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


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

                 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                          OR

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

               For the Transition Period from            to 
                                              ----------    ------------
                                              ----------    ------------

                          COMMISSION FILE NO. 0-25298
                                           
                              OAK TECHNOLOGY, INC.
              (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                           
                   DELAWARE                                     77-0161486
         (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

                                   139 KIFER COURT
                             SUNNYVALE, CALIFORNIA 94086
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
                                           
                                    (408) 737-0888
                 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                                           
                                           
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.  YES  X    NO     .
                                        ---      ---

As of September 30, 1996, there were outstanding 40,357,343 shares of the
Registrant's Common Stock, par value $0.001 per share. 


<PAGE>

                        OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                                           
                                        INDEX


<TABLE>
<CAPTION>
Part  I - Financial Information                                                   Page
-------------------------------                                                   ----
<S>                                                                               <C>
Item 1.  Financial Statements
         
            Consolidated Balance Sheets as of September 30, 1996
            and June 30, 1996    . . . . . . . . . . . . . . . . . . . . . . . . . 3
        
            Consolidated Statements of Income for the
            Three Months ended September 30, 1996 and 1995     . . . . . . . . . . 4
        
            Consolidated Statements of Cash Flows for the
            Three Months Ended September 30, 1996 and 1995     . . . . . . . . . . 5
        
            Notes to Consolidated Financial Statements   . . . . . . . . . . . . . 6

Item 2.  Management's Discussion and Analysis of 
            Financial Condition and Results of Operations      . . . . . . . . . . 9

Part II - Other Information
---------------------------

Item 1.     Legal Proceedings    . . . . . . . . . . . . . . . . . . . . . . . . . 19

Item 6.     Exhibits and Reports on Form 8-K     . . . . . . . . . . . . . . . . . 20

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------

Exhibit Index  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------

</TABLE>





                                            2
<PAGE>

PART I - FINANCIAL INFORMATION
------------------------------

ITEM 1.  FINANCIAL STATEMENTS

                        OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                          (in thousands, except share data)
                                           
                                        ASSETS
                                                                
<TABLE>
<CAPTION>
                                                                          SEPTEMBER 30,    JUNE 30,
                                                                              1996           1996
                                                                         --------------  ------------
<S>                                                                      <C>             <C>
Current assets:                                                           (Unaudited)
    Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $  46,851      $  44,934
    Short-term investments . . . . . . . . . . . . . . . . . . . . . . . .    69,508         68,350
    Accounts receivable, net of allowance for doubtful accounts of 
         $914 and $916, respectively . . . . . . . . . . . . . . . . . . .    15,264         20,172
    Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    10,527         14,763
    Current portion of foundry deposits. . . . . . . . . . . . . . . . . .    12,001          4,595
    Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . .    15,316         13,889
    Prepaid expenses and other current assets. . . . . . . . . . . . . . .     3,275          3,809
                                                                           ---------      ---------
         Total current assets  . . . . . . . . . . . . . . . . . . . . . .   172,742        170,512
Property and equipment, net  . . . . . . . . . . . . . . . . . . . . . . .    18,360         18,212
Foundry deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30,760         52,000
Investment in joint venture  . . . . . . . . . . . . . . . . . . . . . . .    13,696         13,696
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,705          1,888
                                                                           ---------      ---------
         Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237,263      $ 256,308
                                                                           ---------      ---------
                                                                           ---------      ---------

                         LIABILITIES AND STOCKHOLDERS' EQUITY
                                           
Current liabilities:
    Notes payable and current portion of long-term debt. . . . . . . . . . $   5,652     $  22,062
    Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,059         7,887
    Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .     4,634         4,824
    Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,378         1,053
                                                                           ---------      ---------
         Total current liabilities . . . . . . . . . . . . . . . . . . . .    17,723        35,826
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,821         2,858
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .     6,435         6,435
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       349           362
                                                                           ---------      ---------
         Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .    27,328        45,481
                                                                           ---------      ---------
Stockholders' equity:
    Convertible preferred stock, $0.001 par value; 2,000,000 shares
    authorized; none issued and outstanding as of September 30, 1996 and 
       June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . .         -             -
    Common stock, $0.001 par value; 60,000,000 shares authorized;
    40,357,343 and 40,196,796 shares issued and outstanding as of
    September 30, 1996 and June 30, 1996, respectively . . . . . . . . . .        40            40
    Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . .   156,512       155,751
    Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . .    53,383        55,036
                                                                           ---------      ---------
         Total stockholders' equity  . . . . . . . . . . . . . . . . . . .   209,935       210,827
                                                                           ---------      ---------
         Total liabilities and stockholders' equity  . . . . . . . . . . . $ 237,263     $ 256,308
                                                                           ---------      ---------
                                                                           ---------      ---------

             See accompanying notes to consolidated financial statements. 


                                           3
<PAGE>
                        OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF INCOME
                        (in thousands, except per share data)
                                     (Unaudited)

                                                             Three Months Ended
                                                                September 30,
                                                             -------------------
                                                               1996       1995
                                                             --------   --------
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 18,926   $ 56,472
Cost of revenues . . . . . . . . . . . . . . . . . . . . . .   10,216     25,136
                                                             --------   --------
   Gross profit. . . . . . . . . . . . . . . . . . . . . . .    8,710     31,336
Research and development expenses. . . . . . . . . . . . . .    8,094      5,905
Selling, general and administrative expenses . . . . . . . .    4,293      3,739
                                                             --------   --------
   Operating income (loss) . . . . . . . . . . . . . . . . .   (3,677)    21,692
Nonoperating income. . . . . . . . . . . . . . . . . . . . .    1,134        363
                                                             --------   --------
   Income (loss) before income taxes . . . . . . . . . . . .   (2,543)    22,055
Income taxes (benefit) . . . . . . . . . . . . . . . . . . .     (890)     8,822
                                                             --------   --------
   Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (1,653)  $ 13,233
                                                             --------   --------
                                                             --------   --------
Net income (loss) per share  . . . . . . . . . . . . . . . . $  (0.04)  $   0.31
                                                             --------   --------
                                                             --------   --------
Shares used in computing net income (loss) per share . . . .   40,297     42,682
                                                             --------   --------
                                                             --------   --------



             See accompanying notes to consolidated financial statements.



                                           4
<PAGE>
                        OAK TECHNOLOGY, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (in thousands)
                                     (Unaudited)


                                                                        Three Months Ended
                                                                           September 30,
                                                                         1996         1995
                                                                       --------     --------
Cash flows from operating activities:
   Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,653)    $ 13,233
   Adjustments to reconcile net income to net cash provided by 
   operating activities:
      Depreciation and amortization. . . . . . . . . . . . . . . . . .    1,273          549
      Inventory related adjustments. . . . . . . . . . . . . . . . . .   (1,990)           -
      Equity in (income) or loss of unconsolidated affiliates. . . . .      119         (756)
      Deferred income taxes. . . . . . . . . . . . . . . . . . . . . .   (1,146)         135
      Changes in operating assets and liabilities:
         Accounts receivable . . . . . . . . . . . . . . . . . . . . .    4,908      (18,255)
         Inventories . . . . . . . . . . . . . . . . . . . . . . . . .    4,726       (1,264)
         Foundry deposits. . . . . . . . . . . . . . . . . . . . . . .      934            -
         Prepaid expenses and other current assets . . . . . . . . . .      534         (696)
         Accounts payable and accrued expenses . . . . . . . . . . . .   (2,018)       1,031
         Income taxes payable, deferred revenue and other liabilities       312        5,077 
                                                                       --------     --------
            Net cash provided by (used in) operating activities. . . .    5,999         (946)
                                                                       --------     --------
Cash flows from investing activities:
      Purchases of short-term investments. . . . . . . . . . . . . . .  (11,340)     (33,037)
      Proceeds from matured short-term investments . . . . . . . . . .   10,182        4,938
      Additions to property and equipment, net . . . . . . . . . . . .   (1,336)      (3,029)
      Investment in foundry deposits . . . . . . . . . . . . . . . . .        -       (2,000)
      Other assets . . . . . . . . . . . . . . . . . . . . . . . . . .      (21)         203
                                                                       --------     --------
           Net cash used in investing activities . . . . . . . . . . .   (2,515)     (32,925)
                                                                       --------     --------
Cash flows from financing activities:
   Issuance of debt  . . . . . . . . . . . . . . . . . . . . . . . . .   10,362        3,640
   Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . .  (12,409)      (3,049)
   Issuance of common stock, net . . . . . . . . . . . . . . . . . . .      480          583
                                                                       --------     --------
           Net cash provided by (used in) financing activities . . . .   (1,567)       1,174
                                                                       --------     --------
Net increase (decrease)  in cash and cash equivalents  . . . . . . . .    1,917      (32,697)
Cash and cash equivalents, beginning of period . . . . . . . . . . . .   44,934      125,136
                                                                       --------     --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 46,851    $  92,439
                                                                       --------     --------
                                                                       --------     --------
Supplemental information:
   Cash paid during the period:
      Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $    107    $     101
                                                                       --------     --------
                                                                       --------     --------
      Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $     20    $   3,156
                                                                       --------     --------
                                                                       --------     --------
Noncash investing and financing activities:
   Cash benefit related to stock plans . . . . . . . . . . . . . . . . $    281    $       -
                                                                       --------     --------
                                                                       --------     --------
   Adjustment to foundry commitments . . . . . . . . . . . . . . . . . $(14,400)   $       -
                                                                       --------     --------
                                                                       --------     --------


</TABLE>

             See accompanying notes to consolidated financial statements.


                                          5
<PAGE>

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

1.  BASIS OF PREPARATION

    The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission").  In the opinion of management, the consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of the
consolidated financial position, operating results and cash flows for those
periods presented.  The results of operations for the interim periods presented
are not necessarily indicative of the results that may be expected for the full
fiscal year or in any future period.  This quarterly report on Form 10-Q should
be read in conjunction with the audited consolidated financial statements and
notes thereto for the year ended June 30, 1996, included in the Oak Technology,
Inc. (the "Company") 1996 Annual Report on Form 10-K filed with the Commission.

2.  EQUITY AND NET INCOME PER SHARE

    Net income per share has been computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from stock options
and warrants outstanding (using the treasury stock method).  All periods
presented reflect a two for one stock split that was approved by the Company's
board of directors and effected as of March 28, 1996.

    In July 1996, the Company offered option holders under the 1994 Stock
Option Plan, other than Directors and Officers, the opportunity to have
outstanding options repriced to the fair market value of the Company's common
stock as of August 1, 1996.  Vesting schedules for repriced options remain
unchanged; however, repriced options cannot be exercised before April 30, 1997. 
On August 1, 1996, the Company canceled and reissued 1,800,370 options pursuant
to this repricing at a price of $6.50 per share.
    
3.  BALANCE SHEET COMPONENTS

    INVENTORIES

    Inventories are stated at the lower of cost (first in, first out) or market
and consisted of the following (in thousands):
                                                                                
                                                         
                                                       September 30,    June 30,
                                                           1996           1996
                                                       -------------    --------
Purchased parts and work in process. . . . . . . . . .   $  7,028       $  5,888
Finished goods . . . . . . . . . . . . . . . . . . . .      3,499          8,875
                                                         --------       --------
                                                         $ 10,527       $ 14,763
                                                         --------       --------
                                                         --------       --------


                                        6

<PAGE>

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

4.  FOUNDRY AGREEMENTS AND INVESTMENT IN JOINT VENTURE

    In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Ptd. Ltd. ("Chartered") to obtain certain additional wafer
capacity through the year 2001.  The agreements called for the Company to
deposit funds with the suppliers as either a portion of the price of the
additional wafers in advance of their delivery or as a non-interest bearing
deposit to secure the availability of additional wafers.
    
    In September and October 1996, respectively, the Company amended its
previous agreements with Chartered and TSMC.  The amendments resulted in a
reduction and deferral of the Company's future wafer purchase commitments and
the elimination of required future cash deposits of approximately $73 million
under the original foundry arrangements which includes $14.4 million that was
accrued as of June 30, 1996. The Company's September 30, 1996 consolidated
balance sheet includes the impact of these amendments.  The execution of these
agreements reduced the Company's wafer purchase commitments during the remainder
of calendar 1996 and resulted in a favorable manufacturing cost adjustment
recorded to costs of sales of $1.5 million during the quarter ended September
30, 1996.
    
    Deposits paid under the amended agreements are recorded at cost and total
approximately $44.2 million as of September 30, 1996.  Pursuant to the terms of
the amended agreements, this entire amount represents deposits to be used as a
portion of the price to be paid for future wafers.  If the Company is not able
to use, assign, or sell the additional wafer quantities, all or a portion of
certain deposits may be forfeited which would result in a charge to cost of
sales.  Under the amended agreements, required future cash deposits of
approximately $36 million due under the original agreement with Chartered could
be reinstated if certain conditions are not met.  The Company currently believes
the terms and conditions of the agreement as amended will be met and that these
commitments will not be reinstated although no assurance can be given in this
regard.
    
    In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation to form, along with other investors, a
separate Taiwanese company for the purpose of building and managing a
semiconductor manufacturing facility in the Science Based Industrial Park in
Hsin Chu City, Taiwan, Republic of China.  The Company has agreed to invest
approximately $60 million for a 10% equity position in the venture.  In January
1996, the Company made an initial payment of $13.7 million under this agreement.
Cash payments due under these agreements are approximately $30.0 million in
fiscal 1997 and $15.0 million in fiscal 1998.

                                          7
<PAGE>

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

5.  CONTINGENCIES

    The Company and various of its current and former officers and Directors
are parties to several lawsuits which purport to be class actions filed on
behalf of all persons who purchased or acquired the Company's stock (excluding
the defendants and parties related to them) for the period July 22, 1995 through
May 22, 1996.  The first is a state court proceeding designated as IN RE OAK
TECHNOLOGY SECURITIES LITIGATION, in Santa Clara County Superior Court in Santa
Clara, California, which consolidates five putative class actions filed in Santa
Clara County Superior Court from June 6, 1996 through July 12, 1996.  This
lawsuit also names as defendants several of the Company's venture capital fund
investors, two of its investment bankers and two securities analysts.  The
plaintiffs allege violations of California securities laws and statutory deceit
provisions as well as breach of fiduciary duty and abuse of control.

    The Company and various of its current and former officers and Directors 
are also parties to the following putative class actions pending in the U.S. 
District Court for the Northern District of California (i) BRUNO V. OAK 
TECHNOLOGY, INC., ET AL., (filed July 9, 1996); (ii) ZAND V. TA-LIN HSU, ET 
AL., (filed Sept. 4, 1996); (iii) RASKIN V. OAK TECHNOLOGY, INC., ET AL., 
(filed Aug. 22, 1996); and (iv) CORNELLE V. DAVID S. TSANG, ET AL., (filed 
Sept. 5, 1996).  These actions allege certain violations of federal 
securities law and are brought on behalf of purchasers of the Company's stock 
for varying periods of time from July 22, 1995 through May 22, 1996. The 
court has designated these actions as related actions.  Motions to appoint 
lead plaintiffs have been filed with the court.

    Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE OAK
TECHNOLOGY DERIVATIVE ACTION.  This lawsuit asserts a claim for breach of
fiduciary duty and a claim under California securities law based upon the
officers' and Directors' trading in securities of the Company.

    In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief.  In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company.  All of these actions
are in the early stages of proceedings and the Company is currently
investigating the allegations.  Based on its current information, the Company
believes the suits to be without merit and will defend its position vigorously. 
No provision for any liability that may result upon adjudication has been made
in the Company's Consolidated Financial Statements.

    In connection with these legal proceedings, the Company has incurred, and
expects to continue to incur, substantial legal and other expenses.  Shareholder
suits of this kind are highly complex and can extend for a protracted period of
time, which can substantially increase the cost of such litigation and divert
the attention of the Company's management.



                                       8
<PAGE>

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

EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS 
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q MAY BE CONSIDERED 
"FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE 
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF 
1934, AS AMENDED. SUCH STATEMENTS INCLUDE DECLARATIONS REGARDING THE INTENT, 
BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT. PROSPECTIVE 
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT 
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND 
UNCERTAINTIES; ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED BY 
SUCH FORWARD-LOOKING STATEMENTS. AMONG THE IMPORTANT FACTORS THAT COULD CAUSE 
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH 
FORWARD-LOOKING STATEMENTS ARE: (i) VARIABILITY IN THE COMPANY'S QUARTERLY 
OPERATING RESULTS, (ii) GENERAL CONDITIONS IN THE SEMICONDUCTOR INDUSTRY, 
(iii) RISKS RELATED TO PENDING LEGAL PROCEEDINGS, (iv) DEVELOPMENT BY 
COMPETITORS OF NEW OR SUPERIOR PRODUCTS OR ENTRY INTO THE COMPANY'S MARKETS 
OF NEW COMPETITORS, (v) THE COMPANY'S ABILITY TO DEVELOP AND INTRODUCE NEW 
PRODUCTS AT COMPETITIVE PRICE AND PERFORMANCE LEVELS, (vi) WILLINGNESS OF 
PROSPECTIVE CUSTOMERS TO DESIGN THE COMPANY'S PRODUCTS INTO THEIR PRODUCTS, 
(vii) AVAILABILITY OF ADEQUATE FOUNDRY CAPACITY AND ACCESS TO PROCESS 
TECHNOLOGIES, (viii) THE COMPANY'S ABILITY TO PROTECT ITS PROPRIETARY 
INFORMATION AND OBTAIN ADEQUATE LICENSES OF THIRD PARTY TECHNOLOGY ON 
ACCEPTABLE TERMS, (ix) RISKS RELATED TO USE OF INDEPENDENT MANUFACTURERS AND 
THIRD PARTY ASSEMBLY AND TEST VENDORS, (x) DEPENDENCE ON KEY PERSONNEL, (xi) 
RELIANCE ON A LIMITED NUMBER OF LARGE CUSTOMERS, (xii) DEPENDENCE ON SALES OF 
CD-ROM CONTROLLER PRODUCTS, (xiii) RISKS RELATED TO INTERNATIONAL BUSINESS 
OPERATIONS, (xiv) VOLATILITY IN THE COMPANY'S STOCK PRICE, (xv) MANAGEMENT OF 
CHANGING OPERATIONS, (xvi) RISKS RELATED TO PRODUCT DEFECTS, AND (xvii) OTHER 
RISKS IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION 
STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE 
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996.

    The Company designs, develops and markets high performance multimedia
semiconductors and related software to original equipment manufacturers that
serve the multimedia PC, digital video consumer electronics and digital office
equipment markets.  The Company develops semiconductor products based on five
core technologies: optical storage, MPEG imaging, video/graphics,
audio/communications and digital imaging.  The Company's products typically
consist of hardware, firmware and software to provide a complete solution for
customers.

    The Company contracts with independent foundries to manufacture all of its
products, enabling the Company to focus on its design strengths, minimize fixed
costs and capital expenditures and gain access to advanced manufacturing
facilities.  Except as described in Note 4 of Notes to Consolidated Financial
Statements, the foundries generally are not obligated to supply products to the
Company for any specific period, in any specific quantity or at a specific
price.



                                     9
<PAGE>


THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995

    NET REVENUES.  The Company's net revenues in the comparison periods were
primarily derived from product sales.  Net revenues decreased 67% to $18.9
million in the three months ended September 30, 1996 from $56.5 million in the
comparable period of fiscal 1996.  This decrease was primarily attributable to a
decrease in unit sales and overall average selling prices ("ASPs") of CD-ROM
controllers. The decrease in unit sales resulted from the Company receiving
substantially fewer orders for its CD-ROM controller products than in the
comparable period of fiscal 1996.  The Company believes the decline in orders
for such products was primarily the result of customer decisions to reduce
inventory, an overall slowdown in the PC market, a shift in the CD-ROM industry
from 4x speed drives to 6x and 8x speed drives and increased competition in the
CD-ROM drive and controller market.  International sales, principally to Taiwan,
Japan, Korea and Singapore, accounted for approximately 92% and 99% of the
Company's net revenues in the three months ended September 30, 1996 and 1995,
respectively.  The Company expects that international sales will continue to
represent a substantial majority of its net revenues for the foreseeable future.

    GROSS MARGIN.  Cost of revenues includes the cost of wafer fabrication,
assembly and testing performed by third-party vendors and direct and indirect
costs associated with the procurement, scheduling and quality assurance
functions performed by the Company.  The Company's gross margin decreased to
46.0% in the three month period ended September 30, 1996 as compared to 55.5%
during the comparable period in the prior year.  This decrease in gross margin
is primarily the result of a decrease in average selling prices of the Company's
CD-ROM controller products partially offset by a favorable manufacturing cost
adjustment of $1.5 million.  Excluding the effect of this favorable adjustment,
gross margin would have been 38.1% in the three month period ended September 30,
1996.  The Company's overall gross margin is subject to change due to various
factors, including, among others, competitive product pricing, yields, wafer
costs, assembly and test costs and product mix.  The Company expects that ASPs
for its existing products will continue to decline over time and that ASPs for
each new product will decline significantly over the life of the product.  A
decline in ASPs that is not offset by a reduction in production costs or by
sales of new products with higher gross margins would decrease the Company's
overall gross margin and could materially and adversely affect the Company's
operating results.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development costs are
expensed as incurred.  Research and development expenses increased 37% to $8.1
million in the three months ended September 30, 1996 from $5.9 million in the
comparable period in the prior year.  This increase was principally the result
of the hiring of additional personnel and associated expenses.  Research and
development expenses increased as a percentage of net revenues to 42.8% during
the three months ended September 30, 1996 from 10.5% in the comparable period in
the prior year due primarily to the significant decrease in the Company's net
revenues in the current period compared to the comparable period of fiscal 1996.
The Company will continue to invest substantial resources in research and
development in an effort to maintain its technological leadership in the CD-ROM
controller market and diversify its product development in its other core
technologies: video/graphics, MPEG imaging, audio/communication and digital
imaging.  



                                        10
<PAGE>

As a result, the Company expects to incur higher absolute research and 
development expenses in the remainder of fiscal 1997. 

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 15% to $4.3 million in the three months ended
September 30, 1996 from $3.7 million in the comparable three months in fiscal
1996.  This increase was primarily the result of the hiring of additional
personnel and associated expenses.  Selling, general and administrative expenses
increased as a percentage of net revenues to 22.7% in the three months ended
September 30, 1996 from 6.6% during the comparable period in fiscal 1996, due
primarily to significant decrease in the Company's net revenues in the
comparison periods.  As a result of the continuing efforts to develop the
Company's support infrastructure, the Company expects to incur higher absolute
administrative expenses in the remainder of fiscal 1997.

    NONOPERATING INCOME.  During the three months ended September 30, 1996,
nonoperating income increased to $1.1 million from $0.4 million during the
comparable three months in fiscal 1996.  This increase was primarily the result
of a nonrecurring foreign currency transaction losses recorded in the first
quarter of fiscal 1996 which arose from the change in the exchange rate between
the Japanese Yen and the U.S. Dollar during such quarter.

    INCOME TAXES. The overall effective tax rate for the three months ended
September 30, 1996 was 35.0%.  The effective tax rate for the comparable period
of the prior fiscal year was approximately 40.0%.  The decrease in the effective
tax rate from the comparable period of the prior year is primarily attributable
to the effect of the reinstituted research and development tax credit on fiscal
1997 results as well as a geographical shift in the sources of taxable income
from the comparable quarter of fiscal 1996.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

    The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the gain or loss of
significant customers, increased competitive pressures, the timing of new
product announcements and introductions by the Company or its competitors and
market acceptance of new or enhanced versions of the Company's and its
customers' products.  Other factors include the availability of foundry
capacity, fluctuations in manufacturing yields, availability and cost of raw
materials, changes in the mix of products sold, the cyclical nature of  the
semiconductor industry, the market for PCs and the markets addressed by the
Company's products, seasonal customer demand, the Company's ability to diversify
its product offerings, the competitiveness of the Company's customers, the
timing of significant orders, significant increases in expenses associated with
the expansion of operations, and changes in pricing policies by the Company, its
competitors or its suppliers, including decreases in ASPs of the Company's
products.  In addition, the Company's quarterly operating results could be
materially adversely affected by legal expenses incurred in connection with, or
any adverse judgment in, the Company's ongoing shareholder legal proceedings. 
The Company's operating results could also be adversely affected by economic
conditions generally in various geographic areas where the Company or its
customers do business, or by order cancellations or rescheduling.  These factors
are 



                                       11
<PAGE>

difficult to forecast, and these or other factors could materially affect the 
Company's quarterly or annual operating results.  There can be no assurance 
as to the level of sales or earnings that may be attained by the Company in 
any given period in the future.

    The Company currently places noncancelable orders to purchase its products
from independent foundries on an approximately three month rolling basis and is
currently committed with two of its foundries for certain minimum amounts of
capacity for the next several years, while its customers generally place
purchase orders with the Company less than four weeks prior to delivery that may
be canceled without significant penalty.  Consequently, if anticipated sales and
shipments in any quarter are canceled or do not occur as quickly as expected,
expense and inventory levels could be disproportionately high and the Company's
business, financial condition and results of operations for that quarter or for
the year would be materially adversely affected.

    The semiconductor industry has historically been characterized by rapid
technological change, cyclical market patterns, significant price erosion,
periods of over-capacity and production shortages, variations in manufacturing
costs and yields and significant expenditures for capital equipment and product
development.  In addition, the industry has experienced significant economic
downturns at various times, characterized by diminished product demand and
accelerated erosion of product prices.  The Company may experience substantial
period-to-period fluctuations in operating results due to general semiconductor
industry conditions.

    The Company and various of its current and former officers and Directors
are parties to certain legal proceedings.  See Note 5 of Notes to Consolidated
Financial Statements.  All of these actions are in the early stages of
proceedings and the Company is currently investigating the allegations.  Based
on its current information, the Company believes the suits to be without merit
and will defend its position vigorously.  No provision for any liability that
may result upon adjudication has been made in the Company's Consolidated
Financial Statements.  In connection with these legal proceedings, the Company
has incurred, and expects to continue to incur, substantial legal and other
expenses.  Shareholder suits of this kind are highly complex and can extend for
a protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of the Company's management.

    The markets in which the Company competes are intensely competitive and 
are characterized by rapid technological change, declining ASPs and rapid 
product obsolescence.  The Company expects competition to increase in the 
future from existing competitors and from other companies that may enter the 
Company's existing or future markets with solutions that may be less costly 
or provide higher performance or additional features.  The Company's existing 
and potential competitors include many large domestic and international 
companies that have substantially greater financial, manufacturing, 
technical, marketing, distribution and other resources, broader product lines 
and longer standing relationships with customers than the Company.  The 
Company's competitors also include a number of emerging companies.  Certain 
of the Company's principal competitors maintain their own semiconductor 
foundries and may therefore benefit from certain capacity, cost and 
technological advantages. The Company believes that its ability to compete 
successfully depends on a number of factors, both within and outside of its 
control, including the price, quality and performance of the Company's and 
its customers' products, the timing and success of new product introductions 
by the Company, its customers and its competitors, the emergence of new PC 
standards, the development of technical innovations, the ability to obtain 
adequate foundry capacity and sources of raw materials, the 

                                      12

<PAGE>

efficiency of production, the rate at which the Company's customers design 
the Company's products into their products, the market acceptance of the 
products of the Company's customers, the number and nature of the Company's 
competitors in a given market, the assertion of intellectual property rights 
and general market and economic conditions.  There can be no assurance that 
the Company will be able to compete successfully in the future.

    The willingness of prospective customers to design the Company's products
into their products depends to a significant extent upon the ability of the
Company to price its products at a level that is cost effective for such
customers.  The markets for most of the applications for the Company's products,
particularly the PC market and the digital video consumer electronics market,
are characterized by intense price competition.  As the markets for the
Company's products mature and competition increases, the Company anticipates
that ASPs on its products will decline.  If the Company is unable to reduce its
costs sufficiently to offset declines in ASPs or is unable to successfully
introduce new higher performance products with higher ASPs, the Company's
operating results will be materially adversely affected.  If the Company
experiences yield or other production problems or shortages of supply that
increase its manufacturing costs, or fails to reduce its manufacturing costs,
the result would be a material adverse effect on the Company's business,
financial condition and operating results.

    The markets for the Company's products are characterized by evolving
industry standards, rapid technological change and product obsolescence.  The
Company's performance is highly dependent upon the successful development and
timely introduction of new products at competitive price and performance levels.
Currently, the Company's financial performance is dependent upon the Company's
level of success in the CD-ROM controller market.  In an effort to diversify its
product and market base, the company has invested substantial resources in
optical storage as well as a number of other core technologies: video/graphics,
MPEG imaging, audio/communication and digital imaging.  There can be no
assurance that products currently under development in these new core
technologies and optical storage or any other new products will be successfully
developed or will achieve market acceptance thereby affecting the Company's
ability to achieve diversification of its product and market bases.  The failure
of the Company to introduce new products successfully or the failure of new
products to achieve market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations.  The
success of new product introductions is dependent on several factors, including
recognition of market requirements, product cost, timely completion and
introduction of new product designs, securing sufficient foundry capacity for
volume manufacturing of wafers, quality of new products and achievement of
acceptable manufacturing yields from the Company's contract manufacturers. 
Due to the design complexity of its products, the Company has experienced delays
in completing development and introduction of new products, and there can be no
assurance that the Company will not encounter such delays in the development and
introduction of future products.  There can be no assurance that the Company
will successfully identify new product opportunities and develop and bring new
products to market in a timely manner, that the Company's products will be
selected for design into the products of its targeted customers or that products
or technologies developed by others will not render the Company's products or
technologies obsolete or noncompetitive.  The failure of the Company's new
product development efforts or the failure of the Company to achieve market
acceptance of its new products would have a material adverse effect on the
Company's business, financial condition and operating results.


                                  13

<PAGE>

    The Company's ability to compete is affected by its ability to protect its
proprietary information.  The Company considers its technology to be proprietary
and relies on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect its
intellectual property rights.  The Company currently has one patent granted,
eight patents pending and ten patents in preparation in the United States and
intends to seek international patents and additional United States patents on
its technology.  There can be no assurance that additional patents will issue
from any of the Company's pending applications or applications in preparation,
or be issued in all countries where the Company's products may be sold, or that
any claims allowed from pending applications or applications in preparation will
be of sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company.  Additionally, competitors of the Company
may be able to design around the Company's patents.  The laws of certain foreign
countries in which the Company's products are or may be manufactured or sold,
including various countries in Asia, may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of the Company's technology and
products more likely.  There can be no assurance that the steps taken by the
Company to protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.

    The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation.  Although there is
currently no pending intellectual property litigation against the Company, the
Company or its foundries may from time to time be notified of claims that the
Company may be infringing patents or other intellectual property rights owned by
third parties.  If it is necessary or desirable, the Company may seek licenses
under such patents or other intellectual property rights.  However, there can be
no assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company.  The failure to obtain a license
from a third party for technology used by the Company could cause the Company to
incur substantial liabilities and to suspend the manufacture of products or the
use by the Company's foundries of processes requiring the technology. 
Furthermore, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights.  Litigation by or against the
Company could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation results in a favorable determination for the Company.  In the event
of an adverse result in any such litigation, the Company could be required to
pay substantial damages, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology,
discontinue the use of certain processes or obtain licenses to the infringing
technology.  There can be no assurance that the Company would be successful in
such development or that such licenses would be available on reasonable terms,
or at all, and any such development or license could require expenditures by the
Company of substantial time and other resources.  Patent disputes in the
semiconductor industry have often been settled through cross-licensing
arrangements.  Because the Company has a limited portfolio of patents, the
Company may not be able to settle an alleged patent infringement claim through a
cross-licensing arrangement.  If a successful claim is made against the Company
or its customers and a license is not made available to the Company on
commercially reasonable terms or if the Company is required to pay substantial
damages or awards, the Company's business, financial condition and operating
results would be materially adversely affected.



                                     14
<PAGE>

    The Company generally enters into confidentiality agreements with its
employees and confidentiality and license agreements with its customers and
potential customers, and limits access to and distribution of the source and
object code of its software and other proprietary information.  Under some
circumstances, the Company grants licenses that give its customers limited
access to the source code of the Company's software which increases the
likelihood of misappropriation or misuse of the Company's technology. 
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy certain portions of the Company's technology
or to obtain and use information that the Company regards as proprietary.  There
can be no assurance that the steps taken by the Company will be adequate to
prevent misappropriation of its technology or to provide an adequate remedy in
the event of a breach or misappropriation by others.

    Certain technology used in the Company's products is licensed from third
parties.  There can be no assurance that such licenses will be available on
terms acceptable to the Company, if at all.  The inability of the Company to
enter such license arrangements on acceptable terms could have a material
adverse effect on the Company's business, financial condition and results of
operations.

    The Company contracts with independent foundries to manufacture all of its
products, enabling the Company to focus on its design strengths, minimize fixed
costs and capital expenditures and gain access to advanced manufacturing
facilities.  The Company is dependent on its foundries to allocate to the
Company a portion of their foundry capacity sufficient to meet the Company's
needs to produce products of acceptable quality and with acceptable
manufacturing yields and to deliver products to the Company in a timely manner. 
These foundries fabricate products for other companies and some manufacture
products of their own design.  The loss of any of these foundries as a supplier,
the inability of the Company in a period of increased demand for its products to
expand the foundry capacity of its current suppliers or qualify other wafer
manufacturers for additional foundry capacity, any inability to obtain timely
and adequate deliveries from the Company's current or future suppliers or any
other circumstances that would require the Company to seek alternative sources
of supply could delay shipments of the Company's products, which could damage
relationships with its current and prospective customers, provide an advantage
to the Company's competitors and have a material adverse effect on the Company's
business, financial condition and results of operations.

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




                                        15

<PAGE>

    The manufacture of semiconductors is a highly complex and precise process. 
Minute levels of contaminants in the manufacturing environment, defects in the
masks used to print circuits on a wafer, difficulties in the fabrication process
or other factors can cause a substantial percentage of wafers to be rejected or
a significant number of die on each wafer to be nonfunctional.  Many of these
problems are difficult to diagnose and time consuming or expensive to remedy. 
The Company's products are particularly complex and difficult to manufacture. 
There can be no assurance that the Company's foundries will not experience
irregularities or adverse yield fluctuations in their manufacturing processes. 
Any yield or other production problems or shortages of supply experienced by the
Company or its foundries could have a material adverse effect on the Company's
business, financial condition and results of operations.

    Sales of the Company's CD-ROM controller products comprised 77% and 92% of
the Company's net revenues in the three months ended September 30, 1996 and
1995, respectively.  Sales of CD-ROM controller products are expected to
continue to account for a substantial portion of the Company's total revenues
for the foreseeable future.  The Company expects that as the market for CD-ROM
controller products matures, sales of such products will not continue to grow at
historical rates, and there can be no assurance that the Company will be able to
sustain the current level of such product sales.  In addition, there can be no
assurance that the market for CD-ROM controller products in general, or the
Company's CD-ROM controller products in particular, will support the Company's
planned operations in the future.  Any decrease in the overall level of sales
of, or the prices for, the Company's CD-ROM controller products, due to
introductions of products by present or future competitors, a decline in demand
for CD-ROM controller products, product obsolescence or any other reason would
have a material adverse effect on the Company's business, financial condition
and results of operations.

    International sales, principally to Taiwan, Japan, Korea and Singapore,
accounted for approximately 92% and 99% of the Company's net revenues in the
three months ended September 30, 1996 and 1995, respectively.  A substantial
portion of the Company's international revenues in the comparison periods were
derived from Japanese, Taiwanese and Korean manufacturers of CD-ROM drives. 
Accordingly, the Company is subject to the risks of conducting business outside
of the United States.  These risks include unexpected changes in, or impositions
of, legislative or regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, tariffs, quotas and other
trade barriers and restrictions, longer payment cycles, greater difficulty in
accounts receivable collection, potentially adverse tax rates, the burdens of
complying with a variety of foreign laws and other factors beyond the Company's
control.  The Company is also subject to general geopolitical risks in
connection with its international operations, such as political, social and
economic instability, potential hostilities and changes in diplomatic and trade
relationships.  There can be no assurance that such factors will not adversely
affect the Company's operations in the future or require the Company to modify
its current business practices.  In addition, the laws of certain foreign
countries in which the Company's products are or may be developed, manufactured
or sold, including various countries in Asia, may not protect the Company's
products or intellectual property rights to the same extent as do the laws of
the United States and thus make the possibility of piracy of the Company's
technology and products more likely.  Most of the Company's foreign sales are
negotiated in U.S. dollars; however, invoicing is often done in local currency. 
As a result, the Company may be subject to the risks of currency fluctuations. 
There can be no assurance that one or more of the foregoing factors will not
have a material adverse effect on the Company's business, financial condition or
results of operations or require the Company to modify its current business
practices.



                                        16
<PAGE>

    A limited number of customers historically has accounted for a substantial
portion of the Company's net revenues.  In the three months ended September 30,
1996 and 1995, sales to the Company's top ten customers accounted for
approximately 79% and 87%, respectively, of the Company's net revenues.  The
Company expects that sales to a limited number of customers will continue to
account for a substantial portion of its net revenues for the foreseeable
future.  The Company has experienced significant changes from year to year in
the composition of its major customer base and believes this pattern will
continue. The Company does not have long-term purchase agreements with any of
its customers.  Customers generally purchase the Company's products pursuant to
cancelable short-term purchase orders.  The loss of, or significant reduction in
purchases by, current major customers would have a material adverse effect on
the Company's business, financial condition and results of operations.  There
can be no assurances that the Company's current customers will continue to place
orders or that existing orders will not be canceled.  If sales to current
customers cease or are reduced, there can be no assurance that the Company will
be able to continue to obtain the orders from new customers necessary to offset
any such losses or reductions.

LIQUIDITY AND CAPITAL RESOURCES

    Since its inception, the Company has financed its cash requirements from
cash generated from operations, the sale of equity securities, bank lines of
credit and long-term and short-term debt.  The Company's principal sources of
liquidity as of September 30, 1996 consisted of approximately $116.4 million in
cash, cash equivalents and short-term investments, approximately $40.0 million
in lines of credit with two Japanese financial institutions, of which $38.1
million was available as of September 30, 1996 and approximately $10.1 million
in lines of letters of credit with Taiwanese financial institutions, of which
approximately $6.0 million was available as of September 30, 1996.

    During the three months ended September 30, 1996, operating activities
provided net cash of approximately $6.0 million.  This cash resulted primarily
from the decrease of accounts receivable of $4.9 million and the decrease in
gross inventories of $5.3 million partially offset by a decrease in accounts
payable and accrued expenses of $2.0 million and a net loss of $1.7 million
recorded during the period.  Investing and financing activities utilized
approximately $4.1 million consisting primarily of purchases of property and
equipment of $1.3 million, purchases of short-term investments of $1.2 million
and a net repayment of debt of $2.1 million.

    The Company believes that its existing cash, cash equivalents, short-term
investments and credit facilities will be sufficient to provide adequate working
capital and to fund necessary purchases of property and equipment through at
least the next twelve months.  Capital expenditures for the remainder of fiscal
1997 are anticipated to be approximately $7.0 million.  The Company may also
utilize cash to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies.  From time to time, in the
ordinary course of business, the Company evaluates potential acquisitions of
such businesses, products or technologies.  However, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition of other businesses, products or technologies.

    In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing 


                                    17
<PAGE>

Ptd. Ltd. ("Chartered") to obtain certain additional wafer capacity through 
the year 2001.  The agreements called for the Company to deposit funds with 
the suppliers as either a portion of the price of the additional wafers in 
advance of their delivery or as a non-interest bearing deposit to secure the 
availability of additional wafers.
    
    In September and October 1996, respectively, the Company amended its
previous agreements with Chartered and TSMC.  The amendments resulted in a
reduction and deferral of the Company's future wafer purchase commitments and
the elimination of required future cash deposits of approximately $73 million
under the original foundry arrangements which includes $14.4 million that was
accrued as of June 30, 1996. The Company's September 30, 1996 consolidated
balance sheet includes the impact of these amendments.
    
    Deposits paid under the amended agreements are recorded at cost and total
approximately $44.2 million as of September 30, 1996.  Pursuant to the terms of
the amended agreements, this entire amount represents deposits to be used as a
portion of the price to be paid for future wafers.  If the Company is not able
to use, assign, or sell the additional wafer quantities, all or a portion of
certain deposits may be forfeited.  Under the amended agreements, required
future cash deposits of approximately $36 million due under the original
agreement with Chartered could be reinstated if certain conditions are not met. 
The Company currently believes the terms and conditions of the agreement as
amended will be met and that these commitments will not be reinstated although
no assurance can be given in this regard.
    
    In October 1995, the Company entered into a series of agreements with 
United Microelectronics Corporation to form, along with other investors, a 
separate Taiwanese company for the purpose of building and managing a 
semiconductor manufacturing facility in the Science Based Industrial Park in 
Hsin Chu City, Taiwan, Republic of China.  The Company has agreed to invest 
approximately $60 million for a 10% equity position in the venture.  In 
January 1996, the Company made an initial payment of $13.7 million under this 
agreement. Cash payments due under these agreements are approximately $30.0 
million in fiscal 1997 and $15.0 million in fiscal 1998.

                                       18
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and various of its current and former officers and Directors are
parties to several lawsuits which purport to be class actions filed on behalf of
all persons who purchased or acquired the Company's stock (excluding the
defendants and parties related to them) for the period July 22, 1995 through
May 22, 1996.  The first is a state court proceeding designated as IN RE OAK
TECHNOLOGY SECURITIES LITIGATION, in Santa Clara County Superior Court in Santa
Clara, California, which consolidates five putative class actions filed in Santa
Clara County Superior Court from June 6, 1996 through July 12, 1996.  This
lawsuit also names as defendants several of the Company's venture capital fund
investors, two of its investment bankers and two securities analysts.  The
plaintiffs allege violations of California securities laws and statutory deceit
provisions as well as breach of fiduciary duty and abuse of control.

    The Company and various of its current and former officers and Directors 
are also parties to the following putative class actions pending in the U.S. 
District Court for the Northern District of California (i) BRUNO V. OAK 
TECHNOLOGY, INC., ET AL., (filed July 9, 1996); (ii) ZAND V. TA-LIN HSU, ET 
AL., (filed Sept. 4, 1996); (iii) RASKIN V. OAK TECHNOLOGY, INC., ET AL., 
(filed Aug. 22, 1996); and (iv) CORNELLE V. DAVID S. TSANG, ET AL., (filed 
Sept. 5, 1996).  These actions allege certain violations of federal 
securities law and are brought on behalf of purchasers of the Company's stock 
for varying periods of time from July 22, 1995 through May 22, 1996. The 
court has designated these actions as related actions.  Motions to appoint 
lead plaintiffs have been filed with the court.

    Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE OAK
TECHNOLOGY DERIVATIVE ACTION.  This lawsuit asserts a claim for breach of
fiduciary duty and a claim under California securities law based upon the
officers' and Directors' trading in securities of the Company.

    In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief.  In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company.  All of these actions
are in the early stages of proceedings and the Company is currently
investigating the allegations.  Based on its current information, the Company
believes the suits to be without merit and will defend its position vigorously. 
No provision for any liability that may result upon adjudication has been made
in the Company's Consolidated Financial Statements.

    In connection with these legal proceedings, the Company has incurred, and
expects to continue to incur, substantial legal and other expenses.  Shareholder
suits of this kind are highly complex and can extend for a protracted period of
time, which can substantially increase the cost of such litigation and divert
the attention of the Company's management.


                                       19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM  8-K

    (a)  The following exhibits are filed herewith or incorporated by reference
herein.
        Exhibit
        Number    Exhibit Title
        -------   -------------

         3.01     The Company's Restated Certificate of Incorporation, 
                  amended (1)

         3.02     The Company's Restated Bylaws (2)

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

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

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

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

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

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

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

        10.04     1994 Employee Stock Purchase Plan (3)*

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

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


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

        10.08     Form of Indemnification Agreement, between the Company and 
                  each of its Directors and executive officers

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

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

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

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

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

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

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

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



                                          21
<PAGE>
        10.17     Lease Agreement dated June 15, 1995 between John Arrillaga,
                  Trustee, or his Successor Trustee, UTA dated 7/20/77 (John  
                  Arrillaga Separate Property Trust) as amended and Richard T.
                  Peery, Trustee, or his successor Trustee, UTA dated 7/20/77
                  (Richard T. Perry Separate Property Trust) as amended, and the
                  Company (lease agreement for 130 Kifer Court, Sunnyvale,  
                  California) (9), and amendments thereto dated June 15, 1995 
                  and  August 18, 1995 (10)

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

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

        27.01     Financial Data Schedule
    
_________________________

(1)  Incorporated herein by reference to exhibit 3.01 of the Company's Quarterly
     Report on Form 10-Q for the quarter ended March 31, 1996.   
(2)  Incorporated herein by reference to exhibit 3.05 filed with the Company's
     Registration Statement of Form S-1 (File No. 33-87518) declared 
     effective by the Securities and Exchange Commission in February 13, 1995 
     (the "February 1995 Form S-1").
(3)  Incorporated herein by reference to the exhibit with the same number filed
     with the February 1995 Form S-1.
(4)  Incorporated herein by reference to Exhibit 10.1 filed with the Company's
     Registration  Statement on Form S-8 (File No. 333-4334) on May 2, 1996.
(5)  Incorporated herein by reference to the exhibit with the same number filed
     with the  Company's Annual Report on Form 10-K for the year ended June 30, 
     1996.
(6)  Incorporated herein by reference to Exhibit 2.1 filed with the Company's
     Form 8-K dated October 2, 1995 (the "October 1995 form 8-K").
(7)  Incorporated herein by reference to Exhibit 2.2 filed with the October 1995
     Form 8-K.
(8)  Incorporated herein by reference to Exhibit 2.3 filed with the October 1995
     Form 8-K.
(9)  Incorporated herein by reference to Exhibit 10.08 filed with the Company's
     Annual Report on Form 10-K for the year ended June 30, 1995.
(10) Incorporated herein by reference to Exhibit 10.08 filed with the Company's
     Annual Report on Form 10-K for the year ended June 30, 1996.
(11) Incorporated herein by reference to Exhibit 10.04 filed with the Company's
     Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(12) Confidential treatment has been granted with respect to portions of this
     exhibit.
(13) Incorporated herein by reference to Exhibit 10.17 filed with the Company's
     Annual Report on Form 10-K for the year ended June 30, 1996.

*    Indicates Management incentive plan.
**   Confidential treatment requested as to portions of the exhibit.
    
      (b)  The Company did not file any reports on Form 8-K during the three
           months ended September 30, 1996.


                                         22
<PAGE>
                                      SIGNATURES

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

                                    OAK TECHNOLOGY, INC.
                                    (Registrant)
Date:  November 8, 1996
                                    /S/ SIDNEY S. FAULKNER
                                    ----------------------
                                    Sidney S. Faulkner
                                    Vice President, Finance, 
                                    Chief Financial Officer and Secretary
                                    (Principal Financial and Accounting Officer
                                    and Duly Authorized Officer)









                                     23
<PAGE>

                                EXHIBIT INDEX

    Exhibit
    Number    Exhibit Title                                                
    -------   -------------                                                
    10.08     Form of Indemnification Agreement, between the Company and each 
              of its Directors and executive officers

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

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

    27.01     Financial Data Schedule
    
______________________

**   Confidential treatment requested as to portions of the exhibit.



                                         24