##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the year ended December 31, 2004                                                        
|          
|OR        
|          
|o          |  | 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)

215 Fourier Avenue


Fremont, California 94539


(Address of Principal Executive Offices including Zip
Code)


(510) 771-3700


(Registrants Telephone Number, Including Area Code)


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


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


Common Stock


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










CENTILLIUM COMMUNICATIONS, INC.


FORM 10-K


ANNUAL REPORT


TABLE OF CONTENTS


|              |  |                                                                                                                          |    |      |    |  |  | 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- |  |  | 
|              |  |                                                                                                                          |    | Page |   
|              |  |                                                                                                                          |    |      |   
|              |  |                                                                                                                          |    |      |    |  |  | 
|Part I.      
|Item 1.       |  | Business                                                                                                                 |    |      | 3  | 
|Item 2.       |  | Properties                                                                                                               |    |      | 10 | 
|Item 3.       |  | Legal Proceedings                                                                                                        |    |      | 10 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                                  |    |      | 10 | 
|              |  |                                                                                                                          |    |      |    |  |  | 
|Part II.     
|Item 5.       |  | Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities |    |      | 11 | 
|Item 6.       |  | Selected Consolidated Financial Data                                                                                     |    |      | 12 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |    |      | 12 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                           |    |      | 30 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                          |    |      | 32 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                 |    |      | 54 | 
|Item 9A.      |  | Controls and Procedures                                                                                                  |    |      | 54 | 
|Item 9B.      |  | Other Information                                                                                                        |    |      | 54 | 
|              |  |                                                                                                                          |    |      |    |  |  | 
|Part III.    
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                   |    |      | 54 | 
|Item 11.      |  | Executive Compensation                                                                                                   |    |      | 55 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |    |      | 55 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                       |    |      | 55 | 
|Item 14.      |  | Principle Accountant Fees and Services                                                                                   |    |      | 55 | 
|              |  |                                                                                                                          |    |      |    |  |  | 
|Part IV.     
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                           |    |      | 55 | 
|Signatures    |  |                                                                                                                          | 58 |     
|EXHIBIT 10.42
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



MAX


2



---



##### Table of Contents



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, our target markets, our ability to design,
develop and supply competitive products, market acceptance of
our products, 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

COMPANY OVERVIEW




www.centillium.com.


INDUSTRY ENVIRONMENT




3



---



##### Table of Contents







TARGET MARKETS AND CENTILLIUM PRODUCTS




Digital Subscriber Line (DSL)








| |                                                    
| | ---------------------------------------------------
| | DSL Central Office (CO) Infrastructure
    Products

tm MAX


4



---



##### Table of Contents





| |                                               
| | ----------------------------------------------
| | DSL Customer Premises Equipment (CPE) Products

tm MAX


Voice over Internet Protocol (VoIP)








| |              
| | -------------
| | VoIP Products

tm tm




tm




5



---



##### Table of Contents





Fiber-To-The-Premises (FTTP)








| |              
| | -------------
| | FTTP products



TECHNOLOGY






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

Software programmable digital signal processor.


6



---



##### Table of Contents



Signal processing algorithms.


Digital chip design.


Mixed-signal chip design.


System software.


CUSTOMERS AND STRATEGIC RELATIONSHIPS








|              |  |              |     |   |      |  |     |      |  |  |     |  
|------------- |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|              |  | Years Ended  |    
|              |  | December 31, |    
|              |  |              |    
|              |  | 2004         |     |   | 2003 |  |     | 2002 | 
|              |  |              |     |   |      |  |     |      | 
|Japan         |  |              | 78  | % |      |  | 79  | %    |  |  | 86  | %
|United States |  |              | 13  |   |      |  | 12  |      |  |  | 11  |  
|Other         |  |              | 9   |   |      |  | 9   |      |  |  | 3   |  
|              |  |              |     |   |      |  |     |      | 
|Total         |  |              | 100 |   |      |  | 100 |      |  |  | 100 |  
|              |  |              |     |   |      |  |     |      | 



7



---



##### Table of Contents



SALES AND MARKETING






BACKLOG




RESEARCH AND DEVELOPMENT








OPERATIONS AND MANUFACTURING






| |                  
| | -----------------
| | Wafer Fabrication



8



---



##### Table of Contents





| |                  
| | -----------------
| | Assembly and Test





| |                  
| | -----------------
| | Quality Assurance





COMPETITION






INTELLECTUAL PROPERTY




9



---



##### Table of Contents





EMPLOYEES









|        |           
|------- | ----------
|ITEM 2. | PROPERTIES










|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








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



10



---



##### Table of Contents






PART II







|        |                                                                                                                            
|------- | ---------------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES

Price Range of Common Stock




|                              |  |      |       |  |     |   |      | 
|----------------------------- |  | ---- | ----- |  | --- | - | ---- | 
|Quarter                       |  | High |       |  | Low |  
|                              |  |      |       |  |     |  
|Year ended December 31, 2004: |  |      |       |  |     |   |      | 
|First quarter                 |  | $    | 7.55  |  |     | $ | 4.26 | 
|Second quarter                |  | $    | 4.50  |  |     | $ | 3.02 | 
|Third quarter                 |  | $    | 3.76  |  |     | $ | 2.38 | 
|Fourth quarter                |  | $    | 2.80  |  |     | $ | 2.12 | 
|Year ended December 31, 2003: |  |      |       |  |     |   |      | 
|First quarter                 |  | $    | 4.75  |  |     | $ | 2.35 | 
|Second quarter                |  | $    | 11.03 |  |     | $ | 4.13 | 
|Third quarter                 |  | $    | 12.14 |  |     | $ | 6.60 | 
|Fourth quarter                |  | $    | 8.16  |  |     | $ | 4.90 | 



Dividend Policy




11



---



##### Table of Contents








|        |                                     
|------- | ------------------------------------
|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA



|                                                                       |  |                                       |         |   |      |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                       |  | Years Ended December 31,              |        
|                                                                       |  |                                       |        
|                                                                       |  | 2004                                  |         |   | 2003 |   |         | 2002(1) |  |   | 2001(2) |   |  | 2000 |        
|                                                                       |  |                                       |         |   |      |   |         |         |  |   |         |   |  |      |        
|                                                                       |  | (In thousands, except per share data) |        
|Consolidated Statement of Operations Data:                             |  |                                       |         |   |      |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net revenues                                                           |  | $                                     | 71,151  |   |      | $ | 124,976 |         |  | $ | 104,972 |   |  | $    | 159,507 |   |  | $ | 56,474  |  
|Gross profit                                                           |  | $                                     | 33,472  |   |      | $ | 53,823  |         |  | $ | 45,472  |   |  | $    | 79,726  |   |  | $ | 24,223  |  
|Operating loss                                                         |  | $                                     | (43,977 | ) |      | $ | (14,298 | )       |  | $ | (35,630 | ) |  | $    | (21,847 | ) |  | $ | (49,826 | )
|Net loss                                                               |  | $                                     | (43,062 | ) |      | $ | (13,359 | )       |  | $ | (33,301 | ) |  | $    | (19,693 | ) |  | $ | (45,998 | )
|Net loss per share  basic and diluted                                 |  | $                                     | (1.13   | ) |      | $ | (0.37   | )       |  | $ | (0.96   | ) |  | $    | (0.59   | ) |  | $ | (2.00   | )
|Shares used to compute basic and diluted net loss per share            |  |                                       | 38,210  |   |      |   | 36,433  |         |  |   | 34,641  |   |  |      | 33,495  |   |  |   | 22,950  |  
|Consolidated Balance Sheet Data:                                       |  |                                       |         |   |      |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents an short-term investments                    |  | $                                     | 62,191  |   |      | $ | 89,626  |         |  | $ | 102,002 |   |  | $    | 110,853 |   |  | $ | 87,684  |  
|Working capital                                                        |  | $                                     | 49,115  |   |      | $ | 88,284  |         |  | $ | 83,795  |   |  | $    | 103,663 |   |  | $ | 94,739  |  
|Total assets                                                           |  | $                                     | 81,945  |   |      | $ | 125,624 |         |  | $ | 122,439 |   |  | $    | 144,208 |   |  | $ | 127,943 |  
|Long-term debt and capital lease obligations, less current
    portion |  | $                                     |        |   |      | $ |        |         |  | $ | 525     |   |  | $    |        |   |  | $ | 221     |  
|Total stockholders equity                                             |  | $                                     | 55,332  |   |      | $ | 96,037  |         |  | $ | 93,823  |   |  | $    | 121,158 |   |  | $ | 106,870 |  






|   |                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------
|1. | Results of operations for 2002 include a $5.8 million
    charge for impairment of goodwill.             
|  
|2. | Results of operations for 2001 include a $7.4 million
    charge for in-process research and development.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



| |                     
| | --------------------
| | Cautionary Statement







12



---



##### Table of Contents







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

General.




Revenue Recognition.


Sales Returns and Allowances.


Allowance for Doubtful Accounts.


Inventories.


Warranty.


13



---



##### Table of Contents





Litigation and Contingencies.






| |         
| | --------
| | Overview













14



---



##### Table of Contents







Net Revenues:










Cost of Revenues:


Research and Development Expenses:


Selling, General and Administrative Expenses:


15



---



##### Table of Contents



Stock-based Compensation:


Interest Income and Other, Net:


Provision for Income Taxes:








Results of Operations




|                                                |  |              |     |    |      |  |     |      |  |  |     |   
|----------------------------------------------- |  | ------------ | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                                                |  | Year Ended   |    
|                                                |  | December 31, |    
|                                                |  |              |    
|                                                |  | 2004         |     |    | 2003 |  |     | 2002 | 
|                                                |  |              |     |    |      |  |     |      | 
|Net revenues                                    |  |              | 100 | %  |      |  | 100 | %    |  |  | 100 | % 
|Cost of revenues                                |  |              | 53  |    |      |  | 57  |      |  |  | 57  |   
|                                                |  |              |     |    |      |  |     |      | 
|Gross profit                                    |  |              | 47  |    |      |  | 43  |      |  |  | 43  |   
|                                                |  |              |     |    |      |  |     |      | 
|Operating expenses:                             |  |              |     |    |      |  |     |      |  |  |     |   
|Research and development                        |  |              | 76  |    |      |  | 37  |      |  |  | 48  |   
|Selling, general and administrative             |  |              | 33  |    |      |  | 18  |      |  |  | 23  |   
|Amortization of acquisition-related intangibles |  |              |    |    |      |  |    | *    |  |  |    | * 
|Impairment of goodwill                          |  |              |    |    |      |  |    |      |  |  | 6   |   
|                                                |  |              |     |    |      |  |     |      | 
|Total operating expenses                        |  |              | 109 |    |      |  | 55  |      |  |  | 77  |   
|                                                |  |              |     |    |      |  |     |      | 
|Operating loss                                  |  |              | (62 | )  |      |  | (12 | )    |  |  | (34 | ) 
|Interest income and other, net                  |  |              | 1   |    |      |  | 1   |      |  |  | 2   |   
|                                                |  |              |     |    |      |  |     |      | 
|Net loss                                        |  |              | (61 | )% |      |  | (11 | )%   |  |  | (32 | )%
|                                                |  |              |     |    |      |  |     |      | 






|  |             
|- | ------------
|* | Less than 1%

16



---



##### Table of Contents





| |                                       
| | --------------------------------------
| | Years ended December 31, 2004 and 2003

Net Revenues:




Gross Profit:


Research and Development Expenses:


Selling, General and Administrative Expenses:


Stock-based Compensation Expense:


Interest Income and Other, Net:


Provision for Income Taxes:




17



---



##### Table of Contents





Net Losses:




| |                                       
| | --------------------------------------
| | Years ended December 31, 2003 and 2002

Net Revenues:




Gross Profit:


Research and Development Expenses:


Selling, General and Administrative Expenses:


Stock-based Compensation Expense:


Interest Income and Other, Net:


18



---



##### Table of Contents



Benefit (Provision) for Income Taxes:


Net Losses:


Liquidity and Capital Resources












19



---



##### Table of Contents





|                              |  |       |        |           |        |   |       |           |       |   |         |  |  |   |       | 
|----------------------------- |  | ----- | ------ | --------- | ------ | - | ----- | --------- | ----- | - | ------- |  |  | - | ----- | 
|                              |  |       |        | Less than |        |   |       |           | After |  
|                              |  | Total |        |           | 1 Year |   |       | 1-3 Years |       |   | 3 Years | 
|                              |  |       |        |           |        |   |       |           |       |   |         | 
|Operating leases  facilities |  | $     | 6,558  |           |        | $ | 1,369 |           |       | $ | 2,966   |  |  | $ | 2,223 | 
|Operating leases  software   |  |       | 6,846  |           |        |   | 2,281 |           |       |   | 3,325   |  |  |   | 1,240 | 
|Inventory purchases           |  |       | 4,651  |           |        |   | 4,651 |           |       |   |        |  |  |   |      | 
|                              |  |       |        |           |        |   |       |           |       |   |         | 
|Total cash obligations        |  | $     | 18,055 |           |        | $ | 8,301 |           |       | $ | 6,291   |  |  | $ | 3,463 | 
|                              |  |       |        |           |        |   |       |           |       |   |         | 







Recent Accounting Pronouncements






20



---



##### Table of Contents







Risk Factors






| |                                                                         
| | ------------------------------------------------------------------------
| | WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE LOSSES IN
    THE FUTURE.







| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | THE SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN HAS AND MAY
    CONTINUE TO ADVERSELY AFFECT OUR BUSINESS AND OPERATING
    RESULTS.





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



21



---



##### Table of Contents







| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | 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.              



| |                                             
| | --------------------------------------------
| | OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.





| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                   



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WE ARE EXPOSED TO INCREASED COSTS AND RISKS ASSOCIATED
    WITH COMPLYING WITH INCREASING AND NEW REGULATION OF CORPORATE
    GOVERNANCE AND DISCLOSURE STANDARDS.



22



---



##### Table of Contents







| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | CHANGES IN THE ACCOUNTING TREATMENT OF STOCK OPTIONS WILL
    ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.





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





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | WE OPERATE IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY,
    WHICH IS SUBJECT TO SIGNIFICANT DOWNTURNS.





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A GENERAL ECONOMIC SLOWDOWN, AND A SLOWDOWN IN SPENDING IN
    THE TELECOMMUNICATIONS INDUSTRY, HAS AFFECTED AND MAY CONTINUE
    TO NEGATIVELY AFFECT OUR BUSINESS AND OPERATING RESULTS.



23



---



##### Table of Contents







| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | reduced demand for our products;                                                                     
|
| |  | increased price competition for our products;                                                        
|
| |  | increased risk of excess and obsolete inventories;                                                   
|
| |  | higher research and development and general and administrative
    costs, as a percentage of revenue.





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM JAPAN,
    AND OUR FAILURE TO DIVERSIFY THE GEOGRAPHIC SOURCES OF OUR
    REVENUE COULD HARM OUR BUSINESS AND OPERATING RESULTS.





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WE DERIVE A SUBSTANTIAL MAJORITY OF OUR REVENUES FROM DSL
    PRODUCTS, AND OUR FAILURE TO DIVERSIFY OUR SOURCES OF OUR
    REVENUE COULD HARM OUR BUSINESS AND OPERATING RESULTS.





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



24



---



##### Table of Contents





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







| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | WE ANTICIPATE LOWER MARGINS AS PRODUCTS MATURE AND AS WE
    EXPERIENCE AGGRESSIVE COMPETITION, WHICH COULD ADVERSELY AFFECT
    OUR PROFITABILITY.







| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | WE MAY BE UNABLE TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED
    PERSONNEL, WHICH COULD SERIOUSLY HARM OUR BUSINESS.



25



---



##### Table of Contents





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





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





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





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



26



---



##### Table of Contents







| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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







| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | enter into exclusive arrangements with our competitors;                               
|
| |  | stop selling their products or components to us at commercially
    reasonable prices;

27



---



##### Table of Contents





| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | refuse to sell their products or components to us at any
    price; or
|
| |  | be subject to production disruptions such as earthquakes.             



| |                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE
    EFFECTIVELY WITH DSL SERVICES OR OTHER SERVICES ADDRESSED BY OUR
    PRODUCTS, A SLOWDOWN IN DEPLOYMENT OF DSL SERVICES, THE LACK OF
    SIGNIFICANT GROWTH IN NON-DSL MARKETS THAT WE ARE TARGETING AND
    OUR LACK OF SUCCESS IN PENETRATING SUCH MARKETS WOULD ADVERSELY
    AFFECT OUR BUSINESS AND OPERATING RESULTS.





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | WE ARE SUBJECT TO ORDER AND SHIPMENT UNCERTAINTIES, AND
    ANY SIGNIFICANT ORDER CANCELLATIONS OR DEFERRALS COULD ADVERSELY
    AFFECT OUR BUSINESS.





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





| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | 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.                



28



---



##### Table of Contents







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





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





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



29



---



##### Table of Contents





| |                                                                             
| | ----------------------------------------------------------------------------
| | WE MAY MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE
    NUMEROUS RISKS.





| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                      







| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.










|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



30



---



##### Table of Contents





31



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CENTILLIUM COMMUNICATIONS, INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                                 |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                 |  | Page |   
|                                                                                                                                 |  |      |   
|Consolidated Financial Statements                                                                                                |  |      |    | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm, on Financial
    Statements                      |  |      | 33 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm, on Internal
    Control Over Financial Reporting |  |      | 34 | 
|Consolidated Statements of Operations                                                                                            |  |      | 35 | 
|Consolidated Balance Sheets                                                                                                      |  |      | 36 | 
|Consolidated Statements of
    Stockholders Equity                                                                              |  |      | 37 | 
|Consolidated Statements of Cash Flows                                                                                            |  |      | 38 | 
|Notes to Consolidated Financial
    Statements                                                                                   |  |      | 39 | 
|Financial Statement Schedule                                                                                                     |  |      | 55 | 
|Schedule II  Consolidated
    Valuation and Qualifying Accounts                                                                 |  |      | 55 | 

32



---



##### Table of Contents






REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC


ACCOUNTING FIRM, ON FINANCIAL STATEMENTS
















| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





33



---



##### Table of Contents






REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC


ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL
REPORTING




















| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





34



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                            |  |                                       |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                            |  | Year Ended December 31,               |        
|                                                            |  |                                       |        
|                                                            |  | 2004                                  |         |   | 2003 |   |         | 2002 | 
|                                                            |  |                                       |         |   |      |   |         |      | 
|                                                            |  | (In thousands, except per share data) |        
|Net revenues                                                |  | $                                     | 71,151  |   |      | $ | 124,976 |      |  | $ | 104,972 |  
|Cost of revenues                                            |  |                                       | 37,679  |   |      |   | 71,153  |      |  |   | 59,500  |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Gross profit                                                |  |                                       | 33,472  |   |      |   | 53,823  |      |  |   | 45,472  |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Operating expenses:                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Research and development                                    |  |                                       | 53,743  |   |      |   | 46,162  |      |  |   | 50,754  |  
|Selling, general and administrative                         |  |                                       | 23,706  |   |      |   | 21,876  |      |  |   | 24,346  |  
|Amortization of acquisition-related intangibles             |  |                                       |        |   |      |   | 83      |      |  |   | 167     |  
|Impairment of goodwill                                      |  |                                       |        |   |      |   |        |      |  |   | 5,835   |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Total operating expenses                                    |  |                                       | 77,449  |   |      |   | 68,121  |      |  |   | 81,102  |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Operating loss                                              |  |                                       | (43,977 | ) |      |   | (14,298 | )    |  |   | (35,630 | )
|Interest income, net                                        |  |                                       | 1,070   |   |      |   | 1,072   |      |  |   | 1,794   |  
|Gain on non-current investment                              |  |                                       |        |   |      |   |        |      |  |   | 440     |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Loss before benefit (provision) for income taxes            |  |                                       | (42,907 | ) |      |   | (13,226 | )    |  |   | (33,396 | )
|Benefit (provision) for income taxes                        |  |                                       | (155    | ) |      |   | (133    | )    |  |   | 95      |  
|                                                            |  |                                       |         |   |      |   |         |      | 
|Net loss                                                    |  | $                                     | (43,062 | ) |      | $ | (13,359 | )    |  | $ | (33,301 | )
|                                                            |  |                                       |         |   |      |   |         |      | 
|Basic and diluted net loss per share                        |  | $                                     | (1.13   | ) |      | $ | (0.37   | )    |  | $ | (0.96   | )
|                                                            |  |                                       |         |   |      |   |         |      | 
|Shares used to compute basic and diluted net loss per share |  |                                       | 38,210  |   |      |   | 36,433  |      |  |   | 34,641  |  
|                                                            |  |                                       |         |   |      |   |         |      | 



35



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                        |  |                            |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                                        |  | December 31,               |         
|                                                                                                                                        |  |                            |         
|                                                                                                                                        |  | 2004                       |          |   | 2003 |  
|                                                                                                                                        |  |                            |          |   |      |  
|                                                                                                                                        |  | (In thousands except share |         
|                                                                                                                                        |  | and per share data)        |         
|ASSETS                                                                                                                                 
|Current assets:                                                                                                                         |  |                            |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                               |  | $                          | 31,996   |   |      | $ | 24,734   |  
|Short-term investments                                                                                                                  |  |                            | 30,195   |   |      |   | 64,892   |  
|Accounts receivable  net of allowance for doubtful
    accounts of $151 at December 31, 2004 and $109 at
    December 31, 2003         |  |                            | 5,348    |   |      |   | 12,476   |  
|Inventories                                                                                                                             |  |                            | 6,100    |   |      |   | 11,908   |  
|Prepaids and other current assets                                                                                                       |  |                            | 1,225    |   |      |   | 3,718    |  
|                                                                                                                                        |  |                            |          |   |      |  
|Total current assets                                                                                                                    |  |                            | 74,864   |   |      |   | 117,728  |  
|Property and equipment, net                                                                                                             |  |                            | 6,528    |   |      |   | 7,385    |  
|Other assets                                                                                                                            |  |                            | 553      |   |      |   | 511      |  
|                                                                                                                                        |  |                            |          |   |      |  
|Total assets                                                                                                                            |  | $                          | 81,945   |   |      | $ | 125,624  |  
|                                                                                                                                        |  |                            |          |   |      |  
|                                                                                                                                       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                   
|Current liabilities:                                                                                                                    |  |                            |          |   |      |   |          |  
|Accounts payable                                                                                                                        |  | $                          | 5,599    |   |      | $ | 7,434    |  
|Accrued payroll and related expenses                                                                                                    |  |                            | 3,364    |   |      |   | 5,315    |  
|Accrued liabilities                                                                                                                     |  |                            | 16,786   |   |      |   | 16,168   |  
|Capital lease  current portion                                                                                                         |  |                            |         |   |      |   | 527      |  
|                                                                                                                                        |  |                            |          |   |      |  
|Total current liabilities                                                                                                               |  |                            | 25,749   |   |      |   | 29,444   |  
|                                                                                                                                        |  |                            |          |   |      |  
|Other long-term liabilities                                                                                                             |  |                            | 864      |   |      |   | 143      |  
|Commitments and contingencies                                                                                                           |  |                            |          |   |      |   |          |  
|Stockholders equity:                                                                                                                   |  |                            |          |   |      |   |          |  
|Common stock; $0.001 par value:                                                                                                         |  |                            |          |   |      |   |          |  
|Authorized shares: 100,000,000; Issued and outstanding shares:
    38,810,001 at December 31, 2004, 37,831,085 at
    December 31, 2003 |  |                            | 39       |   |      |   | 38       |  
|Additional paid-in capital                                                                                                              |  |                            | 244,493  |   |      |   | 242,348  |  
|Deferred compensation                                                                                                                   |  |                            |         |   |      |   | (292     | )
|Accumulated deficit                                                                                                                     |  |                            | (189,155 | ) |      |   | (146,093 | )
|Accumulated other comprehensive income (loss)                                                                                           |  |                            | (45      | ) |      |   | 36       |  
|                                                                                                                                        |  |                            |          |   |      |  
|Total stockholders equity                                                                                                              |  |                            | 55,332   |   |      |   | 96,037   |  
|                                                                                                                                        |  |                            |          |   |      |  
|Total liabilities and stockholders equity                                                                                              |  | $                          | 81,945   |   |      | $ | 125,624  |  
|                                                                                                                                        |  |                            |          |   |      |  



36



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        |  |   |     |   |  |   |         |  
|---------------------------------------------------------------------------- |  | --------------------------------- | ---------- | - | ---------- | - | -- | -------- |  | ----------- | ------------ | ----- |  | ------------- | ------ | - | ------------- | - | -------- | ------ |  | - | --- | - |  | - | ------- | -
|                                                                             |  |                                   |            |   |            |   |    |          |  | Accumulated |              |       | 
|                                                                             |  | Common Stock                      |            |   | Additional |   |    |          |  |             |              | Other |  |               | Total  |  
|                                                                             |  |                                   |            |   | Paid-In    |   |    | Deferred |  |             | Accumulated  |       |  | Comprehensive |        |   | Stockholders |  
|                                                                             |  | Shares                            |            |   | Amount     |   |    | Capital  |  |             | Compensation |       |  | Deficit       |        |   | Income        |   |          | Equity | 
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|                                                                             |  | (In thousands, except share data) |           
|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                                |  |                                   | 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, net                                        |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               | 3,797  |   |               |   |         |        |  |   |    |   |  |   | 3,797   |  
|Net loss                                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   | (33,301  | )      |  |   |    |   |  |   | (33,301 | )
|Unrealized loss on available-for-sale investments                            |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   | (58 | ) |  |   | (58     | )
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|Total comprehensive loss                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | (33,359 | )
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|BALANCE AT DECEMBER 31, 2002                                                 |  |                                   | 35,245,171 |   |            |   | 35 |          |  |             | 228,847      |       |  |               | (2,333 | ) |               |   | (132,734 | )      |  |   | 8   |   |  |   | 93,823  |  
|Exercise of options to purchase common stock for cash net of
    repurchases |  |                                   | 2,129,049  |   |            |   | 3  |          |  |             | 11,743       |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | 11,746  |  
|Proceeds from contribution by stockholder                                    |  |                                   |           |   |            |   |   |          |  |             | 857          |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | 857     |  
|Issuance of shares under employee stock purchase plan                        |  |                                   | 456,865    |   |            |   |   |          |  |             | 1,516        |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | 1,516   |  
|Reversal of deferred compensation                                            |  |                                   |           |   |            |   |   |          |  |             | (615         | )     |  |               | 615    |   |               |   |         |        |  |   |    |   |  |   |        |  
|Stock-based compensation expense, net                                        |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               | 1,426  |   |               |   |         |        |  |   |    |   |  |   | 1,426   |  
|Net loss                                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   | (13,359  | )      |  |   |    |   |  |   | (13,359 | )
|Unrealized gain on available-for-sale investments                            |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   | 28  |   |  |   | 28      |  
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|Total comprehensive loss                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | (13,331 | )
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|BALANCE AT DECEMBER 31, 2003                                                 |  |                                   | 37,831,085 |   |            | $ | 38 |          |  | $           | 242,348      |       |  | $             | (292   | ) |               | $ | (146,093 | )      |  | $ | 36  |   |  | $ | 96,037  |  
|Exercise of options to purchase common stock for cash net of
    repurchases |  |                                   | 344,709    |   |            |   |   |          |  |             | 588          |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | 588     |  
|Issuance of shares under employee stock purchase plan                        |  |                                   | 634,207    |   |            |   | 1  |          |  |             | 1,560        |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | 1,561   |  
|Reversal of deferred compensation                                            |  |                                   |           |   |            |   |   |          |  |             | (3           | )     |  |               | 3      |   |               |   |         |        |  |   |    |   |  |   |        |  
|Stock-based compensation expense, net                                        |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               | 289    |   |               |   |         |        |  |   |    |   |  |   | 289     |  
|Net loss                                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   | (43,062  | )      |  |   |    |   |  |   | (43,062 | )
|Unrealized gain on available-for-sale investments                            |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   | (81 | ) |  |   | (81     | )
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|Total comprehensive loss                                                     |  |                                   |           |   |            |   |   |          |  |             |             |       |  |               |       |   |               |   |         |        |  |   |    |   |  |   | (43,143 | )
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 
|BALANCE AT DECEMBER 31, 2004                                                 |  |                                   | 38,810,001 |   |            | $ | 39 |          |  | $           | 244,493      |       |  | $             |       |   |               | $ | (189,155 | )      |  | $ | (45 | ) |  | $ | 55,332  |  
|                                                                             |  |                                   |            |   |            |   |    |          |  |             |              |       |  |               |        |   |               |   |          |        | 



37



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                |  | Years Ended December 31, |        
|                                                                                |  |                          |        
|                                                                                |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|                                                                                |  |                          |         |   |      |   |         |      | 
|                                                                                |  | (In thousands)           |        
|OPERATING ACTIVITIES                                                            |  |                          |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                        |  | $                        | (43,062 | ) |      | $ | (13,359 | )    |  | $ | (33,301 | )
|Adjustments to reconcile net loss to net cash used in operating
    activities: |  |                          |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization expense                                           |  |                          | 4,974   |   |      |   | 6,350   |      |  |   | 7,223   |  
|Stock-based compensation expense                                                |  |                          | 289     |   |      |   | 1,426   |      |  |   | 3,797   |  
|Loss on retirements of property and equipment                                   |  |                          | 82      |   |      |   | 19      |      |  |   | 36      |  
|Amortization of acquisition-related intangibles                                 |  |                          |        |   |      |   | 83      |      |  |   | 167     |  
|Issuance of common stock for services and other                                 |  |                          |        |   |      |   |        |      |  |   | 10      |  
|Gain on non-current investment                                                  |  |                          |        |   |      |   |        |      |  |   | (440    | )
|Impairment of goodwill                                                          |  |                          |        |   |      |   |        |      |  |   | 5,835   |  
|Changes in operating assets and liabilities:                                    |  |                          |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                             |  |                          | 7,128   |   |      |   | (9,612  | )    |  |   | 1,178   |  
|Inventories                                                                     |  |                          | 5,808   |   |      |   | (7,778  | )    |  |   | 5,226   |  
|Prepaids and other current assets                                               |  |                          | 2,493   |   |      |   | (1,096  | )    |  |   | (475    | )
|Other assets                                                                    |  |                          | (42     | ) |      |   | (162    | )    |  |   | (107    | )
|Accounts payable                                                                |  |                          | (1,835  | ) |      |   | (1,051  | )    |  |   | 631     |  
|Accrued payroll and related expenses                                            |  |                          | (1,951  | ) |      |   | 1,324   |      |  |   | 672     |  
|Accrued liabilities                                                             |  |                          | 618     |   |      |   | 2,349   |      |  |   | 2,521   |  
|Other liabilities                                                               |  |                          | 721     |   |      |   | (125    | )    |  |   | (47     | )
|                                                                                |  |                          |         |   |      |   |         |      | 
|Net cash used in operating activities                                           |  |                          | (24,777 | ) |      |   | (21,632 | )    |  |   | (7,074  | )
|                                                                                |  |                          |         |   |      |   |         |      | 
|INVESTING ACTIVITIES                                                            |  |                          |         |   |      |   |         |      |  |   |         |  
|Purchases of short-term investments                                             |  |                          | (28,696 | ) |      |   | (90,131 | )    |  |   | (16,967 | )
|Sales and maturities of short-term investments                                  |  |                          | 63,312  |   |      |   | 33,756  |      |  |   | 25,549  |  
|Purchases of property and equipment                                             |  |                          | (4,199  | ) |      |   | (3,365  | )    |  |   | (4,112  | )
|Proceeds from sale of non-current investment                                    |  |                          |        |   |      |   |        |      |  |   | 440     |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|Net cash provided by (used in) investing activities                             |  |                          | 30,417  |   |      |   | (59,740 | )    |  |   | 4,910   |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|FINANCING ACTIVITIES                                                            |  |                          |         |   |      |   |         |      |  |   |         |  
|Principal payments on capital lease obligations                                 |  |                          | (527    | ) |      |   | (1,526  | )    |  |   |        |  
|Principal payments on long-term debt obligations                                |  |                          |        |   |      |   |        |      |  |   | (264    | )
|Proceeds from issuance of common stock, net of repurchases                      |  |                          | 2,149   |   |      |   | 13,262  |      |  |   | 2,217   |  
|Proceeds from contribution by stockholder                                       |  |                          |        |   |      |   | 857     |      |  |   |        |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|Net cash provided by financing activities                                       |  |                          | 1,622   |   |      |   | 12,593  |      |  |   | 1,953   |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|Net increase (decrease) in cash and cash equivalents                            |  |                          | 7,262   |   |      |   | (68,779 | )    |  |   | (211    | )
|Cash and cash equivalents at beginning of period                                |  |                          | 24,734  |   |      |   | 93,513  |      |  |   | 93,724  |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|Cash and cash equivalents at end of period                                      |  | $                        | 31,996  |   |      | $ | 24,734  |      |  | $ | 93,513  |  
|                                                                                |  |                          |         |   |      |   |         |      | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash paid for interest                                                          |  | $                        | 2       |   |      | $ | 49      |      |  | $ | 203     |  
|Cash paid (received) for income taxes                                           |  | $                        | 20      |   |      | $ | 51      |      |  | $ | (210    | )
|SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Property and equipment purchases through capital lease                          |  | $                        |        |   |      | $ |        |      |  | $ | 2,053   |  
|Deferred compensation related to stock option grants, net of
    terminations   |  | $                        | (3      | ) |      | $ | (615    | )    |  | $ | (2,604  | )



38



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                                           
|------- | ------------------------------------------
|Note 1. | Summary of Significant Accounting Policies



Basis of Presentation:


Use of Estimates:


Revenue Recognition:


Sales Returns and Allowances:


Allowance for Doubtful Accounts.


Warranty:


39



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Concentrations of Credit Risk:


Customer Concentrations:




Supplier Concentrations:


Cash Equivalents and Short-term Investments:




40



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Inventories:


Property and Equipment:


Impairment of Long-lived Assets:


Goodwill:


Software Development Costs:


Advertising Costs:


Shipping and Handling:


Foreign Currency Accounting:


Fair Value of Financial Instruments:


41



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Net Loss Per Share:


|                                                                                 |  |                          |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                 |  | Years Ended December 31, |        
|                                                                                 |  |                          |        
|                                                                                 |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|                                                                                 |  |                          |         |   |      |   |         |      | 
|Net loss                                                                         |  | $                        | (43,062 | ) |      | $ | (13,359 | )    |  | $ | (33,301 | )
|                                                                                 |  |                          |         |   |      |   |         |      | 
|Basic and diluted:                                                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Weighted average shares of common stock outstanding                              |  |                          | 38,210  |   |      |   | 36,433  |      |  |   | 34,686  |  
|Less weighted average shares subject to repurchase                               |  |                          |        |   |      |   |        |      |  |   | (45     | )
|                                                                                 |  |                          |         |   |      |   |         |      | 
|Weighted average shares used to compute basic and diluted net
    loss per share |  |                          | 38,210  |   |      |   | 36,433  |      |  |   | 34,641  |  
|                                                                                 |  |                          |         |   |      |   |         |      | 
|Basic and diluted net loss per share                                             |  | $                        | (1.13   | ) |      | $ | (0.37   | )    |  | $ | (0.96   | )
|                                                                                 |  |                          |         |   |      |   |         |      | 

Stock-based Compensation:


|                                                                                                                                   |  |                          |         |            |      |   |            |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- | -
|                                                                                                                                   |  | Years Ended December 31, |        
|                                                                                                                                   |  |                          |        
|                                                                                                                                   |  | 2004                     |         |            | 2003 |   |            | 2002 | 
|                                                                                                                                   |  |                          |         |            |      |   |            |      | 
|                                                                                                                                   |  |                          |         | (Restated) |      |   | (Restated) |     
|Net loss as reported                                                                                                               |  | $                        | (43,062 | )          |      | $ | (13,359    | )    |  | $ | (33,301 | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of recovery                                  |  |                          | 289     |            |      |   | 1,426      |      |  |   | 3,807   |  
|Less: Total stock-based employee compensation expense under fair
    value based method for all awards, net of related tax effects |  |                          | (10,220 | )          |      |   | (23,303    | )    |  |   | (49,882 | )
|                                                                                                                                   |  |                          |         |            |      |   |            |      | 
|Pro forma net loss                                                                                                                 |  | $                        | (52,993 | )          |      | $ | (35,236    | )    |  | $ | (79,376 | )
|                                                                                                                                   |  |                          |         |            |      |   |            |      | 
|Basic and diluted net loss per share  as reported                                                                                 |  | $                        | (1.13   | )          |      | $ | (0.37      | )    |  | $ | (0.96   | )
|                                                                                                                                   |  |                          |         |            |      |   |            |      | 
|Basic and diluted net loss per share  pro forma                                                                                   |  | $                        | (1.39   | )          |      | $ | (0.97      | )    |  | $ | (2.29   | )
|                                                                                                                                   |  |                          |         |            |      |   |            |      | 



42



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Recent Accounting Pronouncements: Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29. Accounting for
Nonmonetary Transactions,








|        |                          
|------- | -------------------------
|Note 2. | Balance Sheet Information



|                |  |              |       |  |      |   |        | 
|--------------- |  | ------------ | ----- |  | ---- | - | ------ | 
|                |  | December 31, |      
|                |  |              |      
|                |  | 2004         |       |  | 2003 |  
|                |  |              |       |  |      |  
|Work-in-process |  | $            | 3,694 |  |      | $ | 5,475  | 
|Finished goods  |  |              | 2,406 |  |      |   | 6,433  | 
|                |  |              |       |  |      |  
|                |  | $            | 6,100 |  |      | $ | 11,908 | 
|                |  |              |       |  |      |  

43



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                          |  |              |         |   |      |   |         |  
|----------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                          |  | December 31, |        
|                                          |  |              |        
|                                          |  | 2004         |         |   | 2003 |  
|                                          |  |              |         |   |      |  
|Equipment and software                    |  | $            | 27,922  |   |      | $ | 25,627  |  
|Furniture and fixtures                    |  |              | 1,131   |   |      |   | 1,065   |  
|Leasehold improvements                    |  |              | 1,400   |   |      |   | 1,491   |  
|                                          |  |              |         |   |      |  
|                                          |  |              | 30,453  |   |      |   | 28,183  |  
|Accumulated depreciation and amortization |  |              | (23,925 | ) |      |   | (20,798 | )
|                                          |  |              |         |   |      |  
|Property and equipment, net               |  | $            | 6,528   |   |      | $ | 7,385   |  
|                                          |  |              |         |   |      |  



|                          |  |              |        |  |      |   |        | 
|------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                          |  | December 31, |       
|                          |  |              |       
|                          |  | 2004         |        |  | 2003 |  
|                          |  |              |        |  |      |  
|Accrued royalties         |  | $            | 13,773 |  |      | $ | 13,211 | 
|Accrued other liabilities |  |              | 3,013  |  |      |   | 2,957  | 
|                          |  |              |        |  |      |  
|                          |  | $            | 16,786 |  |      | $ | 16,168 | 
|                          |  |              |        |  |      |  



|                             |  |            |     |  |          |   |      |          |  |   |            |   |  |   |     | 
|---------------------------- |  | ---------- | --- |  | -------- | - | ---- | -------- |  | - | ---------- | - |  | - | --- | 
|                             |  | Balance at |     |  | Product  |   |      | Warranty |  |   | Balance at |  
|                             |  | Beginning  |     |  | Warranty |   |      | Costs    |  |   | End        |  
|                             |  | of Period  |     |  | Accruals |   |      | Incurred |  |   | of Period  |  
|                             |  |            |     |  |          |   |      |          |  |   |            |  
|Year ended December 31, 2004 |  | $          | 460 |  |          | $ | (197 | )        |  | $ | (99        | ) |  | $ | 164 | 
|                             |  |            |     |  |          |   |      |          |  |   |            |  
|Year ended December 31, 2003 |  | $          | 608 |  |          | $ | 343  |          |  | $ | (491       | ) |  | $ | 460 | 
|                             |  |            |     |  |          |   |      |          |  |   |            |  
|Year ended December 31, 2002 |  | $          | 766 |  |          | $ | 561  |          |  | $ | (719       | ) |  | $ | 608 | 
|                             |  |            |     |  |          |   |      |          |  |   |            |  



|        |                    
|------- | -------------------
|Note 3. | Goodwill Impairment



44



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|        |                       
|------- | ----------------------
|Note 4. | Short-term Investments



|                                                           |  |           |        |       |                |   |     |            |  |   |        | 
|---------------------------------------------------------- |  | --------- | ------ | ----- | -------------- | - | --- | ---------- |  | - | ------ | 
|                                                           |  |           |        | Gross |                |   |    
|                                                           |  | Amortized |        |       | Unrealized     |   |     | Estimated  | 
|                                                           |  | Cost      |        |       | Gains/(Losses) |   |     | Fair Value | 
|                                                           |  |           |        |       |                |   |     |            | 
|December 31, 2004                                          |  |           |        |       |                |   |     |            |  |   |        | 
|Obligations of the U.S. government and affiliated agencies |  | $         | 19,030 |       |                | $ | (45 | )          |  | $ | 18,985 | 
|Auction rate securities                                    |  |           | 11,210 |       |                |   |    |            |  |   | 11,210 | 
|                                                           |  |           |        |       |                |   |     |            | 
|                                                           |  | $         | 30,240 |       |                | $ | (45 | )          |  | $ | 30,195 | 
|                                                           |  |           |        |       |                |   |     |            | 
|December 31, 2003                                          |  |           |        |       |                |   |     |            |  |   |        | 
|Corporate debt securities                                  |  | $         | 1,032  |       |                | $ | 2   |            |  | $ | 1,034  | 
|Obligations of the U.S. government and affiliated agencies |  |           | 30,722 |       |                |   | 34  |            |  |   | 30,756 | 
|Auction rate securities                                    |  |           | 32,635 |       |                |   |    |            |  |   | 32,635 | 
|Certificate of deposit                                     |  |           | 467    |       |                |   |    |            |  |   | 467    | 
|                                                           |  |           |        |       |                |   |     |            | 
|                                                           |  | $         | 64,856 |       |                | $ | 36  |            |  | $ | 64,892 | 
|                                                           |  |           |        |       |                |   |     |            | 





|        |                              
|------- | -----------------------------
|Note 5. | Commitments and Contingencies





|                       |  |           |        | 
|---------------------- |  | --------- | ------ | 
|                       |  | Operating |       
|                       |  | Leases    |       
|                       |  |           |       
|2005                   |  | $         | 3,650  | 
|2006                   |  |           | 2,024  | 
|2007                   |  |           | 2,019  | 
|2008                   |  |           | 2,248  | 
|2009                   |  |           | 2,264  | 
|Thereafter             |  |           | 1,199  | 
|                       |  |           |       
|Total minimum payments |  | $         | 13,404 | 
|                       |  |           |       





45



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|        |                     
|------- | --------------------
|Note 6. | Stockholders Equity

Preferred Stock:


Stockholder Rights Plan:




Warrant:


Common Stock Reserved:




|                             |  |              |            |  |      |  |            | 
|---------------------------- |  | ------------ | ---------- |  | ---- |  | ---------- | 
|                             |  | December 31, |           
|                             |  |              |           
|                             |  | 2004         |            |  | 2003 | 
|                             |  |              |            |  |      | 
|Common stock options         |  |              | 18,633,934 |  |      |  | 16,708,966 | 
|Employee stock purchase plan |  |              | 138,870    |  |      |  | 394,767    | 
|Common stock warrants        |  |              | 9,450      |  |      |  | 9,450      | 
|                             |  |              |            |  |      | 
|                             |  |              | 18,782,254 |  |      |  | 17,113,183 | 
|                             |  |              |            |  |      | 

46



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Deferred Stock-based Compensation:




|                                    |  |                          |     |  |      |   |       |      |  |   |       | 
|----------------------------------- |  | ------------------------ | --- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                    |  | Years Ended December 31, |    
|                                    |  |                          |    
|                                    |  | 2004                     |     |  | 2003 |   |       | 2002 | 
|                                    |  |                          |     |  |      |   |       |      | 
|Cost of revenues                    |  | $                        | 7   |  |      | $ | 39    |      |  | $ | 256   | 
|Research and development            |  |                          | 218 |  |      |   | 907   |      |  |   | 2,469 | 
|Selling, general and administrative |  |                          | 64  |  |      |   | 480   |      |  |   | 1,072 | 
|                                    |  |                          |     |  |      |   |       |      | 
|                                    |  | $                        | 289 |  |      | $ | 1,426 |      |  | $ | 3,797 | 
|                                    |  |                          |     |  |      |   |       |      | 

Proceeds from Stockholder:


Stock Options:




47



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|                                                       |  |                     |            |          |           |  |            |          |  |   |       | 
|------------------------------------------------------ |  | ------------------- | ---------- | -------- | --------- |  | ---------- | -------- |  | - | ----- | 
|                                                       |  | Options Outstanding |           
|                                                       |  |                     |           
|                                                       |  |                     |            | Weighted |          
|                                                       |  |                     |            | Average  |          
|                                                       |  | Available           |            |          | Number of |  |            | Exercise | 
|                                                       |  | for Grant           |            |          | Shares    |  |            | Price    | 
|                                                       |  |                     |            |          |           |  |            |          | 
|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  | 
|Options authorized                                     |  |                     | 2,114,710  |          |           |  |           |          |  | $ |      | 
|Options granted                                        |  |                     | (3,044,911 | )        |           |  | 3,044,911  |          |  | $ | 6.30  | 
|Options exercised                                      |  |                     |           |          |           |  | (2,137,258 | )        |  | $ | 5.50  | 
|Options available due to repurchase of unvested shares |  |                     | 7,896      |          |           |  |           |          |  |   |      | 
|Options canceled                                       |  |                     | 1,542,025  |          |           |  | (1,542,025 | )        |  | $ | 8.86  | 
|                                                       |  |                     |            |          |           |  |            |          | 
|Balance at December 31, 2003                           |  |                     | 4,060,598  |          |           |  | 12,648,368 |          |  | $ | 7.60  | 
|Options authorized                                     |  |                     | 2,269,865  |          |           |  |           |          |  |   |      | 
|Options granted                                        |  |                     | (2,659,900 | )        |           |  | 2,659,900  |          |  | $ | 3.75  | 
|Options exercised                                      |  |                     |           |          |           |  | (344,897   | )        |  | $ | 1.71  | 
|Options canceled                                       |  |                     | 7,070,895  |          |           |  | (7,070,895 | )        |  | $ | 7.97  | 
|                                                       |  |                     |            |          |           |  |            |          | 
|Balance at December 31, 2004                           |  |                     | 10,741,458 |          |           |  | 7,892,476  |          |  | $ | 6.23  | 
|                                                       |  |                     |            |          |           |  |            |          | 

48



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                |  |                     |           |          |                     |   |           |              |          |  |           |          |  |          |           |  |              |   |       |  |  |  |      | 
|--------------- |  | ------------------- | --------- | -------- | ------------------- | - | --------- | ------------ | -------- |  | --------- | -------- |  | -------- | --------- |  | ------------ | - | ----- |  |  |  | ---- | 
|                |  | Options Outstanding |           |          | Options Exercisable |  
|                |  |                     |           |          |                     |  
|                |  |                     |           | Weighted |                     |   |           |              | Weighted | 
|                |  |                     |           | Weighted |                     |   | Average   |              |          |  |           | Weighted |  |          | Average   | 
|                |  |                     |           | Average  |                     |   | Remaining |              |          |  |           | Average  |  |          | Remaining | 
|Range of        |  | Number of           |           |          | Exercise            |   |           | Contractual  |          |  | Number of |          |  | Exercise |           |  | Contractual  |  
|Exercise Prices |  | Shares              |           |          | Price               |   |           | Life (years) |          |  | Shares    |          |  | Price    |           |  | Life (years) |  
|                |  |                     |           |          |                     |   |           |              |          |  |           |          |  |          |           |  |              |  
|$ 0.40-$ 2.22   |  |                     | 1,221,322 |          |                     | $ | 1.55      |              |          |  | 7.94      |          |  |          | 548,699   |  |              | $ | 1.36  |  |  |  | 7.27 | 
|$ 2.45-$ 3.22   |  |                     | 1,188,445 |          |                     | $ | 2.80      |              |          |  | 9.03      |          |  |          | 200,271   |  |              | $ | 2.65  |  |  |  | 7.42 | 
|$ 3.29-$ 4.79   |  |                     | 1,286,121 |          |                     | $ | 4.23      |              |          |  | 9.05      |          |  |          | 126,077   |  |              | $ | 3.90  |  |  |  | 8.07 | 
|$ 5.00-$ 6.40   |  |                     | 1,363,918 |          |                     | $ | 5.38      |              |          |  | 6.84      |          |  |          | 990,272   |  |              | $ | 5.26  |  |  |  | 6.25 | 
|$ 6.62-$ 6.62   |  |                     | 1,621,177 |          |                     | $ | 6.62      |              |          |  | 7.43      |          |  |          | 1,378,684 |  |              | $ | 6.62  |  |  |  | 7.43 | 
|$ 6.68-$19.00   |  |                     | 1,039,451 |          |                     | $ | 13.27     |              |          |  | 6.02      |          |  |          | 967,145   |  |              | $ | 13.45 |  |  |  | 5.93 | 
|$20.19-$75.13   |  |                     | 172,042   |          |                     | $ | 38.90     |              |          |  | 6.19      |          |  |          | 144,375   |  |              | $ | 39.36 |  |  |  | 6.17 | 
|                |  |                     |           |          |                     |   |           |              |          |  |           |          |  |          |           |  |              |  
|$ 0.40-$75.13   |  |                     | 7,892,476 |          |                     | $ | 6.23      |              |          |  | 7.70      |          |  |          | 4,355,523 |  |              | $ | 7.99  |  |  |  | 6.78 | 
|                |  |                     |           |          |                     |   |           |              |          |  |           |          |  |          |           |  |              |  



Employee Stock Purchase Plan:


SFAS 123 Assumptions and Fair Value:




49



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                        |  |                   |            |   |                              |  |            |      |  |  |            |   |  |      |             |   |      |  |             |   |  |  |             |  
|----------------------- |  | ----------------- | ---------- | - | ---------------------------- |  | ---------- | ---- |  |  | ---------- | - |  | ---- | ----------- | - | ---- |  | ----------- | - |  |  | ----------- | -
|                        |  | Stock Option Plan |            |   | Employee Stock Purchase Plan | 
|                        |  |                   |            |   |                              | 
|                        |  | 2004              |            |   | 2003                         |  |            | 2002 |  |  | 2004       |   |  | 2003 |             |   | 2002 | 
|                        |  |                   |            |   |                              |  |            |      |  |  |            |   |  |      |             |   |      | 
|Expected life           |  |                   | 2.9  years |   |                              |  | 2.9  years |      |  |  | 2.3  years |   |  |      | 6.0  months |   |      |  | 6.0  months |   |  |  | 6.0  months |  
|Volatility              |  |                   | 109        | % |                              |  | 130        | %    |  |  | 135        | % |  |      | 70          | % |      |  | 107         | % |  |  | 127         | %
|Risk-free interest rate |  |                   | 2.73       |   |                              |  | 3.12       | %    |  |  | 4.09       | % |  |      | 1.86        | % |      |  | 1.61        | % |  |  | 1.71        | %
|Dividend rate           |  |                   |           |   |                              |  |           |      |  |  |           |   |  |      |            |   |      |  |            |   |  |  |            |  





|        |             
|------- | ------------
|Note 7. | Income Taxes



|         |  |                          |     |  |      |   |     |      |  |   |      |  
|-------- |  | ------------------------ | --- |  | ---- | - | --- | ---- |  | - | ---- | -
|         |  | Years Ended December 31, |    
|         |  |                          |    
|         |  | 2004                     |     |  | 2003 |   |     | 2002 | 
|         |  |                          |     |  |      |   |     |      | 
|Current: |  |                          |     |  |      |   |     |      |  |   |      |  
|Federal  |  | $                        |    |  |      | $ |    |      |  | $ | (182 | )
|State    |  |                          | 6   |  |      |   | 5   |      |  |   | 8    |  
|Foreign  |  |                          | 149 |  |      |   | 128 |      |  |   | 79   |  
|         |  |                          |     |  |      |   |     |      | 
|         |  | $                        | 155 |  |      | $ | 133 |      |  | $ | (95  | )
|         |  |                          |     |  |      |   |     |      | 



|                                                        |  |                          |         |   |      |   |        |      |  |   |         |  
|------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                        |  | Years Ended December 31, |        
|                                                        |  |                          |        
|                                                        |  | 2004                     |         |   | 2003 |   |        | 2002 | 
|                                                        |  |                          |         |   |      |   |        |      | 
|Tax provision (benefit) at federal statutory rate       |  | $                        | (14,588 | ) |      | $ | (4,497 | )    |  | $ | (11,355 | )
|Loss for which no tax benefit is currently recognizable |  |                          | 14,417  |   |      |   | 3,957  |      |  |   | 8,690   |  
|Deferred compensation                                   |  |                          | 98      |   |      |   | 485    |      |  |   | 576     |  
|Non-deductible goodwill impairment                      |  |                          |        |   |      |   |       |      |  |   | 1,983   |  
|Other                                                   |  |                          | 228     |   |      |   | 188    |      |  |   | 11      |  
|                                                        |  |                          |         |   |      |   |        |      | 
|Total tax provision (benefit)                           |  | $                        | 155     |   |      | $ | 133    |      |  | $ | (95     | )
|                                                        |  |                          |         |   |      |   |        |      | 





50



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                               |  |              |         |   |      |   |         |  
|---------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                               |  | Years Ended  |        
|                                               |  | December 31, |        
|                                               |  |              |        
|                                               |  | 2004         |         |   | 2003 |  
|                                               |  |              |         |   |      |  
|Deferred tax assets:                           |  |              |         |   |      |   |         |  
|Net operating loss carryforwards               |  | $            | 43,116  |   |      | $ | 27,479  |  
|Research and development credit carryforwards  |  |              | 7,872   |   |      |   | 6,277   |  
|Reserves and accruals not currently deductible |  |              | 10,171  |   |      |   | 9,509   |  
|Capitalized research and development expenses  |  |              | 1,188   |   |      |   | 801     |  
|                                               |  |              |         |   |      |  
|Total deferred tax assets                      |  |              | 62,347  |   |      |   | 44,066  |  
|Valuation allowance                            |  |              | (62,347 | ) |      |   | (44,066 | )
|                                               |  |              |         |   |      |  
|Net deferred tax assets                        |  | $            |        |   |      | $ |        |  
|                                               |  |              |         |   |      |  







|        |                             
|------- | ----------------------------
|Note 8. | Business Segment Information



|                   |  |                          |        |  |      |   |         |      |  |   |         | 
|------------------ |  | ------------------------ | ------ |  | ---- | - | ------- | ---- |  | - | ------- | 
|                   |  | Years Ended December 31, |       
|                   |  |                          |       
|                   |  | 2004                     |        |  | 2003 |   |         | 2002 | 
|                   |  |                          |        |  |      |   |         |      | 
|Japan              |  | $                        | 55,812 |  |      | $ | 99,137  |      |  | $ | 90,260  | 
|United States      |  |                          | 9,426  |  |      |   | 14,470  |      |  |   | 11,431  | 
|Other Asia-Pacific |  |                          | 5,344  |  |      |   | 9,806   |      |  |   | 2,660   | 
|Other              |  |                          | 569    |  |      |   | 1,563   |      |  |   | 621     | 
|                   |  |                          |        |  |      |   |         |      | 
|                   |  | $                        | 71,151 |  |      | $ | 124,976 |      |  | $ | 104,972 | 
|                   |  |                          |        |  |      |   |         |      | 



|         |  |              |    |   |      |  |    |      |  |  |    |  
|-------- |  | ------------ | -- | - | ---- |  | -- | ---- |  |  | -- | -
|         |  | December 31, |   
|         |  |              |   
|         |  | 2004         |    |   | 2003 |  |    | 2002 | 
|         |  |              |    |   |      |  |    |      | 
|NEC      |  |              | 42 | % |      |  | 49 | %    |  |  | 45 | %
|Sumitomo |  |              | 35 | % |      |  | 31 | %    |  |  | 41 | %

51



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|        |                                     
|------- | ------------------------------------
|Note 9. | 401(k) Profit Sharing Plan And Trust





|         |                           
|-------- | --------------------------
|Note 10. | Related Party Transactions









|         |                                                                    
|-------- | -------------------------------------------------------------------
|Note 11. | Supplementary Data: Quarterly Results of Operations
    (unaudited)



|                                                |  |                    |         |   |        |   |         |        |  |   |        |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | ------ | - | ------- | ------ |  | - | ------ | - |  | - | ------- | -
|                                                |  | Year 2004          |        
|                                                |  | Three Months Ended |        
|                                                |  |                    |        
|                                                |  | Mar 31             |         |   | Jun 30 |   |         | Sep 30 |  |   | Dec 31 |  
|                                                |  |                    |         |   |        |   |         |        |  |   |        |  
|Net revenues                                    |  | $                  | 15,839  |   |        | $ | 18,532  |        |  | $ | 20,368 |   |  | $ | 16,412  |  
|Cost of revenues                                |  | $                  | 8,784   |   |        | $ | 10,114  |        |  | $ | 10,281 |   |  | $ | 8,500   |  
|Gross profit                                    |  | $                  | 7,055   |   |        | $ | 8,418   |        |  | $ | 10,087 |   |  | $ | 7,912   |  
|Operating loss                                  |  | $                  | (12,940 | ) |        | $ | (11,259 | )      |  | $ | (7,795 | ) |  | $ | (11,983 | )
|Net income loss                                 |  | $                  | (12,689 | ) |        | $ | (11,010 | )      |  | $ | (7,613 | ) |  | $ | (11,750 | )
|Basic and diluted net loss per share            |  | $                  | (0.33   | ) |        | $ | (0.29   | )      |  | $ | (0.20  | ) |  | $ | (0.30   | )
|Shares used to compute basic net loss per share |  |                    | 37,891  |   |        |   | 38,066  |        |  |   | 38,340 |   |  |   | 38,543  |  

52



---



##### Table of Contents



CENTILLIUM COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                           |  |                    |        |   |        |   |        |        |  |   |        |  |  |   |         |  
|---------------------------------------------------------- |  | ------------------ | ------ | - | ------ | - | ------ | ------ |  | - | ------ |  |  | - | ------- | -
|                                                           |  | Year 2003          |       
|                                                           |  | Three Months Ended |       
|                                                           |  |                    |       
|                                                           |  | Mar 31             |        |   | Jun 30 |   |        | Sep 30 |  |   | Dec 31 | 
|                                                           |  |                    |        |   |        |   |        |        |  |   |        | 
|Net revenues                                               |  | $                  | 27,829 |   |        | $ | 33,928 |        |  | $ | 37,498 |  |  | $ | 25,721  |  
|Cost of revenues                                           |  | $                  | 14,276 |   |        | $ | 17,870 |        |  | $ | 20,706 |  |  | $ | 18,301  |  
|Gross profit                                               |  | $                  | 13,553 |   |        | $ | 16,058 |        |  | $ | 16,792 |  |  | $ | 7,420   |  
|Operating income (loss)                                    |  | $                  | (3,243 | ) |        | $ | (733   | )      |  | $ | 126    |  |  | $ | (10,448 | )
|Net income (loss)                                          |  | $                  | (2,960 | ) |        | $ | (511   | )      |  | $ | 382    |  |  | $ | (10,270 | )
|Basic and diluted net income (loss) per share              |  | $                  | (0.08  | ) |        | $ | (0.01  | )      |  | $ | 0.01   |  |  | $ | (0.27   | )
|Shares used to compute basic net income (loss) per share   |  |                    | 35,235 |   |        |   | 35,819 |        |  |   | 36,972 |  |  |   | 37,704  |  
|Shares used to compute diluted net income (loss) per share |  |                    | 35,235 |   |        |   | 35,819 |        |  |   | 41,099 |  |  |   | 37,704  |  

53



---



##### Table of Contents








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Controls and Procedures


(a) Evaluation of disclosure controls and procedures.




(b) Change in internal controls




Managements Report on Internal Control over Financial
Reporting









|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





54



---



##### Table of Contents










|         |                       
|-------- | ----------------------
|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. | PRINCIPLE ACCOUNTANT FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements




(a) (2) Financial Statements Schedules







Schedule II  Consolidated Valuation and
Qualifying Accounts




|                             |  |            |       |  |            |   |      |            |  |            |           |   |  |   |     | 
|---------------------------- |  | ---------- | ----- |  | ---------- | - | ---- | ---------- |  | ---------- | --------- | - |  | - | --- | 
|                             |  | Balance at |       |  | Charged to |   |      |            |  | Balance at |          
|                             |  | Beginning  |       |  | Costs and  |   |      | Deduction  |  |            | End       |  
|                             |  | of Period  |       |  | Expense    |   |      | Write-Offs |  |            | of Period |  
|                             |  |            |       |  |            |   |      |            |  |            |           |  
|Year ended December 31, 2002 |  | $          | 1,026 |  |            | $ | (709 | )          |  | $          | (157      | ) |  | $ | 160 | 
|                             |  |            |       |  |            |   |      |            |  |            |           |  
|Year ended December 31, 2003 |  | $          | 160   |  |            | $ |     |            |  | $          | (51       | ) |  | $ | 109 | 
|                             |  |            |       |  |            |   |      |            |  |            |           |  
|Year ended December 31, 2004 |  | $          | 109   |  |            | $ | 42   |            |  | $          |          |   |  | $ | 151 | 
|                             |  |            |       |  |            |   |      |            |  |            |           |  



55



---



##### Table of Contents



(a) (3) Exhibits


|        |    |             |  |                                                                                                                                                          
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Certificate of Incorporation of the Registrant                                                                                                           
|        | 3  | .2(4)       |  | Certificate of Designation of Rights, Preferences and Privileges
    of Series A Participating Preferred Stock of the Registrant                         
|       
|        | 4  | .1(1)       |  | Specimen certificate of common stock                                                                                                                     
|       
|        | 4  | .2(1)       |  | Bylaws of the Registrant                                                                                                                                 
|       
|        | 4  | .3(5)       |  | Preferred Stock Rights Agreement, dated as of December 30,
    2002, between the Registrant and Mellon Investor Services LLC                             
|       
|        | 10 | .1(1)       |  | Form of Indemnification Agreement between the Registrant and
    each of its directors and officers                                                      
|       
|        | 10 | .2(2)       |  | 1997 Stock Plan                                                                                                                                          
|       
|        | 10 | .3(2)       |  | 2000 Employee Stock Purchase Plan                                                                                                                        
|       
|        | 10 | .21(1)      |  | Foundry Agreement, dated March 7, 2000, between Registrant
    and United Microelectronics Corporation                                                   
|       
|        | 10 | .22(1)      |  | Assembly and Test Services Agreement, dated February 28,
    2000, between Registrant and ST Assembly and Test Services, Ltd.                            
|       
|        | 10 | .23(2)      |  | 2001 Nonstatutory Stock Option Plan                                                                                                                      
|       
|        | 10 | .26(3)      |  | Change of Control Severance Agreement between the Registrant and
    Faraj Aalaei dated December 14, 2000                                                
|       
|        | 10 | .28(3)      |  | Change of Control Severance Agreement between the Registrant and
    Kamran Elahian dated December 14, 2000                                              
|       
|        | 10 | .31(6)      |  | Amendment No. 1 to Change of Control Severance Agreement
    between the Registrant and Faraj Aalaei dated November 19,
    2002                         
|       
|        | 10 | .33(6)      |  | Change of Control Severance Agreement between the Registrant and
    William Mackenzie dated January 14, 2003                                            
|       
|        | 10 | .35(7)      |  | Offer letter between the Registrant and Tony Shakib dated
    March 24, 2003                                                                             
|       
|        | 10 | .36(7)      |  | Change of Control Severance Agreement between the Registrant and
    Tony Shakib dated March 31, 2003                                                    
|       
|        | 10 | .37(8)      |  | Lease, dated December 23, 2003, between the Registrant and
    Bedford Property Investors, Inc.                                                          
|       
|        | 10 | .38(9)      |  | Offer letter between the Registrant and J. Scott Kamsler dated
    July 13, 2004                                                                         
|       
|        | 10 | .39(9)      |  | Change of Control Severance Agreement between the Registrant and
    J. Scott Kamsler dated July 23, 2004                                                
|       
|        | 10 | .40(10)     |  | Offer letter between the Registrant and Wayne Gartin dated
    September 16, 2004                                                                        
|       
|        | 10 | .41(11)     |  | Change of Control Severance Agreement between the Registrant and
    Wayne Gartin dated September 29, 2004                                               
|       
|        | 10 | .42         |  | Change of Control Severance Agreement between the Registrant and
    Armando Pereira dated March 10, 2005                                                
|       
|        | 14 | .1(8)       |  | Ethics Policy                                                                                                                                            
|       
|        | 21 | .1(3)       |  | Subsidiaries of the Registrant                                                                                                                           
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                 
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer Pursuant to Exchange
    Act Rules 13a-14 and 15d-14                                                            
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer Pursuant to Exchange
    Act Rules 13a-14 and 15d-14                                                            
|       
|        | 32 | .1          |  | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002

56



---



##### Table of Contents



|        |    |    |             |                                                                                                                                                          
|------- | -- | -- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |            
|Number  |    |    | Description
|        |    |    |            
|       
|        | 32 | .2 |             | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002






| |     |                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | 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.                       
|
| | (2) | 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.                                 
|
| | (3) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000 filed with the Commission on
    March 19, 2001.   
|
| | (4) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2001 filed with the Commission on
    March 27, 2002.   
|
| | (5) | Incorporated by reference to the Exhibits filed with the
    Registrants Current Report on Form 8-K filed with the
    Commission on December 31, 2002.                                         
|
| | (6) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2002 filed with the Commission on
    February 18, 2003.
|
| | (7) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2003 filed with the Commission on
    May 7, 2003.   
|
| | (8) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003 filed with the Commission on
    March 5, 2004.    
|
| | (9) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2004 filed with the Commission on
    August 5, 2004. 



|     |                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Exhibits filed with the
    Registrants Current Report on Form 8-K filed with the
    Commission on September 30, 2004.                                              
|    
|(11) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2004 filed with the Commission
    on November 5, 2004.

(b) Exhibits




(c) Financial Statement Schedules




57



---



##### Table of Contents






SIGNATURES






| |                                     
| | ------------------------------------
| | Centillium Communications
    , Inc.



| |     |                 
| | --- | ----------------
| | By: | /s/ Faraj Aalaei

| |                        
| | -----------------------
| |                        
| | Faraj Aalaei           
| | Chief Executive Officer



|                     |  |                                                          |  |                |  | 
|-------------------- |  | -------------------------------------------------------- |  | -------------- |  | 
|Signature            |  | Title                                                    |  | Date          
|                     |  |                                                          |  |               
|                    
|/s/ Kamran Elahian   |  | Chairman of the Board                                    |  | March 11, 2005
|                     |  |                                                          |  |               
|Kamran Elahian       |  |                                                          |  |               
|                    
|/s/ Faraj Aalaei     |  | Chief Executive Officer and Director                     |  | March 11, 2005
|                     |  |                                                          |  |               
|Faraj Aalaei         |  | (Principal Executive Officer)                            |  |               
|                    
|/s/ J. Scott Kamsler |  | Vice President and Chief Financial                       |  | March 11, 2005
|                     |  |                                                          |  |               
|J. Scott Kamsler     |  | Officer (Principal Financial and
    Accounting Officer) |  |               
|                    
|/s/ Jere Drummond    |  | Director                                                 |  | March 11, 2005
|                     |  |                                                          |  |               
|Jere Drummond        |  |                                                          |  |               
|                    
|/s/ Irwin Federman   |  | Director                                                 |  | March 11, 2005
|                     |  |                                                          |  |               
|Irwin Federman       |  |                                                          |  |               
|                    
|/s/ Robert C. Hawk   |  | Director                                                 |  | March 11, 2005
|                     |  |                                                          |  |               
|Robert C. Hawk       |  |                                                          |  |               
|                    
|/s/ Syrus Madavi     |  | Director                                                 |  | March 11, 2005
|                     |  |                                                          |  |               
|Syrus Madavi         |  |                                                          |  |               
|                    
|/s/ Lip-bu Tan       |  | Director                                                 |  | March 11, 2005
|                     |  |                                                          |  |               
|Lip-Bu Tan           |  |                                                          |  |               

58



---



##### Table of Contents






Exhibit Index


|        |    |             |  |                                                                                                                                                          
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Certificate of Incorporation of the Registrant                                                                                                           
|       
|        | 3  | .2(4)       |  | Certificate of Designation of Rights, Preferences and Privileges
    of Series A Participating Preferred Stock of the Registrant                         
|       
|        | 4  | .1(1)       |  | Specimen certificate of common stock                                                                                                                     
|       
|        | 4  | .2(1)       |  | Bylaws of the Registrant                                                                                                                                 
|       
|        | 4  | .3(5)       |  | Preferred Stock Rights Agreement, dated as of December 30,
    2002, between the Registrant and Mellon Investor Services LLC                             
|       
|        | 10 | .1(1)       |  | Form of Indemnification Agreement between the Registrant and
    each of its directors and officers                                                      
|       
|        | 10 | .2(2)       |  | 1997 Stock Plan                                                                                                                                          
|       
|        | 10 | .3(2)       |  | 2000 Employee Stock Purchase Plan                                                                                                                        
|       
|        | 10 | .21(1)      |  | Foundry Agreement, dated March 7, 2000, between Registrant
    and United Microelectronics Corporation                                                   
|       
|        | 10 | .22(1)      |  | Assembly and Test Services Agreement, dated February 28,
    2000, between Registrant and ST Assembly and Test Services, Ltd.                            
|       
|        | 10 | .23(2)      |  | 2001 Nonstatutory Stock Option Plan                                                                                                                      
|       
|        | 10 | .26(3)      |  | Change of Control Severance Agreement between the Registrant and
    Faraj Aalaei dated December 14, 2000                                                
|       
|        | 10 | .28(3)      |  | Change of Control Severance Agreement between the Registrant and
    Kamran Elahian dated December 14, 2000                                              
|       
|        | 10 | .31(6)      |  | Amendment No. 1 to Change of Control Severance Agreement
    between the Registrant and Faraj Aalaei dated November 19,
    2002                         
|       
|        | 10 | .33(6)      |  | Change of Control Severance Agreement between the Registrant and
    William Mackenzie dated January 14, 2003                                            
|       
|        | 10 | .35(7)      |  | Offer letter between the Registrant and Tony Shakib dated
    March 24, 2003                                                                             
|       
|        | 10 | .36(7)      |  | Change of Control Severance Agreement between the Registrant and
    Tony Shakib dated March 31, 2003                                                    
|       
|        | 10 | .37(8)      |  | Lease, dated December 23, 2003, between the Registrant and
    Bedford Property Investors, Inc.                                                          
|       
|        | 10 | .38(9)      |  | Offer letter between the Registrant and J. Scott Kamsler dated
    July 13, 2004                                                                         
|       
|        | 10 | .39(9)      |  | Change of Control Severance Agreement between the Registrant and
    J. Scott Kamsler dated July 23, 2004                                                
|       
|        | 10 | .40(10)     |  | Offer letter between the Registrant and Wayne Gartin dated
    September 16, 2004                                                                        
|       
|        | 10 | .41(11)     |  | Change of Control Severance Agreement between the Registrant and
    Wayne Gartin dated September 29, 2004                                               
|       
|        | 10 | .42         |  | Change of Control Severance Agreement between the Registrant and
    Armando Pereira dated March 10, 2005                                                
|       
|        | 14 | .1(8)       |  | Ethics Policy                                                                                                                                            
|       
|        | 21 | .1(3)       |  | Subsidiaries of the Registrant                                                                                                                           
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                 
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer Pursuant to Exchange
    Act Rules 13a-14 and 15d-14                                                            
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer Pursuant to Exchange
    Act Rules 13a-14 and 15d-14                                                            
|       
|        | 32 | .1          |  | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
|       
|        | 32 | .2          |  | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002






| |     |                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | 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.



---



##### Table of Contents





| |     |                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | 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.                                 
|
| | (3) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000 filed with the Commission on
    March 19, 2001.   
|
| | (4) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2001 filed with the Commission on
    March 27, 2002.   
|
| | (5) | Incorporated by reference to the Exhibits filed with the
    Registrants Current Report on Form 8-K filed with the
    Commission on December 31, 2002.                                         
|
| | (6) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2002 filed with the Commission on
    February 18, 2003.
|
| | (7) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2003 filed with the Commission on
    May 7, 2003.   
|
| | (8) | Incorporated by reference to the Exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003 filed with the Commission on
    March 5, 2004.    
|
| | (9) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2004 filed with the Commission on
    August 5, 2004. 



|     |                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Exhibits filed with the
    Registrants Current Report on Form 8-K filed with the
    Commission on September 30, 2004.                                              
|    
|(11) | Incorporated by reference to the Exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2004 filed with the Commission
    on November 5, 2004.