No.
4,386,272 ("272 patent").  XLI is a subsidiary of Oak as a result of an
acquisition in the first quarter of fiscal year 1999.  The terms of the
agreement for the licensing of the iRET technology to Samsung require Oak, as
successor in interest to XLI's assets and liabilities, to defend and indemnify
Samsung from claims alleging the iRET technology supplied to Samsung infringes
the intellectual property rights of a third party.  On June 18, 2001 Pitney
Bowes filed a complaint in the District Court of Connecticut, naming Samsung
and others, claiming infringement of the '272 patent.  On June 28, 2001 Samsung
formally requested Oak to defend Samsung and Oak agreed to do so.  Other XLI
customers are also subject to Pitney Bowes allegation of infringement of the
'272 patent.  On September 7, 2001, Oak filed a motion to intervene on behalf
of ourselves and for the benefit of any of our customers who may be subject to
the Pitney Bowes allegations, in the District Court of Connecticut.  The motion
to intervene was granted on December 12, 2001.  On February 5, 2002, this
action was transferred to the United States District Court, District of
Kentucky.  The parties are proceeding with this litigation.

     If the above pending action, with respect to Oak's indemnification
obligation in such action, is decided adversely, it would likely have a
material adverse affect on Oak's financial condition, cash flows and results of
operations.

     In January of 2002, Oak received a notice letter of infringement from
Syndia Corporation, an assignee of U.S. Patent No. 4,702, 808 (" '808 patent")
and U.S. Patent No. 5,131,941(" '941 patent") issued to Mr. Jerome Lemelson.
The '808 and '941 patents claim certain plasma enhanced chemical vapor
deposition etch processes that are used in the manufacture of semiconductor
chips.  The notice letter asserts that Oak's use and sale of semiconductor
chips manufactured using processes claimed by the '808 and '941 patents
constitutes an infringement.  Oak uses TSMC to manufacture its semiconductor
products, and has notified TSMC of the claims made by Syndia.  The terms of an
indemnification agreement between Oak and TSMC require TSMC to indemnify Oak
from claims alleging the manufacturing processes used by TSMC infringes the
intellectual property rights of a third party.  Pursuant to the terms of the
indemnification agreement between the parties, TSMC has agreed to indemnify and
hold Oak harmless against the claims made by Syndia.

     If TSMC fails to indemnify and hold Oak harmless, and Syndia is successful
in its claim for infringement, it would likely have a material adverse affect
on Oak's financial condition, cash flows and results of operations.

                                      39


<PAGE>

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

1.  (a) The Company's 2002 Annual Meeting was held on December 18, 2002.

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

<TABLE>
<CAPTION>
                                      For              Withheld
                                      ---              --------
<S>                               <C>                <C>
Albert Y.C. Yu                     50,390,891         2,167,343
K.C. Murphy                        51,331,160         1,227,074

</TABLE>

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

                Peter Simone
                Young K. Sohn
                K.C. Murphy
                Albert Y.C. Yu
                Richard B. Black
                David Rynne

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

     To approve an amendment to the Amended and Restated 1994 Employee Stock
Purchase Plan to increase the number of shares of common stock authorized for
issuance over the term of the Purchase Plan by 500,000 shares, and to extend
the term of the Purchase Plan:

<TABLE>
<S>                               <C>
For.............................   31,576,071
Against.........................    1,777,197
Abstain.........................      209,126

</TABLE>

     To approve an amendment to the 1994 Employee Stock Option Plan to increase
the number of shares of common stock authorized for issuance over the term of
the Option Plan by 2,500,000 shares, to extend the term of the Option Plan, and
to prohibit the repricing of options under the Option Plan without stockholder
approval:

<TABLE>
<S>                               <C>
For.............................   26,218,202
Against.........................    7,124,863
Abstain.........................      219,328

</TABLE>

     To approve a one-time exchange of options for new options to be granted at
least six months and one day from the cancellation of the surrendered options:


<TABLE>
<S>                               <C>
For.............................   29,393,553
Against.........................    3,951,127
Abstain.........................      217,713

</TABLE>


                                      40


<PAGE>


     To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending June 30, 2003:


<TABLE>
<S>                               <C>
For.............................   52,103,871
Against.........................      403,038
Abstain.........................       51,325

</TABLE>



ITEM 5.  OTHER EVENTS

     On February 5, 2003, Oak announced that it had signed a definitive
agreement with Sunplus, a publicly held fabless semiconductor company focused
on the consumer market, based in Taiwan.  Under the terms of the Agreement, Oak
will transfer its Optical Storage business and certain optical storage assets
to Sunplus in return for approximately $30 million, comprised of $16 million in
cash and shares of Sunplus common stock having a value of $14 million.  Sunplus
shares are traded on the Taiwan Stock Exchange.  The agreement contemplates
that at Closing, Oak and Sunplus would enter into a number of ancillary
agreements on mutually agreeable terms, including a license agreement relating
to the use by Sunplus of certain Oak patents.  There can be no assurance that
these additional agreements can be reached on terms mutually satisfactory to
Oak and SunPlus and that the transactions contemplated by the Agreement will be
consummated.  We anticipate closing the sale on or about March 31, 2003,
subject to regulatory approval and other closing conditions.  Additional
details on the definitive agreement to sell certain assets of our Optical
Storage business will be available in our other filings with the Securities and
Exchange Commission.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(b)  Report on form 8-K

     On October 8, 2002, the Company filed a report on Form 8-K to report that
Oak Technology, Inc. had entered into an Agreement and Plan of Merger with
Optic Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Oak ("Optic Acquisition Corp.), and TeraLogic, Inc., a Delaware corporation
("TeraLogic").  Pursuant to the Agreement, Oak will acquire all of the issued
and outstanding capital stock of TeraLogic through the merger of Optic
Acquisition Corp. with and into TeraLogic.



                                      41


<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           OAK TECHNOLOGY, INC.
                                           --------------------
                                               (Registrant)



Date: February 14, 2003

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


                                      42

<PAGE>


             FORM OF SARBANES-OXLEY SECTION 302(A) CERTIFICATION

I, Young K. Sohn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oak Technology, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this quarterly report.

3. Based on my knowledge, the financial statements, and other financial
   information included in this quarterly report, fairly present in all
   material respects the financial condition, results of operations and cash
   flows of the registrant as of, and for, the periods presented in this
   quarterly report.

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   o designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

   o evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

   o presented in this quarterly report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of
     the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent functions:

   o all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

   o any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls.

6. The registrant's other certifying officers and I have indicated in this
   quarterly report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.


Date:  February 14, 2003

By:    /s/  Young K. Sohn
       -------------------------
Name:  Young K. Sohn
Title: Chairman of the Board of Directors, President and
       Chief Executive Officer



                                      43


<PAGE>




             FORM OF SARBANES-OXLEY SECTION 302(A) CERTIFICATION

I, John S. Edmunds, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oak Technology, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this quarterly report.

3. Based on my knowledge, the financial statements, and other financial
   information included in this quarterly report, fairly present in all
   material respects the financial condition, results of operations and cash
   flows of the registrant as of, and for, the periods presented in this
   quarterly report.

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   o designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

   o evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

   o presented in this quarterly report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of
     the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent functions:

   o all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

   o any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls.

6. The registrant's other certifying officers and I have indicated in this
   quarterly report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.



Date:  February 14, 2003

By:    /s/  John S. Edmunds
       --------------
Name:  John S. Edmunds
Title: Senior Vice President of Finance and Chief
       Financial Officer
Date:  February 14, 2003


                                      44


<PAGE>



                   CERTIFICATION OF CHIEF EXECUTIVE OFFICER
         PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


I, Young K. Sohn, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Oak Technology, Inc. on Form 10-Q for the fiscal quarter ended
December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of Oak Technology, Inc.



                              By:     /s/  Young K. Sohn
                                      -------------------------------------
                              Name:   Young K. Sohn
                              Title:  Chairman of the Board of Directors,
                                      President and Chief Executive Officer



                                      45


<PAGE>





                   CERTIFICATION OF CHIEF EXECUTIVE OFFICER
         PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


I, John S. Edmunds, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Oak Technology, Inc. on Form 10-Q for the fiscal quarter ended
December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of Oak Technology, Inc.



                              By:     /s/  John S. Edmunds
                                      --------------------------------------
                              Name:   John S. Edmunds
                              Title:  Senior Vice President of Finance and
                                      Chief Financial Officer



                                      46