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

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FORM 10-K

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

For the fiscal year ended December 31, 2002

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 Number 000-30649

CENTILLIUM COMMUNICATIONS, INC.(Exact name of Registrant as Specified in its Charter)



|Delaware                                                       | 94-3263530                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

47211 Lakeview BoulevardFremont, California     94538

(510) 771-3700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock

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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  [     ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.   [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).  Yes  [X]       No   [     ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of January 24, 2003, was approximately $79,452,809 based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market. Shares of Common Stock held by each executive officer,
director and holder of 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

On January 24, 2003, approximately 35,255,018 shares of the Registrant's Common
Stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant's
definitive proxy statement (the "Proxy Statement") for the Annual Meeting of
Shareholders to be held on June 11, 2003.



Centillium Communications, Inc.
                            FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

Part I.

PageItem 1.
Business**Item 2.
Properties**Item 3.
Legal Proceedings**Item 4.
Submission of Matters to a Vote of Security Holders**Part II.Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters**Item 6.
Selected Consolidated Financial Data**Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations**Item 7a.
Quantitative and Qualitative Disclosures About Market Risk**Item 8.
Financial Statements and Supplementary Data**Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**Part III.Item 10.
Directors and Executive Officers of the Registrant**Item 11.
Executive Compensation**Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**Item 13.
Certain Relationships and Related Transactions**Item 14.
Controls and Procedures**Part IV.Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K**Signatures.
**Certifications.
**

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CAUTIONARY STATEMENT

This report contains forward-looking statements which include, but are
not limited to, statements concerning projected revenues, expenses, gross profit
and income, the need for additional capital, market acceptance of our products,
our ability to consummate acquisitions and integrate their operations
successfully, our ability to achieve further product integration, the status of
evolving technologies and their growth potential, and our production capacity.
These forward-looking statements are based on our current expectations,
estimates and projections about our industry, management's beliefs, and certain
assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans,"
"believes," "seeks," "estimates," "may,"
"will" and variations of these words or similar expressions are
intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking
statements. These statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, our actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result of
various factors. The section entitled "Risk Factors" set forth in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," of this report, and similar discussions in our other
Securities and Exchange Commission ("SEC") filings, discuss some of
the important risk factors that may affect our business, results of operations
and financial condition. You should carefully consider those risks, in addition
to the other information in this report and in our other filings with the SEC,
before deciding to invest in our company or to maintain or increase your
investment. We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.

PART I



ITEM 1.  BUSINESS

Centillium is a leading provider of highly integrated silicon solutions
that enable broadband communications.  Centillium designs, develops and supplies
communications semiconductor solutions for applications in the Digital
Subscriber Line (DSL) and Voice over Packet (VoP) markets.

We make available free of charge on or through our Internet website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the Securities
and Exchange Commission. Our Internet address is http://www.centillium.com.

The increasing desire of consumers and businesses to obtain low cost, high
bandwidth and always-on access to the Internet and the continuing cost
competitive pressures on voice services have created the need for new
generations of communications semiconductor solutions.  Broadband transmission
of digital information over existing infrastructures requires highly integrated
semiconductor solutions to perform critical systems functions such as complex
signal processing and converting digital data to and from analog signals.
Broadband communications equipment requires substantially higher levels of
system performance, in terms of both speed and precision, than can typically be
addressed by traditional semiconductor solutions developed for low speed
transmission applications.  Moreover, solutions that are based on multiple
discrete analog and digital chips generally cannot achieve the cost-effectiveness,
performance and reliability required by the broadband
communications markets.  These requirements are best addressed by new
generations of highly integrated semiconductor devices that combine complex
functions with high performance circuitry and that can be manufactured in high
volumes using cost-effective semiconductor technologies.

MARKETS

DIGITAL SUBSCRIBER LINE

Although the availability and use of high bandwidth applications for the
Internet has grown significantly in recent years, low speed, dial-up access for
consumers and expensive T-1 lines for businesses remain the predominant methods
for reaching the Internet.  Consumers are seeking low-cost, high-speed access to
Internet content and other services that require transmission of large amounts
of data such as highly graphical Web sites, MP3 audio files and streaming
multimedia applications.  Businesses have even greater requirements for high-speed access
in order to implement electronic commerce strategies and to provide
telecommuting employees with the same capabilities they would experience at the
office.

As more consumers and businesses have begun to rely on the Internet and
communications networks, the demand for access to these networks has
accelerated.   In addition, the demand for access is increasing as more and more
corporate telecommuters, small businesses and self-employed individuals
regularly access the Internet and other communications networks.  Many users are
demanding the same access speeds from their home offices that they experience at
corporate locations.

To meet the demand for high-speed, broadband data transmission, network
access providers have upgraded the main transmission channels, or backbone, of
their networks with faster equipment.  While this network backbone is now
capable of delivering data at very high speeds, an access bottleneck continues
to exist between the telephone companies' central offices and the end-users'
homes and businesses. These copper line connections between the central office
and the end-user are commonly known as the last mile. The last mile
infrastructure was originally designed for low-speed analog voice traffic rather
than high-speed digital data transmission.  As a result, access to the Internet
and private communications networks over the copper wire infrastructure of the
last mile has typically been limited to data transmission rates of up to 56
kilobits per second using standard dial-up analog modems.  At this rate, several
minutes may be required to access and display a media-rich Web site, and several
hours may be required to transfer or download large files.

DSL technology allows consumers or businesses to access the Internet at
speeds of up to twelve or more  megabits per second or more than 100 times as
fast as dial up access by using the existing copper telephone wiring between the
telephone company's central office and the end user.  According to the Dell'Oro
Group, the number of worldwide DSL subscribers grew from 5.6 million at the end
2000 to 33.0 million at the end of 2002 and is projected to reach 51.0 million
by the end of 2003.

VOICE OVER PACKET

Consumers and businesses have become increasingly sensitive regarding
their telephone service costs.  Additionally, portions of many traditional voice
networks are constrained by capacity limitations and also require routine
maintenance of the existing communications equipment.  As a result,
telecommunications service providers must continuously evaluate the need for
additional cost-efficient voice transmission and processing capacity in portions
of their legacy voice networks.  They have a choice of adding traditional
equipment for supporting voice transmissions on their legacy networks or
equipment based on high-density cost effective packet-based technologies.

VoP technology provides a number of economic and competitive advantages for
service providers.  A high capacity packet-based gateway or switch based on VoP
technology allows service providers to reduce their investment in traditional
Class 5 and Class 4 circuit switches and migrate to a converged voice and data
switching infrastructure.  A key benefit of this convergence is that service
providers can reduce the long-term cost of providing voice transmission services
by migrating these transmissions from their legacy voice networks to their more
efficient data networks.

These data networks use several different transmission standards, such as
asynchronous transfer mode or ATM, Internet Protocol or Frame Relay.  Voice over
Packet technology enables voice signals to be transmitted over networks
originally designed for data transmission by compressing voice signals into
discrete packets of data, using one of the existing data transmission standards.
Because of the high efficiencies enabled by these transmission standards, voice
transmissions on a data network are significantly less costly than transmissions
using the existing voice trunks connecting carriers' central office
locations.

STRATEGY

Our objective is to be the leading provider of system-level products for
equipment manufacturers serving the broadband communications markets. Key
elements of our strategy include the following:

Target complementary high-growth broadband communications
markets. Our strategy is to focus on complementary, high-growth
broadband communications markets and to develop system-level solutions for
applications in those markets.  Our products are designed for the DSL
infrastructure equipment, DSL end-user equipment and VoP markets.  By targeting
these complementary markets, which share common technologies and customers, we
are able to more effectively utilize our existing engineering, sales and
marketing resources.

Strengthen and expand relationships with strategic customers.
We have established customer relationships with key equipment manufacturers,
including Sumitomo Electric Industries, NEC, Lucent Technologies and Advanced
Fibre Communications.  We have shipped DSL products to each of these
manufacturers and have recognized approximately $93.9 million in net revenues
from sales to this group during the year ended December 31, 2002.  During this
period, sales to NEC and Sumitomo Electric Industries accounted for 45% and 41%
of our net revenues, respectively.  We do not have long-term agreements with
these customers relating to the sale of our products.  Rather, they purchase our
products on an order-by-order basis.  These companies are market and technology
leaders within the broadband communications market and selling products to these
companies provides references for our products that in turn help to secure
future sales.  Collaborating with these industry leaders also helps us to
enhance our technological capabilities.  We believe these strategic
relationships are essential to our continued growth and the further development
and acceptance of our technologies.

Extend technology leadership. We have invested substantial
resources to establish our technology leadership.  We believe we were the first
company to deliver a DSL infrastructure product that manages multiple ports and
the first to deliver a set of the two primary semiconductors for a DSL modem
that requires less than one watt of power.  An important element of our
technological leadership is our programmable digital signal processor and
associated processing instructions, or algorithms, which are optimized for high
bandwidth communications applications.  This core technology can be extended to
develop multiple communications products for complementary markets.

Leverage system-level expertise.  Many of our system-level
engineers have previous experience as employees of communication equipment
manufacturers and are therefore very familiar with the requirements of, and
challenges faced by, our customers.  We combine this system-level engineering
expertise with our expertise in integrated circuit, digital signal processor and
software design to develop products that allow our customers to optimize time-to-market,
performance and systems cost.

Pursue strategic acquisitions.  Our strategy is to enhance our
growth capability by pursuing selective acquisitions.  This strategy allows us
to more rapidly obtain complementary technologies and engineering talent and to
access key markets and customer relationships.  We believe completing selective
acquisitions will be important to remain competitive as a complete solutions
provider to manufacturers of broadband communications equipment.

PRODUCTS

DSL PRODUCTS

Each of our DSL products consists primarily of two semiconductor chips -
a mixed-signal chip and a digital chip - and related software. The mixed-signal
chip translates signals between analog and digital formats and our digital chip
incorporates our proprietary software programmable digital signal processor,
which provides flexibility for enhancements and upgrades.Our DSL
products are based on a type of DSL technology known as asymmetrical DSL or
ADSL.  ADSL technology provides substantially faster transmission of data from
the network to the end-user than from the user to the network.  This tradeoff
works to the consumer's advantage in that most users typically download more
data from the network than they send to the network.

DSL Infrastructure Products

Our DSL infrastructure products are designed for use in the following
types of DSL equipment:

- DSLAM
- Central office switch
- Remote terminal

DSL Customer Premises Equipment (CPE) Products

Our CPE products are designed for use as a subsystem for devices that
distribute network access for multiple appliances.  Examples of these devices
include the following:

- Bridge / router.
- Integrated access device / residential gateway.
- Set-top box

VOICE OVER PACKET PRODUCTS

We currently sell two classes of products for the VoP Market: Entropia
Central Office (CO) and Entropia CPE.  Entropia CO is sold to manufacturers of
broadband infrastructure products for use in carrier class equipment such as
voice gateways and soft switches and is positioned to support current and
evolving VoP applications.  Entropia CPE is being marketed for use in voice-enabling
equipment installed at enterprises.  Examples of such equipment are a
high-end integrated access device, or IAD, which aggregates multiple voice and
data channels from businesses for transmission over the data network and a
private branch exchange, or PBX, which is a computer server that manages
telephone calls in medium to large businesses.

TECHNOLOGY

Our primary competitive advantage is technology expertise in key areas
including our system-level knowledge, programmable digital signal processor,
signal processing algorithms, digital chip design capability, mixed-signal chip
design capability and system-level software.  Together, these capabilities have
enabled us to provide system-level communications products which have:

- flexibility due to programmability;
- higher data throughput;
- low power consumption; and
- small size.

Software programmable digital signal processor. A cornerstone
of our technology is our internally-developed software programmable digital
signal processor.  A digital signal processor, as it relates to communications
applications, encodes digital data for transmission over bandwidth-limited
media, such as copper telephone lines, and recovers the encoded data at the
receiving end.  Our software programmable digital signal processor is optimized
for communications applications and provides high processing bandwidth with low
power requirements.  This digital signal processor can be programmed for several
different applications, such as DSL and VoP networking.  We currently use this
core technology in every product line currently in production.  This software
programmable digital signal processor technology gives us the advantage of field
programmability and scalable upgradability of devices for future standards.

Signal processing algorithms.  A key component of our
continued success is the expertise that we have developed in communications
algorithms.  Communications algorithms are the processes and techniques used to
transform a digital data stream into a specially conditioned analog signal
suitable for transmission across copper telephone wires.  We possess a thorough
understanding of, and practical experience in, the process of transmitting and
receiving a digital data stream in analog form.  We also have significant
experience developing algorithms to enable voice compression, echo cancellation
and telephony signal processing. This expertise allows us to design highly
efficient algorithms that in turn enable us to create products with high
performance, re-programmability and low power consumption.

Digital chip design.  We are experts in the area of highly
complex, high-speed digital chip development.  We perform both the logic design
and the physical layout design for our products.

Mixed-signal chip design.  This mixed-signal chip translates
signals between analog and digital formats.  We believe our mixed-signal chip
contains the highest level of integration in the industry, replacing the
multiple components used in competing DSL solutions and also supporting multiple
telephone lines for DSL infrastructure products.

System software. We have expertise in developing
software that addresses the needs of network equipment manufacturers and service
providers.  Our knowledge of network operation and architectures allows us to
write software that ensures that our products are interoperable with
communications equipment vendors' products.  In addition, our understanding of
various operating systems and personal computer environments allows us to create
software that provides for simple installation and operation.

CUSTOMERS AND STRATEGIC RELATIONSHIPS

We sell our products to leading manufacturers of broadband communications
equipment in our target markets.  Because we leverage our technologies across
different markets, certain of our integrated circuits may be incorporated into
equipment used in several different markets.

As part of our business strategy, we periodically establish strategic
relationships with certain key customers.  From time to time, we have also
entered into development agreements with Sumitomo Electric Industries, NEC and
Lucent Technologies to co-develop products.

A small number of customers have historically accounted for a substantial
portion of our revenue.  Sales to NEC represented approximately 45% of our net
revenue in 2002 and approximately 38% of our net revenue in 2001.  Sales to
Sumitomo Electric Industries represented approximately 41% of our net revenue in
2002 and approximately 48% of our net revenue in 2001.  The loss of a key
customer could materially and adversely affect our business, financial condition
and results of operations.

SALES AND MARKETING

Our sales and marketing strategy is to achieve design wins with
technology leaders in each of our targeted broadband communications markets by,
among other things, providing superior engineering support.  We believe that
providing comprehensive product service and support is critical to shortening
our customers' design cycles and maintaining a competitive position in our
targeted markets.  We market and sell our products through our direct sales
force and through independent sales representatives.  Our sales managers are
dedicated to our principal customers to promote close cooperation and
communication.  Representatives support the sales managers by providing leads,
nurturing customer relationships, closing design wins and securing customer
orders.

We manage a number of marketing programs designed to communicate our
capabilities and benefits to broadband access equipment manufacturers.  Our Web
site is an important marketing tool where a wide range of information is
available, including product information, white papers, application notes, press
releases and contributed articles.  In addition, we participate in industry
trade shows, technical conferences and technology seminars, conduct press tours
and publish technical articles in industry journals.

BACKLOG

Our sales are made primarily pursuant to standard purchase orders for
delivery of products. Due to industry practice, which allows customers to cancel
or change orders prior to shipment, we believe that backlog is not a reliable
indicator of future revenue levels.

RESEARCH AND DEVELOPMENT

We have assembled a core team of experienced engineers and technologists,
many of whom are leaders in their particular field or discipline. As of December
31, 2002, we employed 195 engineers in Research and Development.  In addition,
170 of our employees hold a total of 203 advanced degrees, including 25 PhDs.
These employees are involved in advancing our core technologies, as well as
applying these core technologies to product development activities in our target
markets.

We believe that the achievement of higher levels of integration,
functionality and performance and the introduction of new products in our target
markets are essential to our growth.  Research and development expense for 2002,
2001 and 2000 was approximately $50.8 million, $59.0 million and $41.9 million,
respectively.

OPERATIONS AND MANUFACTURING

We outsource the fabrication, assembly and testing of our semiconductor
devices.  This fabless model allows us to focus our resources on the design,
development and marketing of our products.  We manage the production of our
devices through our operations and manufacturing group, which consists of
technology engineering, test engineering, logistics, quality assurance and
reliability.

We source our semiconductor fabrication from some of the world's largest
foundries, including but not limited to, our principal suppliers:  Taiwan
Semiconductor Manufacturing Company and United Microelectronics Corporation. Our
manufacturing strategy is to qualify and utilize multiple facilities within a
given foundry partner for the fabrication of a given IC semiconductor device.
This second source strategy seeks to ensure production and performance
consistency, both of which are critical for our products, while maintaining
multiple channels of supply.

Foundry subcontractors conduct our wafer probe testing.  Following completion
of the wafer probe tests, the dies are assembled into packages and the finished
products are tested by one of our four key subcontractors: Advanced
Semiconductor Engineering, Amkor Technology, ST Assembly Test Services, and
United Test and Assembly Center Ltd..  While we have not experienced any
material disruption in supply from assembly subcontractors to date, we could
experience assembly problems in the future. The availability of assembly and
testing services from these subcontractors could be materially and adversely
affected in the event a subcontractor experiences financial difficulties, if a
subcontractor suffers any damage or destruction to its respective facilities, or
in the event of any other disruption of assembly and testing capacity.

COMPETITION

Although we produce system-level products, we primarily compete with
vendors of semiconductor devices for the DSL and VoP markets.  We believe that
the principal factors of competition for semiconductor vendors to these markets
are product capabilities, level of integration, rate of data throughput,
performance and reliability, power consumption, price, time-to-market, system
cost, intellectual property rights, customer support and reputation.  We believe
we compete favorably with respect to each of these factors.

We compete with a number of major domestic and international suppliers of
semiconductors for both DSL central office and customer premises equipment and
with suppliers of semiconductors for equipment enabling VoP networks. Our
principal competitors that supply semiconductors include Analog Devices,
Broadcom, Conexant Systems, GlobespanVirata, Infineon, ST Microelectronics and
Texas Instruments.

Many of our competitors operate their own fabrication facilities and have
longer operating histories and presence in key markets, greater name
recognition, access to larger customer bases and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other
resources.  As a result, our competitors may be able to adapt more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the promotion and sale of their products.  Current and
potential competitors have established or may establish financial or strategic
relationships among themselves or with existing or potential customers,
resellers or other third parties.  Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share.  In addition, our competitors may in the future
develop technologies that more effectively address our markets at a lower cost.
We cannot assure you that we will be able to compete successfully against
current or potential competitors, or that competition will not have a material
adverse effect on our business, financial condition and results of
operations.

INTELLECTUAL PROPERTY

We rely on a combination of copyright, patent, trademark, trade secret
and other intellectual property law, nondisclosure agreements and other
protective measures to protect our proprietary rights. We also utilize
unpatented proprietary know-how and trade secrets and employ various methods to
protect such intellectual property. To date, we have been granted 10 U.S.
patents and have a significant number of U.S. and international patent
applications pending.

Although we employ a variety of intellectual property in the development and
manufacturing of our products, we believe that none of such intellectual
property is individually critical to our current operations.  However, taken as
a whole, we believe our intellectual property rights are significant and that
the loss of all or a substantial portion of such rights could have a material
adverse effect on our results of operations.  We cannot assure you that our
intellectual property protection measures will be sufficient to prevent
misappropriation of our technology. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. From time to time, third parties have or may assert
infringement claims against us or against our customers in connection with their
use of our products.  In addition, we may desire or be required to renew or to
obtain licenses from others in order to further develop and market commercially
viable products effectively.  We cannot assure you that any necessary licenses
will be available on reasonable terms.

EMPLOYEES

As of December 31, 2002, we had a total of 320 employees, of whom 277 are
engineers.  None of our employees is represented by a labor union.  However,
certain of our foreign employees are subject to collective bargaining agreements
mandated by local country law.  We do not anticipate that the results of future
negotiations under these collective bargaining agreements will have a material
adverse financial impact on our business.  We have not experienced any work
stoppages and we consider our relations with our employees to be good.  Our
future performance depends in significant part upon the continued service of our
key personnel, none of whom is bound by an employment agreement requiring
service for any definite period of time.  Our future success also depends on our
continued ability to attract, integrate, retain and motivate highly qualified
sales, technical and managerial personnel. Competition for such qualified
personnel is intense.

REVENUES BY GEOGRAPHIC AREA

The following is a summary of net revenues by major geographic area (in
thousands):

`Years ended December 31,
                                   -------------------------------
                                     2002       2001       2000
                                   ---------  ---------  ---------
     Japan....................... $  90,260    138,948  $  17,301
     North America...............    11,431     16,710     34,451
     Asia -- excluding Japan.....     2,660      3,108      4,587
     All other...................       621        741        135
                                   ---------  ---------  ---------
     Total....................... $ 104,972  $ 159,507  $  56,474
                                   =========  =========  =========`

ITEM 2.  PROPERTIES

We lease two buildings in Fremont, California that comprise our corporate
headquarters and include our administration, sales and marketing, research and
development, and operations departments. In addition, we have a lease for an
engineering design center in Huntsville, Alabama and a sales office in Boston,
Massachusetts. Internationally, we lease one engineering design center in France
and two in India, and we also lease sales offices in Japan, China, Taiwan and
South Korea.

These leases comprise an aggregate of 95,556 square feet and have terms
expiring on or prior to November 2009. We believe that our current facilities,
together with planned expansions, will be adequate for at least the next twelve
months and that additional leased space can be obtained on commercially
reasonable terms if needed.



ITEM 3.  LEGAL PROCEEDINGS

We are not currently a party to any material litigation. Discussion
regarding potential litigation can be found in Section 7, "Risk
Factors" of this Form 10-K.



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

(a) none
            (b) none
            (c) none
            (d) none

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS

Price Range of Common Stock

Our Common Stock has traded on the Nasdaq National Market under
the symbol "CTLM" since our initial public offering in May 2000. The following
table sets forth, for the periods indicated, the high and low closing bid prices
for the common stock on the Nasdaq National Market:



|Quarter                                                                                                                                                 | High                                                                              | Low                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------
|Year ended December 31, 2001:
                First quarter
                Second quarter
                Third quarter
                Fourth quarter | $ 49.19
                $ 37.15
                $ 26.68
                $ 10.21   | $ 16.63 
                $ 17.47
                $   5.30
                $   4.62  
|Year ended December 31, 2002:
                First quarter
                Second quarter
                Third quarter
                Fourth quarter | $ 13.97
                $ 14.38
                $   7.87
                $   3.33 | $   8.12 
                $   6.37
                $   1.20
                $   1.34

On January 24, 2003 there were approximately 200 record holders of the
Company's Common Stock, and the last reported sale price of the Company's common
stock was $3.29.  There were approximately 3,543 beneficial stockholders as of
January 24, 2003.

Dividend Policy

We have never declared or paid cash dividends on shares of our capital
stock.  We currently intend to retain all of our earnings, if any, for use in
our business and in acquisitions of other businesses, products or technologies
and do not anticipate paying any cash dividends in the foreseeable future.

Stockholder Rights Plan

In December 2002, the Company's Board of Directors approved the adoption
of a stockholder rights plan.  The plan is designed to assure that Centillium
stockholders receive fair value in the event of a future unsolicited business
combination or similar transaction involving Centillium in a manner or on terms
not approved by the Centillium Board of Directors.

Under the plan, Centillium issued a dividend of one right for each
outstanding share of common stock of the Company held by stockholders of record
as of the close of business on January 9, 2003.  Each right will initially
entitle stockholders to purchase a fractional share of the Company's preferred
stock for $25.00.  However, the rights will become exercisable only after the
occurrence of certain specified events, including the acquisition
of 15% or more of Centillium's outstanding common stock by an unsolicited
third party acquiror.  Upon the occurrence of any
such event, under the terms specified in the plan, each right entitles the
holder, other than the unsolicited third party acquiror, to purchase a certain
number of shares of common stock of the Company, at a fifty percent discount to
the
then-current market price.  The rights expire on January 9, 2013, under the
terms of the plan.  Centillium's Board of Directors may redeem outstanding
rights at a price of $0.001 per right, with certain exceptions.  The terms of
the rights and the plan may be amended by Centillium's Board of Directors at any
time without the approval of the rights holders as set forth in the plan.



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Annual Report on Form
10-K.

`Years Ended
                                    -----------------------------------------------------
                                      2002       2001       2000       1999       1998
                                    ---------  ---------  ---------  ---------  ---------
                                               (In thousands, except per share data)
CONSOLIDATED STATEMENT OF
 OPERATIONS DATA:
  Total net revenues.............. $ 104,972  $ 159,507  $  56,474  $   3,744  $     752
  Operating loss.................. $ (35,630) $ (21,847) $ (49,826) $ (20,781) $  (9,722)
  Net loss........................ $ (33,301) $ (19,693) $ (45,998) $ (19,749) $  (9,256)
  Net loss per share--basic and
   diluted........................ $   (0.96) $   (0.59) $   (2.00) $   (2.23) $   (1.15)
  Shares used to compute basic
   and diluted net loss per share.    34,641     33,495     22,950      8,842      8,056

CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents and
   short-term investments......... $ 102,002  $ 110,853  $  87,684  $  28,313  $   7,926
  Working capital................. $  83,795  $ 103,663  $  94,739  $  26,043  $   6,686
  Total assets.................... $ 122,439  $ 144,208  $ 127,943  $  35,587  $  12,010
  Long-term debt and capital
   lease obligations, less
   current portion................ $     525  $      --  $     221  $     549  $   1,235
  Total stockholders' equity...... $  93,823  $ 121,158  $ 106,870  $  30,055  $   9,259`



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Cautionary Statement

You should read the following discussion and analysis in
conjunction with the consolidated financial statements and related notes thereto
contained elsewhere in this report. The information in this report is not a
complete description of our business or the risks associated with an investment
in our common stock. We urge you to carefully review and consider the various
disclosures made by us in this report and in our other reports filed with the
SEC.

The section entitled "Risk Factors" set forth in this report, and
similar discussions in our other SEC filings, discuss some of the important risk
factors that may affect our business, results of operations and financial
condition. You should carefully consider those risks, in addition to the other
information in this report and in our other filings with the SEC, before
deciding to invest in our company or to maintain or increase your
investment.

Critical Accounting Policies

General.  Our discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires that we make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates  based on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

We believe that, of the significant accounting policies used in the
preparation of our consolidated financial statements (see Note 1 of Notes to
Consolidated Financial Statements), the following are critical accounting
policies, which may involve a higher degree of judgment and complexity.

Allowance for Doubtful Accounts.
  We record allowances for doubtful accounts for estimated
losses based upon specifically identified amounts that we believe to be
uncollectible.  In addition, we record additional allowances based on certain
percentages of our aged receivables, which are determined based on historical
experience and our assessment of the general financial condition of our customer
base.  If our actual collections experience changes, revisions to our allowances
may be required.  We have a limited number of customers with individually large
amounts due at any given balance sheet date.  Any unanticipated change in one of
those customer's credit worthiness or other matters affecting the collectibility
of amounts due from such customers could have a material affect on our results
of operations in the period in which such changes or events occur.

Sales Returns and Allowances.  We establish, upon shipment of our
products, a provision for estimated returns.  Under certain circumstances we
allow our customers to return products and a provision is made for such returns.
Our estimate of product returns is based on contractual terms or sales
agreements, historical experience and expectation of future conditions.
Additional provisions and allowances may be required, resulting in decreased net
revenue and gross profit, should we experience increased product returns.

Inventory Valuation.  We value our inventories at the lower of cost or
market using the first-in, first-out method.  We may record charges to write
down inventories due to excess, obsolete and slow-moving inventory based on an
analysis of the impact of changes in technology, the timing of these changes and
our estimate of forecasted demand for our products.  We typically use a six-month rolling
forecast based on anticipated product orders, product order
history, forecasts and backlog.  We assess our current or committed inventory
levels to these forecasts on a regular basis and any adverse changes to our
future product demand may result in increased writedowns, resulting in decreased
gross profit.

Impairment of Long-Lived Assets. We evaluate goodwill for impairment
annually and when indicators of impairment, such as reductions in demand or
significant economic slowdowns in the communications industry, are present. We
also evaluate long-lived assets used in operations when indicators of impairment
are present.  Reviews are performed to determine whether the carrying value of
assets is impaired and if the comparison indicates that there is impairment, the
impaired asset is written down to fair value.  Significant management judgment
is required in the forecast of future operating results that is used in the
preparation of the analysis. It is reasonably possible that the estimates of
anticipated future net revenue, the remaining estimated economic life of the
products and technologies, or both, could differ from those used to assess the
recoverability of these assets. In that event, additional impairment charges or
shortened useful lives of certain long-lived assets could be required.

Litigation and Contingencies.  From time to time, we receive various
inquiries or claims in connection with patent and other intellectual property
rights. In certain cases, we have accrued estimates of the amounts we expect to
pay upon resolution of such matters. Should we not be able to secure the terms
we expect, these estimates may change and may result in increased accruals,
resulting in decreased profit.

Overview

We provide system-level products that enable broadband
communications to the home and business enterprise. We serve the DSL and the
Voice over Packet markets.  Our current customers are broadband access equipment
vendors who manufacture DSL equipment for use in the phone companies'
communications infrastructure or in the customer premise for Internet or other
network access in a home or small business.  Our customers also include
equipment vendors who supply products that allow convergence of data and voice
networks.

Our revenues are derived from the sale of our DSL and Voice over Packet
network products, which include the CopperFlite CO, CopperFlite CPE, Optimizer,
Palladia, and Entropia families of products. To date, we have generated a
substantial portion of our revenues from a limited number of customers.  For the
year ended December 31, 2002, NEC and Sumitomo Electric Industries represented
45% and 41% of our revenues, respectively. For the year ended December 31, 2001,
Sumitomo Electric Industries and NEC represented 48% and 38% of our revenues,
respectively.  For the year ended December 31, 2000, Lucent Technologies,
Sumitomo Electric Industries, Copper Mountain Networks, NEC and Nortel Networks
represented 24%, 20%, 12%, 10% and 10%, of our revenues, respectively.

We have focused our sales and marketing efforts on Asian and North American
communications equipment manufacturers. During the years ended December 31,
2002, 2001, and 2000, 89%, 89% and 39% of our  revenues, respectively, were from
customers in Asia. Revenues from our customers in Asia increased in 2001
compared to 2000 primarily due to the broad market acceptance and use of our DSL
products in Japan.  Revenues from our customers in North America decreased in
2002 and 2001 primarily due to decreases in spending in the communications
equipment industry.  We currently sell through our direct sales force in China,
Japan, North America, the United Kingdom and South Korea. We also utilize sales
representatives in China, Hong Kong, Israel, Italy, Japan, South Korea, North
America and Taiwan.  International revenues are denominated solely in U.S.
dollars, which reduces our exposure to foreign currency exchange risks.

Revenues related to product sales are generally recognized when the products
are shipped to the customer, title has transferred and no significant
obligations remain.  Allowances are provided for estimated returns at the time
of shipment.  In circumstances where we have not shipped the final version of
our product, or when a customer has delayed its acceptance of our product, we
defer recognition of the revenue associated with the given product at the time
of shipment.  In addition, we defer technology development revenues when
customers make advance payments and specified milestones under the technology
development contract have not been met.

It usually takes more than one year for us to realize volume shipments of our
products after we first contact a customer. We first work with customers to
achieve a design win, which may take six months or longer.  Our customers then
complete the design, testing and evaluation of their systems and begin the
marketing process, a period which typically lasts an additional three to six
months or longer.  As a result, a significant period of time may elapse between
our sales efforts and our realization of revenues, if any, from volume purchases
of our products by our customers.  Our customers are not obligated by long-term
contracts to purchase our products and can generally cancel or reschedule orders
on short notice.

We outsource the fabrication, assembly and testing of our products.
Accordingly, a significant portion of our cost of revenues consists of payments
to our manufacturing partners.  Costs of revenues also encompass our internal
manufacturing and operations functions and a portion of our information systems
and facilities costs.

Research and development expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
prototype costs related to the fabrication of our silicon chips, depreciation
associated with software development tools, and amortization of deferred
compensation. We expense our research and development costs as they are
incurred.  Several components of our research and development effort require
significant expenditures, the timing of which can cause significant quarterly
variability in our expenses.  For example, we require a substantial number of
prototypes to build and test our complex products and therefore incur
significant prototype costs. Research and development is key to our future
success.  The near term impact of our restructuring plan is expected to result
in lower absolute dollar spending for research and development. Notwithstanding
the anticipated impact on spending, based on past experience, we anticipate that
research and development expense may increase in the long-term as we incur
additional costs related to the growth of our Company.

Sales and marketing expenses consist primarily of salaries, commissions, and
related expenses for personnel engaged in marketing, sales, customer service and
applications engineering support functions, costs associated with promotional
and other marketing expenses, as well as amortization of deferred compensation.
In addition, the complexity of our products and the applications support
necessary for successful interoperability and customer specific applications
requires highly trained customer service and support personnel.

General and administrative expenses consist primarily of salaries and related
expenses for executives, finance, accounting, facilities, information services,
human resources, recruiting expenses, legal and other professional fees, other
corporate expenses, and amortization of deferred compensation.  In addition,
general and administrative expenses include management's estimate of potential
bad debt expense.  General and administrative expenses may increase in the long-term as we
incur additional costs related to the growth of our business.

In connection with the grant of certain stock and other equity-based
compensation to our employees, technical advisors and directors, we have
recorded stock-based compensation expense of $3.8 million, $15.3 million and
$25.6 million for the years ended December 31, 2002, 2001 and 2000,
respectively.  Deferred compensation is recorded upon grant and represents the
difference between the grant price and the deemed fair value of our common stock
options granted during these periods.  Deferred compensation expense is being
amortized using the graded vesting method, in accordance with Statement of
Financial Accounting Standards No. 123 (SFAS 123) and FASB Interpretation No.
28, over the vesting period of each respective option, generally four years.
Under the graded vesting method, each option grant is separated into portions
based on its vesting terms, which results in acceleration of amortization
expense for the overall award.  The accelerated amortization pattern results in
expensing approximately 59% of the total award in year one, 25% in year two, 12%
in year three and 4% in year four.  Deferred compensation is presented as a
reduction of stockholders' equity.  As required by APB 25, we record an
adjustment to equity-based compensation when employees forfeit options for which
compensation expense had been recognized using the graded vesting method, but
which were unvested on the date their employment terminated.  See Notes 1 and 8
of notes to consolidated financial statements for more information about our
equity-based compensation programs.

We have not reported an operating profit for any year since our incorporation
and have experienced net losses of approximately $33.3 million, $19.7 million
and $46.0 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

Results of Operations

The following table sets forth, for the periods presented,
certain data from our consolidated statements of operations expressed as a
percentage of total revenues.

`Years ended December 31,
                                             ---------------------------------
                                               2002        2001        2000
                                             ---------  ----------  ----------
Total net revenues.........................       100 %       100 %       100 %
Cost of revenues...........................        57          50          57
                                             ---------  ----------  ----------
Gross profit...............................        43          50          43
                                             ---------  ----------  ----------
Operating expenses:
  Research and development.................        48          37          74
  Sales and marketing......................        14          11          27
  General and administrative...............         9           9          28
  Amortization of goodwill and other
   acquisition-related intangibles.........        --           2           2
  Impairment of goodwill...................         6          --          --
  In-process research and development......        --           5          --
                                             ---------  ----------  ----------
    Total operating expenses...............        77          64         131
                                             ---------  ----------  ----------
Operating loss.............................       (34)        (14)        (88)
Interest income, net.......................         2           2           7
Gain (loss) on long-term investment........        --          (1)         --
Benefit (provision) for income taxes.......        --          --          --
                                             ---------  ----------  ----------
Net loss...................................       (32)%       (13)%       (81)%
                                             =========  ==========  ==========`

Years ended December 31, 2002 and 2001

Total Net Revenues:  Total net revenues in 2002 were $105.0 million,
compared with $159.5 million in 2001, a decrease of 34%.  The decrease in
revenues is primarily due to a 40% decrease in the average selling prices of our
DSL products which was partially offset by a change in product mix and a 4%
increase in unit volume shipments.  Our major customers for the years ended
December 31, 2002 were NEC and Sumitomo who represented 45% and 41% of net
revenues, respectively.  For the year ended December 31, 2001, Sumitomo and NEC
represented 48% and 38% of net revenues, respectively.  Revenues from
international customers, who were primarily located in Japan, comprised  89% of
our net revenues in each of the years ended December 31, 2002 and 2001.

Cost of Revenues:  Cost of revenues, which reflects costs of product
revenues, was $59.5 million in 2002 and $79.8 million in 2001 resulting in gross
profit as a percentage of revenues of 43% and 50%, respectively.  The decrease
in gross profit and gross profit percentage was primarily due to lower average
selling prices per unit, partially offset by lower per unit product costs.  Our
gross margins in the future may be affected by competitive pricing strategies
and the future introduction of certain lower margin items.

Research and Development Expenses:  Research and development expenses
in 2002 were $50.8 million, compared to $59.0 million in 2001, a decrease of
14%. This decrease was primarily due to a $5.5 million decrease in the
amortization of deferred compensation and a decrease in software expense.

Sales and Marketing Expenses:  Sales and marketing expenses in 2002
were $14.7 million, compared to $18.0 million in 2001, a decrease of 18%.  The
decrease was due primarily to a $2.8 million decrease in the amortization of
deferred compensation, a decrease in customer evaluation board costs and a
decrease in sales commissions, partially offset by increases in salary and
severance costs.

General and Administrative Expenses:  General and administrative
expenses in 2002 were $9.7 million, compared to $13.9 million in 2001, a
decrease of 30%, which was primarily due to a decrease in the amortization of
deferred compensation of $2.7 million, a decrease in bad debt expense of
$800,000 and decreases in expensed software and legal and stock administration
fees, offset by increases in business insurance costs.

Amortization of Deferred Compensation and Non-Cash Stock Compensation:
Amortization of deferred compensation, which is allocated among the above
expense categories, was $3.8 million in 2002 compared to $15.3 million in 2001,
a decrease of $11.5 million.  The decrease is primarily related to the use of
the graded vesting method, which results in accelerated amortization of deferred
compensation expense in the earlier years of the awards' expected life, as well
as adjustments in 2002 related to forfeited options.  As required by APB 25, we
record an an adjustment to equity-based compensation related to employees who
forfeit options for which compensation expense had been recognized using the
graded vesting method, but which are unvested on the date their employment
terminated.

Amortization of Goodwill and Other Acquisition Related Intangibles:
Amortization of goodwill and other acquisition-related intangibles decreased to
$167,000 for the year ended December 31, 2002 from $3.3 million for the year
ended December 31, 2001.  This was due to the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets"(SFAS 142), which required us to discontinue the amortization
of goodwill effective January 1, 2002.  In addition, in accordance with SFAS 142
we reclassified assembled workforce to goodwill, which eliminated the
amortization of assembled workforce effective January 1, 2002.

Impairment of Goodwill:  During the fourth quarter of 2002, we
completed our annual goodwill impairment test. Based upon this test, we recorded
a charge of $5.8 million to write down the value of goodwill associated with our
purchase transactions. No comparable charges were incurred in 2001.

In-Process Research and Development Expense:  In 2002, we did not have
any acquired in-process research and development.  In the first quarter of
fiscal 2001, we wrote off $7.4 million of acquired in-process research and
development (IPR&D) related to our acquisition of vEngines, Inc.  The entire
IPR&D charge of $7.4 million related to one project.  This project related
to the development of high-density voice processing semiconductor products,
which bridge circuit switched voice and data networks. The write off was
necessary because the acquired technology had not yet reached technological
feasibility and there were no alternative future uses for the technology.

Gain (Loss) on Long-Term Investment: We monitor and evaluate the
realizable value of our long-term equity investment and if events and
circumstances indicate that a decline in value of this asset is other than
temporary, we write down the carrying value to its estimated fair value. In June
2001, in connection with the ongoing evaluation and review of our only long-term
equity investment, we recorded a non-cash charge of $990,000 to write down the
basis of this investment to zero as a result of this impairment. In January
2002, we sold this equity investment for $440,000 and reported this as a gain in
the first quarter of 2002.

Interest Income, Net:  Interest income, net was $1.8 million in 2002,
compared to $3.5 million in 2001, a decrease of 49%. This decrease was primarily
due to lower interest rates obtained on our cash, cash equivalents and short-term investment
portfolio, and slightly lower average invested balances.

Benefit (Provision)  for Income Taxes:  We recorded a tax benefit of
$95,000 for the year ended December 31, 2002, which represents a refund of U.S.
Federal Income Taxes, offset by foreign federal income taxes.  We recorded a
provision for income taxes of $400,000 for the year ended December 31, 2001,
which represents federal and state minimum taxes as well as foreign income
taxes.

As of December 31, 2002, we have $55 million and $30 million of net operating
loss carryforwards for federal and state purposes, respectively. We also have
federal and state research and development tax credit carryforwards of
approximately $2.9 million and $2.7 respectively.  The net operating losses and
federal credit carryforwards will expire at various dates beginning in 2006, if
not utilized.  The California net operating losses are not available to offset
income until 2004 due to recent state law change.

Utilization of net operating loss and credit carryforwards may be subject to
a substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
tax credit carryforwards before full utilization.

Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes", provides for the recognition of deferred tax assets if
realization of such assets is more likely than not.  Based upon the weight of
available evidence, which includes our historical operating performance and our
reported cumulative net losses to date, we have provided a full valuation
allowance against our deferred tax assets.

The valuation allowance at December 31, 2002 includes approximately $4.6
million related to stock option deductions, the benefit of which will be
recorded in paid-in capital when realized.

Years ended December 31, 2001 and 2000

Total Net Revenues:  Total net revenues in 2001 were $159.5 million,
compared with $56.5 million in 2000, an increase of 182%. The growth in revenue
was due to a higher volume of shipments, which increased 191%, offset by a 4%
decrease in our average selling price and changes in product mix.  In addition,
in the fourth quarter of 2001, we recorded $1.1 million in revenues from
cancellation fees.

Cost of Revenues:  Cost of revenues, which reflects costs of product
revenues, was $79.8 million in 2001 and $32.3 million in 2000 resulting in gross
profit as a percentage of revenues of 50% and 43%, respectively. The increase in
gross profit as a percentage of revenues was attributable to improved yields and
cost reductions at our suppliers, an increase in unit volume of shipments and a
decrease in excess and obsolete inventory writedowns as a percentage of sales.

Research and Development Expenses:  Research and development expenses in
2001 were $59.0 million, compared to $41.9 million in 2000, an increase of 41%.
The increase was due primarily to additions in engineering personnel, increased
usage of materials necessary to build prototypes, increases in depreciation
resulting from the additional purchases of laboratory equipment and software
development tools offset by a decrease in the amortization of deferred
compensation of $2.7 million.

Sales and Marketing Expenses:  Sales and marketing expenses in 2001
were $18.0 million, compared to $15.5 million in 2000, an increase of 16%.  The
increase was due primarily to the addition of personnel, an increase in
marketing activity such as customer visits and attendance at trade shows offset
by a decrease in the amortization of deferred compensation of $2.7 million.

General and Administrative Expenses:  General and administrative
expenses in 2001 were $13.9 million, compared to $15.9 million in 2000, a
decrease of 12%, which was primarily due to a decrease in the amortization of
deferred compensation of $4.2 million, offset by increases in payroll and
related costs, professional services, and business insurance expenditures.
During 2001 and 2000, we charged $102,000 and $782,000, respectively, to bad
debt expense based on our estimates of the collectibility of our accounts
receivable.

Amortization of Deferred Compensation and Non-Cash Stock Compensation:
Amortization of deferred compensation, which is allocated among the above
expense categories, was $15.3 million in 2001 compared to $25.6 million in 2000,
a decrease of $10.3 million.  The decrease was primarily attributable to the use
of the graded vesting method, which results in accelerated amortization of
deferred compensation expense in the earlier years of the awards' expected life.
In addition, expenses for 2001 and 2000 include charges of $70,000 and $2.3
million, respectively, related to grants to consultants.

In-Process Research and Development Expense:  In the first quarter of
fiscal 2001, we wrote off $7.4 million of acquired in-process research and
development (IPR&D) related to our acquisition of vEngines, Inc.  The entire
IPR&D charge of $7.4 million related to one project.  This project related
to the development of high-density voice processing semiconductor products,
which bridge circuit switched voice and data networks. The write off was
necessary because the acquired technology had not yet reached technological
feasibility and there were no alternative future uses for the technology.

At the time of the acquisition, the efforts required to develop the acquired
in-process technology principally related to the completion of all planning,
design, development and testing activities that were necessary to establish that
the product could be produced to meet its design specifications including
features, function and performance.  At the acquisition date, we expected
certain aspects of the acquired in-process technology to be developed into
commercially feasible products.

We estimated the fair value of the acquired in-process technology based upon
projected future revenues and cash flows related to the product that was
expected to result from the in-process project.  Specific consideration was
given to the percentage of completion of the in-process project, which was
estimated at 55%. The forecast cash flows were discounted back to a present
value using a discount rate of 25%.

At the acquisition date, we expected to incur additional costs of $2.0
million to complete the in-process project, which we expected to complete in
June 2001.  Subsequent to the acquisition date, we discontinued development
efforts on this specific project and intend to use certain aspects of this
technology in future products.

Gain (Loss) on Long-Term Investment:  We monitor and evaluate the
realizable value of our long-term  equity investment and if events and
circumstances indicate that the decline in value of this asset is other than
temporary, we write down the carrying value to estimated fair value.  In June
2001, in connection with the ongoing evaluation and review of our only long-term
equity investment, we recorded a non-cash charge of $990,000 to write down the
basis of this investment to zero as a result of this impairment.  In January
2002, we sold this non-current equity investment for $440,000 and reported this
as a gain in the first quarter of 2002.

Interest Income, Net:  Interest income was $3.5 million in 2001,
compared to $3.8 million in 2000, a decrease of 8%. This decrease was primarily
due to lower interest rates obtained on our cash, cash equivalents and short-
term investment portfolio, offset partially by an increase in average invested
balances.

Provision for Income Taxes:  We recorded a tax provision of $400,000
for the year ended December 31, 2001, which represents federal and state minimum
taxes as well as foreign income taxes. We recorded a provision for foreign
income taxes of $8,000 for the year ended December 31, 2000.

Liquidity and Capital Resources

Since our inception, we have financed our operations through a
combination of sales of equity securities and cash generated by operations.  At
December 31, 2002, we had $102.0 million in cash, cash equivalents and short-term investments
as compared to $110.9 million at December 31, 2001.

Cash and cash equivalents decreased to $93.5 million at December 31, 2002
from $93.7 million at December 31, 2001.  Operating activities during 2002 used
$7.1 million in cash.  This was primarily the result of the net loss of $33.3
million being offset by the non-cash impact of a $5.8 million charge for the
goodwill impairment, $3.8 million in amortization of deferred compensation and
$7.2 million of depreciation and amortization expense.   The net loss was
further offset by a decrease in inventories of $5.2 million, a decrease in
accounts receivable of $1.2 million, and an increase in accrued liabilities and
accrued payroll and related expenses of $3.2 million.

Net cash provided by investing activities was $4.9 million for the year ended
December 31, 2002, and was primarily related to net sales of short-term
investments of $8.6 million offset by purchases of property and equipment of
$4.1 million.

Cash generated from financing activities was $2.0 million for the year ended
December 31, 2002, and was related to the net proceeds from employee stock plans
of $2.2 million.

Our principal source of liquidity as of December 31, 2002 consisted of $102.0
million of cash and cash equivalents, and short-term investments. We believe our
current cash, cash equivalents and marketable securities will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least 12 months. The rate at which we will consume cash will be dependent on
the cash needs of future operations, which will, in turn, be directly affected
by the levels of demand for our products. Significant contractual obligations
and commercial commitments are shown in the table below (in thousands):

`Payments due by period
                                        -------------------------------------------------------
                                          Total     1 year    2-3 years  4-5 years  Over 5 years
                                        ---------  ---------  ---------  ---------  -----------
Operating leases-facilities........... $   4,600  $   2,253  $   2,207  $     100  $        40
Capital leases-software...............     2,115      1,587        528         --           --
Operating leases-software.............     7,673      4,151      3,522         --           --
Inventory purchase commitments........     6,053      6,053         --         --           --
                                        ---------  ---------  ---------  ---------  -----------
Total cash obligations................ $  20,441  $  14,044  $   6,257  $     100  $        40
                                        =========  =========  =========  =========  ===========`

We expect to devote capital resources to continue our research and
development efforts, to support our sales, marketing, and product development
programs, to establish additional facilities worldwide and to fund other general
corporate activities.  From time to time, we receive various inquiries or claims
in connection with intellectual property and other rights and may become party
to associated claims. In certain cases, management has accrued estimates of the
amounts it expects to pay upon resolution of such matters.  Depending on the
amount and timing of the resolutions of these claims, our future cash flows
could be materially adversely affected in a particular period.

If our existing resources and cash generated from operations are insufficient
to satisfy our liquidity requirements, we may seek to raise additional funds
through public or private debt or equity financings. The sale of equity or debt
securities could result in additional dilution to our stockholders, and we
cannot be certain that additional financing will be available in amounts or on
terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and sales and marketing efforts, which could harm our business,
financial condition and operating results.

Recent Accounting Pronouncements

As of January 1, 2002, we adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), which addresses the financial accounting and reporting
standards for goodwill and other intangible assets subsequent to their
acquisition.  This accounting standard requires that goodwill no longer be
amortized, and instead, be tested for impairment at least annually.  In
addition, within six months of adopting the new accounting standard, a
transitional impairment test must be completed and any impairments identified
must be reported as a cumulative effect of a change in accounting principle.  We
completed our transitional impairment test during the quarter ended June 30,
2002 and no impairment was recognized.  In the fourth quarter of 2002, we
completed our annual impairment review and, as a result of our assessment, we
recorded an expense of $5.8 million for the impairment of goodwill.  For further
discussion, see Notes to Consolidated Financial Statements.

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), which addresses financial accounting and reporting for
impairment or disposal of long-lived assets and was effective January 1, 2002.
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", and the accounting and
reporting provisions relating to the disposal of segments of a business under
Accounting Principles Board Opinion No. 30.  The adoption of SFAS 144 did not
have a material impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and supersedes Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity, including Certain Costs Incurred in a
Restructuring" (EITF 94-3).  SFAS146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.  In addition, SFAS
No. 146 establishes that fair value is the basis for initial measurement of the
liability.  SFAS 146 is effective for exit or disposal activities initiated
after December 31, 2002.  The effect of adoption of SFAS 146 is dependant on our
activities subsequent to adoption.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee.  FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002.  The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002.  We have adopted the disclosure requirements for our financial statements
included in this Form 10-K.  We are currently evaluating the effects of FIN 45,
however we do not expect that the adoption of FIN 45 will have a material effect
on our  financial position, results of operations, or cash flows.

In January 2003, the FASB issued EITF No. 00-21, "Revenue Arrangements
with Multiple Deliverables" (EITF 00-21).  EITF 00-21 provides guidance on
how to determine whether an arrangement involves multiple deliverables and
contains more than one unit of accounting.   EITF 00-21 will be effective for
arrangements entered into after June 15, 2003.  The Company is evaluating the
impact of its adoption on its consolidated results of operation and financial
position.

Recently Passed Legislation

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the "Act"), portions of which immediately impact Securities
and Exchange Commission registrants, public accounting firms, lawyers and
securities analysts.  This legislation is expected to have far reaching effects
on the standards of integrity for corporate management, board of directors, and
executive management. Additional disclosures, certifications and possibly
procedures will be required of the Company.  The Company does not expect any
material change in its practices as a result of the passage of this legislation;
however, the full scope of the Act has not yet been determined.  The Act calls
for additional regulations and requirements of publicly-traded companies, many
of which have yet to be issued.

Risk Factors

You should carefully consider the risks described below and all of the
information contained in this Form 10-K. If any of the following risks actually
occur, our business, financial condition and results of operations could be
harmed, the trading price of our common stock could decline, and you may lose
all or part of your investment in our common stock.

WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.

We have not reported an operating profit for any year since our
incorporation and have experienced net losses of approximately $33.3 million,
$19.7 million and $46.0 million for the years ended December 31, 2002, 2001, and
2000, respectively.

OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.

The market price of our common stock has been volatile and will
likely continue to fluctuate significantly in response to the following factors,
some of which are beyond our control:

- variations in our quarterly operating results;
- changes in financial estimates of our revenues and operating results by
securities analysts;
- changes in market valuations of integrated circuit companies;
- announcements by us, our competitors or others in related market segments of
significant contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments;
- loss or decrease in sales to a major customer or failure to complete
significant transactions;
- loss or reduction in manufacturing capacity from one or more of our key
suppliers;
- additions or departures of key personnel;
- future sales of our common stock;
- inconsistent or low levels of trading volume of our common stock;
- commencement of or involvement in litigation;
- announcements by us or our competitors of key design wins and product
introductions;
- a decrease in the average selling price of our products;
- ability to achieve cost reductions; and
- fluctuations in the timing and amount of customer requests for product
shipments.

A GENERAL ECONOMIC SLOWDOWN, AND A SLOWDOWN IN SPENDING IN THE
TELECOMMUNICATIONS INDUSTRY SPECIFICALLY, MAY NEGATIVELY AFFECT OUR BUSINESS AND
OPERATING RESULTS.

There have been announcements throughout the worldwide
telecommunications industry of current and planned reductions in component
inventory levels and equipment production volumes, and of delays in the build-out of new
infrastructure.  Any of these trends, if continued, could result in
lower than expected demand for our products, which could have a material adverse
effect on our revenues and results of operations generally, and could cause the
market price of our common stock to decline.

A SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN WOULD ADVERSELY AFFECT OUR
BUSINESS AND OPERATING RESULTS.

Sales to customers located in Japan accounted for 86% of net revenues
for the year ended December 31, 2002 and   87% of net revenues for the year
ended December 31, 2001.  Any slowdown in the demand for our customers'
equipment in Japan may cause our revenues to decline.  Our sales have been
historically denominated in U.S. dollars and major fluctuations in currency
exchange rates could materially affect our Japanese customers' demand, thereby
forcing them to reduce their orders, which could adversely affect our operating
results.

COMPETING DSL TECHNOLOGIES HAVE BEEN DEPLOYED IN JAPAN, WHICH MAY
ADVERSELY IMPACT THE DEMAND FOR OUR DSL PRODUCTS, MARKET SHARE AND OPERATING
RESULTS.

We have worked in partnership with local telecommunications companies
to develop the Annex C standard for the DSL market in Japan and have been able
to achieve significant market share for DSL equipment purchases, based on our
products, in Japan.  In July 2001, a certain service provider announced plans to
deploy lower priced competing DSL technologies in Japan and has subsequently
deployed these competing technologies.  If these competing technologies continue
to be successful, our market share in the DSL market in Japan may decline and
our business and operating results may be adversely affected.

WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM INTERNATIONAL
SOURCES, AND DIFFICULTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HARM
OUR BUSINESS.

A substantial portion of our revenues have been derived from
customers located outside of the United States.  In each of the years ended
December 31, 2002 and 2001, 89% of our net revenues were to customers located in
Asia.  We may be unable to successfully overcome the difficulties associated
with international operations.  These difficulties include:

- staffing and managing foreign operations;
- changes in regulatory requirements;
- licenses, tariffs and other trade barriers;
- political and economic instability;
- difficulties in protecting intellectual property rights in some foreign
countries;
- a limited ability to enforce agreements and other rights in some foreign
countries;
- obtaining governmental approvals for products; and
- complying with a wide variety of complex foreign laws and treaties.

Because sales of our products are denominated exclusively in United States
dollars, increases in the value of the United States dollar could increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, leading to a reduction in sales
and profitability in that country.

WE DEPEND ON A FEW CUSTOMERS AND IF WE LOSE ANY OF THEM OUR SALES AND
OPERATIONS WILL SUFFER.

We sell our DSL products primarily to network equipment manufacturers.  Our
top two customers for the year ended December 31, 2002 were NEC and Sumitomo,
accounting for 45% and 41% of our net revenues.  For the year ended December 31,
2001, Sumitomo and NEC accounted for 48% and 38% of our net revenues,
respectively.  We do not have contractual volume commitments with these
customers, but rather sell our products to them on an order-by-order basis.  We
expect to be dependent upon a relatively small number of large customers in
future periods, although the specific customers may vary from period to period.
If we are not successful in maintaining relationships with key customers and
winning new customers, our business and results of operations will suffer.

OUR CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR DELAY OUR SALES CYCLE,
WHICH WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our customers are in most cases larger than us and are able to exert
a high degree of influence over us.  These customers may have sufficient
bargaining power to demand low prices and other terms and conditions that may
materially adversely affect our business, financial condition and results of
operations.  In addition, prior to selling our products to such customers, we
must typically undergo lengthy product approval processes, often taking up to
one year.  Accordingly, we are continually submitting successive versions of our
products as well as new products to our customers for approval.  The length of
the approval process can vary and is affected by a number of factors, including
customer priorities, customer budgets and regulatory issues affecting
telecommunication service providers.  Delays in the product approval process
could materially adversely affect our business, financial condition and results
of operations.  While we have been successful in the past in obtaining product
approvals from our customers, such approvals and the ensuing sales of such
products may not continue to occur.  Delays can also be caused by late
deliveries by other vendors, changes in implementation priorities and slower
than anticipated growth in demand for the services that our products support.  A
delay in, or cancellation of, the sale of our products could adversely affect
our results from operations or cause them to significantly vary from quarter to
quarter.

SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF BROADBAND
ACCESS SERVICES, ESPECIALLY DSL. IF THE DEMAND FOR BROADBAND ACCESS SERVICE DOES
NOT INCREASE, WE MAY NOT BE ABLE TO GENERATE SUBSTANTIAL SALES.

Sales of our products depend on the increased use and widespread
adoption of broadband access services, and DSL services in particular, and the
ability of telecommunications service providers to market and sell broadband
access services.  Our business would be harmed, and our results of operations
and financial condition would be adversely affected, if the use of broadband
access services does not increase as anticipated.  Certain critical factors will
likely continue to affect the development of the broadband access service
market.  These factors include:

- inconsistent quality and reliability of service;
- lack of availability of cost-effective, high-speed service;
- lack of interoperability among multiple vendors' network equipment;
- congestion in service providers' networks;
- inadequate security; and
- slow deployment of new broadband services over DSL lines.

BECAUSE THE SALES CYCLE FOR OUR PRODUCTS TYPICALLY LASTS UP TO ONE
YEAR, AND MAY BE SUBJECT TO DELAYS, IT IS DIFFICULT TO FORECAST SALES FOR ANY
GIVEN PERIOD.

If we fail to realize forecasted sales for a particular period, our stock
price could decline significantly.  The sales cycle of our products is lengthy
and typically involves a detailed initial technical evaluation of our products
by our prospective customers, followed by the design, construction and testing
of prototypes incorporating our products.  Only after these steps are complete
will we receive a purchase order from a customer for volume shipments.  This
process generally takes from 9 to 12 months, and may last longer.  Given this
lengthy sales cycle, it is difficult to accurately predict when sales to a
particular customer will occur.  In addition, we may experience unexpected
delays in orders from customers, which may prevent us from realizing forecasted
sales for a particular period.  Our products are typically sold to equipment
manufacturers, who incorporate our products in the products that they in turn
sell to consumers or to network service providers.  As a result, any delay by
our customers, or by our customers' customers, in the manufacture or
distribution of their products will result in a delay in obtaining orders for
our products.

RAPID CHANGES IN THE MARKET FOR DSL CHIP SETS MAY RENDER OUR CHIP SETS
OBSOLETE OR UNMARKETABLE.

The market for chip sets for DSL products is characterized by:

- intense competition;
- rapid technological change;
- frequent new product introductions by our competitors;
- changes in customer demands; and
- evolving industry standards.

Any of these factors could make our products obsolete or unmarketable.  In
addition, the life cycles of some of our products may depend upon the life
cycles of the end products into which our products will be designed.  Products
with short life cycles require us to closely manage production and inventory
levels.  Unanticipated changes in the estimated total demand for our products
and/or the estimated life cycles of the end products into which our products are
designed may result in obsolete or excess inventories, which in turn may
adversely affect our operating results.  To compete, we must innovate and
introduce new products.  If we fail to successfully introduce new products on a
timely and cost-effective basis that meet customer requirements and are
compatible with evolving industry standards, then our business, financial
condition and results of operations will be seriously harmed.

BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE EFFECTIVELY WITH DSL
SERVICES, OUR PRODUCTS MAY NOT CAPTURE MARKET SHARE.

DSL services are competing with a variety of different broadband data
transmission technologies, including cable, satellite and other wireless
technologies.  If any technology that is competing with DSL technology is more
reliable, faster and less expensive or has other advantages over DSL technology,
then the demand for our DSL products may decrease.

OUR MARKETS ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS ARE
ESTABLISHED AND HAVE GREATER RESOURCES THAN WE HAVE.

The market for communications semiconductor and software solutions is
intensely competitive.  Given our stage of development, there is a substantial
risk that we will not have the financial resources, technical expertise or
marketing and support capabilities to compete successfully.  In addition, a
number of other semiconductor companies have announced their intent to enter the
market segments adjacent to or addressed by our products.  These competitors
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and marketing
resources than we have.  We may also face competition from customers' or
prospective customers' own internal development efforts.  Any of these
competitors may be able to introduce new technologies, respond more quickly to
changing customer requirements or devote greater resources to the development,
promotion and sale of their products than we can.

BECAUSE OUR PRODUCTS ARE COMPONENTS OF OTHER EQUIPMENT, IF BROADBAND
EQUIPMENT MANUFACTURERS DO NOT INCORPORATE OUR PRODUCTS IN THEIR EQUIPMENT, WE
MAY NOT BE ABLE TO GENERATE SALES OF OUR PRODUCTS IN VOLUME QUANTITIES.

Our products are not sold directly to the end-user; they are components of
other products.  As a result, we rely upon equipment manufacturers to design our
products into their equipment.  We further rely on the manufacturing and
deployment of the equipment to be successful.  If equipment that incorporates
our products is not accepted in the marketplace, we may not achieve sales of our
products in volume quantities, which would have a negative impact on our results
of operations.

BECAUSE MANUFACTURERS OF COMMUNICATIONS EQUIPMENT MAY BE RELUCTANT TO
CHANGE THEIR SOURCES OF COMPONENTS, IF WE DO NOT ACHIEVE DESIGN WINS WITH SUCH
MANUFACTURERS, WE MAY BE UNABLE TO SECURE SALES FROM THESE CUSTOMERS IN THE
FUTURE.

Once a manufacturer of communications equipment has designed a supplier's
semiconductor into its products, the manufacturer may be reluctant to change its
source of semiconductors due to the significant costs associated with qualifying
a new supplier.  Accordingly, our failure to achieve design wins with equipment
manufacturers, who have chosen a competitor's semiconductor could create
barriers to future sales opportunities with these manufacturers.

THIRD-PARTY CLAIMS REGARDING INTELLECTUAL PROPERTY MATTERS COULD CAUSE
US TO STOP SELLING OUR PRODUCTS, PAY MONETARY DAMAGES OR OBTAIN LICENSES ON
ADVERSE TERMS.

There is a significant risk that third parties, including current and
potential competitors, will claim that our products, or our customers' products,
infringe on their intellectual property rights.  The owners of these
intellectual property rights may bring infringement claims against us or our
customers.  Any such litigation, whether or not determined in our favor or
settled by us, would be costly and divert the attention of our management and
technical personnel. Inquiries with respect to the coverage of our intellectual
property could develop into litigation.  In the event of an adverse ruling for
an intellectual property infringement claim, we could be required to obtain a
license or pay substantial damages or have the sale of our products stopped by
an injunction.  Such a license may not be available on reasonable terms, or at
all.  In addition, if a customer of our products cannot acquire a required
license on commercially reasonable terms, that customer may choose not to use
our products.  We have obligations to indemnify our customers under some
circumstances for infringement of third-party intellectual property rights.  If
any intellectual property claims from third parties against one of our customers
whom we have indemnified is held to be valid, the costs to us could be
substantial and our business could be harmed.

We have received correspondence from certain parties, including Texas
Instruments, Alcatel and Ricoh, requesting us to discuss the potential need for
non-exclusive licenses permitting us to utilize technology covered by various
patents held by these parties.  We could be subject to claims similar to the
Texas Instruments, Alcatel and Ricoh claims in the future.  Depending on the
amount and timing of any unfavorable resolutions of these claims, our future
results of operations or cash flows could be materially adversely affected.

IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED,
AND THE SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.

Our products are complex and have contained errors, defects and bugs when
introduced and revised.  If we deliver products with errors, defects or bugs or
products that have reliability, quality or compatibility problems, our
credibility and the market acceptance and sales of our products could be harmed,
which could adversely affect our ability to retain existing customers or attract
new customers.  Further, if our products contain errors, defects and bugs, then
we may be required to expend significant capital and resources to alleviate such
problems and may have our sales to customers interrupted or delayed.  If any of
these problems are not found until we have commenced commercial production, we
may be required to incur additional development costs and product repair or
replacement costs.  Defects could also lead to potential liability as a result
of product liability lawsuits against us or against our customers.  We have
agreed to indemnify our customers in some circumstances against liability from
defects in our products.  A successful product liability claim could seriously
harm our business, financial condition and results of operations, and may divert
our technical and other resources from other development efforts.

WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS OF OUR
PRODUCTS.

We obtain certain parts, components and packaging used in the delivery of our
products from sole sources of supply.  For example, historically, we have
obtained digital semiconductor wafers from Taiwan Semiconductor Manufacturing
Co., Ltd and we have obtained analog silicon wafers from United Microelectronics
Corporation.  If we fail to obtain components in sufficient quantities when
required or if we cannot adequately control manufacturing process quality,
product yields or production costs, our business could be harmed.  Developing
and maintaining these strategic relationships with our vendors is critical for
us to be successful.

Any of our sole source suppliers may:

- enter into exclusive arrangements with our competitors;
- stop selling their products or components to us at commercially reasonable
prices;
- refuse to sell their products or components to us at any price; or
- be subject to production disruptions from causes such as earthquakes.

WE MAY EXPERIENCE DIFFICULTIES IN TRANSITIONING TO SMALLER GEOMETRY
PROCESS TECHNOLOGIES OR IN ACHIEVING HIGHER LEVELS OF DESIGN INTEGRATION AND
THAT MAY RESULT IN LOWER THAN EXPECTED MANUFACTURING YIELDS, DELAYS IN PRODUCT
DELIVERIES AND INCREASED EXPENSES.

In order to remain competitive, we expect to continue to transition
our products to increasingly smaller line width geometries.  This transition
will require us to modify the manufacturing processes for our products and
redesign some products.  We periodically evaluate the benefits, on a product-by-product
basis, of migrating to smaller geometry process technologies to reduce
our costs, and we have designed some of our products to be manufactured in .35
micron, .25 micron, .18 micron and .13 micron geometry processes.  In the past,
we have experienced some difficulties in shifting to smaller geometry process
technologies or new manufacturing processes, which resulted in reduced
manufacturing yields, delays in product deliveries and increased expenses.  We
may face similar difficulties, delays and expenses as we continue to transition
our products to smaller geometry processes.  We are dependent on our
relationships with our foundries to transition to smaller geometry processes
successfully.  We cannot assure you that our foundries will be able to
effectively manage the transition or that we will be able to maintain our
foundry relationships.  If we experience significant delays in this transition
or fail to efficiently implement this transition, our business, financial
condition and results of operations could be materially and adversely affected.
As smaller geometry processes become more prevalent, we expect to continue to
integrate greater levels of functionality, as well as customer and third party
intellectual property, into our products.  However, we may not be able to
achieve higher levels of design integration or deliver new integrated products
on a timely basis, or at all.

FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY
INCREASE COMPETITION THAT COULD HARM OUR BUSINESS.

The markets in which we compete are characterized by increasing
consolidation both within the telecommunications equipment sector and by
companies combining or acquiring data communications assets and assets for
delivering voice-related services.  We cannot predict with certainty how
industry consolidation will affect our competitors.  We may not be able to
compete successfully in an increasingly consolidated industry.  Increased
competition and consolidation in our industry may require that we reduce the
prices of our products or result in a loss of market share, which could
materially adversely affect our business, financial condition and results of
operations.  Additionally, because we are now, and may in the future be,
dependent on certain strategic relationships with third parties in our industry,
any additional consolidation involving these parties could reduce the demand for
our products and otherwise harm our business prospects.

WE MAY MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE NUMEROUS
RISKS.

Our business is highly competitive and, as such, our growth is dependent upon
market growth, our ability to enhance our existing products and our ability to
introduce new products on a timely basis.  One of the ways we have addressed and
may continue to address the need to develop new products is through acquisitions
of other companies. Acquisitions involve numerous risks, including the
following:

- difficulties in integration of the operations, technologies and products of
the acquired companies;
- the risk of diverting management's attention from normal daily operations of
the business;
- potential difficulties in completing projects associated with purchased in-process
research and development;
- risks of entering markets in which we have no or limited direct prior
experience and where competitors in such markets have stronger market positions;
and
- the potential loss of key employees of the acquired company.

Mergers and acquisitions of high-technology companies are inherently risky,
and no assurance can be given that our previous or future acquisitions will be
successful and will not materially adversely affect our business, operating
results or financial condition.

We must also maintain our ability to manage such growth effectively.  Failure
to manage growth effectively and successfully integrate acquisitions could harm
our business and operating results.

OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.

We depend upon the continuing contributions of our key management, sales,
customer support and product development personnel. The loss of such personnel
could seriously harm us.  In addition, we have not obtained key-man life
insurance on any of our executive officers or key employees.

OUR FUTURE SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO PROTECT OUR
PROPRIETARY RIGHTS AND THE TECHNOLOGIES USED IN OUR PRINCIPAL PRODUCTS, AND IF
WE DO NOT ENFORCE AND PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL BE
HARMED.

We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality agreements and other contractual provisions to protect
our proprietary rights.  However, these measures afford only limited protection.
Our failure to adequately protect our proprietary rights may adversely affect
us.  Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary.

The laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in these countries.  There is
a risk that our efforts to protect proprietary rights may not be adequate.  For
example, our competitors may independently develop similar technology, duplicate
our products or design around our patents or our other intellectual property
rights.  If we fail to adequately protect our intellectual property or if the
laws of a foreign jurisdiction do not effectively permit such protection, it
would be easier for our competitors to sell competing products.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MIGHT NOT BE AVAILABLE OR
WHICH, IF AVAILABLE, COULD BE ON TERMS ADVERSE TO OUR COMMON STOCKHOLDERS.

We expect that our current cash and cash equivalents and short-term
investment balances will be adequate to meet our working capital and capital
expenditure needs for at least twelve months.  After that, we may need to raise
additional funds, and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all.  We may also require
additional capital for the acquisition of businesses, products and technologies
that are complementary to ours.  Further, if we issue equity securities, the
ownership percentage of our stockholders would be reduced, and the new equity
securities may have rights, preferences or privileges senior to those existing
holders of our common stock.  If we cannot raise needed funds on acceptable
terms, we may not be able to develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business, operating results and
financial condition.



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve
principal while concurrently maximizing the income we receive from our
investments without significantly increasing risk.  Some of the securities that
we may invest in may be subject to market risk.  This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate.  For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the current value of the principal amount of our investment will decline.
To minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities and certificates of deposit.  In general, money market funds are not
subject to market risk because the interest paid on such funds fluctuates with
the prevailing interest rate.  As of December 31, 2002, all of our investments
were in money market funds, high quality commercial paper, government and non-government
debt securities and auction rate preferred securities.  A
hypothetical 100 basis point increase in interest rates would result in an
approximate $51,000 decrease in the fair value of our available-for-sale
securities as of December 31, 2002.  See Note 5 of Notes to the Consolidated
Financial Statements.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CENTILLIUM COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|Consolidated Financial Statements                           | Page
|----------------------------------------------------------- | ----
|Report of Ernst & Young LLP, Independent
Auditors           | **  
|Consolidated Statements of Operations                       | **  
|Consolidated Balance Sheets                                 | **  
|Consolidated Statements of Stockholders' Equity             | **  
|Consolidated Statements of Cash Flows                       | **  
|Notes to Consolidated Financial Statements                  | **  
|Financial Statement Schedule                                |     
|Schedule II--Consolidated Valuation and Qualifying Accounts | **  

---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and
Stockholders
Centillium Communications, Inc.

We have audited the accompanying consolidated balance sheets of Centillium
Communications, Inc. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Centillium Communications, Inc. at December 31, 2002 and 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 4 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."

/s/ Ernst & Young LLP

San Jose, California
January 24, 2003

---

CENTILLIUM COMMUNICATIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                (In thousands, except per share data)

`Years ended December 31,
                                                   ---------------------------------
                                                     2002        2001        2000
                                                   ---------  ----------  ----------

Net product revenues............................. $ 104,784  $  159,207  $   56,324
Technology development revenues..................       188         300         150
                                                   ---------  ----------  ----------
    Total net revenues...........................   104,972     159,507      56,474
Cost of revenues.................................    59,500      79,781      32,251
                                                   ---------  ----------  ----------
Gross profit.....................................    45,472      79,726      24,223
                                                   ---------  ----------  ----------
Operating expenses:
  Research and development.......................    50,754      59,034      41,879
  Sales and marketing............................    14,686      17,953      15,497
  General and administrative.....................     9,660      13,879      15,846
  Amortization of goodwill and other
   acquisition-related intangibles...............       167       3,285         827
  Impairment of goodwill.........................     5,835          --          --
  In-process research and development............        --       7,422          --
                                                   ---------  ----------  ----------
    Total operating expenses.....................    81,102     101,573      74,049
                                                   ---------  ----------  ----------
Operating loss...................................   (35,630)    (21,847)    (49,826)
Interest income, net.............................     1,794       3,544       3,836
Gain (loss) on long-term investment..............       440        (990)         --
                                                   ---------  ----------  ----------
Loss before benefit (provision) for income taxes.   (33,396)    (19,293)    (45,990)
Benefit (provision) for income taxes.............        95        (400)         (8)
                                                   ---------  ----------  ----------
Net loss......................................... $ (33,301) $  (19,693) $  (45,998)
                                                   =========  ==========  ==========

Basic and diluted net loss per share............. $   (0.96) $    (0.59) $    (2.00)
                                                   =========  ==========  ==========
Shares used to compute basic and
 diluted net loss per share......................    34,641      33,495      22,950
                                                   =========  ==========  ==========`

See accompanying notes.

---

CENTILLIUM COMMUNICATIONS, INC.
                          CONSOLIDATED BALANCE SHEETS

                (In thousands, except share and per share data)

`December 31,
                                                            --------------------
                                                              2002       2001
                                                            ---------  ---------
                          ASSETS
Current assets:
  Cash and cash equivalents............................... $  93,513  $  93,724
  Short-term investments..................................     8,489     17,129
  Accounts receivable--net of allowance for doubtful
   accounts of $160 at December 31, 2002 and $1,026
   at December 31, 2001...................................     2,864      4,042
  Inventories.............................................     4,130      9,356
  Other current assets....................................     2,622      2,147
                                                            ---------  ---------
    Total current assets..................................   111,618    126,398
Property and equipment, net...............................    10,389     11,483
Goodwill..................................................        --      5,190
Other intangible assets, net..............................        83        895
Other assets..............................................       349        242
                                                            ---------  ---------
     Total assets......................................... $ 122,439  $ 144,208
                                                            =========  =========
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................ $   8,485  $   7,854
  Accrued payroll & related expenses......................     3,991      3,319
  Accrued liabilities.....................................    13,627     11,221
  Accrued taxes...........................................       192         77
  Long-term debt - current portion........................        --        264
  Capital leases - current portion........................     1,528         --
                                                            ---------  ---------
    Total current liabilities.............................    27,823     22,735
Capital leases - long-term portion........................       525         --
Other liabilities.........................................       268        315

Commitments and contingencies

Stockholders' equity:
  Preferred stock; $0.001 par value:
    Authorized shares:  10,000,000; Issued and outstanding
     shares: none at December 31, 2002 and 2001...........        --         --
  Common stock;  $0.001 par value:
    Authorized shares:  100,000,000; Issued and
     outstanding shares:  35,245,171 at December 31, 2002,
     34,576,062 at December 31, 2001......................        35         35
  Additional paid in capital..............................   228,847    229,224
  Accumulated other comprehensive income..................         8         66
  Deferred compensation...................................    (2,333)    (8,734)
  Accumulated deficit.....................................  (132,734)   (99,433)
                                                            ---------  ---------
     Total stockholders' equity...........................    93,823    121,158
                                                            ---------  ---------
     Total liabilities and stockholders' equity........... $ 122,439  $ 144,208
                                                            =========  =========`

See accompanying notes.

---

CENTILLIUM COMMUNICATIONS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                            (In thousands, except share data)

`Accum-
                                                                                                                         ulated
                                        Convertible                                                 Stock-                Other     Total
                                      Preferred Stock      Common Stock     Additional  Deferred   holders'    Accum-    Compre-   Stock-
                                    ------------------- ------------------   Paid-In     Compen-     Notes     ulated    hensive  holders'
                                       Shares     Amount  Shares     Amount  Capital     sation    Receivable  Deficit   Income    Equity
                                    ------------  ----- -----------  -----  ----------  ---------  ---------  ---------  -------  ---------
BALANCE AT DECEMBER 31, 1999.......  15,450,236  $  15  10,318,841  $  10  $   80,270  $ (16,043) $    (430) $ (33,742) $   (25) $  30,055
 Noncash issuance of common
  stock for services...............          --     --      53,900     --       2,333         --         --         --       --      2,333
 Exercise of options to
  purchase common stock for
  cash.............................          --     --   1,939,010      2       2,551         --         --         --       --      2,553
 Issuance of shares under
  employee stock purchase plan.....          --     --      52,196     --         801         --         --         --       --        801
 Deferred compensation related
  to stock option grants...........          --     --          --     --      31,088    (31,088)        --         --       --         --
 Stock-based compensation expense,           --     --          --     --          --     25,610         --         --       --     25,610
 Conversion of preferred stock
  to common stock.................. (15,450,236)   (15) 15,450,236     15          --         --         --         --       --         --
 Issuance of common stock for
  cash, net of issuance costs
  of $7,182........................          --     --   5,200,000      6      91,477         --         --         --       --     91,483
 Exercise of warrants to
  purchase common stock............          --     --      15,931     --          --         --         --         --       --         --
 Net loss..........................          --     --          --     --          --         --         --    (45,998)      --    (45,998)
 Unrealized gain on available-
  for-sale investments.............          --     --          --     --          --         --         --         --       33         33
                                                                                                                                  ---------
 Total comprehensive net loss......          --     --          --     --          --         --         --         --       --    (45,965)
                                    ------------  ----- -----------  -----  ----------  ---------  ---------  ---------  -------  ---------
BALANCE AT DECEMBER 31, 2000.......          --     --  33,030,114     33     208,520    (21,521)      (430)   (79,740)       8    106,870
 Noncash issuance of common
  stock for services...............          --     --      10,000     --          70         --         --         --       --         70
 Exercise of options to
  purchase common stock for  cash..          --     --     557,412      1       2,394         --         --         --       --      2,395
 Cash proceeds from payments on
  stockholder note receivable......          --     --          --     --          --         --        430         --       --        430
 Issuance of shares under
  employee stock purchase plan.....          --     --     164,621     --       1,883         --         --         --       --      1,883
 Deferred compensation related
  to stock option grants, net
  of terminations..................          --     --          --     --      (1,958)     1,958         --         --       --         --
 Stock-based compensation expense,           --     --          --     --          --     15,346         --         --       --     15,346
 Common stock issued in
  connection with acquisition......          --     --     813,915      1      18,315         --         --         --       --     18,316
 Acquisition related deferred
  compensation.....................          --     --          --     --          --     (4,517)        --         --       --     (4,517)
 Net loss..........................          --     --          --     --          --         --         --    (19,693)      --    (19,693)
 Unrealized gain on available-
  for-sale investments.............          --     --          --     --          --         --         --         --       58         58
                                                                                                                                  ---------
 Total comprehensive net loss......          --     --          --     --          --         --         --         --       --    (19,635)
                                    ------------  ----- -----------  -----  ----------  ---------  ---------  ---------  -------  ---------
BALANCE AT DECEMBER 31, 2001.......          --     --  34,576,062     35     229,224     (8,734)        --    (99,433)      66    121,158
 Noncash issuance of common
  stock for services and other.....          --     --       2,000     --          10         --         --         --       --         10
 Exercise of options to
  purchase common stock for
  cash, net of repurchases.........          --     --     208,610     --         498         --         --         --       --        498
 Common stock repurchased..........          --     --      (1,565)    --          --         --         --         --       --         --
 Issuance of shares under
  employee stock purchase plan.....          --     --     460,064     --       1,719         --         --         --       --      1,719
 Reversal of deferred compensation.          --     --          --     --      (2,604)     2,604         --         --       --         --
 Stock-based compensation expense,           --     --          --     --          --      3,797         --         --       --      3,797
 Net loss..........................          --     --          --     --          --         --         --    (33,301)      --    (33,301)
 Unrealized loss on available-
  for-sale investments.............          --     --          --     --          --         --         --         --      (58)       (58)
                                                                                                                                  ---------
 Total comprehensive net loss......          --     --          --     --          --         --         --         --       --    (33,359)
                                    ------------  ----- -----------  -----  ----------  ---------  ---------  ---------  -------  ---------
BALANCE AT DECEMBER 31, 2002.......          --  $  --  35,245,171  $  35  $  228,847  $  (2,333) $      --  $(132,734) $     8  $  93,823
                                    ============  ===== ===========  =====  ==========  =========  =========  =========  =======  =========`

See accompanying notes.

---

CENTILLIUM COMMUNICATIONS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                               (In thousands)

`Years ended December 31,
                                                                               -------------------------------
                                                                                 2002       2001       2000
                                                                               ---------  ---------  ---------
OPERATING ACTIVITIES
Net loss..................................................................... $ (33,301) $ (19,693) $ (45,998)
Adjustments to reconcile net loss to net cash provided by
 (used in) operating activities:
 Depreciation and leasehold amortization expense.............................     7,223      4,245      3,770
 Net loss on retirements of property and equipment...........................        36        472         --
 Stock-based compensation expense............................................     3,797     15,346     25,610
 Issuance of common stock for services and other.............................        10         70      2,333
 Amortization of goodwill and other acquisition related intangibles..........       167       3285        827
 Impairment of goodwill......................................................     5,835         --         --
 Amortization of warrants issued in conjunction with financings..............        --          4          6
 In-process research and development.........................................        --      7,422         --
 Loss (gain) on non-current investment.......................................      (440)       990         --
   Changes in operating assets and liabilities:
    Accounts receivable......................................................     1,178     12,841    (15,968)
    Inventory................................................................     5,226       (173)    (7,972)
    Other current assets.....................................................      (475)    (1,045)    (1,037)
    Other assets.............................................................      (107)      (146)         6
    Working capital line of credit...........................................        --         --     (2,044)
    Accounts payable.........................................................       631     (5,280)    12,323
    Accrued payroll and related expenses.....................................       672        647      1,678
    Accrued liabilities......................................................     2,521      6,708      4,038
    Other liabilities........................................................       (47)        95        217
                                                                               ---------  ---------  ---------
     Net cash provided by (used in) operating activities.....................    (7,074)    25,788    (22,211)
                                                                               ---------  ---------  ---------
INVESTING ACTIVITIES
 Purchases of short-term investments.........................................   (16,967)   (28,642)   (29,045)
 Sales and maturities of short-term investments..............................    25,549     28,015     37,745
 Purchases of property and equipment.........................................    (4,112)    (7,252)    (7,594)
 Acquisitions, net of cash acquired..........................................        --        258         --
 Purchases of intangibles and other long-term assets.........................        --         --     (5,017)
 Proceeds from sale of non-current investment................................       440         --         --
                                                                               ---------  ---------  ---------
     Net cash provided by (used in) investing activities.....................     4,910     (7,621)    (3,911)
                                                                               ---------  ---------  ---------
FINANCING ACTIVITIES
 Principal payments on capital lease.........................................        --         --       (164)
 Principal payments on long-term debt obligations............................      (264)      (391)      (513)
 Proceeds from issuance of common stock, net of repurchases..................     2,217      4,278     94,837
 Proceeds from stockholder note receivable...................................        --        430         --
                                                                               ---------  ---------  ---------
     Net cash provided by financing activities...............................     1,953      4,317     94,160
                                                                               ---------  ---------  ---------

 Net increase (decrease) in cash and cash equivalents........................      (211)    22,484     68,038
Cash and cash equivalents at beginning of period.............................    93,724     71,240      3,202
                                                                               ---------  ---------  ---------
Cash and cash equivalents at end of period................................... $  93,513  $  93,724  $  71,240
                                                                               =========  =========  =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid for interest..................................................... $     203  $      76  $     327
  Cash paid (received) for income taxes...................................... $    (210) $     331  $      --

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
  Property and equipment purchases through capital leases.................... $   2,053  $      --  $      --
  Deferred compensation related to stock option grants, net of terminations.. $  (2,604) $   2,559  $  31,088`

See accompanying notes.

---

CENTILLIUM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  Summary of Significant Accounting Policies

Centillium Communications, Inc.: Centillium ("the
Company") was incorporated in California on February 21, 1997 for the
purpose of developing and marketing semiconductor devices for equipment
manufacturers serving the broadband communications markets.  The Company
develops products designed for the Digital Subscriber Line (DSL) and Voice over
Packet (VoP) markets.

Our revenues currently are derived from the sale of our DSL and VoP products,
which include the CopperFlite CO, CopperFlite CPE, Optimizer, Palladia, and
Entropia families of products.

Principles of Consolidation:  The consolidated financial statements
include all the accounts of the Company and those of its wholly owned
subsidiaries.  All intercompany accounts and transactions have been
eliminated.

Use of Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.  Actual results
could differ from those estimates.

Revenue Recognition:  Revenues related to product sales are generally
recognized when the products are shipped to the customer, title has transferred
and no significant obligations remain.  In circumstances where the Company has
not shipped the final production version of a product, or when the customer has
delayed its acceptance of our product, the Company defers recognition of the
revenue until acceptance.  Under certain circumstances the Company allows its
customers to return product.  A provision is made for estimated product returns.

The Company has also performed research and product development work under
best efforts technology development agreements.  Revenues under technology
development agreements are recognized when applicable contractual milestones
have been met, including deliverables, and in any case, do not exceed the amount
that would be recognized using the percentage-of-completion method.  The costs
associated with our technology development revenues are closely related to the
costs of our ongoing research and development activities.  Generally, the
incremental costs of providing any deliverables under our technology development
arrangements are not easily distinguishable from the costs of our ongoing
activities, are not significant and have been included in research and
development in our statements of operations.

Warranty:  Our products are warranted to be free from defect for a
period of one year.  The Company estimates the costs that may be incurred under
its warranty and records a liability for the costs at the time product revenue
is recognized.  The Company periodically assesses the adequacy of the warranty
liability and adjusts such amounts as necessary.

Concentrations of Credit Risk: Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
principally of cash, cash equivalents, short-term investments and accounts
receivable.  The Company places its cash, cash-equivalents and short-term
investments in several high credit-quality financial institutions.  The Company
is exposed to credit risk in the event of default by these institutions to the
extent of the amount recorded on the balance sheet.  Accounts receivable are
billed in U.S. currency and are derived from revenues earned from customers
primarily located in Japan and the United States.  The Company performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral.  The Company maintains reserves for potential credit losses.
Management judgment is used to estimate the required reserves.  Actual results
could differ from those estimates.

Customer Concentrations:  The following customers accounted for 10% or
more of total accounts receivable:

`December 31,
                                                ---------------------
                                                  2002       2001
                                                ---------  ---------
   NEC........................................        51 %       20 %
   Sumitomo Electric Industries...............        35 %       61 %`

We have a limited number of customers with individually large amounts due at
any given balance sheet date.  Any unanticipated change in one of those
customer's credit worthiness or other matters affecting the collectibility of
amounts due from such customers could have a material affect on our results of
operations in the period in which such changes or events occur.

Supplier Concentrations:  The Company depends on a single or limited
number of outside contractors to fabricate, assemble and test our semiconductor
devices.  The Company generally sources its production through standard purchase
orders and has wafer supply and assembly and test agreements with outside
contractors.  While the Company seeks to maintain a sufficient level of supply
and endeavors to maintain ongoing communications with suppliers to guard against
interruptions or cessation of supply, business and results of operations could
be adversely affected by a stoppage or delay of supply, substitution of more
expensive or less reliable products or services, receipt of defective
semiconductor devices, an increase in the price of products, or inability to
obtain reduced pricing from suppliers in response to competitive pressures.

Cash Equivalents and Short-term Investments:  The Company invests its
excess cash in money market accounts and debt instruments and considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.  Cash equivalents are recorded at cost,
which approximates fair value.

The Company's investments in marketable equity securities and all debt
securities are classified as available-for-sale at the time of purchase and the
Company periodically reevaluates such designation. At December 31, 2002 and
2001, all of the Company's investments in debt securities were classified as
available-for-sale, with changes in market value recorded as unrealized gains
and losses in accumulated other comprehensive income until their disposition.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in interest income and
were insignificant for all periods presented.  The cost of securities sold is
based on the specific-identification method.

Inventories:  Inventories are stated at the lower of cost (first in,
first out) or market.

Property and Equipment: Property and equipment are carried at cost
less accumulated depreciation and amortization.  Property and equipment are
depreciated for financial reporting purposes using the straight-line method over
the assets' estimated useful lives of three years.  Leasehold improvements are
amortized using the straight-line method over the shorter of the useful lives of
the assets or the terms of the leases.

Impairment of Long-lived Assets:  The Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.  The Company measures
the recoverability of long-lived assets by comparison of the carrying amount to
undiscounted future net cash flows.  If the Company considers such assets to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the long-lived assets exceeds their fair value, as determined
by discounted cash flows.

Goodwill: As of January 1, 2002, the Company adopted Statement of Financial Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which
addresses the financial accounting and reporting standards for goodwill and
other intangible assets subsequent to their acquisition.  This accounting
standard requires that goodwill no longer be amortized, and instead, be tested
for impairment at least annually.  In addition, within six months of adopting
the new accounting standard, a transitional impariment test must be completed
and any impairments identified must be reported as a cumulative effect of a
change in accounting principle.  See Note 4.

Software Development Costs: Costs incurred in the research and
development of the software embedded in our products are expensed as incurred
until technological feasibility has been established.  The Company believes its
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility, which is evidenced by a
working model that includes the semiconductor device and embedded software;
accordingly, development costs incurred after the establishment of technological
feasibility have not been material and, therefore, have been expensed.

Advertising Costs:  The Company expenses advertising costs as
incurred.  These costs were not material and are included in sales and marketing
expense.

Shipping and Handling:  The cost of shipping products to customers is
not material, and is included in cost of goods sold.

Foreign Currency Accounting:  The United States dollar is the
functional currency for all foreign operations.  The effect on the consolidated
statements of operations of transaction and translation gains and losses is
insignificant for all years presented.

Fair value of Financial Instruments:  The Company has evaluated the
estimated fair value of financial instruments. The amounts reported for cash and
cash equivalents, accounts receivable, short-term borrowings, accounts payable,
and accrued expenses approximate the fair value due to their short maturities.
Investment securities are reported at their estimated fair value based on quoted
market prices.  Realized gains and losses from the Company's investments are
insignificant.

Net Loss Per Share:  Basic and diluted net loss per share have been
computed using the weighted average number of shares of common stock outstanding
during the period, less shares subject to repurchase.  The following table
presents the computation of basic and diluted net loss per share (in thousands,
except per share amounts):

`Years ended December 31,
                                                -------------------------------
                                                  2002       2001       2000
                                                ---------  ---------  ---------
   Net loss .................................. $ (33,301) $ (19,693) $ (45,998)
                                                =========  =========  =========
   Basic and diluted:
     Weighted average shares of common
      stock outstanding.......................    34,686     33,909     24,405
     Less weighted average shares subject
      to repurchase...........................       (45)      (414)    (1,455)
                                                ---------  ---------  ---------
     Weighted average shares used in computing
      basic and diluted net loss per share ...    34,641     33,495     22,950
                                                =========  =========  =========

   Basic and diluted net loss per share ...... $   (0.96) $   (0.59) $   (2.00)
                                                =========  =========  =========`

The Company has excluded all outstanding warrants, stock options, and shares
subject to repurchase by the Company from the calculation of basic and diluted
net loss per share because these securities are antidilutive for all periods
presented.  Options and warrants to purchase 13,292,190, 5,903,370 and 7,809,376
shares of common stock have been excluded for the years ended December 31, 2002,
2001 and 2000.

Stock-based Compensation: The Company has employee stock plans, that are
described more fully in Note 8.   The Company has elected to account for its
employee stock plans in accordance with the intrinsic value method under
Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to
Employees" (APB Opinion No. 25). The following table illustrates the effect
on net loss and loss per share had compensation expense for the Company's stock-based award
plans been determined on the fair value at the grant dates for
awards under the plan consistent with the method of  Statement of Financial
Accounting Standards No. 123, "Accounting For Stock Issued to
Employees" (FAS 123).  For purposes of FAS 123 pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period (in thousands):

`Years ended December 31,
                                                     -------------------------------
                                                       2002       2001       2000
                                                     ---------  ---------  ---------

Net loss as reported............................... $ (33,301) $ (19,693) $ (45,998)
Add: Stock-based employee compensation
  expense included in reported net income,
  net of related tax effects.......................     3,807     15,416     27,943
Less: Total stock-based employee compensation
  expense under fair value based method for all
  awards, net of related tax effects...............   (56,652)   (66,059)   (24,469)
                                                     ---------  ---------  ---------
Pro forma net loss................................. $ (86,146) $ (70,336) $ (42,524)
                                                     =========  =========  =========
Basic and diluted net loss per share - as reported. $   (0.96) $   (0.59) $   (2.00)
                                                     =========  =========  =========

Basic and diluted net loss per share - pro forma... $   (2.49) $   (2.10) $   (1.85)
                                                     =========  =========  =========`

See Note 8 for a discussion of the assumptions used in the option pricing
model and estimated fair value of employee stock options.

The Company accounts for stock issued to non-employees in accordance with the
provisions of FAS 123 and Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity Instruments That are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services."  Direct
grants of shares of common stock are made to certain advisors and consultants to
the Company for past services with no vesting or future performance obligations.
The fair value of such grants is immediately charged to expense in accordance
with EITF 96-18.

Reclassifications: Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements:

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), which addresses
financial accounting and reporting for impairment or disposal of long-lived
assets and was effective January 1, 2002.  SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", and the accounting and reporting provisions
relating to the disposal of segments of a business under Accounting Principles
Board Opinion No. 30.  The adoption of SFAS 144 did not have a material impact
on the Company's financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and supersedes Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity, including Certain Costs Incurred in a
Restructuring" (EITF 94-3).  SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.  In addition, SFAS
No. 146 establishes that fair value is the objective for initial measurement of
the liability.  SFAS 146 is effective for exit or disposal activities
initiated after December 31, 2002.  The effect of adoption of SFAS 146 is
dependent on the Company's activities subsequent to adoption.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45).  FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued.  The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002.  The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002.  The Company has adopted the disclosure requirements for its financial
statements included in this Form 10-K.  Management is currently evaluating the
effects of FIN 45, however management does not expect that the adoption of FIN
45 will have a material effect on the Company's financial position, results of
operations, or cash flows.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure".  SFAS 148 amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation.  In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.  The transition guidance and annual disclosure
requirements are effective for fiscal years ending after December 15, 2002.
The Company adopted the disclosure provisions for this Form 10-K.  The Company
will continue to account for stock-based compensation under the provisions of
APB Opinion No. 25 "Accounting for Stock Issued to Employees" using the
"intrinsic value" method.  Accordingly,  the adoption of  SFAS 148 is not
anticipated to have a material effect on the Company's financial position,
results of operations, or cash flows.

In January 2003, the FASB issued EITF No. 00-21, "Revenue Arrangements
with Multiple Deliverables" (EITF 00-21).  EITF 00-21 provides guidance on
how to determine whether an arrangement involves multiple deliverables and
contains more than one unit of accounting.   EITF 00-21 will be effective for
arrangements entered into after June 15, 2003.  The Company is evaluating the
impact of its adoption on its consolidated results of operation and financial
position.

NOTE 2.  Balance Sheet Information

Inventories (in thousands):

`December 31,
                                                --------------------
                                                  2002       2001
                                                ---------  ---------
   Work-in-process............................ $   2,577  $   6,600
   Finished goods.............................     1,553      2,756
                                                ---------  ---------
                                               $   4,130  $   9,356
                                                =========  =========`

Property and Equipment (in thousands):

`December 31,
                                                --------------------
                                                  2002       2001
                                                ---------  ---------
   Equipment and software..................... $  22,746  $  19,399
   Furniture and fixtures.....................       998        914
   Leasehold improvements.....................     1,220      1,107
   Construction in progress...................        33        387
                                                ---------  ---------
                                                  24,997     21,807
   Accumulated depreciation and amortization..   (14,608)   (10,324)
                                                ---------  ---------
   Property and equipment, net................ $  10,389  $  11,483
                                                =========  =========`

Accrued Liabilities (in thousands):

`December 31,
                                     ---------------------
                                       2002        2001
                                     ---------   ---------
      Accrued royalties............ $  11,815   $   8,788
      Other accrued liabilities....     1,812       2,433
                                     ---------   ---------
                                    $  13,627   $  11,221
                                     =========   =========`

Warranty Reserve (in thousands):

`Balances at  Product    Adjustments Adjustments Balances at
                                Beginning    Warranty   for payments to prior      End
                                of Period    Accruals      made      Accruals   of Period
                                ----------  ----------  ----------  ----------  ----------

Year ended December 31 2002... $      766  $      608  $     (719) $      (47)$       608
                                ==========  ==========  ==========  ==========  ==========
Year ended December 31 2001... $      312  $      766  $     (509) $      197 $       766
                                ==========  ==========  ==========  ==========  ==========
Year ended December 31 2000... $      100  $      312  $       --  $     (100)$       312
                                ==========  ==========  ==========  ==========  ==========`

NOTE 3.  Acquisition and Asset Purchase

Acquisition:  On January 5, 2001, the Company completed its
acquisition of vEngines, Inc. ("vEngines").  vEngines developed high-
density voice processing semiconductor products, which bridge circuit switched
voice and packet-based data networks. This technology compresses voice traffic,
converting it into digital packets, which can then travel on data networks.
vEngines' targeted customer base included communications equipment manufacturers
that provide carrier and access voice gateways and remote access servers.

Under the terms of the purchase agreement, 813,915 shares of the Company's
common stock, with an aggregate value of approximately $17.1 million, were
exchanged for all of the issued and outstanding capital stock of vEngines.  In
addition, all of the outstanding options to purchase shares of vEngines' capital
stock were exchanged for options to purchase 58,628 shares of our common stock
with an aggregate fair value of approximately $1.2 million.  The Company valued
the common stock and outstanding options exchanged in the transaction as
follows:



|Security Exchanged                       | Valuation Methodology             
|---------------------------------------- | ----------------------------------
|Common stock - not subject to repurchase | Fair value of Company's stock     
|Common stock - subject to repurchase     | Black-Scholes option pricing model
|Options                                  | Black-Scholes option pricing model

Including direct acquisition costs of approximately $523,000, the aggregate
purchase price of vEngines was approximately $18.8 million. The acquisition has
been accounted for using the purchase method of accounting and accordingly, the
accompanying financial statements include the results of operations of vEngines
subsequent to the acquisition date.

The Company allocated the purchase price of vEngines as follows (in
thousands):

`In-process research and development..................... $   7,422
  Acquisition related deferred compensation...............     4,517
  Fair value of assets acquired and liabilities assumed...       730
  Assembled workforce.....................................       354
  Goodwill................................................     5,816
                                                            ---------
  Total................................................... $  18,839
                                                            =========`

The portion of the purchase price allocated to purchased in-process research
and development was $7.4 million and was valued based on net cash flows over
four years, discounted at a cost of capital of 25% to reflect the uncertainty of
the products' future use.  The entire amount of $7.4 million was expensed on
acquisition because the technological feasibility of products under development
had not been established and no future alternative uses existed. The specific
products under development using vEngines technology have been discontinued;
however, certain aspects of the technologies have been incorporated into the
Company's Voice-over-Packet solutions.

The Company recorded acquisition-related deferred compensation of $4.5
million as unearned stock-based compensation.  This amount represents the
portion of the purchase consideration related to shares issued contingent on
continued employment of certain employee stockholders and the intrinsic value of
stock options assumed that become exercisable as future services are provided by
employees.  The compensation is being recognized over the related employment
period, using the graded vesting method, which results in acceleration of
amortization expense for the overall award.  A total of $1.1 million and $2.7
million of expense was recognized for the years ended December 31, 2002 and
2001, respectively, and has been included in amortization of deferred
compensation.

Goodwill and the assembled workforce were amortized through December 31,
2001, on a straight-line basis over their expected useful lives of four and two
years, respectively.  Beginning January 1, 2002, upon adoption of FAS 142, the
Company no longer amortizes goodwill; rather, goodwill is evaluated for
impairment at least on an annual basis.  See Note 3 for further details. Pro
forma results of operations have not been presented because the pro-forma impact
of the acquisition was not material to the Company's results of operations and
financial position for the year ended December 31, 2001.

Asset Purchase: In June 2000, the Company acquired for cash
consideration certain assets from Avio Digital Inc. and entered into employment
agreements with key employees of Avio Digital Inc.  The Company has assigned a
portion of the purchase price to identifiable tangible and intangible assets
based on their fair values.  The excess of the purchase price over the
identifiable assets was recorded as intangible assets and goodwill in the
financial statements.

Note 4.  Goodwill and Other Intangible Assets

With the adoption of SFAS 142, the Company ceased amortizing goodwill
effective January 1, 2002.  In addition, the Company reclassified assembled
workforce, which is no longer defined as an acquired intangible under SFAS 141,
to goodwill as required by SFAS 142.  The Company completed its transitional
impairment test during the quarter ended June 30, 2002 and no impairment was
recognized.  The Company completed its annual impairment test in the fourth
quarter of 2002 and recognized an impairment of $5.8 million.  Impairment of the
goodwill was based on the excess carrying amount of the goodwill over its
estimated fair value. Fair value was determined using a discounted future cash
flows analysis and a market approach.  The cash flow period used in the analysis
was nine years, with a discount rate of 18% and estimated terminal values based
on a terminal growth rate of 5%.  The discount rate was based on the Company's
weighted average cost of capital.  The assumptions supporting the estimated
future cash flows, including the discount rate and estimated terminal values,
reflect management's best estimates.

Changes in the carrying amount of goodwill for the years ended December 31,
2002 and 2001 are as follows (in thousands):

`Balance as of January 1, 2001.......... $   1,381
   Goodwill acquired during the period....     5,816
   Goodwill amortized during the period...    (2,007)
                                            ---------
   Balance as of December 31, 2001........     5,190
   Workforce reclassified as goodwill.....       645
   Goodwill impairment....................    (5,835)
                                            ---------
   Balance as of December 31, 2002........ $      --
                                            =========`

The following table presents a reconciliation of previously reported net loss
and net loss per share to the amounts adjusted to exclude goodwill and acquired
workforce amortization (in thousands, except for per share data):

`Years ended December 31,
                                        -------------------------------
                                          2002       2001       2000
                                        ---------  ---------  ---------
Net loss:
   As reported........................ $ (33,301) $ (19,693) $ (45,998)
   Goodwill amortization..............        --      2,006        276
   Workforce amortization.............        --      1,112        420
                                        ---------  ---------  ---------
   As adjusted........................ $ (33,301) $ (16,575) $ (45,302)
                                        =========  =========  =========
Basic and diluted net loss per share:
   As reported........................ $   (0.96) $   (0.59) $   (2.00)
   Goodwill amortization..............        --       0.06       0.01
   Workforce amortization.............        --       0.03       0.02
                                        ---------  ---------  ---------
   As adjusted........................ $   (0.96) $   (0.50) $   (1.97)
                                        =========  =========  =========`

Amortization expense for other intangible assets was $167,000 in each of the
years ended December 31, 2002 and 2001, and $83,000 for the year ended December
31, 2000.  The amortization period of the other purchased intangibles is 3
years.  The estimated amortization expense for other intangible assets is
$83,000 for the year ended December 31, 2003.  Other acquisition related
intangible assets subject to amortization were as follows (in thousands):

`December 31,
                                        --------------------
                                          2002       2001
                                        ---------  ---------

   Other purchased intangibles........ $     500  $     500
   Less accumulated amortization......      (417)      (250)
                                        ---------  ---------
   Other purchased intangibles, net... $      83  $     250
                                        =========  =========`

NOTE 5.  Cash Equivalents and Short-term Investments

The estimated fair market values of cash equivalents and short-term
investments are based on quoted market prices.  Cash equivalents and short-term
investments as of December 31, 2002 and 2001 were as follows (in thousands):



`Estimated
                                                 Gross      Gross      Fair
                                    Amortized  Unrealized Unrealized  Market
                                      Cost       Gain       Loss       Value
                                    ---------  ---------  ---------  ---------
December 31, 2002
----------------------------------
Cash equivalents:
  Money market funds.............. $  87,557  $      --  $      --  $  87,557
  Obligations of U.S. government
   and affiliated agencies........       495         --         --        495
                                    ---------  ---------  ---------  ---------
                                      88,052         --         --     88,052
                                    ---------  ---------  ---------  ---------
Short-term investments:
  Corporate debt securities.......     1,001         --         (1)     1,000
  Obligations of U.S. government
   and affiliated agencies........     7,013          9         --      7,022
  Certificates of deposit.........       467         --         --        467
                                    ---------  ---------  ---------  ---------
                                       8,481          9         (1)     8,489
                                    ---------  ---------  ---------  ---------
    Total cash equivalents and
     short-term investments....... $  96,533  $       9  $      (1) $  96,541
                                    =========  =========  =========  =========

December 31, 2001
----------------------------------
Cash equivalents:
  Money market funds.............. $  88,359  $      --  $      --  $  88,359
  Obligations of U.S. government
   and affiliated agencies........       747         --         --        747
                                    ---------  ---------  ---------  ---------
                                      89,106         --         --     89,106
                                    ---------  ---------  ---------  ---------
Short-term investments:
  Corporate debt securities.......       475          5         --        480
  Obligations of U.S. government
   and affiliated agencies........    16,121         63         (2)    16,182
  Certificates of deposit.........       467         --         --        467
                                    ---------  ---------  ---------  ---------
                                      17,063         68         (2)    17,129
                                    ---------  ---------  ---------  ---------
    Total cash equivalents and
     short-term investments....... $ 106,169  $      68  $      (2) $ 106,235
                                    =========  =========  =========  =========`

At December 31, 2002, all available for sale investments had maturities of
one year or less.

NOTE 6.  Long-Term Debt Obligations

In April 1998, the Company entered into an agreement with a bank and a
financial institution which allowed the Company to make multiple draws up to
$1,000,000 for the purchase of equipment.  Draws under the facility were payable
via principal and interest payments made ratably over a forty-two month period
from the initial draw date. The Company had nothing outstanding or available
under the equipment facility as of December 31, 2002.   Approximately $264,000
of principal and accrued interest was outstanding at December 31, 2001. At the
end of the equipment facility's term, the Company was obligated to make an
additional payment of $150,000 based on the total facility draws multiplied by
15%.  The Company recorded the additional payment as interest expense over the
life of the related long-term obligation.

In connection with the equipment facility described above, the Company issued
a warrant to the bank and to the financial institution to purchase 1,800 and
9,450 shares, respectively, of the Company's common stock at an exercise price
of $4.00 per share.  The warrant for 1,800 shares was exercised in June 2000.
The remaining warrant is immediately exercisable and expires in May 2005.  The
fair value of the warrant is not material for reporting purposes.

NOTE 7.  Commitments and Contingencies

The Company leases its facilities under operating leases expiring through
2009.  Rental expense was approximately $2.5 million, $2.2 million and $1.3
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Additionally, the Company leases certain software under operating leases
expiring through December 2005.

During 2002, the Company exchanged certain software licenses which were set
to expire in 2003 for new software licenses.  In connection with this
arrangement, the Company entered into a noncancelable capital lease agreement
totaling approximately $2.1 million.  The transaction was accounted for under
Accounting Principles Board No. 29, "Nonmonetary Transactions", and no
gain or loss was recorded on the transaction.  The software and related
accumulated amortization that was included in property and equipment was
approximately $3.4 million and $95,000 at December 31, 2002.  Amortization
expense related to assets under capital lease is included with depreciation
expense.  In addition, the related software licenses secure the capital
lease.

Future minimum lease payments under the Company's capital and operating
leases at December 31, 2002 are as follows (in thousands):

`Operating   Capital
                                     Leases     Leases
                                    ---------  ---------
   2003........................... $   6,404 $    1,587
   2004...........................     3,331        528
   2005...........................     2,398         --
   2006...........................        79         --
   2007...........................        21         --
   Thereafter.....................        40         --
                                    ---------  ---------
     Total payments............... $  12,273 $    2,115
   Less: Interest portion.........        --        (62)
                                    ---------  ---------
     Total minimum payments....... $  12,273 $    2,053
                                    =========  =========`

The Company does not own or operate a fabrication facility and foundries
located in Asia currently supply substantially all of its wafer requirements.
The Company's purchase obligations to these foundries are based on wafer supply
agreements or noncancelable purchase orders.  As of December 31, 2002, the
Company's non-cancelable purchase obligation is $6.1 million.

The semiconductor and telecommunications industries are characterized by
substantial litigation regarding patent and other intellectual property rights.
From time to time, the Company receives various inquiries or claims in
connection with these rights and may become party to associated claims.  In
certain cases, management has accrued estimates of the amounts it expects to pay
upon resolution of such matters and such amounts are included in accrued
liabilities.  Should the company not be able to secure the terms it expects,
these estimates may change and will be recognized in the period in which they
are identified.  Although the ultimate outcome of such inquiries is not
presently determinable, management believes that the resolution of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.

NOTE 8.  Stockholders' Equity

Preferred Stock: The Board of Directors has the authority, without
any further vote or action by the stockholders, to provide for the issuance of
9,500,000 shares of preferred stock from time to time in one or more series with
such designation, rights, preferences and limitations as the Board of Directors
may determine, including the consideration received therefore, the number of
shares comprising each series, dividend rates, redemption provisions,
liquidation preferences, redemption fund provisions, conversion rights, and
voting rights, all without the approval of the holders of common stock.

Stockholder Rights Plan:  In December 2002, the Company's Board of
Directors approved the adoption of a stockholder rights plan and reserved
500,000 shares of preferred stock for issuance under the plan.  The plan is
designed to assure that Centillium stockholders receive fair value in the event
of a future unsolicited business combination or similar transaction involving
Centillium in a manner or on terms not approved by the Centillium Board of
Directors.

Under the plan, Centillium issued a dividend of one right for each
outstanding share of common stock of the Company held by stockholders of record
as of the close of business on January 9, 2003.  Each right will initially
entitle stockholders to purchase a fractional share of the Company's preferred
stock for $25.00.  However, the rights will become exercisable only after the
occurrence of certain specified events, including the acquisition of 15% or more
of Centillium's outstanding common stock by an unsolicited third party acquiror.
Upon the occurrence of any such event, under the terms specified in the plan,
each right entitles the holder, other than the unsolicited third party acquiror,
to purchase a certain number of shares of common stock of the Company, at a
fifty percent discount to the
then-current market price.  The rights expire on January 9, 2013, under the
terms of the plan.  Centillium's Board of Directors may redeem outstanding
rights at a price of $0.001 per right, with certain exceptions.  The terms of
the rights and the rights plan may be amended by Centillium's Board of Directors
at any time without the approval of the rights holders as set forth in the
rights plan.

Common Stock Reserved:  Common stock reserved is as follows:

`December 31,
                                                    ------------------------
                                                       2002         2001
                                                    -----------  -----------
   Common stock options...........................  16,723,618   14,857,664
   Employee stock purchase plan...................     499,181      959,245
   Common stock warrants..........................       9,450        9,450
                                                    -----------  -----------
                                                    17,232,249   15,826,359
                                                    ===========  ===========`

Deferred Compensation

Deferred compensation expense, net of adjustments, was allocated among the
associated expense categories as follows (in thousands):

`Years ended December 31,
                                        -------------------------------
                                          2002       2001       2000
                                        ---------  ---------  ---------
   Cost of revenues................... $     256  $     797  $   1,459
   Research and development...........     2,469      7,992     10,722
   Sales and marketing................      (434)     2,361      5,075
   General and administrative.........     1,506      4,196      8,354
                                        ---------  ---------  ---------
                                       $   3,797  $  15,346  $  25,610
                                        =========  =========  =========`

Stockholders' Notes Receivable:  In November 1999, the Company issued
215,000 shares of common stock in connection with the exercise of an employee
stock option at an exercise price of $2.00 per share in return for a full
recourse note receivable for $430,000.  The note earned interest at an annual
interest rate of 6.0% per annum and was paid in full in June 2001.

Stock Options:  In March 1997, the Board of Directors approved a stock
option plan that authorized the grant of options to purchase shares of the
Company's common stock.  The plan is administered by the Board of Directors and
provides for incentive stock options or nonqualified stock options to be issued
to employees, directors, and consultants of the Company.  Prices for incentive
stock options may not be less than the fair value of the common stock at the
date of grant.  Prices for nonqualified stock options may not be less than 85%
of the fair value of the common stock at the date of grant.  Options granted
prior to May 23, 2000 are immediately exercisable and generally vest over a
period of four years from the date of grant.  Options granted on or after May
23, 2000 are exercisable when vested and generally vest over a four-year period.
Any unvested stock issued is subject to repurchase by the Company at the
original issuance price upon termination of the option holder's employment.
Unexercised options expire ten years after the date of grant.  The plan also
provides for automatic annual increases on the first day of each of the
Company's fiscal years equal to 6% of the Company's outstanding common stock on
the date of the annual increase.

In February 2001, the Company adopted a nonstatutory stock option plan that
authorized the grant of nonstatutory stock options ("options") to
purchase shares of the Company's common stock.  Such shares may be authorized,
but unissued, or reacquired common stock.  The plan is administered by the Board
of Directors or any of its Committees and provides for options to be issued to
employees and consultants of the Company only and not to officers and directors,
except in connection with an officer's initial service to the Company.  Options
generally vest over a period of four years from the date of grant and prices for
such options shall be determined by the plan administrator, with the prices
generally being not less than the fair value of the common stock at the date of
grant.  Upon termination of the option holder's employment, any unvested stock
issued shall revert back to the plan.

In December 2001, the Company offered a voluntary stock option exchange
program to its employees and officers.  Under the program, participants were
able to tender for cancellation stock options that had an exercise price equal
to or greater than $10 per share for replacement options to be granted on a date
which was at least six months plus one day from the date of cancellation of the
tendered options.  On December 3, 2001, 5.2 million stock options were tendered
for cancellation.  On June 4, 2002, the Company issued options for 5.1 million
shares of common stock at an exercise price of $6.62 per share, which was equal
to 100 percent of the market price of Centillium's common stock on the grant
date.  The terms and conditions of the replacement options, including the
vesting schedules, were  substantially the same as the terms and conditions of
the options cancelled.

The following is a summary of additional information with respect to the
stock option plan:

`Options Outstanding
                                         -----------------------------------
                                                                   Weighted
                                           Options                  Average
                                          Available    Number of   Exercise
                                          for Grant     Shares       Price
                                         -----------  -----------  ---------
Balance at December 31, 1999...........   1,353,652    3,390,257  $    1.09
  Options authorized...................   5,569,743           --         --
  Options granted......................  (6,988,263)   6,988,263  $   22.45
  Options exercised....................          --   (2,044,234) $    1.40
  Options available due to
   repurchase of unvested shares.......     105,224           --         --
  Options canceled.....................     534,360     (534,360) $   14.71
                                         -----------  -----------  ---------
Balance at December 31, 2000...........     574,716    7,799,926  $   19.22
  Options authorized...................   7,040,434           --         --
  Options granted......................  (5,059,462)   5,059,462  $   18.81
  Options exercised....................          --     (612,695) $    4.04
  Options available due to
   repurchase of unvested shares.......      55,283
  Options canceled.....................   6,352,773   (6,352,773) $   27.03
                                         -----------  -----------  ---------
Balance at December 31, 2001...........   8,963,744    5,893,920  $   12.02
  Options authorized...................   2,074,564           --         --
  Options granted......................  (9,617,872)   9,617,872  $    5.47
  Options exercised....................          --     (293,144) $    2.38
  Options available due to
   repurchase of unvested shares.......      84,534           --
  Options canceled.....................   1,935,908   (1,935,908) $   10.53
                                         -----------  -----------  ---------
Balance at December 31, 2002...........   3,440,878   13,282,740  $    7.71
                                         ===========  ===========  =========`

In addition, the following table summarizes information about stock options
that were outstanding and exercisable at December 31, 2002:

`Options Outstanding              Options Exercisable (1)
                   ---------------------------------  ---------------------------------
                                           Weighted                           Weighted
                                            Average                           Average
                                Weighted   Remaining              Weighted   Remaining
                                 Average   Contractual             Average   Contractual
Range of            Number of   Exercise     Life     Number of   Exercise      Life
Exercise Prices      Shares       Price     (years)     Shares      Price     (years)
-----------------  -----------  ---------  ---------  ----------  ---------  ----------
$ 0.40--$  0.40..      50,802  $    0.40        5.8      50,802  $    0.40         5.8
$ 0.60--$  1.35..   1,385,874       1.32        9.6      69,800       0.85         6.7
$ 1.51--$  5.00..   2,168,411       2.97        8.6     932,886       4.24         7.0
$ 5.15--$  6.37..     588,008       5.66        8.9     120,744       5.73         8.8
$ 6.40--$  6.62..   5,426,526       6.62        9.4   1,784,360       6.62         9.4
$ 6.68--$  9.80..   1,516,130       8.16        8.9     447,409       7.43         8.4
$10.00--$ 19.00..   1,551,669      15.25        7.6     934,290      13.84         7.5
$20.00--$ 50.91..     552,757      28.38        8.2     239,403      27.88         8.1
$68.88--$ 68.88..       4,000      68.88        7.7       2,250      68.88         7.7
$75.13--$ 75.13..      38,563      75.13        7.6      23,769      75.13         7.6
                  -----------    --------  --------  ----------    --------     --------
$ 0.40--$ 75.13..  13,282,740  $    7.71        8.9   4,605,713  $    8.99         8.3
                  ===========    ========  ========  ==========    ========     ========`

At December 31, 2001 and 2000, options for 2,567,049 and 259,368 shares,
respectively, were exerciseable at a weighted average price of $8.21 and $1.71
per share, respectively.

Employee Stock Purchase Plan: To provide employees with an opportunity
to purchase common stock of the Company through payroll deductions, the Company
established the 2000 Employee Stock Purchase Plan and initially reserved 500,000
shares of common stock for issuance to participants.  In addition, the plan
provides for automatic annual increases on the first day of each of the
Company's fiscal years equal to the lesser of 400,000 shares or 1% of the
Company's outstanding common stock on the date of the annual increase, or a
lesser number of shares determined by the Board of Directors.  Under the plan,
the Company's employees, subject to certain restrictions, may purchase shares of
common stock at the lesser of 85 percent of the fair market value at either the
beginning or end of each six-month offering period.  Under the plan, the Company
sold 460,064, 164,621 and 52,196 shares of common stock during fiscal years
2002, 2001 and 2000, respectively.

SFAS 123 Assumptions and Fair Value: The Company has elected to follow
APB Opinion No. 25 and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under FAS 123 requires use of option valuation models that were not
developed for use in valuing employee stock options.  Under APB Opinion No. 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.  The fair value of options granted in 2002, 2001 and 2000
reported in Note 1 was estimated at the date of grant.

The option valuation models used to estimate the fair value of options under
FAS 123 were developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable.  In addition,
option valuation models require the input of highly subjective assumptions,
including the expected life of the option.  Because the Company's employee stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. Pro forma information regarding net loss is required by
FAS 123, which requires that the information be determined as if the Company has
accounted for its employee stock-based awards under the fair value method of FAS
123. The fair value of the options granted in all periods were estimated using
the Black-Scholes method, with the following weighted average assumptions:

`Stock Option Plan       Employee Stock Purchase Plan
                                 ----------------------------- -----------------------------------
                                   2002      2001      2000          2002        2001     2000
                                 --------- --------- --------- ----------- ----------- -----------
 Expected life from vest date..  2.7 years 2.9 years 3.0 years 6.0 months  6.0 months  6.0 months
 Volatility....................       121 %     147 %     128 %       121 %       147 %       128 %
 Risk-free interest rate.......      2.90 %    3.90 %    6.28 %      1.65 %      1.93 %      6.28 %
 Dividend rate.................        --        --        --          --          --          --`

The options' weighted average grant date fair value, which is the value
assigned to the options under FAS 123, was approximately $4.33, $7.86, and
$16.72 for the years ended December 31, 2002, 2001 and 2000, respectively. The
weighted-average fair value of purchase rights granted under the Employee Stock
Purchase Plan in 2002, 2001 and 2000 were $3.74, $7.93, and $12.54 per share,
respectively.

NOTE 9.  Income Taxes

The provision for income taxes for the years ended December 31, 2002,
2001 and 2000 consists of the following (in thousands):

`Years ended December 31,
                                                -------------------------------
                                                  2002       2001       2000
                                                ---------  ---------  ---------
   Current:
      Federal................................. $    (182) $     278  $      --
      State...................................         8         65         --
      Foreign.................................        79         57          8
                                                ---------  ---------  ---------
                                               $     (95) $     400  $       8
                                                =========  =========  =========`

The difference between the provision for income taxes and the amount computed
by applying the federal statutory income tax rate of 34% to income before taxes
is explained as follows (in thousands):

`Years ended December 31,
                                                -------------------------------
                                                  2002       2001       2000
                                                ---------  ---------  ---------
Tax (benefit) at federal statutory rate....... $ (11,355) $  (6,560) $ (15,641)
Loss for which no tax benefit is
 currently recognizable.......................     8,690         --      3,414
Unbenefited foreign losses....................        --         --      5,301
Deferred compensation.........................       576      5,252      6,926
Purchased in-process research and development
 and amortization of goodwill and other
 acquired intangibles.........................     2,040      3,640         --
Utilization of net operating losses...........        --     (2,237)        --
Other.........................................       (46)       305          8
                                                ---------  ---------  ---------
Total tax (benefit) provision................. $     (95) $     400  $       8
                                                =========  =========  =========`

As of December 31, 2002, the Company has $55 million and $30 million of net
operating loss carryforwards for federal and state purposes, respectively.  The
Company also has federal and state research and development tax credit
carryforwards of approximately $2.9 million and $2.7 million, respectively.  The
net operating losses and federal tax credit carryforwards will expire at various
dates beginning in 2006, if not utilized.  The California net operating losses
are not available to offset income until 2004 due to the recent state law
change.

Utilization of the net operating loss and credits carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions.  The annual limitation may result in the expiration of
net operating losses and tax credit carryforwards before full utilization.

Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.  Significant components of the
Company's deferred taxes consist of the following (in thousands):

`Years ended December 31,
                                        ---------------------
                                          2002       2001
                                        ---------  ---------
Deferred tax assets:
  Net operating losses................ $  20,440  $   9,606
  Tax credit carryforwards............     4,733      1,756
  Reserves and accruals...............     9,648      8,835
                                        ---------  ---------
Total deferred tax assets.............    34,821     20,197
Valuation allowance................... $ (34,821) $ (20,197)
                                        ---------  ---------
Net deferred tax assets...............        --         --
                                        ---------  ---------
Net deferred taxes.................... $      --  $      --
                                        =========  =========`

Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's historical operating
performance and the reported cumulative net losses to date, the Company has
provided a full valuation allowance against its deferred tax assets.

The valuation allowance increased by approximately $14.6 million for the year
ended December 31, 2002.  The valuation allowance decreased by approximately
$733,000 for the year ended December 31, 2001 and increased by approximately
$8.6 million for the year ended December 31, 2000.  The valuation allowance at
December 31, 2002 and 2001 includes approximately $4.6 million and $3.9 million,
respectively, related to stock option deductions, the benefit of which will be
recorded in paid-in capital when realized.

NOTE 10.  Business Segment Information

Through December 31, 2002, the Company's revenues have been primarily
derived from one business segment, the sale of broadband communication products
for the DSL and VoP markets.  The Company sells primarily to original equipment
manufacturers and companies in the communications industries.

The Chief Executive Officer has been identified as the Chief Operating
Decision Maker (CODM) because he has final authority over resource allocation
decisions and performance assessment.  The CODM does not receive discrete
financial information about any individual components.

The following is a summary of net revenues by major geographic area (in thousands):

`Years ended December 31,
                                   -------------------------------
                                     2002       2001       2000
                                   ---------  ---------  ---------
     Japan....................... $  90,260    138,948  $  17,301
     North America...............    11,431     16,710     34,451
     Asia -- excluding Japan.....     2,660      3,108      4,587
     All other...................       621        741        135
                                   ---------  ---------  ---------
     Total....................... $ 104,972  $ 159,507  $  56,474
                                   =========  =========  =========`

The following customers account for 10% or more of net revenues:

`Years ended December 31,
                                        -------------------------------
                                          2002       2001       2000
                                        ---------  ---------  ---------
   NEC................................        45 %       38  %      10 %
   Sumitomo Electric Industries.......        41 %       48  %      20 %
   Lucent Technologies................         * %        *  %      24 %
   Copper Mountain Networks...........         * %        *  %      12 %`

* represents less than 10% of net revenues.

NOTE 11.  401(K) Profit Sharing Plan And Trust

The Company has adopted a 401(k) Profit Sharing Plan and Trust that
allows eligible employees to make contributions subject to certain limitations.
The Company may make discretionary contributions based on profitability as
determined by the Board of Directors.  There was no amount contributed by the
Company to the plan for the years ended December 31, 2002, 2001 and 2000.

NOTE 12.  Related Party Transactions

In the second quarter of 2000, the Company invested $990,000 in
equity securities of Broadxent, Inc., a wholly owned subsidiary of Creative
Technology Ltd.  In the second quarter of 2001, in connection with an ongoing
evaluation of this long-term equity investment, the Company wrote down the basis
of this investment to zero as a result of impairment in the value of this asset.
In the first quarter of 2002, the Company sold this long-term investment for
$440,000 and reported this amount as a gain.

The Company sold $2.5 million and $2.1 million of products to Broadxent, Inc.
for years ended December 31, 2002 and 2001, respectively.  As of December 31,
2002 and December 31, 2001, the Company had $4,600 and $486,000, respectively,
in accounts receivable from Broadxent, Inc.  One of the Company's directors is
also a director of Creative Technology Ltd.

NOTE 13.  Supplementary Data:  Quarterly Results of Operations
(unaudited)

Summarized quarterly financial information is as follows (in thousands,
except per share data):

`Year 2002 Three Month Ended
                                        ------------------------------------------
                                         Mar 31     Jun 30     Sep 30     Dec 31
                                        ---------  ---------  ---------  ---------
Net revenues.......................... $  22,606  $  34,413  $  23,264  $  24,689
Cost of revenues......................    12,066     21,283     12,549     13,602
Gross profit..........................    10,540     13,130     10,715     11,087
Operating loss........................   (11,052)    (7,879)    (5,815)   (10,884)
Net loss.............................. $ (10,126) $  (7,404) $  (5,378) $ (10,393)
Basic and diluted net loss per share.. $   (0.30) $   (0.21) $   (0.15) $   (0.30)
Shares used to compute basic and
 diluted net loss per share...........    34,294     34,538     34,765     34,967


                                               Year 2001 Three Month Ended
                                        ------------------------------------------
                                         Mar 31     Jun 30     Sep 30     Dec 31
                                        ---------  ---------  ---------  ---------
Net revenues.......................... $  31,855  $  46,371  $  46,804  $  34,477
Cost of revenues......................    16,171     23,315     23,579     16,716
Gross profit..........................    15,684     23,056     23,225     17,761
Operating loss........................   (14,590)      (497)    (1,830)    (4,930)
Net loss.............................. $ (13,457) $    (755) $  (1,286) $  (4,195)
Basic and diluted net loss per share.. $   (0.41) $   (0.02) $   (0.04) $   (0.12)
Shares used to compute basic and
 diluted net loss per share...........    32,775     33,426     33,782     33,995`



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference from
the information under the captions "Information Concerning Solicitation and
Voting," "Election for Directors" and "Section 16(A) Beneficial Ownership
Reporting Compliance" contained in our definitive proxy statement to be filed no
later than April 30, 2003 in connection with solicitation of proxies for our
annual meeting of stockholders to be held June 11, 2003 (the "Proxy
Statement").

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from
the information under the captions "Executive Compensation" and "Compensation of
Directors" contained in the Proxy Statement.  In addition, Exhibits 10.31
through 10.34 of this report contain recently executed change of control severance agreements.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" and "Securities Authorized for Issuance Under Equity
Compensation Plans" contained in the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from
the information under the captions "Certain Transactions" contained in
the Proxy Statement.

ITEM 14.  CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures.

Within 90 days prior to the date of this report (the "Evaluation
Date"), the Company's Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the Company's "disclosure
controls and procedures," as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15(d)-14(c). Based on that evaluation, these officers have
concluded that as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and designed to ensure that material information
relating to the Company and the Company's consolidated subsidiaries would be
made known to them by others within those entities.

(b)  Changes in internal controls.

There were no significant changes in the Company's internal controls,
or to the Company's knowledge, in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The Financial Statements required by this item are listed on the
Index to Consolidated Financial Statements in Part II, Item 8 of this report.



(a) (2) Financial Statements Schedules

The following financial statement schedule of Centillium
Communications, Inc. for the years ended December 31, 2002, 2001, and 2000
should be read in conjunction with the Consolidated Financial Statements of
Centillium Communications, Inc.

Schedule II-Consolidated Valuation and Qualifying Accounts

Allowance for Doubtful Accounts:

`Balances at Charged to              Balances at
                            Beginning   Costs and   Deductions     End
                            of Period    Expense    Write-Offs  of Period
                            ----------  ----------  ----------  ----------
                                               (in thousands)
Year ended December 31,
 2000..................... $      150  $      782  $       --  $      932
                            ==========  ==========  ==========  ==========
Year ended December 31,
 2001..................... $      932  $      102  $       (8) $    1,026
                            ==========  ==========  ==========  ==========
Year ended December 31,
 2002..................... $    1,026  $     (709) $     (157) $      160
                            ==========  ==========  ==========  ==========`

All other schedules have been omitted because they are not applicable or are
not required or the information required to be set forth therein is included in
the Consolidated Financial Statements or Notes thereto.

(a) (3) Exhibits



|Exhibit Number | Description                                                                                                                                                                                                           
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*           | Certificate of Incorporation of the Registrant                                                                                                                                                                        
|3.2****        | Certificate of Designations of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of the Registrant                                                                                         
|4.1*           | Specimen certificate of common stock                                                                                                                                                                                  
|4.2*           | Bylaws of the Registrant                                                                                                                                                                                              
|4.3****        | Preferred Stock Rights Agreement, dated as of December 30, 2002, between the
Registrant and Mellon Investor Services LLc                                                                                              
|10.1*          | Form of Indemnification Agreement between the Registrant and
each of its directors and officers                                                                                                                       
|10.2**         | 1997 Stock Plan                                                                                                                                                                                                       
|10.3**         | 2000 Employee Stock Purchase Plan                                                                                                                                                                                     
|10.5*          | Lease, dated August 16, 1999, between the Registrant and Renco
Investment Company                                                                                                                                     
|10.21*         | Foundry Agreement, dated March 7, 2000, between Registrant and
United Microelectronics Corporation                                                                                                                    
|10.22*         | Assembly and Test Services Agreement, dated February 28, 2000,
between Registrant and ST Assembly and Test Services, Ltd.                                                                                             
|10.23**        | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                   
|10.24***       | Lease, dated August 28, 2000, between the Registrant and Bedford
Property Industries, Inc.                                                                                                                            
|10.25***       | Change of Control Severance Agreement between the Registrant and
Surendra Mandava dated December 14, 2000                                                                                                             
|10.26***       | Change of Control Severance Agreement between the Registrant and
Faraj Aalaei dated December 14, 2000                                                                                                                 
|10.27***       | Change of Control Severance Agreement between the Registrant and
Shahin Hedayat dated December 14, 2000                                                                                                               
|10.28***       | Change of Control Severance Agreement between the Registrant and
Kamran Elahian dated December 14, 2000                                                                                                               
|10.29***       | Employment Terms Sheet between the Registrant and Darrel Slack dated
December 12, 2001                                                                                                                                
|10.30***       | Offer letter between the Registrant and Todd DeBonis dated December 13,
2001                                                                                                                                          
|10.31          | Amendment no.1 to Change of Control Severance Agreement between the
Registrant and  Faraj Aalaei dated November 19, 2002                                                                                              
|10.32          | Change of Control Severance Agreement between the Registrant and
Darrel Slack dated January 14, 2003                                                                                                                  
|10.33          | Change of Control Severance Agreement between the Registrant and
William Mackenzie               dated January 14, 2003                                                                                               
|10.34          | Change of Control Severance Agreement between the Registrant and
Todd DeBonis dated January 15, 2003                                                                                                                  
|21.1***        | Subsidiaries of the Registrant                                                                                                                                                                                        
|23.1           | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                    
|99.1           | Certification of Faraj Aalaei, Chief Executive Officer of
Centillium Communications, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   
|99.2           | Certification of Darrel Slack, Vice President and Chief Financial
Officer of Centillium Communications, Inc., Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

__________

* Incorporated by reference to the Exhibits filed with the
Registration Statement of Form S-1 (No. 333-30772), declared effective by the
Commission on May 23, 2000.

** Incorporated by reference to the Exhibits filed with the
Registration Statement of Form S-8 (No. 333-56610), filed with the Commission on
March 6, 2001.

*** Incorporated by reference to the Exhibits filed with the
Registrant's Annual Report on Form 10-K for the years ended December 31, 2000,
and December 31, 2001 filed with the Commission on March 19, 2001 and March 27,
2002, respectively.

**** Incorporated by reference to the Exhibits filed with the Registration Statement on
Form 8-K filed with the Commission on December 31, 2002.

(b) Reports on Form 8-K

We filed the following current reports on Form 8-K during the quarter
ended December 31, 2002:

Form 8-K filed on December 31, 2002 reporting the adoption of a Preferred
Stock Rights Agreement, as presented in a press release of December 31,
2002.

(c) Exhibits.

The Company hereby files as part of this Form 10-K the Exhibits
listed in Item 14 (a)(3) above.

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fremont, State of California, on February 14,
2003.

|    | Centillium Communications, Inc.      
|--- | -------------------------------------
|    |                                      
|By: | /s/ Faraj Aalaei                     
|    | Faraj Aalaei 
Chief Executive Officer
|    |                                      



Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.

|Signature                         | Title                                                                                   | Date             
|--------------------------------- | --------------------------------------------------------------------------------------- | -----------------
|/s/ Kamran Elahian
Kamran Elahian | Chairman of the Board                                                                   | February 14, 2003
|/s/ Faraj Aalaei
Faraj Aalaei     | Chief Executive Officer and Director (Principal Executive
Officer)                      | February 14, 2003
|/s/ Darrel Slack
Darrel Slack     | Vice President and Chief Financial Officer (Principal Financial
and Accounting Officer) | February 14, 2003
|/s/ Shahin Hedayat
Shahin Hedayat | President and Director                                                                  | February 14, 2003
|/s/ Jere Drummond
Jere Drummond   | Director                                                                                | February 14, 2003
|/s/ Irwin Federman
Irwin Federman | Director                                                                                | February 14, 2003
|/s/ Robert C. Hawk
Robert C. Hawk | Director                                                                                | February 14, 2003
|/s/ Lip-Bu Tan
Lip-Bu Tan         | Director                                                                                | February 14, 2003

---



CERTIFICATIONS

I, Faraj Aalaei, certify that:

1.	I have reviewed this annual report on Form 10-K of
Centillium Communications, Inc.;

2.	Based on my knowledge, this annual 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 annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in this annual 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 annual
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:

a)	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 annual report is being
prepared;

b)	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 annual report (the "Evaluation Date"); and

c) 	presented in this annual 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 officer 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):

a)	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

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

6.	The registrant's other certifying officer and I have
indicated in this annual 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.



/s/ Faraj Aalaei	Faraj Aalaei
                        Chief Executive Officer

Date: February 14, 2003

---

CERTIFICATIONS

I, Darrel Slack, certify that:

1.	I have reviewed this annual report on Form 10-K of
Centillium Communications, Inc.;

2.	Based on my knowledge, this annual 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 annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in this annual 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 annual
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:

a)	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 annual report is being
prepared;

b)	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 annual report (the "Evaluation Date"); and

c) 	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 officer 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):

a)	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

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

6.	The registrant's other certifying officer and I have
indicated in this annual 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.

/s/ Darrel Slack                       Darrel Slack
                       Vice President and Chief Financial Officer

Date: February 14, 2003