##### Table of Contents



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

FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

|                                        |  |                               
|--------------------------------------- |  | ------------------------------
|For the fiscal year ended June 30, 2002 |  | Commission file number 0-20784

TRIDENT MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 77-0156584
(I.R.S. Employer
Identification No.)
|                                                                       
|1090 East Arques Avenue
Sunnyvale, California                           |  | 94085                                          
|(Address of principal executive offices)                                |  | (Zip code)                                     

Registrants telephone number, including area code: (408) 991-8800

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

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

Common Stock, $0.001 Par Value
(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  [X]       No  [   ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.   [   ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price of the Common Stock on August 31,
2002 ($3.78 per share), as reported on the NASDAQ National Market was
approximately $32,268,609. Shares of Common Stock held by executive officers
and directors and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliate.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The number of shares of the registrants $0.001 par value Common Stock
outstanding on August 31, 2002, was 13,603,855.

Part III incorporates by reference from the definitive proxy statement for
the registrants 2002 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.





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TABLE OF CONTENTS



|                                                         |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                  
|                                                         | Item 1.  Business                                                                            
|                                                         | Item 2. Properties                                                                           
|                                                         | Item 3. Legal Proceedings                                                                    
|                                                         | Item 4. Submission of Matters to a Vote of Securities Holders.                               
|PART II                                                 
|                                                         | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|                                                         | Item 6. Selected and Supplementary Financial Data                                            
|                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                         | Item 8. Financial Statements and Supplementary Data                                          
|                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                                
|                                                         | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                         | Item 11. Executive Compensation                                                              
|                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                 
|                                                         | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|POWER OF ATTORNEY                                       
|SIGNATURES                                              
|CERTIFICATIONS                                          
|INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT
|EXHIBIT 21.1                                            
|EXHIBIT 23.1                                            
|EXHIBIT 99.1                                            
|EXHIBIT 99.2                                            



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TABLE OF CONTENTS

|                                                         |  |          |                                                                  |                                                                                       |  |      |    | 
|-------------------------------------------------------- |  | -------- | ---------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                         |  |          |                                                                  |                                                                                       |  | Page
|                                                         |  |          |                                                                  |                                                                                       |  |     
|PART I                                                   |  |          |                                                                  |                                                                                       |  |      | 3  | 
|                                                         |  | Item 1.  |                                                                  | Business                                                                              |  |      | 3  | 
|                                                         |  | Item 2.  |                                                                  | Properties                                                                            |  |      | 11 | 
|                                                         |  | Item 3.  |                                                                  | Legal Proceedings                                                                     |  |      | 11 | 
|                                                         |  | Item 4.  |                                                                  | Submission of Matters to a Vote of Security Holders                                   |  |      | 12 | 
|                                                        
|PART II                                                  |  |          |                                                                  |                                                                                       |  |      | 14 | 
|                                                         |  | Item 5.  |                                                                  | Market for the Registrants Common Stock and Related
Stockholder Matters              |  |      | 14 | 
|                                                         |  | Item 6.  |                                                                  | Selected and Supplementary Financial Data                                             |  |      | 15 | 
|                                                         |  | Item 7.  |                                                                  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |      | 16 | 
|                                                        
|                                                         |  | Item 7A. |                                                                  | Quantitative and Qualitative Disclosures About Risk                                   |  |      | 28 | 
|                                                         |  | Item 8.  |                                                                  | Financial Statements and Supplementary Data                                           |  |      | 29 | 
|                                                         |  | Item 9.  |                                                                  | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure  |  |      | 29 | 
|                                                        
|PART III                                                 |  |          |                                                                  |                                                                                       |  |      | 30 | 
|                                                         |  | Item 10. | Directors and Executive Officers of the Registrant               |                                                                                       |  | 30   |   
|                                                         |  | Item 11. | Executive Compensation                                           |                                                                                       |  | 30   |   
|                                                         |  | Item 12. | Security Ownership of Certain Beneficial Owners and Management   |                                                                                       |  | 30   |   
|                                                         |  | Item 13. | Certain Relationships and Related Transactions                   |                                                                                       |  | 30   |   
|                                                        
|PART IV                                                  |  |          |                                                                  |                                                                                       |  |      | 31 | 
|                                                         |  | Item 14. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K |                                                                                       |  | 31   |   
|                                                        
|POWER OF ATTORNEY                                        |  |          | 54                                                               |                                                                                      
|                                                        
|SIGNATURES                                               |  |          | 54                                                               |                                                                                      
|                                                        
|CERTIFICATIONS                                           |  |          | 55                                                               |                                                                                      
|                                                        
|INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT |  |          | 56                                                               |                                                                                      

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PART I




Item 1.  Business

We design, develop and market very large scale integrated circuits (IC)
for videographics, multi-media and digitally processed television products for
the desktop and notebook personal computer (PC) and consumer television
market. Our graphics and video controllers typically are sold with software
drivers, a BIOS and related system integration support. Our strategy is to
apply our design expertise, which helped us succeed in the market for Super
Video Graphics Array (SVGA) graphics controllers and Graphical User Interface
(GUI) accelerators, to other high volume graphics, multimedia and digitally
processed television markets for the general mass public, acceleration of
Digital Versatile Disc (DVD) based live-video playback, and three-dimensional
(3D) display for game and entertainment application markets.

The PC marketplace is characterized by extreme price competition and rapid
technological change as leading PC systems manufacturers compete among
themselves and other PC clone makers for market share. As a result, PC systems
manufacturers require low-cost, feature-rich, advanced graphics and multimedia
solutions. We believe that the systems manufacturers are constantly reducing
system costs by purchasing IC graphics and multimedia solutions that integrate
functions formerly performed by several separate components. Moreover, as DVD
and video processing capabilities become more popular, an increasing percentage
of computer users require a high-performance, low-cost graphics system that can
display photo-realistic images or display full-motion video on a sub-$1000 PC
system.

Our strategy is to capture these market opportunities by using our design
expertise to develop and manufacture videographics and multimedia products that
offer a superior combination of price, performance and features. We are
employing this strategy in the graphics and multimedia markets, and we are
focusing on providing high performance and feature-rich products that we
believe will appeal to leading PC systems manufacturers.

Markets and Products

We have targeted the PC desktop, notebook, multimedia and digitally
processed television markets. The desktop market is the largest segment of the
PC industry for our graphics and multimedia products. The desktop market
includes adapter card manufacturers, who build graphics controllers onto
adapter cards that serve as graphics subsystems, and PC systems manufacturers
and motherboard suppliers, who may either include adapter cards in their
systems or design graphics controllers onto their motherboards.

We entered the notebook market in 1995 and in recent years, this market
has accounted for the majority of our revenue. Our notebook strategy is to
leverage our product positioning and continue to deliver a broad product
offering. Our notebook product line includes: the CyberBLADE XP2, the
CyberBlade XP, CyberALADDiN-P4, CyberALADDiN-T, CyberBlade Ai1, CyberBlade
i1, and the CyberBlade i7.

We are in the process of developing our next generation 3D graphics
technology. The new technology, which we call XP4, will be used in both the
discrete and integrated products. Our graphics product development strategy is
to focus on a totally balanced design with consideration of not only high
performance, but also low cost and low power consumption. Although our digital
media segment accounted for only 6% and 2% of revenues for fiscal years ended
June 30, 2002 and 2001, respectively, we plan to continue developing the next
generation DPTV product as well as other advanced products for digital TV and
digital STB for the digital television market in China, Japan, Korea and
Taiwan. Designed for system design flexibility, our goal is for users of our
single chip DPTV Video Processors(s) to benefit from feature rich devices at
competitive prices with existing solution(s). The DPTV-DX converts analog TV
into an advanced progressive digital quality TV. While we have limited
experience with digital video television, we anticipate this market to generate
an increasing percentage of our revenues. However, there can be no guarantee
that our digital television product will be accepted by the market or increase
our revenues or profitability.

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Current Graphics Products

Desktop Computer Market:

Blade XP.The Blade XP family brings seven major technical advances in
video/graphics capability to mainstream desktop PCs: DirectX 7.0 Cubic Mapping,
256-bit pixel processing, dual memory bus architecture, AGP-4X bus interface,
state-of-the-art video de-interlacing, high-resolution flat panel and only
2.8 watt power consumption at a blazing 200MHz clock rate.

Notebook Computer Market:

CyberBLADE XP2.The CyberBLADE XP2 is a 3D/2D digital media flat panel
graphics controller with 128-bit bus interface to external SDR/DDR SDRAM
memory. It integrates two high speed LVDS transmitter for LCD panel support.
The AGP bus interface supports 1X, 2X and 4X modes, enabling the highest level
of 3D/2D performance. THAMA (Trident Hardware-Assisted MPEG-2 Acceleration)
incorporates dedicated hardware for both Motion Compensation and Inverse
Discrete Cosine Transform (IDCT), and brings digital media capability such as
MPEG-2/Hardware DVD playback technologies to the notebook market.

CyberBlade XP.In April 2000, Trident introduced the CyberBlade XP
family for next generation high-end and mainstream AGP 4X/2X 128-bit 3D / DVD
capable mobile PCs. The new line consists of the CyberBlade XP discrete
device, which supports up to 32MB of external video memory, and
Multi-Chip-Module (MCM) products  the CyberBlade XPm16 with 16MB SDRAM
packaged and the CyberBlade XPm8 with 8MB SDRAM packaged  further removing
board space and power constraints for ultra-notebook designs. The MCM devices
offer AGP 4X / DX7 / memory upgrade and pin compatibility from Tridents 4MB
SDRAM embedded 3D product  the CyberBlade e4.

CyberALADDiN-P4.The CyberALADDiN-P4 is the latest generation of shared
memory architecture (SMA) graphics and core logic chipset jointly developed by
Trident Microsystems, Inc and Acer Laboratories, Inc (Ali). This SMA solution
is designed to interface with Intels Pentium® 4 and Pentium® 4-M processors
through the 400 MHz system bus. CyberALADDiN-P4 combines two proven production
worthy cores in the industry: the CyberBlade XP2 graphics core from Trident and
the M1671 North Bridge core from Ali to deliver a low-risk, cost-effective, and
versatile Pentium® 4 SMA solution for notebook PCs targeted to OEMs and ODMs:

CyberALADDiN-T.CyberALADDiN-T is Trident and Acer Laboratories, Inc s
(Ali) jointly developed new generation of low-power integrated graphics and
core logic supporting the latest Intel Pentium® III-M (Tualatin) processor
family. CyberALADDiN-T combines Tridents 2D/3D graphics core (CyberBLADE XP®
and Acer Laboratoriess North Bridge (M1651T) to deliver numerous advanced
features to value-priced notebook PCs.

CyberBlade Ai1.This 3D/DVD integrated chipset for mobile PCs features
our CyberBlade 3D/DVD video graphics and Alis Aladdin Slot 1/Socket 370
Northbridge. With the industrys best power management and extensive
integration, this chipset supports all Pentium  II, Pentium III and Celeron
CPUs, providing notebook PC manufacturers with unprecedented price/performance
advantages. This mobile chipset includes the CyberBlade Aladdin i1 3D/DVD
Graphics with Intel Slot 1-licensed Northbridge and Alis Mobile Southbridge.
The chipset is targeted at the value and mainstream notebook market segments.

CyberBlade i1.This highly integrated, low power single device combines
a LCD controller and North Bridge core for 66 MHz-100MHz Slot-1 based Notebook
PCs. It reduces the system bill of materials (BOM) price by as much as $15,
occupies less board space, and reduces power consumption by up to 1.5W. Its
accelerated graphics port (AGP) Notebook graphics controller core incorporates
a high performance 2D and 3D graphics engine, video accelerator, advanced DVD
playback, video capture and TV output capabilities.

CyberBlade i7.This highly integrated, low power single device, combines
flat panel display controller and North Bridge cores for 66MHz-100MHz 64-bit
Socket-7 based Notebook PCs. It reduces the system BOM price by as much as
$15, occupies less board space, and reduces power consumption by up to 1.5W.
The CyberBladei7s notebook graphics controller core incorporates high
performance 2D and 3D graphics engine, video accelerator, advanced DVD
playback, video capture and TV output capabilities.

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New Graphics Products

We will begin selling the following products within fiscal 2003. Our
future success depends upon the successful market acceptance of these and other
new products. There can be no assurance, however, that we will be able to ship
these products in volume or in a timely manner or that they will be successful
in the marketplace.

XP4.Trident has developed a new family of graphics chips for desktop
and notebook personal computers known as XP4. The XP4 desktop family is based
on UMCs 0.13um CMOS technology that uses only 30 million transistors, which is
less than half the number of transistors of the nearest competitive equivalent,
to deliver top-of-the-line DX8.1/9.0 features and performance.

Other key capabilities of the XP4 family include:



| |  |  | BrightPixelTM rendering engine with hardware vertex and pixel shaders                                
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | SmartTileTM memory architecture for optimal memory bandwidth utilization                             
|
| |  |  | CoolPowerTM for low power management                                                                 
|
| |  |  | Multiview with cathode ray tube (CRT), digital video interface (DVI) and TVout                       
|
| |  |  | Resolution up to QXGA (2048x1536) with 420MHz RAMDAC                                                 
|
| |  |  | DXVA hardware support with both inverse discrete cosine
transformation (IDCT) and Motion Compensation
|
| |  |  | Advanced de-interlacing for highest-quality DVD movies                                               
|
| |  |  | AGP-4X bus interface                                                                                 

The XP4 desktop product family is available in three versions:



| |  |  | XP4 T3 supporting 128MBytes of up to 700MHz DDR memory with 128-bit bus;
| | - |  | ------------------------------------------------------------------------
|
| |  |  | XP4 T2 supporting 64Mbytes of 500MHz DDR memory with 128-bit bus;       
|
| |  |  | XP4 T1 supporting 64Mbytes of 500MHz DDR memory with 64-bit bus.        

The XP4 T3 tops the performance chart with a 300MHz graphics engine and
enables PC OEMs plus card makers to deliver advanced DX8.1/9.0 graphics card
with 128MBytes memory. The 128-bit Double-Data-Rate (DDR) memory system
reaches a bandwidth of up to 11.2 Gbytes/sec and the 3D graphics engine
achieves a peak performance of 1.2 billion pixels/sec.

The XP4 T3 offers a maximum power dissipation of less than four watts.
This corresponds to only a fraction of competing alternatives, improving chip
reliability in typical consumer-oriented operating environments where
overheating could be the cause of system failure.

The XP4 T2 provides mainstream DX8.1/9.0 performance with a 250MHz
graphics engine. XP4 T2 memory bandwidth peaks at 8.0 Gbytes/sec and 3D
graphics performance hits 1 billion pixels/sec, rivaling other high-end,
competitive products.

The XP4 T1 is an economical entry-level DX8.1/9.0 graphics card with a
250MHz graphics engine but in a 64-bit memory bus for lowest cost. The XP4 T1
memory bandwidth reaches 4.0 Gbytes/sec.

The XP4 notebook version uses only 30 million transistors, and utilizes
UMCs 130nm technology.
The XP4 has the capability to deliver the following functionality and
performance:



| |  |  | Faster transistors that enable higher clock rate, corresponding to
higher performance. XP4 engine clock reaches 250MHz and DDR memory
clock reaches 666MHz, both of which are the industrys highest clock
rate for notebooks with DX8.1 capability.                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Smaller device geometry that produces smaller chip sizes and
results in lower production cost.                                                                                                                                                                           
|
| |  |  | Lower operating voltage which causes much less power dissipation.
A voltage reduction from 1.8 volts (in 180nm process) to 1.2 volts (in
130nm process) can reduce the power dissipation to less than 50%
assuming the operating frequency and the die area are the same.

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Current Digital Media Products:

We believe our IC design and, in particular, our 3D Graphics and video
expertise have applications in significant markets outside the PC industry. We
have been developing products for other digital media applications, such as set
top boxes and Digitally Processed TV (DPTV) for several years. The DPTV
market in particular has begun to emerge as a high volume market for these
products. Our DPTV products are designed to optimize and enhance video quality
for various display devices, such as Cathode Ray Television (CRTTV), Liquid
Crystal Display Television (LCDTV), Plasma Display Panel (PDP), Projection
TV, Liquid Crystal Display projection.

TVXpress.High quality TV encoder designed and optimized for
Cyber9525DVD, CyberBlade e4-128, CyberBlade i7, Blade3D (desktop) and our other
graphics controllers. It features support for NSTC and PAL as well as
Macrovision protection for DVD playback.

DPTV-DX.The DPTV-DX is the main component in the premier TV chipset
solution on the market. Designed for maximum system design flexibility, users
of our single chip DPTV Video Processor(s) will benefit from one of the most
feature rich devices available while maintaining a price competitive advantage
over the existing solutions(s). The DPTV-DX converts todays analog TV into an
advanced progressive quality TV.

New Digital Media Product:

DPTV-3D.Tridents advanced Digital Video Processing technology has been
developed after years of R&D in the field of video and 2D/3D graphics. The
DPTV-3D is a highly integrated scan-conversion chipset solution that is
designed for progressive TV/DVD player applications.

Individuals using the DPTV-3D Video Processor will have the benefit of
using a multi-featured device while gaining a price competitive advantage over
existing solutions. The chip is designed with external CPU(s) and Display &
Deflection Processor (DDP) for maximum design flexibility. The DPTV-3D
incorporates features such as a programmable 3D comb filter and a
NTSC/PAL/SECAM TV decoder, 14-D picture enhancement algorithm, panorama aspect
ratio, PIP/POP display and programmable zooming capability, progressive scan,
and adaptive motion detect capability by using an advanced .25 μm process
technology. Also, the DPTV-3D is designed for mass production and will
support a 2, 4, or 8 MB SDRAM frame buffer configuration.

Trident and TrueVideo are registered trademarks Blade XP, CyberBLADE
XP2, CyberBlade XP, CyberALADDiN-P4, CyberALADDiN-T, CyberBlade Ai1,
CyberBlade i1, CyberBlade i7, XP4, TVXpress, DPTV-DX, DPTV-3D, are
trademarks of the Company. Other trademarks used herein are the property of
their respective owners.

Sales, Marketing and Distribution

We sell our products primarily through direct sales efforts. We have
sales offices in Taipei, Taiwan; Hong Kong, China; Houston, Texas and
Sunnyvale, California. Our offices are staffed with sales, applications
engineering, technical support, customer service and administrative personnel
to support its direct customers. We also market our products through
independent sales representatives and distributors.

Historically, our desktop customers have been primarily Asian adapter card
manufacturers who sell their products to PC manufacturers, and distributors.
However, in the past few years leading PC systems manufacturers have
significantly increased their share of the PC market, displacing in part some
of the Asian adapter card manufacturers. While many PC manufacturers based in
Asia may sell PCs to leading systems manufacturers for resale, the choice of
components for these PCs generally is made by the leading systems
manufacturers. Consequently, we have made a major effort to design products to
fill the needs of leading PC systems manufacturers as well as the needs of
adapter card manufacturers.

Our notebook customers have been primarily worldwide brandname notebook PC
manufacturers and Taiwanese OEM/ODM (original equipment manufacturers/original
design manufacturers) notebook PC manufacturers. Whether manufactured by the
PC company or an OEM/ODM, the notebook product is distributed primarily through
brandname sales channels. With long design-in cycles, we have solid technical
support required by these customers to ensure successful product launching and
delivery.

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Our future success depends in large part on the success of our sales to
leading PC systems manufacturers and the sales of digital television
manufacturers. We continue to focus our sales and marketing efforts with the
goal of increasing sales to the leading PC systems manufacturers, digital
television manufacturers and OEM channels. Competitive factors of particular
importance in such markets include performance and the integration of functions
on a single IC chip.

Our digitally processed television manufacturers include leading
manufacturers of TVs in China and Korea. We service these customers primarily
through our sales forces in the United States, Taiwan and China. As digital
television is rapidly developing in the United States, Europe, Japan, Korea,
China and elsewhere, we expect that leadership in this industry will also
rapidly change, and our objective is to become a supplier to a broad range of
manufacturers in this marketplace, and to manufacturers for other markets as
DPTV is deployed in those markets.

During fiscal 2002, we generated 99% of our revenues from Asia. Major PC
systems manufacturers often take delivery of their products in Asia for
production purposes, and such sales by us are reflected in the Companys
revenues in Asia. Sales to one customer, Inno Micro, which is a supplier of
Toshiba, accounted for approximately 58% of net sales for fiscal 2002. A small
number of customers frequently account for a majority of our sales in any
quarter. However, sales to any particular customer fluctuate significantly
from quarter to quarter. Future operating performance will be dependent in
part on the ability to replace significant customers or win new design-ins with
current customers from one quarter to the next. Fluctuations in sales to key
customers may adversely affect our operating results in the future. For
additional information on foreign and domestic operations, see Note 11 to the
Consolidated Financial Statements.

Manufacturing

We have adopted a fabless manufacturing strategy whereby we contract-out
our wafer fabricating needs to qualified contractors that we believe provide
cost, technology or capacity advantages for specific products. As a result, we
have generally been able to avoid the significant capital investment required
for wafer fabrication facilities and to focus our resources on product design,
quality assurance, marketing and customer support. We have, however, made a
substantial investment to help ensure capacity, as described below. Our
wholly-owned subsidiary, Trident Microsystems (Far East) Ltd. (Trident Far
East), manages our manufacturing operations.

In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, we entered into a joint
venture agreement in August 1995 with United Microelectronics Corporation
(UMC), a Taiwanese publicly traded company and one of our current foundries,
under which we invested approximately U.S.$49.3 million for an equity interest
in a joint venture with UMC and other venture partners known as United
Integrated Circuits Corporation (UICC). We are guaranteed a maximum wafer
capacity of approximately 3,000 wafers per month from the wafer fabrication
facility of the venture. On January 3, 2000, UMC acquired UICC. As a result
of this merger, and a 20% stock dividend payable to shareholders of record May
16, 2000, the total shares of our investment in UMC equals approximately 55.8
million shares as of June 30, 2001 which represents about 0.5% of the
outstanding stock of UMC. In order to preserve our wafer capacity guarantee
with UMC, there are certain limitations on our ability to sell the shares. If
our total shareholdings fall below one-half of their initial percentage of
shares, our production capacity will be reduced by at least 50%, and depending
on the interpretation of the foundry capacity agreement between the parties,
our production capacity could be reduced by substantially more than 50%. In
addition, one-third of the shares is subject to a two-year lock-up period in
accordance with an investment agreement entered into with UMC. After a
two-year period, one-fifth of the shares will be available for sale from the
lock-up portion every six months. As of June 30, 2002, approximately 12.9
million shares are subject to this lock-up restriction. While we are an
operating company not in the business of investing, reinvesting, owning,
holding or trading in securities, we do intend to monitor the advisability of
disposing of our UMC stock and intend to sell all or part of the stock when it
is in the best interests of our shareholders to do so, however, at present we
do not have an intent to sell any of the stock in the immediate future.

In fiscal 2002, our primary foundry was UMC. We will continue to explore
arrangements for additional capacity commitments, although there is no
assurance that any additional agreements will be executed, or that additional
capacity is required.

We purchase product in wafer form from the foundries and we manage the
contracting with third parties for the chip packaging and testing. In order to
manage the production back-end operations, we have been adding

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personnel and equipment to this area. Our goal is to increase the quality
assurance of the products while reducing manufacturing cost. To ensure the
integrity of the suppliers quality assurance procedures, we have developed and
maintained test tools, detailed test procedures and test specifications for
each product, and we require the foundry and third party contractors to use
those procedures and specifications before shipping finished products. We have
experienced few customer returns based on the quality of our products.
However, our future return experience may vary because our more advanced, more
complex products are more difficult to manufacture and test. In addition, some
of our customers, including major PC systems manufacturers, may subject those
products to more rigid testing standards than in the past.

Our reliance on third party foundries and assembly and testing houses
involves several risks including the absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies,
and reduced control over delivery schedules, manufacturing yields, quality
assurance and costs. We conduct business with certain foundries by delivering
written purchase orders specifying the particular product ordered, quantity,
price, delivery date and shipping terms and, therefore, except as set forth in
the above-mentioned contracts or agreements, such foundries are not obligated
to supply products to us for any specific period, in any specific quantity or
at any specified price, except as may be provided in a particular purchase
order.

While we have obtained and continue to seek additional capacity, the
qualification process and the production ramp-up for additional foundries has
in the past taken and could in the future take longer than anticipated. There
can be no assurance that such additional capacity from current foundries and
new foundry sources will be available and will satisfy our requirements on a
timely basis or at acceptable quality or per unit prices. Constraints or
delays in the supply of our products, whether because of capacity constraints,
unexpected disruptions at the foundries or assembly or testing houses, delays
in additional production at existing foundries or in obtaining additional
production from existing or new foundries, shortages of raw materials, or other
reasons, could result in the loss of customers and other material adverse
effects on our operating results, including effects that may result should we
be forced to purchase products from higher cost foundries or pay expediting
charges to obtain additional supply. In addition, to the extent we elect to
use multiple sources for certain products, customers may be required to qualify
multiple sources, which could adversely affect the customers desire to
design-in our products.

Research and Development

We have spent approximately $22.2 million, $20.0 million and $27.6 million
on Company sponsored research and development activities during fiscal 2002,
2001 and 2000, respectively. We have conducted substantially all of our
product development in-house and have a staff of 291 research and development
personnel as of June 30, 2002. We are focusing our development efforts
primarily on the development of more advanced graphics controllers, including
3D graphics controllers, multimedia products and digitally processed
television. In addition, we intend to continue to devote significant resources
to the development of a broad range of high-performance, proprietary software
drivers. In anticipation of future market demand, we are investing in a
variety of new technologies through licensing and purchase arrangements. These
technologies may be incorporated in our future products, providing additional
functionality and integration.

Competition

The markets in which we compete are highly competitive and we expect that
competition will increase. The principal factors of competition in our markets
include, but are not limited to price, performance, the timing of new product
introductions by us and our competitors, product features, the emergence of new
graphics and other PC standards, level of integration of various functions,
quality and customer support. Our principal current competitors in graphics
include ATI Technologies, Inc., NVIDIA Corporation, S3 Graphics, Silicon
Integrated Systems and Silicon Motion. In the digital television market our
principal competitors are Toshiba, Philips Electronics and Micronas AG.
Certain of our current competitors and many potential competitors have
significantly greater technical, manufacturing, financial and marketing
resources than we have.

Leading PC systems manufacturers have increased market share in desktop
and notebook PC systems in recent years. We believe that performance, features
and quality are particularly important in the North American, Japanese and
European systems manufacturer markets, and that integration of various
functions on a single IC is becoming increasingly important in these markets.
While we have recently gained entry to the system manufacturers who are
headquartered in these geographic markets, there can be no assurance that we
will continue to be able to compete successfully as to price or any other
factor or that we will continue to be successful in our efforts to expand

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sales in these markets. Our failure to meet the technological and pricing
challenges of our competition would have an adverse effect on our results of
operations.

We also plan to continue developing the next generation DPTV product as
well as other advanced products for digital TV and digital STB for the digital
television market in China, Japan, Korea and Taiwan. We believe the market for
digital television will be competitive, and will require substantial research
and development, sales and other expenditures to stay competitive in this
market. In the digital television market our principal competitors are
Toshiba, Philips Electronics, and Micronas AG. However, we believe that DPTV
products will have a longer product life cycle than other current products.
Therefore we expect to devote significant resources to the DPTV market even
though competitors are substantially more experienced than we are in this
market. These efforts may not be successful, however.

International Operations

Our wholly-owned subsidiary, Trident Far East, maintains offices in Hong
Kong, and China. Trident Far East is responsible for the manufacturing of our
products and is principally responsible for international sales activities and
for operation of the Hong Kong and Taiwan offices. The Hong Kong office
provides sales and technical support for customers in Hong Kong and logistical
support for customers in Hong Kong and Taiwan. The Taiwan office provides
sales and technical support for customers in their respective regions. The
Taiwan office directly hires its own employees. We have established research
and development facilities in Hsinchu, Taiwan and Shanghai, China. Management
has combined the Taiwan office and the Taiwan research and development facility
into one company Trident Technologies Inc. On January 18, 2000, our Board of
Directors approved a spin-off of our Trident Technologies Inc. subsidiary and
our Trident Multimedia Technologies (Shanghai) Co. Ltd. subsidiary. The
structure and timing of these spin-offs, and the nature of the operations at
the time of spin-off will depend on a number of organizational, operational and
marketing factors. We have not made all of the decisions necessary to complete
these spin-offs, and the spin-offs may not occur in 2003. While we intend to
structure the transactions in a manner to enhance our overall operations, the
spin-offs will dilute the interests of our shareholders in the operations of
the spun off entities and, particularly if the spin-offs do not increase their
revenue and profitability, could adversely affect our financial results.

During fiscal 2002, 2001 and 2000, sales to OEM, ODM and adapter card
customers in Asia accounted for approximately 99% of our net sales of graphic
chips in all three years, and all of our DPTV sales in fiscal 2002 occurred in
Asia. We anticipate that sales to customers in Asia will continue to account
for a substantial percentage of sales. In addition, the foundries that
manufacture our products are located in Asia. Due to this concentration of
international sales and manufacturing capacity in Asia, we are subject to the
risks of conducting business internationally, including unexpected changes in
regulatory requirements, fluctuations in the U.S. dollar which could increase
the sales price in local currencies of our products in foreign markets, tariffs
and other barriers and restrictions, and the burdens of complying with a wide
variety of foreign laws. In addition, we are subject to general geopolitical
risks, such as political and economic instability and changes in diplomatic and
trade relationships, in connection with our sales, support and third-party
fabrication efforts in Hong Kong, Taiwan and elsewhere. Also, political
instability or significant changes in economic policy could disrupt our
operations in foreign countries or result in the curtailment or termination of
such operations. While we have not experienced any other material adverse
effects on our operations as a result of other regulatory or geopolitical
factors, there can be no assurance that such factors will not adversely impact
our operations in the future or require us to modify our current business
practices.

Intellectual Property

We attempt to protect our trade secrets and other proprietary information
primarily through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures. Although we intend to protect our rights vigorously, there can be no
assurance that these measures will be successful. We have filed two U.S.
patent applications in fiscal year 2002 relating to our technology. There can
be no assurance that these applications will be approved, that any issued
patents will protect our intellectual property or that they will not be
challenged by third parties. Furthermore, there can be no assurance that
others will not independently develop similar or competing technology or design
around any patents that may be issued.

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The semiconductor industry is characterized by frequent litigations
regarding patent and other intellectual property rights. From time to time, we
have received notices claiming that we have infringed third-party patents or
other intellectual property rights. To date, licenses generally have been
available to us where third-party technology was necessary or useful for the
development or production of our products. However, NeoMagic Corporation has
filed suit alleging that our embedded DRAM (dynamic random access memory)
graphics accelerators infringe their patents. We have responded and filed a
counterclaim, which is described in more detail under Item 3. Legal
Proceedings. There can be no assurance that this litigation will be resolved
in favor of us or that third parties will not assert additional claims against
us with respect to existing or future products or that licenses will be
available on reasonable terms, or at all, with respect to any third-party
technology. The NeoMagic litigation or similar litigation to determine the
validity of any third-party claims could result in significant expense to us
and divert the efforts of our technical and management personnel, whether or
not such litigation is determined in our favor. In the event of an adverse
result in any such litigation, we could be required to expend significant
resources to develop non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation. There can be no assurance
that we will be successful in such development or that any such licenses would
be available. Patent disputes in the semiconductor industry have often been
settled through cross licensing arrangements. Because we currently do not have
a portfolio of patents, we may not be able to settle any alleged patent
infringement claim through a cross-licensing arrangement. In the event any
third party made a valid claim against us or our customers and a license was
not made available to us on commercially reasonable terms, we would be
adversely affected. In addition, the laws of certain countries in which our
products have been or may be developed, manufactured or sold, including the
Peoples Republic of China, Taiwan and Korea, may not protect our products and
intellectual property rights to the same extent as the laws of the United
States of America.

We may in the future initiate claims or litigations against third parties
for infringement of our proprietary rights to determine the scope and validity
of our proprietary rights. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our failure or inability
to develop non-infringing technology or license the proprietary rights on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.

Backlog

Because our business is characterized by short lead-time orders and quick
delivery schedules, we seek to ship products within a few weeks of receipt of
orders. As a result, we operate without significant backlog, and rely on
bookings each quarter to comprise a predominant portion of our sales for that
quarter. Additionally, purchase orders may be cancelable without significant
penalty or subject to price renegotiations, changes in unit quantities or
delivery schedules to reflect changes in customers requirements or
manufacturing availability. Consequently, we do not believe that backlog is a
reliable indicator of future sales.

Segments

We operate in the videographics and digital media segments as described
above. The majority of our revenues and operating loss was attributed to our
videographics segment. For fiscal years ended June 30, 2002 and 2001, the
digital media segment accounted for $6,222,000 and $2,788,000 in revenues,
respectively. As a percentage of revenues for fiscal years ended June 30, 2002
and 2001, the digital media segment accounted for 6% and 2%, respectively. The
digital media segment accounted for $3,924,000 in operating loss for the fiscal
year ended June 30, 2002. At June 30, 2002 and 2001, the assets attributed to
the digital media segment were negligible.

Employees

As of June 30, 2002, we had 407 full time employees, including 291 in
research and development, 36 in product testing, quality assurance and
operations functions, 38 in marketing and sales and 42 in finance, human
resources, and administration. As of June 30, 2002, we had 124 employees in
the United States, 209 in Shanghai,

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China, 57 in Taiwan and 17 in Hong Kong. Competition for qualified personnel
in the semiconductor, software and the PC industry in general is intense in
Silicon Valley where we are located. Our future success will depend in great
part on our ability to continue to attract, retain and motivate highly
qualified technical, marketing, engineering and management personnel. Our
employees are not represented by any collective bargaining agreements, and we
have never experienced a work stoppage. We believe that our employee relations
are good.




Item 2. Properties

We lease a building of approximately 34,000 square feet on 1090 East
Arques Avenue in Sunnyvale, California, pursuant to a lease which expires in
June 2006. This building is used as our headquarters and includes development,
marketing and sales, and administrative offices. We lease office space for a
sales office in Houston, Texas. This sales office totals approximately 500
square feet. Our other leases include a 6,000 square foot office in Kwun Tong,
China, for the Hong Kong branch office of the Trident Far East subsidiary, a
9,000 square foot sales office in Taipei, Taiwan, a 14,000 square foot research
and development facility in Hsinchu, Taiwan, a 4,000 square foot sales office
in Shenzhen, China; a 36,000 square foot research and development facility in
Shanghai, China, and a 1,000 square foot sales office in Beijing, China.




Item 3. Legal Proceedings

On December 14, 1998, NeoMagic Corporation (NeoMagic) filed a patent
infringement lawsuit in the U.S. District Court, District of Delaware,
asserting infringement of two patents against us. On February 1, 2001, the
Court granted summary judgment in favor of us that we did not infringe either
patent. Other motions for summary judgment relating to damages issues remain
unresolved. We expect the Court to enter judgment in our favor. NeoMagic has
appealed the summary judgment on its infringement claims but we believe the
appeal is premature. We expect to move to dismiss the appeal unless the Court
permits NeoMagic to pursue the appeal before our antitrust counterclaim is
resolved in the trial court. We asserted an antitrust counterclaim against
NeoMagic, seeking compensatory damages, trebled damages, costs and attorney
fees, which was stayed pending resolution of NeoMagics infringement claims at
the District Court level. After the District Court granted summary judgment,
we moved to lift the stay on our antitrust counterclaim. The briefing on this
motion is completed and the parties are awaiting oral argument. On May 7,
2001, NeoMagic filed its opening appeal brief. On May 17, 2001, we filed a
motion to dismiss NeoMagics appeal for lack of jurisdiction arguing that there
is no final appealable order and that our antitrust counterclaim remains
pending. On June 15, 2001, we filed our opposition appeal brief and renewed
our request that the appeal be dismissed for lack of jurisdiction. On July 2,
2001, NeoMagic filed its reply brief. On July 31, 2001, the Federal Circuit
dismissed NeoMagics appeal without prejudice as premature. NeoMagic
subsequently moved the District Court to certify our summary judgment for
immediate appeal pursuant to Federal Rules of Civil Procedure Rule 54(b). That
motion was granted, as was our motion to lift the stay on our antitrust
counterclaim so we could take limited discovery. On April 16, 2002, the
Federal Circuit affirmed summary judgment on NeoMagics 955 patent in favor of
us. The Federal Circuit affirmed portions of the district courts claim
construction on NeoMagics 806 patent, reversed others, and remanded the case
to the district court for further proceedings on the 806 patent. However, the
district court judge retired within days of the remand order, and the case has
been reassigned to a yet-to-be-confirmed new judge. In the meantime,
Magistrate Judge Thynge has agreed to hear new cross-motions for summary
judgment, probably in November. We continue to take discovery in the district
court on our antitrust counterclaim.

On May 26, 2000, NeoMagic filed a second patent infringement lawsuit in
the U.S. District Court, District of Delaware, asserting that we infringed a
patent issued in March 2000 that is related to the two patents at issue in the
first case. NeoMagic is seeking a permanent injunction, damages, including
enhanced damages, pre-judgment and post-judgment interest, costs and attorney
fees. This case was stayed pending resolution of the first case, and was
dismissed without prejudice in August, 2002 by stipulation of the Parties.

In January 2001, FIC Corporations motion to add us as a third-party
defendant in a patent infringement case brought against FIC by Intel
Corporation in the U.S. District Court, Northern District of California was
denied. FIC had attempted to add us as a third-party defendant because we
allegedly supplied to FIC the devices which Intel claims infringe its patents.
FIC then demanded that we assume FICs defense in the Intel action, which
demand we rejected. FIC settled its case with Intel and renewed its demand in
March 2001, that we reimburse it for its costs of defense. We rejected this
demand, and FIC has threatened to file suit against us seeking recovery of its
costs of

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defense. Given the nature of litigation and inherent uncertainties
associated with litigation, management cannot predict with certainty whether
FIC will bring suit or the ultimate outcome of any such litigation.

On April 26, 2001, we filed a lawsuit against VIA Technologies, Inc. We
alleged that VIA and S3 Graphics, together with former Company engineering
senior managers, conspired to misappropriate our trade secrets about products
in development. We further alleged that the corporate and individual
defendants used our confidential information to systematically recruit key
engineers away from us as part of a scheme to gain a competitive advantage by
undermining our product development and design win capabilities. We also
alleged that VIA and S3 Graphics may be planning to use our trade secrets to
unfairly compete against us. We requested both legal and equitable relief.
The parties have settled their disputes. As part of that settlement, the
action was dismissed.

On May 4, 2001, VIA Technologies, Inc. sued us in the U.S. District Court,
Northern District of California for breach of contract and related claims
arising out of our agreements with respect to the manufacture and sale of Cbi-1
and Cbi-7 chipsets. The complaint seeks payment in an unspecified amount (but
later asserted to be approximately $6.3 million) for 686,675 Cbi-7 chipsets we
allegedly ordered but did not pay for. On May 29, 2001, we answered and
counterclaimed, asserting claims for breach of the same agreements,
interference with our relationships with our customers, and related claims. On
July 9, 2001, we moved for a preliminary injunction to require VIA to satisfy
its agreements with us. At the August 13, 2001 scheduled hearing on our motion
for preliminary injunction, the Court continued the hearing to September 13 and
ordered the parties to mediate their dispute in the interim. The mediation was
not successful, but we nevertheless withdrew our motion for preliminary
injunction. Extensive discovery was undertaken, following which the case was
settled on May 24, 2002.

Statements regarding the possible outcome of litigation and our actions are
forward looking statements and actual outcomes could vary based upon future
developments on the litigation.




Item 4. Submission of Matters to a Vote of Securities Holders.

None.

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Executive Officers of the Registrant

As of June 30, 2002, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, were as
follows:

|                        |  |     |    |          |  |                                                                     |  |  |      | 
|----------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------- |  |  | ---- | 
|Name                    |  | Age |    | Position |  | Employed Since                                                     
|                        |  |     |    |          |  |                                                                    
|                       
|Frank C. Lin            |  |     | 57 |          |  | President, Chief Executive
Officer and
Chairman of the Board        |  |  | 1987 | 
|                       
|Jung-Herng Chang, Ph.D. |  |     | 46 |          |  | Senior Vice President, Engineering                                  |  |  | 1992 | 
|                       
|Peter Jen               |  |     | 56 |          |  | Senior Vice President, Asia
Operations
and Chief Accounting Officer |  |  | 1988 | 

Mr. Lin founded Trident in July 1987 and has served in his present
position since that time. His career spans 25 years in the computer and
communications industries. Prior to Trident, he was Vice President of
Engineering and co-founder of Genoa Systems, Inc., a graphics and storage
product company. Before Genoa, Mr. Lin worked for GTE, ROLM, and was a senior
manager at Olivetti Advanced Technical Center in Cupertino, CA. He holds a
M.S.E.E. from the University of Iowa and an B.S.E.E. from National Chiao Tung
University, Taiwan.

Dr. Chang joined the Company in July 1992. He was appointed to his
present position in January 1998. He was appointed Vice President, Engineering
in July 1994, and served as Chief Technical Officer from July 1992 through June
1994. From October 1988 through July 1992, he was a hardware design manager at
Sun Microsystems, Inc. From September 1985 through September 1988, he was a
research member at IBMs Thomas J. Watson Research Center. Dr. Chang holds a
Ph.D. in Computer Science and a M.S. in Electrical Engineering and Computer
Science from the University of California, Berkeley, and a B.S. in Electrical
Engineering from the National Taiwan University.

Mr. Jen joined the Company in August 1988. He was appointed to the
position of Chief Accounting Officer in September 1998 and Senior Vice
President, Asia Operations in January 1998. He was appointed to the position
of Vice President, Asia Operations in April 1995, and served as General Manager
of Asia Operations from April 1994 to April 1995. He served as Vice President,
Operations from September 1992 to March 1994, and served as Vice President,
Finance from October 1990 through August 1992. From September 1985 to July
1988, he was Controller at Genoa Systems, Inc., a graphics chipset design
company. Prior to that time, Mr. Jen served in finance and operations
positions for various corporations, including Bristol-Myers (Taiwan), Pacific
Glass Corporation, a subsidiary of Corning Glass Works, and Philips
Telecommunicatie Industrie, B.V. Mr. Jen holds an M.B.A. in Marketing from
Central Missouri State University and a B.S. in Accounting from National Taiwan
University.

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PART II




Item 5. Market for the Registrants Common Stock and Related Stockholder Matters

The Companys stock has been traded on the NASDAQ National Market since
the Companys initial public offering on December 16, 1992 under the NASDAQ
symbol TRID. The following table sets forth, for the periods indicated, the
quarterly high and low sales prices for the Companys common stock as reported
by NASDAQ:

|                    |  |      |        |     |  |   |       | 
|------------------- |  | ---- | ------ | --- |  | - | ----- | 
|Year Ended June 30, |  | High |        | Low
|                    |  |      |        |    
|2001                |  |      |        |     |  |   |       | 
|First Quarter       |  | $    | 12.063 |     |  | $ | 8.000 | 
|Second Quarter      |  |      | 9.625  |     |  |   | 4.125 | 
|Third Quarter       |  |      | 8.000  |     |  |   | 3.844 | 
|Fourth Quarter      |  |      | 5.700  |     |  |   | 3.760 | 
|2002                |  |      |        |     |  |   |       | 
|First Quarter       |  | $    | 7.750  |     |  | $ | 3.600 | 
|Second Quarter      |  |      | 7.970  |     |  |   | 4.150 | 
|Third Quarter       |  |      | 8.230  |     |  |   | 6.100 | 
|Fourth Quarter      |  |      | 8.560  |     |  |   | 7.950 | 

As of June 30, 2002, there were approximately 115 registered holders of
record of the Companys common stock.

The Company has never paid cash dividends on its common stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.

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Item 6. Selected and Supplementary Financial Data

TRIDENT MICROSYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA

|                                                   |  |                     |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                   |  | Year ended June 30,
|                                                   |  |                    
|(in thousands, except per share data)              |  | 2002                |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                   |  |                     |         |      |  |      |         |      |  |     
|CONSOLIDATED STATEMENT OF OPERATIONS DATA:         |  |                     |         |      |  |      |         |      |  |      |         |   |  |   |         |   | 
|Revenues                                           |  | $                   | 105,766 |      |  | $    | 128,226 |      |  | $    | 122,682 |   |  | $ | 89,255  |   |  | $ | 113,002 |  
|Income (loss) from operations                      |  |                     | (13,006 | )    |  |      | 2,394   |      |  |      | (4,206  | ) |  |   | (14,251 | ) |  |   | (9,520  | )
|Net income (loss)                                  |  |                     | (35,651 | )    |  |      | (43,640 | )    |  |      | 68,107  |   |  |   | (12,195 | ) |  |   | (5,106  | )
|Basic income (loss) per share                      |  |                     | (2.66   | )    |  |      | (3.33   | )    |  |      | 5.07    |   |  |   | (0.94   | ) |  |   | (0.39   | )
|Diluted income (loss) per share                    |  |                     | (2.66   | )    |  |      | (3.33   | )    |  |      | 4.43    |   |  |   | (0.94   | ) |  |   | (0.39   | )
|CONSOLIDATED BALANCE SHEET DATA:                   |  |                     |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash, cash equivalents,
and short-term investments |  | $                   | 84,018  |      |  | $    | 79,385  |      |  | $    | 149,706 |   |  | $ | 32,469  |   |  | $ | 36,886  |  
|Working capital                                    |  |                     | 73,802  |      |  |      | 79,191  |      |  |      | 115,211 |   |  |   | 37,498  |   |  |   | 47,881  |  
|Total assets                                       |  |                     | 118,524 |      |  |      | 147,419 |      |  |      | 222,376 |   |  |   | 110,910 |   |  |   | 118,427 |  
|Long-term debt, less current portion               |  |                     |        |      |  |      |        |      |  |      | 46      |   |  |   | 82      |   |  |   | 350     |  
|Total stockholders equity                         |  |                     | 90,656  |      |  |      | 105,366 |      |  |      | 155,961 |   |  |   | 93,381  |   |  |   | 104,891 |  

SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA

|                                       |  |                           |        |          |  |             |        |              |  |   |        |   |  |   |         |  
|-------------------------------------- |  | ------------------------- | ------ | -------- |  | ----------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                                       |  | FISCAL 2002 QUARTER ENDED
|                                       |  |                          
|(in thousands, except per share data)  |  | JUNE 30                   |        | MARCH 31 |  | DECEMBER 31 |        | SEPTEMBER 30
|                                       |  |                           |        |          |  |             |        |             
|Revenues                               |  | $                         | 21,009 |          |  | $           | 28,839 |              |  | $ | 30,178 |   |  | $ | 25,740  |  
|Gross profit                           |  |                           | 4,963  |          |  |             | 6,239  |              |  |   | 5,655  |   |  |   | 5,939   |  
|Loss from operations                   |  |                           | (3,737 | )        |  |             | (2,622 | )            |  |   | (3,680 | ) |  |   | (2,967  | )
|Net loss                               |  |                           | (2,032 | )        |  |             | (2,076 | )            |  |   | (3,334 | ) |  |   | (28,209 | )
|Net loss per share  basic and diluted |  |                           | (0.15  | )        |  |             | (0.15  | )            |  |   | (0.25  | ) |  |   | (2.12   | )

|                                      |  |                           |        |          |  |             |         |              |  |   |        |  |  |   |        | 
|------------------------------------- |  | ------------------------- | ------ | -------- |  | ----------- | ------- | ------------ |  | - | ------ |  |  | - | ------ | 
|                                      |  | FISCAL 2001 QUARTER ENDED
|                                      |  |                          
|(in thousands, except per share data) |  | JUNE 30                   |        | MARCH 31 |  | DECEMBER 31 |         | SEPTEMBER 30
|                                      |  |                           |        |          |  |             |         |             
|Revenues                              |  | $                         | 32,393 |          |  | $           | 24,724  |              |  | $ | 35,052 |  |  | $ | 36,057 | 
|Gross profit                          |  |                           | 9,369  |          |  |             | 5,010   |              |  |   | 15,111 |  |  |   | 9,390  | 
|Income (loss) from operations         |  |                           | 463    |          |  |             | (3,212  | )            |  |   | 4,982  |  |  |   | 161    | 
|Net income (loss)                     |  |                           | 2,367  |          |  |             | (50,646 | )            |  |   | 4,105  |  |  |   | 534    | 
|Basic income (loss) per share         |  |                           | 0.18   |          |  |             | (3.87   | )            |  |   | 0.32   |  |  |   | 0.04   | 
|Diluted income (loss) per share       |  |                           | 0.17   |          |  |             | (3.87   | )            |  |   | 0.29   |  |  |   | 0.04   | 

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Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Special Note Regarding Forward-Looking Statements

When used in this report the words expects, anticipates, estimates
and similar expressions are intended to identify forward-looking statements.
Such statements, which include statements concerning:



| |  | the timing of availability and functionality of products under development,                                     
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | trends in average selling prices,                                                                               
| 
| |  | the percentage of export sales,                                                                                 
| 
| |  | outcome of pending litigation,                                                                                  
| 
| |  | demand for and trends in revenue for our products,                                                              
| 
| |  | devotion of resources and control of expenses related to new products, markets and internal business strategies,

are subject to risks and uncertainties, including those set forth below under
Factors That May Affect
Our Results and elsewhere in this report, that could cause actual results to
differ materially from those projected. These forward-looking statements speak
only as of the date hereof. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which
any statement is based.

The following discussion should be read in conjunction with our Financial
Statements and Notes thereto.

Overview of Business

We design, develop and market very large scale integrated circuits (IC)
for videographics, multi-media and digitally processed television products for
the desktop and notebook personal computer (PC) and consumer television
market. Our graphics and video controllers typically are sold with software
drivers, a BIOS (basic input/output system) and related system integration
support. Our strategy is to apply our design expertise, which helped us
succeed in the market for Super Video Graphics Array (SVGA) graphics
controllers and Graphical User Interface (GUI) accelerators, to other high
volume graphics, multimedia and digitally processed television markets for the
general mass public, acceleration of Digital Versatile Disc (DVD) based
live-video playback, and three-dimensional (3D) display for game and
entertainment application markets.

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to customer programs and incentives, product returns, bad debts,
inventories, equity investments, income taxes, financing operations, warranty
obligations, excess component order cancellation costs, restructuring,
long-term service contracts, pensions and other post-retirement benefits, and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.

We record estimated reductions to revenue for customer programs and
incentive offerings including special pricing agreements, promotions,
historical returns, inventory levels at distributors and other volume-based
incentives. If market conditions were to decline, we may take actions to
increase customer incentive offerings possibly resulting in an incremental
reduction of revenue at the time the incentive is offered.

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We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs
and processes, including actively monitoring and evaluating the quality of our
component suppliers, our warranty obligation is affected by product failure
rates and material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or
service delivery costs differ from our estimates, revisions to the estimated
warranty liability would be required.

We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.

We hold minority interests in companies having operations or technology in
areas within our strategic focus, four of which are publicly traded and have
highly volatile share prices. We record an investment impairment charge when
we believe an investment has experienced a decline in value that is
other-than-temporary. Future adverse changes in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that may not be
reflected in an investments current carrying value, thereby possibly requiring
an impairment charge in the future.

Results of Operations

The following table sets forth the percentages that consolidated statement
of operations items are to revenues for the years ended June 30, 2002, 2001 and
2000:

|                                     |  |                     |     |      |  |      |     |   |  |  |     |  
|------------------------------------ |  | ------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                     |  | Year ended June 30,
|                                     |  |                    
|                                     |  | 2002                |     | 2001 |  | 2000
|                                     |  |                     |     |      |  |     
|Revenues                             |  |                     | 100 | %    |  |      | 100 | % |  |  | 100 | %
|Cost of revenues                     |  |                     | 78  |      |  |      | 70  |   |  |  | 67  |  
|                                     |  |                     |     |      |  |      |     |   |  |  |     |  
|Gross margin                         |  |                     | 22  |      |  |      | 30  |   |  |  | 33  |  
|Research and development             |  |                     | 21  |      |  |      | 15  |   |  |  | 22  |  
|Selling, general and administrative  |  |                     | 13  |      |  |      | 13  |   |  |  | 14  |  
|                                     |  |                     |     |      |  |      |     |   |  |  |     |  
|Income (loss) from operations        |  |                     | (12 | )    |  |      | 2   |   |  |  | (3  | )
|Gain (loss) on investments, net      |  |                     | (41 | )    |  |      | (61 | ) |  |  | 94  |  
|Interest income, net                 |  |                     | 1   |      |  |      | 2   |   |  |  | 1   |  
|                                     |  |                     |     |      |  |      |     |   |  |  |     |  
|Income (loss) before income taxes    |  |                     | (52 | )    |  |      | (57 | ) |  |  | 92  |  
|Provision (benefit) for income taxes |  |                     | (19 | )    |  |      | (23 | ) |  |  | 36  |  
|                                     |  |                     |     |      |  |      |     |   |  |  |     |  
|Net income (loss)                    |  |                     | (33 | )    |  |      | (34 | ) |  |  | 56  |  
|                                     |  |                     |     |      |  |      |     |   |  |  |     |  

Revenues

The sales of PCs have slowed in recent periods. Our revenues have
declined in fiscal year 2002, and we cannot predict when or if this slowdown
will be reversed. Any significant revenue growth in graphics revenue depends
to a substantial extent on an improvement in the PC market. Net product sales
decreased in fiscal 2002 to $105.8 million, or 11.1%, from $119.0 million
reported in fiscal 2001. The decrease in net product sales was primarily due
to the decrease in unit volume shipments of desktop and notebook products in
fiscal 2002. Sales of notebook products of $89.4 million were approximately
85% of total revenues in fiscal 2002 as compared to $102.3 million or 80% of
total revenues in fiscal 2001. Sales of GUI desktop products were
approximately $2.6 million or 2% of total revenues in fiscal 2002 as compared
to approximately $8.7 million or 7% in fiscal 2001. Sales of

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digitally processed television products represented approximately $6.2 million
or 6% of total revenues in fiscal 2002 as compared to approximately $2.8
million or 2% in fiscal 2001.

Total revenues in fiscal 2001 increased to $128.2 million, or 4%, from
$122.7 million reported in fiscal 2000. Net product sales increased in fiscal
2001 to $119.0 million, or 1%, from $117.7 million reported in fiscal 2000.
The increase in net product sales was primarily due to an increase in unit
volume shipments of notebook products having higher average selling prices.
Royalty and license revenue increased to $9.3 million in fiscal 2001 from $5.0
million in fiscal 2000 resulting primarily from a final payment from VIA in
settlement of our litigation against VIA for products sold prior to March 31,
2000. We did not recognize the royalties in earnings until the quarter ended
December 31, 2000 when the disputes were settled and the collectibility was
assured. Sales of notebook products of $102.3 million were approximately 80%
of total revenues in fiscal 2001 as compared to $91.9 million or 75% of total
revenues in fiscal 2000. Sales of GUI desktop products were approximately $8.7
million or 7% of total revenues in fiscal 2001 as compared to approximately
$21.9 million or 18% in fiscal 2000.

We design products with the goal of filling the needs of leading PC
systems manufacturers as well as the needs of adapter card manufacturers.
Sales to Asian customers, primarily in Japan and Taiwan, accounted for 99% of
net sales in fiscal 2002. Sales to Asian customers, primarily in Hong Kong,
Taiwan, Japan, the Philippines, Thailand and Singapore, accounted for 99% of
net sales in fiscal 2001. Sales to Asian customers, primarily in Hong Kong,
Taiwan, Korea, Japan, and Singapore accounted for 99% of net sales in fiscal
2000. Sales to one customer, Inno Micro, which is a supplier of Toshiba,
accounted for approximately 58% of net sales for fiscal 2002. Sales to three
customers, Inno Micro, which is a supplier of Toshiba, and Quanta and Arima,
which are suppliers of Compaq, accounted for approximately 23%, 16% and 15% of
net sales for fiscal 2001, respectively. Sales to three customers, Compaq,
Fujitsu, and Toshiba accounted for approximately 18%, 11%, and 10% of net sales
for fiscal 2000, respectively. Substantially all of the sales transactions
were denominated in U.S. dollars during all periods. In fiscal year 2002 our
sales to distributors were negligible. Sales to distributors represented 30%
and 6% of net sales during the fiscal years ended June 30, 2001 and 2000,
respectively.

We plan to develop new and higher-performance graphics controllers and
multimedia products to sell to existing customers as well as new customers in
Asia, North America and Europe. Our future success depends upon our successful
introduction of these and other new products on a regular and timely basis and
upon those products meeting customer requirements. There can be no assurance
that we will be able to complete the development of new products or to commence
shipments of new products in a timely manner, or that product specifications
will not change during the development period. In addition, even if such new
products are successfully developed and shipped, there can be no assurance that
they will be successful in the marketplace.

Gross Margin

Gross margin as a percentage of total revenue decreased to 22% in fiscal
2002 from 30% in fiscal 2001. The 8% decrease was primarily due to an increase
in the cost of production of notebook chips. Gross margin as a percentage of
total revenue decreased to 30% in fiscal 2001 from 33% in fiscal 2000.
Excluding the royalty and license revenue, our gross margin decreased to 25% in
fiscal 2001 from 30% in fiscal 2000. The 5% decrease was primarily due to an
increase in the cost of the production of notebook chips.

We believe that the prices of high-technology products will decline over
time as competition increases and new and more advanced products are
introduced. We expect average selling prices of existing products to continue
to decline, although the average selling prices of our entire product line may
remain constant or increase as a result of introductions of new
higher-performance products often with additional functionality which are
planned to have higher margins. Our strategy is to maintain and improve gross
margins by (1) developing new products that have higher margins, and (2)
reducing manufacturing costs by improving production yield and utilizing newer
process technology. There is no assurance that we will be able to develop and
introduce new products on a timely basis or that we can reduce manufacturing
costs. Our revenues are substantially dependent on significant sales of the XP4
and increases in sales of PCs in general. Without those, we do not expect our
revenues to increase. We currently do not expect revenues to increase over the
next two quarters, and we expect to incur losses over those quarters.

Research and Development

Research and development expenses increased to $22.2 million in fiscal
2002 from $20.0 million in fiscal

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2001, and decreased from $27.6 million in fiscal 2000. Research and
development expenses as a percentage of net sales were 21%, 15% and 22% in
fiscal 2002, 2001 and 2000, respectively. The increase in the amount spent in
fiscal 2002 was primarily the result of increased headcount relating to our
efforts in developing advanced graphic and digitally processed television
products such as our newest graphic chip the XP4 and our digitally processed
television chip DPTV-3D.

We are in the process of developing our next generation 3D graphics
technology. The new technology, which we call XP4, will be used in both the
discrete and integrated products. Our graphics product development strategy is
to focus on a balanced design with consideration of not only high performance,
but also low cost and low power consumption. We also plan to continue
developing the next generation DPTV product as well as other advanced products
for digital TV and digital Set Top Boxes (STB) for the digital television
market in China, Japan, Korea and Taiwan. However, there can be no assurance
that these products will be quickly or widely accepted by consumers in the
market place, or that the new products will be developed and shipped in a
timely manner.

Selling, General and Administrative

Selling, general and administrative expenses decreased to $13.6 million in
fiscal 2002 from $16.5 million in fiscal 2001 and decreased from $16.9 million
in fiscal 2000. Selling, general and administrative expenses as a percentage
of revenues were 13%, 13% and 14% in fiscal 2002, 2001 and 2000, respectively.
Selling expenses were $8.5 million in fiscal 2002 as compared to $7.9 million
and $9.7 million in fiscal 2001 and 2000, respectively. General and
administrative expenses were $5.1 million in fiscal 2002 as compared to $8.6
million and $7.2 million in fiscal 2001 and 2000, respectively. Selling costs
increased in fiscal 2002 due to higher sales representative commissions for our
integrated notebook products. Selling costs declined in fiscal 2001 and fiscal
2000 due to a decline in headcount and sales representative commissions.
General and administrative expenses decreased in fiscal 2002 compared to fiscal
2001 primarily due to a decrease in legal expenses. General and administrative
expenses increased in fiscal 2001 compared to fiscal 2000 primarily due to an
increase in headcount of administrative personnel.

Interest Income, Net

The amount of interest income earned by us varies directly with the amount
of our cash and cash equivalents balances and the prevailing interest rates.
Net interest income decreased to $486,000 in fiscal 2002 from $1.7 million in
fiscal 2001 due to lower cash balances and declining interest rates in money
market accounts. Net interest income decreased to $1.7 million in fiscal 2001
from $2.0 million in fiscal 2000 due to lower cash balances in higher yielding
money market accounts.

Provision/benefit for Income Taxes

The benefit of income taxes amounted to $19.6 million and $30.1 million
for the fiscal years ended June 30, 2002 and 2001, respectively. In both
years, the income tax benefit was primarily due to the reversal of deferred tax
liabilities as a result of the write-downs of our investment in United
Microelectronics Corporation (UMC). The provision for income taxes amounted
to $44.7 million for the fiscal year ended June 30, 2000, due primarily to the
deferred tax provision for the unrealized capital gain in the investments in
UMC.

Gain (loss) on investments, net

On January 3, 2000, UMC acquired United Integrated Circuits Corporation
(UICC), a company in which we had previously made an investment. We recorded
a pre-tax gain of $117 million as a nonoperating gain in investment in our
statement of operations during the year ended June 30, 2000. The gain
represents the difference between the cost of our previous investment in UICC
and the quoted market value of the UMC shares listed on the Taiwan Stock
Exchange as of the date UMC acquired UICC. As of June 30, 2002, we owned
approximately 64.2 million shares of UMC which represents about 0.5% of the
outstanding stock of UMC. In the quarter ended September 30, 2001, we
concluded that due to a substantial decline in the market value of UMCs stock
price from June 30, 2001, the continued decline in stock prices of publicly
traded semiconductor companies and the continuing unfavorable outlook for the
semiconductor industry, that the decline in the investment value in UMC had
become other-than-temporary. Accordingly, $40.0 million, which represents the
difference between the carrying value on March 31, 2001 and the quoted fair
value on September 30, 2001, was written off against earnings as an impairment

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loss on investments in accordance with Statements of Financial Accounting
(SFAS) No. 115 and Accounting Principles Board Opinion (APB) No. 18. See
Part IV, Item 14, Note 4 to the Consolidated Financial Statements for
discussion of this investment and the related losses.

During the fiscal year ended June 30, 2002, we also recognized net
impairment loss on investments other than UMC totaling $2.7 million as follows
(in thousands):

|                                      |  |   |       |  
|------------------------------------- |  | - | ----- | -
|ADSL company                          |  | $ | 270   |  
|Communications company                |  |   | 66    |  
|Broadband communications company      |  |   | 750   |  
|Voice over DSL communications company |  |   | 850   |  
|Optical networking company            |  |   | 349   |  
|Broadband server technology company   |  |   | 275   |  
|Venture capital funds                 |  |   | 743   |  
|System design software company        |  |   | (568  | )
|                                      |  |   |       |  
|Net loss                              |  | $ | 2,735 |  
|                                      |  |   |       |  

During the three months ended June 30, 2002, we recognized a gain on
investment of $568,000 resulting from the acquisition by a public company of a
software design company in which we had invested $250,000. See Part IV, Item
14, Note 5 to the Consolidated Financial Statements for discussion of these
investments and the related losses.

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Liquidity and Capital Resources

As of June 30, 2002, our principal sources of liquidity included cash and
cash equivalents of $21.2 million, decreased from $26.7 million at June 30,
2001. In fiscal year 2002, $4.1 million of cash was used by operations, as
opposed to fiscal year 2001, during which $607,000 of cash was provided by
operations. The cash used by operations was primarily due to the operating
loss and decrease in accounts payable, partially offset by a decrease in
accounts receivable and inventories.

Accounts receivable decreased to $4.3 million at June 30, 2002 from $9.2
million at June 30, 2001. The decrease in accounts receivable was primarily
due to a decrease in revenues in the fourth quarter. Revenues decreased to
$21.0 million in the three months ended June 30, 2002 from $28.8 million in the
three months ended March 31, 2002.

Inventories decreased to $3.2 million at June 30, 2002 from $10.7 million
at June 30, 2001 primarily due to the reduction of our orders for product
manufacturing during the fiscal year ended June 30, 2002. The decrease is also
a result of changing our product mix to integrated notebook products, which are
purchased on a just-in-time basis, further lowering our inventory level.

Accounts payable decreased to $6.7 million at June 30, 2002 from $11.8
million at June 30, 2001. The decrease is mainly a reflection of our continued
reduction in purchases during the fiscal year ended June 30, 2002.

Capital expenditures in fiscal 2002, 2001, and 2000 were $2.7 million,
$2.1 million and $1.2 million, respectively. Other significant cash outflows
from investing and financing activities for the year ended June 30, 2001
represented the purchases of long-term investments of $6.1 million and
treasury stock of $7.7 million.

We occupy our facilities under several non-cancelable operating lease
agreements expiring at various dates through 2006, and require payment of
property taxes, insurance, maintenance and utilities. Future minimum lease
payments under non-cancelable operating leases at June 30, 2002 were as follows
(in thousands):

|                             |      |   |       |       | 
|---------------------------- | ---- | - | ----- | ----- | 
|Years ending June 30:        |      |   |       |      
|                            
|                             | 2003 |   | $     | 2,000 | 
|                             | 2004 |   |       | 1,800 | 
|                             | 2005 |   |       | 1,500 | 
|                             | 2006 |   |       | 1,600 | 
|                             |      |   |       |       | 
|Total minimum lease payments |      | $ | 6,900 |      
|                             |      |   |       |       | 

As of June 30, 2002, we had unconditional purchase order commitments of
approximately $ 5.0 million for wafers and chipsets.

On April 13, 2000, our Board of Directors approved an extension to April
30, 2001 of the $20 million stock repurchase program, originally approved in
April 1998. During fiscal years 2001, 2000, and 1999, 734,000, 680,000 and
161,500 shares of common stock were repurchased for $7.7 million, $6.2 million,
and $0.9 million under this program, respectively.

In October 1999, our Board of Directors authorized a one-year budget of
$20.0 million allowing our President and executive officers to make equity
investments in companies, with no more than $3.0 million in any one company or
technology. As of June 30, 2002 cumulative purchases of investments totaled
$14.7 million. Substantially all of these investments are in private companies
developing technologies in areas in which we are focusing.

On April 19, 2000, we and VIA Technologies, Inc. announced that we had
agreed to resolve all pending litigation. We recognized $10.2 million in
royalty revenue during the quarter ended December 31, 2000, offset by costs of
$0.9 million, related to the litigation settlement with VIA Technologies Inc.
The $10.2 million, which VIA agreed to pay us as part of the settlement of
litigation, was related to products sold prior to March 31, 2000. We sued VIA
because VIA did not pay royalties to us when the products were sold. We did
not recognize the royalties in earnings until the disputes and litigation
regarding our right to collect were settled in the quarter ended December 31,
2000.

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As of June 30, 2002, the market value of our short-term investment in UMC
was $61.7 million. In addition, we held $10.1 million in stock which was not
available for resale as it is subject to certain contractual and other
restrictions. We acquired the shares we hold in UMC as a result of a
transaction we engaged in for the purpose of obtaining additional foundry
capacity for our operations. In order to preserve our wafer capacity guarantee
with UMC, there are certain limitations on our ability to sell the UMC shares.
If our total shareholdings fall below one-half of their initial percentage of
shares, our production capacity will be reduced by at least 50%, and depending
on the interpretation of the foundry capacity agreement between the parties,
our production capacity could be reduced by substantially more than 50%. In
addition, one-third of the shares is subject to a two-year lock-up period in
accordance with an investment agreement entered into with UMC. After a
two-year period, one-fifth of the shares will be available for sale from the
lock-up portion every six months. As of June 30, 2002, approximately 12.9
million shares are subject to this lock-up restriction. While we are an
operating company and not in the business of investing, reinvesting, owning,
holding or trading in securities, we do intend to monitor the advisability of
disposing of our UMC stock and intend to sell all or part of the stock when it
is in the best interests of our shareholders to do so.

We believe our current resources are sufficient to meet our needs for at
least the next twelve months. We regularly consider transactions to finance
our activities, including debt and equity offerings and new credit facilities
or other financing transactions. We believe our current reserves are adequate.

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Factors That May Affect Our Results

We incurred an operating loss in fiscal 2002.

We incurred an operating loss of $13.0 million in the fiscal year ended
June 30, 2002. Future performance will substantially depend upon numerous
factors, such as:



| |  |  | whether there is improvement in PC sales, notebook and digital media sales in particular;                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------
|
| |  |  | timely introduction of new products and product enhancements to the marketplace;                                      
|
| |  |  | whether customers successfully incorporate our technologies
into end products with high levels of customer acceptance;
|
| |  |  | fluctuating price levels for our products.                                                                            

We are trying to expedite new product launchings and to control operating
expenses. However, there is no guarantee that our efforts will be successful.
Sales and marketing, product development and general and administrative
expenses may increase as a result of shifts in the market place, our efforts in
developing and marketing new products such as DPTV-3D and XP4 and our need to
respond to these shifts, which could result in the need to generate
significantly higher revenue to achieve and sustain profitability.

We have had fluctuations in quarterly results in the past and will continue to
do so in the future.

We plan to control our operating expenses relating to any expansion of our
sales and marketing activities, broadening of our customer support
capabilities, development of new distribution channels, and any increase in our
research and development capabilities. However, our quarterly revenue and
operating results have varied in the past and may fluctuate in the future due
to a number of factors including:



| |  |  | uncertain demand in new markets in which we have limited experience;                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | fluctuations in demand for our products, including seasonality;                                                             
|
| |  |  | unexpected product returns or the cancellation or rescheduling of significant orders;                                       
|
| |  |  | our ability to develop, introduce, ship and support new
products and product enhancements and to manage product transitions;
|
| |  |  | new product introductions by our competitors;                                                                               
|
| |  |  | our ability to achieve required cost reductions;                                                                            
|
| |  |  | our ability to attain and maintain production volumes and quality levels for our products;                                  
|
| |  |  | delayed new product introductions;                                                                                          
|
| |  |  | unfavorable responses to new products;                                                                                      
|
| |  |  | adverse economic conditions, particularly in Asia;                                                                          
|
| |  |  | the mix of products sold and the mix of distribution channels through which they are sold;                                  
|
| |  |  | availability of foundry and assembly capacities;                                                                            
|
| |  |  | delay of joint development efforts due to unexpected market conditions; and                                                 
|
| |  |  | length of sales cycle.                                                                                                      

To be successful, we must continue to develop new products and to enhance our
existing products.

The graphics controller industry is characterized by rapidly changing
technology, frequent new product introductions, changes in customer
requirements and evolving industry standards. Our future success depends on
our ability to anticipate market needs and develop products that address those
needs. As a result, our products could quickly become obsolete if we fail to
predict market needs accurately or develop new products or product enhancements
in a timely manner. Any return to profitability and long term success in the
graphics business will depend on the introduction of successive generations of
products in time to meet the design cycles as well as to specifications of PC
manufacturers. Our failure to predict market needs accurately or to develop
new products or product enhancements in a timely manner will harm market
acceptance and sales of our products. If the development or enhancement of
these products or any other future products takes longer than we anticipate, or
if we are unable to introduce these products to market, our sales will not
increase. Even if we are able to develop and commercially

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introduce these new products, the new products may not achieve widespread
market acceptance necessary to provide an adequate return on our investment.

We currently rely on a few key accounts for a significant portion of our
revenue.

To date, a limited number of customers have accounted for a significant
portion of our revenue. Although our largest customers may vary from
period-to-period, we anticipate that our operating results for any given period
will continue to depend to a significant extent on large orders from a small
number of customers. Our distributor and customer agreements generally are not
exclusive, there is no obligation to renew agreements, and minimum purchases
are generally not required. The significant terms of our agreements with
distributors are as follows:



| |  |  | The products are shipped by us to a distributor with terms of
F.O.B. shipping point, with risk of loss transferring to the
distributor upon delivery of the products by us to the common
carrier.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Payment terms are net 30-days.                                                                                                                                                                   
|
| |  |  | The distributors return privileges are in the form of stock
rotation and warranty and return resulting from functionality and
quality issues for one year.                                       

We currently rely on certain international customers for a substantial
portion of our revenue.

Our revenues have historically been generated primarily from Asian
customers, particularly customers in Taiwan, and Japan. While we intend to
continue our marketing efforts to North American OEMs, we expect to be
primarily dependent on international sales and operations, particularly in
Taiwan, Japan and China, which are expected to constitute a significant portion
of our sales in the future. 62% of our total sales for the year ending June
30, 2002 were indirectly and directly sold to Toshiba. There are a number of
risks arising from our international business which could adversely affect
future results, including:



| |  |  | potentially longer accounts receivable collection cycles;
| | - |  | ---------------------------------------------------------
|
| |  |  | import or export licensing requirements;                 
|
| |  |  | potential adverse tax consequences; and                  
|
| |  |  | unexpected changes in regulatory requirements.           

Our international sales currently are U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets.

Intense competition exists in the market for graphics controllers.

The graphics controller industry in the sub-$1,000 PC segment has
experienced reduced margins due to a number of factors including: competitive
pricing pressures, processing difficulties and rapid technological change. We
anticipate that the discrete graphics controller demand from sub-$1,000 PCs
will continuously decrease in the future, while the demand for integrated
graphics controllers will increase. Also, there is intense competition in the
notebook graphics controller market. We compete in the notebook controller
market with competitors such as ATI Technologies, NVIDIA Corporation, VIA/S3,
and Intel. Therefore, to maintain our revenue and gross margin, we must
develop and introduce on a timely basis new products and product enhancements
and continually reduce our product cost. Our failure to do so would cause our
revenue and gross margins to decline, which could have a materially adverse
affect on our operating results.

The market for graphics controllers is intensely competitive. Many of our
current competitors in graphics have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and market share than we do. To remain competitive, we believe we
must, among other things, invest significant resources in developing new
products, including products for new markets, increasing the ability of our
products to integrate various functions and enhancing quality product
performance. If we fail to do so, our products may not compete favorably with
those of our competitors, which could have a materially adverse affect on our
revenue and future profitability. We are in the process of developing and
introducing our next generation 3D graphics technology. The new technology,
which we call XP4, will be used in both the discrete and integrated products.
Our graphics product development strategy is to focus on a totally balanced
design with consideration of not only high performance, but also low cost and
low power consumption.

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Intense competition exist in the market for digital media products.

We also plan to continue developing the next generation DPTV product as
well as other advanced products for digital TV and digital STB for the digital
television market in China, Japan, Korea and Taiwan. We believe the market for
digital television will be competitive, and will require substantial research
and development, sales and other expenditures to stay competitive in this
market. In the digital television market our principal competitors are
Toshiba, Philips Electronics, and Micronas AG. However, we believe that DPTV
products will have a longer product life cycle than other current products.
Therefore we expect to devote significant resources to the DPTV market even
though competitors are substantially more experienced than we are in this
market.

We are vulnerable to undetected product problems.

Although we establish and implement test specifications, impose quality
standards upon our suppliers and perform separate application-based
compatibility and system testing, our products may contain undetected defects,
which may or may not be material, and which may or may not have a feasible
solution. We have experienced such errors in the past, and we cannot ensure
that such errors will not be found from time to time in new or enhanced
products after commencement of commercial shipments. These problems may
materially adversely affect our business by causing us to incur significant
warranty and repair costs, diverting the attention of our engineering personnel
from our product development efforts and causing significant customer relations
problems.

In part due to pricing and other pressures in the PC graphics market and
in the desktop market in particular, we are developing products for
introduction in non-PC markets. However, there can be no assurance that we
will be successful in eliminating undetected defects in these new products
which may or may not be material.

We rely upon independent foundries to manufacture our products.

If the demand for our products grows, we will need to increase our
material purchases, contract manufacturing capacity and internal test and
quality functions. Any disruptions in product flow could limit our revenue,
adversely affect our competitive position and reputation and result in
additional costs or cancellation of orders under agreements with our customers.

We currently rely on a limited number of third-party foundries to
manufacture our products either in finished form or wafer form. Generally,
these foundries are not obligated to manufacture our products on a long term
fixed price base; however, due to the companys investment in one foundry, a
certain level of guaranteed wafer capacity does exist. If we encounter
shortages and delays in obtaining components, our ability to meet customer
orders could be materially adversely affected.

We have experienced delays in product shipments from a contract
manufacturer in the past, which in turn delayed product shipments to our
customers. Such delays often result in purchasing at a higher per unit product
cost from other foundries or the payment of expediting charges so that we can
obtain the required supply in a timely manner. We may in the future experience
delays in shipments from foundries or other problems, such as inferior quality
and insufficient quantity of product, any of which could materially adversely
affect our business and operating results. There can be no assurance that
these manufacturers will meet our future requirements for timely delivery of
products of sufficient quality and quantity. The inability of our contract
manufacturers to provide us with adequate supplies of high-quality products
would cause a delay in our ability to fulfill orders while we obtain a
replacement manufacturer and would have a material adverse effect on our
business, operating results and financial condition.

The market price of our common stock has been, and may continue to be volatile.

The market price of our common stock has been, and may continue to be
volatile. Factors such as new product announcements by us or our competitors,
quarterly fluctuations in our operating results and unfavorable conditions in
the graphics controller market may have a significant impact on the market
price of our common stock.

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These conditions, as well as factors that generally affect the market for
stocks in general and stocks in high-technology companies in particular, could
cause the price of our stock to fluctuate from time to time.

Our success depends to a significant degree on the continued employment of key
personnel.

Our success depends to a significant degree upon the continued
contributions of the principal members of our technical sales, marketing,
engineering and management personnel, many of whom perform important management
functions and would be difficult to replace. We particularly depend upon the
continued services of our executive officers, particularly Frank Lin, our
President and Chief Executive Officer, Dr. Jung-Herng Chang, Senior Vice
President, Engineering, and Peter Jen, our Senior Vice President, Asia
Operations and other key engineering, sales, marketing, finance, manufacturing
and support personnel. In addition, we depend upon the continued services of
key management personnel at our overseas subsidiaries. Our officers and key
employees are not bound by employment agreements for any specific term, and may
terminate their employment at any time. In addition, we do not have key
person life insurance policies covering any of our employees. In order to
continue to expand our product offerings both in the U.S. and abroad, we must
hire a number of research and development personnel. Hiring technical sales
personnel in our industry is very competitive due to the limited number of
people available with the necessary technical skills and understanding of our
technologies. Our ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining whether we will be
successful in the future. Competition for highly skilled personnel is intense,
particularly in Northern California. We may also have difficulty hiring
experienced and skilled engineers at our research and development facility in
Taiwan and China. If we are not successful in attracting, assimilating or
retaining qualified personnel to fulfill our current or future needs, our
business may be harmed.

Our success depends in part on our ability to protect our intellectual
property rights, which may be difficult.

The graphics controller market is a highly competitive industry in which
we, and most other participants, rely on a combination of patent, copyright,
trademark and trade secret laws, confidentiality procedures and licensing
arrangements to establish and protect proprietary rights. The competitive
nature of our industry, rapidly changing technology, frequent new product
introductions, changes in customer requirements and evolving industry standards
heighten the importance of protecting proprietary technology rights. Since the
United States Patent and Trademark Office keeps patent applications
confidential until a patent is issued, our pending patent applications may
attempt to protect proprietary technology claimed in a third party patent
application. Our existing and future patents may not be sufficiently broad to
protect our proprietary technologies as policing unauthorized use of our
products is difficult and we cannot be certain that the steps we have taken
will prevent the misappropriation or unauthorized use of our technologies,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as U.S. law. Our competitors may independently
develop similar technology, duplicate our products or design around any of our
patents or other intellectual property. If we are unable to adequately protect
our proprietary technology rights, others may be able to use our proprietary
technology without having to compensate us, which could reduce our revenues and
negatively impact our ability to compete effectively. We have filed a number
of lawsuits to enforce our intellectual property rights or to determine the
validity or scope of the proprietary rights of others. As a result of any such
litigation, we could lose our proprietary rights and incur substantial
unexpected operating costs. Any action we take to protect our intellectual
property rights could be costly and could absorb significant management time
and attention. In addition, failure to adequately protect our trademark rights
could impair our brand identity and our ability to compete effectively.

We are currently involved in intellectual property infringement claims, and may
be involved in others in the future, which can be costly.

Our industry is very competitive and is characterized by frequent
litigation alleging infringement of intellectual property rights. Numerous
patents in our industry have already been issued and as the market further
develops and additional intellectual property protection is obtained by
participants in our industry, litigation is likely to become more frequent.
From time to time, third parties have asserted and are likely in the future to
assert patent, copyright, trademark and other intellectual property rights to
technologies or rights that are important to our business.

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We are currently involved in such disputes with NeoMagic and others. See
Part II, Item 1 (Legal Proceedings). In addition, we may in the future enter
into agreements to indemnify our customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of
third parties. Our pending litigation and any future litigation arising from
claims asserting that our products infringe or may infringe the proprietary
rights of third parties, whether the litigation is with or without merit, has
been and may in the future be, time-consuming, resulting in significant
expenses and diverting the efforts of our technical and management personnel.
We do not have insurance against our alleged or actual infringement of
intellectual property of others. These claims, if resolved adversely to us,
could cause us to stop selling our products which incorporate the challenged
intellectual property and could also result in product shipment delays or
require us to redesign or modify our products or to enter into licensing
agreements. These licensing agreements, if required, would increase our
product costs and may not be available on terms acceptable to us, if at all.
If there is a successful claim of infringement or we fail to develop
non-infringing technology or license the proprietary rights on a timely basis,
our business could be harmed.

The California energy crisis could lead to increasing operating expenses.

We rely on the major Northern California public utility, Pacific Gas &
Electric Company, or PG&E, to supply electric power to our headquarters
facility in Sunnyvale, California. Due to problems associated with the
deregulation of the power industry in California and shortages in wholesale
electricity supplies, customers of PG&E may face increased electricity prices,
power shortages and rolling blackouts. Increased energy prices will increase
our operating expenses which will decrease our profits.

Natural disasters could limit our ability to supply products.

Our primary suppliers are located in California and Taiwan, both active
earthquake fault zones. These regions have experienced large earthquakes in
the past and may experience them in the future. A large earthquake in any of
these areas could disrupt our manufacturing operations for an extended period
of time, which would limit our ability to supply our products to our customers
in sufficient quantities on a timely basis, harming our customer relationships.

Future terrorist attacks may affect our business.

We cannot guarantee that our business will be unaffected by terrorist
attacks in the future. The impact and future effects of terrorism are
currently uncertain, and we are unable to predict the future impact that
terrorist attacks may have on our business and operations, the international
markets in which we operate and the global economy in general.

Dilution of shareholders interest may occur.

As part of our business strategy, we review acquisition and strategic
investment prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We are very aggressively seeking
investment opportunities in new businesses, and we expect to make investments
in and may acquire businesses, products or technologies in the future. In the
event of any future acquisitions, we could issue equity securities which would
dilute current stockholders percentage ownership.

These actions could affect our operating results and/or the price of our
common stock. Acquisitions and investment activities also entail numerous
risks, including: difficulties in the assimilation of acquired operations,
technologies or products; unanticipated costs associated with the acquisition
or investment transaction; adverse effects on existing business relationships
with suppliers and customers; risk associated with entering markets in which we
have no or limited prior experience; and potential loss of key employees of
acquired organizations.

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We cannot assure that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could harm our business, operating results and
financial condition.

Changes in our business organization could affect our operations.

On January 18, 2000, our Board of Directors approved a spin-off of our
Trident Technologies Inc. subsidiary and our Trident Multimedia Technologies
(Shanghai) Co. Ltd. subsidiary. It is our belief that these subsidiaries will
operate more efficiently if their operations were managed as independent
entities. The Trident Technologies, Inc. subsidiary is developing the Liquid
Crystal Display (LCD) panel video controller chip product. The Trident
Multimedia Technologies (Shanghai) Co. Ltd. subsidiary is involved in the joint
development with us of graphic and digital media chips, and will sell digital
media chips as our sales representative in the China market. The operations of
either of these entities may change, or may be combined with other parts of our
overseas operations. Trident Technologies Inc. and Trident Multimedia
Technologies (Shanghai) Co. Ltd. had total assets equal to $2.6 million and
$2.1 million respectively, as of June 30, 2002. We currently own a majority
interest in Trident Technologies, Inc. and a 100% interest in Trident
Multimedia Technologies (Shanghai) Co. Ltd. The structure and timing of these
spin-offs, and the nature of the operations at the time of spin-off will depend
on a number of organizational, operational and marketing factors. We have not
made all of the decisions necessary to complete these spin-offs, and the
spin-offs may not occur in 2003. While we intend to structure the transactions
in a manner to enhance our overall operations, the spin-offs will dilute the
interests of our shareholders in the operations of the spun off entities and,
particularly if the spin-offs do not increase their revenue and profitability,
could adversely affect our financial results.

The performance of our equity investments is currently uncertain.

We maintain an investment portfolio including minority equity investments
in several publicly traded companies. Generally, these investments are made to
more closely align our interests with those of potential strategic partners.
The values of these investments are subject to market price volatility. We
have also made investments in a number of privately held companies, many of
which are in the early development stages. These investments are inherently
risky as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. We
have in the past incurred losses on our investments. In the future, we could
further lose a portion of or our entire investment in these companies.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We currently maintain our cash equivalents primarily in money market funds
and highly liquid marketable securities. We do not have any derivative
financial instruments. As of June 30, 2002, $21.2 million of our investments
matured in less than three months. We will continue to invest a significant
portion of our existing cash equivalents in interest bearing, investment grade
securities, with maturities of less than twelve months. We do not believe that
our investments, in the aggregate, have significant exposure to interest rate
risk.

Exchange rate risk

We currently have operations in the United States, Taiwan and China. The
functional currency of all our operations is the U.S. dollar. Though some
expenses are incurred in local currencies by our Taiwan and China operations,
substantially all of our transactions are made in U.S. dollars, hence, we have
minimal exposure to foreign currency rate fluctuations relating to our
transactions.

While we expect our international revenues to continue to be denominated
predominately in U.S. dollars, an increasing portion of our international
revenues may be denominated in foreign currencies in the future. In addition,

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we plan to continue to expand our overseas operations. As a result, our
operating results may become subject to significant fluctuations based upon
changes in exchange rates of certain currencies in relation to the U.S. dollar.
We will analyze our exposure to currency fluctuations and may engage in
financial hedging techniques in the future to attempt to minimize the effect of
these potential fluctuations; however, exchange rate fluctuations may adversely
affect our financial results in the future.

Investment risk

We are exposed to market risk as it relates to changes in the market value
of our investments in public companies. We invest in equity instruments of
public companies for business and strategic purposes and we have classified
these securities as available-for-sale. These available-for-sale equity
investments, primarily in technology companies, are subject to significant
fluctuations in fair market value due to the volatility of the stock market and
the industries in which these companies participate. We have realized
significant gains and losses on our equity investments. For the fiscal year
ended June 30, 2000, we recognized a pre-tax gain on investments of $115.0
million, primarily related to a $117.0 million gain on receiving shares in UMC
in exchange for shares we held in UICC, a private company. For the fiscal year
ended June 30, 2001, we recognized a pre-tax loss of $77.8 million of which
$76.4 million related to a decline in the market value of shares in UMC that we
concluded was other-than-temporary. For the fiscal year ended June 30, 2002,
we recognized a pre-tax loss of $40.3 million of our investments in public
companies of which $40.0 million related to a decline in the market value of
shares in UMC that we concluded was other-than-temporary. As of June 30, 2002,
we had available-for-sale equity investments with a fair market value of $62.8
million including $61.7 million related to shares of UMC. Our objective in
managing our exposure to stock market fluctuations is to minimize the impact of
stock market declines to our earnings and cash flows. There are, however, a
number of factors beyond our control. Continued market volatility, as well as
mergers and acquisitions, have the potential to have a material impact on our
results of operations in future periods.

We are also exposed to changes in the value of our investments in
non-public companies, including start-up companies. These long-term equity
investments in technology companies are subject to significant fluctuations in
fair value due to the volatility of the industries in which these companies
participate and other factors. As of June 30, 2002 the balance of our
long-term equity investments in non-public companies was $8.6 million.




Item 8. Financial Statements and Supplementary Data

The Financial Statements and supplemental data of the Company required by
this item are set forth at the pages indicated at Item 14(a).




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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PART III




Item 10. Directors and Executive Officers of the Registrant

The information regarding directors required by this Item is incorporated
by reference from the definitive proxy statement for the Companys 2002 annual
meeting of stockholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
Form (the Proxy Statement). Information relating to our executive officers
is set forth in Part I of this report under the caption Executive Officers of
the Registrant.

Information required by this item with respect to compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated by reference from
the Proxy Statement under the caption EXECUTIVE COMPENSATION AND OTHER
MATTERS Section 16(a) Beneficial Ownership Reporting Compliance.




Item 11. Executive Compensation

The information required by this Item is incorporated by reference from
the Proxy Statement under the caption EXECUTIVE COMPENSATION AND OTHER
MATTERS.




Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference from
the Proxy Statement under the captions INFORMATION ABOUT TRIDENT
MICROSYSTEMS Stock Ownership of Certain Beneficial Owners and Management.




Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from
the Proxy Statement under the caption CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.

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PART IV




Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)      The following documents are filed as a part of this Form:



|1. |  | Financial Statements:
|-- |  | ---------------------

|                                                                                                  |  |             |    | 
|------------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|                                                                                                  |  | Page Number
|                                                                                                  |  |            
|Report of Independent Accountants                                                                 |  |             | 32 | 
|                                                                                                 
|Consolidated Balance Sheet  
As of June 30, 2002 and 2001                                        |  |             | 33 | 
|                                                                                                 
|Consolidated Statement of Operations  
For the Three Years Ended June 30, 2002                   |  |             | 34 | 
|                                                                                                 
|Consolidated Statement of Changes in Stockholders Equity
For the Three Years Ended June 30, 2002 |  |             | 35 | 
|                                                                                                 
|Consolidated Statement of Cash Flows 
For the Three Years Ended June 30, 2002                     |  |             | 36 | 
|                                                                                                 
|Notes to Consolidated Financial Statements                                                        |  |             | 37 | 



|2. |  | Financial Statement Schedules:                                                                                                                                               
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | All financial statement schedules are omitted because they
are not applicable or the required information is shown in
the Consolidated Financial Statements or notes thereto.
|  
|3. |  | Exhibits: See Index to Exhibits on page 56. The
Exhibits listed in the accompanying Index to Exhibits are
filed or incorporated by reference as part of this report.         

(b)      Reports on Form 8-K:



| |  | None
| |  | ----

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Report of Independent Accountants

To the Board of Directors and Stockholders of
Trident Microsystems, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders equity and of cash
flows present fairly, in all material respects, the financial position of
Trident Microsystems, Inc. and its subsidiaries at June 30, 2002 and 2001, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2002, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Jose, California
July 23, 2002

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Trident Microsystems, Inc.
Consolidated Balance Sheet

|                                                |                                                                                                           |                                            |        |          |         |  |        |         |         | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | -------- | ------- |  | ------ | ------- | ------- | 
|                                                |                                                                                                           |                                            |        | June 30,
|                                                |                                                                                                           |                                            |        |         
|(in thousands, except per share data)           |                                                                                                           | 2002                                       |        | 2001    
|                                                |                                                                                                           |                                            |        |         
|ASSETS                                          |                                                                                                           |                                            |        |          |         |  |        |        
|Current assets:                                 |                                                                                                           |                                            |        |          |         |  |        |        
|                                                | Cash and cash equivalents                                                                                 |                                            | $      | 21,193   |         |  | $      | 26,677  |        
|                                                | Short-term
investment  UMC                                                                               |                                            |        | 61,672   |         |  |        | 52,708  |        
|                                                | Short-term investments  other                                                                            |                                            |        | 1,153    |         |  |        | 791     |        
|                                                | Accounts receivable, net                                                                                  |                                            |        | 4,284    |         |  |        | 9,247   |        
|                                                | Inventories                                                                                               |                                            |        | 3,190    |         |  |        | 10,669  |        
|                                                | Deferred income taxes                                                                                     |                                            |        | 1,247    |         |  |        | 1,656   |        
|                                                | Prepaid expenses and other current assets                                                                 |                                            |        | 1,953    |         |  |        | 3,481   |        
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total current assets                       |        |          | 94,692  |  |        |         | 105,229 | 
|Property and equipment, net                     |                                                                                                           |                                            | 4,710  |          |         |  | 3,559  |        
|Investment  UMC                                |                                                                                                           |                                            | 10,063 |          |         |  | 26,005 |        
|Investments  other                             |                                                                                                           |                                            | 8,642  |          |         |  | 11,996 |        
|Other assets                                    |                                                                                                           |                                            | 417    |          |         |  | 630    |        
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total assets                               |        | $        | 118,524 |  |        | $       | 147,419 | 
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                           |                                            |        |          |         |  |        |        
|Current liabilities:                            |                                                                                                           |                                            |        |          |         |  |        |        
|                                                | Accounts payable                                                                                          |                                            | $      | 6,709    |         |  | $      | 11,829  |        
|                                                | Accrued expenses                                                                                          |                                            |        | 10,201   |         |  |        | 13,169  |        
|                                                | Income taxes payable                                                                                      |                                            |        | 3,980    |         |  |        | 1,040   |        
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total current liabilities                  |        |          | 20,890  |  |        |         | 26,038  | 
|Deferred income taxes  non-current             |                                                                                                           |                                            | 6,338  |          |         |  | 14,947 |        
|Minority interest in subsidiary                 |                                                                                                           |                                            | 640    |          |         |  | 1,068  |        
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total liabilities                          |        |          | 27,868  |  |        |         | 42,053  | 
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|Commitments and contingencies (Notes 12 and 13) |                                                                                                           |                                            |        |          |         |  |        |        
|Stockholders equity:                           |                                                                                                           |                                            |        |          |         |  |        |        
|                                                | Common stock, $0.001 par value; 30,000 shares authorized;
15,548 and 15,211 shares issued and outstanding |                                            |        | 16       |         |  |        | 15      |        
|                                                | Additional paid-in capital                                                                                |                                            |        | 56,303   |         |  |        | 55,091  |        
|                                                | Treasury stock, at cost, 1,950 shares                                                                     |                                            |        | (17,952  | )       |  |        | (17,952 | )      
|                                                | Retained earnings                                                                                         |                                            |        | 39,345   |         |  |        | 74,996  |        
|                                                | Accumulated other comprehensive income (loss)                                                             |                                            |        | 12,944   |         |  |        | (6,784  | )      
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total stockholders equity                 |        |          | 90,656  |  |        |         | 105,366 | 
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        
|                                                |                                                                                                           | Total liabilities and stockholders equity |        | $        | 118,524 |  |        | $       | 147,419 | 
|                                                |                                                                                                           |                                            |        |          |         |  |        |         |        

The accompanying notes are an integral part of these consolidated financial statements.

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Trident Microsystems, Inc.
Consolidated Statement of Operations

|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|-------------------------------------------------- | --------------------------- | ---- | ------------------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                   |                             |      | Year Ended June 30,
|                                                   |                             |      |                    
|(in thousands, except per share data)              |                             | 2002 |                     | 2001    |  | 2000
|                                                   |                             |      |                     |         |  |     
|Revenues                                           |                             |      |                     |         |  |      |         |         |  |   |         |        
|                                                   | Product sales               |      | $                   | 105,766 |  |      | $       | 118,959 |  |   | $       | 117,682 | 
|                                                   | Royalty and license revenue |      |                     |        |  |      |         | 9,267   |  |   |         | 5,000   | 
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|                                                   |                             |      | 105,766             |         |  |      | 128,226 |         |  |   | 122,682 |        
|Cost of revenues                                   |                             |      | 82,970              |         |  |      | 89,346  |         |  |   | 82,434  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Gross profit                                       |                             |      | 22,796              |         |  |      | 38,880  |         |  |   | 40,248  |        
|Research and development expenses                  |                             |      | 22,218              |         |  |      | 20,031  |         |  |   | 27,555  |        
|Selling, general and administrative expenses       |                             |      | 13,584              |         |  |      | 16,455  |         |  |   | 16,899  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Income (loss) from operations                      |                             |      | (13,006             | )       |  |      | 2,394   |         |  |   | (4,206  | )      
|Gain (loss) on investments                         |                             |      | (42,715             | )       |  |      | (77,808 | )       |  |   | 114,984 |        
|Interest income, net                               |                             |      | 486                 |         |  |      | 1,712   |         |  |   | 2,046   |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Income (loss) before provision for income taxes    |                             |      | (55,235             | )       |  |      | (73,702 | )       |  |   | 112,824 |        
|Provision (benefit) for income taxes               |                             |      | (19,584             | )       |  |      | (30,062 | )       |  |   | 44,717  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Net income (loss)                                  |                             | $    | (35,651             | )       |  | $    | (43,640 | )       |  | $ | 68,107  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Basic income (loss) per share                      |                             | $    | (2.66               | )       |  | $    | (3.33   | )       |  | $ | 5.07    |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Shares used in computing basic per share amounts   |                             |      | 13,419              |         |  |      | 13,087  |         |  |   | 13,423  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Diluted income (loss) per share                    |                             | $    | (2.66               | )       |  | $    | (3.33   | )       |  | $ | 4.43    |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 
|Shares used in computing diluted per share amounts |                             |      | 13,419              |         |  |      | 13,087  |         |  |   | 15,360  |        
|                                                   |                             |      |                     |         |  |      |         |         |  |   |         |         | 

The accompanying notes are an integral part of these consolidated financial statements.

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Trident Microsystems, Inc.
Consolidated Statement of Stockholders Equity

|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------ | ------ | ------ |  | ------- | -- | ---------- |  | -------- | ------ | ------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | - |  | ----------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  | Accumulated |        |   |  |   |         |   |  |  
|                                          |  |        |        |        |  | Common  |    | Additional |  |          |        |               |  |               |         |               |  | Other         |         |   |  |             |        |   |  |  
|                                          |  |        |        |        |  | Stock   |    | Paid-in    |  | Treasury |        | Retained      |  | Comprehensive |         | Total         |  | Comprehensive
|(in thousands)                            |  | Shares |        | Amount |  | Capital |    | Stock      |  | Earnings |        | Income (Loss) |  | Equity        |         | Income (Loss)
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |              
|Balance at June 30, 1999                  |  |        | 13,566 |        |  | $       | 14 |            |  | $        | 46,963 |               |  | $             | (4,125  | )             |  | $             | 50,529  |   |  | $           |       |   |  | $ | 93,381  |   |  |   |         |  
|Issuance of common stock                  |  |        | 913    |        |  |         |   |            |  |          | 5,277  |               |  |               |        |               |  |               |        |   |  |             |       |   |  |   | 5,277   |   |  |   |         |  
|Purchase of treasury stock                |  |        |       |        |  |         |   |            |  |          |       |               |  |               | (6,156  | )             |  |               |        |   |  |             |       |   |  |   | (6,156  | ) |  |   |         |  
|Unrealized loss on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |   |  |             | (4,648 | ) |  |   | (4,648  | ) |  | $ | (4,648  | )
|Net income                                |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | 68,107  |   |  |             |       |   |  |   | 68,107  |   |  |   | 68,107  |  
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Comprehensive income                      |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  | $ | 63,459  |  
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2000                  |  |        | 14,479 |        |  |         | 14 |            |  |          | 52,240 |               |  |               | (10,281 | )             |  |               | 118,636 |   |  |             | (4,648 | ) |  |   | 155,961 |   |  |   |         |  
|Issuance of common stock                  |  |        | 732    |        |  |         | 1  |            |  |          | 2,851  |               |  |               |        |               |  |               |        |   |  |             |       |   |  |   | 2,852   |   |  |   |         |  
|Purchase of treasury stock                |  |        |       |        |  |         |   |            |  |          |       |               |  |               | (7,671  | )             |  |               |        |   |  |             |       |   |  |   | (7,671  | ) |  |   |         |  
|Unrealized loss on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |   |  |             | (2,136 | ) |  |   | (2,136  | ) |  | $ | (2,136  | )
|Net loss                                  |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | (43,640 | ) |  |             |       |   |  |   | (43,640 | ) |  |   | (43,640 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Comprehensive loss                        |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  | $ | (45,776 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2001                  |  |        | 15,211 |        |  |         | 15 |            |  |          | 55,091 |               |  |               | (17,952 | )             |  |               | 74,996  |   |  |             | (6,784 | ) |  |   | 105,366 |   |  |   |         |  
|Issuance of common stock                  |  |        | 337    |        |  |         | 1  |            |  |          | 1,212  |               |  |               |        |               |  |               |        |   |  |             |       |   |  |   | 1,213   |   |  |   |         |  
|Unrealized loss on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |   |  |             | 19,728 |   |  |   | 19,728  |   |  | $ | 19,728  |  
|Net loss                                  |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | (35,651 | ) |  |             |       |   |  |   | (35,651 | ) |  |   | (35,651 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Comprehensive loss                        |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  | $ | (15,923 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2002                  |  |        | 15,548 |        |  | $       | 16 |            |  | $        | 56,303 |               |  | $             | (17,952 | )             |  | $             | 39,345  |   |  | $           | 12,944 |   |  | $ | 90,656  |   |  |   |         |  
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |   |  |             |        |   |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

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Trident Microsystems, Inc.
Consolidated Statement of Cash Flows

|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |          |       |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ------- | ------------------- | ------ | ------- | ------- | ------- | ------ | ------ | ------ | -------- | ----- | -
|                                                     |                                                                                                |                                                   |                                           |         | Year Ended June 30,
|                                                     |                                                                                                |                                                   |                                           |         |                    
|(in thousands)                                       |                                                                                                | 2002                                              |                                           | 2001    |                     | 2000  
|                                                     |                                                                                                |                                                   |                                           |         |                     |       
|Cash flows from operating activities:                |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |       
|                                                     | Net income (loss)                                                                              |                                                   | $                                         | (35,651 | )                   |        | $       | (43,640 | )       |        | $      | 68,107 |         
|                                                     | Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities: |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|                                                     |                                                                                                | Depreciation and amortization                     |                                           |         | 1,551               |        |         |         | 2,397   |        |        |        | 3,418    |      
|                                                     |                                                                                                | Provision for doubtful accounts and sales returns |                                           |         | 692                 |        |         |         | 311     |        |        |        | 430      |      
|                                                     |                                                                                                | Loss (gain) on investments, net                   |                                           |         | 42,715              |        |         |         | 77,808  |        |        |        | (114,984 | )    
|                                                     |                                                                                                | Deferred income taxes, net                        |                                           |         | (21,351             | )      |         |         | (28,946 | )      |        |        | 41,312   |      
|                                                     |                                                                                                | Changes in assets and liabilities:                |                                           |         |                     |        |         |         |         |        |        |        |          |      
|                                                     |                                                                                                |                                                   | Accounts receivable                       |         |                     | 4,271  |         |         |         | (3,466 | )      |        |          | 4,507 |  
|                                                     |                                                                                                |                                                   | Inventories                               |         |                     | 7,479  |         |         |         | (7,293 | )      |        |          | 1,305 |  
|                                                     |                                                                                                |                                                   | Prepaid expenses and other current assets |         |                     | 1,524  |         |         |         | (1,259 | )      |        |          | 2,194 |  
|                                                     |                                                                                                |                                                   | Other assets                              |         |                     | 213    |         |         |         | 304    |        |        |          | (21   | )
|                                                     |                                                                                                |                                                   | Accounts payable                          |         |                     | (5,120 | )       |         |         | 4,505  |        |        |          | 1,057 |  
|                                                     |                                                                                                |                                                   | Accrued expenses                          |         |                     | (2,945 | )       |         |         | 630    |        |        |          | 5,355 |  
|                                                     |                                                                                                |                                                   | Income taxes payable                      |         |                     | 2,940  |         |         |         | (556   | )      |        |          | 3,401 |  
|                                                     |                                                                                                |                                                   | Minority interest in subsidiary           |         |                     | (428   | )       |         |         | (188   | )      |        |          | 1,069 |  
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|                                                     | Net cash provided by (used in) operating activities                                            |                                                   |                                           | (4,110  | )                   |        |         | 607     |         |        |        | 17,150 |         
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|Cash flows from investing activities:                |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |       
|                                                     | Sales of long-term investments                                                                 |                                                   |                                           | 650     |                     |        |         |        |         |        |        |       |         
|                                                     | Purchases of property and equipment                                                            |                                                   |                                           | (2,702  | )                   |        |         | (2,055  | )       |        |        | (1,206 | )       
|                                                     | Purchases of long-term investments                                                             |                                                   |                                           | (503    | )                   |        |         | (6,059  | )       |        |        | (8,096 | )       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|                                                     | Net cash used in investing activities                                                          |                                                   |                                           | (2,555  | )                   |        |         | (8,114  | )       |        |        | (9,302 | )       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|Cash flows from financing activities:                |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |       
|                                                     | Issuance of common stock                                                                       |                                                   |                                           | 1,213   |                     |        |         | 2,852   |         |        |        | 5,277  |         
|                                                     | Principal repayments of capital leases                                                         |                                                   |                                           | (32     | )                   |        |         | (38     | )       |        |        | (397   | )       
|                                                     | Purchase of treasury stock                                                                     |                                                   |                                           |        |                     |        |         | (7,671  | )       |        |        | (6,156 | )       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|                                                     | Net cash provided by (used in) financing activities                                            |                                                   |                                           | 1,181   |                     |        |         | (4,857  | )       |        |        | (1,276 | )       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|Net increase (decrease) in cash and cash equivalents |                                                                                                |                                                   | (5,484                                    | )       |                     |        | (12,364 | )       |         |        | 6,572  |       
|Cash and cash equivalents at beginning of year       |                                                                                                |                                                   | 26,677                                    |         |                     |        | 39,041  |         |         |        | 32,469 |       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         
|Cash and cash equivalents at end of year             |                                                                                                | $                                                 | 21,193                                    |         |                     | $      | 26,677  |         |         | $      | 39,041 |       
|                                                     |                                                                                                |                                                   |                                           |         |                     |        |         |         |         |        |        |        |         

The accompanying notes are an integral part of these consolidated financial statements.

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|1. |  | The Company and Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company
Trident Microsystems, Inc. (the Company) designs, develops and markets
integrated circuits for videographics, multimedia and digitally processed
television products for the desktop and notebook PC market and consumer
television market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Summary of Significant Accounting PoliciesBasis of Presentation.The consolidated financial statements include the
accounts of the Company and its subsidiaries after elimination of all
significant intercompany accounts and transactions. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts; actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Cash Equivalents and Short-Term Investments.Cash equivalents consist of
highly liquid investments in money market accounts and certificates of
deposits purchased with an original maturity of ninety days or less from the
date of purchase. The Company classifies its short-term investments as
available-for-sale. Such investments are recorded at fair value based on
quoted market prices; unrealized gains and losses which are considered to be
temporary are recorded as other comprehensive income or loss. The Company
reviews its investments on a regular basis and considers factors including
the operating results, available evidence of the market value and economic
outlook of the relevant industry sector. When the Company concludes that an
investment has suffered impairment that is other-than-temporary, the
impairment is written off against earnings.
|  
|   |  | Other Financial Instruments. In addition to cash equivalents and short-term
investments, the Companys financial instruments include accounts receivable
and accounts payable, which are carried at cost. This approximates the fair
value because of the short-term maturity of these instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Inventories.Inventories are stated at the lower of cost (first-in,
first-out method) or market (net realizable value).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives which range from three to seven years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated life of the assets or the extended lease term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Impairment of Long-lived Assets.The Company reviews long-lived assets based
on a gross cash flow basis and will record for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets may not
be fully recoverable. The Company did not have any impairment charge
against the value of the property, plant and equipment during the periods
presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Investments.Equity investments of less than 20% in which the Company does
not have the ability to exert significant influence are accounted for using
the cost method. The Company reviews its investments on a regular basis and
considers factors including the operating results, available evidence of the
market value and economic outlook of the relevant industry sector. When the
Company concludes that an other-than-temporary impairment has resulted, the
difference between the fair value and the carrying value is written off and
recorded in the statement of operations.                                                                                                                                                                                                                                                                                          
|  
|   |  | Revenue Recognition.Revenue from product sales is generally recognized
upon shipment when persuasive evidence of an arrangement exists, the price
is fixed or determinable, shipment is made and collectibility is reasonably
assured. Provision is made for expected future sales returns and allowances
when revenue is recognized. The Company has no obligation to provide any
modification or customization upgrades, enhancements or other post-sale
customer support. The Company grants certain distributors limited rights of                                                                                                                                                                                                                                                                                                                                               

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | return and price protection on unsold products. Product revenue on
shipments to distributors with such rights is deferred until the products
are shipped to end customers by the distributors.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys license revenues are recognized when all of the following
criteria are met: persuasive evidence of an arrangement exists, delivery has
occurred, the vendors fee is fixed or determined, and the collectibility is
reasonably assured. The Companys license revenue does not require
significant production, modification or customization of software. Royalty
revenue is recognized when the Company is informed that the related products
have been sold provided that collectibility is assured.                                                                                                                                
|
| |  | Software Development Costs.To date, the period between achieving
technological feasibility and the general availability of such software has
been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any
software development costs.                                                                                                                                                                                                                                                                                                                          
|
| |  | Income Taxes.The Company accounts for income taxes using the asset and
liability method, under which the expected future tax consequences of
temporary differences between the book and tax bases of assets and
liabilities are recognized as deferred tax assets and liabilities. The
Company does not record a deferred tax provision on unremitted earnings of
foreign subsidiaries to the extent that such earnings are considered
permanently invested.                                                                                                                                                                                        
|
| |  | Net Income (Loss) per Share.Basic net income (loss) per share is computed
by dividing net income (loss) available to common shareholders by the
weighted average number of common shares outstanding during the period.
Diluted net income per share is calculated using the weighted average number
of outstanding shares of common stock plus potential common stock shares.
The calculation of diluted net loss per share excludes potential common
stock if the effect is antidilutive. Potential common stock shares consist
of common stock options, computed using the treasury stock method based on
the average stock price for the period.
|
| |  | Foreign Currency Transactions.The functional currency of the Companys
operations in all countries is the U.S. dollar. Sales and purchase
transactions are generally denominated in U.S. dollars. Foreign transaction
gains and losses were not material for each period presented.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Stock-based Compensation.The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of APB No. 25,
Accounting for Stock Issued to Employees and complies with the disclosure
provisions of Statements of SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB No. 25, compensation cost is generally recognized
based on the difference, if any, between the quoted market price of the
Companys stock on the date of grant and the amount an employee must pay to
acquire the stock.                                                                                               
|
| |  | Comprehensive income/loss.The unrealized gains and losses on marketable
equity securities are comprehensive income items applicable to the Company,
and are reported as a separate component of equity as Accumulated other
comprehensive income/loss.                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Recent Accounting PronouncementsIn June 2001, the Financial Accounting
Standards Board (FASB) issued two Statements: Statement No. 141  Business
Combinations; and Statement No. 142  Goodwill and Other Intangible Assets.
These statements:                                                                                                                                                                                                                                                                                                                                                                                                   



| |  |  | Prohibit use of the pooling-of-interest method. All business
combinations must be accounted for using the purchase method of
accounting.                                                                                                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Establish a new accounting standard for goodwill acquired in a
business combination. Goodwill will continue to be recognized as an
asset but will not be amortized.                                                                                                                               
|
| |  |  | Establish a new method of testing goodwill for impairment.
Goodwill must be separately tested for impairment using a
fair-value-based approach. Goodwill must be tested for impairment at a
level referred to as a reporting unit, which is generally a level lower
than that of the total entity.

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| |  |  | Require that a benchmark assessment of goodwill be performed in
certain circumstances. That assessment would establish the methods and
assumptions that would be used to test goodwill for impairment.
Goodwill of a reporting unit would be tested for impairment when events
and circumstances occur indicating that it might be impaired.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The adoption of these statements did not have a material effect on the
Companys Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The FASB issued SFAS No.144 to establish a
single accounting model, based on the framework established in SFAS No. 121,
as SFAS No. 121 did not address the accounting for a segment of a business
accounted for as a discontinued operation under APB 30, Reporting The
Results of Operation Reporting The Effect of Disposal of a segment of a
Business, and Extraordinary Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 also resolves significant implementation issues
related to SFAS No. 121. Companies are required to adopt SFAS No. 144 for
fiscal years beginning after December 15, 2001, but early adoption is
permitted. The Company adopted SFAS No. 144 as of the beginning of fiscal
2003. The adoption of the standard did not have a material effect on the
Companys Consolidated Financial Statements.

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|2. |  | Balance Sheet Components
|-- |  | ------------------------

|                             |                                                         |      |          |         |   |   |        |         |  
|---------------------------- | ------------------------------------------------------- | ---- | -------- | ------- | - | - | ------ | ------- | -
|                             |                                                         |      | June 30,
|                             |                                                         |      |         
|(in thousands)               |                                                         | 2002 |          | 2001   
|                             |                                                         |      |          |        
|Accounts receivable, net:    |                                                         |      |          |         |   |   |        |        
|                             | Trade accounts receivable                               |      | $        | 6,386   |   |   | $      | 10,657  |  
|                             | Less: allowance for doubtful accounts and sales returns |      |          | (2,102  | ) |   |        | (1,410  | )
|                             |                                                         |      |          |         |   |   |        |         |  
|                             |                                                         | $    | 4,284    |         |   | $ | 9,247  |        
|                             |                                                         |      |          |         |   |   |        |         |  
|Inventories:                 |                                                         |      |          |         |   |   |        |        
|                             | Work in process                                         |      | $        | 585     |   |   | $      | 5,867   |  
|                             | Finished goods                                          |      |          | 2,605   |   |   |        | 4,802   |  
|                             |                                                         |      |          |         |   |   |        |         |  
|                             |                                                         | $    | 3,190    |         |   | $ | 10,669 |        
|                             |                                                         |      |          |         |   |   |        |         |  
|Property and equipment, net: |                                                         |      |          |         |   |   |        |        
|                             | Machinery and equipment                                 |      | $        | 12,140  |   |   | $      | 15,866  |  
|                             | Furniture and fixtures                                  |      |          | 1,644   |   |   |        | 1,744   |  
|                             | Leasehold improvements                                  |      |          | 944     |   |   |        | 1,110   |  
|                             |                                                         |      |          |         |   |   |        |         |  
|                             |                                                         |      | 14,728   |         |   |   | 18,720 |        
|                             | Less: accumulated depreciation and amortization         |      |          | (10,018 | ) |   |        | (15,161 | )
|                             |                                                         |      |          |         |   |   |        |         |  
|                             |                                                         | $    | 4,710    |         |   | $ | 3,559  |        
|                             |                                                         |      |          |         |   |   |        |         |  
|Accrued expenses:            |                                                         |      |          |         |   |   |        |        
|                             | Compensation accruals                                   |      | $        | 2,670   |   |   | $      | 2,376   |  
|                             | Professional fee accruals                               |      |          | 1,456   |   |   |        | 2,168   |  
|                             | Sales rebate accruals                                   |      |          | 784     |   |   |        | 1,301   |  
|                             | Nonrecurring engineering charges                        |      |          | 654     |   |   |        | 1,471   |  
|                             | Dealer commission accruals                              |      |          | 512     |   |   |        | 771     |  
|                             | Other                                                   |      |          | 4,125   |   |   |        | 5,082   |  
|                             |                                                         |      |          |         |   |   |        |         |  
|                             |                                                         | $    | 10,201   |         |   | $ | 13,169 |        
|                             |                                                         |      |          |         |   |   |        |         |  

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|3. |  | Net Income (Loss) Per Share                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Reconciliations of the numerators and denominators of the basic and diluted
net income (loss) per share calculations are as follows:

|                                                                                       |  |                     |         |      |  |      |         |   |  |   |        | 
|-------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|                                                                                       |  | Year Ended June 30,
|                                                                                       |  |                    
|(in thousands, except per share data)                                                  |  | 2002                |         | 2001 |  | 2000
|                                                                                       |  |                     |         |      |  |     
|Basic Net Income (Loss) per Share                                                      |  |                     |         |      |  |      |         |   |  |   |        | 
|Net income (loss)                                                                      |  | $                   | (35,651 | )    |  | $    | (43,640 | ) |  | $ | 68,107 | 
|Weighted average common shares                                                         |  |                     | 13,419  |      |  |      | 13,087  |   |  |   | 13,423 | 
|Basic net income (loss) per share                                                      |  | $                   | (2.66   | )    |  | $    | (3.33   | ) |  | $ | 5.07   | 
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |        | 
|Diluted Net Income (Loss) per Share                                                    |  |                     |         |      |  |      |         |   |  |   |        | 
|Net income (loss)                                                                      |  | $                   | (35,651 | )    |  | $    | (43,640 | ) |  | $ | 68,107 | 
|Weighted average common shares                                                         |  |                     | 13,419  |      |  |      | 13,087  |   |  |   | 13,423 | 
|Dilutive common stock equivalents                                                      |  |                     |        |      |  |      |        |   |  |   | 1,937  | 
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |        | 
|Weighted average common shares
and equivalents                                         |  |                     | 13,419  |      |  |      | 13,087  |   |  |   | 15,360 | 
|Diluted net income (loss) per share                                                    |  | $                   | (2.66   | )    |  | $    | (3.33   | ) |  | $ | 4.43   | 
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |        | 
|Common stock equivalents not
included in the calculation because
they are antidilutive |  |                     | 973     |      |  |      | 999     |   |  |   |       | 
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |        | 



|4. |  | Investment in UMC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In August 1995, the Company made an investment of $49.3 million in United
Integrated Circuits Corporation (UICC). On January 3, 2000, United
Microelectronics Corporation (UMC) acquired UICC and, as a result of this
merger, the Company received approximately 46.5 million shares of UMC.
Subsequently, UMC announced a 20% stock dividend payable to shareholders of
record May 16, 2000, and a 15% stock dividend payable to shareholders of
record July 21, 2001. The only change in the number of shares in UMC held
by the Company from January 3, 2000 to June 30, 2002 was the increase
resulting from the stock dividends. As of June 30, 2002, the Company owned
approximately 64.2 million shares of UMC which represents about 0.5% of the
outstanding stock of UMC.                                                                     
|  
|   |  | On January 3, 2000, the Company recognized a pre-tax gain of $117.0 million
upon the receipt of UMC shares in exchange for the UICC shares. In the
quarter ended March 31, 2001, based on the decline of UMCs stock price, the
decline in stock prices of publicly traded semiconductor companies and the
unfavorable outlook regarding the demand and operating environment of the
semiconductor industry, the Company concluded that the decline in the
investment value in UMC had become other-than-temporary. Accordingly, the
difference of $76.4 million between the carrying value on January 3, 2000
and the quoted fair value on March 31, 2001 was written off and included in
earnings as impairment loss on investments in accordance with SFAS No. 115
and APB No. 18 for the short-term and long-term portions of investments,
respectively.
|  
|   |  | In the quarter ended September 30, 2001, the Company concluded that due to a
substantial decline in the market value of UMCs stock price from March 31,
2001 to September 30, 2001, the continued decline in stock prices of
publicly traded semiconductor companies and the continuing unfavorable
outlook for the semiconductor industry, the decline in the investment value
in UMC had become other-than-temporary. Accordingly, the                                                                                                                                                                                                                                                                                                                                                                                                                   

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|   |  | difference of $40.0 million between the carrying value on March 31, 2001 and
the quoted fair value on September 30, 2001, was written off against
earnings as an impairment loss on investments in accordance with SFAS No.
115 and APB No. 18, for the short-term and long-term portions of
investments, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Due to an increase in the market value of UMCs stock price from October 1,
2001 to June 30, 2002, an unrealized gain of $13.0 million was recorded in
equity as accumulated other comprehensive gain in accordance with SFAS No.
130, Reporting Comprehensive Income. The $13.0 million is equal to a
$21.6 million increase in market value of our short-term investment in UMC
from October 1, 2001 to June 30, 2002, less deferred income taxes of $8.6
million relating to the unrealized gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | In order to preserve the 12.5% wafer capacity guarantee of the UICC
facility, which guarantees a maximum of approximately 3,000 wafers per
month, there are certain limitations on the Companys ability to sell the
UMC shares. If the Companys total shareholdings fall below one-half of the
initial percentage of shares held in UMC, the Companys production capacity
will be reduced by at least 50%, and depending on the interpretation of the
foundry capacity agreement between the parties, the Companys production
capacity could be reduced by substantially more than 50%. In addition,
one-third of the shares are subject to a two-year lock-up period in
accordance with an investment agreement entered into with UMC on January 3,
2000. After a two-year period, one-fifth of the shares will be available
for sale from the lock-up portion every six months. During the three months
ended March 31, 2002, approximately 3.2 million shares with a carrying value
of $2.5 million became available for sale upon the expiration of the lock up
period, and they were transferred from the long-term to the short-term
accordingly. As of June 30, 2002, approximately 12.9 million shares with a
carrying value of $10.1 million are subject to this lock-up restriction.
These shares are accounted for as long-term investments using the cost
method in accordance with APB No. 18.
|  
|   |  | Shares of the Companys UMC investment are listed on the Taiwan Stock
Exchange. In accordance with SFAS No. 115, the 51.3 million unrestricted
shares are treated as available-for-sale securities and are classified as
short-term investments. These unrestricted shares had a market value of
$61.7 million as of June 30, 2002. Unrestricted shares include shares that
may need to be held by the Company to retain wafer capacity, as described in
the prior paragraph.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|5. |  | Investments in other companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | During the fiscal year ended June 30, 2002, the Company also recognized net
impairment loss on investments other than UMC totaling $2.7 million as
follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                      |  |   |       |  
|------------------------------------- |  | - | ----- | -
|ADSL company                          |  | $ | 270   |  
|Communications company                |  |   | 66    |  
|Broadband communications company      |  |   | 750   |  
|Voice over DSL communications company |  |   | 850   |  
|Optical networking company            |  |   | 349   |  
|Broadband server technology company   |  |   | 275   |  
|Venture capital funds                 |  |   | 743   |  
|System design software company        |  |   | (568  | )
|                                      |  |   |       |  
|Net loss                              |  | $ | 2,735 |  
|                                      |  |   |       |  



| |  | In September 1999, the Company invested $909,000 in an ADSL company for
227,250 shares of preferred stock which were then converted into the same
number of common stock shares upon the companys initial public offering in
August 2000. On March 31, 2001 the fair value of these shares as quoted was
$498,000. Because the company experienced declining earnings in relation to
its competitors in the ADSL market and erosion of its market share, the
decline in value was considered other-than-temporary. Accordingly, the
difference between the carrying value and the quoted fair value on March 31,
2001 was written off against earnings in accordance with SFAS No. 115. On
September 30, 2001, due to decreasing value in the companys shares, the
difference between the carrying value and the quoted fair value on September
30, 2001 of $270,000
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | was considered an other-than-temporary impairment and was written off
against earnings in accordance with SFAS No. 115. Due to an increase in the
market value of the ADSL companys stock price from October 1, 2001 to June
30, 2002, an unrealized gain of $83,000 was recorded in equity as other
comprehensive income. The net gain of $83,000 is equal to a $139,000
increase in market value of the short-term investment from October 1, 2001
to June 30, 2002, less deferred taxes relating to the unrealized loss of
$55,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2000, the Company invested $600,000 in a communications company
which was subsequently acquired by a listed company. On March 31, 2001, the
fair value of the shares of the listed company owned by the Company was
$221,000. Because of the significant losses incurred by this company, the
Company concluded that the decline in value was other-than-temporary.
Accordingly, the difference between the carrying value and the quoted fair
value on March 31, 2001 was written off against earnings in accordance with
SFAS No. 115. On September 30, 2001 due to the continued deteriorating
industry outlook and decreasing value in the companys shares, the
difference between the carrying value and the quoted fair value on September
30, 2001 of $66,000 was considered an other-than-temporary impairment and
was written off against earnings in accordance with SFAS No. 115. Due to a
decrease in the market value of the communications companys stock price
from October 1, 2001 to June 30, 2002, an unrealized loss of $13,000 was
recorded in equity as other comprehensive loss. The net loss of $13,000
is equal to a $21,000 decrease in market value of the short-term investment
from October 1, 2001 to June 30, 2002, less deferred tax benefits relating
to the unrealized loss of $8,000.
|
| |  | In April 2000, the Company invested $650,000 in a private company engaged in
broadband communication technology. In June 2000, an additional $100,000
was invested in the company. In the quarter ended September 30, 2001, the
Company determined that the prospects for recovery of the investment were
unfavorable given the market position of the company and the companys
operating losses. Therefore, the Company concluded that the impairment was
other-than-temporary. Accordingly, the full investment of $750,000 was
written off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In September 2000, the Company invested $1,500,000 in a private company
engaged in voice over DSL communication technology. In the quarter ended
September 30, 2001, the Company determined that this communications company
was in a product reengineering process. It was considered likely that the
company would cease operations. The Company assessed the estimated cash
recoverable from this investment and concluded that the estimated shortfall
was an other-than-temporary impairment. Accordingly, $1,000,000 of the
investment was written off against earnings in accordance with APB No. 18.
In December 2001, this investment was sold for $650,000 and a gain of
$150,000 was recognized as Gain on investments for the three months ended
December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | In June 2000, the Company invested $500,000 in a private company engaged in
fiber optic technology. In the quarter ended June 30, 2002, the Company
determined that the fair value of the shares had decreased significantly.
Therefore, the Company assessed the fair value of the shares and concluded
that the estimated shortfall was an other-than-temporary impairment.
Accordingly, $349,000 of the investment was written off against earnings in
accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In March 2000, the Company invested $550,000 in a private company engaged in
broadband server technology. In the quarter ended June 30, 2002, the
Company determined that the product outlook and future cash position for
this company was unfavorable. Therefore, the Company assessed the estimated
fair value of the investment held and concluded that the estimated shortfall
was an other-than-temporary impairment. Accordingly, $275,000 of the
investment was written off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | From December 1999 to September 2000, the Company invested a total of
$2,900,000 in several venture capital funds. In the quarter ended June 30,
2002, substantial losses were recorded by the funds. Accordingly, the
Company recorded an other-than-temporary impairment of $743,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In May 2000, the Company invested $250,000 in a private system design
software company. This company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|   |  | was acquired by a publicly traded design software company during May 2002.
The acquisition resulted in the Company receiving shares of the acquiring
company which had fair value in excess of the original investment.
Therefore, a gain of $568,000 was recorded in the quarter ended June 30,
2002. Subsequent to the acquisition, and prior to June 30, 2002, the fair
value of the acquiring companys stock decreased, resulting in an unrealized
loss of $99,000 which was recorded in equity as other comprehensive loss
in accordance with SFAS No. 130, Reporting Comprehensive Income. The net
loss of $99,000 is equal to a $165,000 decrease in market value of the
short-term investment on June 30, 2002, less deferred taxes relating to the
unrealized loss of $66,000.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Under SFAS No. 130, Reporting Comprehensive Income any unrealized gains or
losses on the short-term investments which are classified as
available-for-sale equity securities are to be reported as a separate
adjustment to equity. The components of accumulated other comprehensive
income (loss) as of June 30, 2002 and 2001 are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                                  |       |  |          |        |      |  |   |        |  
|------------------------------------------------- | ----- |  | -------- | ------ | ---- |  | - | ------ | -
|                                                  |       |  | June 30,
|                                                  |       |  |         
|                                                  |       |  | 2002     |        | 2001
|                                                  |       |  |          |        |     
|Unrealized gain (loss) on short-term investments: |       |  |          |        |      |  |   |       
|                                                  | UMC   |  | $        | 12,973 |      |  | $ | (6,827 | )
|                                                  | Other |  |          | (29    | )    |  |   | 43     |  
|                                                  |       |  |          |        |      |  |   |        |  
|                                                  | Total |  | $        | 12,944 |      |  | $ | (6,784 | )
|                                                  |       |  |          |        |      |  |   |        |  



|7. |  | Other current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Included in other current assets is a $500,000 loan to Mr. Frank Lin, the
Companys President and Chief Executive Officer. In accordance with an
agreement dated April 27, 2000 and an amendment made subsequently, this loan
was provided to Mr. Lin for his personal use. It is payable in full on the
earlier of cessation of employment or April 27, 2003. The loan bears
interest at variable market rates which are compounded annually, and the
accrued interest is payable at maturity. Mr. Lin used shares of the
Companys stock he acquired several years ago as collateral for the loan.
This loan was not provided in relation to any purchase of the Companys
stock or the exercise of the Companys stock options.

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|8. |  | Income Taxes                                                
|-- |  | ------------------------------------------------------------
|  
|   |  | The components of income (loss) before taxes are as follows:

|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                           |  | Year Ended June 30,
|                                                                                           |  |                    
|(in thousands)                                                                             |  | 2002                |         | 2001 |  | 2000
|                                                                                           |  |                     |         |      |  |     
|Income (loss) subject to domestic income taxes only                                        |  | $                   | (43,515 | )    |  | $    | (79,970 | ) |  | $ | 116,435 |  
|Income (loss) subject to foreign income taxes, and in
certain cases, domestic income taxes |  |                     | (11,720 | )    |  |      | 6,268   |   |  |   | (3,611  | )
|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  
|                                                                                           |  | $                   | (55,235 | )    |  | $    | (73,702 | ) |  | $ | 112,824 |  
|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  



| |  | The provision (benefit) for income taxes is comprised of the following:
| |  | -----------------------------------------------------------------------

|               |         |      |                     |        |   |      |         |         |   |   |        |        | 
|-------------- | ------- | ---- | ------------------- | ------ | - | ---- | ------- | ------- | - | - | ------ | ------ | 
|               |         |      | Year Ended June 30,
|               |         |      |                    
|(in thousands) |         | 2002 |                     | 2001   |   | 2000
|               |         |      |                     |        |   |     
|Current:       |         |      |                     |        |   |      |         |         |   |   |        |       
|               | Federal |      | $                   | (6,722 | ) |      |         |        |   |   | $      | 2,645  | 
|               | State   |      |                     | (762   | ) |      |         |        |   |   |        | 454    | 
|               | Foreign |      |                     |       |   |      |         | 309     |   |   |        | 306    | 
|               |         |      |                     |        |   |      |         |         |   |   |        |        | 
|               |         |      | (7,484              | )      |   |      | 309     |         |   |   | 3,405  |       
|               |         |      |                     |        |   |      |         |         |   |   |        |        | 
|Deferred:      |         |      |                     |        |   |      |         |         |   |   |        |       
|               | Federal |      |                     | (9,624 | ) |      |         | (26,136 | ) |   |        | 35,266 | 
|               | State   |      |                     | (2,476 | ) |      |         | (4,235  | ) |   |        | 6,046  | 
|               |         |      |                     |        |   |      |         |         |   |   |        |        | 
|               |         |      | (12,100             | )      |   |      | (30,371 | )       |   |   | 41,312 |       
|               |         |      |                     |        |   |      |         |         |   |   |        |        | 
|               |         | $    | (19,584             | )      |   | $    | (30,062 | )       |   | $ | 44,717 |       
|               |         |      |                     |        |   |      |         |         |   |   |        |        | 

The deferred tax assets (liabilities) are comprised of the following:

|                          |                                             |      |          |        |   |   |         |         |  
|------------------------- | ------------------------------------------- | ---- | -------- | ------ | - | - | ------- | ------- | -
|                          |                                             |      | June 30,
|                          |                                             |      |         
|(in thousands)            |                                             | 2002 |          | 2001  
|                          |                                             |      |          |       
|Deferred tax assets:      |                                             |      |          |        |   |   |         |        
|                          | Reserves and accruals                       |      | $        | 1,246  |   |   | $       | 1,656   |  
|                          | Research and development credits            |      |          | 7,686  |   |   |         | 5,819   |  
|                          | Net operating losses                        |      |          | 1,851  |   |   |         | 3,769   |  
|                          | Other                                       |      |          | 250    |   |   |         | 1,111   |  
|                          |                                             |      |          |        |   |   |         |         |  
|Deferred tax assets       |                                             |      | 11,033   |        |   |   | 12,355  |        
|Deferred tax liabilities: |                                             |      |          |        |   |   |         |        
|                          | Capital gains not recognized for tax        |      |          | (8,978 | ) |   |         | (13,440 | )
|                          | Unremitted earnings of foreign subsidiaries |      |          | (7,146 | ) |   |         | (12,206 | )
|                          |                                             |      |          |        |   |   |         |         |  
|                          |                                             |      | (5,091   | )      |   |   | (13,291 | )      
|                          |                                             |      |          |        |   |   |         |         |  
|Presented as:             |                                             |      |          |        |   |   |         |        
|                          | Deferred tax assets  current               |      | $        | 1,247  |   |   | $       | 1,656   |  
|                          | Deterred tax liabilities  long-term        |      |          | (6,338 | ) |   |         | (14,947 | )
|                          |                                             |      |          |        |   |   |         |         |  
|                          |                                             | $    | (5,091   | )      |   | $ | (13,291 | )      
|                          |                                             |      |          |        |   |   |         |         |  



| |  | As of June 30, 2002, the Companys federal and state net operating loss
carryforwards for income tax purposes were approximately $5.1 million and
$1.5 million, respectively. Federal net operating losses will begin to
expire in fiscal year ending 2020 and state net operating losses will begin
to expire in fiscal year ending 2003. Federal and state tax-credit
carryforwards were $5.5 million and $2.1 million, respectively. These
credits will begin to expire in fiscal year ending 2013 and fiscal year
ending 2009, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | The reconciliation of the income tax provisions computed at the United
States federal statutory rate to the effective tax rate for the recorded
provision for income taxes is as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  |                     |       |      |  |      |       |    |  |  |      |  
|--------------------------------------- |  | ------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ---- | -
|                                        |  | Year ended June 30,
|                                        |  |                    
|                                        |  | 2002                |       | 2001 |  | 2000
|                                        |  |                     |       |      |  |     
|Federal statutory rate                  |  |                     | (35.0 | )%   |  |      | (35.0 | )% |  |  | 35.0 | %
|State taxes, net of federal tax benefit |  |                     | (5.9  | )    |  |      | (5.7  | )  |  |  | 5.0  |  
|Research and development credit         |  |                     | (2.5  | )    |  |      | (2.0  | )  |  |  | (1.3 | )
|Unbenefited foreign losses              |  |                     | 7.9   |      |  |      | 0.2   |    |  |  | 5.8  |  
|Valuation allowance                     |  |                     |      |      |  |      |      |    |  |  | (4.8 | )
|Other                                   |  |                     |      |      |  |      | 1.7   |    |  |  | (0.1 | )
|                                        |  |                     |       |      |  |      |       |    |  |  |      |  
|Effective income tax rate               |  |                     | (35.5 | )%   |  |      | (40.8 | )% |  |  | 39.6 | %
|                                        |  |                     |       |      |  |      |       |    |  |  |      |  



|   |  | The Company has fully provided for U.S. federal income and foreign
withholding taxes on a non-U.S. subsidiarys undistributed earnings as of
June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Stock Purchase Plans.In October 1998, the Board of Directors of the
Company (the Board) adopted the 1998 Employee Stock Purchase Plan under
which 500,000 shares of the Companys common stock may be issued. This plan
replaced the 1992 Employee Stock Purchase Plan which was terminated on
October 30, 1998. Shares are to be purchased from payroll deductions;
employees of the Company who are based outside the United States may
participate by making direct contributions to the Company for the purchase
of stock. Such payroll deductions or direct contributions may not exceed
10% of an employees compensation. The purchase price per share at which
the shares of the Companys common stock are sold in an offering generally
will be equal to 85% of the lesser of the fair market value of the common
stock on the first or the last day of the offering. During fiscal years
2002, 2001 and 2000, 100,000, 114,000 and 178,000 shares were issued under
the 1998 Employee Stock Purchase Plan, respectively. During fiscal year
1999, 144,000 shares were issued under the 1992 Employee Stock Purchase
Plan.
|  
|   |  | Stock Options.The Company grants nonstatutory and incentive stock options
to key employees, directors and consultants. At June 30, 2002, shares of
common stock reserved for issuance upon exercise of the stock options
aggregated 8,765,000. Stock options are granted at prices determined by the
Board. Nonstatutory and incentive stock options may be granted at prices
not less than 85% of the fair market value and at not less than fair market
value, respectively, at the date of grant. Options generally become
exercisable one year after date of grant and vest over a maximum period of
five years following the date of grant. The Company has not granted stock
options or equity instruments to non-employees other than members of its
Board of Directors.                                                                                                                                                                                                                                                                                                                                                       

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | The following table summarizes the option activities for the years ended
June 30, 2000, 2001 and 2002:
| |  | ------------------------------------------------------------------------------------------------------

|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |   |             | 
|------------------------------------- |  | ------------- | ------ | --------- |  | ---------------- | ----- | ----------- |  | - | ---- |  |  | - | ----------- | 
|                                      |  | Options       |        | Options   |  | Weighted Average |       | Outstanding
|                                      |  | Available for |        | Number of |  | Exercise         |       | Price Per  
|(in thousands, except per share data) |  | Grant         |        | Options   |  | Price            |       | Option     
|                                      |  |               |        |           |  |                  |       |            
|Balance at June 30, 1999              |  |               | 369    |           |  |                  | 4,869 |             |  |   |      |  |  | $ | 1.05-$34.38 | 
|Options granted                       |  |               | (256   | )         |  |                  | 256   |             |  | $ | 8.07 |  |  | $ | 7.50-$14.25 | 
|Options exercised                     |  |               |       |           |  |                  | (734  | )           |  | $ | 3.54 |  |  | $ | 2.63-$8.63  | 
|Options canceled                      |  |               | 675    |           |  |                  | (675  | )           |  | $ | 3.96 |  |  | $ | 1.55-$13.31 | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |   |             | 
|Balance at June 30, 2000              |  |               | 788    |           |  |                  | 3,716 |             |  |   |      |  |  | $ | 1.05-$34.38 | 
|Additional shares reserved            |  |               | 600    |           |  |                  |      |             |  |   |      |  |  |   |             | 
|Options granted                       |  |               | (1,015 | )         |  |                  | 1,015 |             |  | $ | 4.71 |  |  | $ | 4.28-$8.00  | 
|Options exercised                     |  |               |       |           |  |                  | (617  | )           |  | $ | 3.57 |  |  | $ | 2.63-$6.50  | 
|Options canceled                      |  |               | 887    |           |  |                  | (887  | )           |  | $ | 4.82 |  |  | $ | 2.63-$20.50 | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |   |             | 
|Balance at June 30, 2001              |  |               | 1,260  |           |  |                  | 3,227 |             |  |   |      |  |  | $ | 1.05-$34.38 | 
|Additional shares reserved            |  |               | 1,110  |           |  |                  |      |             |  |   |      |  |  |   |             | 
|Options granted                       |  |               | (937   | )         |  |                  | 937   |             |  | $ | 4.59 |  |  | $ | 3.87-$7.75  | 
|Options exercised                     |  |               |       |           |  |                  | (237  | )           |  | $ | 3.29 |  |  | $ | 1.05-$5.50  | 
|Options canceled                      |  |               | 102    |           |  |                  | (102  | )           |  | $ | 4.52 |  |  | $ | 3.06-$5.89  | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |   |             | 
|Balance at June 30, 2002              |  |               | 1,535  |           |  |                  | 3,825 |             |  |   |      |  |  | $ | 2.63-$34.38 | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |   |             | 



| |  | At June 30, 2002, 2001 and 2000, options for 2,196,000, 1,806,000, and
1,789,000 shares of common stock were vested but not exercised,
respectively. In October 1998, the Company canceled 3,643,000 outstanding
options with exercise prices greater than $3.50 and reissued the options
with an exercise price of $3.50. In January 1998, the Company canceled
1,702,000 outstanding options granted after July 28, 1997 with exercise
prices greater than $8.63 and reissued the options with an exercise price of
$8.63.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

The following table summarizes information about stock options outstanding at
June 30, 2002:

|                                     |  |                                 |       |                  |  |                  |     |             |  |                |       |  |  |          |       |  |  |   |       | 
|------------------------------------ |  | ------------------------------- | ----- | ---------------- |  | ---------------- | --- | ----------- |  | -------------- | ----- |  |  | -------- | ----- |  |  | - | ----- | 
|Options Outstanding                  |  | Options Exercisable            
|(in thousands except per share data) |  | (in thds except per share data)
|                                     |  |                                
|                                     |  |                                 |       |                  |  | Weighted Average |     | Weighted    |  |                |       |  |  | Weighted
|Range of                             |  | Number                          |       | Remaining        |  | Average          |     | Number      |  | Average       
|Exercise Prices                      |  | Outstanding                     |       | Contractual Life |  | Exercise Price   |     | Exercisable |  | Exercise Price
|                                     |  |                                 |       |                  |  |                  |     |             |  |               
|$2.63  -  $3.38                      |  |                                 | 208   |                  |  |                  | 6.3 |             |  | $              | 3.10  |  |  |          | 183   |  |  | $ | 3.14  | 
|$3.50  -  $3.50                      |  |                                 | 1,234 |                  |  |                  | 6.3 |             |  | $              | 3.50  |  |  |          | 1,196 |  |  | $ | 3.50  | 
|$3.87  -  $4.31                      |  |                                 | 1,329 |                  |  |                  | 8.3 |             |  | $              | 4.16  |  |  |          | 396   |  |  | $ | 4.24  | 
|$4.37  -  $6.30                      |  |                                 | 780   |                  |  |                  | 8.3 |             |  | $              | 5.07  |  |  |          | 207   |  |  | $ | 5.41  | 
|$6.86  -  $34.38                     |  |                                 | 274   |                  |  |                  | 6.9 |             |  | $              | 10.21 |  |  |          | 214   |  |  | $ | 10.97 | 
|                                     |  |                                
|$2.63  -  $34.38                     |  |                                 | 3,825 |                  |  |                  | 7.5 |             |  | $              | 4.51  |  |  |          | 2,196 |  |  | $ | 4.51  | 
|                                     |  |                                

Fair Value Disclosures



| |  | Had compensation cost for the Companys stock-based compensation awards been
determined based on the fair value method consistent with the method
prescribed SFAS No. 123, the Companys net income (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |      | 
|------------------------------------ | ------------ | ------- | - | ------------------- | ----- | ---- | - | ------- | ----- | - | - | ------ | ---- | 
|                                     |              |         |   | Year Ended June 30,
|                                     |              |         |   |                    
|(in thousands except per share data) |              | 2002    |   | 2001                |       | 2000
|                                     |              |         |   |                     |       |     
|Net income (loss):                   |              |         |   |                     |       |      |   |         |       |   |   |       
|                                     | As reported  |         | $ | (35,651             | )     |      | $ | (43,640 | )     |   | $ | 68,107 |     
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     | Pro forma    |         | $ | (37,906             | )     |      | $ | (46,314 | )     |   | $ | 62,740 |     
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     
|Net income (loss) per share:         |              |         |   |                     |       |      |   |         |       |   |   |       
|                                     | As reported: |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     |              | Basic   |   | $                   | (2.66 | )    |   | $       | (3.33 | ) |   | $      | 5.07 | 
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     |              | Diluted |   | $                   | (2.66 | )    |   | $       | (3.33 | ) |   | $      | 4.43 | 
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     | Pro forma:   |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     |              | Basic   |   | $                   | (2.82 | )    |   | $       | (3.54 | ) |   | $      | 4.67 | 
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     
|                                     |              | Diluted |   | $                   | (2.82 | )    |   | $       | (3.54 | ) |   | $      | 4.08 | 
|                                     |              |         |   |                     |       |      |   |         |       |   |   |        |     

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 2002, 2001 and 1999,
respectively:

|                    |                                 |  |                     |              |      |  |      |              |   |  |  |              |  
|------------------- | ------------------------------- |  | ------------------- | ------------ | ---- |  | ---- | ------------ | - |  |  | ------------ | -
|                    |                                 |  | Year Ended June 30,
|                    |                                 |  |                    
|                    |                                 |  | 2002                |              | 2001 |  | 2000
|                    |                                 |  |                     |              |      |  |     
|Stock Options Plans |                                 |  |                     |              |      |  |      |              |   |  |  |             
|                    | Expected dividend yield         |  |                     |             |      |  |      |             |   |  |  |             |  
|                    | Expected stock price volatility |  |                     | 90           | %    |  |      | 80           | % |  |  | 65           | %
|                    | Risk-free interest rate         |  |                     | 3.92% - 4.97 | %    |  |      | 4.63% - 5.85 | % |  |  | 6.02% - 6.51 | %
|                    | Expected life (years)           |  |                     | 5            |      |  |      | 5            |   |  |  | 5            |  
|Stock Purchase Plan |                                 |  |                     |              |      |  |      |              |   |  |  |             
|                    | Expected dividend yield         |  |                     |             |      |  |      |             |   |  |  |             |  
|                    | Expected stock price volatility |  |                     | 80% - 92     | %    |  |      | 71% - 82     | % |  |  | 58% - 67     | %
|                    | Risk-free interest rate         |  |                     | 4.09% - 5.44 | %    |  |      | 4.38% - 5.37 | % |  |  | 6.37% - 7.06 | %
|                    | Expected life (years)           |  |                     | 0.5          |      |  |      | 0.5          |   |  |  | 0.5          |  



|    |  | Weighted average fair value of options granted were $3.26, $3.13 and $4.85
for fiscal years 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Stock Repurchases.There were no stock repurchases during fiscal year 2002.
During fiscal years 2001 and 2000, 734,000 and 680,000 shares of common
stock were repurchased for $7.7 million and $6.2 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|10. |  | Preferred Rights Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | On July 24, 1998, the Board adopted a Preferred Shares Rights Agreement
(Agreement) and pursuant to the Agreement authorized and declared a
dividend of one preferred share purchase right (Right) for each common
share outstanding of the Company on August 14, 1998. The Rights are
designed to protect and maximize the value of the outstanding equity
interests in the Company in the event of an unsolicited attempt by an
acquirer to take over the Company, in a manner or terms not approved by the
Board. Each Right becomes exercisable to purchase one-hundredth of a share
of Series A Preferred Stock of the Company at an exercise price of $50.00
and expire on July 23, 2008. The Company may redeem the Rights at a price
of $0.001 per Right.

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|11. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has two reportable segments: videographics and the digital
media segment. The majority of the Companys revenues and operating loss
was attributed to the videographics segment. For fiscal years ended June
30, 2002 and 2001, the digital media segment accounted for $6,222,000 and
$2,788,000 in revenues, respectively. As a percentage of revenues, for
fiscal years ended June 30, 2002 and 2001, the digital media segment
accounted for 6% and 2%, respectively. The digital media segment accounted
for $3,924,000 in operating loss for the fiscal year ended June 30, 2002.
At June 30, 2002 and 2001, the assets attributed to the digital media
segment were negligible.
|   
|    |  | The following is a summary of the Companys geographic operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                  |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |       |  |  |   |       |  |  |   |        |  |  |   |         | 
|----------------- | ----------------- | ------------- | - | ------ |  | ----- | - | --------- |  | ----- | - | ------ |  | ------------ | - | ----- |  |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|(in thousands)    |                   | United States |   | Taiwan |  | Japan |   | Hong Kong |  | China |   | Others |  | Consolidated
|                  |                   |               |   |        |  |       |   |           |  |       |   |        |  |             
|Fiscal Year 2002: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |       |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 347    |  |       | $ | 30,880    |  |       | $ | 61,550 |  |              | $ | 4,267 |  |  | $ | 2,483 |  |  | $ | 6,239  |  |  | $ | 105,766 | 
|                  | Long-lived assets |               |   | 2,339  |  |       |   | 499       |  |       |   |       |  |              |   | 15    |  |  |   | 1,857 |  |  |   |       |  |  |   | 4,710   | 
|Fiscal Year 2001: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |       |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 387    |  |       | $ | 61,029    |  |       | $ | 35,659 |  |              | $ | 6,809 |  |  | $ | 986   |  |  | $ | 14,089 |  |  | $ | 118,959 | 
|                  | Long-lived assets |               |   | 1,106  |  |       |   | 677       |  |       |   |       |  |              |   | 50    |  |  |   | 1,726 |  |  |   |       |  |  |   | 3,559   | 
|Fiscal Year 2000: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |       |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 1,217  |  |       | $ | 51,484    |  |       | $ | 33,008 |  |              | $ | 9,578 |  |  | $ | 2     |  |  | $ | 22,393 |  |  | $ | 117,682 | 
|                  | Long-lived assets |               |   | 2,172  |  |       |   | 494       |  |       |   |       |  |              |   | 10    |  |  |   | 1,225 |  |  |   |       |  |  |   | 3,901   | 



|    |  | Product sales are attributed to countries based on delivery locations.
Long-lived assets comprise property and equipment.                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|12. |  | Commitments and Concentration of Sales and Credit Risk                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | Building Leases.The Company leases facilities under noncancelable
operating lease agreements, which expire at various dates through 2006.
Rental expense for the years ended June 30, 2002, 2001 and 2000 was $2.5
million, $2.2 million and $2.8 million, respectively. Future minimum lease
payments under non-cancelable operating leases at June 30, 2002 were as
follows (in thousands):

|                             |      |   |       |       | 
|---------------------------- | ---- | - | ----- | ----- | 
|Years ending June 30:        |      |   |       |      
|                             |      |   |       |      
|                             | 2003 |   | $     | 2,000 | 
|                             | 2004 |   |       | 1,800 | 
|                             | 2005 |   |       | 1,500 | 
|                             | 2006 |   |       | 1,600 | 
|                             |      |   |       |      
|Total minimum lease payments |      | $ | 6,900 |      
|                             |      |   |       |      



| |  | Concentration of Sales and Credit Risks.Product sales to one customer, Inno
Micro, a supplier of Toshiba, accounted for 58% of product sales for the
fiscal year ended June 30, 2002. Product sales to three customers, Inno
Micro, which is a supplier of Toshiba, Quanta and Arima, which are suppliers
of Compaq, accounted for approximately 23%, 16% and 15% of product sales for
the fiscal year ended June 30, 2001, respectively. In the fiscal year ended
June 30, 2000, product sales to three customers, Compaq, Fujitsu and Toshiba
accounted for 18%, 11%, and 10% of product sales, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|    |  | principally of cash and cash equivalents, and trade accounts receivable.
The Company places its cash and cash equivalents primarily in market rate
accounts. The Company offers credit terms on the sale of its products to
certain customers. The Company performs ongoing credit evaluations of its
customers financial condition and, generally, requires no collateral from
its customers. The Company maintains an allowance for uncollectible
accounts receivable based upon the expected collectibility of all accounts
receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|13. |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On December 14, 1998, NeoMagic Corporation (NeoMagic) filed a patent
infringement lawsuit in the U.S. District Court, District of Delaware,
asserting infringement of two patents against the Company. On February 1,
2001, the Court granted summary judgment in favor of the Company that it did
not infringe either patent. Other motions for summary judgment relating to
damages issues remain unresolved. The Company expects the Court to enter
judgment in its favor. NeoMagic has appealed the summary judgment on its
infringement claims but the Company believes the appeal is premature. The
Company expects to move to dismiss the appeal unless the Court permits
NeoMagic to pursue the appeal before the Companys antitrust counterclaim is
resolved in the trial court. The Company asserted an antitrust counterclaim
against NeoMagic, seeking compensatory damages, trebled damages, costs and
attorney fees, which was stayed pending resolution of NeoMagics
infringement claims at the District Court level. After the District Court
granted summary judgment, the Company moved to lift the stay on its
antitrust counterclaim. The briefing on this motion is completed and the
parties are awaiting oral argument. On May 7, 2001, NeoMagic filed its
opening appeal brief. On May 17, 2001, the Company filed a motion to
dismiss NeoMagics appeal for lack of jurisdiction arguing that there is no
final appealable order and that the Companys antitrust counterclaim remains
pending. On June 15, 2001, the Company filed its opposition appeal brief
and renewed its request that the appeal be dismissed for lack of
jurisdiction. On July 2, 2001, NeoMagic filed its reply brief. On July 31,
2001, the Federal Circuit dismissed NeoMagics appeal without prejudice as
premature. NeoMagic subsequently moved the District Court to certify the
Companys summary judgment for immediate appeal pursuant to Federal Rules of
Civil Procedure Rule 54(b). That motion was granted, as was the Companys
motion to lift the stay on its antitrust counterclaim so it could take
limited discovery. On April 16, 2002, the Federal Circuit affirmed summary
judgment on NeoMagics 955 patent in favor of the Company. The Federal
Circuit affirmed portions of the district courts claim construction on
NeoMagics 806 patent, reversed others, and remanded the case to the
district court for further proceedings on the 806 patent. However, the
district court judge retired within days of the remand order, and the case
has been reassigned to a yet-to-be-confirmed new judge. In the meantime,
Magistrate Judge Thynge has agreed to hear new cross-motions for summary
judgment, probably in November. The Company continues to take discovery in
the district court on its antitrust counterclaim.
|   
|    |  | On May 26, 2000, NeoMagic filed a second patent infringement lawsuit in the
U.S. District Court, District of Delaware, asserting that the Company
infringes a patent issued in March 2000 that is related to the two patents
at issue in the first case. NeoMagic is seeking a permanent injunction,
damages, including enhanced damages, pre-judgment and post-judgment
interest, costs and attorney fees. This case was stayed pending resolution
of the first case, and was dismissed without prejudice in August, 2002 by
stipulation of the Parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In January 2001, FIC Corporations motion to add the Company as a
third-party defendant in a patent infringement case brought against FIC by
Intel Corporation in the U.S. District Court, Northern District of
California was denied. FIC had attempted to add the Company as a
third-party defendant because the Company allegedly supplied to FIC the
devices which Intel claims infringe its patents. FIC then demanded that the
Company assume FICs defense in the Intel action, which demand the Company
rejected. FIC settled its case with Intel and renewed its demand in March
2001, that the Company reimburse it for its costs of defense. The Company
rejected this demand, and FIC has threatened to file suit against the
Company seeking recovery of its costs of defense. Given the nature of
litigation and inherent uncertainties associated with litigation, management
cannot predict with certainty whether FIC will bring suit or the ultimate
outcome of any such litigation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | On April 26, 2001, the Company filed a lawsuit against VIA Technologies,
Inc. The Company alleged that VIA and S3 Graphics, together with former
Company engineering senior managers, conspired to misappropriate the
Companys trade secrets about products in development. The Company further
alleged that the corporate and individual defendants used the Companys
confidential information to systematically recruit key engineers away from
the Company as part of a scheme to gain a competitive advantage by
undermining the Companys product development and design win capabilities.
The Company also alleged that VIA and S3 Graphics may be planning to use the
Companys trade secrets to unfairly compete against the Company. The
Company requested both legal and equitable relief. The parties have settled
their disputes. As part of that settlement, the action was dismissed.                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On May 4, 2001, VIA Technologies, Inc. sued the Company in the U.S. District
Court, Northern District of California for breach of contract and related
claims arising out of the companies agreements with respect to the
manufacture and sale of Cbi-1 and Cbi-7 chipsets. The complaint seeks
payment in an unspecified amount (but later asserted to be approximately
$6.3 million) for 686,675 Cbi-7 chipsets the Company allegedly ordered but
did not pay for. On May 29, 2001, the Company answered and counterclaimed,
asserting claims for breach of the same agreements, interference with the
Companys relationships with its customers, and related claims. On July 9,
2001, the Company moved for a preliminary injunction to require VIA to
satisfy its agreements with the Company. At the August 13, 2001 scheduled
hearing on the Companys motion for preliminary injunction, the Court
continued the hearing to September 13 and ordered the parties to mediate
their dispute in the interim. The mediation was not successful, but the
Company nevertheless withdrew its motion for preliminary injunction.
Extensive discovery was undertaken, following which the case was settled on
May 24, 2002.
|
| |  | Statements regarding the possible outcome of litigation and our actions are
forward looking statements and actual outcomes could vary based upon future
developments on the litigation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

Interim Financial Information (Unaudited)



| |  | The following table contains selected unaudited consolidated statements of
operations data for each quarter of fiscal years 2001 and 2002. See Note 1
to the Consolidated Financial Statements for an explanation of the
computation of basic and diluted net income (loss) per share.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |                            |        |                           |  |       |        |      |  |           |         |          |  |       |        |      |  |   |         |   |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------- |  | -------------------------- | ------ | ------------------------- |  | ----- | ------ | ---- |  | --------- | ------- | -------- |  | ----- | ------ | ---- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                    |  | FISCAL 2001  QUARTER ENDED |        | FISCAL 2002 QUARTER ENDED
|                                    |  |                            |        |                           | 
|(in thousands                       |  | September                  |        | December                  |  | March |        | June |  | September |         | December |  | March |        | June
|except per share data)              |  | 2000                       |        | 2000                      |  | 2001  |        | 2001 |  | 2001      |         | 2001     |  | 2002  |        | 2002
|                                    |  |                            |        |                           |  |       |        |      |  |           |         |          |  |       |        |     
|Revenues                            |  | $                          | 36,057 |                           |  | $     | 35,052 |      |  | $         | 24,724  |          |  | $     | 32,393 |      |  | $ | 25,740  |   |  | $ | 30,178 |   |  | $ | 28,839 |   |  | $ | 21,009 |  
|Gross profit                        |  |                            | 9,390  |                           |  |       | 15,111 |      |  |           | 5,010   |          |  |       | 9,369  |      |  |   | 5,939   |   |  |   | 5,655  |   |  |   | 6,239  |   |  |   | 4,963  |  
|Net income (loss)                   |  |                            | 534    |                           |  |       | 4,105  |      |  |           | (50,646 | )        |  |       | 2,367  |      |  |   | (28,209 | ) |  |   | (3,334 | ) |  |   | (2,076 | ) |  |   | (2,032 | )
|Basic net income
(loss) per share   |  | $                          | 0.04   |                           |  | $     | 0.32   |      |  | $         | (3.87   | )        |  | $     | 0.18   |      |  | $ | (2.12   | ) |  | $ | (0.25  | ) |  | $ | (0.15  | ) |  | $ | (0.15  | )
|Diluted net income
(loss) per share |  | $                          | 0.04   |                           |  | $     | 0.29   |      |  | $         | (3.87   | )        |  | $     | 0.17   |      |  | $ | (2.12   | ) |  | $ | (0.25  | ) |  | $ | (0.15  | ) |  | $ | (0.15  | )

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Trident Microsystems, Inc.




POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Peter Jen as his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 27, 2002 by the following persons on
behalf of the registrant and in the capacities indicated.

|                                           |  |                                                                                                                 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|Signature                                  |  | Title                                                                                                           
|                                           |  |                                                                                                                 
|                                          
|/s/ Frank C. Lin

(Frank C. Lin)           |  | President, Chief Executive Officer and Chairman of the
Board (Principal Executive Officer)                      
|                                          
|/s/ Peter Jen

(Peter Jen)                 |  | Senior Vice President, Asia Operations and Chief
Accounting Officer (Principal Financial and Accounting
Officer)
|                                          
|/s/ Glen M. Antle

(Glen M. Antle)         |  | Director                                                                                                        
|                                          
|/s/ Yasushi Chikagami

(Yasushi Chikagami) |  | Director                                                                                                        
|                                          
|/s/ John Luke

(John Luke)                 |  | Director                                                                                                        
|                                          
|/s/ Millard Phelps

(Millard Phelps)       |  | Director                                                                                                        

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Trident Microsystems, Inc.




CERTIFICATIONS

I, Frank C. Lin, Chief Executive Officer of Trident Microsystems, Inc., the
Registrant, do hereby certify, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:

(1)  I have reviewed this Annual Report on Form 10-K of the Registrant, the
Report.

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

(3)  Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant,
as of, and for, the periods presented in the Report.



|                            |  |                                     
|--------------------------- |  | ------------------------------------
|Dated:   September 27, 2002 |  | /s/  FRANK C. LIN                   
|                            |  |                                     
|                            |  | Frank C. Lin
Chief Executive Officer





I, Peter Jen, the principal accounting officer of Trident Microsystems, Inc.,
the Registrant, do hereby certify, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, that:

(1)  I have reviewed this Annual Report on Form 10-K of the Registrant, the
Report.

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

(3)  Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant,
as of, and for, the periods presented in the Report.



|                            |  |                                                                  
|--------------------------- |  | -----------------------------------------------------------------
|Dated:   September 27, 2002 |  | /s/   PETER JEN                                                  
|                            |  |                                                                  
|                            |  | Peter Jen
Chief Accounting Officer
(Principal Accounting Officer)

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Trident Microsystems, Inc.




INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT

|         |  |                                                                                                                                                                                                                                                                                                                                                           |  |       
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------
|         |  |                                                                                                                                                                                                                                                                                                                                                           |  | Page  
|Exhibit  |  | Description                                                                                                                                                                                                                                                                                                                                               |  | Number
|         |  |                                                                                                                                                                                                                                                                                                                                                           |  |       
|        
|3.1      |  | Restated Certificate of Incorporation.(1)                                                                                                                                                                                                                                                                                                                 |  |       
|3.2      |  | Bylaws of Trident Delaware Corporation, a Delaware Corporation.(2)                                                                                                                                                                                                                                                                                        |  |       
|4.1      |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                                                                |  |       
|4.2      |  | Specimen Common Stock Certificate.(2)                                                                                                                                                                                                                                                                                                                     |  |       
|4.3      |  | Form of Rights Agreement between the Company and ChaseMellon Shareholder
Services, LLC, as Rights Agent (including as Exhibit A the form of
Certificates of Designation, Preferences and Rights of the Terms of the
Series A Preferred Stock, as Exhibit B the form of Right Certificate, and as
Exhibit C the Summary of Terms of Rights Agreement). (3) |  |       
|10.5(*)  |  | 1990 Stock Option Plan, together with forms of Incentive Stock Option
Agreement and Non-statutory Stock Option Agreement.(2)                                                                                                                                                                                                                              |  |       
|10.6(*)  |  | Form of the Companys Employee Stock Purchase Plan.(2)                                                                                                                                                                                                                                                                                                    |  |       
|10.7(*)  |  | Summary description of the Companys Fiscal 1992 Bonus Plan.(2)                                                                                                                                                                                                                                                                                           |  |       
|10.8(*)  |  | Form of the Companys Fiscal 1993 Bonus Plan.(2)                                                                                                                                                                                                                                                                                                          |  |       
|10.9(*)  |  | Summary description of the Companys 401(k) plan.(2)                                                                                                                                                                                                                                                                                                      |  |       
|10.10(*) |  | Form of Indemnity Agreement for officers, directors and agents.(2)                                                                                                                                                                                                                                                                                        |  |       
|10.12(*) |  | Form of Non-statutory Stock Option Agreement between the Company and Frank
C. Lin.(4)                                                                                                                                                                                                                                                                     |  |       
|10.13(*) |  | Form of 1992 Stock Option Plan amending and restating the 1990 Stock Option
Plan included as Exhibit 10.5.(2)                                                                                                                                                                                                                                             |  |       
|10.14    |  | Lease Agreement dated May 16, 2001 between the Company and iStar Financial ,
Inc. for the Companys principal offices located at 1090 East Arques Avenue,
Sunnyvale, California.(9)                                                                                                                                                                       |  |       
|10.15(*) |  | Form of Change of Control Agreement between the Company and Frank C. Lin.(9)                                                                                                                                                                                                                                                                              |  |       
|10.16    |  | Foundry Venture Agreement dated August 18, 1995 by and between the Company
and United Microelectronics Corporation.(5)(8)                                                                                                                                                                                                                                 |  |       
|10.17(*) |  | Form of 1998 Stock Option Plan which replaces the 1992 Stock Option Plan. (6)                                                                                                                                                                                                                                                                             |  |       
|21.1     |  | List of Subsidiaries.(7)                                                                                                                                                                                                                                                                                                                                  |  | 57    
|23.1     |  | Consent of Independent Accountants.(7)                                                                                                                                                                                                                                                                                                                    |  | 58    
|24.1     |  | Power of Attorney (7)                                                                                                                                                                                                                                                                                                                                     |  | 54    
|99.1     |  | Certification of Chief Executive Officer (7)                                                                                                                                                                                                                                                                                                              |  | 59    
|99.2     |  | Certification of Principal Accounting Officer (7)                                                                                                                                                                                                                                                                                                         |  | 60    



---

|(1) |  | Incorporated by reference from exhibit of the same number to
the Companys Annual Report on Form 10-K for the year ended June 30,
1993.                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference from exhibit of the same number to
the Companys Registration Statement on Form S-1 (File No.
33-53768), except that Exhibit 3.2 is incorporated from Exhibit 3.4.                  
|   
|   
|   
|   
|(3) |  | Incorporated by reference from exhibit 99.1 to the Companys
Report on Form 8-K filed August 21, 1998.                                                                                                        
|   
|   
|   
|   
|(4) |  | Incorporated by reference from exhibit of the same number to
the Companys Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.                                                                
|   
|   
|   
|   
|(5) |  | Incorporated by reference from exhibit of the same number to
the Companys Annual Report on Form 10-K for the year ended June 30,
1995.                                                                       
|   
|   
|   
|   
|(6) |  | Incorporated by reference to the Companys 1998 Employee
Stock Purchase Plan Individual Stock Option Agreements and 1996
Nonstatutory Stock Option Plan on Form S-8 filed April 23, 1999
(File No. 333-76895).
|   
|   
|   
|   
|(7) |  | Filed herewith.                                                                                                                                                                                               
|   
|   
|   
|   
|(8) |  | Confidential treatment has been requested for a portion of
this document.                                                                                                                                     
|   
|   
|   
|   
|(9) |  | Incorporated by reference from exhibit of the same number to
the Companys Annual Report on Form 10-K for the year ended June 30,
2001                                                                        
|   
|   
|   
|   
|    |  | (*) Management contracts or compensatory plans or arrangements
covering executive officer directors of the Company.                                                                                           

56